<PAGE>
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
SCHEDULE 13D
UNDER THE SECURITIES EXCHANGE ACT OF 1934
The Kafus Capital Corporation
-----------------------------
(Name of Issuer)
Common Stock, without par value
-------------------------------
(Title of Class of Securities)
482910 10 6
---------------------------
(CUSIP Number)
Julia Heintz Murray, General Counsel - Finance
Enron Capital & Trade Resources Corp.
1400 Smith Street
Houston, Texas 77002
(713) 853-4794
--------------
(Name, Address and Telephone Number of Person Authorized to Receive Notices and
Communications)
July 16, 1997
-------------
(Date of Event which Requires Filing of This Statement)
If the filing person has previously filed a statement on Schedule 13G to report
the acquisition which is the subject of this Schedule 13D, and is filing this
schedule because of Rule 13d-1(b)(3) or (4), check the following box [_].
NOTE: Six copies of this statement, including all exhibits, should be filed
with the Commission. See Rule 13d-1(a) for other parties to whom copies are to
be sent.
*The remainder of this cover page shall be filled out for a reporting person's
initial filing on this form with respect to the subject class of securities, and
for any subsequent amendment containing information which would alter
disclosures provided in a prior cover page.
The information required on the remainder of this cover page shall not be deemed
to be "filed" for the purpose of Section 18 of the Securities Exchange Act of
1934 ("Act") or otherwise subject to the liabilities of that section of the Act
but shall be subject to all other provisions of the Act (however, see the
Notes).
<PAGE>
SCHEDULE 13D
- ----------------------- ---------------------
CUSIP NO. 482910 10 6 PAGE X OF X PAGES
- ----------------------- ---------------------
- ------------------------------------------------------------------------------
NAME OF REPORTING PERSON
1 S.S. OR I.R.S. IDENTIFICATION NO. OF ABOVE PERSON
Enron Capital & Trade Resources Corp.
- ------------------------------------------------------------------------------
CHECK THE APPROPRIATE BOX IF A MEMBER OF A GROUP
2 (a) [_]
N/A (b) [_]
- ------------------------------------------------------------------------------
SEC USE ONLY
3
- -------------------------------------------------------------------------------
SOURCE OF FUNDS
4
WC
- ------------------------------------------------------------------------------
CHECK BOX IF DISCLOSURE OF LEGAL PROCEEDINGS IS REQUIRED PURSUANT TO
5 ITEMS 2(d) OR 2(e) [_]
- ------------------------------------------------------------------------------
CITIZENSHIP OR PLACE OF ORGANIZATION
6
Delaware
- ------------------------------------------------------------------------------
SOLE VOTING POWER
7 -0-
NUMBER OF
SHARES -----------------------------------------------------------
SHARED VOTING POWER
BENEFICIALLY 8 9,000,000
OWNED BY
-----------------------------------------------------------
EACH SOLE DISPOSITIVE POWER
9 -0-
REPORTING
PERSON -----------------------------------------------------------
SHARED DISPOSITIVE POWER
WITH 10 9,000,000
- ------------------------------------------------------------------------------
AGGREGATE AMOUNT BENEFICIALLY OWNED BY EACH REPORTING PERSON
11
9,000,000
- ------------------------------------------------------------------------------
CHECK BOX IF THE AGGREGATE AMOUNT IN ROW (11) EXCLUDES CERTAIN SHARES
12
- ------------------------------------------------------------------------------
PERCENT OF CLASS REPRESENTED BY AMOUNT IN ROW (11)
13
33.45
- ------------------------------------------------------------------------------
TYPE OF REPORTING PERSON*
14
CO
- ------------------------------------------------------------------------------
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SCHEDULE 13D
- ----------------------- ---------------------
CUSIP NO. 482910 10 6 PAGE X OF X PAGES
- ----------------------- ---------------------
- ------------------------------------------------------------------------------
NAME OF REPORTING PERSON
1 S.S. OR I.R.S. IDENTIFICATION NO. OF ABOVE PERSON
Enron Corp.
- ------------------------------------------------------------------------------
CHECK THE APPROPRIATE BOX IF A MEMBER OF A GROUP
2 (a) [_]
N/A (b) [_]
- ------------------------------------------------------------------------------
SEC USE ONLY
3
- -------------------------------------------------------------------------------
SOURCE OF FUNDS
4
WC
- ------------------------------------------------------------------------------
CHECK BOX IF DISCLOSURE OF LEGAL PROCEEDINGS IS REQUIRED PURSUANT TO
5 ITEMS 2(d) OR 2(e) [_]
- ------------------------------------------------------------------------------
CITIZENSHIP OR PLACE OF ORGANIZATION
6
Oregon
- ------------------------------------------------------------------------------
SOLE VOTING POWER
7 -0-
NUMBER OF
SHARES -----------------------------------------------------------
SHARED VOTING POWER
BENEFICIALLY 8 9,000,000
OWNED BY
-----------------------------------------------------------
EACH SOLE DISPOSITIVE POWER
9 -0-
REPORTING
PERSON -----------------------------------------------------------
SHARED DISPOSITIVE POWER
WITH 10 9,000,000
- ------------------------------------------------------------------------------
AGGREGATE AMOUNT BENEFICIALLY OWNED BY EACH REPORTING PERSON
11
9,000,000
- ------------------------------------------------------------------------------
CHECK BOX IF THE AGGREGATE AMOUNT IN ROW (11) EXCLUDES CERTAIN SHARES
12
- ------------------------------------------------------------------------------
PERCENT OF CLASS REPRESENTED BY AMOUNT IN ROW (11)
13
33.45
- ------------------------------------------------------------------------------
TYPE OF REPORTING PERSON*
14
CO
- ------------------------------------------------------------------------------
<PAGE>
ITEM 1. SECURITY AND ISSUER.
This statement relates to the common stock, without par value (the
"Common Stock"), of The Kafus Capital Corporation, a British Columbia
corporation (the "Issuer"). The address of the principal executive offices of
the Issuer is Suite 706, 1155 Robson Street, Vancouver, British Columbia, Canada
V6E 1B5.
ITEM 2. IDENTITY AND BACKGROUND.
This statement is being filed by Enron Capital & Trade Resources Corp.,
a Delaware corporation ("ECT"), and by Enron Corp., an Oregon corporation
("Enron"). ECT is a wholly owned subsidiary of Enron and is engaged primarily in
the business of purchasing natural gas, gas liquids and power through a variety
of contractual arrangements and marketing these energy products to local
distribution companies, electric utilities, cogenerators and both commercial and
industrial end-users. ECT also provides risk management services. Enron is an
integrated natural gas company that engages, primarily through subsidiaries, in
the gathering, transportation and wholesale marketing of natural gas, the
exploration for and the production of natural gas and crude oil, the production,
purchase, transportation and worldwide marketing and trading of natural gas
liquids, crude oil and refined petroleum products, the production and sale of
cogenerated electricity and steam and the purchasing and marketing of long-term
energy-related commitments. ECT and Enron are referred to herein as the
"Reporting Entities."
The address of the principal business and the principal office of ECT
and Enron is 1400 Smith, Houston, Texas 77002. Schedule I attached hereto sets
forth certain additional information with respect to each director and each
executive officer of ECT and Enron. The filing of this statement on Schedule 13D
shall not be construed as an admission that Enron or ECT or any
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person listed on Schedule I hereto is, for the purposes of Section 13(d) or
13(g) of the Securities Exchange Act of 1934, the beneficial owner of any
securities covered by this statement.
Neither of the Reporting Entities nor, to their knowledge, any person
listed on Schedule I hereto, has been, during the last five years (i) convicted
in a criminal proceeding (excluding traffic violations or similar misdemeanors)
or (ii) a party to a civil proceeding and as a result of such proceeding was or
is subject to a judgment, decree or final order enjoining future violation of,
or prohibiting or mandating activities subject to, U.S. federal or state
securities laws or finding any violation with respect to such laws.
ITEM 3. SOURCE AND AMOUNT OF FUNDS OR OTHER CONSIDERATION.
Under the terms of a Subscription Agreement dated July 16, 1997, between
ECT and the Issuer (the "Subscription Agreement"), ECT purchased from the Issuer
the following securities for a cash purchase price of $21,000,000: (a) 15,000
Series I 10% Convertible Redeemable Preference Shares (initially convertible
into an aggregate of 3,750,000 shares of Common Stock) (the "Preference
Shares"); (b) 3,000,000 shares of Common Stock; (c) a Warrant to purchase
1,000,000 shares of Common Stock; and (d) an Additional Warrant to purchase
500,000 shares of Common Stock (collectively, the "Securities"). The source of
the purchase price was working capital of Enron and ECT. ECT also received
750,000 shares of Common Stock from a subsidiary of the Issuer pursuant to the
Fee Agreement described in Item 6. below.
ITEM 4. PURPOSE OF TRANSACTION.
The transactions described in Item 3. above occurred as a result of
negotiations with the Issuer. The Securities purchased by ECT were acquired for
investment purposes. ECT intends to review its investment in the Issuer on an
ongoing basis and, depending upon the price of, and other
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market conditions relating to, the Common Stock, subsequent developments
affecting the Issuer, the Issuer's business and prospects, other investment and
business opportunities available to ECT, general stock market and economic
conditions, tax considerations and other factors deemed relevant, may decide to
increase or decrease the size of its investment in the Issuer.
Other than as described above, neither of the Reporting Entities, nor,
to their knowledge, any person listed on Schedule I hereto, has any plan or
proposal that would result in any of the consequences listed in paragraphs
(a) - (j) of Item 4. of Schedule 13D.
ITEM 5. INTEREST IN SECURITIES OF THE ISSUER.
ECT beneficially owns and has the power to vote and dispose of 9,000,000
shares of Common Stock, representing approximately 33.45% of the shares of
Common Stock outstanding (determined in accordance with Rule 13d-3). Because ECT
is a wholly owned subsidiary of Enron, Enron may also be deemed to beneficially
own such shares. Enron disclaims beneficial ownership of all of such shares. Of
these 9,000,000 shares, (a) 3,750,000 are currently outstanding; (b) 3,750,000
are issuable on conversion of the Preference Shares; (c) 1,000,000 are issuable
on exercise of the Warrant; and (d) 500,000 are issuable on the exercise of the
Additional Warrant. The number of shares of Common Stock issuable on conversion
or exercise of the Preference Shares, the Warrant and the Additional Warrant is
subject to adjustment pursuant to customary antidilution provisions included in
the terms of such Securities. The rights and preferences of the Preference
Shares are set forth in the Articles of Amendment to the Issuer's charter
document (the "Articles of Amendment"). Under the Subscription Agreement and the
Fee Agreement described in Item 6. below, the Issuer may be obligated to issue
to ECT, without the payment by ECT of additional consideration, an indeterminate
number of additional shares of Common Stock, based
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upon the market prices for the Common Stock during the 30 days preceding
October 15, 1997.
Except as described herein, neither of the Reporting Entities, nor, to
their knowledge, any of the persons named in Schedule I hereto, has effected
any transactions in the Common Stock during the past sixty days.
ITEM 6. CONTRACTS, ARRANGEMENTS, UNDERSTANDINGS OR RELATIONSHIPS WITH
RESPECT TO SECURITIES OF THE ISSUER.
At the closing of the purchase and sale of Securities (the "Closing"),
the Issuer and ECT entered into a Registration Rights Agreement obligating the
Issuer to file a Registration Statement with the Securities and Exchange
Commission with respect to all shares of Common Stock held by or issuable to ECT
in connection with the transactions contemplated by the Subscription Agreement.
Under the terms of the Subscription Agreement, in the event the trade weighted
average share price of the Common Stock during the 30-day period immediately
preceding October 15, 1997, is less than $2.00 per share, the Issuer will pay to
ECT a sum (the "Makewhole Amount") equal to the product of such difference and
3,000,000. The Makewhole Amount is payable at the option of the Issuer in cash
or additional shares of Common Stock on October 15, 1997.
The Issuer also agreed in the Subscription Agreement not to (a) issue or
sell shares of its Common Stock at a price less than 85% of the Average Price
(as defined) or to sell any securities convertible into or exchangeable for
Common Stock with a conversion or exercise price that is less than 85% of the
Average Price on the date of issuance of the convertible or exchangeable
securities or (b) sell more than $10,000,000 of Common Stock at prices less than
the Average Price as of the date of the related sale. The Issuer also agreed
that upon the request of ECT, subject to compliance
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<PAGE>
with applicable laws, Issuer will expand the number of directors constituting
the entire Board of Directors of the Issuer by one and fill the vacancy created
by such expansion with a designee of ECT reasonably acceptable to Issuer and to
submit the name of such designee to the shareholders of the Issuer at each
meeting of the shareholders at which directors are elected, until requested
otherwise by ECT. The Issuer has granted to ECT the right to purchase shares of
Common Stock (or securities convertible into or exercisable for Common Stock)
sufficient to maintain its proportionate interest in the Issuer, on the same
terms as those pursuant to which the Issuer proposes to issue such additional
securities. The provisions described in this paragraph terminate on the date ECT
and its affiliates beneficially own less than 10% of the Common Stock.
At the Closing, Samarac Corporation, the holder of approximately 55% of
the outstanding Common Stock immediately prior to Closing, executed a
Shareholder Agreement pursuant to which it agreed with ECT that it would not
sell more than 5% of such shares of Common Stock during any twelve-month period
occurring during the three years following the Closing and to vote its Common
Stock in favor of any nominee for director designated by ECT (as described
above).
The holders of the Preference Shares may require that such shares be
redeemed by the Issuer in circumstances specified in the Articles of Amendment,
at a redemption price of $1,000 per share, plus accrued and unpaid dividends.
Kenneth F. Swaisland, the President of the Issuer, has executed a non-
transferable Guaranty in favor of ECT, guaranteeing the performance by the
Issuer of its obligation to redeem Preference Shares in accordance with the
terms of the Articles of Amendment. ECT has granted to the Issuer an option to
purchase up to 5,000 Preference Shares prior to January 16, 1998 (the
"Determination Date") at a cash purchase price of $1,200 per share. The option
may be exercised only if the trade weighted average of prices for the Common
Stock
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<PAGE>
during a period of 30 consecutive days exceeds $7.00 per share and the Common
Stock is listed on a U.S. national securities exchange or the NASDAQ National
Market. The Issuer's option expires on the Determination Date.
At the Closing, ECT also entered into a Consulting Services Agreement
with The CanFibre Group, Ltd. ("CanFibre"), a subsidiary of the Issuer. Under
the terms of the Consulting Services Agreement, ECT will, from time to time, as
requested by CanFibre, provide consultation services and advice with respect to
the operations and properties of CanFibre through July 15, 2007. ECT is entitled
to an annual fee for its services in an amount equal to a sum equivalent to 5%
of the after-tax distributable operating cash flow of CanFibre, calculated on
the basis of audited financial statements. CanFibre and ECT also entered into a
Fee Agreement pursuant to which CanFibre conveyed to ECT 750,000 shares of
Common Stock owned by CanFibre and agreed that if the trade weighted average of
the Common Stock for the 30-day period prior to October 15, 1997 is less than
$2.00 per share, CanFibre will pay to ECT an amount equal to the product of such
difference and 750,000, payable at the option of CanFibre in cash or in
additional shares of Common Stock.
Concurrently with the purchase of the Securities, ECT and CanFibre of
Riverside, Inc., a California corporation and a subsidiary of CanFibre
("CanFibre of Riverside"), entered into a Subordinated Loan Agreement (the "Loan
Agreement") pursuant to which ECT agreed to lend up to $15,000,000 to CanFibre
of Riverside. The loan is subordinated to Senior Indebtedness (as defined in the
Loan Agreement) and is secured by subordinated lien on certain assets of
CanFibre of Riverside. In connection with the subordinated loan, ECT and
CanFibre of Riverside entered into an Income Participation Purchase Agreement
entitling ECT to receive a specified percentage of the Free Cash Flow (as
defined) of CanFibre of Riverside. Upon any default under the Loan
6
<PAGE>
Agreement or one year after the completion of the construction of a specified
manufacturing facility of CanFibre of Riverside, ECT has the option to require
the Issuer to purchase the Income Participation Certificate for $12,500,000 (as
adjusted for payments previously received from CanFibre of Riverside under the
Income Participation Certificate), payable at the election of ECT in cash or
through the issuance of additional shares of Common Stock at the then prevailing
market price of the Common Stock. At any time when ECT has the right to cause
the Issuer to purchase the Income Participation Certificate, the Issuer has the
option to purchase the Income Participation Certificate from ECT for a purchase
price of $15,000,000, payable in cash or Common Stock.
In addition, under a Deferred Payment Purchase Agreement between ECT and
the Issuer, the Issuer may be obligated to issue Common Stock to ECT to purchase
principal payments under the Loan Agreement that CanFibre of Riverside does not
pay when scheduled, if such payments are not brought current within one year,
the purchase price for such payments to be made, at the election of ECT, in cash
or through the issuance of additional shares of Common Stock at 75% of the then
prevailing market price of such Common Stock. The number of shares of Common
Stock, if any, issuable to ECT pursuant to the Income Participation Agreement
and the Deferred Purchase Agreement cannot currently be determined.
ITEM 7. MATERIAL TO BE FILED AS EXHIBITS
Exhibit 1 - Subscription Agreement dated as of July 16, 1997 between
the Issuer and ECT.
Exhibit 2 - Shareholder Agreement dated July 16, 1997 executed by
Samarac Corporation.
7
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Exhibit 3 - Registration Rights Agreement dated May 16, 1997 between
the Issuer and ECT.
Exhibit 4 - Articles of Amendment designating 15,000 Series I
Preference Shares of the Issuer.
Exhibit 5 - Warrant to purchase 1,000,000 shares of Common Stock.
Exhibit 6 - Additional Warrant to purchase 500,000 shares of Common
Stock.
Exhibit 7 - Consulting Services Agreement dated July 16, 1997,
between ECT and CanFibre.
Exhibit 8 - Fee Agreement dated July 16, 1997 between ECT and
CanFibre.
Exhibit 9 - Option Letter dated July 16, 1997, between ECT and
CanFibre.
Exhibit 10 - Guaranty of Kenneth F. Swaisland
Exhibit 11 - Income Participation Certificate Purchase Agreement dated
July 16, 1997, between ECT and CanFibre of California
Exhibit 12 - Deferred Purchase Agreement dated July 16, 1997, between
the Issuer and ECT
8
<PAGE>
SIGNATURE
After reasonable inquiry and to the best knowledge and belief of the
undersigned, the undersigned certify that the information set forth in this
statement is true, complete and correct.
July 28, 1997 ENRON CAPITAL & TRADE RESOURCES CORP.
By: /s/ PEGGY B. MENCHACA
------------------------------------
Peggy B. Menchaca
Vice President and Secretary
ENRON CORP.
By: /s/ PEGGY B. MENCHACA
------------------------------------
Peggy B. Menchaca
Vice President and Secretary
9
<PAGE>
SCHEDULE I
DIRECTORS AND EXECUTIVE OFFICERS
ENRON CAPITAL & TRADE CORP.
NAME AND BUSINESS ADDRESS CITIZENSHIP POSITION AND OCCUPATION
- ------------------------- ----------- -----------------------
John J. Esslinger U.S.A. Director
1400 Smith Street Vice Chairman and Managing
Houston, Texas 77002 Director - ECT North America
Mark E. Haedicke U.S.A. Director
1400 Smith Street Managing Director, Legal
Houston, Texas 77002
Kenneth D. Rice U.S.A. Director
1400 Smith Street Chairman, Chief Executive Officer
Houston, Texas 77002 and Managing Director - ECT
North America
Lou L. Pai U.S.A. Chairman, President, Chief
1400 Smith Street Executive Officer, and Managing
Houston, Texas 77002 Director - Enron Energy Services
Mark A. Frevert U.S.A. President and Managing Director -
1400 Smith Street ECT Europe, Managing Director,
Houston, Texas 77002 International
Kevin P. Hannon U.S.A. President and Managing Director -
1400 Smith Street ECT Commodity and Trade Services
Houston, Texas 77002
Ashok Rao U.S.A. President, Chief Operating
1400 Smith Street Officer and Managing Director -
Houston, Texas 77002 Enron Energy Services
J. Clifford Baxter U.S.A. Managing Director
1400 Smith Street
Houston, Texas 77002
William O. Butler U.S.A. Managing Director
1400 Smith Street
Houston, Texas 77002
John B. Echols, Jr. U.S.A. Managing Director
1400 Smith Street
Houston, Texas 77002
10
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NAME AND BUSINESS ADDRESS CITIZENSHIP POSITION AND OCCUPATION
- ------------------------- ----------- -----------------------
Gene E. Humphrey U.S.A. Managing Director, Finance
1400 Smith Street
Houston, Texas 77002
Amanda K. Martin U.S.A. Managing Director
1400 Smith Street
Houston, Texas 77002
Jere C. Overdyke, Jr. U.S.A. Managing Director
1400 Smith Street
Houston, Texas 77002
Rebecca C. Carter U.S.A. Vice President and Chief Control
1400 Smith Street Officer
Houston, Texas 77002
11
<PAGE>
DIRECTORS AND EXECUTIVE OFFICERS
ENRON CORP.
NAME AND BUSINESS ADDRESS CITIZENSHIP POSITION AND OCCUPATION
- ------------------------- ----------- -----------------------
Robert A. Belfer U.S.A. Director
767 5th Avenue, 46th Floor Chairman, President
New York, NY 10153 Chief Executive Officer
Belco Oil & Gas Corp.
Norman P. Blake, Jr. U.S.A. Director
USF&G Corporation Chairman, President and CEO,
6225 Smith Ave. LA0300 USF&G Corporation
Baltimore, MD 21209
Ronnie C. Chan U.S.A. Director
Hang Lung Development Chairman of Hang Lung
Company Limited Development Group
28/F, Standard Chartered
Bank Building
4 Des Vouex Road Central
Hong Kong
John H. Duncan U.S.A. Director
5851 San Felipe, Suite 850 Investments
Houston, TX 77057
Joe H. Foy U.S.A. Director
404 Highridge Dr. Retired Senior Partner,
Kerrville, TX 78028 Bracewell & Patterson, L.L.P.
Wendy L. Gramm U.S.A. Director
P. O. Box 39134 Former Chairman, U.S.
Washington, D.C. 20016 Commodity
Futures Trading Commission
Ken L. Harrison U.S.A. Director
One World Trade Center Chairman, Chief Executive Officer
121 SW Salmon Street and President, Portland General
Portland, Oregon 97204 Electric Company
Robert K. Jaedicke U.S.A. Director
Graduate School of Business Professor (Emeritus), Graduate
Stanford University School of Business, Stanford
Stanford, CA 94305 University
Charles A. LeMaistre U.S.A. Director
13104 Travis View Loop president (Emeritus),
Austin, Texas 78732 University of Texas
M.D. Anderson Cancer Center
12
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NAME AND BUSINESS ADDRESS CITIZENSHIP POSITION AND OCCUPATION
- ------------------------- ----------- -----------------------
Jerome J. Meyer U.S.A. Director
26600 SW Parkway, Bldg. 63 Chairman, Chief Executive Officer
P.O. Box 1000 Tektronix, Inc.
Wilsonville, OR 97070-1000
John A. Urquhart U.S.A. Director and Vice Chairman,
John A. Urquhart Associates Enron Corp.,
111 Beach Road President, John A. Urquhart
Fairfield, CT 06430 Associates
John Wakeham U.K. Director
Pinglestone House Former U.K. Secretary of State for
Old Alresford Energy and Leader of the Houses
Hampshire S024 9TB of Commons and Lords
United Kingdom
Charls E. Walker U.S.A. Director
Walker & Walker, LLC Chairman, Walker & Walker, LLC
10220 River Road, Ste. 105
Potomac, Maryland 20854
Bruce G. Willison U.S.A. Director
4900 Rivergrade Rd. President and Chief Operating
Irwindale, CA 91706 Officer H.F. Ahmanson Company
Herbert S. Winokur, Jr. U.S.A. Director
Winokur & Associates, Inc. President, Winokur & Associates,
30 East Elm St. Inc.
Greenwich, Ct 06830
Kenneth L. Lay U.S.A. Director, Chairman and Chief
1400 Smith Street Executive Officer
Houston, Texas 77002
Jeffrey K. Skilling U.S.A. Director, President and Chief
1400 Smith Street Operating Officer
Houston, Texas 77002
J. Clifford Baxter U.S.A. Senior Vice President, Corporate
1400 Smith Street Development
Houston, Texas 77002
Richard A. Causey U.S.A. Senior Vice President and Chief
1400 Smith Street Accounting and Information
Houston, Texas 77002 Officer
Edmund P. Segner, III U.S.A. Executive Vice President and Chief
1400 Smith Street of Staff
Houston, Texas 77002
James V. Derrick, Jr. U.S.A. Senior Vice President and General
1400 Smith Street Counsel
Houston, Texas 77002
13
<PAGE>
NAME AND BUSINESS ADDRESS CITIZENSHIP POSITION AND OCCUPATION
- ------------------------- ----------- -----------------------
Andrew S. Fastow U.S.A. Senior Vice President, Finance
1400 Smith Street
Houston, Texas 77002
Stanley C. Horton U.S.A. Chairman and Chief Executive
1400 Smith Street Officer, Enron Gas Pipeline Group
Houston, Texas 77002
Rebecca P. Mark U.S.A. Chairman and Chief Executive
1400 Smith Street Officer, Enron International, Inc.
Houston, Texas 77002
Thomas E. White U.S.A. Chairman and Chief Executive
1400 Smith Street Officer, Enron Ventures Corp.
Houston, Texas 77002
Rodney L. Gray U.S.A. Chairman, President and Chief
Executive Officer, Enron Global
Power & Pipelines L.L.C.
14
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EXHIBIT 1
================================================================================
SUBSCRIPTION AGREEMENT
BETWEEN
THE KAFUS CAPITAL CORPORATION
AND
ENRON CAPITAL & TRADE RESOURCES CORP.
JULY 16, 1997
================================================================================
<PAGE>
TABLE OF CONTENTS
Page
----
1.0 Definitions 1
1.1 Gender, etc 4
1.2 Currency 4
1.3 Headings 4
1.4 Business Day 5
2.0 Issuance of Securities 5
3.0 Closing 5
4.0 Representations and Warranties of the Company 5
5.0 Representations and Warranties of Purchaser 11
6.0 Covenants of the Company 14
7.0 Conditions of Purchaser's Obligations at Closing 18
8.0 Conditions of the Company's Obligations at Closing 20
9.0 Miscellaneous 21
Exhibits
- --------
Exhibit A -- Form of Additional Warrant
Exhibit B -- Articles of Amendment
Exhibit C -- [Reserved]
Exhibit D -- Form of Fee Letter
Exhibit E -- Registration Rights Agreement
Exhibit F -- Form of Warrant
Exhibit G -- Risk Disclosure Statement
Exhibit H -- Form of Opinion of Canadian Counsel
-i-
<PAGE>
Exhibit I -- Form of Opinion of U.S. Counsel for the Company
Exhibit J -- [Reserved]
Exhibit K -- Form of Shareholder Agreement
Exhibit L -- Letter Regarding Company Option to Purchase Certain
Preference Shares
Schedules
- ---------
Schedule 4(e) Subsidiaries
Schedule 4(f) Litigation
-ii-
<PAGE>
THESE SECURITIES HAVE NOT BEEN APPROVED OR DISAPPROVED BY THE SECURITIES AND
EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION NOR HAS THE SECURITIES
AND EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION PASSED UPON THE
ACCURACY OR ADEQUACY OF THIS DOCUMENT. ANY REPRESENTATION TO THE CONTRARY IS A
CRIMINAL OFFENSE.
IN MAKING AN INVESTMENT DECISION INVESTORS MUST RELY ON THEIR OWN EXAMINATION OF
THE ISSUER AND THE TERMS OF THE OFFERING, INCLUDING THE MERITS AND RISKS
INVOLVED. THESE SECURITIES HAVE NOT BEEN RECOMMENDED BY ANY FEDERAL OR STATE
SECURITIES COMMISSION OR REGULATORY AUTHORITY. FURTHERMORE, THE FOREGOING
AUTHORITIES HAVE NOT CONFIRMED THE ACCURACY OR DETERMINED THE ADEQUACY OF THIS
DOCUMENT. ANY REPRESENTATION TO THE CONTRARY IS CRIMINAL OFFENSE.
THESE SECURITIES ARE SUBJECT TO RESTRICTIONS ON TRANSFERABILITY AND RESALE AND
MAY NOT BE TRANSFERRED OR RESOLD EXCEPT AS PERMITTED UNDER THE SECURITIES ACT OF
1933, AS AMENDED, AND THE APPLICABLE STATE SECURITIES LAWS, PURSUANT TO
REGISTRATION OR EXEMPTION THEREFROM. INVESTORS SHOULD BE AWARE THAT THEY WILL
BE REQUIRED TO BEAR THE FINANCIAL RISKS OF THIS INVESTMENT FOR AN INDEFINITE
PERIOD OF TIME.
THE SECURITIES TO WHICH THIS SUBSCRIPTION RELATES ARE NOT QUALIFIED FOR SALE IN
ONTARIO OR CANADA AND MAY NOT BE OFFERED OR SOLD DIRECTLY IN ONTARIO OR CANADA.
SUBSCRIPTION AGREEMENT
----------------------
This Subscription Agreement (the "Agreement") is made as of this 16th
day of July 1997, by and between The Kafus Capital Corporation, a British
Columbia corporation (the "Company") and Enron Capital & Trade Resources Corp.,
a Delaware corporation ("the Purchaser").
RECITALS
The Company desires to raise $21,000,000 in additional capital through
the sale of the Securities (as defined below), and the Purchaser desires to
purchase from the Company the Securities. The purpose of this Agreement is to
specify the terms and conditions upon which the purchase and sale of the
Securities will be effected.
<PAGE>
1.0 Definitions. The following capitalized terms have the meanings set
forth below:
"AAA" has the meaning specified therefor in Section 9.0 of this
Agreement.
"Act" means the Securities Act of 1933, as amended.
"Additional Warrant" means the Warrant to purchase 500,000 shares of
Common Stock to be issued by the Company to the Purchaser at the Closing, which
shall be in the form attached hereto as Exhibit A.
"Affiliate" of any specified Person means any other Person directly or
indirectly controlling or controlled by or under direct or indirect common
control with such specified Person. For the purposes of this definition,
"control," when used with respect to any Person, means the power to direct the
management and policies of such Person, directly or indirectly, whether through
the ownership of voting securities, by contract or otherwise, and the terms
"controlling" and "controlled" have meanings correlative to the foregoing.
"Applicable Tax Law" shall have the meaning specified therefor in
Section 4(i) of this Agreement.
"Articles of Amendment" means the Articles of the Amendment to the
Articles of Incorporation of the Company, setting forth the rights and
preferences of the Preference Shares, the form of which is annexed hereto as
Exhibit B.
"Bonds" means the California Pollution Control Financing Authority
Solid Waste Disposal Revenue Bonds (CanFibre Riverside Project) Tax-Exempt
Series 1997, and the California Pollution Control Financing Authority Solid
Waste Disposal Revenue Bonds (CanFibre Riverside Project) Taxable Convertible
Series 1997B.
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"Business Day" means a day other than a Saturday, Sunday or any other
day treated as a holiday in the City of Toronto, Ontario.
"CanFibre Group" means CanFibre Group Ltd., an Ontario corporation.
"Closing" has the meaning specified therefor in Section 3.0 of this
Agreement.
"Closing Date" means the date on which the Securities are purchased
and sold, which shall be a date mutually agreed to by the parties, but no later
than July 17, 1997.
"Common Stock" means the Company's common stock, without par value.
"Conversion Shares" means the shares of Common Stock issuable upon
conversion of the Series I Preference Shares.
"ERISA" means the Employee Retirement and Income Security Act of 1974,
as amended.
"Exchange Act" has the meaning specified therefor in Section 4(g) of
this Agreement.
"Fee Letter" means the letter agreement to be executed by CanFibre
Group and the Purchaser in the Form of Exhibit D attached hereto.
"Liens" has the meaning specified therefor in Section 4(d) of this
Agreement.
"Makewhole Amount" means an amount equal to the product of (a)
3,000,000 and (b) the difference between (i) $2.00 and (ii) 75% of the trade
weighted average share price of the Common Stock during the 30 day period
immediately preceding the Makewhole Date, in each case adjusted for any stock
split, reverse stock split, recapitalization or similar event.
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"Makewhole Date" means October 15, 1997.
"Material Adverse Event" means an occurrence having a consequence that
is materially adverse to the business, assets, operations, financial condition
or prospects of the Company or any of its Subsidiaries.
"Person" means any individual, trust, corporation, partnership,
limited liability company or other business association or entity, court,
governmental body or governmental agency.
"Preference Shares" means the Company's Series I 10% Convertible
Redeemable Preference Shares having the rights and preferences set forth in the
Articles of Amendment.
"Registration Rights Agreement" means the Registration Rights
Agreement to be executed by the Company and the Purchaser in the form of Exhibit
E attached hereto, setting forth the Company's commitment to register the
Shares, Conversion Shares and Warrant Shares (as defined below) for resale under
the Act.
"Rules" has the meaning specified therefor in Section 9.0 of this
Agreement.
"SEC" has the meaning specified therefor in Section 4(g) of this
Agreement.
"SEC Documents" has the meaning specified therefor in Section 4(g) of
this Agreement.
"Securities" means the Shares, the Preference Shares, the Warrant and
the Additional Warrant.
"Shares" means the 3,000,000 shares of Common Stock (plus shares of
Common Stock issuable pursuant to Section 6.0(j) of this Agreement) to be
purchased by the Purchaser at the Closing.
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"Subsidiary" of any Person means any corporation, partnership or other
entity of which, at the time of determination, such Person, directly and/or
indirectly through one or more other Persons, owns beneficially (as defined in
Rule 13d-3) more than 50% of the voting interests.
"Transferred" has the meaning specified therefor in Section 5(d) of
this Agreement.
"Warrant" means the warrant to purchase 1,000,000 shares of Common
Stock, which shall be in the form attached hereto as Exhibit F.
"Warrant Shares" means the shares of Common Stock issuable on exercise
of the Warrants and the Additional Warrants.
1.1 Gender, etc. Words importing only the singular number include the
plural and vice versa and words importing any gender include all genders.
1.2 Currency. All monetary amounts referred to herein shall be in lawful
money of the United States.
1.3 Headings. The division of this Agreement into sections, clauses,
subclauses or other subdivisions and the insertion of headings are for
convenience of reference only and shall not affect the construction or
interpretation hereof.
1.4 Business Day. In the event that any date upon which any action is
required to be taken by the Company or any other Person hereunder is not a
Business Day, then action shall be required to be taken on or by the next
succeeding day which is a Business Day.
2.0 Issuance of Securities. Subject to the terms and conditions herein
set forth, the Company agrees that it will issue and sell to the Purchaser, and
the Purchaser agrees that it will purchase from the Company on the Closing Date,
the Securities, at a total purchase price equal to $21,000,000.
