EXHIBIT 10
GUARANTY
(Xxxxxxx X. Xxxxxxxxx)
This Guaranty dated as of July 16, 1997 (this "Agreement"), is made by
XXXXXXX X. XXXXXXXXX (the "Guarantor") in favor of ENRON CAPITAL & TRADE
RESOURCES CORP. (the "Investor").
INTRODUCTION
Reference is made to the Articles of Amendment of the Kafus Capital
Corporation, a British Columbia corporation ("Kafus"), filed on July 15, 1997
(the "Preference Shares Designation"), amending the Articles of Incorporation of
Kafus to designate the Series I 10% Convertible Redeemable Preference Shares
("Preference Shares") of Kafus and to the related Subscription Agreement dated
as of July 16, 1997 (the "Subscription Agreement"), between Kafus and the
Investor under which the Investor is purchasing certain of the Preference Shares
from Kafus, the defined terms of which are used herein unless otherwise defined
herein. The Guarantor owns substantial interests in Kafus and believes that the
purchase of such Preference Shares will provide substantial direct and indirect
benefit to the Guarantor. Therefore, to induce the Investor to enter into the
Subscription Agreement and to purchase such Preference Shares and for other good
and valuable consideration, the receipt and sufficiency which are hereby
acknowledged, the Guarantor hereby agrees as follows:
Section 1. Guaranty.
1.1 The Guarantor irrevocably guarantees to the Investor the full
payment when due of all present and future obligations of Kafus to the Investor
under Section 3.0 of the Preference Shares Designation (Redemption), whether or
not Kafus has obtained relief from such obligations under bankruptcy or other
laws providing for relief from creditors, and (b) any increases, extensions, and
rearrangements of the foregoing obligations under any amendments, supplements,
and other modifications of the Preference Shares Designation (collectively, the
"Guaranteed Obligations"). This is a guaranty of payment and not merely a
guaranty of collection, and the Guarantor is liable as a primary obligor. If
any of the Guaranteed Obligations are not punctually paid when due, the
Guarantor shall immediately pay the same to the Investor. The Guarantor shall
make each payment owed to the Investor under this Agreement to the Investor in
U.S. Dollars in immediately available funds as directed by the Investor. The
Investor is hereby authorized at any time following any demand for payment
hereunder to set off and apply any indebtedness owed by the Investor to the
Guarantor against any and all of the obligations of the Guarantor under this
Agreement. The Investor agrees to promptly notify the Guarantor after any
such setoff and application, but the failure to give such notice shall not
affect the validity of such setoff and application.
1.2 Notwithstanding the foregoing, in any action by the Investor to
enforce performance by the Guarantor under this Agreement, the Investor shall
not have any right to seek recourse against or otherwise enforce any judgment
against, or against the rights of the Guarantor in, The Swaisland Family Trust
(as described in the letter dated July 15, 1997, by KPMG to the Guarantor and
provided to the Investor) and in the shares of Samarac Trading and Development
Corporation and Samarac Development Corporation owned by such trust. Nothing in
this Section 1.2 shall be deemed to limit the rights of the Investor against the
Guarantor or any other assets of the Guarantor.
Section 2. Guaranty Absolute.
2.1 This Agreement shall be deemed accepted by the Investor upon
receipt, and the Guarantor's obligations under this Agreement are effective
immediately and are continuing and cover all Guaranteed Obligations arising
prior to and after the date hereof. This Agreement may not be revoked by the
Guarantor and shall continue to be effective with respect to Guaranteed
Obligations arising or created after any attempted revocation by the Guarantor.
