<PAGE> 1
U.S. SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, DC 20549
FORM 10-K
[X] ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934 [Fee Required]
For the fiscal year ended December 31, 1995
[ ] TRANSITION REPORT UNDER SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE
ACT OF 1934 [No Fee Required]
For the transition period from ________________ to ________________
Commission file number: 1-0096
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STRIKER INDUSTRIES, INC.
- --------------------------------------------------------------------------------
(Exact Name of Registrant as Specified in Its Charter)
Delaware 84-0834953
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(State or Other Jurisdiction of (I.R.S. Employer
Incorporation or Organization) Identification No.)
One Riverway, Suite 2450, Houston, Texas 77056
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(Address of Principal Executive Offices) (Zip Code)
Issuer's telephone number: (713) 622-4092
----------------------------------------
Securities registered pursuant to Section 12(b) of the Exchange Act:
Name of Each Exchange
Title of Each Class on Which Registered
------------------- -------------------
Common Stock Par Value $ .20 per share Boston Stock Exchange
-------------------------------------- ---------------------
Securities registered pursuant to Section 12(g) of the Exchange Act:
Common Stock, Par Value $.20 per share
- --------------------------------------------------------------------------------
(Title of Class)
Indicate by check mark whether the registrant (1) filed all reports required to
be filed by Section 13 or 15(d) of the Exchange Act during the past 12 months
(or for such shorter period that the registrant was required to file such
reports), and (2) has been subject to such filing requirements for the past 90
days. YES X NO
----- -----
Indicate by check mark if disclosure of delinquent filers in response to Item
405 of Regulation S-K is not contained herein, and will not be contained, to
the best of registrant's knowledge, in definitive proxy or information
statements incorporated by reference in Part III of this Form 10-K or any
amendment to this Form 10-K. [X]
As of March 21, 1996, the aggregate market value of the voting stock held by
non-affiliates of the registrant (based upon the average of the bid and asked
prices [$6.00] of such stock on said date) was approximately $ 47,479,758. As
of March 25, 1996, the number of shares outstanding of the registrant's only
class of Common Stock was 10,599,564.
<PAGE> 2
PART I
Item 1. DESCRIPTION OF BUSINESS
GENERAL
Striker Industries, Inc. (formerly Striker Petroleum Corporation, hereinafter
referred to as Striker or the Company), a Delaware corporation, was
incorporated on January 30, 1981, to engage primarily in oil and gas
exploration, development and production in the United States.
Striker Petroleum Corporation ceased operations and was inactive for the period
commencing in May 1991 and ending upon consummation of the merger in September
1993 described below.
On December 3, 1992, Hallwood Energy Partners, L.P., Hallwood Consolidated
Resources Corporation and Hallwood Oil and Gas, Inc. (collectively, the
Hallwood Entities) entered into an agreement to sell all of their 2,870,000
shares of common stock of the Company to Collins Acquisition Group, Inc.,
(Collins). In connection with the sale of the common stock, the officers and
director of the Company resigned. The transaction closed on January 13, 1993.
As consideration for the sale of the common stock, Collins paid $100 to the
Hallwood Entities and agreed to call a special meeting of the shareholders of
the Company for the purpose of authorizing additional shares of common stock
and to acquire either all of the manufacturing assets or the common stock of
Striker Industries, Inc., a Texas corporation (Industries), and then to cause
to be transferred and delivered to the Hallwood Entities approximately 2
percent of the common stock of the Company outstanding following such
acquisition. Industries was engaged in the business of recycling of pulp paper
products into a paper-based felt for use in the roofing industry. The special
meeting of shareholders of the Company was ultimately held in Houston, Texas,
on September 1, 1993, at which meeting the reorganization by merger transaction
and related amendments to the Company's Certificate of Incorporation described
below were approved by the Company's shareholders.
Following an amendment to the Certificate of Incorporation of the Company on
September 7, 1993, to increase the number of its authorized shares of common
stock and decrease the par value per share thereof, without subdivision of
shares or exchange of certificates representing shares, the Company's
acquisition of Industries was consummated on September 22, 1993, by means of a
reverse triangular merger (the Merger) of a newly created subsidiary of the
Company with and into Industries, with the result that Industries became a
wholly owned subsidiary of the Company on the effective date of the Merger and
its name was changed to Striker Holdings, Inc. (hereinafter Holdings). The
Company, Holdings and Holdings' wholly owned subsidiary, Striker Paper
Corporation (Striker Paper), are sometimes hereinafter, as applicable, referred
to collectively as the "Company". The intent and purpose of the reorganization
by merger of the Company with Holdings was to reactivate the Company and change
the nature of its business in order to enable the Company to achieve profitable
operation in an entirely new business. Accordingly, from and after the
effective date of the Merger, the business of the Company became that of
Holdings, namely the recycling and manufacturing of pulp products into a
paper-based felt and asphalt saturated felt paper for use in the roofing
industry. Following consummation of the Merger, the Certificate of
Incorporation of the Company was further amended on September 27, 1993, to (i)
decrease the number of authorized shares of the Company's common stock to
25,000,000 and increase the par value thereof from $0.01 per share to $0.20 per
share simultaneously with a 1-for-20 reverse stock split of the issued (but not
the authorized and unissued) common stock, including shares of common stock of
the Company held by it as treasury shares, (ii) decrease the par value of the
preferred stock of the Company from $1 to $0.20 per share, and (iii) change the
name of the Company to "Striker Industries, Inc.".
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Management's objective is to expand the Company's current business through
internal growth and acquisitions that provide strategic opportunities to
broaden its product offerings, increase market share and improve profits.
Management believes the roofing industry is attractive for the following
reasons:
(a) Size of industry (total industry sales were approximately $18
billion in 1995).
(b) Stable low-tech nature of products.
(c) Consistent industry growth.
(d) Historically non-cyclical demand for products.
Additionally, management believes that asphalt roofing products are the best
low-cost products to protect a roof system.
