EXHIBIT 1
================================================================================
SUBSCRIPTION AGREEMENT
BETWEEN
THE KAFUS CAPITAL CORPORATION
AND
ENRON CAPITAL & TRADE RESOURCES CORP.
JULY 16, 1997
================================================================================
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-
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-
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.
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.
-2-
"Business Day" means a day other than a Saturday, Sunday or any other
day treated as a holiday in the City of Xxxxxxx, Xxxxxxx.
"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.
-3-
"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.
-4-
"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.
-5-
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, Xxxxxxxx & Xxxxxx, LLP, 000 Xxxx Xxxxxx, Xxx Xxxx,
Xxx Xxxx 00000, 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
-6-
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,
-7-
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
-8-
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
-9-
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
-10-
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,
-11-
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.
-12-
(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
-13-
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.
-14-
(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
-15-
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:
-16-
(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
-17-
(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.
-18-
(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
-19-
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 Xxxx-Xxxxx-
Xxxxxx 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
-20-
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.
-21-
(d) Opinion of Counsel. There shall have been delivered to the
Purchaser, an opinion of Xxxx Xxx & 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
-22-
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.
-23-
(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
-24-
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.
-25-
(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.:
-26-
(i) if to the Company, to:
The Kafus Capital Corporation
0 Xxx Xxxx
Xxxxx 000
Xxxxxxx, Xxxxxxx XX0 0X0
XXXXXX
Fax: (000) 000-0000
(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
-27-
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/ Xxxxxxx X. Xxxxxxxxx
--------------------------------
Xxxxxxx X. Xxxxxxxxx
President
ENRON CAPITAL & TRADE RESOURCES CORP.
BY:/s/ J. Xxxxx XxXxxxxxxx
----------------------------------
J. Xxxxx XxXxxxxxxx
Vice President
ADDRESS: 0000 Xxxxx Xxxxxx
Xxxxxxx, Xxxxx 00000
Attention: Xxxx X. Xxxxxxxxx
Fax: (000) 000-0000
-28-
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
"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-
"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-
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-
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-
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-
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-
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-
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
0 Xxx Xxxx, Xxxxx 000
Xxxxxxx, Xxxxxxx
Xxxxxx MA9 2A8
Attention: Chief Financial Officer
Facsimile: (000) 000-0000
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-
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-
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-
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.
"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
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
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 Xxxxx 000, 0 Xxx Xxxx, Xxxxxxx, Xxxxxxx (x) 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
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
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
(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
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
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
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
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
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
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.
13
EXHIBIT D
---------
THE CANFIBRE GROUP LTD. FEE AGREEMENT
July 16, 1997
Enron Capital & Trade Resources Corp.
0000 Xxxxx Xx.
Xxxxxxx, Xxxxx 00000
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
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:_____________________
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
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
2
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
3
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,
4
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
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
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
7
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.
8
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
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
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
11
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
12
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
13
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
14
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.
15
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:________________________
16
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
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.
2
"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
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
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
(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
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
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
0 Xxx Xxxx, Xxxxx 000
Xxxxxxx, Xxxxxxx
Xxxxxx MA9 2A8
Attention: Chief Financial Officer
Facsimile: (000) 000-0000
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
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
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
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
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
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
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
July 16, 1997
Attention: Xxxxx X. Xxxx
Xxxx Xxx & Associates
Barristers Solicitors
Suite 000 - 0000 Xxxx Xxxxxxxx
Xxxxxxxxx, X.X.
X0X 0X0
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
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,
XXXXX, XXXXXXX
Very truly yours,
Xxxxxxxxx & Xxxxxxxxx, L.L.P.
EXHIBIT H
XXXX XXX & ASSOCIATES
BARRISTERS, SOLICITORS
*Xxxxx X. Xxxx
*Xxxxx Xxx
Suite 720 - 0000 Xxxx Xxxxxxxx
Xxxxxxxxx, Xxxxxxx Xxxxxxxx, Xxxxxx, X0X 0X0
Phone: (000) 000-0000
Fax: (604) 739.,2821
lnternet E-Mail: xxxxxxx@xxxxxxx.xxx
--------------------------------------------------------------------------------
July 16, 1997 File No.: 95-292(11)
Enron Capital & Trade Resources Corp.
0000 Xxxxx Xxxxxx
Xxxxxxx, XX
XXX 00000
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
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-
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-
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-
(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,
XXXX XXX & ASSOCIATES
Per: Xxxxx X. Xxxx
GEW/cac
Enclosure
-5-
July 16, 1997
Attention: Xxxxx X. Xxxx
Xxxx Xxx & Associates
Barristers Solicitors
Suite 000 - 0000 Xxxx Xxxxxxxx
Xxxxxxxxx, X.X.
X0X 0X0
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
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,
XXXXX, XXXXXXX
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
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.
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
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
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
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
EXHIBIT K: SHAREHOLDER AGREEMENT
---------------------------------
Enron Capital & Trade Resources Corp.
0000 Xxxxx Xxxxxx
Xxxxxxx, Xxxxx 00000
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.
"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,
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.
0000 Xxxxx Xxxxxx
Xxxxxxx, Xxxxx 00000
Attention:
Telecopier:
to The SAMARAC Corporation:
3
0000 Xxxxxx Xxxxxx
Xxxxxxxxx, Xxxxxxx Xxxxxxxx
X0X, Xxxxxx
Attention: Xx. Xxx Xxxxxxxxx
Telecopier: (000) 000-0000
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
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
ANNEX A
-------
Number of Shares of
Record Owner Common Stock of Company
------------ -----------------------
The SAMARAC Corporation 10,000,324 (55.87%)
6
EXHIBIT L
July 16, 1997
The Kafus Capital Corporation
0 Xxx Xxxx
Xxxxxxx, Xxxxxxx
Xxxxxx
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
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.
The Kafus Corporation
July 16, 1997
Page 2
By:________________________
Name:______________________
Title:_____________________
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.
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 Xxxxxx X. Xxxxx & Associates Inc. ("Xxxxx"). As part of that
contract, Xxxxx 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 Xxxxx return 175,000
shares to the Company and repay $7,449 in over-billing for services. Following
the AAA ruling, Xxxxx 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.