2.2 The Guarantor guarantees that the Guaranteed Obligations will be
paid strictly in accordance with the terms of the Preference Shares Designation,
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 Investor with
respect thereto. The Guarantor agrees that the Guarantor's obligations under
this Agreement shall not be released, diminished, or impaired by, and waives any
rights which the Guarantor might otherwise have which relate to:
(a) Any lack of validity or enforceability of the Guaranteed
Obligations, the Preference Shares Designation, or any other agreement or
instrument relating thereto;
(b) Any increase, reduction, extension, or rearrangement of the
Guaranteed Obligations, any amendment, supplement, or other modification of the
Preference Shares Designation, any waiver or consent granted under the
Preference Shares Designation, including waivers of the payment of the
Guaranteed Obligations, or any sale, assignment, delegation, or other transfer
of the Guaranteed Obligations or the Preference Shares Designation or the
securities sold thereunder;
(c) Any grant of any security or support for the Guaranteed
Obligations, including any pledge of collateral for the Guaranteed Obligations
or any person guaranteeing or otherwise becoming liable for the payment of the
Guaranteed Obligations;
2
(d) Any impairment of any security or support for the Guaranteed
Obligations, including any full or partial release, exchange, subordination, or
waste of any collateral for the Guaranteed Obligations or any full or partial
release of Kafus, any Guarantor, or any other Person liable for the payment of
the Guaranteed Obligations;
(e) Any change in the organization or structure of Kafus, any
Guarantor, or any other Person liable for the payment of the Guaranteed
Obligations; or the insolvency, bankruptcy, liquidation, or dissolution of Kafus
or any other Person liable for the payment of the Guaranteed Obligations;
(f) The failure to apply or any manner of applying payments or the
proceeds of any security or support for the Guaranteed Obligations against the
Guaranteed Obligations;
(g) The failure to give notice of the occurrence of any of the events
or actions referred to in this Section 2.2 or notice of any default or event of
default, however denominated, under the Preference Shares Designation, notice of
intent to accelerate, notice of acceleration, notice of presentment for payment,
notice of nonpayment, notice of protest, notice of grace, notice of dishonor,
notice of bringing of action to enforce the payment of the Guaranteed
Obligations, notice of any sale or foreclosure of any collateral for the
Guaranteed Obligations, notice of any transfer of the Guaranteed Obligations,
notice of the transfer of this Agreement, notice of the financial condition of
or other circumstances regarding Kafus, any Guarantor, or any other Person
liable for the Guaranteed Obligations, or any other notice of any kind relating
to the Guaranteed Obligations; or
(h) Any other action taken or omitted which affects the Guaranteed
Obligations, whether or not such action or omission prejudices the Guarantor or
increases the likelihood that the Guarantor will be required to pay the
Guaranteed Obligations pursuant to the terms hereof--it is the unambiguous and
unequivocal intention of the Guarantor that the Guarantor shall be obligated to
pay the Guaranteed Obligations when due, notwithstanding any occurrence,
circumstance, event, action, or omission whatsoever, whether contemplated or
uncontemplated, and whether or not particularly described herein.
2.3 This Agreement shall continue to be effective or be reinstated,
as the case may be, if any payment on the Guaranteed Obligations must be
refunded for any reason including any bankruptcy proceeding. In the event that
the Investor must refund any payment received against the Guaranteed
Obligations, any prior release from the terms of this Agreement given to the
Guarantor by the Investor shall be without effect, and this Agreement shall be
reinstated in full force and effect. It is the intention of the Guarantor that
the Guarantor's obligations hereunder shall not be discharged except by final
payment of the Guaranteed Obligations.
Section 3. Unimpaired Collection.
3
3.1 There are no conditions precedent to the enforcement of this
Agreement, except as expressly contained herein. It shall not be necessary for
the Investor, in order to enforce payment by the Guarantor under this Agreement,
to show any proof of Kafus's default, to exhaust the Investor's remedies against
Kafus, any Guarantor, or any other Person liable for the payment of the
Guaranteed Obligations, to enforce any security or support for the payment of
the Guaranteed Obligations, or to enforce any other means of obtaining payment
of the Guaranteed Obligations. The Guarantor waives any rights under the laws of
Canada or any Province thereof regarding suretyship or other similar statutory
rights related to the foregoing. The Investor shall not be required to mitigate
damages or take any other action to reduce, collect, or enforce the Guaranteed
Obligations.
3.2 The Guarantor hereby agrees that all Subordinated Obligations of
the Guarantor (as defined below) shall be subordinate and junior in right of
payment and collection to the payment and collection in full of all Guaranteed
Obligations as described below:
(a) As used herein, the term "Subordinated Obligations" for the
Guarantor means: (i) all present and future indebtedness, liabilities, and
obligations of any kind owed by Kafus or any of its Subsidiaries to the
Guarantor, including debt obligations, equity obligations, and other contractual
obligations requiring payments of any kind to be made to the Guarantor and
including any right of subrogation (including any statutory rights of
subrogation under Section 509 of the Bankruptcy Code, 11 U.S.C. (S) 509, or
under any applicable provisions of bankruptcy or insolvency laws in Canada or
any Province thereof), contribution, indemnification, reimbursement,
exoneration, or any right to participate in any claim or remedy of the Investor
against Kafus, any Guarantor, or any Person liable for the payment of the
Guaranteed Obligations, or any collateral which the Investor now has or may
acquire, and (ii) any increases, extensions, and rearrangements of the foregoing
obligations under any amendments, supplements, and other modifications of the
documents and agreements creating the foregoing obligations.
