EXHIBIT 12
DEFERRED PAYMENT
PURCHASE AGREEMENT
This Deferred Payment Purchase Agreement dated as of June 1, 1997
("Agreement"), is made by The Kafus Capital Corporation ("Kafus") in favor of
Enron Capital & Trade Resources Corp. ("Lender").
INTRODUCTION
This Agreement is made by Kafus in connection with the Subordinated Loan
Agreement dated as of June 1, 1997 (as modified from time to time, the
"Subordinated Loan Agreement"), between CanFibre of Riverside, Inc.
("Borrower"), and the Lender. The effectiveness of this Agreement is a
condition precedent to the effectiveness of the Subordinated Loan Agreement and
the extension of credit to the Borrower provided thereunder. As the Borrower is
a subsidiary of Kafus, Kafus believes that it will receive substantial benefit
from such credit extended to the Borrower by the Lender. Therefore, to induce
the Lender to enter into the Subordinated 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 in Appendix A to the Trust Indenture dated as
of June 1, 1997 (as modified from time to time, the "Indenture") made by the
California Pollution Control Finance Authority in favor of BNY Western Trust
Company under which certain bonds are being issued for the benefit of the
Borrower (but without amendment thereto after the date of this Agreement unless
approved by the Lender in writing). As used herein, the following terms shall
have the following meanings:
"Eligible Deferred Payment" means any payment of principal on the
Subordinated Loan under, and as defined in, the Subordinated Loan Agreement for
which the due date has been deferred pursuant to Section 3.4(b) of the
Subordinated Loan Agreement, or for which the due date has been accelerated
pursuant to Section 7.2 of the Subordinated Loan Agreement, if one year after
the date of deferral or acceleration the Borrower has not made payments of
principal on the Subordinated Loan in an amount at least equal to the amount of
the principal payment for which the due date was deferred or the amount of the
principal payment which was accelerated.
Section 2. Purchase Agreement; Guaranty.
2.1 Upon demand by the Lender, Kafus shall (a) purchase any Eligible
Deferred Payment for a price equal to the principal amount of such Eligible
Deferred Payment, payable in U.S. Dollars, and (b) forgive the payment of such
Eligible Deferred Payment in favor of the Borrower. Kafus shall make payment to
the Lender
within five business days after presentation to Kafus of an assignment and
termination document in form sufficient to accomplishing the foregoing.
2.2 Kafus irrevocably guarantees to the Lender that the Lender shall have
received from the Borrower the payment of each Eligible Deferred Payment, and
shall pay to the Lender upon demand the amount of such Eligible Deferred
Payment. This is a guaranty of payment and not merely a guaranty of collection,
and Kafus is liable as a primary obligor. Prior to making any claim under the
guaranty provided in this Section 2.2, Kafus must have failed to purchase upon
demand under Section 2.1.
Section 3. Method of Payment. Kafus shall make each payment to the Lender in
shares of the common stock of Kafus issued to the Lender and applied to the
obligations of Kafus hereunder with the value of the shares to be used in such
application determined based upon the Price (as defined below) applicable at the
time of payment. As used herein, the "Price" with respect to the common stock of
Kafus means, on any day, (i) 75% of the preceding 20-day average of the reported
"high" and "low" sales prices for such shares as reported (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 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 75% of the value of one share of
common stock, as determined in good faith by the disinterested members of the
board of directors of Kafus. In the event Lender elects to receive shares of
common stock of Kafus as described herein, Kafus shall deliver to Lender
certificates representing the number of fully paid and nonassessable shares of
common stock determined in accordance with this Section, and Kafus and Lender
shall concurrently enter into a Registration Rights Agreement with respect to
such shares, which shall be in form and substance satisfactory to Lender and
shall provide Lender with rights and privileges comparable to those set forth in
the Registration Rights Agreement executed as of the date hereof between Kafus
and Lender (and the other Purchasers, as defined therein). 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 4. Obligations Absolute.