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3.0 Closing. The closing of the purchase and sale of Securities (the
"Closing") shall occur on the Closing Date at 10:00 a.m., New York time at the
offices of Paul, Hastings, Janofsky & Walker, LLP, 399 Park Avenue, New York,
New York 10022, or at such other location as the parties hereto may agree. At
Closing, (a) the Company shall deliver to the Purchaser certificates
representing (i) the Shares, (ii) the Preference Shares, (iii) the Warrant, and
(iv) the Additional Warrant, all registered in such name or names as each
Purchaser may designate by notice to the Company, and the Purchaser shall pay to
the Company the amount of $21,000,000 in immediately available funds. At the
Closing, the Company and the Purchaser also shall enter into the Registration
Rights Agreement and the Fee Letter.
4.0 Representations and Warranties of the Company. As a material
inducement to the Purchaser to enter into and perform its obligations under this
Agreement, the Company hereby represents and warrants to Purchaser that the
following representations and warranties are true and correct on the date hereof
and covenants that such representations and warranties shall be true and correct
on the Closing Date as though such Closing Date were substituted for the date
hereof throughout such representations and warranties.
(a) Corporate Organization and Authority. The Company (i) 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;
(ii) 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 (iii) 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 Event.
(b) Authorization. The Company has and will have at Closing all
requisite corporate power to execute and deliver this Agreement and the
Registration Rights Agreement and to sell
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and issue the Securities and to perform its obligations hereunder and
thereunder. All corporate and shareholder action necessary for the
authorization, execution and delivery by the Company of this Agreement, the Fee
Letter, the Registration Rights Agreement, the performance by the Company of its
obligations hereunder and thereunder, and for the authorization, sale, issuance
and delivery of the Securities has been taken or will be taken prior to Closing.
This Agreement, the Registration Rights Agreement, the Fee Letter, the Warrants
and the Additional Warrants each constitute (or upon execution, will constitute)
a legally binding and valid obligation of the Company 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.
(c) Capitalization. The authorized capital stock Company consists of
(i) 50,000,000 Preference Shares, without par value, 15,000 of which have been
designated as Series I Preference Shares, none of which are issued or
outstanding; and (ii) 100,000,000 shares of Common Stock, without par value of
which 17,897,950 shares are validly issued (including, without limitation,
issued in compliance with all applicable federal and provincial securities laws)
and outstanding, fully paid and non-assessable. Except as described in the
Company's 1996 Form 20-F and other than the Securities, outstanding warrants to
purchase 2,143,399 shares; options to purchase a total of 4,987,146 shares of
Common Stock granted to 40 employees pursuant to benefit plans adopted by the
Company; the right of Purchaser to acquire common shares of the Company pursuant
to an Income Participation Certificate Purchase Agreement dated for reference
June 1, 1997, between the Company and Purchaser; the right of Purchaser to
acquire common shares of the Company pursuant to a Deferred Payment Purchase
Agreement dated for reference June 1, 1997, between the Company and Purchaser;
and the Company's right to purchase 5,000 Preference Shares pursuant to the
letter agreement to be signed at Closing set forth on Exhibit L, there are no
outstanding rights of first refusal, preemptive rights or other rights,
warrants,
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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.
(d) Validity of Securities. The Shares, Preference Shares, Conversion
Shares, Warrants and Warrant Shares: (i) will be upon issuance, free and clear
of any security interests, liens, claims or other encumbrances (collectively,
"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 hereof, 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 holder thereof to
personal liability by reason of being such holders.
(e) Subsidiaries. Schedule 4(e) to this Agreement sets forth a true
and correct 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. 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 Schedule 4(e), are owned by the Company or one of its Subsidiaries,
free and clear of any Liens. Except as set forth on Schedule 4(e) and the 1996
Form 20-F, there are no outstanding warrants, options or other rights to
purchase or acquire any shares of capital stock of any 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 Schedule 4(e), the Company has no
Subsidiaries. The Company or its wholly-owned Subsidiaries own (i) 2,418,479
shares (33.2% of the outstanding common shares) of CanFibre Group and (ii)
preference shares of CanFibre entitling the Company to acquire, without payout
of additional consideration, 29,685,491 additional common shares. On conversion
of the CanFibre preference shares owned by the
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Company and its wholly owned Subsidiaries into common shares of CanFibre Group,
the Company and its wholly-owned Subsidiaries will own at least 83.0% of the
outstanding common shares (representing 83.0% of the total voting power) of
CanFibre Group.
(f) Litigation. Except as set forth on Schedule 4(f) attached hereto,
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 Event or that relates to or could materially affect the performance by
the Company of its obligations under this Agreement, the Fee Letter, the
Registration Rights Agreement or the Securities.
(g) SEC Documents, Financial Statements. Since January 1, 1996,
except for failure to timely file a Form 6-K, the Company has filed all reports,
schedules, forms, statements and other documents required to be filed by it with
the Securities and Exchange Commission (the "SEC") pursuant to the reporting
requirements of the Securities Exchange Act of 1934, as amended (the "Exchange
Act") (collectively, the "SEC Documents") including its Annual Report on Form
20-F for the year ended August 31, 1995 as amended (the "1995 Form 20-F") and
its Annual Report on Form 20-F for the year ended September 30, 1996 (the "1996
Form 20-F")(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 Purchasers 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
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
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Company, any Person authorized to represent the Company, and, to the best
knowledge of the Company, any other Person selling or offering to sell the
Securities in connection with the transactions contemplated by this Agreement,
have not made, at any time, any oral communication in connection with the offer
or sale of the Securities 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. 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 Securities. 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, except (i) as may be otherwise
indicated in such financial statements or the notes thereto or (ii) in the case
of unaudited interim statements, to the extent they may not include footnotes or
may be condensed or summary statements, and fairly present in all material
respects the consolidated financial position of the Company and its Subsidiaries
as of the dates thereof and the consolidated results of their operations and the
cash flows for the periods then ended (subject, in the case of unaudited
statement to normal year-end audit adjustments, none of which will be material).
(h) No Change in Condition. Since September 30, 1996, 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 Event.
(i) Taxes.
(i) 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
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<PAGE>
of this Agreement 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 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.
(ii) 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.
(iii) 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.
(j) Title to Assets. All of the assets owned by the Company and its
Subsidiaries are free and clear of all Liens, conditional sale and other title
retention agreements, assessments, covenants, restrictions, reservations and
other burdens and charges of every kind, except as reflected in the SEC
Documents and the financial statements included therein.
(k) Compliance with Laws and Agreements. Neither the Company nor any
Subsidiary 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,
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agreement, judgment or any decree, order, statute, rule or regulation the
violation of which would, individually or in the aggregate, constitute a
Material Adverse Event. The execution, delivery and performance of this
Agreement and the Registration Rights Agreement, and the Fee Letter and the
issuance of the Shares, the Preference Shares, the Conversion Shares, the
Warrants, the Additional Warrants and Warrant Shares 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 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.
(l) 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.
(m) Environmental Matters. There has been no storage, disposal,
generation, manufacture, spill, discharge (or any threatened spill or
discharge), refinement, transportation, 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.
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<PAGE>
(n) 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 this Agreement, except for filings pursuant
Regulation D promulgated under the Act, Blue Sky filings, required filing with
the Ontario Securities Commission, and any other filings that are or may be
required by any such authority in connection with any of the matters contained
in this Agreement and Registration Rights Agreement.
(o) Private Offering. Assuming the accuracy of the representations and
warranties of Purchaser contained in Section 5.0 hereof, the offer, issuance and
sale of the Securities are and will be exempt from the registration and
prospectus delivery requirements of the Act 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.
(p) Fees. Except for the Fee Letter, 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 issuance and sale of the
Securities or the conversion or exercise thereof or the consummation of the
transactions otherwise contemplated by this Agreement.
(q) Risk Disclosure Statement. Some of the risks associated with the
purchase and sale of the Securities herein are set forth in the Risk Disclosure
Statement annexed hereto as Exhibit G.
5.0 Representations and Warranties of Purchaser. As a material
inducement to the Company to enter into and perform its obligations under this
Agreement and the Registration Rights Agreement, the Purchaser represents and
warrants to the Company, that the following statements are true and correct as
of the date
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hereof and covenants that such representations and warranties shall be true and
correct as of the Closing Date, as though the Closing Date were substituted for
the date hereof throughout such representations and warranties:
(a) Organization; Authorization; Enforcement. (i) Purchaser is a
corporation, duly organized and validly existing under the laws of the
jurisdiction of its organization; (ii) Purchaser has all requisite power and
authority to enter into and perform its obligations under this Agreement and to
purchase the Securities in accordance with the terms hereof; (iii) the execution
and delivery of this Agreement by Purchaser and the consummation by it of the
transactions contemplated hereby have been duly authorized by all necessary
corporate action, and no further consent or authorization is required in
connection therewith; (iv) this Agreement has been duly authorized, executed and
delivered by Purchaser; and (v) this Agreement constitutes a valid and binding
obligation of Purchaser enforceable against Purchaser in accordance with its
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 and remedies or by other equitable principles of general application.
(b) Accredited Purchaser Status. The Purchaser represents and
warrants that it is an "accredited investor" within the meaning of Rule 501(a)
under the Act and is acquiring the Securities for its own account and not with a
view toward resale in violation of the Act. The Purchaser further has such
knowledge and experience in financial and business matters that it is capable of
evaluating the merits and risks of an investment in the Securities. The
Purchaser is aware that it may be required to bear the economic risk of an
investment in the Securities for an indefinite period of time, and it is able to
bear such risk for an indefinite period of time. The Purchaser further
understands that there are significant risks associated with this investment,
and has read and understands the risks set forth in the Risk Disclosure
Statement annexed hereto as Exhibit G.
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(c) Investment Intent. The Purchaser is acquiring the Securities for
its own account for investment purposes and not with a present view to, or for
offer or sale in connection with, any distribution thereof in violation of the
Act.
(d) Restricted Securities. The Purchaser acknowledges that the
Securities have not been registered under the Act or any other applicable
securities laws, and, accordingly, except as contemplated by the Registration
Rights Agreement, none of the Securities, the Conversion Shares and Warrant
Shares may be offered, sold, transferred, pledged, hypothecated or otherwise
disposed of ("Transferred") unless registered pursuant to, or in a transaction
exempt from registration under the Act and any other applicable securities laws.
(e) Legend.
(i) Purchaser acknowledges and agrees that each certificate
evidencing the Shares, the Preference Shares, the Warrants and the
Additional Warrants shall bear a restrictive legend as set forth below,
until a registration statement covering the Conversion Shares and Warrant
Shares required to be filed pursuant to the Registration Rights Agreement
has been declared effective by the Securities Exchange Commission, or,
until receipt by the Company of an opinion of counsel reasonably
acceptable to the Company, to the effect that such legend is no longer
required in order to comply with any provisions of the Act.
THE SECURITIES REPRESENTED HEREBY HAVE NOT BEEN REGISTERED UNDER THE
SECURITIES ACT OF 1933, AS AMENDED ("ACT"). SUCH SECURITIES MAY NOT BE
TRANSFERRED EXCEPT PURSUANT TO A REGISTRATION STATEMENT UNDER THE ACT OR
AN AVAILABLE EXEMPTION FROM REGISTRATION.
(ii) Additionally, Purchaser acknowledges and agrees that each
certificate evidencing the Securities, and
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if applicable, the Conversion Shares and the Warrant Shares shall also
bear the restrictive legend:
THE SECURITIES REPRESENTED HEREBY ARE SUBJECT TO A HOLD PERIOD AND MAY
NOT BE TRADED IN ONTARIO UNTIL [90 DAYS FROM CLOSING OR ISSUANCE] EXCEPT
AS PERMITTED BY THE SECURITIES ACT (ONTARIO) AND THE RULES AND
REGULATIONS MADE THEREUNDER.
(f) The Purchaser is not a Person resident in Ontario or Canada and is
not acquiring the securities offered hereby for the account or benefit of a
person resident in Ontario or Canada.
(g) The execution and delivery by the Purchaser of this Agreement and
the transactions contemplated hereby do not violate any law applicable to, or
the constituting documents of, the Purchaser or any agreement, written or oral,
to which the Purchaser is a party or by which the Purchaser is or may be bound.
(h) No offers to sell the Securities were made by any Person to the
Purchaser while the Purchaser was in Ontario or Canada.
(i) The Purchaser was outside of Ontario and Canada at the time of
execution and delivery of this Agreement.
(j) The Purchaser has obtained such professional advice and made such
independent investigation of this investment in the Securities as it deems
appropriate in reaching its decision to invest.
(k) The Purchaser acknowledges that the Purchaser has had an
opportunity to ask and have answered questions with respect to the Company and
its Subsidiaries, and the private placement of securities contemplated by this
Agreement.
6.0 Covenants of the Company. The Company covenants and agrees with the
Purchaser as follows:
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(a) Notification to Purchasers. The Company shall notify Purchaser
promptly if at any time during the period beginning on the date of this
Agreement and ending on the Closing Date (i) any event shall have occurred as a
result of which any communication made by the Company, any Person authorized to
represent the Company, or, to the best knowledge of the Company, by any other
Person in connection with the transactions contemplated by this Agreement would
include an untrue statement of a material fact or omit to state any material
fact necessary in order to make the statements therein, in the light of the
circumstances under which they were made, not misleading, or (ii) there is any
public disclosure of material information regarding the Company or its
Subsidiaries or their financial condition or results of operation.
(b) Financial Reports. Commencing with the end of the first fiscal
quarter following the Closing Date, the Company shall deliver to each holder of
Shares, Preference Shares, Warrants, or Additional Warrants:
(i) Within sixty (60) 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 forty (140) 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;
(iii) copies of any management letters prepared by the Company's
auditors and the Company's responses thereto promptly after their
issuance; and
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(iv) notice of the occurrence of any Material Adverse Event,
promptly after its occurrence; provided that with respect to items (b)(i)
and (ii) timely provision of copies of all reports and financial
statements filed with the SEC pursuant to with the Company's reporting
requirements shall be deemed satisfactory delivery of the required
financial statements.
(c) Information for 10% Holders. So long as Purchaser owns
beneficially in excess of 10% of the outstanding shares of Common Stock of the
Company (determined in accordance with Rule 13d-3 under the Exchange Act), it
shall be entitled to, subject to limitations imposed by applicable law, access
to the books and records, facilities and management personnel of the Company and
its Subsidiaries, in each case as may be reasonably requested by Purchaser from
time to time, conditioned upon the Company's receipt of Purchaser's written
agreement to retain any such information in strict confidence.
(d) Reports Under Exchange Act. With a view to making available to
the Purchasers 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 any Preference Shares, Warrants or Additional
Warrants 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.
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(e) Indemnification by the Company. The Company agrees and covenants
to hold harmless and indemnify the Purchaser from and against any losses,
claims, damages, liabilities and expenses (including costs of investigation and
attorneys' fees) incurred by such Purchaser, arising from or related to any
breach of any representation or warranty of the Company in this Agreement or any
failure by the Company to perform any covenant of the Company set forth in this
Agreement.
(f) CanFibre Group, Ltd, To Become Subsidiary. Within 10 days after
the Closing, the Company shall, and shall cause each of its Affiliates to,
convert all shares of capital stock or other securities of CanFibre Group, which
are convertible into common equity of CanFibre and which are held by the Company
or any such Affiliate, to be converted into the common stock of CanFibre, and
shall take or cause to be taken all other actions necessary to ensure that
CanFibre Group is a Subsidiary of the Company.
(g) Accuracy of Offering Documents. The Prelim-inary Limited Offering
Memorandum and the Final Limited Offering Memorandum (and any other offering
materials related to the offering and sale of the Bonds) shall contain no untrue
statement of a material fact or omit to state a material fact necessary to make
the statements therein, in light of the circumstances under which they were
made, not misleading. Notwithstanding the foregoing, in the event that the
Final Limited Offering Memorandum differs in any way from the Preliminary
Limited Offering Memorandum and/or other offering materials related to the
offering and sale of the Bonds, to that extent only the Final Limited Offering
Memorandum shall be relied upon.
(h) Visitation; Board Representation. For so long as Purchaser and
its Affiliates own beneficially (determined in accordance with Rule 13d-3 under
the Exchange Act) 10% or more of the outstanding Common Stock, the Company shall
give Purchaser notice of all meetings of the Board of Directors of the Company
(or any executive committee thereof) and shall afford Purchaser an opportunity
to attend each such meeting. Any such representative shall not constitute a
member of the Board of Directors or an
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<PAGE>
advisory director and shall not be entitled to vote on any matter presented at
any such meeting. In addition if, at any time while the Purchaser and its
Affiliates beneficially own 10% or more of the outstanding Common Stock and the
Purchaser shall so request, the Company shall, subject to compliance with
applicable laws (i) expand the number of directors constituting the entire board
by one, (ii) fill the vacancy created by such expansion with a designee of the
Purchaser reasonably acceptable to the Company, and (iii) submit the name of
such designee to the shareholders of the Company (together with a recommendation
of his or her election) at each meeting of shareholders at which directors are
elected, until requested otherwise by the Purchaser.
(i) HSR Act. The Company agrees that, in the event any conversion or
exercise of any Securities requires any filing to be made under the Hart-Scott-
Rodino Antitrust Improvements Act of 1976 ("HSR Act"), the Company shall, at the
request of the Purchaser (or any transferee of any Securities) and at the
expense of the Company, make all filings required by the HSR Act and shall
cooperate with the Purchaser (or such transferee) in responding to any request
for information submitted by the Department of Justice or the Federal Trade
Commission.
(j) Makewhole Payment. On the Makewhole Date, the Company shall pay
to the Purchaser the Makewhole Amount, such payment to be made at the option of
the Company (a) in cash or (b) by delivery of duly authorized, validly issued,
and fully paid and nonassessable shares of Common Stock, valued for such
purposes at the trade weighted average of the prices for the Common Stock during
the 30 days preceding the Makewhole Date.
(k) 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
defined in Articles of Amendment) 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
$10 million of Common Stock at prices less
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<PAGE>
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 paragraph (k) shall terminate on the date
the Purchaser and its Affiliates beneficially own less than 10% of the
outstanding Common Stock.
7.0 Conditions of Purchaser's Obligations at Closing. The obligations of
the Purchaser under Section 2.0 of this Agreement are subject to the fulfillment
at or before the Closing Date of the following conditions, any of which may be
waived in writing by such Purchaser:
(a) Representations and Warranties. The represen-tations and
warranties of the Company contained in Section 4.0 shall be true and correct in
all material respects on and as of such Closing with the same effect as if made
on and as of the Closing.
(b) Covenants. The Company shall have performed or fulfilled all
agreements, obligations and conditions contained herein required to be performed
or fulfilled by the Company before the Closing.
(c) Certificate. The Purchaser shall have received a certificate
signed by the Chief Executive Officer or Chief Financial Officer of the Company
certifying as to the satisfaction of the conditions set forth in clauses (a) and
(b) above. The Purchaser also shall have received a Certificate, dated the
Closing Date, of the Secretary of the Company certifying as true, complete and
correct the charter and bylaws of the Company and resolutions relating to the
transactions contemplated by this Agreement.
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<PAGE>
(d) Opinion of Counsel. There shall have been delivered to the
Purchaser, an opinion of Wong Hui & Associates, Canadian counsel to the Company
and an opinion of Sirota & Sirota LLP, U.S. counsel to the Company,
substantially in the forms annexed hereto as Exhibits H and I, respectively.
(e) CanFibre Loan. The transactions contemplated by the commitment
letter, dated April 15, 1997, between Purchaser, CanFibre of Riverside, Inc.,
CanFibre Group and the Company related to Subordinated Debt of CanFibre of
Riverside, Inc. shall have been consummated, provided the amount of such debt
shall not be less than $15,000,000.
(f) Proceedings Satisfactory. All corporate and legal proceedings
taken by the Company in connection with the transactions contemplated by this
Agreement, and all documents and papers relating to such transactions shall be
satisfactory to Purchaser.
(g) Qualifications. All authorizations, approvals or permits, if any,
of any governmental authority or regulatory body that are required in connection
with the lawful sale and issuance of the Securities shall have been duly
obtained and shall be effective on and as of the Closing.
(h) Registration Rights Agreement. The Company and the Purchasers
shall have entered into the Registration Rights Agreement in the form of Exhibit
E annexed hereto and as of the Closing the Registration Rights Agreement shall
be in full force and effect.
(i) Shareholder Agreement. The Samarac Corporation shall have entered
into an agreement in the form of Exhibit K attached hereto (the "Shareholder
Agreement") with respect to its sale and voting of Common Stock.
(j) Due Diligence. Purchasers shall have completed their due
diligence investigation regarding the Company and its Subsidiaries, its books
and records, business, assets, strategy and
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management plan and the results of such investigation shall have been
satisfactory to Purchaser.
(k) Financing. No less than $85,000,000 of Bonds shall have been
issued and sold in connection with the CanFibre Riverside Project.
(l) No Adverse Market or Company Event. None of the following shall
have occurred: (i) any general suspension of trading, or limitation on prices
or quotes for the Common Stock on the OTC Bulletin Board, (ii) a declaration of
a banking moratorium or any suspension of payments as a result of being in the
United States or Canada, (iii) a commencement or escalation of a war, armed
hostilities or other international or national calamity directly or indirectly
involving the United States or Canada (iv) any limitation by Canadian, United
States, provincial or state authorities on the extension of credit by lending
institutions which materially and adversely affects the Company, or (v) any
Material Adverse Event with respect to the Company.
(m) Fee Letter. CanFibre Group shall have executed and delivered to
the Purchaser the Fee Letter.
(n) Expenses. The Company shall pay at Closing the fees and expenses
of counsel to the Company in connection with the preparation, execution and
delivery of this Agreement and the transactions contemplated hereby.
8.0 Conditions of the Company's Obligations at Closing. The obligations
of the Company under Section 2.0 of this Agreement with respect to Purchaser are
subject to the fulfillment at or before the Closing Date of each of the
following conditions, any of which may be waived in writing by the Company:
(a) Representations and Warranties. The represen-tations and
warranties of Purchasers contained in Section 5.0 shall be true on and as of the
Closing with the same effect as though said representations and warranties had
been made on and as of the Closing.
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<PAGE>
(b) Performance of Obligations. The Purchaser shall have performed
and complied with all agreements and conditions herein required to be performed
or complied with by it on or before the Closing.
(c) Qualifications. All authorizations, approvals or permits, if any,
of any governmental authority or regulatory body that are required in connection
with the lawful sale and issuance of the Securities pursuant to this Agreement
shall have been duly obtained and shall be effective on and as of the Closing.
(d) Letter Agreement. Purchaser shall have executed and delivered the
letter agreement in the form attached hereto as Exhibit L regarding 5,000
Preference Shares.
9.0 Miscellaneous
(a) Public Statements. Neither party to this Agreement shall issue
any press release or make any other public statement regarding the transactions
contemplated hereby without the prior approval of the other party, which will
not be unreasonably withheld.
(b) Dispute Resolution.
(i) Inasmuch as the implementation of this Agreement will be
enhanced by the timely and open resolution of any disputes or
disagreement between the parties, each party shall use all reasonable
efforts to cause any disputes or disagreements that should arise after
the Closing Date between them to be considered, negotiated in good faith
and resolved as soon as possible after arising.
(ii) No resolution or attempted resolution of any dispute or
disagreement pursuant to this Section shall be deemed to be a waiver of
any term or provision of this Agreement or to be a consent to any breach
or default unless such waiver or consent shall be in writing and
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<PAGE>
signed by the party against whom such waiver or consent is sought to be
enforced.
(iii) Disputes arising under this Agreement and all documents
referred to herein 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 Section 9.0. The arbitrator shall be selected by the joint
agreement of the parties hereto, 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.
(c) Survival of Representations and Warranties. The respective
agreements, representations, warranties, indemnities and other statements made
by or on behalf of the Company and the Purchasers, respectively, pursuant to
this Agreement, shall remain in full force and effect, regardless of any
investigation made by or on behalf of the other party to this Agreement or any
officer, director or employee of, or person controlling or under common control
with any of the foregoing or any other clause or provision of this Agreement.
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<PAGE>
(d) Governing Law. This Agreement shall be governed by any construed
in accordance with the internal laws (and not the law of conflicts) of the State
of New York.
(e) Successors and Assigns. The terms and conditions of this
Agreement shall inure to the benefit of and be binding upon the respective
successors and permitted assigns of the parties. Prior to Closing, Purchaser may
assign any and all of its rights, privileges and obligations hereunder to any
other Purchaser, any non-Canadian Affiliate of such Purchaser or any non-
Canadian entity managed by such Purchaser or any of its non-Canadian Affiliates
or for which such Purchaser or one of such of its non-Canadian Affiliates acts
as administrative agent. Otherwise, the Purchasers may not transfer or assign
any rights, privileges or obligations hereunder without the prior consent of the
Company, which consent will not be unreasonably withheld.
(f) Severability. In case any provision of this Agreement shall be
invalid, illegal or unenforceable, it shall to the extent practicable, be
modified so as to make it valid, legal and enforceable and to retain as nearly
as practicable the intent of the parties, and the validity, legality and
enforceability of the remaining provisions shall not in any way be affected or
impaired thereby.
(g) Amendment of Agreement. Any provision of this Agreement and the
Exhibits and Schedules hereto may be amended only by a written instrument signed
by the Company and the Purchaser(s).
(h) Notices. Any notice required or permitted hereunder shall be
given in writing and shall be conclusively deemed effectively given upon
personal delivery, when receipt is electronically confirmed, if sent by fax
(with hard copy to follow via first class mail) or three (3) days after deposit
in the United States or Canadian mail, if sent by registered or certified mail,
postage prepaid, addressed. All notices shall be sent as follows.:
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(i) if to the Company, to:
The Kafus Capital Corporation
6 Eva Road
Suite 600
Toronto, Ontario MA9 2A8
CANADA
Fax: (416) 695-3004
(ii) If to the Purchaser to its address and telecopier number
as set forth on the signature page hereof.
(i) Fees and Expenses. Except as otherwise provided herein or in
the Registration Rights Agreement, each party shall pay the fees and expenses of
its advisers, counsel, accountants and other experts, if any, and all other
expenses incurred by such party incident to the negotiations, preparation,
execution, delivery and performance of this Agreement, and the other agreements
contemplated hereby.
(j) Counterparts. This Agreement may be executed in two or more
counterparts, each of which shall be deemed an original, but all of which
together shall constitute one and the same instrument.
(k) Entire Agreement. This Agreement and the Exhibits and
Schedules hereto constitute the entire contract between the
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<PAGE>
Company and the Purchaser relative to the subject matter hereof. Any previous
agreement between the Company and the Purchaser with respect to the subject
matter hereof is superseded by this Agreement.
THE KAFUS CAPITAL CORPORATION
BY:/s/ Kenneth F. Swaisland
--------------------------------
Kenneth F. Swaisland
President
ENRON CAPITAL & TRADE RESOURCES CORP.
BY:/s/ J. Kevin McConville
----------------------------------
J. Kevin McConville
Vice President
ADDRESS: 1400 Smith Street
Houston, Texas 77002
Attention: Tony A. Valentine
Fax: (713) 646-8408
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<PAGE>
EXHIBIT A -- WARRANT
WARRANT
================================================================================
THE SECURITIES REPRESENTED BY THIS CERTIFICATE AND THE SHARES OF COMMON STOCK
ISSUABLE UPON EXERCISE THEREOF HAVE NOT BEEN REGISTERED UNDER THE SECURITIES ACT
OF 1933, AS AMENDED (THE "ACT"), OR ANY STATE SECURITIES OR BLUE SKY LAWS AND
MAY NOT BE SOLD, PLEDGED OR OTHERWISE TRANSFERRED EXCEPT PURSUANT TO AN
EFFECTIVE REGISTRATION STATEMENT UNDER THE ACT OR IN RELIANCE ON AN AVAILABLE
EXEMPTION FROM THE ACT AND ANY APPLICABLE STATE SECURITIES OR BLUE SKY LAWS.
THE SECURITIES REPRESENTED BY THIS CERTIFICATE ARE SUBJECT TO A HOLD PERIOD AND
MAY NOT BE TRADED IN ONTARIO UNTIL 90 DAYS AFTER DATE OF ISSUANCE HEREOF EXCEPT
AS PERMITTED BY THE SECURITIES ACT (ONTARIO) AND THE SECURITIES RULES AND
REGULATIONS THEREUNDER.
THE SECURITIES REPRESENTED BY THIS CERTIFICATE ARE SUBJECT TO RESTRICTIONS ON
TRANSFER SET FORTH IN SECTION 3.
================================================================================
THE KAFUS CAPITAL CORPORATION
Common Stock Purchase Warrant
Representing Right To Purchase Shares of
Common Stock
of
The Kafus Capital Corporation
No. AW-1
FOR VALUE RECEIVED, THE KAFUS CAPITAL CORPORATION, a British Columbia
corporation (the "Company"), hereby certifies that Enron Capital & Trade
Resources Corp., a Delaware corporation (the
<PAGE>
"Holder"), is entitled, to purchase from the Company, at any time or from time
to time during the Exercise Period (as hereinafter defined), 500,000 shares of
Common Stock (as such number of shares may be adjusted pursuant to the terms
hereof, the "Warrant Shares"), at a price per share equal to the Exercise Price
(as defined below). This Warrant is issued to the Holder (together with such
other warrants as may be issued in exchange, transfer or replacement of this
Warrant, the "Warrants") pursuant to the Subscription Agreement dated as of the
Date of Issuance between the Company and the Purchaser named therein, and
entitles the Holder to purchase the Warrant Shares and to exercise the other
rights, powers and privileges hereinafter provided.
Section 1. Definitions. The following terms, as used herein, have the
following respective meanings:
"Common Stock" means the Company's common stock, no par value.
"Company" is defined in the introductory paragraph of this Warrant.
"Date of Issuance" means July 16, 1997.
"Exercise Period" means the period commencing on July 16, 1998 and ending
on 5:00 p.m. (Toronto, Ontario time) on the Expiration Date.
"Exercise Price" means $2.00 per share of Common Stock, subject to
adjustment as provided herein.
"Expiration Date" means July 16, 2007.
"Holder" means the Holder named herein and its permitted assignees.
"Person" means any individual, corporation, limited or general partnership,
joint venture, association, joint-stock company, trust, limited liability
company, unincorporated organization or government or any agency or political
subdivision thereof.
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<PAGE>
"Warrants" is defined in the introductory paragraph of this Warrant.
"Warrant Shares" is defined in the introductory paragraph of this Warrant.
Section 2. Exercise of Warrant; Cancellations of Warrant.
(a) This Warrant represents the right to purchase, at the Exercise Price,
500,000 shares of Common Stock, subject to adjustment upon the occurrence of the
events set forth in Section 4.
(b) This Warrant may be exercised in whole or in part, at any time or from
time to time, during the Exercise Period, by presentation to the Company at its
principal office at the address set forth in Section 10 of (i) this Warrant,
with the Purchase Form annexed hereto as Exhibit A duly executed and (ii) a
certified bank check equal to the Exercise Price for the Warrant Shares for
which this Warrant is being exercised (the date of such delivery referred to
herein as the "Exercise Date"). Within five business days after payment of the
Exercise Price, the Company shall execute and deliver to the Holder a
certificate or certificates for the total number of Warrant Shares for which
this Warrant is being exercised, in such names and denominations as requested in
writing by the Holder. The Company shall pay any and all documentary stamp or
similar issue taxes payable in respect of the issue of the Warrant Shares. If
this Warrant is exercised in part only, the Company shall, upon surrender of
this Warrant, execute and deliver a new Warrant evidencing the rights of the
Holder thereof to purchase the balance of the Warrant Shares issuable hereunder.
Section 3. Exchange, Transfer, Assignment or Loss of Warrant. Upon
surrender of this Warrant to the Company, with the Assignment Form annexed
hereto as Exhibit B duly executed and funds sufficient to pay any transfer tax,
the Company shall, without charge, execute and deliver a new Warrant or Warrants
in the name of the assignee or assignees named in such Assignment Form and, if
the Holder's entire interest is not being assigned, in the name of
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<PAGE>
the Holder, and this Warrant shall promptly be canceled. This Warrant may be
divided or combined with other Warrants that carry the same rights upon
presentation hereof at the office of the Company, together with a written notice
specifying the names and denominations in which new Warrants are to be issued
and signed by the Holder hereof. Upon receipt by the Company of evidence
satisfactory to it of the loss, theft, destruction or mutilation of this
Warrant, and (in the case of loss, theft or destruction) of reasonably
satisfactory indemnification (including, if required in the reasonable judgment
of the Company, a statement of net worth of such Holder that is at a level
reasonably satisfactory to the Company), and upon surrender and cancellation of
this Warrant, if mutilated, the Company shall execute and deliver a new Warrant
of like tenor and date.
Section 4. Antidilutive Adjustments. The shares of Common Stock
purchasable on exercise of the Warrants evidenced by this Warrant Certificate
are shares of Common Stock of the Company as constituted as of the Date of
Issue. The number and kind of securities purchasable on the exercise of this
Warrant shall be subject to adjustment from time to time upon the happening of
certain events, as follows:
(a) Mergers, Consolidations and Reclassifications. In case of any
reclassification or change of outstanding securities issuable upon exercise of
the Warrants at any time (other than a change in par value, or from par value to
no par value, or from no par value to par value or as a result of a subdivision
or combination to which subsection 4(b) applies), or in case of any
consolidation or merger of the Company with or into another corporation (other
than a merger with another corporation in which the Company is the surviving
corporation and which does not result in any reclassification or change [other
than a change in par value, or from par value to no par value, or from no par
value to par value, or as a result of a subdivision or combination to which
subsection 4(b) applies] of outstanding securities issuable upon exercise of
this Warrant), the Holder shall have, and the Company, or such successor
corporation or other entity, shall covenant in the constituent documents
effecting any of the foregoing
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<PAGE>
transactions that such holder does have, the right to obtain upon the exercise
hereof, in lieu of the shares of Common Stock, other securities, money or other
property theretofore issuable upon exercise of a Warrant, the kind and amount of
shares of stock, other securities, money or other property receivable upon such
reclassification, change, consolidation or merger by a holder of the shares of
Common Stock, other securities, money or other property issuable upon exercise
hereof had this Warrant been exercised immediately prior to such
reclassification, change, consolidation or merger. The constituent documents
effecting any such reclassification, change, consolidation or merger shall
provide for any adjustments which shall be as nearly equivalent as may be
practicable to the adjustments provided in this subsection 4(a). The provisions
of this subsection 4(a) shall similarly apply to successive reclassifications,
changes, consolidations or mergers.
