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EXHIBIT 1
[Execution Version]
CONVERTIBLE PROMISSORY NOTE
(Term Loan E)
THIS CONVERTIBLE PROMISSORY NOTE AND THE SHARES OF CAPITAL STOCK ISSUABLE UPON
CONVERSION HEREOF 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 REGISTRATION PROVISIONS OF THE ACT AND ANY APPLICABLE STATE SECURITIES
OR BLUE SKY LAWS.
U.S. $685,000 Vancouver, British Columbia June 28, 2000
KAFUS INDUSTRIES LTD., f/k/a Kafus Environmental Industries Ltd., a
British Columbia corporation (the "Borrower"), for value received, hereby
promises to pay to the order of ECT MERCHANT INVESTMENTS CORP., a Delaware
corporation (the "Lender"), the principal sum of SIX HUNDRED EIGHTY-FIVE
THOUSAND AND NO/100 UNITED STATES DOLLARS (U.S. $685,000) in accordance with the
terms of this Convertible Promissory Note (this "Note").
1. Principal.
The advance of the principal amount of this Note shall be made in
accordance with Section 2.7 of the Amended and Restated Note Agreement dated as
of March 11, 1999 (as amended, the "Note Agreement") between the Borrower and
the Lender, certain rights under which have been assigned to ENA CLO I Holding
Company I L.P. ("Holdco"), as amended by the Second Amendment to Note Agreements
dated as of June 28, 2000, among the Borrower, the Lender, Holdco, and certain
other note purchasers signatory thereto.
The Borrower may prepay the outstanding principal amount of this Note
upon ten (10) days advanced written notice to the Lender, provided that
prepayments shall be applied first to accrued but unpaid interest and then to
the outstanding principal amount of this Note. The Lender may convert any part
of this Note in accordance with Section 5 after receipt of the notice of
prepayment.
The Borrower shall pay to the Lender the outstanding principal amount
of this Note on June 30, 2001 (the "Maturity Date").
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2. Interest.
The outstanding principal amount of this Note shall bear interest at
15% per annum compounded annually, calculated based upon a 365/366 day year for
the actual number of days elapsed. The Borrower shall pay to the Lender all
accrued but unpaid interest on this Note on the Maturity Date. For purposes of
this Note, including Section 5, compounding interest shall not be deemed to
increase the principal amount of this Note, but merely as a method of
calculating the rate of interest charged.
3. Payments Generally.
The Lender shall record in its records all advances and payments of
principal and interest on this Note. Any failure of the Lender to make such
recordings, however, shall not affect the Borrower's repayment obligations. The
Lender's records shall be presumptive evidence of the principal and interest
owed by the Borrower.
Unless otherwise stated, all monetary amounts expressed under this
Note and all payments due under this Note are expressed in and shall be due in
U.S. Dollars. The Borrower shall make all payments required under this Note not
later than 1:00 p.m., Houston, Texas, time on any date when due to the Lender at
such location as is specified by the Lender in writing in immediately available
funds. Whenever any payment to be made under this Note shall be stated to be due
on a day other than a day on which the banks in Houston, Texas, and Vancouver,
British Columbia, are required to be open (a "Business Day"), such payment shall
be due and payable on the next succeeding Business Day. If the date for payment
of any obligation is not specified in this Note, such obligation shall be
payable upon demand.
Any and all payments by the Borrower shall be made free and clear of
and without deduction for any and all present or future taxes, levies, imposts,
deductions, charges, or withholdings, and all liabilities with respect thereto,
other than taxes imposed on the income of and franchise taxes imposed on the
Lender in each case by any jurisdiction in which the Lender is a citizen or
resident or any political subdivision of such jurisdiction (all such non
excluded taxes, levies, imposts, deductions, charges, withholdings, and
liabilities being hereinafter referred to as "Taxes"). If the Borrower shall be
required by law to deduct any Taxes from any sum payable to the Lender (i) the
sum payable shall be increased as may be necessary so that, after making all
required deductions (including deductions applicable to additional sums payable
under this paragraph), the Lender receives an amount equal to the sum it would
have received had no such deductions been made; (ii) the Borrower shall make
such deductions; and (iii) the Borrower shall pay the full amount deducted to
the relevant
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taxation authority or other authority in accordance with applicable law. In
connection with any transfer of this Note to an affiliate of the Lender, the
Lender shall, if no Event of Default is continuing, use commercially reasonable
efforts to make any such transfer to an entity generally eligible for reduced
treaty rates; provided however, that if the Lender determines in its sole
discretion to transfer this Note to an affiliate which is not eligible for
reduced treaty rates, then the Lender may transfer this Note to such affiliate,
notwithstanding the foregoing.