(b) Until all Guaranteed Obligations have been irrevocably paid in
full (and therefore the payment thereof is no longer subject to being set aside
or returned under the law), the Guarantor shall not take any action to enforce
payment of the Subordinated Obligations of the Guarantor, but the standstill set
forth in this paragraph (b) is not intended as a permanent waiver of any
Subordinated Obligations nor shall it limit the right of the Guarantor to accept
and receive payments not otherwise restricted hereunder (and therefore subject
to the limitations in paragraphs (c) and (d) below).
(c) Upon any receivership, insolvency proceeding, bankruptcy
proceeding, assignment for the benefit of creditors, reorganization, arrangement
with creditors, sale of assets for creditors, dissolution, liquidation, or
marshaling of assets of Kafus, all amounts due with respect to the Guaranteed
Obligations shall be irrevocably paid in full before the Guarantor shall be
entitled to collect or receive any payment with respect to the Subordinated
Obligations of the Guarantor, and all payments to which the Guarantor would be
entitled to collect or receive on the
4
Subordinated Obligations of the Guarantor shall be paid over to the Investor for
application to the Guaranteed Obligations until irrevocably paid in full.
(d) Following notice from the Investor to Kafus that a default under
the Preference Shares Designation has occurred and is continuing and that no
further payments shall be made on the Subordinated Obligations of the Guarantor,
all amounts due with respect to the Guaranteed Obligations shall be paid in full
before the Guarantor shall be entitled to collect or receive any payment with
respect to the Subordinated Obligations of the Guarantor.
(e) Any lien, security interest, or assignment securing the repayment
of the Subordinated Obligations of the Guarantor shall be fully subordinate to
any lien, security interest, or assignment in favor of the Investor which
secures the Guaranteed Obligations. At the request of the Investor, the
Guarantor will take any and all steps necessary to fully evidence the
subordination granted hereunder, including amending or terminating financing
statements and executing and recording subordinations of liens.
(f) This is an absolute and irrevocable agreement of subordination and
the Investor may, without notice to the Guarantor, take any action described in
Section 2.2 without impairing or releasing the obligations of the Guarantor
hereunder.
(g) The Guarantor shall not assign or otherwise transfer to any Person
any interest in the Subordinated Obligations of the Guarantor without prior
written notice to the Investor and obtaining the written assumption by the
transferee of the subordination provisions of this Section 3.2 with respect to
the Subordinated Obligations that are the subject of the transfer.
(h) If any amount shall be paid to the Guarantor in violation of this
Section 3.2, such amount shall be held in trust for the benefit of the Investor
and immediately turned over to the Investor, with any necessary endorsement, to
be applied to the Guaranteed Obligations.
Section 4. Miscellaneous.
4.1 In connection with maintaining sufficient assets to fulfil the
obligations of the Guarantor under this Agreement, the Guarantor agrees as
follows:
(a) The Guarantor shall maintain ownership of 100% of the issued and
outstanding equity securities of The Samarac Corporation Ltd.;
(b) The Guarantor shall cause The Samarac Corporation Ltd. or the
Guarantor to maintain ownership of and not terminate or replace the existing
management agreement between The CanFibre Group Ltd. and The Samarac Corporation
Ltd. entered into in December of 1994 providing for monthly management fees and
an annual bonus of 10% of the consolidated pretax income of The CanFibre Group
Ltd.; and
5
(c) The Guarantor shall not transfer any assets owned by the Guarantor
to The Swaisland Family Trust or to Samarac Trading and Development Corporation
or Samarac Development Corporation.
