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EXHIBIT 5
[Execution Version]
SECOND AMENDMENT TO WARRANT AGREEMENT
This Second Amendment to Warrant Agreement dated as of June 28, 2000
(this "Agreement"), is entered into by Kafus Industries Ltd., f/k/a Kafus
Environmental Industries Ltd., a British Columbia corporation (the "Company"),
and ECT Merchant Investments Corp., a Delaware corporation ("ECTMI"), amending
the Warrant Agreement dated as of March 11, 1999 (as modified from time to time,
the "Warrant Agreement"), between the Company and ECTMI. The defined terms of
the Warrant Agreement are used herein unless otherwise defined herein.
INTRODUCTION
The Company, ECTMI, Sundance Assets, L.P., a Delaware limited partnership
("Sundance"), and ENA CLO I Holding Company I L.P. ("Holdco"; and together with
Sundance and ECTMI, the "Purchasers") are entering into the Second Amendment to
Note Agreements dated as of June 28, 2000 (the "Amendment to Note Agreements"),
amending the Amended and Restated Note Agreement dated as of March 11, 1999 (the
"Sundance Note Agreement"), between the Company and Sundance, and to the Amended
and Restated Note Agreement dated as of March 11, 1999 (the "ECTMI/Holdco Note
Agreement;" and together with the Sundance Note Agreement, the "Note
Agreements"), between the Company and ECTMI, certain rights under which have
been assigned to Holdco.
In connection with the Amendment to Note Agreements and on the conditions set
forth therein, the Company will issue and sell to the Purchaser and the
Purchaser will purchase from the Company the U.S.$685,000 Convertible Promissory
Note (Term Loan E) (the "$685,000 Term Loan E Note") and the Warrant for 68,500
Shares of Common Stock dated as of June 28, 2000, issued by the Company to the
Purchaser in connection therewith (the "Term Loan E Warrant"). In connection
with the foregoing, in order to entitle the holder of the Term Loan E Warrant to
the rights and benefits conferred under the Warrant Agreement, the Company and
ECTMI agree as follows:
Section 1. Amendments to Warrant Agreement.
1.1 Section 1.1 of the Warrant Agreement is amended by inserting,
in appropriate alphabetical order, the following definitions of
"$685,000 Term Loan E Note" and "Term Loan E Warrant":
"$685,000 Term Loan E Note" means the U.S.$685,000 Convertible
Promissory Note (Term Loan E) dated as of June 28, 2000, made by the
Company and payable to the order of ECTMI.
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"Term Loan E Warrant" means the Warrant for 68,500 Shares of Common
Stock dated as of June 28, 2000, issued by the Company to the Purchaser
in connection with the $685,000 Term Loan E Note.
1.2 Section 1.1 of the Warrant Agreement is amended by replacing
the definition of "Note Documents" with following definition:
"Note Documents" means this Agreement, the Note Agreement, the
$7,500,000 Advancing Credit Facility Note, the March 1999 Warrants, the
Structuring Fee Agreement dated as of March 11,1999, made by the
Company in favor of ECT Securities Limited Partnership, the $1,000,000
Term Loan D Note, the Term Loan D Warrant, the $685,000 Term Loan E
Note, the Term Loan E Warrant, and all other agreements delivered in
connection with any of the foregoing.
1.3 Section 1.1 of the Warrant Agreement is amended by replacing
the definition of "Registration Rights Agreement" with the following
definition:
"Registration Rights Agreement" means, individually or collectively (a)
the Registration Rights Agreement dated as of March 11,1999, between
the Company and ECTMI providing for the registration of the Common
Stock issuable upon conversion of the Notes described therein and the
exercise of the March 1999 Warrants, and (b) the Registration Rights
Agreement dated as of June 5, 2000, between the Company and ECTMI
providing for the registration of the Common Stock issuable upon
conversion of the $1,000,000 Term Loan D Note and the exercise of the
Term Loan D Warrant, as amended by the Amendment to the Registration
Rights Amendment, dated as of June 28, 2000 providing for the
registration of the Common Stock issuable upon conversion of the
$685,000 Term Loan E Note and the exercise of the Term Loan E Warrant.
1.4 Section 1.1 of the Warrant Agreement is amended by replacing
the definition of "Warrant Documents" with following definition:
"Warrant Documents" means, this Agreement, the March 1999 Warrants, the
Term Loan D Warrant, the Registration Rights Agreements, and the Term
Loan E Warrant.
1.5 Section 2 of the Warrant Agreement is amended by inserting in
appropriate alphabetical order the following Section 2.3:
Section 2.3 The Term Loan E Warrant; Certain Amendments.