The Borrower agrees to pay any present or future stamp or documentary
taxes or any other excise or property taxes, charges, or similar levies which
arise from any payment made with respect to, or from the execution, delivery,
filing, or registration of, this Note or any documents securing or supporting
this Note.
If any sum due from the Borrower under this Note or any order or
judgment given in relation hereto has to be converted from the currency in which
the same is payable hereunder or under such order or judgment (the "first
currency") into another currency (the "second currency") for the purpose of (i)
making or filing a claim or proof against the Borrower with any governmental
authority or in any court, tribunal, or arbitration panel or (ii) enforcing any
order or judgment given in relation hereto, the Borrower shall indemnify the
Lender against any loss incurred as a result of any discrepancy between (A) the
rate of exchange used when restating the amount in question from the first
currency into the second currency and (B) the rate or rates of exchange at which
the Lender purchased the first currency with the second currency after receipt
of a sum paid to it in the second currency in satisfaction, in whole or in part,
of any such sum due or order or judgment. The foregoing indemnity shall
constitute a separate obligation of the Borrower distinct from its other
obligations hereunder and shall survive the giving or making of any judgment or
order in relation to all or any of such other obligations.
4. Default and Remedies.
It shall be an "Event of Default" under this Note if the Borrower fails
to pay when due any amount due under this Note, including payments of principal,
interest, fees, reimbursements, or indemnifications. It shall also be an "Event
of Default" under this Note to the extent the Note Agreement or any other
security documents, credit support documents, or other loan documents securing,
supporting, or related to this Note (collectively, the "Loan Documents") so
provide.
During the continuation of any Event of Default, the Lender may (i)
declare by written notice to the Borrower all of its commitments related to this
Note terminated,
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whereupon such commitments shall terminate, and (ii) declare by written notice
to the Borrower all amounts payable by the Borrower under this Note to be
immediately due and payable, whereupon such amounts shall become immediately due
and payable. Except as expressly provided for in the Loan Documents, the
Borrower waives notice of any default or event of default (however denominated),
notice of intent to accelerate, notice of acceleration, presentment, demand,
notice of dishonor, notice of setoff, notice of the initiation of any suit,
notice of any action against any credit support or collateral, and notice of any
other action or remedy.
If the Borrower fails to pay when due any amount payable under this
Note, the amount not paid when due shall bear interest beginning on the date due
until paid in full at the lesser of 17.00% per annum, calculated based upon a
365/366 day year for the actual number of days elapsed, or the Highest Lawful
Rate (as defined below). As used herein, the term "Highest Lawful Rate" means
the maximum lawful interest rate, if any, that at any time or from time to time
may be contracted for, charged, or received under the laws applicable to the
Lender which are presently in effect or, to the extent allowed by law, under
such applicable laws which may hereafter be in effect and which allow a higher
maximum non usurious interest rate than applicable laws now allow.
NOTWITHSTANDING the foregoing or any other term in this Note to the contrary, it
is the intention of the Lender and the Borrower to conform strictly to any
applicable usury laws. Accordingly, if the Lender contracts for, charges, or
receives any consideration in connection with this Note which constitutes
interest in excess of the Highest Lawful Rate, then any such excess shall be
canceled automatically and, if previously paid, shall at the Lender's option be
applied to the outstanding amount of the loans made hereunder or be refunded to
the Borrower. In determining whether any interest exceeds the Highest Lawful
Rate, such interest shall, to the extent permitted by applicable law, be
amortized, prorated, allocated, and spread in equal parts throughout the term of
this Note.
During the continuation of an Event of Default, the Lender is
authorized at any time, to the fullest extent permitted by law, to setoff and
apply any indebtedness owed by the Lender to the Borrower against any and all of
the obligations of the Borrower under this Note, irrespective of whether or not
the Lender shall have made any demand under this Note and although such
obligations may be contingent and unmatured.
During the continuation of an Event of Default, the Lender may exercise
all of its rights under the Loan Documents and all other rights at law or in
equity.
During the continuation of an Event of Default, the Lender may exercise
the conversion feature of this Note as set forth below.
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During the continuation of an Event of Default, all payments received
in respect of obligations under this Note shall be applied in the order
determined by the Lender.
No right, power, or remedy conferred to the Lender in this Note or in
any documents securing or supporting this Note or now or hereafter existing at
law, in equity, by statute, or otherwise shall be exclusive, and each such
right, power, or remedy shall to the full extent permitted by law be cumulative
and in addition to every other such right, power or remedy. No course of dealing
and no delay in exercising any right, power, or remedy conferred to the Lender
shall operate as a waiver of or otherwise prejudice any such right, power, or
remedy. No notice to or demand upon the Borrower shall entitle the Borrower to
similar notices or demands in the future. Without limiting the generality of
this paragraph, no description of the right to accelerate this Note, charge
default interest under this Note, or otherwise exercise remedies under this Note
shall limit the right of the Lender to take such actions with respect to such
Note under any other Loan Document.