4.2 If the Guarantor shall breach any of the terms of this Agreement,
including Section 4.1 hereof, the Guarantor shall at the request of the Investor
deposit cash collateral for the contingent obligations of the Guarantor under
this Agreement in the amount of 100% of the maximum contingent liability of the
Guarantor hereunder in a cash collateral account controlled by the Investor that
is pledged to the Investor to secure the obligations of the Guarantor under this
Agreement. In connection therewith, the Guarantor shall execute any documents
and agreements reasonably requested by the Investor to accomplish the foregoing.
4.3 The Guarantor shall pay to the Investor on demand all out-of-
pocket costs and expenses of the Investor in connection with the preservation or
enforcement of the Investor's rights under this Agreement, whether through
negotiations, legal proceedings, or otherwise, including reasonable fees and
expenses of counsel for the Investor. The provisions of this paragraph shall
survive any purported termination of this Agreement that does not expressly
reference this paragraph.
4.4 The Guarantor agrees to protect, defend, indemnify, and hold
harmless the Investor and its shareholders, directors, officers, employees,
agents, and attorneys (collectively, the "Indemnified Parties"), from and
against all demands, claims, actions, suits, damages, judgments, fines,
penalties, liabilities, and costs and expenses, including reasonable out-of-
pocket costs of attorneys and related costs of experts such as accountants
(collectively, the "Indemnified Liabilities"), actually incurred by the
Indemnified Parties which are brought by third parties and are related to any
litigation or proceeding relating to this Agreement or the transactions
contemplated thereunder, INCLUDING INDEMNIFIED LIABILITIES CAUSED BY ANY
INDEMNIFIED PARTIES' OWN NEGLIGENCE, but not Indemnified Liabilities which are a
result of any Indemnified Parties' gross negligence or willful misconduct or
negligence in the handling of money. The provisions of this paragraph shall
survive any purported termination of this Agreement that does not expressly
reference this paragraph.
4.5 This Agreement shall be governed by the internal laws of British
Columbia, Canada (without reference to principles of conflicts of laws). If any
provision in this Agreement is held to be unenforceable, such provision shall be
severed and the remaining provisions shall remain in full force and effect. All
representations, warranties, and covenants of the Guarantor 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 Investor demands payment
therefor. The Investor's remedies under this Agreement, the Preference Shares
Designation, and any other documents and agreements shall be cumulative, and no
delay in enforcing such rights shall act as a waiver thereof. The provisions of
this Agreement may be waived or amended only in a writing signed by the party
against whom
6
enforcement is sought. This Agreement shall bind and inure to the benefit of
the Guarantor and the Investor and their respective successors and assigns. The
Guarantor may not assign its rights or delegate its duties under this Agreement.
The Investor may not assign its rights or delegate its duties under this
Agreement except to an affiliate. This Agreement may be executed in multiple
counterparts each of which shall constitute one and the same agreement. Unless
otherwise specified, all notices and other communications between the Guarantor
and the Investor provided for in this Agreement shall be in writing, including
telecopy, and delivered or trans mitted to the addresses set forth below, or to
such other address as shall be designated by the Guarantor or the Investor 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 Guarantor or the Investor,
as the case may be.
If to the Guarantor:
Enron Capital & Trade Resources Corp.
0000 Xxxxx Xxxxxx
Xxxxxxx, Xxxxx 00000
Attn: Xxxx Xxxxxxxxx
telephone: 000-000-0000
telecopier: 000-000-0000
If to the Investor:
Xxxxxxx X. Xxxxxxxxx
c/o The Kafus Capital Corporation
000-0000 Xxxxxx Xxxxxx
Xxxxxxxxx, Xxxxxxx Xxxxxxxx X0X 0X0
telephone: 000-000-0000
telecopier: 604-685-2426
[The remainder of this page is intentionally blank]
7
THIS WRITTEN AGREEMENT, THE PREFERENCE SHARES DESIGNATION, AND THE RELATED
DOCUMENTS REPRESENT THE FINAL AGREEMENT BETWEEN THE PARTIES AND MAY NOT BE
CONTRADICTED BY EVIDENCE OF PRIOR, CONTEMPORANEOUS, OR SUBSEQUENT ORAL
AGREEMENTS OF THE PARTIES.
THERE ARE NO UNWRITTEN ORAL AGREEMENTS BETWEEN THE PARTIES.
EXECUTED as of the date first above written.
GUARANTOR:
/s/ Xxxxxxx X. Xxxxxxxxx
-----------------------------
Xxxxxxx X. Xxxxxxxxx
8