4.1 Kafus guarantees that Eligible Deferred Payments will be paid strictly
in accordance with the terms of this Agreement, 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 Kafus's obligations under this Agreement shall not be released,
diminished, or impaired by, and waives any rights which Kafus might otherwise
have which relate to:
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(a) Any lack of validity or enforceability of the Eligible Deferred Payment
or any other document or agreement relating thereto; any increase, reduction,
extension, or rearrangement of the Eligible Deferred Payments; any amendment,
supplement, or other modification of the documents and agreements relating to
the Eligible Deferred Payments; any waiver or consent granted under the
documents and agreements relating to the Eligible Deferred Payments; or any
sale, assignment, delegation, or other transfer of the Eligible Deferred
Payments or the documents and agreements relating thereto;
(b) Any grant of any security or support for the Eligible Deferred Payments
or any impairment of any security or support for the Eligible Deferred Payments,
including any full or partial release, exchange, subordination, or waste of any
collateral for the Eligible Deferred Payments or any full or partial release of
the Borrower or any other Person liable for the payment or performance of the
Eligible Deferred Payments;
(c) Any change in the organization or structure of the Borrower, Kafus, or
any other Person liable for the payment or performance of the Eligible Deferred
Payments, or the insolvency, bankruptcy, liquidation, or dissolution of the
Borrower, Kafus, or any other Person liable for the payment or performance of
the Eligible Deferred Payments;
(d) The manner of applying payments on the Eligible Deferred Payments or
the proceeds of any security or support for the Eligible Deferred Payments
against the Eligible Deferred Payments;
(e) The failure to give notice of the occurrence of any default or event of
default, however denominated, under the documents and agreements relating to the
Eligible Deferred Payments, notice of bringing of action to enforce the payment
or performance of the Eligible Deferred Payments, notice of any sale or
foreclosure of any collateral for the Eligible Deferred Payments, notice of the
financial condition of or other circumstances regarding the Borrower, Kafus, or
any other Person liable for the Eligible Deferred Payments, or any other notice
of any kind relating to the Eligible Deferred Payments; or
(f) Any other action taken or omitted which affects the Eligible Deferred
Payments, whether or not such action or omission prejudices Kafus or increases
the likelihood that Kafus will be required to pay the Eligible Deferred Payments
pursuant to the terms hereof--it is the unambiguous and unequivocal intention of
Kafus that Kafus shall be obligated to pay the Eligible Deferred Payments 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.
4.2 This Agreement shall continue to be effective or be reinstated, as the
case may be, if any payment on the Eligible Deferred Payments must be refunded
for any reason including any bankruptcy proceeding. In the event that the
Lender must
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refund any payment received against the Eligible Deferred Payments, 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 Eligible Deferred Payments.
Section 5. Unimpaired Collection.
5.1 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 Borrower's default, to exhaust the Lender's remedies against
the Borrower or any other Person liable for the payment or performance of the
Eligible Deferred Payments, to enforce any security or support for the payment
or performance of the Eligible Deferred Payments, or to enforce any other means
of obtaining payment or performance of the Eligible Deferred Payments. The
Lender shall not be required to mitigate damages or take any other action to
reduce, collect, or enforce the Eligible Deferred Payments.
Section 6. Miscellaneous.
6.1 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.
6.2 (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 Eligible Deferred Payments 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.
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(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.
6.3 This Agreement shall be governed by the internal laws of the Province
of British Columbia, Canada (without reference to principles of conflicts of
laws). 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.
Section 6.4 Notices. 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
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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: Xxxx X. Xxxxxxxxx
Telecopy No.: 000-000-0000
(b) To Kafus, to:
The Kafus Capital Corporation
000-0000 Xxxxxx Xx.
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 SUBORDINATED LOAN DOCUMENTS AS DEFINED IN THE
SUBORDINATED LOAN AGREEMENT 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.
THE KAFUS CAPITAL CORPORATION
By: /s/ Xxxxxxx X. Xxxxxxxxx
-------------------------
Name: Xxxxxxx X. Xxxxxxxxx
---------------------
Title: President
----------
ENRON CAPITAL & TRADE RESOURCES CORP.
By: /s/ J. Xxxxx XxXxxxxxxx
-------------------------
Name: J. Xxxxx XxXxxxxxxx
--------------------
Title: Vice President
---------------
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