(b) Subdivisions and Combinations. If the Company, at any time during
the Exercise Period shall subdivide its shares of Common Stock into a greater
number of shares, the number of shares of Common Stock purchasable upon exercise
of the Warrants shall be proportionately increased and the Exercise Price shall
be proportionately decreased, as at the effective date of such subdivision, or
if the Company shall take a record of holders of its Common Stock for the
purpose of so subdividing, as at such record date, whichever is earlier. If the
Company, at any time during the Exercise Period, shall combine its shares of
Common Stock into a smaller number of shares, the number of shares of Common
Stock purchasable upon exercise hereof shall be proportionately reduced and the
Exercise Price shall be proportionately increased, as at the effective date of
such combination, or if the Company shall take a record of holders of its Common
Stock for purposes of such combination, as at such record date, whichever is
earlier.
(c) Dividends and Distributions. If the Company at any time shall
declare a dividend on its Common Stock payable in stock or other securities of
the Company or of any other corporation or other entity, or in property or
otherwise than in cash, to the
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<PAGE>
holders of its Common Stock, the Holder shall, without additional cost, be
entitled to receive upon any exercise hereof, in addition to the Common Stock to
which such holder would otherwise be entitled upon such exercise, the number of
shares of stock or other securities or property which such holder would have
been entitled to receive if he had been a holder immediately prior to the record
date for such dividend (or, if no record date shall have been established, the
payment date for such dividend) of the number of shares of Common Stock
purchasable on exercise of such Warrant immediately prior to such record date or
payment date, as the case may be.
(d) Upon any increase or decrease in the number of Warrant Shares
purchasable upon the exercise of this Warrant, the Company shall, within 30 days
thereafter, deliver written notice thereof to all Holders, which notice shall
state the increased or decreased number of Warrant Shares purchasable upon the
exercise of this Warrant and the revised Exercise Price thereof, setting forth
in reasonable detail the method of calculation and the facts upon which such
calculations are based.
Section 5. Notification by the Company. In case at any time while this
Warrant remains outstanding:
(a) the Company shall declare any dividend or make any distribution
upon its Common Stock or any other class of its capital stock; or
(b) the Company shall offer for subscription pro rata to the holders
of its Common Stock or any other class of its capital stock any additional
shares of stock of any class or any other securities convertible into or
exchangeable for shares of stock or any rights or options to subscribe thereto;
or
(c) the Board of Directors of the Company shall authorize any capital
reorganization, reclassification or similar transaction involving the capital
stock of the Company, or a sale or conveyance of all or a substantial part of
the assets of the
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<PAGE>
Company, or a consolidation, merger or business combination of the Company with
another Person; or
(d) actions or proceedings shall be authorized or commenced for a
voluntary or involuntary dissolution, liquidation or winding-up of the Company;
then, in any one or more of such cases, the Company shall give written notice to
the Holder, at the earliest time legally practicable (and not less than 20 days
before any record date or other date set for definitive action) of the date on
which (i) the books of the Company shall close or a record shall be taken for
such dividend, distribution or subscription rights or options or (ii) such
reorganization, reclassification, sale, conveyance, consolidation, merger,
dissolution, liquidation or winding-up shall take place or be voted on by
shareholders of the Company, as the case may be. Such notice shall also specify
the date as of which the holders of the Common Stock of record shall participate
in said dividend, distribution, subscription rights or options or shall be
entitled to exchange their Common Stock for securities or other property
deliverable upon such reorganization, reclassification, sale, conveyance,
consolidation, merger, dissolution, liquidation or winding-up, as the case may
be. If the action in question or the record date is subject to the
effectiveness of a registration statement under the Securities Act or to a
favorable vote of shareholders, the notice required by this Section 5 shall so
state.
Section 6. No Voting Rights: Limitations of Liability. Prior to
exercise, this Warrant will not entitle the Holder to any voting rights or other
rights as a stockholder of the Company. No provision hereof, in the absence of
affirmative action by the Holder to exercise this Warrant, and no enumeration
herein of the rights or privileges of the Holder, shall give rise to any
liability of the Holder for the purchase price of the Warrant Shares pursuant to
the exercise hereof.
-7-
<PAGE>
Section 7. Amendment and Waiver.
(a) No failure or delay of the Holder in exercising any power or right
hereunder shall operate as a waiver thereof, nor shall any single or partial
exercise of such right or power, or any abandonment or discontinuance of steps
to enforce such a right or power, preclude any other or further exercise thereof
or the exercise of any other right or power. The rights and remedies of the
Holder are cumulative and not exclusive of any rights or remedies which it would
otherwise have. The provisions of this Warrant may be amended, modified or
waived with (and only with) the written consent of the Company and the Holder.
(b) No notice or demand on the Company in any case shall entitle the
Company to any other or further notice or demand in similar or other
circumstances.
Section 8. No Fractional Warrant Shares. The Company shall not be
required to issue stock certificates representing fractions of Warrant Shares,
but shall in respect of any fraction of a Warrant Share make a payment in cash
based on the Value of the Common Stock after giving effect to the full exercise
or conversion of the Warrants.
Section 9. Reservation of Warrant Shares. The Company shall
authorize, reserve and keep available at all times, free from preemptive rights,
a sufficient number of Warrant Shares to satisfy the requirements of this
Warrant.
Section 10. Notices. Unless otherwise specified, whenever this Warrant
requires or permits any consent, approval, notice, request, or demand from one
party to another, that communication must be in writing (which may be by
telecopy) to be effective and is deemed to have been given (a) if by telecopy,
when transmitted to the appropriate telecopy number (and all communications sent
by telecopy must be confirmed promptly by telephone; but any requirement in this
parenthetical does not affect the date when the telecopy is deemed to have been
delivered), or (b) if by any other means, including by internationally
acceptable courier or hand
-8-
<PAGE>
delivery, when actually delivered. Until changed by notice pursuant to this
Warrant, the address (and telecopy number) for the Holder shall be as set forth
on Schedule A to the Subscription Agreement dated as of the Date of Issuance
between the Company and the Purchasers named therein, and the address and
telecopy number for the Company are:
If to Company: The Kafus Capital Corporation
6 Eva Road, Suite 600
Toronto, Ontario
Canada MA9 2A8
Attention: Chief Financial Officer
Facsimile: (416) 695-3004
Section 11. Section and Other Headings. The headings contained in this
Warrant are for reference purposes only and will not affect in any way the
meaning or interpretation of this Warrant.
Section 12. Governing Law. THIS WARRANT SHALL BE GOVERNED BY, AND
CONSTRUED IN ACCORDANCE WITH, THE LAWS OF NEW YORK.
Section 13. Binding Effect. The terms and provisions of this Warrant
shall inure to the benefit of the Holder and its successors and assigns and
shall be binding upon the Company and its successors and assigns, including,
without limitation, any Person succeeding to the Company by merger,
consolidation or acquisition of all or substantially all of the Company's
assets.
IN WITNESS WHEREOF, the seal of the Company and the signature of its duly
authorized officer have been affixed hereto as of July 16, 1997.
[SEAL] THE KAFUS CAPITAL CORPORATION
Attest:____________ By:_________________________
Name:_______________________
Title:______________________
-9-
<PAGE>
EXHIBIT A
TO
WARRANT
PURCHASE FORM
To Be Executed by the Holder
Desiring to Exercise a Warrant of
The Kafus Capital Corporation
The undersigned holder hereby exercises the right to purchase _______
shares of Common Stock covered by the within Warrant, according to the
conditions thereof, and herewith undertakes to make payment in full of the
Exercise Price of such shares or to withdraw this notice of exercise, in
accordance with the terms of the Warrant.
Name of Holder:
_________________________________
Signature:_______________________
Title:___________________________
Address:_________________________
_________________________________
_________________________________
Dated:______________, __ .
-10-
<PAGE>
EXHIBIT B
TO
WARRANT
ASSIGNMENT FORM
To Be Executed by the Holder
Desiring to Transfer a Warrant of
The Kafus Capital Corporation
FOR VALUE RECEIVED, the undersigned holder hereby sells, assigns and
transfers unto __________ the right to purchase ______ shares of Common Stock
covered by the within Warrant, and does hereby irrevocably constitute and
appoint _________________ Attorney to transfer the said Warrant on the books of
the Company (as defined in such Warrant), with full power of substitution.
Name of Holder:
_______________________________
Signature:_____________________
Title:_________________________
Address:_______________________
_______________________________
_______________________________
Dated:_____________, __ .
In the presence of
________________________
NOTICE:
The signature to the foregoing Assignment Form must correspond to the name as
written upon the face of the within Warrant in every detail, without alteration
or enlargement or any change whatsoever.
-11-
<PAGE>
EXHIBIT B
---------
26.3 The 15,000 Series I 10% Convertible Redeemable Preference Shares
shall have attached thereto, in addition to the rights privileges, restrictions,
conditions and limitations attaching to the Preference Shares as a class, the
following rights, privileges and conditions:
1. Definitions. The following capitalized terms have the meanings set
forth below:
"Average Price" with respect to the Common Stock means, on any day,
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 the
Common Stock in an over-the-counter market.
"Business Day" shall mean a day other than a Saturday, Sunday or any
other day treated as a holiday in the municipality in Canada in which the
Company's registered office is then situated.
"Common Stock" shall mean the Company's common stock, without par
value.
"Conversion Price" means the result obtained by dividing $1,000 (the
stated value of each Preference Share) by the Conversion Rate from time to time
in effect. The Conversion Price initially shall be $4.00 per share of Common
Stock.
"Conversion Rate" means the number of shares of Common Stock issuable
on conversion of one Preference Share, and initially shall be equal to 250
shares of Common Stock, subject to adjustment as set forth in Section 2.0.
<PAGE>
"Conversion Shares" means the shares of Common Stock issuable upon
exercise of the Preference Shares.
"Issue Date" shall mean July 16, 1997.
"Junior Shares" shall mean any shares in the capital structure of the
Company ranking after or subordinate to the Preference Shares as to the payment
of dividends or the return of capital, including, without limiting the
generality of the foregoing, the Common Stock of the Company.
"Liquidation Distribution" shall mean a liquidation to its
shareholders upon the liquidation, dissolution or winding-up of the Company,
whether voluntary or involuntary, or any other distribution of assets of the
Company among its shareholders for the purposes of winding-up its affairs.
"Person" means any individual, trust, corporation, partnership,
limited liability company or other business association or entity, court,
governmental body or governmental agency.
"Preference Shareholders" means a Person recorded on the securities
register of the Company as being the registered holder one or more Preference
Shares.
"Preference Shares" shall mean the Company's Series I 10% Convertible
Redeemable Preference Shares having the rights and preferences set forth herein.
"Ranking as to Capital" shall mean ranking or priority with respect to
the distribution of assets in the event of a Liquidation Distribution.
1.1 Gender, etc. Words importing only the singular number include
the plural and vice versa and words importing any gender include all genders.
1.2 Currency. All monetary amounts referred to herein shall be in
lawful money of the United States.
1.3 Headings. The division of these Articles of Amendment into
sections, clauses, subclauses or other subdivisions and the insertion of
headings are for convenience of reference only and shall not affect the
construction or interpretation hereof.
2
<PAGE>
1.4 Business Day. In the event that any date upon which any action
is required to be taken by the Company or any other Person hereunder, is not a
Business Day, then such action shall be required to be taken on or by the next
succeeding day which is a Business Day.
1.5 Company Act (British Columbia). The Preference Shares shall be
governed by and are subject to the applicable provisions of the Company Act
(British Columbia), as such statute may from time to time be amended, varied,
replace, re-enacted and all other law binding upon the and, except as otherwise
expressly provided herein, all terms used herein which are defined in the
Company Act (British Columbia) shall have the respective meanings ascribed
thereto in the Company Act (British Columbia).
2.0 Conversion.
(a) Upon and subject to the provisions and conditions contained in this
paragraph 2.0, the holders of Preference Shares shall have the right,
but not the obligation, at any time, to convert any or all of the
Preference Shares into fully paid and non-assessable shares of Common
Stock, at the Conversion Rate.
(b) Upon any conversion of Preference Shares into shares of Common Stock,
the holder of Preference Shares shall be entitled to receive, upon
conversion, in addition to the shares of Common Stock and cash in lieu
of fractional shares as described below, an amount in cash equal to all
accrued but unpaid dividends (whether or not declared) from the Issue
Date through the date of conversion.
(c) No fractional shares of Common Stock shall be issued upon conversion of
Preference Shares. Instead of any fractional share of Common Stock
which would otherwise be issuable upon conversion, the Company shall
pay a cash adjustment equal to such fraction multiplied by the price
per share of the Common Stock on the trading day next preceding the
date of conversion. In determining the number of shares of Common Stock
and the payment, if any, in lieu of fractional shares that a holder of
3
<PAGE>
Preference Shares shall receive, the total number of Preference Shares
surrendered for conversion by such holder shall be aggregated.
(d) If less than the entire number of Preference Shares represented by a
certificate is converted, the registered holder thereof shall be
entitled to receive a new Preference Share certificate representing the
number of Preference Shares not so converted.
(e) A Preference Shareholder desiring to convert Preference Shares into
Common Stock as described above shall deliver to the Company at its
registered office at Suite 600, 6 Eva Road, Toronto, Ontario (i) notice
in writing of the exercise of its right to convert the Preferences
Shares, specifying the number of Preference Shares to be converted,
naming the party or parties in whose names the Conversion Shares are to
be issued and the number to be issued to each, and (ii) certificates
representing the Preference Shares to be converted. As promptly as
practicable on or after the conversion date, but in no event later than
five (5) Business Days following conversion, the Company shall issue
and deliver certificates representing the Conversion Shares, together
with payment in full of accrued and unpaid dividends and any cash
payment in lieu of fractional shares, as hereinabove provided, to the
Person or Persons entitled to receive the same. The Company shall pay
all stock issuance or transfer, documentary and other taxes payable
upon conversion of Preference Shares; provided, however, that if any of
the Conversion Shares are to be issued to a party or parties other than
the registered holder of the Preference Shares converted, the
registered holder shall pay to the Company any securities transfer
taxes which may properly be required by it.
(f) The Company covenants and agrees that so long as any Preference Shares
are outstanding it will, at all times reserve and keep available, free
of preemptive rights, out of its unissued shares of Common Stock for
the purpose of issuance on conversion of the Preference Shares, the
full
4
<PAGE>
number of shares of Common Stock deliverable on conversion of all
outstanding Preference Shares upon the basis and upon the terms and
conditions provided for herein. All Conversion Shares shall be issued
as fully paid and non-assessable shares of Common Stock.
(g) The number and kind of securities issuable upon the conversion of the
Preference Shares shall be subject to adjustment from time to time upon
the happening of certain events occurring on or after the date of
original issue of the Preference Shares as follows:
(i) In case of any reclassification or change of Common Stock (other
than a change in par value, or from par value to no par value, or from no
par value to par value or as a result of a subdivision or combination), or
in case of any consolidation or merger of the Company with or into another
corporation (other than a merger with another corporation in which the
Company is the surviving Company and which does not result in any
reclassification or change -- other than a change in par value, or from par
value to no par value, or from no par value to par value, or as a result of
a subdivision or combination -- of Common Stock issuable upon exercise of
these conversion rights), or in the case of a sale or conveyance in a
single transaction or in a series of related transactions with the same
purchaser or affiliates thereof of all or substantially all the assets of
the Company as an entirety, or a statutory share exchange in which all
shares of Common Stock are exchanged for shares of another corporation or
entity, the holders of the Preference Shares shall have, and the Company,
or such successor entity or purchaser, shall covenant in the constituent
documents effecting any of the foregoing transactions that the holders of
the Preference Shares do have, the right to obtain upon the exercise of
these conversion rights, in lieu of each share of Common Stock theretofore
issuable upon exercise of these conversion rights, the kind and amount of
shares of stock, other securities, money and property receivable upon such
reclassification, change, consolida tion or merger, conveyance or sale of
assets or share exchange by a holder of one share of Common Stock issuable
upon exercise of these conversion rights as if
5
<PAGE>
they had been exercised immediately prior to such reclassification, change,
consolidation or merger, conveyance or sale of assets or share exchange.
The constituent documents effecting any reclassification, change,
consolidation or merger, or share exchange shall provide for adjustments
which shall be as nearly equivalent as may be practicable to the
adjustments provided in this subparagraph (g). The provisions of this
subparagraph (g)(i) shall similarly apply to successive reclassifications,
changes, consolidations or mergers, conveyances or sales of assets or share
exchanges.
(ii) If the Company at any time while any of the Preference Shares are
outstanding shall subdivide or combine its Common Stock, the Conversion
Price shall be proportionately reduced, in case of subdivision of shares,
as at the effective date of such subdivision, or if the Company shall take
a record of holders of its Common Stock for the purpose of so subdividing,
as at such record date, whichever is earlier, or shall be proportionately
increased, in the case of combination of shares, as at the effective date
of such combination or, if the Company shall take a record of holders of
its Common Stock for the purpose of so combining, as at such record date,
whichever is earlier.
(iii) If the Company at any time while any of the Preference Shares is
outstanding shall pay to any holders of stock of the Company a dividend
payable in, or make any other distribution of, Common Stock, the Conversion
Price shall be adjusted, as of the date the Company shall take a record of
the holders of such stock for the purpose of determining the holders
entitled to receive such dividend or other distribution (or if no such
record is taken, as at the date of such payment or other distribution), to
that price determined by multiplying the Conversion Price in effect
immediately prior to such record date (or if no such record is taken, then
immediately prior to such payment or other distribution) by a fraction (1)
the numerator of which shall be the total number of shares of Common Stock
outstanding immediately prior to such dividend or distribution, and (2)
the denominator of which shall be the total number of shares of Common
Stock outstanding immediately after such dividend or distribution.
6
<PAGE>
(iv) If the Company shall issue to all holders of its Common Stock any
warrant, option or other right to subscribe for or purchase shares of
Common Stock at a price per share less than the Average Price of the Common
Stock, the Conversion Price shall be adjusted, as of the date the Company
shall take a record of the holders of its Common Stock for the purpose of
receiving such issuance or distribution, to that price determined by
multiplying the Conversion Price by a fraction, the numerator of which
shall be the number of shares of Common Stock outstanding on the date of
issuance of such warrants, options or rights plus the number of shares
which the aggregate offering price of the total number of shares so offered
would purchase at such Average Price per share, and the denominator of
which shall be the number of shares of Common Stock outstanding on the date
of issuance of such warrants, options or rights plus the number of
additional shares of Common Stock offered for subscription or purchase.
(v) If the Company shall distribute to all holders of its Common Stock
evidences of indebtedness of the Company, shares of capital stock of the
Company (other than Common Stock) or assets or rights or warrants to
subscribe for or purchase any of its securities (excluding those dividends,
warrants, options and rights referred to in subparagraph (iv)) then in each
case the Conversion Price shall be adjusted, as of the date the Company
shall take a record of the holders of its Common Stock for the purpose of
determining the holders entitled to receive such issuance or distribution,
to that price determined by multiplying the Conversion Price by a fraction
the numerator of which shall be Average Price per share of the Common Stock
less the fair market value (as determined by the Board of Directors of the
Company, whose determination shall be conclusive) of the portion of the
assets, evidences of indebtedness for subscription rights so distributed in
respect of one share of Common Stock and the denominator of which is the
Average Price per share of Common Stock on the record date for such
distribution.
(vi) No adjustment of the Conversion Price shall be made in an amount
less than $.01 per share, but any such lesser adjustment shall be carried
forward and shall be made at the time together with the next subsequent
7
<PAGE>
adjustment which, together with any adjustments so carried forward, shall
amount to $.01 per share or more.
(h) Whenever the Conversion Price and the Conversion Rate are required to
be adjusted as provided herein, the Company shall forthwith compute the
adjusted Conversion Price and the adjusted Conversion Rate and shall
prepare a certificate setting forth such adjusted Conversion Price and
adjusted Conversion Rate showing in detail the facts upon which such
adjustment is based. A copy of such certificate shall forthwith be
filed with the transfer agent or agents for the Preference Shares (if
any) and for the Common Stock; and thereafter, until further adjusted,
the adjusted Conversion Price and the adjusted Conversion Rate shall be
as set forth in such certificate, provided that the computation of such
adjusted Conversion Price and such adjusted Conversion Rate shall be
reviewed at least annually by the independent public accountants
regularly employed by the Company and said accountants shall file a
corrected certificate, if required, with such transfer agent or agents.
The Company shall mail or cause to be mailed to the holders of
Preference Shares at the time of each quarterly dividend payment, a
statement setting forth the adjustments, if any, made in the applicable
Conversion Price and Conversion Rate and not theretofore reported to
such holders, and the reasons for such adjustment.
(i) If any shares of Common Stock required to be reserved for the purposes
of conversion of Preference Shares hereunder require registration with
or approval of any governmental authority under any federal or state
law, or listing upon any national securities exchange, before such
shares may be issued upon conversion, the Company will in good faith
and as expeditiously as possible endeavor to cause such shares to be
duly registered, approved or listed, as the case may be.
3.0 Redemption. If either (i) the Common Stock is not listed on a U.S.
national securities exchange or the NASDAQ National Market as of January 16,
1999 or (ii) the Average Price of the Common Stock during the 30 days
immediately
8
<PAGE>
preceding January 16, 1999, is less than $7.00 (adjusted appropriately for any
stock split, reverse stock split or other recapitalization occurring after the
issuance of the Preference Shares), each Preference Shareholder thereafter shall
have the right, by written notice to the Company (a "Repurchase Notice"), to
require that the Company repurchase any or all of such Preference Shareholder's
Preference Shares, for an amount in cash equal to $1,000 per share, plus all
accrued and unpaid dividends through the date of repurchase. Any Repurchase
Notice shall be accompanied by duly endorsed certificates representing the
Preference Shares to be repurchased. The Company shall make payment in cash of
the appropriate amounts to the holder requiring repurchase, within 60 days of
the date of the Repurchase Notice.
4.0 Declaration and Payments of Dividends. The holders of Preference
Shares shall be entitled to receive and the Company shall pay thereon,
cumulative preferential dividends per Preference Share, at a rate per annum of
$100. Dividends on Preference Shares will be cumulative, and will accrue
commencing as of the date of issuance and shall be payable semiannually on each
June 30 and December 31 (each, an "Accrual Date"). Except as otherwise set
forth herein, all dividends on Preference Shares shall be paid by the Company
through the issuance of Common Stock. The number of shares of Common Stock
issued in respect of accrued dividends with respect to any dividend period shall
be determined by dividing (i) the dollar sum of the total dividends payable by
(ii) 75% of the Average Price of the Common Stock during the 30-day period
preceding the end of such dividend period. Notwithstanding the foregoing, each
holder of Preference Shares may elect to receive any dividend payment with
respect to any semiannual dividend period in cash instead of through the receipt
of Common Stock, by notifying the Company of such election on or prior to the
Accrual Date occurring immediately prior to the first day of such period. No
fractional shares of Common Stock shall be issued in connection with the payment
of any dividends which are paid in shares of Common Stock. Instead of any
fractional share, holders shall be entitled to cash, in the manner set forth in
Section 2.0(c).
5.0 Voting. The Preference Shares shall have no voting rights attached
thereto except as provided herein or as otherwise provided by applicable law.
Unless the vote or consent of a larger percentage is required by law, the
affirmative vote or consent of the holders of a majority of
9
<PAGE>
the outstanding Preference Shares shall be sufficient to take any action as to
which the vote or consent of the holders of the Preference Shares is required by
law or by the terms hereof. The consent or approval of the Preference
Shareholders with respect to any and all matters may be given by one or more
instruments signed by the holders of at least a majority of the issued and
outstanding Preference Shares or by a resolution passed by at least a majority
of the votes cast at a meeting of the Preference Shareholders duly called for
that purpose and held upon at least 10 days notice, at which the holders of a
majority of the outstanding Preference Shares are present or represented by
proxy. If at any such meeting the holders of a majority of the outstanding
Preference Shares are not present or represented by proxy within one half hour
after the time appointed for such meeting, then the meeting may be adjourned to
such date being not more than 30 days later and to such time and place as may be
appointed by the chairman of the meeting and not less than 10 days notice shall
be given of such adjourned meeting. At such adjourned meeting the holders of the
Preference Shares present or represented by proxy may transact the business for
which the meeting was originally called and the consent or approval of the
holders of the Preference Shares with respect thereto may be given by at least a
majority of the votes cast at such adjourned meeting.
5.1 Notice of Meetings. The formalities to be observed with respect to
the giving of notice of any such meeting and the conduct thereof shall be those
from time to time prescribed by the Company Act (British Columbia) and the
Articles of the Company with respect to meetings of shareholders.
6.0 Restriction on Dividends, Retirement and Issuance of Shares. While
any Preference Shares are outstanding, the Company shall not, without the
approval of the holders of Preference Shares given as hereinafter specified:
(a) declare, set aside for payment or pay any dividend on or make
distributions on or in respect of any Junior Shares (other than
dividends consisting of Junior Shares); or
(b) call for redemption, redeem, purchase, retire, or acquire for value or
distribute in respect of any Junior Shares (except to the extent and
out of net
10
<PAGE>
cash proceeds received by the Company from a substantially concurrent
issue of Junior Shares)
unless, in each case, all dividends then payable on the Preference Shares then
outstanding accrued up to and including the dividends payable on the immediately
preceding respective date or dates for the payment of dividend thereon shall
have been declared and paid or set apart for payment. No dividend may be
declared on nor may any redemption, repurchase or other retirement for value be
made in respect of any series or class of capital stock ranking on a parity with
the Preference Shares as to dividends, unless there also shall have been paid on
the Preference Shares like dividends in respect of all periods at the dividend
rate fixed therefor. If any cumulative dividends or amounts payable on a return
of capital in respect of a series of preferred shares are not paid in full, the
preferred shares of all series shall participate rateably in respect of such
dividends, including accumulations, if any, in accordance with the sums that
would be payable on such shares if all such dividends were declared and paid in
full, and in respect of any repayment of capital in accordance with the sums
that would be payable on such repayment of capital if all sums so payable were
paid in full; provided however, that in the event of there being insufficient
assets to satisfy in full all such claims to dividends and return of capital,
the claims of the holders of the preferred shares of all series with respect to
repayment of capital shall first be paid and satisfied and any assets remaining
thereafter shall be applied towards the payment and satisfaction of claims in
respect of dividends.
7.0 Liquidation, Dissolution or Winding-Up. In the event of any
Liquidation Distribution, each Preference Shareholder shall be entitled to
receive before any amount shall be paid by the Company or any assets of the
Company shall be distributed to registered holders of shares Ranking as to
Capital junior to the Preference Shares in connection with the Liquidation
Distribution, an amount equal to $1,000 per share of Preference Shares held by
such holder, together with an amount equal to all accrued but unpaid cumulative
dividends thereon. After payment to the Preference Shareholders of the amount
so payable to them, they shall not be entitled to share in any further
distribution of assets of the Company. If upon any liquidation, dissolution or
winding up of the affairs of the Company, the assets distributable among the
holders of the Preference Shares (and any other
11
<PAGE>
capital stock of the Company ranking on a parity with the Preference Shares as
to assets) shall be insufficient to permit the payment in full to the holder of
all Preference Shares (and any other capital stock of the Company ranking on a
parity with the Preference Shares as to assets) of all preferential amounts
payable to all such holders, then the entire assets of the Company thus
distributable shall be distributed ratably among the holders of the Preference
Shares (any other capital stock of the Company ranking on a parity with the
Preference Shares as to assets) in proportion to the respective amounts that
would be payable per share if such assets were sufficient too permit payment in
full.
8.0 Amendments To Preference Share Provisions.
(a) These Preference Share provisions may be repealed, deleted, modified,
amended or varied only with the prior approval of the holders of a
majority of the Preference Shares given in the manner provided in
Section 5.0 hereof in addition to any other approval required by the
Company Act (British Columbia) or any other statutory provision of like
or similar effect applicable to the Company, from time to time in
force.
(b) The holder of shares of any class and the holders of shares of any
series of any class are not entitled to vote separately as a class or
series, as the case may be, upon a proposal to amend the articles to:
(i) increase or decrease any maximum number of authorized shares
of such class, or increase any maximum number of so authorize shares of a
class having rights or privileges equal or superior to the shares of such
class; or
(ii) create a new class of shares equal or superior to the shares
of such class.
9.0 Number of Votes. On every poll taken at every such meeting or
adjourned meeting every of the Preference Shareholders, Preference Shareholders
shall be entitled to 1 vote in respect of each $1 of the issue price of
Preference Shares of which he is the registered holder.
12
<PAGE>
10.0 Notices. Any notice required or permitted to be given to any
Preference Shareholder shall be sent by first class mail, postage prepaid, or
delivered to such holder at his address as it appears on the records of the
Company or, in the event of the address of any such shareholder not so appearing
to the last known address of such shareholder. The accidental failure to give
notice to one or more of such shareholders shall not affect the validity of any
action requiring the giving of notice by the Company. Any notice given as
aforesaid shall be deemed to be given on the date upon which it is mailed or
delivered.
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<PAGE>
EXHIBIT D
---------
THE CANFIBRE GROUP LTD. FEE AGREEMENT
July 16, 1997
Enron Capital & Trade Resources Corp.
1400 Smith St.
Houston, Texas 77002
Ladies and Gentlemen:
The CanFibre Group Ltd. ("CanFibre") in connection with the proposed sale by The
Kafus Capital Corporation ("Kafus") of the Series I 10% Convertible Cumulative
Redeemable Preference Shares (the "Securities") pursuant to the Subscription
Agreement dated as of July 16, 1997, between Kafus and Enron Capital & Trade
Resources Corp. ("ECT") and the capitalization of CanFibre by Kafus with the
proceeds of the sale of the Securities hereby agrees as follows:
1. CanFibre shall convey to ECT 750,000 shares of common stock of Kafus
currently owned by CanFibre upon execution hereof, which shares are owned by
CanFibre free and clear of liens and are duly authorized, validly issued, and
fully paid and can be transferred to ECT without restriction.
2. If on October 15, 1997 (the "Makewhole Date"), the per share trade
weighted average market price of such shares of common stock of Kafus in U.S.
Dollars for the immediately preceding 30 day period before the Makewhole Date
(the "Average Market Price") is less than U.S. $2.00 per share, then CanFibre
shall pay to ECT an amount equal to (a) the difference between U.S. $2.00 per
share and the Average Market Price multiplied by (b) 750,000 (the "Makewhole
<PAGE>
Enron Capital & Trade Resources Corp.
July 16, 1997
Page 2
Payment"). At the option of CanFibre, the Makewhole Payment shall be paid
either in cash or in further shares of common stock of Kafus, which shares shall
be owned by CanFibre free and clear of liens and shall be duly authorized,
validly issued, and fully paid and transferrable to ECT without restriction.
This letter shall be effective upon receipt and will be governed by the internal
laws of the Province of British Columbia, Canada (without reference to
principles of conflicts of law).
Very truly yours,
THE CANFIBRE GROUP LTD.
By:________________________
Name:______________________
Title:_____________________
<PAGE>
EXHIBIT E
---------
REGISTRATION RIGHTS AGREEMENT
This REGISTRATION RIGHTS AGREEMENT (the "REGISTRATION AGREEMENT") is made
and entered into as of July 16, 1997, by and between The Kafus Capital
Corporation, a British Columbia Corporation (the "Company") and the person(s)
listed on the signature pages to this Registration Agreement (the "Purchaser").
RECITALS
WHEREAS, the Company and the Purchaser are parties to a Subscription
Agreement of even date herewith (the "Subscription Agreement"), pursuant to
which the Company shall issue and sell to the Purchasers, and the Purchasers
shall purchase from the Company, Shares, and Warrants and Additional Warrants to
acquire shares of Common Stock, as more particularly described therein.
Capitalized terms used but not otherwise defined in this Registration Agreement
shall have the meanings given to such terms in the Subscription Agreement.
WHEREAS, the Purchaser desires that the Company register the Registerable
Securities for resale upon the terms and subject to the conditions set forth in
this Registration Agreement.
WHEREAS, the execution and delivery of this Registration Agreement is a
condition precedent to the Purchaser's obligations under the Subscription
Agreement.
NOW, THEREFORE, the parties hereto, intending legally to be bound, hereby
agree as follows:
1. DEFINITIONS.
As used in this Registration Agreement, the following terms shall have the
meanings ascribed to them below:
(a) "Affiliate" of any specified Person means any other Person directly or
indirectly controlling or controlled by or under direct or indirect common
control with such specified Person. For the purposes of this definition,
"control," when used with respect to any Person, means the power to direct the
<PAGE>
management and policies of such Person, directly or indirectly, whether through
the ownership of voting securities, by contract or otherwise, and the terms
"controlling" and "controlled" have meanings correlative to the foregoing.
(b) "Applicable Rate" shall mean 1.5% monthly with respect to the first
month and 2% monthly for each subsequent month, until the Registration Statement
shall become effective.
(c) "Business Day" means any Monday, Tuesday, Wednesday, Thursday or Friday
that is not a day on which banking institutions in the City of New York, New
York or Toronto, Ontario are required by law, regulation or executive order to
close.
(d) "Holder" shall mean the Purchaser and any other Person who has become a
Permitted Transferee pursuant to Section 9(c).
(e) "Registrable Securities" means (v) the Shares, (w) the Conversion
Shares, (x) the Warrant Shares, (y) all other shares of Common Stock purchased,
acquired or received from any Person by the Purchaser and its Affiliates (or
which they shall have the right to purchase or acquire) pursuant to or in
connection with the purchase of the Securities or the transactions contemplated
by the Subscription Agreement and (z) any securities issued or issuable in
respect of or in exchange for any of the shares of Common Stock referred to in
clauses (v) through (y) above by way of a stock dividend or stock split or in
connection with a combination of shares, recapitalization, reclassification,
merger, consolidation, or exchange offer ("Distribution Securities"). For
purposes of this Registration Agreement, a Registrable Security ceases to
constitute a Registrable Security hereunder (i) when such Registrable Security
shall have been effectively registered under the Securities Act and disposed of
in a public market transaction pursuant to a Registration Statement, (ii) when
such Registrable Security shall have been sold pursuant to Rule 144 (or any
successor provision) under the Securities Act, (iii) when such Registrable
Security shall have been otherwise transferred and a new certificate for such
Registrable Security not bearing a legend restricting further transfer shall
have been delivered by the Company, (iv) with respect to a particular Holder, at
any time when all of such
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Holder's remaining Registrable Securities can be sold in a single transaction in
compliance with Rule 144 under the Securities Act, (v) on the third anniversary
of the original issuance date of such Registrable Security, provided that the
Holder of such Registerable Security is not an Affiliate of the Company as of
such date, and has not been an Affiliate of the Company for a period of three
months preceding such date, or (vi) when such Registrable Security shall have
ceased to be outstanding.
(f) "Registration Statement" shall have the meaning set forth in Section 2.
(g) "Registration Termination Date" means, the first date on which all
Conversion Shares and all Warrant Shares (and any Distribution Securities with
respect thereto) cease to be Registrable Securities.
(h) "Securities Act" means the Securities Act of 1933, as amended.
(i) "Securities Exchange Act" means the Securities Exchange Act of 1934, as
amended.
(j) "SEC" means the United States Securities Exchange Commission, or any
successor agency thereto.