5. Conversion.
5.1 Certain Definitions. As used in this Section 5, the following terms
shall have the following meanings:
"Average Price" with respect to Common Stock means, on any day or for
any period, as applicable, 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 Common Stock in an over-the-counter market.
"Common Stock" means the Borrower's Common Stock, no par value.
"Conversion Price" means as of any date of determination, the lesser of
(a) U.S. $4.00 and (b) the Average Price of the Common Stock for the 5 trading
days preceding the date of determination, subject to adjustment as provided for
in this Section 5.
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5.2 Principal Conversion. The Lender may convert any portion of the
outstanding principal amount of this Note into that number of fully paid and
non-assessable shares of Common Stock obtained by dividing the portion of the
outstanding principal amount of this Note being converted by the Conversion
Price. The outstanding principal amount of this Note may be converted by an
executed notice of conversion provided by the Lender to the Borrower. Upon
request of the Borrower in connection with any conversion of the principal of
this Note, the Lender shall surrender this Note to the Borrower at its office in
Dedham, Massachusetts. If less than all of the outstanding principal amount of
this Note is converted, the Borrower shall issue to the Lender a restatement of
this Note for the remaining principal amount of this Note. The Lender shall have
no obligation to convert this Note.
5.3 Interest Conversion. The Lender may convert any portion of the
accrued but unpaid interest on this Note, and upon any conversion of all or a
portion of the outstanding principal amount of this Note pursuant to Section
5.2, the Lender shall convert the accrued but unpaid interest attributable to
such principal being converted, into that number of fully paid and
non-assessable shares of Common Stock obtained by dividing the portion of the
accrued but unpaid interest on this Note being converted by the Conversion
Price. Accrued but unpaid interest on this Note may be converted by an executed
notice of conversion provided by the Lender to the Borrower. Except as expressed
above in connection with any conversion of principal, the Lender shall have no
obligation to convert any accrued but unpaid interest on this Note.
5.4 Issuance of Common Stock on Conversion. As promptly as practicable
after conversion, the Borrower shall deliver or cause to be delivered to the
Lender certificates representing the number of fully paid and nonassessable
shares of Common Stock due upon such conversion in accordance with the
provisions of this Section 5. Such conversion shall be deemed to have been made
at the close of business on the date that the applicable notice of conversion
was received by the Borrower so that the rights of the Lender with respect to
the principal or interest being converted shall cease at such time and, subject
to the following provisions of this Section 5.4, the Lender shall be treated for
all purposes as having become the record holder of such Common Stock at such
time and such conversion shall be at the applicable Conversion Price in effect
at such time; provided, however, that no conversion on any date when the stock
transfer books of the Borrower shall be closed shall be effective to constitute
the Lender as the record holder of such Common Stock on such date, but such
conversion shall be effective to constitute the Lender as the record holder for
all purposes at the close of business on the next succeeding day on which such
stock transfer books are open; and, in that event such conversion shall be at
the applicable Conversion Price in effect on the date of conversion, as if the
stock transfer books of the Borrower had not been closed.
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If the last day for the exercise of the conversion right shall not be a Business
Day, then such conversion right may be exercised on the next succeeding Business
Day.
No fractional shares of Common Stock shall be issued upon conversion.
Instead of any fractional shares of Common Stock which would otherwise be
issuable upon conversion, the Borrower shall pay a cash adjustment in respect of
such fraction in an amount equal to such fraction of a share multiplied by the
Conversion Price.
5.5 Antidilution Adjustments. The number and kind of securities
issuable upon the conversion of the Note 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 Note 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 Borrower
with or into another corporation (other than a merger with another
corporation in which the Borrower 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 --
of shares 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
Borrower 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 Lender shall have, and the Borrower, or such successor
entity or purchaser, shall covenant in the constituent documents
effecting any of the foregoing transactions that the Lender has, 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, consolidation 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 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 Section 5.5. The provisions of this
paragraph shall similarly apply to successive
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reclassifications, changes, consolidations or mergers, conveyances or
sales of assets, or share exchanges.
(ii) If the Borrower at any time while the Note is 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 Borrower 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 Borrower 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 Borrower at any time while the Note is
outstanding shall pay to any holders of stock of the Borrower a
dividend payable in, or make any other general distribution of, Common
Stock (other than in satisfaction of dividend obligations with respect
to the preferred stock of the Borrower which are payable in Common
Stock (A) for which the Common Stock is valued at the Average Price at
the time of issuance, or (B) payable with respect to (y) preferred
stock of the Borrower held by the Lender or an Affiliate of the Lender
or (z) the 2,500 Series VIII 10% Convertible Redeemable Preference
Shares), the Conversion Price shall be adjusted, as of the date the
Borrower 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.