PRODUCTS AND COMPETITION
The Company is capable of manufacturing two products, dry felt paper and, since
installation of its saturating line in May 1993, asphalt-saturated felt for use
in the roofing industry. The roofing felt manufactured by the Company is a
base homogeneous sheet of porous, soft paper made from used, recycled old
corrugated containers and mixed paper and wood flour. The Company does not
believe that either it or any other roofing felt manufacturer employs any
unique or high technology process in its paper-making manufacturing, especially
considering the low grade of paper being manufactured. The basic operations of
the business can generally be divided into (i) stock preparation, (ii) machine
processing of paper, and (iii) finishing operations. The mixture of pulps, the
fibrous materials from which paper, is formed, is received by the Company in
the form of old corrugated containers and various types and grades of sheet
paper which come directly from waste collectors and recyclers. Generally,
waste paper is trucked in to the Company's manufacturing facilities at the
Stephens, Arkansas plant and at the Thorold, Ontario, Canada plant (the Felt
Mills, more fully described in Item 2 below) in bales. The Company's paper
making processes utilize several types of mechanical pulpers and refiners that
produce a consistent finish or stock. The stock is further refined and formed
into a sheet which then passes through a drying process and on to the finishing
stage. The Company's pulp-content raw materials are either recycled from other
users or are the byproduct of another industry's primary product, as is the
case with the asphalt the Company uses in its dry felt paper saturation
process. Adequate supplies of these raw materials depend upon continued
recycling efforts in North America and the health and stability of certain
members of the forest products, lumber and oil and gas refining industries.
The Company believes that the raw materials for its operations may be obtained
from any number of vendors of recycled paper or wood pulp or any number of
refineries in its mills' region and that any of its current principal suppliers
could be replaced at any time to assure the Company's continuing ability to
meet pulp-content and asphalt raw material demands.
Management believes that the Company has the ninth largest dry felt production
capacity in North America and that the Company has an approximate 5% market
share. Management believes that there are twenty-two other companies in North
America engaged in the production of dry felt.
The Company believes that there are six other dry felt paper manufacturers who,
because they have saturating operations, sell only their excess production of
dry felt as an end product. The term saturating in the context of the business
of the Company means the process of impregnating felt paper, which is a paper
with an open porous formation, with waterproofing or other preservative
liquids, such as asphalt and tar. Five out of six of these other manufacturers
who sell dry felt have greater manufacturing capacity for manufacturing asphalt
saturated felt than the Company. Dry felt paper is manufactured by the Company
in various weights depending upon production requirements, customer demand and
the ability of the Felt Mills to produce it. The Felt Mills presently function
best producing varying grades of heavyweight felt paper, primarily 38lb. weight
paper.
From March 1991 to the present, the Company has significantly renovated and
upgraded the machinery and related equipment and plant facilities of the Felt
Mills. The Company began constructing a saturating line to produce
asphalt-saturated felt at its Stephens, Arkansas plant in the fourth quarter of
1992 and completed a second saturating line in April 1994. The Company may
further expand its business into the manufacture of other rolled
2
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roofing products, including mineral surface rolled roofing material. In its
expansion plans, the Company is relying upon the continued use of saturated
felt products, especially tar paper as an underlayment to the other primary
roofing materials.
During 1994, certain traditional sources of raw materials used by Striker Paper
were unable to meet Striker Paper's requirements at satisfactory price levels.
Accordingly, Striker Paper experienced a dramatic increase in the cost of its
raw materials. In an effort to mitigate its exposure to rising raw material
costs, the Company created a new subsidiary, Striker Services Corporation
(Striker Services), to obtain one component of the raw materials, old
corrugated containers (OCC), in sufficient quantities to meet its production
requirements. Quantities of OCC obtained in excess of that required to meet
the Company's production level may be sold to third parties at market prices.
The Company has been competing in the U.S. market with approximately fifteen
manufacturers who produce felt paper and saturated felt. Many factors
influence the Company's competitive position with these firms, including
prices, costs, product quality and services.
In order to concentrate on maximizing sales of dry felt paper, the Company
temporarily suspended manufacturing asphalt-saturated felt. The Company
anticipates that it will resume manufacturing asphalt-saturated felt in the
future. Consequently, the Company is improving the existing saturated paper
lines to accommodate the production of a value-added product, "Striker
Lightning Fast Felt", a patented saturated felt product for which the Company
is the sole licensee.
The Company has approximately twentyfour competitors in the asphalt-saturated
roofing products market, approximately one third of which are larger than the
Company. These larger competitors typically produce asphalt-saturated felt as a
complement to their primary roofing product. To date, the Company has been
able to compete successfully with its felt paper competitors, most of which are
larger in size and have greater financial resources. Management believes it is
focusing on remaining competitive by being a low cost producer or by private
labeling its production. To achieve its strategic goals, the Company will be
required to maintain lower costs, capture a significant market share and
continue to develop favorable access to the primary components necessary for
production of asphalt-saturated felt. Management of the Company believes it
can achieve and maintain lower costs by increasing labor productivity through a
combination of training, experience and improvement in technology of its
paper-making and saturating equipment, including design or redesign of its
plants' facilities.
DEPENDENCE ON CUSTOMER BASE
The Company had less than twenty potential customers for its dry felt paper
product, but has a much larger potential customer base for its
asphalt-saturated felt product. The Company is subject to demand fluctuations
resulting from the level of residential construction, both new (approximately
20 percent of the North American market) and reroofing (approximately 80
percent of the North American market), which is impacted by various economic
factors, including long-term interest rates, available credit for home
improvements, life expectancy of existing roofs and customer confidence.
In order to mitigate exposure to demand fluctuations, the Company entered into
sales contracts (the Sales Contracts) with three of its major customers during
1995. Under terms of the Sales Contracts, the customers are required to
purchase at least 1,900 tons of dry felt each month, in the aggregate, for a
period of eighteen months at prices based upon the mix of raw materials used in
the manufacture of the dry felt and the quoted market price of the raw
materials.
During the year ended December 31, 1995, three contract customers accounted for
33 percent, 28 percent and 18 percent of revenues. These same customers
accounted for 28 percent, 18 percent and 16 percent of accounts receivable,
respectively, at December 31, 1995. During the year ended December 31, 1994,
two customers accounted for 23 percent and 13 percent of revenues. These same
customers accounted for 4 percent and 8 percent of accounts receivable,
respectively, at December 31, 1994.