Other capitalized terms shall have the meanings ascribed to them in the
other sections of this Registration Agreement or in the Subscription Agreement
if not defined herein.
2. SHELF REGISTRATION.
(a) Effective Registration. As soon as practicable, but in any event
within ninety (90) days following the Closing Date under the Subscription
Agreement, the Company shall file with the SEC under the Securities Act a
Registration Statement on Form F-1 ("Registration Statement"), or on such other
registration form under the Securities Act as the Company shall deem
appropriate, covering the sale by the Holders on a continuous or delayed basis
pursuant to Rule 415 thereunder (or any similar rule that may be adopted by the
SEC) of (i) the Conversion Shares and (ii) the Warrant Shares. The Company
shall use its best efforts to cause each Registration Statement to be declared
effective on or prior to the one hundred and fiftieth (150th) day following the
Closing Date
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<PAGE>
and shall thereafter keep such Registration Statement continuously effective
until the Registration Termination Date.
(b) Delay in Effectiveness. In the event any Registration Statement is not
declared effective by the SEC within 150 days after the Closing Date (the
"Effectiveness Deadline"), or in the event the effectiveness of any Registration
Statement is suspended or terminated at any time after its Effectiveness
Deadline and prior to the Registration Termination Date, then for each month (or
portion thereof) such Registration Statement is not so effective, the Company
shall pay to the Holders, as liquidated damages and not as a penalty, an amount
equal to the product of $21,000,000 (being the total purchase price of the
Securities) and the Applicable Rate. The Company shall pay such liquidated
damages to each Holder based upon the proportion of the Registerable Securities
owned by such Holder. Such payments shall be made on the first Business Day of
each month following any month in which such Registration Statement is not
effective, with a final payment within five (5) Business Days after such
Registration Statement becomes effective.
3. REGISTRATION PROCEDURES.
(a) Company Procedures. In connection with the Company's registration
obligations pursuant to Section 2, the Company shall keep each Registration
Statement continuously effective for the period of time provided in Section 2,
to permit the sale of Registrable Securities covered by such Registration
Statement in accordance with the intended method or methods of distribution
thereof specified in such Registration Statement or in the related
prospectus(es), and shall:
(i) comply with such provisions of the Securities Act as may be
necessary to facilitate the disposition of all Registrable Securities
covered by such Registration Statement during the applicable period in
accordance with the intended method or methods of disposition thereof set
forth in such Registration Statement or such prospectus or supplement
thereto;
(ii) notify the Holders, promptly (A) when each Registration
Statement, prospectus or supplement thereto or further post-effective
amendment has been filed, and,
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<PAGE>
with respect to each Registration Statement or further post-effective
amendment, when it has become effective, (B) of any request by the SEC for
amendments or supplements to any Registration Statement or prospectus or
for additional information, (C) of the issuance by the SEC of any comments
with respect to any filing and of any stop order suspending the
effectiveness of any Registration Statement or the initiation of any
proceedings for that purpose, (D) of the receipt by the Company of any
notification with respect to the suspension of the qualification of any
Registrable Securities for sale in any jurisdiction or the initiation or
threatening of any proceeding for such purpose, (E) of the happening of any
event that makes any statement made in any Registration Statement,
prospectus or any other document incorporated therein by reference untrue
or that requires the making of any changes in such Registration Statement,
prospectus or any document incorporated therein by reference in order that
such documents not contain any untrue statement of a material fact or omit
to state any material fact required to be stated therein or necessary to
make the statements therein not misleading, and (F) of the Company's
determination that a further post-effective amendment to such Registration
Statement would be appropriate;
(iii) furnish to each Holder, without charge, as many conformed
copies as may reasonably be requested by such Holder, of each Registration
Statement and any further post-effective amendments thereto, including
financial statements and schedules, all documents incorporated therein by
reference and all exhibits (including those incorporated by reference);
(iv) deliver to each Holder, without charge, as many copies of the
then effective prospectus covering such Registrable Securities and any
amendments or supplements thereto as such Holder may reasonably request;
(v) register, qualify, obtain an exemption therefrom, or cooperate
with the Holders and their counsel in connection with the registration or
qualification or exemption therefrom of such Registrable Securities for
offer and sale under the securities or blue sky laws of such jurisdictions
as may be reasonably requested in writing by the Holders and do any and all
5
<PAGE>
other acts or things necessary or advisable to enable the disposition in
such jurisdictions of the Registrable Securities covered by the then
effective Registration Statements; provided, however, that the Company
shall not be required to (A) qualify as a foreign corporation or generally
to transact business in any jurisdiction where it is not then so qualified,
(B) qualify as a dealer (or other similar entity) in securities, (C)
otherwise subject itself to taxation in connection with such activities, or
(D) take any action which would subject it to general service of process in
any jurisdiction where it is not then so subject;
(vi) upon the occurrence of any event contemplated by clauses (E)
or (F) of paragraph (ii) above, promptly prepare and file, if necessary, a
further post-effective amendment to each Registration Statement or a
supplement to the related prospectuses or any document incorporated therein
by reference or file any other required document so that each Registration
Statement and the related prospectuses will not thereafter contain an
untrue statement of a material fact or omit to state any material fact
necessary to make the statements therein not misleading;
(vii) in no event later than five (5) Business Days before filing
any Registration Statement, any further post-effective amendment thereto,
any prospectus or any amendment or supplement thereto (other than any
amendment or supplement made solely as a result of incorporation by
reference of documents), furnish to the Holders copies of all such
documents proposed to be filed;
(viii) not file any Registration Statement or amendment thereto or
any prospectus or any supplement thereto (other than any amendment or
supplement made solely as a result of incorporation by reference of
documents) to which the Holders holding a majority of the Registrable
Securities shall have reasonably objected in writing, within three (3)
Business Days after receipt of such documents, to the effect that such
Registration Statement or amendment thereto or prospectus or supplement
thereto does not comply in all material respects with the requirements of
the Securities Act (including, without limitation respect of any
information describing the manner in which the Holders acquired such
6
<PAGE>
Registrable Securities and the intended method or methods of distribution
of such Registrable Securities), (provided that the foregoing shall not
limit the right of any Holder reasonably to object, within three (3)
Business Days after receipt of such documents, to any particular
information relating specifically to such Holder that is to be contained in
any Registration Statement, prospectus or supplement including without
limitation, any information describing the manner in which such Holder
acquired such Registrable Securities and the intended method or methods of
distribution of such Registrable Securities), and if the Company is unable
to file any such document due to the objections of the Holders, the Company
shall exert commercially reasonable efforts to cooperate with the Holders
to prepare, as soon as practicable, a document that is responsive in all
material respects to the reasonable objections of the Holders, provided
however, that the Effectiveness Deadline (as defined in Section 2(b)) shall
be extended by the period, during which the Company is prevented from
filing a Registration Statement or amendment thereto by reason of this
paragraph 3(a)(viii);
(ix) promptly after the filing of any document that is to be
incorporated by reference into any Registration Statement or prospectus,
provide copies of such document to the Holder;
(x) cause all Registrable Securities covered by each Registration
Statement to be listed on the Nasdaq National Market, American Stock
Exchange, any national securities exchange, an over-the-counter market or,
if the Common Stock securities of the Company are not listed thereon, on
the primary exchanges, markets, or inter-dealer quotations systems
(including NASDAQ) if any, on which similar securities issued by the
Company are then listed, prior to the date on which such Registrable
Securities were issued;
(xi) take all actions reasonably required to prevent the entry of
any stop order by the Securities and Exchange Commission or by any state
securities regulators or to remove any such order if entered; and
(xii) file post-effective amendments to any Registration Statement
or supplement the related
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<PAGE>
prospectus, as required, to permit sales of Registrable Securities covered
thereby to be made by Permitted Transferees of the Holders.
(b) Holder Procedures.
(i) The Company may require each Holder to furnish to the Company
such information regarding such Holder and the proposed distribution of
such Registrable Securities as the Company may from time to time reasonably
request in writing and which is necessary for compliance with applicable
law.
(ii) Each Holder agrees to cooperate with the Company in all
reasonable respects in connection with the preparation and filing of the
Registration Statement, any Amendment, any prospectus and any prospectus
supplement.
(c) Additional Information Available. So long as any Registration
Statement is effective covering the resale of Registrable Securities owned by a
Holder, the Company will furnish to such Holder(s):
(i) as soon as practicable after it becomes available (but in the
case of the Company's Annual Report to Stockholders, within 140 days after
the end of each fiscal year of the Company), one copy of: (A) its Annual
Report to Stockholders (which Annual Report shall contain financial
statements audited in accordance with Canadian generally accepted
accounting principles by a national firm of certified public accountants);
(B) its Annual Report on Form 20-F; and (C) its Quarterly Reports on Form
6-K; and
(ii) upon the reasonable request of a Holder, all exhibits to the
Annual Report on Form 20-F; and the Company, upon the reasonable request of
a Holder, will meet with such Holder or a representative thereof at the
Company's headquarters to discuss all information relevant for disclosure
in any Registration Statement and will otherwise cooperate with any Holder
conducting an investigation for the purpose of reducing or eliminating such
Holder's exposure to liability under the Securities Act including the
reasonable production of information at the Company's headquarters.
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<PAGE>
4. REGISTRATION EXPENSES.
All expenses incident to the Company's performance of or compliance with
this Registration Agreement, including without limitation all registration and
filing fees, fees and expenses of compliance with state securities or blue sky
laws (including fees and disbursements of counsel in connection with blue sky
qualifications or registrations (or the obtaining of exemptions therefrom) of
the Registrable Securities), messenger and delivery expenses, internal expenses
(including, without limitation, all salaries and expenses of its officers and
employees performing legal or accounting duties), fees and disbursements of its
counsel and its independent certified public accountants, securities acts
liability insurance (if the Company elects to obtain such insurance), and
reasonable fees and expenses of any special experts retained by the Company in
connection with any registration hereunder (all of such expenses herein referred
to as "Registration Expenses"), shall be borne by the Company; provided,
however, the Registration Expenses shall not include any sales or underwriting
discounts, commissions or fees attributable to the sale of the Registrable
Securities or the fees and expenses of counsel to the Holders (other than to the
extent provided in the Subscription Agreement).
5. INDEMNIFICATION; CONTRIBUTION.
(a) Indemnification by the Company. The Company shall indemnify and hold
harmless, to the full extent permitted by law, each Holder, and such Holder's
respective officers, directors, employees, representatives, agents and
controlling persons (within the meaning of the Securities Act), against all
losses, claims, damages, liabilities and expenses, but in no event greater than
the gross purchase price Holder paid to the Company for Registrable Securities,
resulting from any untrue or alleged untrue statement of a material fact
contained in any Registration Statement, any prospectus, or any amendment or
supplement thereto, or any omission or alleged omission of a material fact
required to be stated therein or necessary to make the statements therein not
misleading, except in each case insofar as the same directly arises out of or is
directly based upon an untrue statement or alleged untrue statement of a
material fact or an omission or alleged omission to state a material fact in
such Registration Statement, prospectus, amendment or supplement, as the case
may be, made or omitted, as the case may be, in reliance upon
9
<PAGE>
and in conformity with information furnished to the Company in writing by such
Holder expressly for use therein.
(b) Indemnification by the Holders. Each Holder shall indemnify and hold
harmless, to the full extent permitted by law, the Company, its officers,
directors, employees, representatives, agents and controlling persons (within
the meaning of the Securities Act), against all losses, claims, damages,
liabilities and expenses (including, without limitation, reasonable costs of
investigation and legal expenses) resulting from any untrue or alleged untrue
statement of a material fact contained in any Registration Statement, any
prospectus, or any amendment or supplement thereto, and any omission or alleged
omission of a material fact required to be stated therein or necessary to make
the statements therein not misleading, to the extent the same directly result
from any untrue statement or alleged untrue statement of a material fact or any
omission or alleged omission to state a material fact in such Registration
Statement, prospectus, amendment or supplement, as the case may be, made or
omitted, as the case may be, in reliance upon and in conformity with information
furnished to the Company in writing by such Holder expressly for use therein.
The liability of each Holder under the indemnity and contributions provisions of
this Section 5 shall be several and not joint and shall be limited to an amount
equal to the gross price of the Registrable Securities sold by such Holder
pursuant to the Registration Statement.
(c) Conduct of Indemnification Proceedings. Each party entitled to
indemnification under this Section 5 (the "Indemnified Party") shall give
written notice to the party required to provide indemnification (the
"Indemnifying Party") promptly after such Indemnified Party has actual knowledge
of any claim as to which indemnity may be sought, and shall permit the
Indemnifying Party to assume the defense of any such claim or any litigation
resulting therefrom; provided, that counsel for the Indemnifying Party who will
conduct the defense of such claim or litigation, is approved by the Indemnified
Party (whose approval will not be unreasonably withheld or delayed); and
provided, further, that the failure of any Indemnified Party to give notice as
provided herein shall not relieve the Indemnifying Party of its obligations
except to the extent that its defense of the claim or litigation involved is
prejudiced by such failure. The Indemnified Party may participate in such
defense at such
10
<PAGE>
party's expense; provided, however, that the Indemnifying Party shall pay such
expense if representation of such Indemnified Party by the counsel retained by
the Indemnifying Party would be inappropriate due to actual or potential
conflicts of interest between the Indemnified Party and any other party
represented by such counsel in such proceeding. No Indemnifying Party, in the
defense of any such claim or litigation, except with the consent of each
Indemnified Party, shall consent to entry of any judgment or enter into any
settlement that does not include as an unconditional term thereof the giving by
the claimant or plaintiff to such Indemnified Party of a release from all
liability in respect of any claim or litigation, and no Indemnified Party will
consent to entry of any judgment or settle any claim or litigation without the
prior written consent of the Indemnifying Party (not to be unreasonably withheld
or delayed). Each Indemnified Party shall furnish such information regarding
himself, herself or itself and the claim in question as the Indemnifying Party
may reasonably request and as shall be reasonably required in connection with
the defense of such claim and litigation resulting therefrom.
(d) Contribution.
(i) If for any reason the indemnification provided for in this
Section 5 from an Indemnifying Party, although otherwise applicable by its
terms, is unavailable to an Indemnified Party hereunder, then the
Indemnifying Party, in lieu of indemnifying such Indemnified Party, shall
contribute to the amount paid or payable by the Indemnified Parties as a
result of such losses, claims, damages, liabilities or expenses in such
proportion as is appropriate to reflect the relative fault of such
Indemnifying Party and the Indemnified Parties in connection with the
actions that resulted in such losses, claims, damages, liabilities or
expenses, as well as any other relevant equitable considerations. The
relative fault of such Indemnifying Party and the Indemnified Parties shall
be determined by reference to, among other things, whether any action in
question, including any untrue or alleged untrue statement of a material
fact, has been made by, or relates to information supplied by, such
Indemnifying Party or the Indemnified Parties, and the parties' relative
intent, knowledge, access to information and opportunity to correct or
prevent such action. The amount paid or
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<PAGE>
payable by a party as a result of the losses, claims, damages, liabilities
and expenses referred to above shall be deemed to include, subject to the
limitations set forth in Section 5(c), any legal or other fees or expenses
reasonably incurred by such party in connection with any investigation or
proceeding.
(ii) The parties hereto agree that it would not be just and
equitable if contribution pursuant to this Section 5(d) were determined by
pro rata allocation or by any other method of allocation that does not take
account of the equitable considerations referred to in the immediately
preceding paragraph. No person guilty of fraudulent misrepresentation
(within the meaning of Section 11(f) of the Securities Act) shall be
entitled to contribution from any Person who was not guilty of such
fraudulent misrepresentation.
6. RULE 144 REQUIREMENTS.
The Company agrees to:
(a) use its best efforts to make and keep public information available,
as those terms are understood and defined in Rule 144 under the Securities Act;
(b) use its best efforts to file with the SEC in a timely manner all
reports and other documents required of the Company under the Securities Act and
the Securities Exchange Act; and
(c) furnish to each Holder upon request a written statement by the Company
as to its compliance with the reporting requirements of said Rule 144 and of the
Securities Act and the Securities Exchange Act.
7. INJUNCTIONS.
Each of the parties hereto acknowledges and agrees that one or more of the
parties would be damaged irreparably in the event the provisions of this
Agreement are not performed in accordance with their specific terms or otherwise
are breached. Accordingly, each of the parties agrees that the other party
shall be entitled to an injunction or injunctions to prevent breaches of the
provisions hereof in any action instituted in any court of the United States or
any state
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<PAGE>
thereof having jurisdiction over the parties in the matter, in addition to any
other remedy to which it may be entitled, at law or in equity.
8. TERMINATION.
This Agreement shall terminate on the Registration Termination Date;
provided, however, that the provisions of Section 5, 6 and 7 shall survive the
termination of this Agreement.
9. MISCELLANEOUS.
(a) Amendments and Waivers. Except as otherwise provided herein, the
provisions of this Agreement may not be amended, modified or supplemented, and
waivers or consents to departures from the provisions hereof may not be given
unless the Company shall have obtained the prior written consent of the Holders
holding more than 80% of the Registrable Securities at the time of such
amendment.
(b) Notices. All notices, requests, waivers, releases, consents, and other
communications required or permitted by this Agreement (collectively, "Notices")
shall be in writing. Notices shall be deemed sufficiently given for all purposes
under this Agreement (i) when delivered in person, (ii) on the next business day
following the date when dispatched by telegram (upon written confirmation of
receipt), by electronic facsimile transmission (upon written confirmation of
receipt) or by a nationally recognized overnight courier service, or (iii) five
(5) Business Days after being deposited in the Canadian certified or registered
mail, return receipt requested, and first class postage prepaid. All Notices
shall be delivered as follows:
(i) if to a Holder, at the address indicated on the Company's
register relating to the Preference Shares, Warrants, or Registrable
Securities held by such Holder or at such other address as such Holder may
have furnished to the Company in writing:
(ii) if to the Company, at:
The Kafus Capital Corporation
Suite 600
6 Eva Road
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<PAGE>
Toronto, Ontario
(c) Successors and Assigns. This Registration Agreement shall be binding
upon and shall inure to the benefit of the Company and each Holder, their
respective successors, heirs, legal representatives and, with respect to the
Company, its assignees. The rights provided by this Agreement shall be
transferred automatically to any Person to whom Registrable Securities, the
Convertible Note, Preference Shares or Warrants are transferred, provided that
(x) the Company is given written notice of the transfer and the name, address,
telephone number and facsimile number of the transferees and (y) the subsequent
transferee agrees in writing to be bound by all of the terms of this
Registration Agreement (any transferee referred to in the foregoing clauses
being referred to herein as a "Permitted Transferee").
(d) Counterparts. This Registration Agreement may be executed in any
number of counterparts and by the parties in separate counterparts, each of
which when so executed shall be deemed to be an original and all of which taken
together shall constitute one and the same agreement.
(e) Headings; Construction. The Section numbers and headings in this
Agreement are for convenience of reference only and shall not limit or otherwise
affect the meaning hereof. Unless the context otherwise requires, all
references to Sections are to sections of this Registration Agreement, "or" is
inclusively disjunctive, and words in the singular include the plural and vice
versa. In computing any period of time specified in this Registration Agreement
or in any Notices, the date of the act or event from which such period of time
is to be measured shall be included, any such period shall expire at 5:00 p.m.,
New York time, on the last day of such period, and any such period denominated
in months shall expire on the date in the last month of such period that has the
same numerical designation as the date of the act or event from which such
period is to be measured; provided, however, that if there is no date in the
last month of such period that has the same numerical designation as of the date
of such act or event, such period shall expire on the last day of the last month
of such period.
(f) Governing Law. This Registration Agreement shall be governed by and
construed in accordance with the internal laws
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<PAGE>
of the State of New York, without regard to the principles of conflicts of laws
thereof.
(g) Severability. If one or more of the provisions hereof, or the
application thereof in any circumstance, is held invalid, illegal or
unenforceable in any respect, for any reason, the validity, legality and
enforceability of the remaining provisions hereof shall not be in any way
affected or impaired thereby, and the provisions held to be invalid, illegal or
unenforceable shall be reformed to the minimum extent necessary, and in a manner
as consistent with the purposes thereof as is practicable, so as to render it
valid, legal and enforceable.
(h) Entire Agreement. This Registration Agreement is intended by the
parties hereto to be a final expression thereof and is intended to be a complete
and exclusive statement of the agreement and understanding of such parties in
respect of the subject matter contained herein. This Registration Agreement
supersedes all prior agreements and understandings among the Company and any of
the Holders with respect to such subject matter.
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IN WITNESS WHEREOF, the parties hereto have caused this Registration
Agreement to be duly executed as of the day and year first above written.
THE KAFUS CAPITAL CORPORATION
By:_______________________________
Name:_________________________
Title:________________________
ENRON CAPITAL & TRADE RESOURCES CORP.
By:_______________________________
Name:_________________________
Title:________________________
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EXHIBIT F -- WARRANT
WARRANT
================================================================================
THE SECURITIES REPRESENTED BY THIS CERTIFICATE AND THE SHARES OF COMMON STOCK
ISSUABLE UPON EXERCISE THEREOF HAVE NOT BEEN REGISTERED UNDER THE SECURITIES ACT
OF 1933, AS AMENDED (THE "ACT"), OR ANY STATE SECURITIES OR BLUE SKY LAWS AND
MAY NOT BE SOLD, PLEDGED OR OTHERWISE TRANSFERRED EXCEPT PURSUANT TO AN
EFFECTIVE REGISTRATION STATEMENT UNDER THE ACT OR IN RELIANCE ON AN AVAILABLE
EXEMPTION FROM THE ACT AND ANY APPLICABLE STATE SECURITIES OR BLUE SKY LAWS.
THE SECURITIES REPRESENTED BY THIS CERTIFICATE ARE SUBJECT TO A HOLD PERIOD AND
MAY NOT BE TRADED IN ONTARIO UNTIL 90 DAYS AFTER DATE OF ISSUANCE HEREOF EXCEPT
AS PERMITTED BY THE SECURITIES ACT (ONTARIO) AND THE SECURITIES RULES AND
REGULATIONS THEREUNDER.
THE SECURITIES REPRESENTED BY THIS CERTIFICATE ARE SUBJECT TO RESTRICTIONS ON
TRANSFER SET FORTH IN SECTION 3.
================================================================================
THE KAFUS CAPITAL CORPORATION
Common Stock Purchase Warrant
Representing Right To Purchase Shares of
Common Stock
of
The Kafus Capital Corporation
No. W-1
FOR VALUE RECEIVED, THE KAFUS CAPITAL CORPORATION, a British Columbia
corporation (the "Company"), hereby certifies that Enron Capital & Trade
Resources Corp., a Delaware
<PAGE>
corporation (the "Holder"), is entitled, to purchase from the Company, at any
time or from time to time during the Exercise Period (as hereinafter defined),
1,000,000 shares of Common Stock (as such number of shares may be adjusted
pursuant to the terms hereof, the "Warrant Shares"), at a price per share equal
to the Exercise Price (as defined below). This Warrant is issued to the Holder
(together with such other warrants as may be issued in exchange, transfer or
replacement of this Warrant, the "Warrants") pursuant to the Subscription
Agreement dated as of the Date of Issuance between the Company and the Purchaser
named therein, and entitles the Holder to purchase the Warrant Shares and to
exercise the other rights, powers and privileges hereinafter provided.
Section 1. Definitions. The following terms, as used herein, have the
following respective meanings:
"Common Stock" means the Company's common stock, no par value.
"Company" is defined in the introductory paragraph of this Warrant.
"Date of Issuance" means July 16, 1997.
"Exercise Period" means the period commencing on the Date of Issuance and
ending on 5:00 p.m. (Toronto, Ontario time) on the Expiration Date.
"Exercise Price" means $6.00 until July 16, 1998, and thereafter shall mean
the lesser of (i) $6.00 and (ii) 75% of the trade weighted average of all
transactions in the Common Stock during the 30 days immediately preceding July
16, 1998, subject to adjustment as provided herein.
"Expiration Date" means July 16, 2008.
"Holder" means the Holder named herein and its permitted assignees.
"Person" means any individual, corporation, limited or general partnership,
joint venture, association, joint-stock company, trust, limited liability
company, unincorporated organization or government or any agency or political
subdivision thereof.
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<PAGE>
"Warrants" is defined in the introductory paragraph of this Warrant.
"Warrant Shares" is defined in the introductory paragraph of this Warrant.
Section 2. Exercise of Warrant; Cancellations of Warrant.
(a) This Warrant represents the right to purchase, at the Exercise Price
per share of Common Stock, 1,000,000 shares of Common Stock. subject to
adjustment upon the occurrence of the events set forth in Section 4.
(b) This Warrant may be exercised in whole or in part, at any time or from
time to time, during the Exercise Period, by presentation to the Company at its
principal office at the address set forth in Section 10 of (i) this Warrant,
with the Purchase Form annexed hereto as Exhibit A duly executed and (ii) a
certified bank check equal to the Exercise Price for the Warrant Shares for
which this Warrant is being exercised (the date of such delivery referred to
herein as the "Exercise Date"). Within five business days after payment of the
Exercise Price, the Company shall execute and deliver to the Holder a
certificate or certificates for the total number of Warrant Shares for which
this Warrant is being exercised, in such names and denominations as requested in
writing by the Holder. The Company shall pay any and all documentary stamp or
similar issue taxes payable in respect of the issue of the Warrant Shares. If
this Warrant is exercised in part only, the Company shall, upon surrender of
this Warrant, execute and deliver a new Warrant evidencing the rights of the
Holder thereof to purchase the balance of the Warrant Shares issuable hereunder.
Section 3. Exchange, Transfer, Assignment or Loss of Warrant. Upon
surrender of this Warrant to the Company, with the Assignment Form annexed
hereto as Exhibit B duly executed and funds sufficient to pay any transfer tax,
the Company shall, without charge, execute and deliver a new Warrant or Warrants
in the name of the assignee or assignees named in such Assignment Form and, if
the Holder's entire interest is not being assigned, in the name of the Holder,
and this Warrant shall promptly be canceled. This Warrant may be divided or
combined with other Warrants that carry the same rights upon presentation hereof
at the office of the Company,
3
<PAGE>
together with a written notice specifying the names and denominations in which
new Warrants are to be issued and signed by the Holder hereof. Upon receipt by
the Company of evidence satisfactory to it of the loss, theft, destruction or
mutilation of this Warrant, and (in the case of loss, theft or destruction) of
reasonably satisfactory indemnification (including, if required in the
reasonable judgment of the Company, a statement of net worth of such Holder that
is at a level reasonably satisfactory to the Company), and upon surrender and
cancellation of this Warrant, if mutilated, the Company shall execute and
deliver a new Warrant of like tenor and date.
Section 4. Antidilutive Adjustments. The shares of Common Stock
purchasable on exercise of the Warrants evidenced by this Warrant Certificate
are shares of Common Stock of the Company as constituted as of the Date of
Issue. The number and kind of securities purchasable on the exercise of this
Warrant shall be subject to adjustment from time to time upon the happening of
certain events, as follows:
(a) Mergers, Consolidations and Reclassifications. In case of any
reclassification or change of outstanding securities issuable upon exercise of
the Warrants at any time (other than a change in par value, or from par value to
no par value, or from no par value to par value or as a result of a subdivision
or combination to which subsection 4(b) applies), or in case of any
consolidation or merger of the Company with or into another corporation (other
than a merger with another corporation in which the Company is the surviving
corporation and which does not result in any reclassification or change [other
than a change in par value, or from par value to no par value, or from no par
value to par value, or as a result of a subdivision or combination to which
subsection 4(b) applies] of outstanding securities issuable upon exercise of
this Warrant), the Holder shall have, and the Company, or such successor
corporation or other entity, shall covenant in the constituent documents
effecting any of the foregoing transactions that such holder does have, the
right to obtain upon the exercise hereof, in lieu of the shares of Common Stock,
other securities, money or other property theretofore issuable upon exercise of
a Warrant, the kind and amount of shares of stock, other securities, money or
other property receivable upon such reclassification, change, consolidation or
merger by a holder of the shares of Common Stock, other securities, money or
other property issuable upon exercise
4
<PAGE>
hereof had this Warrant been exercised immediately prior to such
reclassification, change, consolidation or merger. The constituent documents
effecting any such reclassification, change, consolidation or merger shall
provide for any adjustments which shall be as nearly equivalent as may be
practicable to the adjustments provided in this subsection 4(a). The provisions
of this subsection 4(a) shall similarly apply to successive reclassifications,
changes, consolidations or mergers.
(b) Subdivisions and Combinations. If the Company, at any time during
the Exercise Period shall subdivide its shares of Common Stock into a greater
number of shares, the number of shares of Common Stock purchasable upon exercise
of the Warrants shall be proportionately increased and the Exercise Price shall
be proportionately decreased, as at the effective date of such subdivision, or
if the Company shall take a record of holders of its Common Stock for the
purpose of so subdividing, as at such record date, whichever is earlier. If the
Company, at any time during the Exercise Period, shall combine its shares of
Common Stock into a smaller number of shares, the number of shares of Common
Stock purchasable upon exercise hereof shall be proportionately reduced and the
Exercise price shall be proportionately increased, as at the effective date of
such combination, or if the Company shall take a record of holders of its Common
Stock for purposes of such combination, as at such record date, whichever is
earlier.
(c) Dividends and Distributions. If the Company at any time shall
declare a dividend on its Common Stock payable in stock or other securities of
the Company or of any other corporation or other entity, or in property or
otherwise than in cash, to the holders of its Common Stock, the Holder shall,
without additional cost, be entitled to receive upon any exercise hereof, in
addition to the Common Stock to which such holder would otherwise be entitled
upon such exercise, the number of shares of stock or other securities or
property which such holder would have been entitled to receive if he had been a
holder immediately prior to the record date for such dividend (or, if no record
date shall have been established, the payment date for such dividend) of the
number of shares of Common Stock purchasable on exercise of such Warrant
immediately prior to such record date or payment date, as the case may be.
5
<PAGE>
(d) Upon any increase or decrease in the number of Warrant Shares
purchasable upon the exercise of this Warrant, the Company shall, within 30 days
thereafter, deliver written notice thereof to all Holders, which notice shall
state the increased or decreased number of Warrant Shares purchasable upon the
exercise of this Warrant and the revised Exercise Price thereof, setting forth
in reasonable detail the method of calculation and the facts upon which such
calculations are based.
Section 5. Notification by the Company. In case at any time while this
Warrant remains outstanding:
(a) the Company shall declare any dividend or make any distribution
upon its Common Stock or any other class of its capital stock; or
(b) the Company shall offer for subscription pro rata to the holders
of its Common Stock or any other class of its capital stock any additional
shares of stock of any class or any other securities convertible into or
exchangeable for shares of stock or any rights or options to subscribe thereto;
or
(c) the Board of Directors of the Company shall authorize any capital
reorganization, reclassification or similar transaction involving the capital
stock of the Company, or a sale or conveyance of all or a substantial part of
the assets of the Company, or a consolidation, merger or business combination of
the Company with another Person; or
(d) actions or proceedings shall be authorized or commenced for a
voluntary or involuntary dissolution, liquidation or winding-up of the Company;
then, in any one or more of such cases, the Company shall give written notice to
the Holder, at the earliest time legally practicable (and not less than 20 days
before any record date or other date set for definitive action) of the date on
which (i) the books of the Company shall close or a record shall be taken for
such dividend, distribution or subscription rights or options or (ii) such
reorganization, reclassification, sale, conveyance, consolidation, merger,
dissolution, liquidation or winding-up shall take place or be voted on by
shareholders of the Company, as the case may be. Such notice shall also specify
the date as of which the holders of the
6
<PAGE>
Common Stock of record shall participate in said dividend, distribution,
subscription rights or options or shall be entitled to exchange their Common
Stock for securities or other property deliverable upon such reorganization,
reclassification, sale, conveyance, consolidation, merger, dissolution,
liquidation or winding-up, as the case may be. If the action in question or the
record date is subject to the effectiveness of a registration statement under
the Securities Act or to a favorable vote of shareholders, the notice required
by this Section 5 shall so state.
Section 6. No Voting Rights: Limitations of Liability. Prior to
exercise, this Warrant will not entitle the Holder to any voting rights or other
rights as a stockholder of the Company. No provision hereof, in the absence of
affirmative action by the Holder to exercise this Warrant, and no enumeration
herein of the rights or privileges of the Holder, shall give rise to any
liability of the Holder for the purchase price of the Warrant Shares pursuant to
the exercise hereof.
Section 7. Amendment and Waiver.
(a) No failure or delay of the Holder in exercising any power or right
hereunder shall operate as a waiver thereof, nor shall any single or partial
exercise of such right or power, or any abandonment or discontinuance of steps
to enforce such a right or power, preclude any other or further exercise thereof
or the exercise of any other right or power. The rights and remedies of the
Holder are cumulative and not exclusive of any rights or remedies which it would
otherwise have. The provisions of this Warrant may be amended, modified or
waived with (and only with) the written consent of the Company and the Holder.
(b) No notice or demand on the Company in any case shall entitle the
Company to any other or further notice or demand in similar or other
circumstances.
Section 8. No Fractional Warrant Shares. The Company shall not be
required to issue stock certificates representing fractions of Warrant Shares,
but shall in respect of any fraction of a Warrant Share make a payment in cash
based on the Value of the Common Stock after giving effect to the full exercise
or conversion of the Warrants.
7
<PAGE>
Section 9. Reservation of Warrant Shares. The Company shall
authorize, reserve and keep available at all times, free from preemptive rights,
a sufficient number of Warrant Shares to satisfy the requirements of this
Warrant.
Section 10. Notices. Unless otherwise specified, whenever this Warrant
requires or permits any consent, approval, notice, request, or demand from one
party to another, that communication must be in writing (which may be by
telecopy) to be effective and is deemed to have been given (a) if by telecopy,
when transmitted to the appropriate telecopy number (and all communications sent
by telecopy must be confirmed promptly by telephone; but any requirement in this
parenthetical does not affect the date when the telecopy is deemed to have been
delivered), or (b) if by any other means, including by internationally
acceptable courier or hand delivery, when actually delivered. Until changed by
notice pursuant to this Warrant, the address (and telecopy number) for the
Holder shall be as set forth on Schedule A to the Subscription Agreement dated
as of the Date of Issuance between the Company and the Purchasers named therein,
and the address and telecopy number for the Company are:
If to Company: The Kafus Capital Corporation
6 Eva Road, Suite 600
Toronto, Ontario
Canada MA9 2A8
Attention: Chief Financial Officer
Facsimile: (416) 695-3004
Section 11. Section and Other Headings. The headings contained in this
Warrant are for reference purposes only and will not affect in any way the
meaning or interpretation of this Warrant.
Section 12. Governing Law. THIS WARRANT SHALL BE GOVERNED BY, AND
CONSTRUED IN ACCORDANCE WITH, THE LAWS OF NEW YORK.
Section 13. Binding Effect. The terms and provisions of this Warrant
shall inure to the benefit of the Holder and its successors and assigns and
shall be binding upon the Company and its successors and assigns, including,
without limitation, any Person succeeding to the Company by merger,
consolidation or acquisition of all or substantially all of the Company's
assets.