(iv) If the Borrower shall issue to all holders of its Common
Stock any warrant, option, or other right to subscribe for or purchase
Common Stock at a price per share less than the Average Price at the
time of issuance, the Conversion Price shall be adjusted, as of the
date the Borrower shall take a record of the holders of its Common
Stock for the purpose of receiving such issuance, 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 plus the
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number of shares which the aggregate offering price of the total number
of shares so offered would purchase at the Average Price at the time of
issuance, and the denominator of which shall be the number of shares of
Common Stock outstanding on the date of issuance plus the number of
additional shares of Common Stock offered for subscription or purchase.
(v) If the Borrower shall distribute to all holders of its
Common Stock evidences of indebtedness of the Borrower, shares of
capital stock of the Borrower (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 Borrower shall take a record of the
holders of its Common Stock for the purpose of determining the holders
entitled to receive such distribution, to that price determined by
multiplying the Conversion Price by a fraction the numerator of which
shall be the Conversion Price less the fair market value (as determined
by the Board of Directors of the Borrower, whose determination shall be
conclusive) of the evidences of indebtedness of the Borrower, shares of
capital stock of the Borrower (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)), so distributed in respect of one share of Common
Stock and the denominator of which is the Conversion Price.
(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 adjustment which, together with any adjustments so carried
forward, shall amount to $.01 per share or more.
If any shares of Common Stock required to be reserved for the purposes
of conversion of the Note 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 Borrower 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.
5.6 Certain Notices and Calculations. Whenever the Conversion Price is
adjusted as provided in Section 5.5, the Borrower shall promptly deliver to the
holder hereof a certificate signed by two officers of the Borrower setting forth
the Conversion Price after
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such adjustment and setting forth a brief statement of the facts requiring such
adjustment and the computation thereof.
5.7 Reservation of Shares. The Borrower covenants that it will at all
times reserve and keep available, free from preemptive rights, out of its
authorized but unissued shares of Common Stock, solely for the purpose of issue
upon conversion of this Note as herein provided, such number of shares of Common
Stock as shall then be issuable upon the conversion of this Note. The Borrower
covenants that all shares of Common Stock which shall be so issuable shall, upon
issuance, be duly and validly issued and fully paid and non-assessable. The
Borrower shall from time to time, in accordance with applicable law, increase
the authorized amount of its Common Stock if at any time the authorized amount
of shares of Common Stock remaining unissued shall not be sufficient to permit
the conversion of all Notes at the time outstanding.
5.8 Certain Covenants. Before taking any action which would cause an
adjustment reducing the Conversion Price below the then stated or par value of
the Common Stock issuable upon conversion of this Note, the Borrower will take
any corporate action which may, in the opinion of its counsel, be necessary in
order that the Borrower may validly and legally issue fully paid and
non-assessable shares of such Common Stock at such adjusted conversion price.
5.9 Certain Notices. In case:
(i) the Borrower shall authorize the distribution to all
holders of Common Stock of evidences of its indebtedness or assets
(other than cash dividends or other cash distributions paid out of
surplus); or
(ii) the Borrower shall authorize the granting to the holders
of Common Stock of rights or warrants to subscribe for or purchase any
shares of capital stock or any class or of any other rights; or
(iii) of any reclassification of the capital stock of the
Borrower (other than a subdivision or combination of its outstanding
shares of Common Stock), or of any consolidation or merger to which the
Borrower is a party and for which approval of any stockholders of the
Borrower is required, or of the sale, lease, or transfer of all or
substantially all of the property of the Borrower; or
(iv) of the voluntary or involuntary dissolution, liquidation,
or winding up of the Borrower;
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then, in each case, the Borrower shall provide to the Lender at least 20 days,
but not more than 45 days, prior to the applicable record or effective date
hereinafter specified, a notice stating (x) the date on which a record is to be
taken for the purpose of such dividend, distribution, rights, or warrants, or,
if a record is not to be taken, the date as of which the holders of Common Stock
of record to be entitled to such dividend, distribution, rights, or warrants are
to be determined, or (y) the date on which such reclassification, consolidation,
merger, sale, lease, transfer, dissolution, liquidation, or winding up is
expected to become effective, and the date as of which it is expected that
holders of Common Stock of record shall be entitled to exchange their shares of
Common Stock for securities or other property deliverable upon such
reclassification, consolidation, merger, sale, lease, transfer, dissolution,
liquidation, or winding up.
6. Miscellaneous.
This Note shall be governed by the laws of British Columbia and the
applicable laws of Canada without regard to conflicts of law principles which
would select another law.
[signature page follows]
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EXECUTED as of the date first above written.
KAFUS INDUSTRIES LTD., f/k/a
KAFUS ENVIRONMENTAL INDUSTRIES LTD.
By:
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Name:
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Title:
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[Term Loan E Note]
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