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REGULATORY MATTERS
The Company's operations in the United States and Canada are subject to
extensive regulation by various federal, state/provincial and local
environmental control laws and regulations. These laws impose effluent
emission limitations, waste disposal and other requirements upon the operation
of the Felt Mills in Stephens, Arkansas and Thorold, Canada and require the
Company to obtain, and operate in compliance with the conditions of, permits
and similar authorizations from the appropriate governmental authorities. The
Company has obtained, has applications pending or is making application for,
such permits and authorizations. The Company has agreed to a Consent
Administrative Order (the Order) applicable to its Stephens, Arkansas Felt
Mill, issued pursuant to the authority of the Arkansas Water and Air Pollution
Control Act (Act 472 of 1949, as amended; Ark. Code Ann. 84-100 et seq.) and
the regulations issued thereunder. This Order requires the Company to file
monthly water discharge monitoring reports, whether or not any water is
actually being discharged. The Company employs an environmental engineering
firm with respect to its Stephens, Arkansas Felt Mill to test water discharges,
if any, and to file all environmental regulatory reports required of it in a
timely and accurate manner.
Effective July 26, 1995, the Company entered into an agreement with the Sierra
Club (Sierra) and the Arkansas Department of Pollution Control and Ecology
(ADPCE) to settle claims brought by those parties concerning non-toxic
discharges in excess of state water permits for the Stephens, Arkansas Felt
Mill. The Company paid to ADPCE a civil penalty in the amount of $15,000 for
excess discharges beyond permit allowances into Smackover Creek, near the
Stephens, Arkansas Felt Mill. In addition, the Company agreed with ADPCE and
Sierra to contribute $55,000 for environmental projects in the State of
Arkansas. The Company has been working with environmental engineering
companies to put in place the plans and equipment necessary to improve and
significantly reduce the non-toxic discharges. The Company received
preliminary approval from the ADPCE and the state health department to begin
construction of a closed loop system. As of March 27, 1996, the closed loop
system's construction was completed. The $15,000 civil penalty and the $55,000
contribution for environmental projects have been reflected as other expense in
the accompanying consolidated statements of operations for the year ended
December 31, 1995.
The Company does not anticipate that compliance with the federal,
state/provincial and local environmental control laws and regulations to which
it is subject will have a material adverse effect on its financial position and
results of operation since its competition is subject to the same laws and
regulations to a substantially similar degree. The Company has invested time
and approximately $250,000 to modify facilities and assure compliance with
applicable environmental quality laws through December 31, 1995. Amounts to be
spent for environmental law compliance in future years will depend on the laws
and regulations then in effect, including any new laws enacted and other
changes in legal requirements and in environmental concerns and technological
advances. As of December 31, 1995, the Company believes it is presently in
compliance with all environmental regulatory reporting, operations and
permitting requirements applicable to it.
EMPLOYEES
As of the date of this annual report, the Company has approximately 136
employees, all of whom are full-time employees.
4
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Item 2. DESCRIPTION OF PROPERTY
The administrative and finance offices of the Company are located in Houston,
Texas in approximately 3,855 square feet of leased office space at One
Riverway, Suite 2450, Houston, Texas 77056.
The Company's property in the United States consists primarily of approximately
40 acres of land in Ouachita county, Arkansas, just outside the city limits of
Stephens, Arkansas, all improvements thereon and that portion of the personal
property thereon which was acquired in February 1991 by Holdings, which
property and improvements had previously been used as a manufacturing facility
of felt, a truck repair and scales facility and a machine shop (collectively
herein referred to as the Stephens Mill). The Stephens Mill's manufacturing
facility is housed in a main building, approximately 800 feet in length, 100
feet in width and approximately two stories in height, located on the 40 acre
tract of land. Boilers used in operation of the Stephens Mill are housed in an
approximate 500 square foot control room located immediately adjacent to the
main building. The Stephens Mill is served by a spur of Southern Pacific
Railroad, and trucking docks are located in the front of the main building.
Two warehouse buildings are also located on the Stephens Mill property which
are used for storage of raw materials and finished goods. Four
water-recirculating ponds take up approximately 10 acres of the Stephens Mill's
40 acre site. These ponds furnish an essential source of continuous
recirculating water required in the felt producing process of the Company's
business.
The Stephens Mill's production equipment and machinery, including a
hydrapulper, presses, screening, filtration and rolling equipment, are located
in the main manufacturing building. Some of the producing machinery and
equipment is 30 years or more old, but is presently in good operating order and
repair and has undergone significant improvements and modernization since the
Company bought the Stephens Mill in 1991. The Stephens Mill facility itself is
approximately 35 years old, and its buildings are all in good condition and
repair.
Striker Service Corporation leases a facility on Mangum Road in Houston, Texas
where it operates an OCC gathering operation.
The Company has no formal plans to improve the 40 acre tract of land that is
part of the Stephens Mill property. This land is held by the Company, however,
for future expansion of the Stephens Mill manufacturing facility as and when
needed. All of the Company's real property, buildings and improvements
constituting a part of, or located on, its Stephens Mill site, its Mangum Road
location and its administrative offices in Houston, including, without
limitation, all machinery, equipment, furniture, furnishings and fixtures and
related personal property located thereon, are subject to the mortgage, liens
and encumbrances created in favor of Finova Capital Corporation under the terms
and provisions of a Mortgage and Security Agreement dated April 25, 1995
securing indebtedness of the Company and its subsidiaries to Finova Capital
Corporation.
The felt mill plant facility owned by the Company's Canadian subsidiary,
Striker Paper Canada, Inc., in Thorold, Ontario Province, Canada consists of
approximately 5 acres of land located at 100 Ormond Street South, Thorold,
Ontario, Canada, including four multi-purpose buildings and all of the
machinery necessary to produce dry felt. The plant machinery and equipment
includes wood unloading and storage systems, dust collector and stock
preparation systems, felt machines, steam and heat system (including boilers),
warehouse loading docks, oil storage tanks and testing and pollution equipment
(collectively hereinafter referred to as the Thorold Mill).