8
<PAGE>
IN WITNESS WHEREOF, the seal of the Company and the signature of its duly
authorized officer have been affixed hereto as of July 16, 1997.
[SEAL] THE KAFUS CAPITAL CORPORATION
Attest:____________ By:_________________________
Name:_______________________
Title:______________________
9
<PAGE>
EXHIBIT A
TO
WARRANT
PURCHASE FORM
To Be Executed by the Holder
Desiring to Exercise a Warrant of
The Kafus Capital Corporation
The undersigned holder hereby exercises the right to purchase _______
shares of Common Stock covered by the within Warrant, according to the
conditions thereof, and herewith undertakes to make payment in full of the
Exercise Price of such shares or to withdraw this notice of exercise, in
accordance with the terms of the Warrant.
Name of Holder:
_____________________________
Signature:___________________
Title:_______________________
Address:_____________________
_____________________________
_____________________________
Dated:__________, __.
10
<PAGE>
EXHIBIT B
TO
WARRANT
ASSIGNMENT FORM
To Be Executed by the Holder
Desiring to Transfer a Warrant of
The Kafus Capital Corporation
FOR VALUE RECEIVED, the undersigned holder hereby sells, assigns and
transfers unto ________ the right to purchase ________ shares of Common Stock
covered by the within Warrant, and does hereby irrevocably constitute and
appoint _________________ Attorney to transfer the said Warrant on the books of
the Company (as defined in such Warrant), with full power of substitution.
Name of Holder:
_____________________________
Signature:___________________
Title:_______________________
Address:_____________________
_____________________________
_____________________________
Dated:__________, __.
In the presence of
_____________________________
NOTICE:
The signature to the foregoing Assignment Form must correspond to the name as
written upon the face of the within Warrant in every detail, without alteration
or enlargement or any change whatsoever.
11
<PAGE>
EXHIBIT G
---------
KAFUS CAPITAL CORPORATION
RISK DISCLOSURE STATEMENT
1. This offering is highly speculative and involves a very high
degree of risk, including the possible total loss of the funds invested.
2. The proposed MDF venture is a new, startup operation and may
never be profitable. Kafus has no prior experience in such a project.
3. Kafus presently has limited assets and its common stock trades on
the Bulletin Board in an inactive illiquid market. There is no assurance that
an active, liquid trading market will ever develop in the Common Shares.
Furthermore, no public market exists for the Preference Shares or the Warrants.
4. The future prospects of Kafus are materially dependent upon the
successful construction and operation of the MDF facility, as to which there
cannot be any assurances. Unexpected delays and unforeseen problems may occur,
and future market trends which cannot be predicted may adversely affect future
revenues and profits, if any.
5. This offering is being made by Kafus to accredited investors
believed capable of fending for
<PAGE>
themselves in evaluating the risks of the proposed investment. No oral
statements may be relied upon and the terms of the investment are completely set
forth in the written documents, which supersede any prior understandings.
6. In the event that the Preference Shares are not converted to the
Company's Common Stock, the retirement of the Preference Shares will be subject
to the availability of funds to the Company at that time and funds may not be
available to retire the Preference Shares.
7. The Company is incorporated, managed and operated outside the
United States, in Canada, and the majority of the directors and officers reside
outside the United States. As a result, it may not be possible to effect
service of process within the United States or enforce United States court
judgments against the Company it officers or directors.
8. The Company has paid no dividend on its Common Stock and it is
not anticipated that dividends will be paid on the Common Stock in the
foreseeable future.
9. The Purchasers will be paying in United States dollars, whereas
the Company and its affiliates operates and will operate in the future in the
United States, Canada and possibly other countries. As a result fluctuation in
exchange
2
<PAGE>
rates for the Canadian Dollar or other currencies could have a material adverse
effect on the Company and or the holders of the Preference Shares.
10. Purchasers agree to and acknowledge that they have not relied
upon any oral statements in making their decision to invest in the Units.
3
<PAGE>
July 16, 1997
Attention: Garry E. Wong
Wong Hui & Associates
Barristers Solicitors
Suite 720 - 1285 West Broadway
Vancouver, B.C.
V6H 3X8
Re: The Kafus Capital Corporation (the "Company")
US $21,000,000.00 Offering of the Securities
--------------------------------------------
Dear Sirs:
We have acted as counsel to the Company, a British Columbia corporation, in
connection with the sale of Securities consisting of the Preference Shares, the
Warrants, the Additional warrants; and the Shares of the Company, pursuant to
the Subscription Agreement dated July 16, 1997, (the "Agreement") among the
Company and the purchaser named therein (the "Purchaser"). We are rendering
this opinion to you to enable you to render your opinion pursuant to Section
7.0(d) of the Agreement. Initially capitalized terms used but not otherwise
defined herein shall have the meanings ascribed to them in the Agreement.
We have examined executed counterparts, or copies thereof, of the
Agreement, and the Registration Rights Agreement. We have also examined such
other documents and records as we have deemed necessary and relevant for the
purposes hereof. In addition, we have relied on certificates of representatives
of the Company and others and certificates of public officials as to certain
matters of fact relating to this opinion and have made such investigations of
law as we have deemed necessary and relevant as a basis hereof. We have assumed
the genuineness of all signatures, the authenticity of all documents and records
submitted to us as originals, the conformity to authentic original documents and
records of all documents and records submitted to us as copies and the
truthfulness of all statements of
<PAGE>
July 16, 1997
Page 2
fact contained therein. Moreover, we have assumed the due authorization,
execution and delivery of the Agreement by all parties thereto other than the
Company.
Based on the foregoing and subject to the limitations and assumptions set
forth herein, and having due regard for such legal considerations as we deem
relevant, we are of the opinion that no approval, authorization or other action
by or filing with, any governmental authority or, to the best of our knowledge,
information and belief, any other Person, is required in connection with the
execution and delivery by the Company of the Agreement and the Registration
Rights Agreement or the consummation by the Company of the transactions set out
therein, except for filings with governmental and regulatory authorities
required to perfect exemptions from the qualifications of registration
provisions of applicable securities laws.
The foregoing opinion is based on and is limited to the laws of British Columbia
and the relevant law of Canada therein.
This opinion is solely for providing your opinion in connection with the
transactions contemplated by the Agreement and may not be quoted, circulated or
published, in whole or in party, or furnished for any other purpose without our
express prior written consent.
Yours very truly,
SCOTT, BISSETT
Very truly yours,
Bracewell & Patterson, L.L.P.
<PAGE>
EXHIBIT H
WONG HUI & ASSOCIATES
BARRISTERS, SOLICITORS
*Garry E. Wong
*Alvin Hui
Suite 720 - 1285 West Broadway
Vancouver, British Columbia, Canada, V6H 3X8
Phone: (604) 732-3898
Fax: (604) 739.,2821
lnternet E-Mail: [email protected]
- --------------------------------------------------------------------------------
July 16, 1997 File No.: 95-292(11)
Enron Capital & Trade Resources Corp.
1400 Smith Street
Houston, TX
USA 77002
Dear Sirs:
Re: This Kafus Capital Corporation (the "Company")
US$21,000,000.00 Offering of Securities (the "Securities")
- --------------------------------------------------------------------------------
We have acted as counsel to The Kafus Capital Corporation, a British Columbia
corporation (the "Company"), in connection with the sale of the Securities
consisting of Series I 10% Convertible Redeemable Preference Shares (the "Series
I Preference Shares"), Warrants, Additional Warrants and shares of the Company,
pursuant to the Subscription Agreement dated July 1, 1997 (the "Agreement")
between the Company and Enron Capital & Trade Resources Corp. (the "Purchase").
We are rendering this opinion pursuant to Section 7.0(d) of the Agreement.
Initially capitalized terms used but not otherwise defined herein shall have the
meaning ascribed to them in the Agreement.
We have examined executed counterparts, or copies thereof, of the Agreement, the
Registration Rights Agreement and the Shareholders Agreement. We also have
examined originals or copies of the articles of incorporation and bylaws of the
Company, and such other documents and records as we have deemed necessary and
relevant for purposes hereof. In addition, we have relied on certificates of
representatives of the Company and others and certificates of public officials
as to certain matters of fact relating to this opinion and have made such
investigations of law as we have deemed necessary and relevant as a basis
hereof. We have assumed the genuineness of all signatures, the authenticity of
all documents and records submitted to us as originals, the conformity to
authentic original documents and records of all documents and records submitted
to us as copies
<PAGE>
and the truthfulness of all statements of fact contained therein. Moreover, we
have assumed the due authorization, execution and delivery of the Agreement by
all parties thereto other than the Company.
Based on the foregoing and subject to the limitations and assumptions set forth
herein, and having due regard for such legal considerations as we deem relevant,
we are of the opinion that:
1. The Company is a corporation duly organized, validly existing and in good
standing under the laws of British Columbia, with all requisite corporate
power and authority to own and operate its properties and assets and to
carry on its business as presently being concluded, and to execute, deliver
and perform its obligations under the Agreement and Registration Rights
Agreement. The Company and each Subsidiary has been qualified and is in
good standing to transact business in British Columbia save and except for
Signet Industries Ltd., an Alberta corporation, and Kenaf Paper
Manufacturing Inc., a Nevada corporation, which do not transact business in
British Columbia. The Company and each Subsidiary has been qualified and is
in good standing to transact business as a foreign corporation in each
jurisdiction where the nature of its business, its ownership or lease of
property requires such qualification, except where failure to so qualify
will not have a material adverse effect on its business, operations or
financial conditions.
2. The Company has taken all requisite corporation action necessary to
authorize the execution, delivery and performance of the Agreement and the
Registration Rights Agreement. The Agreement and the Registration Rights
Agreement have been duly executed and delivered by authorized officers of
the Company and each of them constitutes the legal, valid and binding
obligation of the Company enforceable against the Company in accordance
with its 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. The Shareholders' Agreement has been duly executed and
delivered by authorized officers of The Samarac Corporation Ltd.
("Samarac") and constitutes a legal, valid and binding obligation of
Samarac, enforceable against it in accordance with its terms.
3. The authorized capital stock of the Company consists of 50,000,000
Preference Shares without par value, 15,000 of which have been designated
as Series I Preference Shares, none of which are issued and outstanding,
and 100,000,000 shares of Common Stock without par value, 17,929,950 of
which are issued and outstanding. All issued and outstanding share of
Common Stock have been duly authorized and validly issued and are fully
paid and non-assessable, and were issued free of preemptive rights. To our
knowledge after due inquiry, there are no other outstanding rights of first
refusal, preemptive rights or other rights, warrants, options, conversion
privileges, subscriptions or other rights or agreements,
-2-
<PAGE>
either directly or indirectly granting to any Person the right to purchase
or otherwise acquire, or obligating the Company to issue, any equity
securities of the Company with the exception of:
(a) the Series I Preference Shares, Warrants and Additional Warrants, and
agreement to sell shares pursuant to the Agreement;
(b) outstanding warrants to purchase 2,143,393 shares;
(c) options to purchase a total of 4,987,146 shares of Common stock
granted to 40 employees pursuant to benefit plans duly adopted by the
Company;
(d) the right of Enron Capital & Trade Resources Corp. ("Enron") to
acquire common shares of the Company pursuant to an Income
Participation Certificate Purchase Agreement dated for reference June
1, 1997, between the Company and Enron; and
(e) the right of Enron to acquire common shares of the Company pursuant to
a Deferred Payment Purchase Agreement dated for reference June 1,
1997, between the Company and Enron.
The authorized and outstanding capital stock of each Subsidiary is as set
forth on Schedule 4(e) to the Agreement. All shares of capital stock of
each Subsidiary which is owned by the Company or any Subsidiary is owned
free and clear of all Liens known to us after due inquiry. Except as set
forth in the SEC Reports, to our knowledge after due inquiry, there are no
outstanding warrants, options, conversion privileges, subscriptions or
other rights or agreements, either directly or indirectly granting to any
Person the right to purchase or otherwise acquire, or obligating any
Subsidiary to issue, any equity securities. All holders of stock of the
Company, whether common or preferred, are not, under the laws of the
Province of British Columbia, either directly ,or indirectly, personally
liable for acts of the Company, or its officers and directors.
4. The shares and the Series I Preference Shares have been duly authorized
and, when issued pursuant to the Subscription Agreement, will be validly
issued, fully paid and non-assessable and free of any preemptive rights.
The Warrants and Additional Warrants constitute valid obligations of the
Company enforceable against the Company in accordance with their terms.
5. The execution and delivery of the Agreement and the Registration Rights
Agreement by the Company and the performance by the Company of its
obligations thereunder will not violate any provision of any existing law
or regulation applicable to the Company, or any order, judgment, award or
decree, known to us after due inquiry, of any court, arbitrator or
-3-
<PAGE>
governmental authority applicable to the Company or any of its
Subsidiaries, the articles of incorporation or bylaws of, or any securities
issued by, the Company or any of its Subsidiaries or violate, conflict with
or constitute a default under any material mortgage, indenture, lease,
contract or other agreement, instrument or undertaking, known to us after
due inquiry, to which the Company or any Subsidiary is a party or by which
any of them or their respective assets is bound, and will not result in, or
require the creation or imposition of any Lien on any property, assets or
revenues of the Company or any of its Subsidiaries pursuant to the
provisions of any such mortgage, indenture, lease, contract or other
agreement, instrument or undertaking.
6. Neither the Company nor any of its Subsidiaries is in default under any
material order, judgment, award or decree, known to us after due inquiry,
of any court, arbitrator or governmental authority binding upon or
affecting it or by which any of its assets may be bound or affected, and no
such order, judgment, award or decree materially adversely affects the
ability of the Company to perform its obligations under the Agreement or
the Registration Rights Agreements.
7. No approval, authorization or other action by or filing with any
governmental authority or the best of our knowledge, information and
belief, any other Person, is required in connection with the execution and
delivery by the Company of the Agreement and the Registration Rights
Agreement or the consummation of the transactions set out therein, except
for filings with governmental and regulatory authorities required to
perfect exemptions from the qualifications of registration provisions of
applicable securities laws.
8. No litigation, investigation or administrative proceedings, known to us
after due inquiry, of or before any court, arbitrator or governmental
authority is pending or threatened against the Company or any of its
Subsidiaries
(a) with respect to the Agreement or the transactions contemplated
thereby; or
(b) that, if adversely determined, could reasonably be expected to
constitute a Material Adverse Event except as disclosed in the
Company's 1996 Form 20-F.
The foregoing opinion is, with your concurrence, predicated on and qualified in
its entirety by the following:
(a) The foregoing opinion is based on and is limited to the laws of
British Columbia and the relevant law of Canada.
-4-
<PAGE>
(b) With respect to our opinion as to the enforceability of the Agreement,
the Registration Rights Agreement and the Stockholders' Agreement, we
express no opinion as to the availability of specific performance or
other equitable remedy (regardless of whether such questions is
considered in a proceeding in equity or at law). Furthermore, the
enforceability of any indemnity or contribution obligation contained
in the Agreement or the Registration Rights Agreement may be limited
under applicable taw or public policy.
(c) Whenever our opinion is based on circumstances "known to us after due
inquiry", we have relied on certificates of representatives (after
discussion of the contents thereof with such representatives) of the
Company; the opinion of Scott, Bissett, Canadian securities counsel
for the Company, in the case of the opinion in paragraph 7 (a copy of
which is annexed hereto); or certificates of others as to the
existence or nonexistence of the circumstances upon which such opinion
is predicated. Nothing has come to our attention, however, that has
led us to believe that any such certificate or opinion is untrue or
inaccurate in any material respect.
(d) In rendering the opinion herein relating to the absence of any
litigation, investigation or administrative proceeding, we express no
opinion with respect to the possible effect of administrative and
legislative actions and proceedings as to which the Company or one or
more of its Subsidiaries is not named a party and investigations of
which the Company or one or more of its Subsidiaries has received no
written notice.
This opinion is solely for your benefit in connection with the transactions
contemplated by the Agreement and may not be quoted, circulated or published, in
whole or in part, or furnished to any other person without our express prior
written consent.
Yours very truly,
WONG HUI & ASSOCIATES
Per: Garry E. Wong
GEW/cac
Enclosure
-5-
<PAGE>
July 16, 1997
Attention: Garry E. Wong
Wong Hui & Associates
Barristers Solicitors
Suite 720 - 1285 West Broadway
Vancouver, B.C.
V6H 3X8
Re: The Kafus Capital Corporation (the "Company")
US $21,000,000.00 Offering of the Securities
--------------------------------------------
Dear Sirs:
We have acted as counsel to the Company, a British Columbia corporation, in
connection with the sale of Securities consisting of the Preference Shares, the
Warrants, the Additional warrants; and the Shares of the Company, pursuant to
the Subscription Agreement dated July 16, 1997, (the "Agreement") among the
Company and the purchaser named therein (the "Purchaser"). We are rendering
this opinion to you to enable you to render your opinion pursuant to Section
7.0(d) of the Agreement. Initially capitalized terms used but not otherwise
defined herein shall have the meanings ascribed to them in the Agreement.
We have examined executed counterparts, or copies thereof, of the
Agreement, and the Registration Rights Agreement. We have also examined such
other documents and records as we have deemed necessary and relevant for the
purposes hereof. In addition, we have relied on certificates of representatives
of the Company and others and certificates of public officials as to certain
matters of fact relating to this opinion and have made such investigations of
law as we have deemed necessary and relevant as a basis hereof. We have assumed
the genuineness of all signatures, the authenticity of all documents and records
submitted to us as originals, the conformity to authentic original documents and
records of all documents and records submitted to us as copies and the
truthfulness of all statements of
<PAGE>
July 16, 1997
Page 2
fact contained therein. Moreover, we have assumed the due authorization,
execution and delivery of the Agreement by all parties thereto other than the
Company.
Based on the foregoing and subject to the limitations and assumptions set
forth herein, and having due regard for such legal considerations as we deem
relevant, we are of the opinion that no approval, authorization or other action
by or filing with, any governmental authority or, to the best of our knowledge,
information and belief, any other Person, is required in connection with the
execution and delivery by the Company of the Agreement and the Registration
Rights Agreement or the consummation by the Company of the transactions set out
therein, except for filings with governmental and regulatory authorities
required to perfect exemptions from the qualifications of registration
provisions of applicable securities laws.
The foregoing opinion is based on and is limited to the laws of British Columbia
and the relevant law of Canada therein.
This opinion is solely for providing your opinion in connection with the
transactions contemplated by the Agreement and may not be quoted, circulated or
published, in whole or in party, or furnished for any other purpose without our
express prior written consent.
Yours very truly,
SCOTT, BISSETT
<PAGE>
EXHIBIT I
July 24, 1997
To the Purchaser named
in the Subscription Agreement
referred to below
Re: The Kafus Capital Corporation
US 21,000,000 Offering of Securities
------------------------------------
Dear Sirs:
We have acted as special U.S. counsel to The Kafus Capital Corporation, a
British Columbia corporation (the "Company"), in connection with the sale of
Securities consisting of Shares of Common Stock, Preference Shares, Warrant to
purchase Common Stock of the Company and an Additional Warrant to purchase
Common Stock of the Company, pursuant to the Subscription Agreement, dated July
16, 1997 (the "Agreement") between the Company and the Purchaser named therein
(the "Purchaser"). We are rendering this opinion pursuant to Section 7.0(d) of
the Agreement and it is being given solely in connection therewith. Initially
capitalized terms used but not otherwise defined herein shall have the meanings
ascribed to them in the Agreement.
In connection with this opinion, we have examined executed counterparts, or
copies thereof, of the Agreement, the Registration Rights Agreement and the
Shareholders Agreement. We also have examined originals or copies of other
documents and records. In addition, we have relied on certificates of
representatives of the Company and others and certificates of public officials
as to certain matters of fact relating to this opinion and have made such
examination of law as we have deemed necessary and relevant to form the basis of
the opinions hereinafter expressed. We have assumed, without investigation, the
genuineness of all signatures, the authenticity of all documents and records
submitted to us as originals, the conformity to authentic original documents and
records of all documents and records submitted to us as copies and the
truthfulness, completeness and accuracy of all statements
<PAGE>
July 24, 1997
Page 2
of fact contained therein. We have assumed the documents shown to us are
complete and no modifications to any such documents exist. We have assumed that
the representations and warranties made by the Purchaser in the Agreement are
true and correct. In connection with any opinion regarding the enforceability of
any agreement or instrument contained herein, we have assumed the accuracy of
all representations and warranties of the Purchaser and the performance by the
Purchaser, in accordance with all applicable laws, of the obligations of the
Purchaser set forth in such agreements or instruments. Moreover, we have assumed
the due authorization, execution and delivery of the Agreement by all parties
thereto other than the Company. We have made no independent investigation of
such assumptions, but have no reason to believe such assumptions are untrue.
We are members of the bar of the State of New York and we express no opinion as
to the law of any jurisdiction other than the laws of the State of New York and
the federal laws of the United States as specifically referenced in this
opinion. We express no opinions as to the compliance or non-compliance with
state securities laws or any federal or state and anti-trust laws. We express no
opinion as to the anti-fraud provisions of the federal securities laws. We
express no opinion regarding the laws of British Columbia or any other non-U.S.
jurisdiction.
Based on the foregoing and subject to the limitations and assumptions set forth
herein, and having due regard for such legal considerations as we deem relevant,
we are of the opinion that:
1. The Company and each Subsidiary has been qualified and is in good standing
to transact business as a foreign corporation in each jurisdiction where
the nature of its business, its ownership or lease of property requires
such qualification, except where failure to so qualify will not have a
material adverse effect on its business, operations or financial
conditions.
2. The Agreement and the Registration Rights Agreement have been duly executed
and delivered by authorized officers of the Company and each of them
constitutes the legal, valid and binding obligation of the Company
enforceable against the Company in accordance with its terms. The
Shareholders Agreement has been duly executed and delivered by authorized
officers of The Samarac Corporation and constitutes the legal, valid and
binding obligation of The Samarac Corporation, enforceable against it in
accordance with its terms.
<PAGE>
July 24, 1997
Page 3
3. Except for the Series I Preference Shares and the Warrant to purchase
Common Stock and the Additional Warrant to purchase Common Stock and the
Shares; outstanding warrants to purchase 2,143,393 shares, if exercised;
options to purchase a total of 4,987,146 shares of Common Stock granted to
40 employees pursuant to benefit plans duly adopted by the Company; the
right of Purchaser to acquire common shares of the Company pursuant to an
Income Participation Certificate Purchase Agreement dated for reference
June 1, 1997, between the Company and Purchaser; the right of Purchaser to
acquire common shares of the Company pursuant to a Deferred Payment
Purchase Agreement dated for reference June 1, 1997, between the Company
and Purchaser; and the right of the Company to purchase 5,000 Preference
Shares; to our knowledge after due inquiry, there are no other outstanding
rights of first refusal, preemptive rights or other rights, warrants,
options, conversion privileges, subscriptions or other rights or
agreements, either directly or indirectly granting to any Person the right
to purchase or otherwise acquire, or obligating the Company to issue, any
equity securities of the Company. To the best of our knowledge, information
and belief and after due inquiry, the authorized and outstanding capital
stock of each U.S. Subsidiary is as set forth on Schedule 4(e) to the
Agreement. All shares of capital stock of each U.S. Subsidiary which is
owned by the Company or any Subsidiary is owned free and clear of all Liens
known to us after due inquiry. To the best of our knowledge, information
and belief after due inquiry, there are no outstanding warrants, options,
conversion privileges, subscriptions or other rights or agreements, either
directly or indirectly granting to any Person the right to purchase or
otherwise acquire, or obligating any U.S. Subsidiary to issue, any equity
securities, except as set forth in SEC Documents.
4. The Warrant and the Additional Warrant constitute valid obligations of the
Company enforceable against the Company in accordance with their terms
under the law of the State of New York.
5. The execution and delivery of the Agreement and the Registration Rights
Agreement by the Company and the performance by the Company of its
obligations thereunder will, in our opinion, not violate any provision of
any existing federal law applicable to the Company, or any order, judgment,
award or decree, known to us after due inquiry, of any court, arbitrator or
governmental authority applicable to any of the Company's U.S.
Subsidiaries.
6. No approval, authorization or other action by or filing with, any federal
and state governmental authority is required in connection with the offer
and sale of
<PAGE>
July 24, 1997
Page 4
the Securities contemplated by the Agreement, except for filings required
pursuant to federal and state securities laws, which the Company represents
to us will be made after the Closing.
7. No litigation, investigation or administrative proceeding, known to us
after due inquiry, of or before any court, arbitrator or governmental
authority is pending or threatened against the Company or any of its
Subsidiaries (a) with respect to the Agreement or the transactions
contemplated thereby or (b) that, if adversely determined, could reasonably
be expected to constitute a Material Adverse Event, except as disclosed in
the Company's 1996 Form 20-F.
The foregoing opinion is, with your concurrence, predicated on and
qualified in its entirely by the following:
(i) The foregoing opinion is based on and is limited to the laws of the
State of New York, and the relevant federal securities laws of the United States
of America.
(ii) With respect to our opinion as to the enforceability of the Agreement,
the Registration Rights Agreement, Shareholders Agreement, the Additional
Warrant and the Warrant, we express no opinion as to the availability of
specific performance or other equitable remedy (regardless of whether such
question is considered in a proceeding in equity or at law), and such opinion is
subject to applicable bankruptcy, insolvency, reorganization, receivership,
moratorium and other similar laws affecting generally the enforcement of
creditors' rights and remedies, and to equitable principles, including defenses.
Furthermore, the enforceability of any indemnity or contribution provisions
contained in the Agreement or the Registration Rights Agreement may be limited
under applicable law or public policy, and we express no opinion as to the
effect federal or state securities laws may have in limiting the enforceability
of such provisions.
(iii) Whenever our opinion is based on circumstances known to us "after due
inquiry," we have relied on certificates of representatives (after discussion of
the contents thereof with such representatives) of the Company or certificates
of others as to the existence or nonexistence of the circumstances upon which
such opinion is predicated. Nothing has come to our attention, however, that has
led us to believe that any such certificate is untrue or inaccurate in any
material respect.
(iv) Except as described herein, we have made no special investigation or
review of any judgments, decrees, franchises, certificates, or the like, and
have made no independent
<PAGE>
July 24, 1997
Page 5
search of the records of any judicial authority or governmental agency. In
addition, we have made no examination or investigation to verify the accuracy or
completeness of any disclosure information furnished to you and express no
opinion with respect thereto.
(v) Our opinions below are limited strictly to the opinions expressly set
forth herein, and no opinion is to be implied or may be inferred beyond the
matters expressly so stated.
(vi) Other than the Company, no party to the transactions contemplated by
the Agreement or the Registration Rights Agreement, or any document or agreement
relating thereto, is subject to any statute, rule or regulation or to any
impediment to which contracting parties are generally not subject that require
the Company or such party to obtain the consent, approval, authorization or
other order, or to make a declaration or filing with, any governmental
authority.
(vii) As to factual matters, we have relied upon the truth and accuracy of
the representations and warranties of the Purchasers, and have assumed
compliance with the agreements and covenants of the Purchasers, all as set forth
in the Agreement, without undertaking to verify such matters by independent
investigation. We have additionally relied upon statements and representations
of officers of the Company in certificates furnished to us (after discussion of
the contents thereof with such representatives), without undertaking to verify
such matters by independent investigation. Nothing has come to our attention,
however, that has led us to believe that any such certificate is untrue or
inaccurate in any material respect.
(viii) In rendering the opinion herein relating to the absence of any
litigation, investigation or administrative proceeding, we express no opinion
with respect to the possible effect of administrative and legislative actions
and proceedings as to which the Company or one or more of its Subsidiaries has
received no written notice.
This opinion is given as of the date hereof, and we assume no obligation to
advise you of changes, in fact or law, that may hereafter be brought to our
attention. This opinion represents the judgment of this law firm and is not a
warranty or guaranty and shall not be construed as such. This opinion is solely
for your benefit in connection with the offer and sale of the Units contemplated
by the Agreement and may not be quoted, circulated, or published, in whole or in
part, or furnished to any other person without our express prior written
consent. No one other than you is entitled to rely on this opinion. This opinion
is
<PAGE>
July 24, 1997
Page 6
rendered solely for purposes of the offer and sale of the Units contemplated
by the Agreement and should not be relied upon for any other purpose.
Sincerely,
SIROTA & SIROTA LLP
<PAGE>
EXHIBIT K: SHAREHOLDER AGREEMENT
---------------------------------
Enron Capital & Trade Resources Corp.
1200 Smith Street
Houston, Texas 77002
Ladies and Gentlemen:
This Letter Agreement is being delivered to you by The Samarac
Corporation, a Canadian corporation (the "Stockholder") pursuant to Section
7.0(i) of the Subscription Agreement referred to below. It is understood that
Enron Capital & Trade Resource Corp., a Delaware corporation ("ECT"), is relying
on this letter in making its decision to purchase the Securities referred to
below.
1. Introduction. The Kafus Capital Corporation (the "Company") has
entered into a Subscription Agreement, dated as of July 16, 1997 (the
"Subscription Agreement"), with ECT, pursuant to which ECT has agreed to
purchase from the Company, and the Company has agreed to sell to ECT. The
execution and delivery of this Shareholder Agreement is a condition to the
consummation by ECT of the purchase of the Securities pursuant to the
Subscription Agreement.
2. Definitions. Initially capitalized terms used but not defined
herein have the meanings ascribed to them in the Subscription Agreement. As
used herein, the following terms shall have the meanings set forth below.
<PAGE>
"Common Stock" means the Common Stock, without par value, of the Company.
"Exchange Act" means the Securities Exchange Act of 1934, as amended.
"Restricted Period" has the meaning specified therefor in Section 3 of this
Agreement.
"SEC" means the United States Securities and Exchange Commission.
"Shares" has the meaning specified therefor in Section 3 of the Agreement.
3. Agreement by the Stockholder. The Stockholder represents and
warrants to ECT that, as of the date hereof, such Stockholder is the beneficial
owner (as defined under Rule 13d-3 promulgated by the SEC under the Exchange
Act) of the number of shares of Common Stock set forth on Annex A to this
Shareholder Agreement (the "Shares"). The Stockholder owns the Shares free and
clear of all Liens. The Stockholder agrees that it will not sell more than 5%
of the Shares during any period of 12 consecutive months during the period
commencing on the date hereof and ending on the third anniversary of the date of
this Shareholder Agreement (the "Restricted Period"). In addition, the
Stockholder covenants and agrees with ECT that (i) in the event any applicable
law,
<PAGE>
rule or regulation (including any regulation of any securities exchange on
which the Common Stock is or becomes traded) requires that the conversion of the
Preference Shares or the exercise of any Warrants or Additional Warrants be
approved by the Board of Directors or the shareholders of the Company, or (ii)
Purchaser requests that its designee be elected as a director of the Company, as
contemplated by Section 6.0 of the Subscription Agreement, then the Stockholder,
in each case, shall vote all of the Shares owned by the Stockholder in favor of
any such proposal, and shall take such other actions as may reasonably be
necessary to allow such conversion or exercise or to elect any such designee
submitted for election to the shareholders, at the earliest practicable time.
4. Communications. All notices and demand provided for hereunder
shall be in writing, by telecopy (confirmed by overnight courier), air courier
guaranteeing overnight delivery or personal delivery, to the following
respective addresses:
to ECT:
Enron Capital & Trade Corp.
1400 Smith Street
Houston, Texas 77002
Attention:
Telecopier:
to The SAMARAC Corporation:
3
<PAGE>
1155 Robson Street
Vancouver, British Columbia
V6E, Canada
Attention: Mr. Ken Swaisland
Telecopier: (604) 685-2426
or to such other address as such Person may designate in writing. All such
notices and communications and all notices and communications shall be deemed to
have been duly given at the time delivery by hand if personally delivered; when
receipt acknowledged, if telecopied; and on the next business day if timely
delivered to an air courier guaranteeing overnight delivery.
5. Binding Effect: Assignment. This Shareholder Agreement shall be
binding upon the Stockholder and its respective successors and permitted
assigns. Except as expressly provided in this Shareholder Agreement, this
Shareholder Agreement shall not be construed so as to confer any right or
benefit upon any Person other than the parties to this Shareholder Agreement,
and their respective successor and permitted assigns.
6. Governing Law. The laws of the state of New York, U.S.A. will
govern this Shareholder Agreement, without regard to principles of conflicts of
laws.
7. Severability of Provisions. Any provision of this Shareholder
Agreement which is prohibited or
4
<PAGE>
unenforceable in any jurisdiction shall, as to such jurisdiction, be ineffective
to the extent of such prohibition or unenforceability without invalidating the
remaining provisions hereof or affecting or impairing the validity or
enforceability of such provision in any other jurisdiction.
8. Headings. The Section headings used or contained in this
Shareholder Agreement are for convenience of references only and shall not
affect the construction of this Shareholder Agreement.
IN WITNESS WHEREOF, the Stockholder has executed this Shareholder
Agreement, effective as of the ___ day of July, 1997.
THE SAMARAC CORPORATION
By:_________________________
Name:_______________________
Title:______________________
5
<PAGE>
ANNEX A
-------
Number of Shares of
Record Owner Common Stock of Company
------------ -----------------------
The SAMARAC Corporation 10,000,324 (55.87%)
6
<PAGE>
EXHIBIT L
July 16, 1997
The Kafus Capital Corporation
6 Eva Road
Toronto, Ontario
Canada
Gentlemen:
This letter is written in connection with, and in fulfillment of a condition to,
the consummation of the transactions contemplated by the Subscription Agreement
dated as of July 16, 1997, between The Kafus Capital Corporation, a British
Columbia corporation (the "Company"), and Enron Capital & Trade Resources Corp.,
a Delaware corporation ("ECT"). Initially capitalized terms not otherwise
defined herein shall have the meanings ascribed to them in the Subscription
Agreement. In consideration of the execution, delivery and performance by the
Company of its obligations under the Subscription Agreement, ECT hereby agrees
as follows:
1. ECT agrees, with respect to 5,000 Preference Shares (the "Shares"), that it
will not exercise its right to convert such Shares into shares of Common
Stock of the Company prior to January 16, 1998 (the "Determination Date"),
without the prior written consent of the Company.