Effective on June 28, 2000, and for the Purchaser's commitment to
advance the loan under the $685,000 Term Loan E Note, the Company will
issue and sell to the Purchaser and, in reliance upon the
representations and warranties of the Company contained herein and in
the other Note Documents, Purchaser will purchase from the Company, the
$685,000 Term Loan E Note and the Term Loan E Warrant. The combined
purchase price of the $685,000 Term Loan E Note and the Term Loan E
Warrant shall be the amount of the advance actually made under the
$685,000 Term Loan E Note, with such purchase price being allocated for
U.S. tax purposes only between the $685,000
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Term Loan E Note and the Term Loan E Warrant with the $685,000 Term
Loan E Note receiving 95% of the purchase price and the Term Loan
Warrant receiving 5% of the purchase price. For all other purposes,
including the determination of the outstanding principal amount of the
$685,000 Term Loan E Note and the accrual of interest thereon, all
funds advanced by the Purchaser under the Note Agreement with respect
to the $685,000 Term Loan E Note shall be treated as an advance of
principal under the $685,000 Term Loan E Note. The sale and purchase
shall be effective upon execution and delivery of the Amendment to
Warrant Agreement dated as of June 28, 2000, and the advance of the
loan under the $685,000 Term Loan E Note. The Term Loan E Warrant shall
be earned in full upon such sale and purchase.
1.6 Section 5 of the Warrant Agreement is amended by replacing the
introductory phrase thereof with following phrase:
Section 5. Covenants. So long as the Purchaser retains any
March 1999 Warrants, the Term Loan D Warrant, or the Term Loan E
Warrant, the Company covenants as follows:
1.7 Section 5 and Section 7 of the Warrant Agreement are amended
by replacing each reference in such Sections to the "March 1999
Warrants" with a reference to the "March 1999 Warrants, the Term Loan D
Warrant, or the Term Loan E Warrant."
Section 2. Effect on Warrant Documents.
2.1 Except as amended herein, the Warrant Agreement and the other
Warrant Documents remain in full force and effect. The Company
represents and warrants that it has no defenses to the enforcement of
the Warrant Agreement, as amended. The Company further agrees that
nothing herein shall act as a waiver of any of ECTMI's rights under the
Warrant Documents as amended, including any waiver of any default or
event of default, however denominated. The Company must continue to
comply with the terms of the Warrant Documents, as amended.
2.2 This Agreement is a Warrant Document for the purposes of the
provisions of the other Warrant Documents.
Section 3. Effectiveness. This Agreement shall become effective and the
Warrant Documents shall be amended as provided herein effective as of
the date first set forth above when the Company and ECTMI shall have
duly and validly executed originals of this Agreement.
Section 4. Miscellaneous.
4.1 Expenses. The Company shall pay directly or reimburse ECTMI
for all reasonable expenses of ECTMI, as applicable, including charges
and disbursements of legal counsel for ECTMI, in connection with the
amendment, modification, waiver, or interpretation of this
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Agreement and the other Warrant Documents, and the preservation or
enforcement of any rights of ECTMI hereunder or thereunder, including
the expenses of ECTMI prior to the execution of this Agreement or the
other Warrant Documents. The provisions of this paragraph shall survive
any purported termination of this Agreement that does not expressly
reference this paragraph.
4.2 Governing Law. This Agreement shall be governed by, construed,
and enforced in accordance with the laws of British Columbia and the
applicable laws of Canada, without regard to its principles of
conflicts of law which would select another law. This Agreement may be
signed in any number of counterparts, each of which shall be an
original, and may be executed and delivered by telecopier.
4.3 No Further Agreements. THIS WRITTEN AGREEMENT AND THE LOAN
DOCUMENTS REPRESENT THE FINAL AGREEMENT AMONG THE PARTIES AND MAY NOT
BE CONTRADICTED BY EVIDENCE OF PRIOR, CONTEMPORANEOUS, OR SUBSEQUENT
ORAL AGREEMENTS OF THE PARTIES.
[signature page follows]
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THERE ARE NO UNWRITTEN ORAL AGREEMENTS AMONG THE PARTIES.
EXECUTED as of the date first above written.
KAFUS INDUSTRIES LTD.,
f/k/a KAFUS ENVIRONMENTAL INDUSTRIES LTD.
By:
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Name:
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Title:
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ECT MERCHANT INVESTMENTS CORP.
By:
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Name:
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Title:
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[Amendment to Warrant Agreement]
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