The Thorold Mill's real property and all improvements thereon, including
buildings, fixtures, furniture, machinery, equipment, accessories and other
goods and chattels are owned by Striker Paper Canada, Inc. are likewise
mortgaged in favor of, and to secure indebtedness owing by Striker Paper
Canada, Inc. to, North American Trust Company, its successors and assigns.
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In addition to machinery, equipment and other personal property owned by the
Company and its subsidiaries, the corporations lease additional machinery,
equipment and computer and office equipment located either at the Stephens
Mill, the Thorold Mill, or at the administrative offices of the Company in
Houston, Texas. The majority of the leases from third parties are classified
for accounting purposes as non-cancelable long-term capital leases, with an
aggregate capital lease obligation at December 31, 1995, of $120,619. The
corporations also lease certain machinery and equipment from third parties
under non-cancelable long-term operating leases expiring from 1995 through
1999, under the terms of which total rental expense for the year ended December
31, 1995, was $57,142.
Management of the company believes that its Stephens Mill property, its
Thorold Mill and related physical properties, as well as personal property and
equipment located at its Mangum Road location and its administrative offices in
Houston, Texas, are adequately covered by insurance.
Item 3. LEGAL PROCEEDINGS
The Company is not a party to any material legal proceedings, other than
various routine claims and disputes arising in the normal course of the
Company's business. The Company does not believe that such claims and
disputes, individually or in the aggregate, will have a material adverse effect
on the Company's operations or financial condition.
Item 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
No matter was submitted during the fourth quarter of fiscal year 1995 to a vote
of security holders of the Company, through solicitation of proxies or
otherwise.
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PART II
Item 5. MARKET FOR REGISTRANT'S COMMON EQUITY AND RELATED STOCKHOLDER MATTERS
Prior to April, 1994, the public market for shares of Common Stock of the
Company had been inactive since the beginning of the third quarter of 1991.
However, trading in shares of the Company's Common Stock commenced again in,
and has continued since, April 1994 in the over-the-counter electronic bulletin
board market. Additionally, on April 17, 1995, the Company's Common Stock was
admitted to trading on the NASDAQ SmallCap market. The high and low trade
prices for the Company's Common Stock in either the over-the-counter electronic
bulletin board or NASDAQ SmallCap markets for each full quarterly period within
the two most recent fiscal years, or part thereof for which quotes are
available, are as follows:
<TABLE>
<CAPTION>
OTC/NASDAQ:
-----------
High Low
---- ---
<S> <C> <C>
First quarter 1995 5-3/4 5-1/2
Second quarter 1995 6-3/8 5-1/2
Third quarter 1995 6-3/8 6
Fourth quarter 1995 6-1/8 5-7/8
High Low
---- ---
Second quarter 1994 5-5/8 5-1/4
Third quarter 1994 5-3/8 5
Fourth quarter 1994 5-3/4 5-3/16
</TABLE>
The above quotations reflect interdealer prices, without retail markup,
markdown or commissions, and may not necessarily represent actual transactions
in the Company's Common Stock.
On June 9, 1994, shares of the Company's Common Stock were admitted to trading
on the Boston Stock Exchange, and the high and low sales prices for the
Company's Common Stock on the Boston Stock Exchange for each full quarterly
period within the two most recent fiscal years, or part thereof for which
quotes are available, are as follows:
<TABLE>
<CAPTION>
Boston Stock Exchange:
----------------------
High Low
---- ---
<S> <C> <C>
First quarter 1995 5-3/4 5-1/2
Second quarter 1995 6-1/4 6-1/8
Third quarter 1995 6-1/8 6-1/8
Fourth quarter 1995 6-1/8 5-13/16
High Low
---- ---
Second quarter 1994 5-5/8 5-1/4
Third quarter 1994 5-3/8 5-1/4
Fourth quarter 1994 5-3/4 5-1/8
</TABLE>
The approximate number of record holders of Common Stock of the Company at
March 31, 1996, was 2,013. Included in the number of shareholders of record
are shares held in nominee or street name.
The Company did not pay any cash dividends on shares of its Common Stock during
its two most recent fiscal years.
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Item 6. SELECTED FINANCIAL DATA
The following table sets forth selected financial information derived from the
audited consolidated financial statements of the Company, and should be read in
conjunction with the Company's consolidated financial statements and notes
thereto (Item 8 herein) and Management's Discussion and Analysis of Financial
Condition and Results of Operations (Item 7 herein):
<TABLE>
<CAPTION>
December 31,
------------------------------------------------------------------------
1995 1994 1993 1992 1991
---- ---- ---- ---- ----
<S> <C> <C> <C> <C> <C>
Operations:
Revenues $ 7,983,577 $ 7,977,888 $ 5,933,079 $ 4,956,222 $ 2,561,188
Income/(loss)
from operations (1,032,403) (1,631,368) (2,424,981) (83,769) (37,540)
Fully diluted
earnings (loss) per
common and
common equivalent
share ($ 0.13) $ 0.04 ($ 0.43) ($ 0.01) ($ 0.01)
Current assets 1,740,645 1,349,473 1,568,265 986,221 560,656
Current liabilities 3,919,753 1,319,812 3,037,036 1,000,395 543,484
Working capital (2,179,108) 29,661 (1,468,771) (14,174) 17,172
Total assets 18,322,444 6,837,929 5,862,446 3,421,426 2,209,315
Long-Term Obligations
and Equity:
Long-term obligations:
Long-term debt 1,188,230 -- 2,000,000 -- --
Indebtedness to related
parties 1,200,000 1,252,641 -- -- 100,000
Other long-term
obligations 68,717 100,600 137,062 154,394 68,953
Total long-term
obligations 2,456,947 1,353,241 2,137,062 154,394 168,953
Stockholders' Equity $11,945,744 $ 4,164,876 $ 688,348 $ 2,266,637 $ 1,496,878
</TABLE>
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Item 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS
For accounting purposes, the Merger was treated as a recapitalization of
Holdings instead of a business combination, and Holdings was presented as the
continuing entity and its historical financial statements became the financial
statements of the combined entities. Further, so that operations prior to the
Merger would be those of Holdings, historical stockholders' equity of Holdings
prior to the Merger was restated retroactively for the equivalent number of
shares received in the Merger, after giving effect to changes in the par value
of stock and the reverse stock split, and the retained deficit of Holdings was
carried forward after the Merger.
