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EXHIBIT 1
[Execution Version]
AMENDMENT TO NOTE AGREEMENTS
This Amendment to Note Agreements dated as of June 5, 2000 (this
"Agreement"), is entered into by Kafus Industries Ltd. f/k/a Kafus Environmental
Industries Ltd., a British Columbia corporation (the "Company"), Sundance
Assets, L.P., a Delaware limited partnership ("Sundance"), ENA CLO I Holding
Company I L.P. ("Holdco"), and ECT Merchant Investments Corp., a Delaware
corporation ("ECTMI;" and together with Sundance and Holdco, the "Purchasers").
Reference is made to the Amended and Restated Note Agreement dated as of March
11, 1999 (the "Sundance Note Agreement"), between the Company and Sundance, and
to the Amended and Restated Note Agreement dated as of March 11, 1999 (the
"ECTMI/Holdco Note Agreement;" and together with the Sundance Note Agreement,
the "Note Agreements"), between the Company and ECTMI, certain rights under
which have been assigned to Holdco. Capitalized terms used herein but not
defined herein shall have the meanings specified by the Note Agreements.
INTRODUCTION
The Company and ECTMI have agreed that the Company shall issue and sell
and ECTMI shall purchase, on the terms and conditions set forth below, the
$1,000,000 Convertible Promissory Note (Term Loan D) (the "Term Loan D Note")
and the related Warrants for 100,000 shares of common stock of the Company (the
"Term Loan D Warrants").
The Company and the Purchasers have also agreed to amend Section
4.3(b)(vii) of the Note Agreements, allowing certain unsecured subordinated
indebtedness in an amount not to exceed U.S. $5,000,000, as previously increased
to U.S. $24,000,000 by the verbal consent of the Purchasers, to reflect such
consent.
In consideration of the foregoing, and for other good and valuable
consideration, the Company and the Purchasers hereby agree as follows:
Section 1. Amendments to the Sundance Note Agreement.
1.1 The definition of "Notes" contained in the Sundance Note Agreement is
hereby amended by deleting the first paragraph of such definition in
its entirety and replacing it with the following:
"Notes" means, with respect to the Purchaser (i) 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
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pursuant to the Assignment dated as of March 1, 1999, between Ponderosa
as assignor and the Purchaser as assignee, and (ii) the $1,000,000
Convertible Promissory Note (Term Loan D) dated as of June 5, 2000 (the
"$1,000,000 Term Loan D Note"), made by the Company and payable to
ECTMI, and with respect to the Purchasers, the foregoing instruments
together with:
1.2 Section 2 of the Sundance Note Agreement is hereby amended by
inserting, in appropriate alphabetical order, the following Section
2.6:
2.6 $1,000,000 Term Loan D Note. Effective on June 5, 2000, the
Company has issued the $1,000,000 Term Loan D Note to ECTMI,
in exchange for the commitment of ECTMI to make advances
thereunder.
Section 2. Amendments to the ECTMI/Holdco Note Agreement.
2.1 The definition of "Notes" contained in the ECTMI/Holdco Note Agreement
is hereby amended by inserting, in appropriate alphabetical order, the
following paragraph (e):
(e) the $1,000,000 Convertible Promissory Note (Term Loan D) dated
as of June 5, 2000 (the "$1,000,000 Term Loan D Note"), made
by the Company and payable to the Purchaser.
2.2 The definition of "Registration Rights Agreement" contained in the
ECTMI/Holdco Note Agreement is hereby amended by deleting such
definition in its entirety and replacing it with the following:
"Registration Rights Agreement" means, individually or collectively (a)
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 the Notes described therein
and the exercise of the warrants described therein, and (b) the
Registration Rights Agreement dated as of June 5, 2000, between the
Company and the Purchaser providing for the registration of the Common
Stock issuable upon conversion of the $1,000,000 Term Loan D Note and
the exercise of the warrants described therein.
2.3 Section 2 of the Sundance Note Agreement is hereby amended by
inserting, in appropriate alphabetical order, the following Section
2.6:
2.6 $1,000,000 Term Loan D Note.
(a) Effective on the date of this Agreement and in exchange
for the commitment to advance the loan under the $1,000,000 Term Loan D
Note as provided for herein, the Company will issue and sell to the
Purchaser and, in reliance upon (i) the representations and warranties
of the Company contained herein and in the Warrant Agreement, and in
the other Loan Documents and (ii) the agreements of the Company
contained in the Release of Claims dated as of even date herewith made
by the Company in favor of ECTMI and its Affiliates (which agreement
constitutes
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a "Loan Document" hereunder), Purchaser will purchase from the Company
the $1,000,000 Term Loan D Note and the Term Loan D Warrant (as defined
in the Warrant Agreement). The allocation of the purchase price of the
$1,000,000 Term Loan D Note and the Term Loan D Warrants shall be
determined in accordance with Section 2(b) of the Warrant Agreement.
(b) Subject to the terms and conditions set forth herein, the
Purchaser agrees to advance the face amount of the $1,000,000 Term Loan
D Note to the Company on the date of the requested advance. The
outstanding principal amount of the $1,000,000 Term Loan D Note may not
exceed the face amount of the $1,000,000 Term Loan D Note. The
$1,000,000 Term Loan D Note is not revolving; therefore, amounts
advanced thereunder may not be reborrowed.