2. In the event (i) the trade weighted average of the prices for the Common
Stock during any period of 30 consecutive days ending on or prior to the
Determination Date (a "Measurement Period") exceeds U.S. $7.00 per share
(such price to be appropriately adjusted for any stock split, reverse stock
split or similar recapitalization after the date hereof) and (ii) the
Common Stock is listed on a U.S. national securities exchange or the NASDAQ
National Market throughout such 30-day period, then the Company shall have
the right (but shall
<PAGE>
The Kafus Corporation
July 16, 1997
Page 2
have no obligation), to purchase from ECT any or all of the Shares for a
cash purchase price equal to U.S. $1,200 per Share, plus all dividends
accrued (whether or not declared) on the Shares (collectively, the
"Purchase Price"). To exercise its right to purchase the Shares pursuant to
this paragraph 2, the Company shall, within 10 days following a Measurement
Date in which the conditions specified in (i) and (ii) above are satisfied,
notify ECT of such election. The Company may make only one election to
purchase Shares hereunder. The consummation of any purchase of the Shares
upon an exercise of the rights hereunder (the "Closing") shall take place
at the offices of ECT, on the 5th Business Day following the receipt by ECT
of such notice from the Company. At the Closing (a) ECT shall deliver to
the Company certificates representing the Shares, duly endorsed in blank or
accompanied by stock powers executed in blank and (b) the Company shall
deliver to ECT by wire transfer an amount equal to the Purchase Price for
the Shares purchased.
Nothing herein shall be deemed to limit in any way the ability of ECT to
convert any Preference Shares other than the Shares or its ability to sell
or transfer the Shares to an Affiliate of ECT or, upon receipt of the prior
written consent of the Company, which will not be unreasonably withheld, to
any other Person who agrees in writing to be bound by the terms hereof.
The Company may assign its rights hereunder to (i) SAMARAC Corporation or
(ii) any other Person, provided in the case of (ii) the Company has
obtained the prior written consent of ECT to such transfer (which will not
be unreasonably withheld). This letter agreement shall terminate and the
Company shall have no further rights hereunder as of the Determination
Date, unless extended by the parties in writing.
Very truly yours,
ENRON CAPITAL & TRADE
RESOURCES CORP.
<PAGE>
The Kafus Corporation
July 16, 1997
Page 2
By:________________________
Name:______________________
Title:_____________________
<PAGE>
SCHEDULE 4(E)
-------------
SUBSIDIARY SCHEDULE/*/
COMPANY
JURISDICTION OF STOCK
SUBSIDIARY INCORPORATION OWNERSHIP
- --------------------------- ------------------- -----------
1. Cameron Strategic Planning Ltd. British Columbia 100%
2. 498494 B.C. British Columbia 100%
3. Kenaf Paper Manufacturing, Inc. Nevada, U.S.A. 82.5%
4. Signet Industries Ltd. Province of Alberta **
5. Paramount Agencies Ltd. British Columbia ***
6. Kafus Environmental Industries London, England 90%
__________________
* This Schedule includes the Company's wholly or partially-owned active
Subsidiaries as of the date of the Subscription Agreement.
** Cameron Strategic Planning Ltd. is the owner of 59% of the voting shares of
Signet Industries Ltd. The Company is the owner of 11% of the voting shares
of Signet Industries Ltd.
*** The Company has no direct interest in Paramount. Signet Industries Ltd. is
the owner of 75% of the voting shares of Paramount.
<PAGE>
SCHEDULE 4 (F)
--------------
LITIGATION
----------
Litigation. A legal action was commenced against the Company during the
fiscal year 1996, in the Supreme Court of Canada, Case #960913, and certain
directors by Atlas Capital Group Ltd. in the amount of $1,414,013 relating to a
finder's fee agreement, dated May 10, 1995, between Giant Bay Resources Ltd. and
Atlas. The defendants have filed a defense and counterclaim denying liability.
It is not possible to determine at the present time what the outcome of this
action might be. No provision has been made for it in the accounts of the
Company. If any loss should occur as a result of the resolution of this matter,
such loss would be charged to operations in the period in which the settlement
occurs. In February 1996, the Company entered into a public relations consulting
contract with Thomas E. Waite & Associates Inc. ("Waite"). As part of that
contract, Waite agreed to subscribe for 400,000 shares of the Company's stock at
$1.90 per share, 200,000 of which were subject to a performance escrow. The
contract was canceled in April 1996 and subsequently, the matter went to
arbitration. The American Arbitration Associate ("AAA") ruled in favor of the
Company, as respondent in the matter, and ordered that Waite return 175,000
shares to the Company and repay $7,449 in over-billing for services. Following
the AAA ruling, Waite appealed the matter to a Federal Court in Florida where it
is currently under review. No provision has ben made for this matter in the
accounts of the Company. If any loss should occur as a result of the resolution
of this matter, such loss would be charged to operations in the period in which
the settlement occurs.
<PAGE>
EXHIBIT 2
SHAREHOLDER AGREEMENT
---------------------
Enron Capital & Trade Resources Corp.
1200 Smith Street
Houston, Texas 77002
Ladies and Gentlemen:
This Letter Agreement is being delivered to you by The Samarac
Corporation, a Canadian corporation (the "Stockholder") pursuant to Section
7.0(i) of the Subscription Agreement referred to below. It is understood that
Enron Capital & Trade Resource Corp., a Delaware corporation ("ECT"), is relying
on this letter in making its decision to purchase the Securities referred to
below.
1. Introduction. The Kafus Capital Corporation (the "Company") has
entered into a Subscription Agreement, dated as of July 16, 1997 (the
"Subscription Agreement"), with ECT, pursuant to which ECT has agreed to
purchase from the Company, and the Company has agreed to sell to ECT. The
execution and delivery of this Shareholder Agreement is a condition to the
consummation by ECT of the purchase of the Securities pursuant to the
Subscription Agreement.
2. Definitions. Initially capitalized terms used but not defined
herein have the meanings ascribed to them in the Subscription Agreement. As
used herein, the following terms shall have the meanings set forth below.
<PAGE>
"Common Stock" means the Common Stock, without par value, of the Company.
"Exchange Act" means the Securities Exchange Act of 1934, as amended.
"Restricted Period" has the meaning specified therefor in Section 3 of this
Agreement.
"SEC" means the United States Securities and Exchange Commission.
"Shares" has the meaning specified therefor in Section 3 of the Agreement.
3. Agreement by the Stockholder. The Stockholder represents and
warrants to ECT that, as of the date hereof, such Stockholder is the beneficial
owner (as defined under Rule 13d-3 promulgated by the SEC under the Exchange
Act) of the number of shares of Common Stock set forth on Annex A to this
Shareholder Agreement (the "Shares"). The Stockholder owns the Shares free and
clear of all Liens. The Stockholder agrees that it will not sell more than 5%
of the Shares during any period of 12 consecutive months during the period
commencing on the date hereof and ending on the third anniversary of the date of
this Shareholder Agreement (the "Restricted Period"). In addition, the
Stockholder covenants and agrees with ECT that (i) in the event any applicable
law,
<PAGE>
rule or regulation (including any regulation of any securities exchange on which
the Common Stock is or becomes traded) requires that the conversion of the
Preference Shares or the exercise of any Warrants or Additional Warrants be
approved by the Board of Directors or the shareholders of the Company, or (ii)
Purchaser requests that its designee be elected as a director of the Company, as
contemplated by Section 6.0 of the Subscription Agreement, then the Stockholder,
in each case, shall vote all of the Shares owned by the Stockholder in favor of
any such proposal, and shall take such other actions as may reasonably be
necessary to allow such conversion or exercise or to elect any such designee
submitted for election to the shareholders, at the earliest practicable time.
4. Communications. All notices and demand provided for hereunder
shall be in writing, by telecopy (confirmed by overnight courier), air courier
guaranteeing overnight delivery or personal delivery, to the following
respective addresses:
to ECT:
Enron Capital & Trade Corp.
1400 Smith Street
Houston, Texas 77002
Attention:
Telecopier:
to The SAMARAC Corporation:
3
<PAGE>
1155 Robson Street
Vancouver, British Columbia
V6E, Canada
Attention: Mr. Ken Swaisland
Telecopier: (604) 685-2426
or to such other address as such Person may designate in writing. All such
notices and communications and all notices and communications shall be deemed to
have been duly given at the time delivery by hand if personally delivered; when
receipt acknowledged, if telecopied; and on the next business day if timely
delivered to an air courier guaranteeing overnight delivery.
5. Binding Effect: Assignment. This Shareholder Agreement shall be
binding upon the Stockholder and its respective successors and permitted
assigns. Except as expressly provided in this Shareholder Agreement, this
Shareholder Agreement shall not be construed so as to confer any right or
benefit upon any Person other than the parties to this Shareholder Agreement,
and their respective successor and permitted assigns.
6. Governing Law. The laws of the state of New York, U.S.A. will
govern this Shareholder Agreement, without regard to principles of conflicts of
laws.
7. Severability of Provisions. Any provision of this Shareholder
Agreement which is prohibited or
4
<PAGE>
unenforceable in any jurisdiction shall, as to such jurisdiction, be ineffective
to the extent of such prohibition or unenforceability without invalidating the
remaining provisions hereof or affecting or impairing the validity or
enforceability of such provision in any other jurisdiction.
8. Headings. The Section headings used or contained in this
Shareholder Agreement are for convenience of references only and shall not
affect the construction of this Shareholder Agreement.
IN WITNESS WHEREOF, the Stockholder has executed this Shareholder
Agreement, effective as of the ___ day of July, 1997.
THE SAMARAC CORPORATION
By:/s/ Kenneth F. Swaisland
-------------------------
Name: Kenneth F. Swaisland
-----------------------
Title: President
----------------------
5
<PAGE>
ANNEX A
-------
Number of Shares of
Record Owner Common Stock of Company
------------ -----------------------
The SAMARAC Corporation 10,000,324 (55.87%)
6
<PAGE>
EXHIBIT 3
REGISTRATION RIGHTS AGREEMENT
This REGISTRATION RIGHTS AGREEMENT (the "REGISTRATION AGREEMENT") is made
and entered into as of July 16, 1997, by and between The Kafus Capital
Corporation, a British Columbia Corporation (the "Company") and the person(s)
listed on the signature pages to this Registration Agreement (the "Purchaser").
RECITALS
WHEREAS, the Company and the Purchaser are parties to a Subscription
Agreement of even date herewith (the "Subscription Agreement"), pursuant to
which the Company shall issue and sell to the Purchasers, and the Purchasers
shall purchase from the Company, Shares, and Warrants and Additional Warrants to
acquire shares of Common Stock, as more particularly described therein.
Capitalized terms used but not otherwise defined in this Registration Agreement
shall have the meanings given to such terms in the Subscription Agreement.
WHEREAS, the Purchaser desires that the Company register the Registerable
Securities for resale upon the terms and subject to the conditions set forth in
this Registration Agreement.
WHEREAS, the execution and delivery of this Registration Agreement is a
condition precedent to the Purchaser's obligations under the Subscription
Agreement.
NOW, THEREFORE, the parties hereto, intending legally to be bound, hereby
agree as follows:
1. DEFINITIONS.
As used in this Registration Agreement, the following terms shall have the
meanings ascribed to them below:
(a) "Affiliate" of any specified Person means any other Person directly or
indirectly controlling or controlled by or under direct or indirect common
control with such specified Person. For the purposes of this definition,
"control," when used with respect to any Person,
<PAGE>
means the power to direct the management and policies of such Person, directly
or indirectly, whether through the ownership of voting securities, by contract
or otherwise, and the terms "controlling" and "controlled" have meanings
correlative to the foregoing.
(b) "Applicable Rate" shall mean 1.5% monthly with respect to the first
month and 2% monthly for each subsequent month, until the Registration Statement
shall become effective.
(c) "Business Day" means any Monday, Tuesday, Wednesday, Thursday or Friday
that is not a day on which banking institutions in the City of New York, New
York or Toronto, Ontario are required by law, regulation or executive order to
close.
(d) "Holder" shall mean the Purchaser and any other Person who has become a
Permitted Transferee pursuant to Section 9(c).
(e) "Registrable Securities" means (v) the Shares, (w) the Conversion
Shares, (x) the Warrant Shares, (y) all other shares of Common Stock purchased,
acquired or received from any Person by the Purchaser and its Affiliates (or
which they shall have the right to purchase or acquire) pursuant to or in
connection with the purchase of the Securities or the transactions contemplated
by the Subscription Agreement and (z) any securities issued or issuable in
respect of or in exchange for any of the shares of Common Stock referred to in
clauses (v) through (y) above by way of a stock dividend or stock split or in
connection with a combination of shares, recapitalization, reclassification,
merger, consolidation, or exchange offer ("Distribution Securities"). For
purposes of this Registration Agreement, a Registrable Security ceases to
constitute a Registrable Security hereunder (i) when such Registrable Security
shall have been effectively registered under the Securities Act and disposed of
in a public market transaction pursuant to a Registration Statement, (ii) when
such Registrable Security shall have been sold pursuant to Rule 144 (or any
successor provision) under the Securities Act, (iii) when such Registrable
Security shall have been otherwise transferred and a new certificate for such
Registrable Security not bearing a legend restricting further transfer shall
have been delivered by the Company, (iv) with respect to a
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particular Holder, at any time when all of such Holder's remaining Registrable
Securities can be sold in a single transaction in compliance with Rule 144 under
the Securities Act, (v) on the third anniversary of the original issuance date
of such Registrable Security, provided that the Holder of such Registerable
Security is not an Affiliate of the Company as of such date, and has not been an
Affiliate of the Company for a period of three months preceding such date, or
(vi) when such Registrable Security shall have ceased to be outstanding.
(f) "Registration Statement" shall have the meaning set forth in Section 2.
(g) "Registration Termination Date" means, the first date on which all
Conversion Shares and all Warrant Shares (and any Distribution Securities with
respect thereto) cease to be Registrable Securities.
(h) "Securities Act" means the Securities Act of 1933, as amended.
(i) "Securities Exchange Act" means the Securities Exchange Act of 1934, as
amended.
(j) "SEC" means the United States Securities Exchange Commission, or any
successor agency thereto.
Other capitalized terms shall have the meanings ascribed to them in the
other sections of this Registration Agreement or in the Subscription Agreement
if not defined herein.
2. SHELF REGISTRATION.
(a) Effective Registration. As soon as practicable, but in any event
within ninety (90) days following the Closing Date under the Subscription
Agreement, the Company shall file with the SEC under the Securities Act a
Registration Statement on Form F-1 ("Registration Statement"), or on such other
registration form under the Securities Act as the Company shall deem
appropriate, covering the sale by the Holders on a continuous or delayed basis
pursuant to Rule 415 thereunder (or any similar rule that may be adopted by the
SEC) of (i) the Conversion Shares and (ii) the Warrant Shares. The Company
shall use its best
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efforts to cause each Registration Statement to be declared effective on or
prior to the one hundred and fiftieth (150th) day following the Closing Date and
shall thereafter keep such Registration Statement continuously effective until
the Registration Termination Date.
(b) Delay in Effectiveness. In the event any Registration Statement is not
declared effective by the SEC within 150 days after the Closing Date (the
"Effectiveness Deadline"), or in the event the effectiveness of any Registration
Statement is suspended or terminated at any time after its Effectiveness
Deadline and prior to the Registration Termination Date, then for each month (or
portion thereof) such Registration Statement is not so effective, the Company
shall pay to the Holders, as liquidated damages and not as a penalty, an amount
equal to the product of $21,000,000 (being the total purchase price of the
Securities) and the Applicable Rate. The Company shall pay such liquidated
damages to each Holder based upon the proportion of the Registerable Securities
owned by such Holder. Such payments shall be made on the first Business Day of
each month following any month in which such Registration Statement is not
effective, with a final payment within five (5) Business Days after such
Registration Statement becomes effective.
3. REGISTRATION PROCEDURES.
(a) Company Procedures. In connection with the Company's registration
obligations pursuant to Section 2, the Company shall keep each Registration
Statement continuously effective for the period of time provided in Section 2,
to permit the sale of Registrable Securities covered by such Registration
Statement in accordance with the intended method or methods of distribution
thereof specified in such Registration Statement or in the related
prospectus(es), and shall:
(i) comply with such provisions of the Securities Act as may be
necessary to facilitate the disposition of all Registrable Securities
covered by such Registration Statement during the applicable period in
accordance with the intended method or methods of disposition thereof set
forth in such Registration Statement or such prospectus or supplement
thereto;
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(ii) notify the Holders, promptly (A) when each Registration
Statement, prospectus or supplement thereto or further post-effective
amendment has been filed, and, with respect to each Registration Statement
or further post-effective amendment, when it has become effective, (B) of
any request by the SEC for amendments or supplements to any Registration
Statement or prospectus or for additional information, (C) of the issuance
by the SEC of any comments with respect to any filing and of any stop order
suspending the effectiveness of any Registration Statement or the
initiation of any proceedings for that purpose, (D) of the receipt by the
Company of any notification with respect to the suspension of the
qualification of any Registrable Securities for sale in any jurisdiction or
the initiation or threatening of any proceeding for such purpose, (E) of
the happening of any event that makes any statement made in any
Registration Statement, prospectus or any other document incorporated
therein by reference untrue or that requires the making of any changes in
such Registration Statement, prospectus or any document incorporated
therein by reference in order that such documents not contain any untrue
statement of a material fact or omit to state any material fact required to
be stated therein or necessary to make the statements therein not
misleading, and (F) of the Company's determination that a further post-
effective amendment to such Registration Statement would be appropriate;
(iii) furnish to each Holder, without charge, as many conformed
copies as may reasonably be requested by such Holder, of each Registration
Statement and any further post-effective amendments thereto, including
financial statements and schedules, all documents incorporated therein by
reference and all exhibits (including those incorporated by reference);
(iv) deliver to each Holder, without charge, as many copies of the
then effective prospectus covering such Registrable Securities and any
amendments or supplements thereto as such Holder may reasonably request;
(v) register, qualify, obtain an exemption therefrom, or cooperate
with the Holders and their
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counsel in connection with the registration or qualification or exemption
therefrom of such Registrable Securities for offer and sale under the
securities or blue sky laws of such jurisdictions as may be reasonably
requested in writing by the Holders and do any and all other acts or things
necessary or advisable to enable the disposition in such jurisdictions of
the Registrable Securities covered by the then effective Registration
Statements; provided, however, that the Company shall not be required to
(A) qualify as a foreign corporation or generally to transact business in
any jurisdiction where it is not then so qualified, (B) qualify as a dealer
(or other similar entity) in securities, (C) otherwise subject itself to
taxation in connection with such activities, or (D) take any action which
would subject it to general service of process in any jurisdiction where it
is not then so subject;
(vi) upon the occurrence of any event contemplated by clauses (E)
or (F) of paragraph (ii) above, promptly prepare and file, if necessary, a
further post-effective amendment to each Registration Statement or a
supplement to the related prospectuses or any document incorporated therein
by reference or file any other required document so that each Registration
Statement and the related prospectuses will not thereafter contain an
untrue statement of a material fact or omit to state any material fact
necessary to make the statements therein not misleading;
(vii) in no event later than five (5) Business Days before filing
any Registration Statement, any further post-effective amendment thereto,
any prospectus or any amendment or supplement thereto (other than any
amendment or supplement made solely as a result of incorporation by
reference of documents), furnish to the Holders copies of all such
documents proposed to be filed;
(viii) not file any Registration Statement or amendment thereto or
any prospectus or any supplement thereto (other than any amendment or
supplement made solely as a result of incorporation by reference of
documents) to which the Holders holding a majority of the Registrable
Securities shall have reasonably
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objected in writing, within three (3) Business Days after receipt of such
documents, to the effect that such Registration Statement or amendment
thereto or prospectus or supplement thereto does not comply in all material
respects with the requirements of the Securities Act (including, without
limitation respect of any information describing the manner in which the
Holders acquired such Registrable Securities and the intended method or
methods of distribution of such Registrable Securities), (provided that the
foregoing shall not limit the right of any Holder reasonably to object,
within three (3) Business Days after receipt of such documents, to any
particular information relating specifically to such Holder that is to be
contained in any Registration Statement, prospectus or supplement including
without limitation, any information describing the manner in which such
Holder acquired such Registrable Securities and the intended method or
methods of distribution of such Registrable Securities), and if the Company
is unable to file any such document due to the objections of the Holders,
the Company shall exert commercially reasonable efforts to cooperate with
the Holders to prepare, as soon as practicable, a document that is
responsive in all material respects to the reasonable objections of the
Holders, provided however, that the Effectiveness Deadline (as defined in
Section 2(b)) shall be extended by the period, during which the Company is
prevented from filing a Registration Statement or amendment thereto by
reason of this paragraph 3(a)(viii);
(ix) promptly after the filing of any document that is to be
incorporated by reference into any Registration Statement or prospectus,
provide copies of such document to the Holder;
(x) cause all Registrable Securities covered by each Registration
Statement to be listed on the Nasdaq National Market, American Stock
Exchange, any national securities exchange, an over-the-counter market or,
if the Common Stock securities of the Company are not listed thereon, on
the primary exchanges, markets, or inter-dealer quotations systems
(including NASDAQ) if any, on which similar securities issued by the
Company are then listed, prior to the date on which such Registrable
Securities were issued;
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(xi) take all actions reasonably required to prevent the entry of
any stop order by the Securities and Exchange Commission or by any state
securities regulators or to remove any such order if entered; and
(xii) file post-effective amendments to any Registration Statement
or supplement the related prospectus, as required, to permit sales of
Registrable Securities covered thereby to be made by Permitted Transferees
of the Holders.
(b) Holder Procedures.
(i) The Company may require each Holder to furnish to the Company
such information regarding such Holder and the proposed distribution of
such Registrable Securities as the Company may from time to time reasonably
request in writing and which is necessary for compliance with applicable
law.
(ii) Each Holder agrees to cooperate with the Company in all
reasonable respects in connection with the preparation and filing of the
Registration Statement, any Amendment, any prospectus and any prospectus
supplement.
(c) Additional Information Available. So long as any Registration
Statement is effective covering the resale of Registrable Securities owned by a
Holder, the Company will furnish to such Holder(s):
(i) as soon as practicable after it becomes available (but in the
case of the Company's Annual Report to Stockholders, within 140 days after
the end of each fiscal year of the Company), one copy of: (A) its Annual
Report to Stockholders (which Annual Report shall contain financial
statements audited in accordance with Canadian generally accepted
accounting principles by a national firm of certified public accountants);
(B) its Annual Report on Form 20-F; and (C) its Quarterly Reports on Form
6-K; and
(ii) upon the reasonable request of a Holder, all exhibits to the
Annual Report on Form 20-F; and the Company, upon the reasonable request of
a Holder, will meet with such Holder or a representative thereof at
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<PAGE>
the Company's headquarters to discuss all information relevant for
disclosure in any Registration Statement and will otherwise cooperate with
any Holder conducting an investigation for the purpose of reducing or
eliminating such Holder's exposure to liability under the Securities Act
including the reasonable production of information at the Company's
headquarters.
4. REGISTRATION EXPENSES.
All expenses incident to the Company's performance of or compliance with
this Registration Agreement, including without limitation all registration and
filing fees, fees and expenses of compliance with state securities or blue sky
laws (including fees and disbursements of counsel in connection with blue sky
qualifications or registrations (or the obtaining of exemptions therefrom) of
the Registrable Securities), messenger and delivery expenses, internal expenses
(including, without limitation, all salaries and expenses of its officers and
employees performing legal or accounting duties), fees and disbursements of its
counsel and its independent certified public accountants, securities acts
liability insurance (if the Company elects to obtain such insurance), and
reasonable fees and expenses of any special experts retained by the Company in
connection with any registration hereunder (all of such expenses herein referred
to as "Registration Expenses"), shall be borne by the Company; provided,
however, the Registration Expenses shall not include any sales or underwriting
discounts, commissions or fees attributable to the sale of the Registrable
Securities or the fees and expenses of counsel to the Holders (other than to the
extent provided in the Subscription Agreement).
5. INDEMNIFICATION; CONTRIBUTION.
(a) Indemnification by the Company. The Company shall indemnify and hold
harmless, to the full extent permitted by law, each Holder, and such Holder's
respective officers, directors, employees, representatives, agents and
controlling persons (within the meaning of the Securities Act), against all
losses, claims, damages, liabilities and expenses, but in no event greater than
the gross purchase price Holder paid to the Company for Registrable Securities,
resulting from any untrue or alleged untrue statement of a material fact
contained in any Registration Statement, any
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prospectus, or any amendment or supplement thereto, or any omission or alleged
omission of a material fact required to be stated therein or necessary to make
the statements therein not misleading, except in each case insofar as the same
directly arises out of or is directly based upon an untrue statement or alleged
untrue statement of a material fact or an omission or alleged omission to state
a material fact in such Registration Statement, prospectus, amendment or
supplement, as the case may be, made or omitted, as the case may be, in reliance
upon and in conformity with information furnished to the Company in writing by
such Holder expressly for use therein.
(b) Indemnification by the Holders. Each Holder shall indemnify and hold
harmless, to the full extent permitted by law, the Company, its officers,
directors, employees, representatives, agents and controlling persons (within
the meaning of the Securities Act), against all losses, claims, damages,
liabilities and expenses (including, without limitation, reasonable costs of
investigation and legal expenses) resulting from any untrue or alleged untrue
statement of a material fact contained in any Registration Statement, any
prospectus, or any amendment or supplement thereto, and any omission or alleged
omission of a material fact required to be stated therein or necessary to make
the statements therein not misleading, to the extent the same directly result
from any untrue statement or alleged untrue statement of a material fact or any
omission or alleged omission to state a material fact in such Registration
Statement, prospectus, amendment or supplement, as the case may be, made or
omitted, as the case may be, in reliance upon and in conformity with information
furnished to the Company in writing by such Holder expressly for use therein.
The liability of each Holder under the indemnity and contributions provisions of
this Section 5 shall be several and not joint and shall be limited to an amount
equal to the gross price of the Registrable Securities sold by such Holder
pursuant to the Registration Statement.
(c) Conduct of Indemnification Proceedings. Each party entitled to
indemnification under this Section 5 (the "Indemnified Party") shall give
written notice to the party required to provide indemnification (the
"Indemnifying Party") promptly after such Indemnified Party has actual knowledge
of any claim as to which indemnity may be sought, and shall permit the
Indemnifying Party to assume the
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defense of any such claim or any litigation resulting therefrom; provided, that
counsel for the Indemnifying Party who will conduct the defense of such claim or
litigation, is approved by the Indemnified Party (whose approval will not be
unreasonably withheld or delayed); and provided, further, that the failure of
any Indemnified Party to give notice as provided herein shall not relieve the
Indemnifying Party of its obligations except to the extent that its defense of
the claim or litigation involved is prejudiced by such failure. The Indemnified
Party may participate in such defense at such party's expense; provided,
however, that the Indemnifying Party shall pay such expense if representation of
such Indemnified Party by the counsel retained by the Indemnifying Party would
be inappropriate due to actual or potential conflicts of interest between the
Indemnified Party and any other party represented by such counsel in such
proceeding. No Indemnifying Party, in the defense of any such claim or
litigation, except with the consent of each Indemnified Party, shall consent to
entry of any judgment or enter into any settlement that does not include as an
unconditional term thereof the giving by the claimant or plaintiff to such
Indemnified Party of a release from all liability in respect of any claim or
litigation, and no Indemnified Party will consent to entry of any judgment or
settle any claim or litigation without the prior written consent of the
Indemnifying Party (not to be unreasonably withheld or delayed). Each
Indemnified Party shall furnish such information regarding himself, herself or
itself and the claim in question as the Indemnifying Party may reasonably
request and as shall be reasonably required in connection with the defense of
such claim and litigation resulting therefrom.
(d) Contribution.
(i) If for any reason the indemnification provided for in this
Section 5 from an Indemnifying Party, although otherwise applicable by its
terms, is unavailable to an Indemnified Party hereunder, then the
Indemnifying Party, in lieu of indemnifying such Indemnified Party, shall
contribute to the amount paid or payable by the Indemnified Parties as a
result of such losses, claims, damages, liabilities or expenses in such
proportion as is appropriate to reflect the relative fault of such
Indemnifying Party and the Indemnified Parties in connection with the
actions that
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resulted in such losses, claims, damages, liabilities or expenses, as well
as any other relevant equitable considerations. The relative fault of such
Indemnifying Party and the Indemnified Parties shall be determined by
reference to, among other things, whether any action in question, including
any untrue or alleged untrue statement of a material fact, has been made
by, or relates to information supplied by, such Indemnifying Party or the
Indemnified Parties, and the parties' relative intent, knowledge, access to
information and opportunity to correct or prevent such action. The amount
paid or payable by a party as a result of the losses, claims, damages,
liabilities and expenses referred to above shall be deemed to include,
subject to the limitations set forth in Section 5(c), any legal or other
fees or expenses reasonably incurred by such party in connection with any
investigation or proceeding.
(ii) The parties hereto agree that it would not be just and
equitable if contribution pursuant to this Section 5(d) were determined by
pro rata allocation or by any other method of allocation that does not take
account of the equitable considerations referred to in the immediately
preceding paragraph. No person guilty of fraudulent misrepresentation
(within the meaning of Section 11(f) of the Securities Act) shall be
entitled to contribution from any Person who was not guilty of such
fraudulent misrepresentation.
6. RULE 144 REQUIREMENTS.
The Company agrees to:
(a) use its best efforts to make and keep public information available, as
those terms are understood and defined in Rule 144 under the Securities Act;
(b) use its best efforts to file with the SEC in a timely manner all
reports and other documents required of the Company under the Securities Act and
the Securities Exchange Act; and
(c) furnish to each Holder upon request a written statement by the Company
as to its compliance with the
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reporting requirements of said Rule 144 and of the Securities Act and the
Securities Exchange Act.
7. INJUNCTIONS.
Each of the parties hereto acknowledges and agrees that one or more of the
parties would be damaged irreparably in the event the provisions of this
Agreement are not performed in accordance with their specific terms or otherwise
are breached. Accordingly, each of the parties agrees that the other party
shall be entitled to an injunction or injunctions to prevent breaches of the
provisions hereof in any action instituted in any court of the United States or
any state thereof having jurisdiction over the parties in the matter, in
addition to any other remedy to which it may be entitled, at law or in equity.
8. TERMINATION.
This Agreement shall terminate on the Registration Termination Date;
provided, however, that the provisions of Section 5, 6 and 7 shall survive the
termination of this Agreement.
9. MISCELLANEOUS.
(a) Amendments and Waivers. Except as otherwise provided herein, the
provisions of this Agreement may not be amended, modified or supplemented, and
waivers or consents to departures from the provisions hereof may not be given
unless the Company shall have obtained the prior written consent of the Holders
holding more than 80% of the Registrable Securities at the time of such
amendment.
(b) Notices. All notices, requests, waivers, releases, consents, and other
communications required or permitted by this Agreement (collectively, "Notices")
shall be in writing. Notices shall be deemed sufficiently given for all
purposes under this Agreement (i) when delivered in person, (ii) on the next
business day following the date when dispatched by telegram (upon written
confirmation of receipt), by electronic facsimile transmission (upon written
confirmation of receipt) or by a nationally recognized overnight courier
service, or (iii) five (5) Business Days after being deposited in the Canadian
certified or
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registered mail, return receipt requested, and first class postage prepaid. All
Notices shall be delivered as follows:
(i) if to a Holder, at the address indicated on the Company's
register relating to the Preference Shares, Warrants, or Registrable
Securities held by such Holder or at such other address as such Holder may
have furnished to the Company in writing:
(ii) if to the Company, at:
The Kafus Capital Corporation
Suite 600
6 Eva Road
Toronto, Ontario
(c) Successors and Assigns. This Registration Agreement shall be binding
upon and shall inure to the benefit of the Company and each Holder, their
respective successors, heirs, legal representatives and, with respect to the
Company, its assignees. The rights provided by this Agreement shall be
transferred automatically to any Person to whom Registrable Securities, the
Convertible Note, Preference Shares or Warrants are transferred, provided that
(x) the Company is given written notice of the transfer and the name, address,
telephone number and facsimile number of the transferees and (y) the subsequent
transferee agrees in writing to be bound by all of the terms of this
Registration Agreement (any transferee referred to in the foregoing clauses
being referred to herein as a "Permitted Transferee").
(d) Counterparts. This Registration Agreement may be executed in any
number of counterparts and by the parties in separate counterparts, each of
which when so executed shall be deemed to be an original and all of which taken
together shall constitute one and the same agreement.
(e) Headings; Construction. The Section numbers and headings in this
Agreement are for convenience of reference only and shall not limit or otherwise
affect the meaning hereof. Unless the context otherwise requires, all
references to Sections are to sections of this Registration Agreement, "or" is
inclusively disjunctive, and words in the singular include the plural and vice
versa. In computing any period of time specified in this Registration Agreement
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or in any Notices, the date of the act or event from which such period of time
is to be measured shall be included, any such period shall expire at 5:00 p.m.,
New York time, on the last day of such period, and any such period denominated
in months shall expire on the date in the last month of such period that has the
same numerical designation as the date of the act or event from which such
period is to be measured; provided, however, that if there is no date in the
last month of such period that has the same numerical designation as of the date
of such act or event, such period shall expire on the last day of the last month
of such period.
(f) Governing Law. This Registration Agreement shall be governed by and
construed in accordance with the internal laws of the State of New York, without
regard to the principles of conflicts of laws thereof.
(g) Severability. If one or more of the provisions hereof, or the
application thereof in any circumstance, is held invalid, illegal or
unenforceable in any respect, for any reason, the validity, legality and
enforceability of the remaining provisions hereof shall not be in any way
affected or impaired thereby, and the provisions held to be invalid, illegal or
unenforceable shall be reformed to the minimum extent necessary, and in a manner
as consistent with the purposes thereof as is practicable, so as to render it
valid, legal and enforceable.
(h) Entire Agreement. This Registration Agreement is intended by the
parties hereto to be a final expression thereof and is intended to be a complete
and exclusive statement of the agreement and understanding of such parties in
respect of the subject matter contained herein. This Registration Agreement
supersedes all prior agreements and understandings among the Company and any of
the Holders with respect to such subject matter.
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IN WITNESS WHEREOF, the parties hereto have caused this Registration
Agreement to be duly executed as of the day and year first above written.
THE KAFUS CAPITAL CORPORATION
By:/s/ Kenneth F. Swaisland
------------------------
Name: Kenneth F. Swaisland
----------------------
Title: President
---------------------
ENRON CAPITAL & TRADE RESOURCES CORP.
By:/s/ J. Kevin McConville
----------------------------
Name: J. Kevin McConville
--------------------------
Title: Vice President
-------------------------
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EXHIBIT 4
26.3 The 15,000 Series I 10% Convertible Redeemable Preference Shares
shall have attached thereto, in addition to the rights privileges, restrictions,
conditions and limitations attaching to the Preference Shares as a class, the
following rights, privileges and conditions:
1. Definitions. The following capitalized terms have the meanings set
forth below:
"Average Price" with respect to the Common Stock means, on any day,
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 the
Common Stock in an over-the-counter market.
"Business Day" shall mean a day other than a Saturday, Sunday or any
other day treated as a holiday in the municipality in Canada in which the
Company's registered office is then situated.
"Common Stock" shall mean the Company's common stock, without par
value.
"Conversion Price" means the result obtained by dividing $1,000 (the
stated value of each Preference Share) by the Conversion Rate from time to time
in effect. The Conversion Price initially shall be $4.00 per share of Common
Stock.
"Conversion Rate" means the number of shares of Common Stock issuable
on conversion of one Preference Share, and initially shall be equal to 250
shares of Common Stock, subject to adjustment as set forth in Section 2.0.