This discussion should be read in conjunction with the financial statements of
the Company included elsewhere in this Form 10-K:
Results of Operations
<TABLE>
<CAPTION>
Years Ended December 31,
----------------------------------
1995 1994 1993
---- ---- ----
<S> <C> <C> <C>
Revenue $ 7,983,577 $ 7,977,888 $ 5,933,079
Cost of Sales 7,023,242 7,926,095 7,109,471
------------ ------------ ------------
Gross Margin 960,335 51,793 (1,176,392)
Selling, general and
administrative 1,992,738 1,683,161 1,248,589
------------ ------------ ------------
Operating loss (1,032,403) (1,631,368) (2,424,981)
Interest expense, net (311,004) (255,757) (111,053)
Other income 33,773 144,688 20,962
------------ ------------ ------------
Net loss before
extraordinary item $ (1,309,634) $ (1,742,437) $ (2,515,072)
============ ============ ============
</TABLE>
COMPARISON OF YEARS ENDED DECEMBER 31, 1995, 1994 AND 1993
Sales for the year ended December 31, 1995 were $7,983,577, an increase of
$5,689 from sales of $7,977,888 for the year ended December 31, 1994. Though
sales increased slightly, the product mix moved to almost exclusively dry felt
in 1995 from a mix of saturated felt and dry felt in 1994.
Sales for the year ended December 31, 1994, were $7,977,888, an increase of
34.5 percent from sales of $5,933,079 for the year ended December 31, 1993.
This increase was due primarily to a larger volume of saturated felt sales and
a higher realized sales price for dry felt in 1994.
Gross margin increased to $960,335 (12 percent of total sales) for the year
ended December 31, 1995 from a gross margin of $51,793 (.7 percent of total
sales) for the year ended December 31, 1994. Improved gross margins were
primarily due to exclusive manufacture of dry felt, higher realized sales
prices for dry felt and reductions of cost of goods sold totaling $467,772
relating to the pulp hedge contract (see Note 13 to the consolidated financial
statements).
Gross margin increased to a positive $51,793 (.7 percent of total sales) for
the year ended December 31, 1994 from a negative gross margin of $1,176,392
(19.8 percent of total sales) for the year ended December 31, 1993. Improved
gross margins were primarily due to improved saturator conversion factors,
higher realized sales prices for dry felt and reductions of cost of goods sold
totaling approximately $494,000 relating to the pulp hedge contract (see note
13 to the consolidated financial statements).
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Selling, general and administrative expenses increased by $309,577 (18.4
percent) to $1,992,738 for the year ended December 31, 1995, from $1,683,161
for the year ended December 31, 1994. This increase was due to (i) an increase
in salaries due to additional employees, (ii) an increase in office expenses
and (iii) an increase in depreciation.
For the year ended December 31, 1994, selling, general and administrative
expenses increased by $434,572 (34.8 percent) to $1,683,161 from $1,248,589 for
the year ended December 31, 1993. This increase was due to (i) an increase in
regulatory, filing and related public filing fees, (ii) an increase in legal
fees, (iii) an increase in depreciation, (iv) an increase in audit and
accounting fees and (v) an increase in telephone charges.
Interest expense, net, increased to $311,004 for the year ended December 31,
1995, from $255,757 for the year ended December 31, 1994. This increase is due
to the secured borrowings and subordinated borrowings during 1995.
For the year ended December 31, 1994, interest expense, net increased to
$255,757 from $111,053 for the year ended December 31, 1993. This increase is
due to the issuance of the convertible subordinated notes, the revolving
receivables purchase facility, the additional notes payable to affiliates and
the additional capital leases.
Because the Company has been in a loss position for financial and income tax
reporting purposes, no current or deferred income tax benefits have been
provided due to the uncertainty of realization of net operating loss
carryforwards.
CASH FLOWS - COMPARISON OF YEARS ENDED DECEMBER 31, 1995, 1994 AND 1993
Cash flows provided by operating activities increased to $821,082 for the year
ended December 31, 1995 from a negative $1,791,438 for the year ended December
31, 1994. The increase primarily resulted from the increase in accounts
payable and accrued liabilities.
Cash flows used in operating activities decreased from $2,234,053 for the year
ended December 31, 1993, to $1,791,438 for the year ended December 31, 1994.
The decrease was primarily the result of decreased operating losses.
Cash flows used in investing activities increased to $4,658,474 for the year
ended December 31, 1995 from $1,802,150 for the year ended December 31, 1994.
The increase was primarily due an increase in expenditures for fixed assets in
Canada.
Cash flows used in investing activities decreased to $1,802,150 for the year
ended December 31, 1994, from $2,189,397 for the year ended December 31, 1993.
This decrease was due primarily to lower expenditures for fixed-asset
improvements and deferred financing costs in the 1994 period.
Cash flows provided by financing activities increased from $3,562,380 for the
year ended December 31, 1994 to $3,960,210 for the year ended December 31,
1995. The increase is primarily due to term borrowings in the 1995 period.
Cash flows provided by financing activities decreased $842,528 from $4,404,908
for the year ended December 31, 1993, to $3,562,380 for the year ended December
31, 1994. This decrease is primarily due to proceeds from the private
placements of equity during 1993, partially offset by the purchase of treasury
stock in 1994.
10
<PAGE> 12
LIQUIDITY AND CAPITAL RESOURCES
For the year ended December 31, 1995, the Company had an operating loss and
experienced short term liquidity concerns. Though these conditions exist, the
Company experienced positive cash flows from operations for the year ended
December 31, 1995.
The Company experienced an increase in current liabilities for the year ended
December 31, 1995 from the year ended December 31, 1994. The increase in
current liabilities has resulted in a working capital deficit of $2,179,108.
The increase is primarily due to capital improvements at the Thorold and
Stephens Mills and corporate development activities not funded by the Company's
existing debt facilities.