(c) The advance of principal under the $1,000,000 Term Loan D
Note shall be made by the Purchaser to the Company upon submission of a
written borrowing request provided by the Company to the Purchaser by
10:00 a.m., Houston, Texas, time) on the date of the requested advance.
The written borrowing request shall certify the use for the proceeds of
the advance, state that the conditions precedent for such advance under
paragraph (d) below have been satisfied, and be in a form reasonably
satisfactory to the Purchaser.
(d) The Purchaser's obligation to advance principal under the
$1,000,000 Term Loan D Note is subject to the following conditions
precedent:
(i) The Purchaser shall have received a written borrowing
request from the Company in accordance with paragraph (c) above; and
(ii) The representations and warranties set forth in the
Loan Documents shall be true and correct as of the date of the advance
except as otherwise disclosed to the Purchasers in writing.
Section 3. Amendments to the Note Agreements.
3.1 Section 4.3 (viii) of the Note Agreements is hereby amended by deleting
such Section in its entirety and replacing it with the following:
(vii) Debt in the form of unsecured subordinated indebtedness of the
Company for borrowed money that is expressly subordinated on the terms
set forth on Schedule I hereto, or on other terms reasonably acceptable
to the Majority Purchasers, not to exceed U.S. $24,000,000;
3.2 The Note Agreements are hereby modified by incorporating Schedule I
hereto as Schedule I to the Note Agreements.
3.3 Section 5.1 of the Note Agreements is hereby amended by inserting, in
appropriate alphabetical order, the following paragraph (h):
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(h) The Company shall fail to deliver to ECT Merchant
Investments Corp., on or before June 16, 2000, all items specifically
designated as "post-closing" on the Closing Documents list dated June
5, 2000, each in form and substance satisfactory to the Purchasers.
Section 4. Representations and Warranties. The Company represents and
warrants to each Purchaser that upon the effectiveness of this
Agreement and the amendment of the Note Agreements as provided
for herein, all representations and warranties set forth in
the Loan Documents shall be true and correct in all material
respects except as otherwise disclosed to the Purchasers in
writing.
Section 5. Effect on Loan Documents.
5.1 Except as amended herein, the Note Agreements and the other Loan
Documents remain in full force and effect. The Company further agrees
that nothing herein shall act as a waiver of any of the Purchasers'
rights under the Loan Documents as amended, including any waiver of any
default or event of default, however denominated. The Company must
continue to comply with the terms of the Loan Documents, as amended.
5.2 This Agreement is a Loan Document for the purposes of the provisions of
the other Loan Documents. Without limiting the generality of the
foregoing, any breach of representations, warranties, and covenants
under this Agreement shall be a default and event of default for the
purposes of all other Loan Documents.
Section 6. Effectiveness. Upon delivery, or waiver thereof by the
Purchasers, of all items (other than those specifically
designated as "post-closing") listed on the Closing Documents
list dated of even date herewith, all of which must be in form
and substance satisfactory to the Purchasers, this Agreement
shall become effective and the Note Agreements shall be
amended as provided herein effective as of the date first set
forth above when the Company and the Purchasers shall have
duly and validly executed originals of this Agreement, and the
Company shall have delivered the same to ECTMI.
Section 7. Miscellaneous.
7.1 Expenses. The Company shall pay directly or reimburse the Purchasers
for all reasonable expenses of the Purchasers, including charges and
disbursements of legal counsel for the Purchasers, in connection with
the amendment, modification, waiver, or interpretation of this
Agreement and the other Loan Documents, and the preservation or
enforcement of any rights of the Purchasers hereunder or thereunder,
including the expenses of the Purchasers prior to the execution of this
Agreement or the other Loan Documents. The provisions of this paragraph
shall survive any purported termination of this Agreement that does not
expressly reference this paragraph.
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7.2 Incorporation of Terms. The miscellaneous provisions of the Note
Agreements apply to this Agreement. This Agreement shall be governed
by, construed, and enforced in accordance with the laws of British
Columbia and the applicable laws of Canada, without regard to its
principles of conflicts of law which would select another law. This
Agreement may be signed in any number of counterparts, each of which
shall be an original, and may be executed and delivered by telecopier.
7.3 No Further Agreements. THIS WRITTEN AGREEMENT AND THE LOAN DOCUMENTS
REPRESENT THE FINAL AGREEMENT AMONG THE PARTIES AND MAY NOT BE
CONTRADICTED BY EVIDENCE OF PRIOR, CONTEMPORANEOUS, OR SUBSEQUENT ORAL
AGREEMENTS OF THE PARTIES.
[signature pages follow]
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THERE ARE NO UNWRITTEN ORAL AGREEMENTS AMONG THE PARTIES.
EXECUTED as of the date first above written.
KAFUS INDUSTRIES LTD. f/k/a
KAFUS ENVIRONMENTAL INDUSTRIES LTD.
By:
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Name:
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Title:
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SUNDANCE ASSETS, L.P.
By: Ponderosa Assets, L.P., its general partner
By: Enron Ponderosa Management Holdings, Inc.
By:
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Name:
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Title:
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ECT MERCHANT INVESTMENTS CORP.
By:
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Name:
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Title:
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ENA CLO I HOLDING COMPANY I L.P.
By: ENA CLO I Holding Company GP L.L.C., its
general partner
By:
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Name:
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Title:
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ENRON NORTH AMERICA CORP., as Servicer on
behalf of ENA CLO I Holding Company I L.P.
By:
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Name:
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Title:
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