<PAGE>
"Conversion Shares" means the shares of Common Stock issuable upon
exercise of the Preference Shares.
"Issue Date" shall mean July 16, 1997.
"Junior Shares" shall mean any shares in the capital structure of the
Company ranking after or subordinate to the Preference Shares as to the payment
of dividends or the return of capital, including, without limiting the
generality of the foregoing, the Common Stock of the Company.
"Liquidation Distribution" shall mean a liquidation to its
shareholders upon the liquidation, dissolution or winding-up of the Company,
whether voluntary or involuntary, or any other distribution of assets of the
Company among its shareholders for the purposes of winding-up its affairs.
"Person" means any individual, trust, corporation, partnership,
limited liability company or other business association or entity, court,
governmental body or governmental agency.
"Preference Shareholders" means a Person recorded on the securities
register of the Company as being the registered holder one or more Preference
Shares.
"Preference Shares" shall mean the Company's Series I 10% Convertible
Redeemable Preference Shares having the rights and preferences set forth herein.
"Ranking as to Capital" shall mean ranking or priority with respect to
the distribution of assets in the event of a Liquidation Distribution.
1.1 Gender, etc. Words importing only the singular number include
the plural and vice versa and words importing any gender include all genders.
1.2 Currency. All monetary amounts referred to herein shall be in
lawful money of the United States.
1.3 Headings. The division of these Articles of Amendment into
sections, clauses, subclauses or other subdivisions and the insertion of
headings are for convenience of reference only and shall not affect the
construction or interpretation hereof.
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1.4 Business Day. In the event that any date upon which any action
is required to be taken by the Company or any other Person hereunder, is not a
Business Day, then such action shall be required to be taken on or by the next
succeeding day which is a Business Day.
1.5 Company Act (British Columbia). The Preference Shares shall be
governed by and are subject to the applicable provisions of the Company Act
(British Columbia), as such statute may from time to time be amended, varied,
replace, re-enacted and all other law binding upon the and, except as otherwise
expressly provided herein, all terms used herein which are defined in the
Company Act (British Columbia) shall have the respective meanings ascribed
thereto in the Company Act (British Columbia).
2.0 Conversion.
(a) Upon and subject to the provisions and conditions contained in this
paragraph 2.0, the holders of Preference Shares shall have the right,
but not the obligation, at any time, to convert any or all of the
Preference Shares into fully paid and non-assessable shares of Common
Stock, at the Conversion Rate.
(b) Upon any conversion of Preference Shares into shares of Common Stock,
the holder of Preference Shares shall be entitled to receive, upon
conversion, in addition to the shares of Common Stock and cash in lieu
of fractional shares as described below, an amount in cash equal to all
accrued but unpaid dividends (whether or not declared) from the Issue
Date through the date of conversion.
(c) No fractional shares of Common Stock shall be issued upon conversion of
Preference Shares. Instead of any fractional share of Common Stock
which would otherwise be issuable upon conversion, the Company shall
pay a cash adjustment equal to such fraction multiplied by the price
per share of the Common Stock on the trading day next preceding the
date of conversion. In determining the number of shares of Common Stock
and the payment, if any, in lieu of fractional shares that a holder of
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<PAGE>
Preference Shares shall receive, the total number of Preference Shares
surrendered for conversion by such holder shall be aggregated.
(d) If less than the entire number of Preference Shares represented by a
certificate is converted, the registered holder thereof shall be
entitled to receive a new Preference Share certificate representing the
number of Preference Shares not so converted.
(e) A Preference Shareholder desiring to convert Preference Shares into
Common Stock as described above shall deliver to the Company at its
registered office at Suite 600, 6 Eva Road, Toronto, Ontario (i) notice
in writing of the exercise of its right to convert the Preferences
Shares, specifying the number of Preference Shares to be converted,
naming the party or parties in whose names the Conversion Shares are to
be issued and the number to be issued to each, and (ii) certificates
representing the Preference Shares to be converted. As promptly as
practicable on or after the conversion date, but in no event later than
five (5) Business Days following conversion, the Company shall issue
and deliver certificates representing the Conversion Shares, together
with payment in full of accrued and unpaid dividends and any cash
payment in lieu of fractional shares, as hereinabove provided, to the
Person or Persons entitled to receive the same. The Company shall pay
all stock issuance or transfer, documentary and other taxes payable
upon conversion of Preference Shares; provided, however, that if any of
the Conversion Shares are to be issued to a party or parties other than
the registered holder of the Preference Shares converted, the
registered holder shall pay to the Company any securities transfer
taxes which may properly be required by it.
(f) The Company covenants and agrees that so long as any Preference Shares
are outstanding it will, at all times reserve and keep available, free
of preemptive rights, out of its unissued shares of Common Stock for
the purpose of issuance on conversion of the Preference Shares, the
full
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<PAGE>
number of shares of Common Stock deliverable on conversion of all
outstanding Preference Shares upon the basis and upon the terms and
conditions provided for herein. All Conversion Shares shall be issued
as fully paid and non-assessable shares of Common Stock.
(g) The number and kind of securities issuable upon the conversion of the
Preference Shares shall be subject to adjustment from time to time upon
the happening of certain events occurring on or after the date of
original issue of the Preference Shares as follows:
(i) In case of any reclassification or change of Common Stock (other
than a change in par value, or from par value to no par value, or from no
par value to par value or as a result of a subdivision or combination), or
in case of any consolidation or merger of the Company with or into another
corporation (other than a merger with another corporation in which the
Company is the surviving Company and which does not result in any
reclassification or change -- other than a change in par value, or from par
value to no par value, or from no par value to par value, or as a result of
a subdivision or combination -- of Common Stock issuable upon exercise of
these conversion rights), or in the case of a sale or conveyance in a
single transaction or in a series of related transactions with the same
purchaser or affiliates thereof of all or substantially all the assets of
the Company as an entirety, or a statutory share exchange in which all
shares of Common Stock are exchanged for shares of another corporation or
entity, the holders of the Preference Shares shall have, and the Company,
or such successor entity or purchaser, shall covenant in the constituent
documents effecting any of the foregoing transactions that the holders of
the Preference Shares do have, the right to obtain upon the exercise of
these conversion rights, in lieu of each share of Common Stock theretofore
issuable upon exercise of these conversion rights, the kind and amount of
shares of stock, other securities, money and property receivable upon such
reclassification, change, consolida tion or merger, conveyance or sale of
assets or share exchange by a holder of one share of Common Stock issuable
upon exercise of these conversion rights as if
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<PAGE>
they had been exercised immediately prior to such reclassification, change,
consolidation or merger, conveyance or sale of assets or share exchange.
The constituent documents effecting any reclassification, change,
consolidation or merger, or share exchange shall provide for adjustments
which shall be as nearly equivalent as may be practicable to the
adjustments provided in this subparagraph (g). The provisions of this
subparagraph (g)(i) shall similarly apply to successive reclassifications,
changes, consolidations or mergers, conveyances or sales of assets or share
exchanges.
(ii) If the Company at any time while any of the Preference Shares are
outstanding shall subdivide or combine its Common Stock, the Conversion
Price shall be proportionately reduced, in case of subdivision of shares,
as at the effective date of such subdivision, or if the Company shall take
a record of holders of its Common Stock for the purpose of so subdividing,
as at such record date, whichever is earlier, or shall be proportionately
increased, in the case of combination of shares, as at the effective date
of such combination or, if the Company shall take a record of holders of
its Common Stock for the purpose of so combining, as at such record date,
whichever is earlier.
(iii) If the Company at any time while any of the Preference Shares is
outstanding shall pay to any holders of stock of the Company a dividend
payable in, or make any other distribution of, Common Stock, the Conversion
Price shall be adjusted, as of the date the Company shall take a record of
the holders of such stock for the purpose of determining the holders
entitled to receive such dividend or other distribution (or if no such
record is taken, as at the date of such payment or other distribution), to
that price determined by multiplying the Conversion Price in effect
immediately prior to such record date (or if no such record is taken, then
immediately prior to such payment or other distribution) by a fraction (1)
the numerator of which shall be the total number of shares of Common Stock
outstanding immediately prior to such dividend or distribution, and (2)
the denominator of which shall be the total number of shares of Common
Stock outstanding immediately after such dividend or distribution.
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<PAGE>
(iv) If the Company shall issue to all holders of its Common Stock any
warrant, option or other right to subscribe for or purchase shares of
Common Stock at a price per share less than the Average Price of the Common
Stock, the Conversion Price shall be adjusted, as of the date the Company
shall take a record of the holders of its Common Stock for the purpose of
receiving such issuance or distribution, to that price determined by
multiplying the Conversion Price by a fraction, the numerator of which
shall be the number of shares of Common Stock outstanding on the date of
issuance of such warrants, options or rights plus the number of shares
which the aggregate offering price of the total number of shares so offered
would purchase at such Average Price per share, and the denominator of
which shall be the number of shares of Common Stock outstanding on the date
of issuance of such warrants, options or rights plus the number of
additional shares of Common Stock offered for subscription or purchase.
(v) If the Company shall distribute to all holders of its Common Stock
evidences of indebtedness of the Company, shares of capital stock of the
Company (other than Common Stock) or assets or rights or warrants to
subscribe for or purchase any of its securities (excluding those dividends,
warrants, options and rights referred to in subparagraph (iv)) then in each
case the Conversion Price shall be adjusted, as of the date the Company
shall take a record of the holders of its Common Stock for the purpose of
determining the holders entitled to receive such issuance or distribution,
to that price determined by multiplying the Conversion Price by a fraction
the numerator of which shall be Average Price per share of the Common Stock
less the fair market value (as determined by the Board of Directors of the
Company, whose determination shall be conclusive) of the portion of the
assets, evidences of indebtedness for subscription rights so distributed in
respect of one share of Common Stock and the denominator of which is the
Average Price per share of Common Stock on the record date for such
distribution.
(vi) No adjustment of the Conversion Price shall be made in an amount
less than $.01 per share, but any such lesser adjustment shall be carried
forward and shall be made at the time together with the next subsequent
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<PAGE>
adjustment which, together with any adjustments so carried forward, shall
amount to $.01 per share or more.
(h) Whenever the Conversion Price and the Conversion Rate are required to
be adjusted as provided herein, the Company shall forthwith compute the
adjusted Conversion Price and the adjusted Conversion Rate and shall
prepare a certificate setting forth such adjusted Conversion Price and
adjusted Conversion Rate showing in detail the facts upon which such
adjustment is based. A copy of such certificate shall forthwith be
filed with the transfer agent or agents for the Preference Shares (if
any) and for the Common Stock; and thereafter, until further adjusted,
the adjusted Conversion Price and the adjusted Conversion Rate shall be
as set forth in such certificate, provided that the computation of such
adjusted Conversion Price and such adjusted Conversion Rate shall be
reviewed at least annually by the independent public accountants
regularly employed by the Company and said accountants shall file a
corrected certificate, if required, with such transfer agent or agents.
The Company shall mail or cause to be mailed to the holders of
Preference Shares at the time of each quarterly dividend payment, a
statement setting forth the adjustments, if any, made in the applicable
Conversion Price and Conversion Rate and not theretofore reported to
such holders, and the reasons for such adjustment.
(i) If any shares of Common Stock required to be reserved for the purposes
of conversion of Preference Shares hereunder require registration with
or approval of any governmental authority under any federal or state
law, or listing upon any national securities exchange, before such
shares may be issued upon conversion, the Company will in good faith
and as expeditiously as possible endeavor to cause such shares to be
duly registered, approved or listed, as the case may be.
3.0 Redemption. If either (i) the Common Stock is not listed on a U.S.
national securities exchange or the NASDAQ National Market as of January 16,
1999 or (ii) the Average Price of the Common Stock during the 30 days
immediately
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<PAGE>
preceding January 16, 1999, is less than $7.00 (adjusted appropriately for any
stock split, reverse stock split or other recapitalization occurring after the
issuance of the Preference Shares), each Preference Shareholder thereafter shall
have the right, by written notice to the Company (a "Repurchase Notice"), to
require that the Company repurchase any or all of such Preference Shareholder's
Preference Shares, for an amount in cash equal to $1,000 per share, plus all
accrued and unpaid dividends through the date of repurchase. Any Repurchase
Notice shall be accompanied by duly endorsed certificates representing the
Preference Shares to be repurchased. The Company shall make payment in cash of
the appropriate amounts to the holder requiring repurchase, within 60 days of
the date of the Repurchase Notice.
4.0 Declaration and Payments of Dividends. The holders of Preference
Shares shall be entitled to receive and the Company shall pay thereon,
cumulative preferential dividends per Preference Share, at a rate per annum of
$100. Dividends on Preference Shares will be cumulative, and will accrue
commencing as of the date of issuance and shall be payable semiannually on each
June 30 and December 31 (each, an "Accrual Date"). Except as otherwise set
forth herein, all dividends on Preference Shares shall be paid by the Company
through the issuance of Common Stock. The number of shares of Common Stock
issued in respect of accrued dividends with respect to any dividend period shall
be determined by dividing (i) the dollar sum of the total dividends payable by
(ii) 75% of the Average Price of the Common Stock during the 30-day period
preceding the end of such dividend period. Notwithstanding the foregoing, each
holder of Preference Shares may elect to receive any dividend payment with
respect to any semiannual dividend period in cash instead of through the receipt
of Common Stock, by notifying the Company of such election on or prior to the
Accrual Date occurring immediately prior to the first day of such period. No
fractional shares of Common Stock shall be issued in connection with the payment
of any dividends which are paid in shares of Common Stock. Instead of any
fractional share, holders shall be entitled to cash, in the manner set forth in
Section 2.0(c).
5.0 Voting. The Preference Shares shall have no voting rights attached
thereto except as provided herein or as otherwise provided by applicable law.
Unless the vote or consent of a larger percentage is required by law, the
affirmative vote or consent of the holders of a majority of
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<PAGE>
the outstanding Preference Shares shall be sufficient to take any action as to
which the vote or consent of the holders of the Preference Shares is required by
law or by the terms hereof. The consent or approval of the Preference
Shareholders with respect to any and all matters may be given by one or more
instruments signed by the holders of at least a majority of the issued and
outstanding Preference Shares or by a resolution passed by at least a majority
of the votes cast at a meeting of the Preference Shareholders duly called for
that purpose and held upon at least 10 days notice, at which the holders of a
majority of the outstanding Preference Shares are present or represented by
proxy. If at any such meeting the holders of a majority of the outstanding
Preference Shares are not present or represented by proxy within one half hour
after the time appointed for such meeting, then the meeting may be adjourned to
such date being not more than 30 days later and to such time and place as may be
appointed by the chairman of the meeting and not less than 10 days notice shall
be given of such adjourned meeting. At such adjourned meeting the holders of the
Preference Shares present or represented by proxy may transact the business for
which the meeting was originally called and the consent or approval of the
holders of the Preference Shares with respect thereto may be given by at least a
majority of the votes cast at such adjourned meeting.
5.1 Notice of Meetings. The formalities to be observed with respect to
the giving of notice of any such meeting and the conduct thereof shall be those
from time to time prescribed by the Company Act (British Columbia) and the
Articles of the Company with respect to meetings of shareholders.
6.0 Restriction on Dividends, Retirement and Issuance of Shares. While
any Preference Shares are outstanding, the Company shall not, without the
approval of the holders of Preference Shares given as hereinafter specified:
(a) declare, set aside for payment or pay any dividend on or make
distributions on or in respect of any Junior Shares (other than
dividends consisting of Junior Shares); or
(b) call for redemption, redeem, purchase, retire, or acquire for value or
distribute in respect of any Junior Shares (except to the extent and
out of net
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<PAGE>
cash proceeds received by the Company from a substantially concurrent
issue of Junior Shares)
unless, in each case, all dividends then payable on the Preference Shares then
outstanding accrued up to and including the dividends payable on the immediately
preceding respective date or dates for the payment of dividend thereon shall
have been declared and paid or set apart for payment. No dividend may be
declared on nor may any redemption, repurchase or other retirement for value be
made in respect of any series or class of capital stock ranking on a parity with
the Preference Shares as to dividends, unless there also shall have been paid on
the Preference Shares like dividends in respect of all periods at the dividend
rate fixed therefor. If any cumulative dividends or amounts payable on a return
of capital in respect of a series of preferred shares are not paid in full, the
preferred shares of all series shall participate rateably in respect of such
dividends, including accumulations, if any, in accordance with the sums that
would be payable on such shares if all such dividends were declared and paid in
full, and in respect of any repayment of capital in accordance with the sums
that would be payable on such repayment of capital if all sums so payable were
paid in full; provided however, that in the event of there being insufficient
assets to satisfy in full all such claims to dividends and return of capital,
the claims of the holders of the preferred shares of all series with respect to
repayment of capital shall first be paid and satisfied and any assets remaining
thereafter shall be applied towards the payment and satisfaction of claims in
respect of dividends.
7.0 Liquidation, Dissolution or Winding-Up. In the event of any
Liquidation Distribution, each Preference Shareholder shall be entitled to
receive before any amount shall be paid by the Company or any assets of the
Company shall be distributed to registered holders of shares Ranking as to
Capital junior to the Preference Shares in connection with the Liquidation
Distribution, an amount equal to $1,000 per share of Preference Shares held by
such holder, together with an amount equal to all accrued but unpaid cumulative
dividends thereon. After payment to the Preference Shareholders of the amount
so payable to them, they shall not be entitled to share in any further
distribution of assets of the Company. If upon any liquidation, dissolution or
winding up of the affairs of the Company, the assets distributable among the
holders of the Preference Shares (and any other
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<PAGE>
capital stock of the Company ranking on a parity with the Preference Shares as
to assets) shall be insufficient to permit the payment in full to the holder of
all Preference Shares (and any other capital stock of the Company ranking on a
parity with the Preference Shares as to assets) of all preferential amounts
payable to all such holders, then the entire assets of the Company thus
distributable shall be distributed ratably among the holders of the Preference
Shares (any other capital stock of the Company ranking on a parity with the
Preference Shares as to assets) in proportion to the respective amounts that
would be payable per share if such assets were sufficient too permit payment in
full.
8.0 Amendments To Preference Share Provisions.
(a) These Preference Share provisions may be repealed, deleted, modified,
amended or varied only with the prior approval of the holders of a
majority of the Preference Shares given in the manner provided in
Section 5.0 hereof in addition to any other approval required by the
Company Act (British Columbia) or any other statutory provision of like
or similar effect applicable to the Company, from time to time in
force.
(b) The holder of shares of any class and the holders of shares of any
series of any class are not entitled to vote separately as a class or
series, as the case may be, upon a proposal to amend the articles to:
(i) increase or decrease any maximum number of authorized shares
of such class, or increase any maximum number of so authorize shares of a
class having rights or privileges equal or superior to the shares of such
class; or
(ii) create a new class of shares equal or superior to the shares
of such class.
9.0 Number of Votes. On every poll taken at every such meeting or
adjourned meeting every of the Preference Shareholders, Preference Shareholders
shall be entitled to 1 vote in respect of each $1 of the issue price of
Preference Shares of which he is the registered holder.
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<PAGE>
10.0 Notices. Any notice required or permitted to be given to any
Preference Shareholder shall be sent by first class mail, postage prepaid, or
delivered to such holder at his address as it appears on the records of the
Company or, in the event of the address of any such shareholder not so appearing
to the last known address of such shareholder. The accidental failure to give
notice to one or more of such shareholders shall not affect the validity of any
action requiring the giving of notice by the Company. Any notice given as
aforesaid shall be deemed to be given on the date upon which it is mailed or
delivered.
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EXHIBIT 5
WARRANT
================================================================================
THE SECURITIES REPRESENTED BY THIS CERTIFICATE AND THE SHARES OF COMMON STOCK
ISSUABLE UPON EXERCISE THEREOF HAVE NOT BEEN REGISTERED UNDER THE SECURITIES ACT
OF 1933, AS AMENDED (THE "ACT"), OR ANY STATE SECURITIES OR BLUE SKY LAWS AND
MAY NOT BE SOLD, PLEDGED OR OTHERWISE TRANSFERRED EXCEPT PURSUANT TO AN
EFFECTIVE REGISTRATION STATEMENT UNDER THE ACT OR IN RELIANCE ON AN AVAILABLE
EXEMPTION FROM THE ACT AND ANY APPLICABLE STATE SECURITIES OR BLUE SKY LAWS.
THE SECURITIES REPRESENTED BY THIS CERTIFICATE ARE SUBJECT TO A HOLD PERIOD AND
MAY NOT BE TRADED IN ONTARIO UNTIL 90 DAYS AFTER DATE OF ISSUANCE HEREOF EXCEPT
AS PERMITTED BY THE SECURITIES ACT (ONTARIO) AND THE SECURITIES RULES AND
REGULATIONS THEREUNDER.
THE SECURITIES REPRESENTED BY THIS CERTIFICATE ARE SUBJECT TO RESTRICTIONS ON
TRANSFER SET FORTH IN SECTION 3.
================================================================================
THE KAFUS CAPITAL CORPORATION
Common Stock Purchase Warrant
Representing Right To Purchase Shares of
Common Stock
of
The Kafus Capital Corporation
No. W-1
FOR VALUE RECEIVED, THE KAFUS CAPITAL CORPORATION, a British Columbia
corporation (the "Company"), hereby certifies that Enron Capital & Trade
Resources Corp., a Delaware
<PAGE>
corporation (the "Holder"), is entitled, to purchase from the Company, at any
time or from time to time during the Exercise Period (as hereinafter defined),
1,000,000 shares of Common Stock (as such number of shares may be adjusted
pursuant to the terms hereof, the "Warrant Shares"), at a price per share equal
to the Exercise Price (as defined below). This Warrant is issued to the Holder
(together with such other warrants as may be issued in exchange, transfer or
replacement of this Warrant, the "Warrants") pursuant to the Subscription
Agreement dated as of the Date of Issuance between the Company and the Purchaser
named therein, and entitles the Holder to purchase the Warrant Shares and to
exercise the other rights, powers and privileges hereinafter provided.
Section 1. Definitions. The following terms, as used herein, have the
following respective meanings:
"Common Stock" means the Company's common stock, no par value.
"Company" is defined in the introductory paragraph of this Warrant.
"Date of Issuance" means July 16, 1997.
"Exercise Period" means the period commencing on the Date of Issuance and
ending on 5:00 p.m. (Toronto, Ontario time) on the Expiration Date.
"Exercise Price" means $6.00 until July 16, 1998, and thereafter shall mean
the lesser of (i) $6.00 and (ii) 75% of the trade weighted average of all
transactions in the Common Stock during the 30 days immediately preceding July
16, 1998, subject to adjustment as provided herein.
"Expiration Date" means July 16, 2008.
"Holder" means the Holder named herein and its permitted assignees.
"Person" means any individual, corporation, limited or general partnership,
joint venture, association, joint-stock company, trust, limited liability
company, unincorporated organization or government or any agency or political
subdivision thereof.
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<PAGE>
"Warrants" is defined in the introductory paragraph of this Warrant.
"Warrant Shares" is defined in the introductory paragraph of this Warrant.
Section 2. Exercise of Warrant; Cancellations of Warrant.
(a) This Warrant represents the right to purchase, at the Exercise Price
per share of Common Stock, 1,000,000 shares of Common Stock. subject to
adjustment upon the occurrence of the events set forth in Section 4.
(b) This Warrant may be exercised in whole or in part, at any time or from
time to time, during the Exercise Period, by presentation to the Company at its
principal office at the address set forth in Section 10 of (i) this Warrant,
with the Purchase Form annexed hereto as Exhibit A duly executed and (ii) a
certified bank check equal to the Exercise Price for the Warrant Shares for
which this Warrant is being exercised (the date of such delivery referred to
herein as the "Exercise Date"). Within five business days after payment of the
Exercise Price, the Company shall execute and deliver to the Holder a
certificate or certificates for the total number of Warrant Shares for which
this Warrant is being exercised, in such names and denominations as requested in
writing by the Holder. The Company shall pay any and all documentary stamp or
similar issue taxes payable in respect of the issue of the Warrant Shares. If
this Warrant is exercised in part only, the Company shall, upon surrender of
this Warrant, execute and deliver a new Warrant evidencing the rights of the
Holder thereof to purchase the balance of the Warrant Shares issuable hereunder.
Section 3. Exchange, Transfer, Assignment or Loss of Warrant. Upon
surrender of this Warrant to the Company, with the Assignment Form annexed
hereto as Exhibit B duly executed and funds sufficient to pay any transfer tax,
the Company shall, without charge, execute and deliver a new Warrant or Warrants
in the name of the assignee or assignees named in such Assignment Form and, if
the Holder's entire interest is not being assigned, in the name of the Holder,
and this Warrant shall promptly be canceled. This Warrant may be divided or
combined with other Warrants that carry the same rights upon presentation hereof
at the office of the Company,
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<PAGE>
together with a written notice specifying the names and denominations in which
new Warrants are to be issued and signed by the Holder hereof. Upon receipt by
the Company of evidence satisfactory to it of the loss, theft, destruction or
mutilation of this Warrant, and (in the case of loss, theft or destruction) of
reasonably satisfactory indemnification (including, if required in the
reasonable judgment of the Company, a statement of net worth of such Holder that
is at a level reasonably satisfactory to the Company), and upon surrender and
cancellation of this Warrant, if mutilated, the Company shall execute and
deliver a new Warrant of like tenor and date.
Section 4. Antidilutive Adjustments. The shares of Common Stock
purchasable on exercise of the Warrants evidenced by this Warrant Certificate
are shares of Common Stock of the Company as constituted as of the Date of
Issue. The number and kind of securities purchasable on the exercise of this
Warrant shall be subject to adjustment from time to time upon the happening of
certain events, as follows:
(a) Mergers, Consolidations and Reclassifications. In case of any
reclassification or change of outstanding securities issuable upon exercise of
the Warrants at any time (other than a change in par value, or from par value to
no par value, or from no par value to par value or as a result of a subdivision
or combination to which subsection 4(b) applies), or in case of any
consolidation or merger of the Company with or into another corporation (other
than a merger with another corporation in which the Company is the surviving
corporation and which does not result in any reclassification or change [other
than a change in par value, or from par value to no par value, or from no par
value to par value, or as a result of a subdivision or combination to which
subsection 4(b) applies] of outstanding securities issuable upon exercise of
this Warrant), the Holder shall have, and the Company, or such successor
corporation or other entity, shall covenant in the constituent documents
effecting any of the foregoing transactions that such holder does have, the
right to obtain upon the exercise hereof, in lieu of the shares of Common Stock,
other securities, money or other property theretofore issuable upon exercise of
a Warrant, the kind and amount of shares of stock, other securities, money or
other property receivable upon such reclassification, change, consolidation or
merger by a holder of the shares of Common Stock, other securities, money or
other property issuable upon exercise
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<PAGE>
hereof had this Warrant been exercised immediately prior to such
reclassification, change, consolidation or merger. The constituent documents
effecting any such reclassification, change, consolidation or merger shall
provide for any adjustments which shall be as nearly equivalent as may be
practicable to the adjustments provided in this subsection 4(a). The provisions
of this subsection 4(a) shall similarly apply to successive reclassifications,
changes, consolidations or mergers.
(b) Subdivisions and Combinations. If the Company, at any time during
the Exercise Period shall subdivide its shares of Common Stock into a greater
number of shares, the number of shares of Common Stock purchasable upon exercise
of the Warrants shall be proportionately increased and the Exercise Price shall
be proportionately decreased, as at the effective date of such subdivision, or
if the Company shall take a record of holders of its Common Stock for the
purpose of so subdividing, as at such record date, whichever is earlier. If the
Company, at any time during the Exercise Period, shall combine its shares of
Common Stock into a smaller number of shares, the number of shares of Common
Stock purchasable upon exercise hereof shall be proportionately reduced and the
Exercise price shall be proportionately increased, as at the effective date of
such combination, or if the Company shall take a record of holders of its Common
Stock for purposes of such combination, as at such record date, whichever is
earlier.
(c) Dividends and Distributions. If the Company at any time shall
declare a dividend on its Common Stock payable in stock or other securities of
the Company or of any other corporation or other entity, or in property or
otherwise than in cash, to the holders of its Common Stock, the Holder shall,
without additional cost, be entitled to receive upon any exercise hereof, in
addition to the Common Stock to which such holder would otherwise be entitled
upon such exercise, the number of shares of stock or other securities or
property which such holder would have been entitled to receive if he had been a
holder immediately prior to the record date for such dividend (or, if no record
date shall have been established, the payment date for such dividend) of the
number of shares of Common Stock purchasable on exercise of such Warrant
immediately prior to such record date or payment date, as the case may be.
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<PAGE>
(d) Upon any increase or decrease in the number of Warrant Shares
purchasable upon the exercise of this Warrant, the Company shall, within 30 days
thereafter, deliver written notice thereof to all Holders, which notice shall
state the increased or decreased number of Warrant Shares purchasable upon the
exercise of this Warrant and the revised Exercise Price thereof, setting forth
in reasonable detail the method of calculation and the facts upon which such
calculations are based.
Section 5. Notification by the Company. In case at any time while this
Warrant remains outstanding:
(a) the Company shall declare any dividend or make any distribution
upon its Common Stock or any other class of its capital stock; or
(b) the Company shall offer for subscription pro rata to the holders
--------
of its Common Stock or any other class of its capital stock any additional
shares of stock of any class or any other securities convertible into or
exchangeable for shares of stock or any rights or options to subscribe thereto;
or
(c) the Board of Directors of the Company shall authorize any capital
reorganization, reclassification or similar transaction involving the capital
stock of the Company, or a sale or conveyance of all or a substantial part of
the assets of the Company, or a consolidation, merger or business combination of
the Company with another Person; or
(d) actions or proceedings shall be authorized or commenced for a
voluntary or involuntary dissolution, liquidation or winding-up of the Company;
then, in any one or more of such cases, the Company shall give written notice to
the Holder, at the earliest time legally practicable (and not less than 20 days
before any record date or other date set for definitive action) of the date on
which (i) the books of the Company shall close or a record shall be taken for
such dividend, distribution or subscription rights or options or (ii) such
reorganization, reclassification, sale, conveyance, consolidation, merger,
dissolution, liquidation or winding-up shall take place or be voted on by
shareholders of the Company, as the case may be. Such notice shall also specify
the date as of which the holders of the
6
<PAGE>
Common Stock of record shall participate in said dividend, distribution,
subscription rights or options or shall be entitled to exchange their Common
Stock for securities or other property deliverable upon such reorganization,
reclassification, sale, conveyance, consolidation, merger, dissolution,
liquidation or winding-up, as the case may be. If the action in question or the
record date is subject to the effectiveness of a registration statement under
the Securities Act or to a favorable vote of shareholders, the notice required
by this Section 5 shall so state.
Section 6. No Voting Rights: Limitations of Liability. Prior to
exercise, this Warrant will not entitle the Holder to any voting rights or other
rights as a stockholder of the Company. No provision hereof, in the absence of
affirmative action by the Holder to exercise this Warrant, and no enumeration
herein of the rights or privileges of the Holder, shall give rise to any
liability of the Holder for the purchase price of the Warrant Shares pursuant to
the exercise hereof.
Section 7. Amendment and Waiver.
(a) No failure or delay of the Holder in exercising any power or right
hereunder shall operate as a waiver thereof, nor shall any single or partial
exercise of such right or power, or any abandonment or discontinuance of steps
to enforce such a right or power, preclude any other or further exercise thereof
or the exercise of any other right or power. The rights and remedies of the
Holder are cumulative and not exclusive of any rights or remedies which it would
otherwise have. The provisions of this Warrant may be amended, modified or
waived with (and only with) the written consent of the Company and the Holder.
(b) No notice or demand on the Company in any case shall entitle the
Company to any other or further notice or demand in similar or other
circumstances.
Section 8. No Fractional Warrant Shares. The Company shall not be
required to issue stock certificates representing fractions of Warrant Shares,
but shall in respect of any fraction of a Warrant Share make a payment in cash
based on the Value of the Common Stock after giving effect to the full exercise
or conversion of the Warrants.
7
<PAGE>
Section 9. Reservation of Warrant Shares. The Company shall
authorize, reserve and keep available at all times, free from preemptive rights,
a sufficient number of Warrant Shares to satisfy the requirements of this
Warrant.
Section 10. Notices. Unless otherwise specified, whenever this Warrant
requires or permits any consent, approval, notice, request, or demand from one
party to another, that communication must be in writing (which may be by
telecopy) to be effective and is deemed to have been given (a) if by telecopy,
when transmitted to the appropriate telecopy number (and all communications sent
by telecopy must be confirmed promptly by telephone; but any requirement in this
parenthetical does not affect the date when the telecopy is deemed to have been
delivered), or (b) if by any other means, including by internationally
acceptable courier or hand delivery, when actually delivered. Until changed by
notice pursuant to this Warrant, the address (and telecopy number) for the
Holder shall be as set forth on Schedule A to the Subscription Agreement dated
as of the Date of Issuance between the Company and the Purchasers named therein,
and the address and telecopy number for the Company are:
If to Company: The Kafus Capital Corporation
6 Eva Road, Suite 600
Toronto, Ontario
Canada MA9 2A8
Attention: Chief Financial Officer
Facsimile: (416) 695-3004
Section 11. Section and Other Headings. The headings contained in this
Warrant are for reference purposes only and will not affect in any way the
meaning or interpretation of this Warrant.
Section 12. Governing Law. THIS WARRANT SHALL BE GOVERNED BY, AND
CONSTRUED IN ACCORDANCE WITH, THE LAWS OF NEW YORK.
Section 13. Binding Effect. The terms and provisions of this Warrant
shall inure to the benefit of the Holder and its successors and assigns and
shall be binding upon the Company and its successors and assigns, including,
without limitation, any Person succeeding to the Company by merger,
consolidation or acquisition of all or substantially all of the Company's
assets.
8
<PAGE>
IN WITNESS WHEREOF, the seal of the Company and the signature of its duly
authorized officer have been affixed hereto as of July 16, 1997.
[SEAL] THE KAFUS CAPITAL CORPORATION
Attest:/s/ Chris Carl By:/s/ Kenneth F. Swaisland
------------------------------
Name: Kenneth F. Swaisland
----------------------------
Title: President
---------------------------
9
<PAGE>
EXHIBIT A
TO
WARRANT
PURCHASE FORM
To Be Executed by the Holder
Desiring to Exercise a Warrant of
The Kafus Capital Corporation
The undersigned holder hereby exercises the right to purchase _______
shares of Common Stock covered by the within Warrant, according to the
conditions thereof, and herewith undertakes to make payment in full of the
Exercise Price of such shares or to withdraw this notice of exercise, in
accordance with the terms of the Warrant.
Name of Holder:
__________________________________
Signature:________________________
Title:____________________________
Address:__________________________
__________________________________
__________________________________
Dated:_________, __.