After having been idled for two years by its previous owners, the Thorold Mill
needed extensive capital improvements, additions, and repairs. These necessary
capital improvements, additions and repairs were partially financed. However,
since the plant was idled while the improvements were made, there was no
production. The Company's cash resources were limited and consequently the
balance of the project was financed by increasing current liabilities. As of
the date of this report, the Canadian projects are near completion and
management expects production to begin in the near future.
Several capital improvements were made to the Stephens and during the year
ended December 31, 1995. The improvements and additions made were necessary to
improve efficiency and meet regulatory requirements. These improvements were
only partially financed. As of the date of this report, the Company is
benefiting from the capital improvements made and is producing paper more
efficiently. In addition, the improvements necessary to meet the regulatory
requirements have been completed and are in the final testing stages of the
project.
Management believes that the improvements made to the Stephens and Thorold
Mills, will benefit the operations of the Company. The improvements to the
plants will allow production of varying grades of paper (lightweight, medium
weight, and heavyweight) more efficiently. This will allow the Company to
produce paper for all geographic markets. In addition, the plants are
geographically dispersed to facilitate distribution to the midwest, southwest,
southeast, and northeast markets.
The factors listed above have led to the working capital deficit. Management
has continued to monitor its operational realignment that was implemented
during 1994 that included (a) head count reductions, (b) use of lower cost raw
material vendors, (c) obtaining alternative lower cost raw materials sourcing
and (d) a preventative maintenance program to reduce downtime and repairs.
While the Company continues to monitor its program of operational realignment
and cost reductions, there can be no assurance that such cost reductions will
allow the Company to achieve profitability.
On February 16, 1996, the Company issued $1,300,000 of 10.25% Subordinated
Notes (the 1996 Notes) to seven purchasers. The proceeds of the 1996 Notes
were used for working capital needs.
Management believes its existing funds, its cash generated by operations of
both plants and collections on sales and its existing financial arrangements
will adequately fund the cash needs of the Company's operations during the next
year. However, to continue to expand its business and meet working capital
requirements, the Company may need to borrow additional amounts or obtain an
additional third-party credit facility. The Company currently has two existing
credit lines, consisting of revolving lines of credit and term loans
collateralized by receivables, inventories, and fixed assets. The Company
remains flexible to pursue alternative financing arrangements which might
include private or public sales of equity or debt securities.
The ability of the Company to achieve successful operations and realize its
assets is dependent upon many factors including successful operation of both
Plants, penetration of existing and new markets at profitable margin and volume
levels and cash liquidity.
11
<PAGE> 13
The accompanying financial statements have been prepared based on the
assumption that the Company will be able to continue operations. An
international investor has agreed to provide additional financial support in
the event the Company does not have available cash or cash equivalents to meet
its then current obligations and continue its normal business operations. This
additional support, not exceeding in the aggregate $3,000,000, during an
18-month period ending September 30, 1996, would only be provided if liquid
assets or financing from other sources cannot be arranged. As of December 31,
1995, no cash has been received from the investor pursuant to this agreement.
On March 2, 1995, the Company issued $1,200,000 of 10.25% Subordinated Notes
(the 1995 Notes) to seven purchasers. The 1995 Notes mature on December 31,
1998, and interest is payable quarterly beginning July 1, 1995. The proceeds
of the 1995 Notes were used to retire a note payable to an affiliate.
During the quarter ended March 31, 1995, the Company authorized the issuance of
Warrants to purchase 1,000,000 shares of Common Stock of the Company at a
Warrant Price of $1.50 per warrant and an Exercise Price of $2.00 per share
escalating to $2.65 per share over the term of the Warrant which expires on
February 28, 1997. During the quarter ended March 31, 1995, $850,000 was
received by the Company upon issuance of 566,668 share Warrants and during
April 1995, an additional $100,000 was received upon the issuance of 66,667
share Warrants. The Warrants are identical in form and content, varying only
as to their dates of issuance. Warrants covering an aggregate of 566,668
shares of the Company's Common Stock were exercised during the quarter ended
June 30, 1995 at the Exercise Price of $2.00 per share and the Company received
$1,133,336 upon the exercise thereof. As of December 31, 1995, 66,667 Warrants
remain outstanding. The Warrants contain an undertaking of the Company to
affect a "shelf registration" with respect to shares of the Company issuable
upon the exercise thereof. Pursuant to such undertaking, the Company filed a
Registration Statement on Form S-3 with the Securities and Exchange Commission
during the quarter ended June 30, 1995, which Registration Statement was
effective August 16, 1995. The Company paid $71,000 upon the issuance, and
$160,000 upon the exercise, in commissions to a third party in connection with
the placement and exercise of the Warrants during the year ended December 31,
1995.
On May 5, 1995, the asset purchase transaction of the land, building and
equipment of Northern Globe Building Materials, Inc.'s idled dry felt mill in
Thorold, Ontario, Canada (the Thorold Mill) pursuant to the Asset Purchase
Agreement between Northern Globe Building Materials, Inc. (Northern), dated
March 10, 1995 was consummated. The purchase price of the assets purchased was
1,345,790 shares of common stock of the Company and $250,000 cash. The assets
purchased were recorded at the sum of the estimated market value of the shares
of Common Stock issued ($5.50 per share), cash paid and acquisition costs
incurred in connection with the purchase. The physical properties and assets
purchased were recorded at the total consideration paid of $8,667,642.
On May 4, 1995, the Company entered into a financing agreement consisting of a
term loan based upon the liquidation value of certain of the Company's fixed
assets at the Stephens Mill and a revolving line of credit based upon eligible
accounts receivable (collectively "the Stephens Facility"). Advances under the
Stephen's Facility are limited to $2,500,000 in the aggregate and bear interest
at prime plus 3.5%.
On July 28, 1995, the Company's Canadian subsidiary, Striker Paper Canada, Inc.
("Striker Canada"), entered into a financing agreement with a major Canadian
lender. The financing agreement consists of a term loan based upon the
liquidation value of certain of the subsidiary's fixed assets and a revolving
borrowing line of credit based upon eligible accounts receivable (collectively
"the Canadian Facility"). Advances under the Canadian Facility are limited to
$2,000,000 Canadian in the aggregate and bear interest at Canadian prime +
2.5%. The Canadian Facility requires the subsidiary to keep a $500,000
Canadian certificate of deposit at the Canadian lender as additional
collateral. At December 31, 1995, Striker Canada was not in compliance with
certain covenants of the Canadian Facility. However, a waiver was obtained for
the year ended December 31, 1995.
The ability of the Company to achieve successful operations and realize its
assets is dependent upon many factors including successful operation of its dry
felt (and ultimately its saturating) lines, penetration of existing markets at
profitable margins and volume levels, and continued cash liquidity.
12
<PAGE> 14
INFLATION AND SEASONALITY
Inflation in the United States has not had a material effect on the Company in
recent years. Revenues and earnings may vary from quarter to quarter,
depending on weather conditions and other factors. The Company's operating
results for any particular quarter may not be indicative of the results for any
future quarter or any year.
RECENT ACCOUNTING PRONOUNCEMENTS
In October 1995, the Financial Accounting Standards Board approved the issuance
of SFAS No. 123, Accounting for Stock-Based Compensation. This SFAS
establishes financial accounting and reporting standards for stock-based
employee compensation plans. SFAS No. 123 allows a company to adopt a fair
value based method of accounting for an employee stock-based compensation plan
or to continue to use the intrinsic value based method of accounting prescribed
by Accounting Principles Board (APB) Opinion No. 25, Accounting for Stock
Issued to Employees, the Company's current accounting method. Under the
intrinsic value method, the Company records no compensation expense for stock
options granted, as the exercise price of allocations granted is equal to the
closing price of the Company's Common Stock on the date of grant. However,
under the fair value method, the Company would record compensation expense for
similar grants based on an option-pricing model that takes into account the
exercise price and expected life of the option, the current price of the stock
and its expected volatility and the risk-free interest rate for the expected
term of the option. The Company has undertaken a preliminary study of SFAS No.
123 and has determined that the Company will continue to follow the intrinsic
value method. The disclosures required by SFAS No. 123 will be included in the
Company's consolidated financial statements for the year ended December 31,
1996.
In March 1995, the Financial Accounting Standards Board issued Statement of
Financial Accounting Standards No. 121, Accounting for the Impairment of
Long-lived Assets and for Long-lived Assets to be Disposed of (FAS 121). FAS
121 is effective for fiscal years beginning after December 15, 1995. The
Company has substantially completed the analysis required by FAS 121 and, as a
result, the Company believes that the adoption of FAS 121 in the first quarter
of 1996 will not materially affect the Company's consolidated results of
operations or financial condition.
Item 8. FINANCIAL STATEMENTS
Reference is made to the consolidated financial statements, the report thereon,
the notes thereto commencing on page F-1 of this Form 10-K, which consolidated
financial statements, report and notes are incorporated herein by reference.
Item 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND
FINANCIAL DISCLOSURE
A new independent accountant, KPMG Peat Marwick LLP ("Peat Marwick") was
engaged as the principal accountant of the Company, effective December 1, 1995,
replacing the Company's former principal accountant, Arthur Andersen LLP
("Arthur Andersen"), effective on and as of said date. In connection with the
change in the Company's certifying accountant reported hereby, the Company did
not consult Peat Marwick regarding the application of accounting principles to
any specific completed or contemplated transaction, or the type of audit
opinion that might be rendered on the Company's financial statements, and,
accordingly, no advice, written or oral, was provided to the Company by Peat
Marwick in connection therewith that was an important factor considered by the
Company in reaching a decision as to any such accounting, auditing or financial
reporting issue. There were and are no disagreements with Arthur Andersen,
either resolved or unresolved, on any matter of accounting principles or
practices, financial statement disclosure, or auditing scope procedures, which,
if not resolved to its satisfaction, would have caused it to make reference to
the subject matter of the disagreement(s) in connection with its report.
13
<PAGE> 15
The audit report of Arthur Andersen on the consolidated financial statements of
the Company and subsidiaries as of December 31, 1994 and for the two years then
ended, did not contain any adverse opinion or disclaimer of opinion, nor was it
qualified or modified as to uncertainty, audit scope or accounting principles,
except as and with respect to matters contained in the following explanatory
paragraph extracted from Arthur Andersen's Report of Independent Accountants
dated March 10, 1995 (as revised to reflect references to notes to accompanying
financial statements):
"The Company entered into a series of transactions with several international
investors which are currently shareholders and creditors of the Company and
thus related parties to the Company. Many of these transactions are conducted
through foreign partnership or corporate-type entities. These transactions are
described in Notes 1, 6, 7, 9, 12, and 13 to the accompanying financial
statements. The effect of certain of these transactions was to increase the
net income for the year ending December 31, 1994 by approximately $2,600,000
more than it would have been had these transactions not occurred.
Additionally, the Company incurred operating losses of $1,631,000 and
$2,425,000 during the years ended 1994 and 1993, respectively, and the
accompanying financial statements have been prepared based on the assumption
that the Company will continue operations. Management has implemented an
operational realignment as more fully discussed in Note 1 and has obtained an
agreement from an officer/shareholder and an international investor to provide
up to $3,000,000, if necessary, to allow the Company to continue its normal
operations."
14
<PAGE> 16
PART III
Item 10. DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT
The following is a listing of, and certain information with respect to, all
Directors and executive officers of the Registrant as of the date of this
Annual Report:
<TABLE>
<CAPTION>
EXECUTIVE
DIRECTOR OFFICER
NAME POSITIONS HELD AGE SINCE SINCE
<S> <C> <C> <C> <C>
David A. Collins........ Chairman of the Board 43 1993 1993
President and Chief Executive
Officer
Director
William B. Locander..... Director 51 1993 1993
Matthew D. Pond......... Chief Financial Officer 32 1993 1993
Secretary and Treasurer
Director
</TABLE>
DAVID A. COLLINS has served as President and Chief Executive Officer of the
Company (formerly "Striker Petroleum Corporation") from January 1993 to the
present, and as a director and officer (Chief Executive Officer, May 1992) of
Striker Holdings, Inc. and its wholly-owned subsidiary, Striker Paper
Corporation, January 1991 to the present, Mr. Collins also served as
President, principal and managing director of Serfin Securities, Inc. (formerly
"OBSA International, Inc."), a broker-dealer subsidiary of Grupo Financero
Serfin, S.A. de S.V., the Mexican holding company of Operadora de Bolsa, S.A.,
de C.V., a publicly-traded Mexican broker-dealer, January 1988 to June 1992.