10
<PAGE>
EXHIBIT B
TO
WARRANT
ASSIGNMENT FORM
To Be Executed by the Holder
Desiring to Transfer a Warrant of
The Kafus Capital Corporation
FOR VALUE RECEIVED, the undersigned holder hereby sells, assigns and
transfers unto ________ the right to purchase _____ shares of Common Stock
covered by the within Warrant, and does hereby irrevocably constitute and
appoint _________________ Attorney to transfer the said Warrant on the books of
the Company (as defined in such Warrant), with full power of substitution.
Name of Holder:
____________________________
Signature:__________________
Title:______________________
Address:____________________
____________________________
____________________________
Dated: ____________, __.
In the presence of
______________________________
NOTICE:
The signature to the foregoing Assignment Form must correspond to the name as
written upon the face of the within Warrant in every detail, without alteration
or enlargement or any change whatsoever.
11
<PAGE>
EXHIBIT 6
WARRANT
================================================================================
THE SECURITIES REPRESENTED BY THIS CERTIFICATE AND THE SHARES OF COMMON STOCK
ISSUABLE UPON EXERCISE THEREOF HAVE NOT BEEN REGISTERED UNDER THE SECURITIES ACT
OF 1933, AS AMENDED (THE "ACT"), OR ANY STATE SECURITIES OR BLUE SKY LAWS AND
MAY NOT BE SOLD, PLEDGED OR OTHERWISE TRANSFERRED EXCEPT PURSUANT TO AN
EFFECTIVE REGISTRATION STATEMENT UNDER THE ACT OR IN RELIANCE ON AN AVAILABLE
EXEMPTION FROM THE ACT AND ANY APPLICABLE STATE SECURITIES OR BLUE SKY LAWS.
THE SECURITIES REPRESENTED BY THIS CERTIFICATE ARE SUBJECT TO A HOLD PERIOD AND
MAY NOT BE TRADED IN ONTARIO UNTIL 90 DAYS AFTER DATE OF ISSUANCE HEREOF EXCEPT
AS PERMITTED BY THE SECURITIES ACT (ONTARIO) AND THE SECURITIES RULES AND
REGULATIONS THEREUNDER.
THE SECURITIES REPRESENTED BY THIS CERTIFICATE ARE SUBJECT TO RESTRICTIONS ON
TRANSFER SET FORTH IN SECTION 3.
================================================================================
THE KAFUS CAPITAL CORPORATION
Common Stock Purchase Warrant
Representing Right To Purchase Shares of
Common Stock
of
The Kafus Capital Corporation
No. AW-1
FOR VALUE RECEIVED, THE KAFUS CAPITAL CORPORATION, a British Columbia
corporation (the "Company"), hereby certifies that Enron Capital & Trade
Resources Corp., a Delaware corporation (the
<PAGE>
"Holder"), is entitled, to purchase from the Company, at any time or from time
to time during the Exercise Period (as hereinafter defined), 500,000 shares of
Common Stock (as such number of shares may be adjusted pursuant to the terms
hereof, the "Warrant Shares"), at a price per share equal to the Exercise Price
(as defined below). This Warrant is issued to the Holder (together with such
other warrants as may be issued in exchange, transfer or replacement of this
Warrant, the "Warrants") pursuant to the Subscription Agreement dated as of the
Date of Issuance between the Company and the Purchaser named therein, and
entitles the Holder to purchase the Warrant Shares and to exercise the other
rights, powers and privileges hereinafter provided.
Section 1. Definitions. The following terms, as used herein, have the
following respective meanings:
"Common Stock" means the Company's common stock, no par value.
"Company" is defined in the introductory paragraph of this Warrant.
"Date of Issuance" means July 16, 1997.
"Exercise Period" means the period commencing on July 16, 1998 and ending
on 5:00 p.m. (Toronto, Ontario time) on the Expiration Date.
"Exercise Price" means $2.00 per share of Common Stock, subject to
adjustment as provided herein.
"Expiration Date" means July 16, 2007.
"Holder" means the Holder named herein and its permitted assignees.
"Person" means any individual, corporation, limited or general partnership,
joint venture, association, joint-stock company, trust, limited liability
company, unincorporated organization or government or any agency or political
subdivision thereof.
-2-
<PAGE>
"Warrants" is defined in the introductory paragraph of this Warrant.
"Warrant Shares" is defined in the introductory paragraph of this Warrant.
Section 2. Exercise of Warrant; Cancellations of Warrant.
(a) This Warrant represents the right to purchase, at the Exercise Price,
500,000 shares of Common Stock, subject to adjustment upon the occurrence of the
events set forth in Section 4.
(b) This Warrant may be exercised in whole or in part, at any time or from
time to time, during the Exercise Period, by presentation to the Company at its
principal office at the address set forth in Section 10 of (i) this Warrant,
with the Purchase Form annexed hereto as Exhibit A duly executed and (ii) a
certified bank check equal to the Exercise Price for the Warrant Shares for
which this Warrant is being exercised (the date of such delivery referred to
herein as the "Exercise Date"). Within five business days after payment of the
Exercise Price, the Company shall execute and deliver to the Holder a
certificate or certificates for the total number of Warrant Shares for which
this Warrant is being exercised, in such names and denominations as requested in
writing by the Holder. The Company shall pay any and all documentary stamp or
similar issue taxes payable in respect of the issue of the Warrant Shares. If
this Warrant is exercised in part only, the Company shall, upon surrender of
this Warrant, execute and deliver a new Warrant evidencing the rights of the
Holder thereof to purchase the balance of the Warrant Shares issuable hereunder.
Section 3. Exchange, Transfer, Assignment or Loss of Warrant. Upon
surrender of this Warrant to the Company, with the Assignment Form annexed
hereto as Exhibit B duly executed and funds sufficient to pay any transfer tax,
the Company shall, without charge, execute and deliver a new Warrant or Warrants
in the name of the assignee or assignees named in such Assignment Form and, if
the Holder's entire interest is not being assigned, in the name of
-3-
<PAGE>
the Holder, and this Warrant shall promptly be canceled. This Warrant may be
divided or combined with other Warrants that carry the same rights upon
presentation hereof at the office of the Company, together with a written notice
specifying the names and denominations in which new Warrants are to be issued
and signed by the Holder hereof. Upon receipt by the Company of evidence
satisfactory to it of the loss, theft, destruction or mutilation of this
Warrant, and (in the case of loss, theft or destruction) of reasonably
satisfactory indemnification (including, if required in the reasonable judgment
of the Company, a statement of net worth of such Holder that is at a level
reasonably satisfactory to the Company), and upon surrender and cancellation of
this Warrant, if mutilated, the Company shall execute and deliver a new Warrant
of like tenor and date.
Section 4. Antidilutive Adjustments. The shares of Common Stock
purchasable on exercise of the Warrants evidenced by this Warrant Certificate
are shares of Common Stock of the Company as constituted as of the Date of
Issue. The number and kind of securities purchasable on the exercise of this
Warrant shall be subject to adjustment from time to time upon the happening of
certain events, as follows:
(a) Mergers, Consolidations and Reclassifications. In case of any
reclassification or change of outstanding securities issuable upon exercise of
the Warrants at any time (other than a change in par value, or from par value to
no par value, or from no par value to par value or as a result of a subdivision
or combination to which subsection 4(b) applies), or in case of any
consolidation or merger of the Company with or into another corporation (other
than a merger with another corporation in which the Company is the surviving
corporation and which does not result in any reclassification or change [other
than a change in par value, or from par value to no par value, or from no par
value to par value, or as a result of a subdivision or combination to which
subsection 4(b) applies] of outstanding securities issuable upon exercise of
this Warrant), the Holder shall have, and the Company, or such successor
corporation or other entity, shall covenant in the constituent documents
effecting any of the foregoing
-4-
<PAGE>
transactions that such holder does have, the right to obtain upon the exercise
hereof, in lieu of the shares of Common Stock, other securities, money or other
property theretofore issuable upon exercise of a Warrant, the kind and amount of
shares of stock, other securities, money or other property receivable upon such
reclassification, change, consolidation or merger by a holder of the shares of
Common Stock, other securities, money or other property issuable upon exercise
hereof had this Warrant been exercised immediately prior to such
reclassification, change, consolidation or merger. The constituent documents
effecting any such reclassification, change, consolidation or merger shall
provide for any adjustments which shall be as nearly equivalent as may be
practicable to the adjustments provided in this subsection 4(a). The provisions
of this subsection 4(a) shall similarly apply to successive reclassifications,
changes, consolidations or mergers.
(b) Subdivisions and Combinations. If the Company, at any time during
the Exercise Period shall subdivide its shares of Common Stock into a greater
number of shares, the number of shares of Common Stock purchasable upon exercise
of the Warrants shall be proportionately increased and the Exercise Price shall
be proportionately decreased, as at the effective date of such subdivision, or
if the Company shall take a record of holders of its Common Stock for the
purpose of so subdividing, as at such record date, whichever is earlier. If the
Company, at any time during the Exercise Period, shall combine its shares of
Common Stock into a smaller number of shares, the number of shares of Common
Stock purchasable upon exercise hereof shall be proportionately reduced and the
Exercise Price shall be proportionately increased, as at the effective date of
such combination, or if the Company shall take a record of holders of its Common
Stock for purposes of such combination, as at such record date, whichever is
earlier.
(c) Dividends and Distributions. If the Company at any time shall
declare a dividend on its Common Stock payable in stock or other securities of
the Company or of any other corporation or other entity, or in property or
otherwise than in cash, to the
-5-
<PAGE>
holders of its Common Stock, the Holder shall, without additional cost, be
entitled to receive upon any exercise hereof, in addition to the Common Stock to
which such holder would otherwise be entitled upon such exercise, the number of
shares of stock or other securities or property which such holder would have
been entitled to receive if he had been a holder immediately prior to the record
date for such dividend (or, if no record date shall have been established, the
payment date for such dividend) of the number of shares of Common Stock
purchasable on exercise of such Warrant immediately prior to such record date or
payment date, as the case may be.
(d) Upon any increase or decrease in the number of Warrant Shares
purchasable upon the exercise of this Warrant, the Company shall, within 30 days
thereafter, deliver written notice thereof to all Holders, which notice shall
state the increased or decreased number of Warrant Shares purchasable upon the
exercise of this Warrant and the revised Exercise Price thereof, setting forth
in reasonable detail the method of calculation and the facts upon which such
calculations are based.
Section 5. Notification by the Company. In case at any time while this
Warrant remains outstanding:
(a) the Company shall declare any dividend or make any distribution
upon its Common Stock or any other class of its capital stock; or
(b) the Company shall offer for subscription pro rata to the holders
of its Common Stock or any other class of its capital stock any additional
shares of stock of any class or any other securities convertible into or
exchangeable for shares of stock or any rights or options to subscribe thereto;
or
(c) the Board of Directors of the Company shall authorize any capital
reorganization, reclassification or similar transaction involving the capital
stock of the Company, or a sale or conveyance of all or a substantial part of
the assets of the
-6-
<PAGE>
Company, or a consolidation, merger or business combination of the Company with
another Person; or
(d) actions or proceedings shall be authorized or commenced for a
voluntary or involuntary dissolution, liquidation or winding-up of the Company;
then, in any one or more of such cases, the Company shall give written notice to
the Holder, at the earliest time legally practicable (and not less than 20 days
before any record date or other date set for definitive action) of the date on
which (i) the books of the Company shall close or a record shall be taken for
such dividend, distribution or subscription rights or options or (ii) such
reorganization, reclassification, sale, conveyance, consolidation, merger,
dissolution, liquidation or winding-up shall take place or be voted on by
shareholders of the Company, as the case may be. Such notice shall also specify
the date as of which the holders of the Common Stock of record shall participate
in said dividend, distribution, subscription rights or options or shall be
entitled to exchange their Common Stock for securities or other property
deliverable upon such reorganization, reclassification, sale, conveyance,
consolidation, merger, dissolution, liquidation or winding-up, as the case may
be. If the action in question or the record date is subject to the
effectiveness of a registration statement under the Securities Act or to a
favorable vote of shareholders, the notice required by this Section 5 shall so
state.
Section 6. No Voting Rights: Limitations of Liability. Prior to
exercise, this Warrant will not entitle the Holder to any voting rights or other
rights as a stockholder of the Company. No provision hereof, in the absence of
affirmative action by the Holder to exercise this Warrant, and no enumeration
herein of the rights or privileges of the Holder, shall give rise to any
liability of the Holder for the purchase price of the Warrant Shares pursuant to
the exercise hereof.
-7-
<PAGE>
Section 7. Amendment and Waiver.
(a) No failure or delay of the Holder in exercising any power or right
hereunder shall operate as a waiver thereof, nor shall any single or partial
exercise of such right or power, or any abandonment or discontinuance of steps
to enforce such a right or power, preclude any other or further exercise thereof
or the exercise of any other right or power. The rights and remedies of the
Holder are cumulative and not exclusive of any rights or remedies which it would
otherwise have. The provisions of this Warrant may be amended, modified or
waived with (and only with) the written consent of the Company and the Holder.
(b) No notice or demand on the Company in any case shall entitle the
Company to any other or further notice or demand in similar or other
circumstances.
Section 8. No Fractional Warrant Shares. The Company shall not be
required to issue stock certificates representing fractions of Warrant Shares,
but shall in respect of any fraction of a Warrant Share make a payment in cash
based on the Value of the Common Stock after giving effect to the full exercise
or conversion of the Warrants.
Section 9. Reservation of Warrant Shares. The Company shall
authorize, reserve and keep available at all times, free from preemptive rights,
a sufficient number of Warrant Shares to satisfy the requirements of this
Warrant.
Section 10. Notices. Unless otherwise specified, whenever this Warrant
requires or permits any consent, approval, notice, request, or demand from one
party to another, that communication must be in writing (which may be by
telecopy) to be effective and is deemed to have been given (a) if by telecopy,
when transmitted to the appropriate telecopy number (and all communications sent
by telecopy must be confirmed promptly by telephone; but any requirement in this
parenthetical does not affect the date when the telecopy is deemed to have been
delivered), or (b) if by any other means, including by internationally
acceptable courier or hand
-8-
<PAGE>
delivery, when actually delivered. Until changed by notice pursuant to this
Warrant, the address (and telecopy number) for the Holder shall be as set forth
on Schedule A to the Subscription Agreement dated as of the Date of Issuance
between the Company and the Purchasers named therein, and the address and
telecopy number for the Company are:
If to Company: The Kafus Capital Corporation
6 Eva Road, Suite 600
Toronto, Ontario
Canada MA9 2A8
Attention: Chief Financial Officer
Facsimile: (416) 695-3004
Section 11. Section and Other Headings. The headings contained in this
Warrant are for reference purposes only and will not affect in any way the
meaning or interpretation of this Warrant.
Section 12. Governing Law. THIS WARRANT SHALL BE GOVERNED BY, AND
CONSTRUED IN ACCORDANCE WITH, THE LAWS OF NEW YORK.
Section 13. Binding Effect. The terms and provisions of this Warrant
shall inure to the benefit of the Holder and its successors and assigns and
shall be binding upon the Company and its successors and assigns, including,
without limitation, any Person succeeding to the Company by merger,
consolidation or acquisition of all or substantially all of the Company's
assets.
IN WITNESS WHEREOF, the seal of the Company and the signature of its duly
authorized officer have been affixed hereto as of July 16, 1997.
[SEAL] THE KAFUS CAPITAL CORPORATION
Attest:/s/ Chris Carl By:/s/ Kenneth F. Swaisland
--------------------------------
Name: Kenneth F. Swaisland
------------------------------
Title: President
-----------------------------
-9-
<PAGE>
EXHIBIT A
TO
WARRANT
PURCHASE FORM
To Be Executed by the Holder
Desiring to Exercise a Warrant of
The Kafus Capital Corporation
The undersigned holder hereby exercises the right to purchase _______
shares of Common Stock covered by the within Warrant, according to the
conditions thereof, and herewith undertakes to make payment in full of the
Exercise Price of such shares or to withdraw this notice of exercise, in
accordance with the terms of the Warrant.
Name of Holder:
______________________________
Signature:____________________
Title:________________________
Address:______________________
______________________________
______________________________
Dated: ___________ , __.
-10-
<PAGE>
EXHIBIT B
TO
WARRANT
ASSIGNMENT FORM
To Be Executed by the Holder
Desiring to Transfer a Warrant of
The Kafus Capital Corporation
FOR VALUE RECEIVED, the undersigned holder hereby sells, assigns and
transfers unto ________ the right to purchase _____ shares of Common Stock
covered by the within Warrant, and does hereby irrevocably constitute and
appoint _________________ Attorney to transfer the said Warrant on the books of
the Company (as defined in such Warrant), with full power of substitution.
Name of Holder:
______________________________
Signature:____________________
Title:________________________
Address:______________________
Dated: ________, __.
In the presence of
______________________________
NOTICE:
The signature to the foregoing Assignment Form must correspond to the name as
written upon the face of the within Warrant in every detail, without alteration
or enlargement or any change whatsoever.
-11-
<PAGE>
EXHIBIT 7
CONSULTING SERVICES CONTRACT
----------------------------
This Consulting Services Contract, dated as of July 16, 1997 (this
"Contract") is between The CanFibre Group Ltd. ("Company"), an Ontario
corporation, and Enron Capital Trade Resources Corp. ("ECT"), a Delaware
corporation, and sets forth the terms and conditions pursuant to which the
Company will retain ECT to act as its consultant.
The Company and ECT agree as follows:
1. Retention of Consultant; Scope of Services.
------------------------------------------
(a) Subject to the terms and conditions set forth herein, the Company
hereby retains ECT to act as a consultant to the Company during the Contract
Period (as defined in paragraph 3 below).
(b) As consultant to the Company, ECT will, from time to time, as
requested by the Company, provide consultation, assistance and advice to the
Company with respect to its operations and properties, including, without
limitation, analysis of potential property acquisitions, advice regarding
commodity pricing strategies and assistance in developing marketing strategies.
(c) The parties hereto acknowledge that (i) ECT is not regularly
engaged in the business of providing consulting services and personnel and that
the services to be performed by ECT hereunder are provided as an incident to
ECT's relationship with respect to the Company and its affiliates, (ii) ECT is
not an "investment advisor," within the meaning of the Investment Advisors Act
of 1940, as amended, or applicable state laws, or a "broker" or "dealer" under
the Securities Exchange Act of 1934, as amended, or applicable state laws, (iii)
the nature of the services to be provided by ECT under this Contract do not
include those of an "investment advisor" (i.e., providing advice as to the value
of securities or the advisability of investing in, purchasing or selling
securities), or those of a "broker" or "dealer" (i.e., effecting transaction in
securities for the account of the Company or others), and (iv) it is
specifically intended by the parties hereto that ECT's activities hereunder not
subject ECT to any regulation or registration under federal or state laws.
(d) The parties hereto acknowledge and agree that upon reasonable
request by the Company, ECT will, subject to the availability of such personnel,
make available such of its employees as ECT may determine may reasonably be
necessary for ECT's performance of its services hereunder. The parties further
acknowledge that unless and until ECT provides notice to the contrary, all
decisions with respect to staffing, scheduling and allocating ECT's resources
<PAGE>
for purposes of this Contract will be coordinated on behalf of ECT by Tony A.
Valentine and any request by the Company for the performance of services
hereunder shall be directed to Tony A. Valentine.
2. Contract Period and Termination.
-------------------------------
ECT shall act as the Company's consultant under this Contract,
effective as of the date hereof (the "Effective Date") and continuing until July
15, 2007.
3. Advisement Fee.
--------------
ECT shall be entitled to an annual fee for its services provided
during the period from the effective date of this Contract until the date of its
termination (the "Contract Period"). The fee shall be a sum equivalent to 5% of
the after tax distributable operating cash flow of the Company. The fee shall
be calculated on the basis of the audited financial statements of the Company
prepared from year to year (on a consolidated basis) and shall be paid to ECT
not more than sixty days after approval of the audited financial statements of
the Company by the Board of Directors of the Company,and in the event of the
failure of the Board of Directors of the Company to approve the audited
financial statements, not more than one hundred eighty (180) days after the
Company's year end.
4. GOVERNING LAW. THE VALIDITY AND INTERPRETATION OF THIS CONTRACT SHALL
BE GOVERNED BY THE INTERNAL LAWS OF THE PROVINCE OF BRITISH COLUMBIA APPLICABLE
TO CONTRACTS MADE AND TO BE FULLY PERFORMED THEREIN.
5. Successors and Assigns. The benefits of this Contract shall inure to
the parties hereto, their respective successors and permitted assigns, and to
the indemnified parties hereunder and their successors and representatives, and
the obligations and liabilities assumed in this Contract by the parties hereto
shall be binding upon their respective successors and assigns. This Contract
may not be assigned by any party to an unaffiliated party without the express
written consent of the other party hereto.
6. Notices. All communications under this Contract shall be in writing
and shall be delivered personally or sent by personal delivery, expedited
delivery, certified mail, return receipt requested or by telecopy as follows:
-2-
<PAGE>
If to ECT:
Enron Capital & Trade Resources
1400 Smith Street
Houston, Texas 77002
Telecopy Number: (713) 646-2634
Attention: Tony A. Valentine
If to the Company:
The CanFibre Group Ltd.
6 Eva Road, Suite 600
Toronto, Ontario, Canada M9C 2AB
Telecopy: (604) 685-2426
Attn: Chief Financial Officer
Either party may change its address or telecopy number set forth above
by giving the other party notice of such change in accordance with the
provisions of this Paragraph 7. A notice shall be deemed given, if by personal
delivery or expedited delivery service, on the date of such delivery to such
address, if by certified mail, on the date shown on the applicable return
receipt, or if by telecopy, on the date of receipt o the transmission of such
notice at such telecopy number.
7. Nature of Relationship. The parties hereto intend that ECT's
relationship tot he Company and the relationship of each employee or agent of
ECT to the Company shall be that of an independent contractor. Nothing
contained in this Contract shall constitute or be construed to be or create a
partnership or joint venture between ECT and the Company or their respective
successors or assigns. Neither ECT nor any partner, employee or agent of ECT
shall ever be considered to be an employee of the Company.
8. Captions. The Paragraph titles herein are from reference purposes
only and do not control or affect the meaning or interpretation of any term or
provision hereof.
9. Amendments. No alteration, amendment, change or addition hereto
hall be binding or effective unless the same is set forth in writing signed by a
duly authorized representative of each party.
10. Partial Invalidity. If the final determination of a court of
competent jurisdiction declares, after the expiration of the time within which
judicial review (if permitted) of such
-3-
<PAGE>
determination may be perfected, that any term or provision hereof is invalid or
unenforceable, (i) the remaining terms and provisions hereof shall be unimpaired
and (ii) the invalid or unenforceable term or provision shall be replaced by a
term or provision that is valid and enforceable and that comes closest to
expressing the intention of the invalid or unenforceable term or provision.
11. Survival. All representations, warranties and agreements contained
herein, or contained in certificates submitted pursuant to this Contract, shall
remain operative and in full force and effect regardless of any investigation
made by or on behalf of any party hereto, and shall survive the execution and
delivery hereof.
12. Entire Contract. This Contract and the exhibits hereto embody the
entire agreement and understanding of the parties and supersede any and all
prior agreements, arrangements and understanding relating to matters provided
for herein.
13. Counterparts. This Contract may be executed in one or more
counterparts, each of which shall be an original, but all of which together
shall be considered one and the same agreement.
-4-
<PAGE>
This Contract is executed as of the date first written above by a duly
authorized representative of each of the Company and ECT.
COMPANY
THE CANFIBRE GROUP LTD.
By: /s/ Kenneth F. Swaisland
----------------------------
Name: Kenneth F. Swaisland
----------------------
Title: President
---------------------
ECT
ENRON CAPITAL & TRADE RESOURCES
By: /s/ J. Kevin McConville
---------------------------
Name: J. Kevin McConville
---------------------
Title: Vice President
--------------------
-5-
<PAGE>
EXHIBIT 8
THE CANFIBRE GROUP LTD. FEE AGREEMENT
July 16, 1997
Enron Capital & Trade Resources Corp.
1400 Smith St.
Houston, Texas 77002
Ladies and Gentlemen:
The CanFibre Group Ltd. ("CanFibre") in connection with the proposed sale by The
Kafus Capital Corporation ("Kafus") of the Series I 10% Convertible Cumulative
Redeemable Preference Shares (the "Securities") pursuant to the Subscription
Agreement dated as of July 16, 1997, between Kafus and Enron Capital & Trade
Resources Corp. ("ECT") and the capitalization of CanFibre by Kafus with the
proceeds of the sale of the Securities hereby agrees as follows:
1. CanFibre shall convey to ECT 750,000 shares of common stock of Kafus
currently owned by CanFibre upon execution hereof, which shares are owned by
CanFibre free and clear of liens and are duly authorized, validly issued, and
fully paid and can be transferred to ECT without restriction.
2. If on October 15, 1997 (the "Makewhole Date"), the per share trade
weighted average market price of such shares of common stock of Kafus in U.S.
Dollars for the immediately preceding 30 day period before the Makewhole Date
(the "Average Market Price") is less than U.S. $2.00 per share, then CanFibre
shall pay to ECT an amount equal to (a) the difference between U.S. $2.00 per
share and the Average Market Price multiplied by (b) 750,000 (the "Makewhole
<PAGE>
Enron Capital & Trade Resources Corp.
July 16, 1997
Page 2
Payment"). At the option of CanFibre, the Makewhole Payment shall be paid
either in cash or in further shares of common stock of Kafus, which shares shall
be owned by CanFibre free and clear of liens and shall be duly authorized,
validly issued, and fully paid and transferrable to ECT without restriction.
This letter shall be effective upon receipt and will be governed by the internal
laws of the Province of British Columbia, Canada (without reference to
principles of conflicts of law).
Very truly yours,
THE CANFIBRE GROUP LTD.
By: /s/ Kenneth F. Swaisland
-------------------------
Name: Kenneth F. Swaisland
-----------------------
Title: President
-----------------------
<PAGE>
EXHIBIT 9
July 16, 1997
The Kafus Capital Corporation
6 Eva Road
Toronto, Ontario
Canada
Gentlemen:
This letter is written in connection with, and in fulfillment of a condition to,
the consummation of the transactions contemplated by the Subscription Agreement
dated as of July 16, 1997, between The Kafus Capital Corporation, a British
Columbia corporation (the "Company"), and Enron Capital & Trade Resources Corp.,
a Delaware corporation ("ECT"). Initially capitalized terms not otherwise
defined herein shall have the meanings ascribed to them in the Subscription
Agreement. In consideration of the execution, delivery and performance by the
Company of its obligations under the Subscription Agreement, ECT hereby agrees
as follows:
1. ECT agrees, with respect to 5,000 Preference Shares (the "Shares"), that it
will not exercise its right to convert such Shares into shares of Common
Stock of the Company prior to January 16, 1998 (the "Determination Date"),
without the prior written consent of the Company.
2. In the event (i) the trade weighted average of the prices for the Common
Stock during any period of 30 consecutive days ending on or prior to the
Determination Date (a "Measurement Period") exceeds U.S. $7.00 per share
(such price to be appropriately adjusted for any stock split, reverse stock
split or similar recapitalization after the date hereof) and (ii) the
Common Stock is listed on a U.S. national securities exchange or the NASDAQ
National Market throughout such 30-day period, then the Company shall have
the right (but shall
<PAGE>
The Kafus Corporation
July 16, 1997
Page 2
have no obligation), to purchase from ECT any or all of the Shares for a
cash purchase price equal to U.S. $1,200 per Share, plus all dividends
accrued (whether or not declared) on the Shares (collectively, the
"Purchase Price"). To exercise its right to purchase the Shares pursuant to
this paragraph 2, the Company shall, within 10 days following a Measurement
Date in which the conditions specified in (i) and (ii) above are satisfied,
notify ECT of such election. The Company may make only one election to
purchase Shares hereunder. The consummation of any purchase of the Shares
upon an exercise of the rights hereunder (the "Closing") shall take place
at the offices of ECT, on the 5th Business Day following the receipt by ECT
of such notice from the Company. At the Closing (a) ECT shall deliver to
the Company certificates representing the Shares, duly endorsed in blank or
accompanied by stock powers executed in blank and (b) the Company shall
deliver to ECT by wire transfer an amount equal to the Purchase Price for
the Shares purchased.
Nothing herein shall be deemed to limit in any way the ability of ECT to
convert any Preference Shares other than the Shares or its ability to sell
or transfer the Shares to an Affiliate of ECT or, upon receipt of the prior
written consent of the Company, which will not be unreasonably withheld, to
any other Person who agrees in writing to be bound by the terms hereof.
The Company may assign its rights hereunder to (i) SAMARAC Corporation or
(ii) any other Person, provided in the case of (ii) the Company has
obtained the prior written consent of ECT to such transfer (which will not
be unreasonably withheld). This letter agreement shall terminate and the
Company shall have no further rights hereunder as of the Determination
Date, unless extended by the parties in writing.
Very truly yours,
ENRON CAPITAL & TRADE RESOURCES CORP.
<PAGE>
The Kafus Corporation
July 16, 1997
Page 3
By: /s/ J. Kevin McConville
--------------------------
Name: J. Kevin McConville
------------------------
Title: Vice President
-----------------------
<PAGE>
EXHIBIT 10
GUARANTY
(Kenneth F. Swaisland)
This Guaranty dated as of July 16, 1997 (this "Agreement"), is made by
KENNETH F. SWAISLAND (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
<PAGE>
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;
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<PAGE>
(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.
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<PAGE>
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
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<PAGE>
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
<PAGE>
(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
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<PAGE>
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.
1400 Smith Street
Houston, Texas 77002
Attn: Tony Valentine
telephone: 713-853-6903
telecopier: 713-646-8408
If to the Investor:
Kenneth F. Swaisland
c/o The Kafus Capital Corporation
706-1155 Robson Street
Vancouver, British Columbia V6E 1B5
telephone: 604-602-1981
telecopier: 604-685-2426
[The remainder of this page is intentionally blank]
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<PAGE>
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/ Kenneth F. Swaisland
-----------------------------
Kenneth F. Swaisland
8
<PAGE>
EXHIBIT 11
INCOME PARTICIPATION CERTIFICATE
PURCHASE AGREEMENT
This Income Participation Certificate 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, and the related Income Participation Certificate
dated as of June 1, 1997 (as modified from time to time, the "Income
Participation Certificate"), made by the Borrower in favor of 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:
"Purchase Activation Date" means the earlier of the date one calendar year
after the Completion Date or the date of the occurrence of any Event of Default
under and as defined in the Subordinated Loan Agreement.
"Received Income Discount" means, as of any date of determination, an
amount equal to the net present value as of the date of this Agreement of any
cash payments received by the Lender under the Income Participation Certificate
as of the date of determination discounted back to the date of this Agreement
using standard financial techniques selected by the Lender and a discount rate
of 12.00% per annum (but when applied as of the date of determination, such
amount shall not be adjusted to bring such net present value as of the date of
this Agreement forward to the date of determination).
<PAGE>
Section 2. Purchase Agreement; Guaranty.
2.1 Upon demand by the Lender at any time after the Purchase Activation
Date, Kafus shall purchase the Income Participation Certificate from the Lender
at a price equal to U.S. $12,500,000 less the Received Income Discount. 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.
2.2 Kafus irrevocably guarantees to the Lender that the Lender shall have
received from the Borrower under the Income Participation Certificate at any
date after the Purchase Activation Date an amount equal to the sum of the
purchase price that would be owed under Section 2.1 at such time plus any
amounts actually received by the Lender under the Income Participation
Certificate (the"Guaranteed Amount"), and shall pay to the Lender upon demand
the difference between the amounts actually received by the Lender under the
Income Participation Certificate and the Guaranteed Amount. Any written
certificate provided by the Lender to Kafus showing the calculation of the
amount due under this guaranty shall be conclusive and binding for all purposes,
absent manifest error. 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. Purchase Option in Favor of Kafus. The Lender hereby grants Kafus
with the right to purchase the Income Participation Certificate from the Lender
at any time after the Purchase Activation Date at a price equal to U.S.
$15,000,000 less the Received Income Discount. 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. 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 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, 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
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<PAGE>
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 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 5. Obligations Absolute.
5.1 Kafus guarantees that amounts due under the Income Participation
Certificate will be paid strictly in accordance with the terms of 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 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:
(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 Borrower 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 Borrower, 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 Borrower, Kafus, or any other
3
<PAGE>
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
Borrower, 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 amounts due under
the Income Participation Certificate, whether or not such action or omission
prejudices Kafus or increases the likelihood that Kafus will be required to pay
the amounts due under the Income Participation Certificate pursuant to the terms
hereof--it is the unambiguous and unequivocal intention of Kafus that Kafus
shall be obligated to pay the amounts due under the Income Participation
Certificate in accordance with its terms when due, 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.
6.1 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
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
4
<PAGE>
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
5
<PAGE>
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). 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 7.4 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 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.
1400 Smith Street
Houston, Texas 77002
Attention: Tony A. Valentine
Telecopy No.: 713-646-8408
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<PAGE>
(b) To Kafus, to:
The Kafus Capital Corporation
706-1155 Robson St.
Vancouver, British Columbia
Canada V6E 1B5
Attention: Kenneth F. Swaisland
Telecopy No.: 604-685-2426
with a copy to:
Paul, Hastings, Janofsky & Walker LLP
399 Park Avenue, Thirty-First Floor
New York, New York 10022
Attention: Euclid A. Irving, Esq.
Telecopy No.: 212-319-4090
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.
[the remainder of this page is intentionally blank]
7
<PAGE>
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.
THE KAFUS CAPITAL CORPORATION
By: /s/ Kenneth F. Swaisland
-------------------------
Name: Kenneth F. Swaisland
---------------------
Title: President
----------
ENRON CAPITAL & TRADE RESOURCES CORP.
By: /s/ J. Kevin McConville
------------------------
Name: J. Kevin McConville
--------------------
Title: Vice President
---------------
8
<PAGE>
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
<PAGE>
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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<PAGE>
(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
3
<PAGE>
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.
4
<PAGE>
(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
5
<PAGE>
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.
1400 Smith Street
Houston, Texas 77002
Attention: Tony A. Valentine
Telecopy No.: 713-646-8408
(b) To Kafus, to:
The Kafus Capital Corporation
706-1155 Robson St.
Vancouver, British Columbia
Canada V6E 1B5
Attention: Kenneth F. Swaisland
Telecopy No.: 604-685-2426
with a copy to:
Paul, Hastings, Janofsky & Walker LLP
399 Park Avenue, Thirty-First Floor
New York, New York 10022
Attention: Euclid A. Irving, Esq.
Telecopy No.: 212-319-4090
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.
[the remainder of this page is intentionally blank]
6
<PAGE>
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/ Kenneth F. Swaisland
-------------------------
Name: Kenneth F. Swaisland
---------------------
Title: President
----------
ENRON CAPITAL & TRADE RESOURCES CORP.
By: /s/ J. Kevin McConville
-------------------------
Name: J. Kevin McConville
--------------------
Title: Vice President
---------------
7