WILLIAM B. LOCANDER has been Chairman and Frank Harvey Professor of Marketing
and Quality in the Department of Marketing of the University of South Florida
from 1992 to the present and has served as Distinguished Professor of
Marketing and Phillips Consumer Electronics Faculty Scholar in the Department
of Marketing and Transportation at the University of Tennessee, Knoxville, from
1983 to 1992. Dr. Locander has served as a member of the Board of Examiners
for the Malcolm Baldridge National Quality Award, 1991 and 1992; Chairman of
the American Marketing Association Strategic Planning Committee, 1989 to 1990;
and President of the American Marketing Association, 1988 to 1989.
MATTHEW D. POND has served as the Chief Financial Officer, Secretary and
Treasurer of the Company from December 1993 to the present. Mr. Pond served
only as Chief Financial Officer of the Company from September to December 1993.
Mr. Pond was a certified public accountant with Arthur Andersen & Co. in its
Dallas and Houston, Texas offices from September 1986 through August 1993.
Section 16(a) of the Securities Exchange Act of 1934, as amended, requires the
Company's officers and Directors, and persons who own more than 10% of a
registered class of the Company's equity securities, to file reports of
ownership and changes of ownership with the Securities and Exchange Commission.
Officers, Directors and greater than 10% stockholders are required to furnish
the Company with copies of all Section 16(a) reports they file. Based solely
on its review of the forms received by it, the Company believes that during the
year ended December 31, 1995 all filing requirements applicable to the
Company's officers, Directors and greater than 10% stockholders were met.
15
<PAGE> 17
Item 11. EXECUTIVE COMPENSATION
Summary of Compensation. The following table provides certain summary
information concerning compensation paid or accrued during the fiscal years
ended December 31, 1995, 1994, and 1993 to the Company's Chief Executive
Officer:
<TABLE>
<CAPTION>
LONG-TERM
ANNUAL COMPENSATION COMPENSATION AWARDS
--------------------------------------- ----------------------
RESTRICTED
OTHER ANNUAL STOCK OPTIONS
NAME AND POSITION YEAR SALARY BONUS COMPENSATION AWARDS (1) (2)
<S> <C> <C> <C> <C> <C> <C>
David A. Collins........ 1995 $139,583 -0- -0- -0- -0-
President and Chief 1994 $158,333 -0- -0- -0- 1,000,000
Executive Officer 1993 $ 60,000 -0- -0- -0- -0-
</TABLE>
- ---------------
(1) The shares underlying the non-qualified stock option granted in 1994
under the Company's 1994 Amended and Restated Incentive Stock Plan (the "Stock
Plan"), vest over three years at the rate of 400,000 shares on January 1, 1994
and 300,000 shares on January 1 of each of 1995 and 1996.
(2) Each option granted under the Stock Plan may become immediately
exercisable on the occurrence of a Change in Control (as defined in the Stock
Plan). No stock appreciation rights were granted during the fiscal year ended
December 31, 1995.
Option Grants. No options were granted to the Chief Executive Officer during
the fiscal year ended December 31, 1995.
Aggregated Option Exercises and Fiscal Year-End Option Values. The following
table provides information with respect to options exercised during the fiscal
year ended December 31, 1995 by the Chief Executive Officer listed in the
preceding table and the fiscal year-end value of unexercised options held by the
Chief Executive Officer:
<TABLE>
<CAPTION>
NUMBER OF VALUE OF UNEXERCISED
UNEXERCISED OPTIONS IN-THE-MONEY OPTIONS
AT AT
DECEMBER 31, 1995 DECEMBER 31, 1995 (1)
----------------- ---------------------
SHARES
ACQUIRED
ON VALUE NOT NOT
NAME EXERCISE REALIZED EXERCISABLE EXERCISABLE EXERCISABLE EXERCISABLE
-------- -------- ----------- ----------- ----------- -----------
<S> <C> <C> <C> <C> <C> <C>
David A. Collins 0.00 0.00 700,000 300,000 $3,500,000 $1,500,000
</TABLE>
- ---------------
(1) Calculated by multiplying the number of shares underlying outstanding
in-the-money options by the difference between the fair market value of the
Common Stock on December 31, 1995 ($6.00 per share), calculated with reference
to the closing price of the Company's Common Stock on the Boston Stock Exchange
on that date, and the exercise price, which is $1.00 per share. Options are
in-the-money if the fair market value of the underlying Common Stock exceeds
the exercise price of the option shares.
16
<PAGE> 18
Compensation of Directors. Directors do not receive compensation for service
on the Board of Directors; however, employee-Directors are eligible to
participate and do participate in the Company's Stock Plan as stated above.
Employment Agreements. The Company has not entered into employment agreements
with its above named Executive Officers.
Board of Directors Interlocks and Insider Participation. Messrs. Collins,
Locander and Pond served on the Board of Directors in 1995. Messrs. Collins
and Pond also serve as executive officers of the Company and as directors and
officers of its various subsidiary corporations.
Board of Directors Compensation Report. The Company has developed and
implemented compensation policies, plans and programs designed to enhance the
profitability of the Company, and therefore stockholder value, by aligning
closely the financial interests of the Company's senior executives with those
of its stockholders. Therefore, executive compensation is related to the
financial performance of the Company and consists of the following elements:
base compensation, cash bonuses and stock benefit plans.
Executive base compensation for senior executives (including the Chief
Executive Officer), is intended to be competitive with that paid in comparably
situated industries and to provide a reasonable degree of financial security
and flexibility to those individuals whom the Board of Directors regards as
adequately performing the duties associated with the various senior executive
positions. In furtherance of this objective, the Board of Directors
periodically, though not necessarily annually, reviews the salary levels of
companies that are regarded by the Board of Directors as having sufficiently
similar financial and operational characteristics to provide a reasonable basis
for comparison. Although the Board of Directors does not attempt to
specifically tie executive base pay to that offered by any particular sampling
of companies, the review provides a useful gauge in administering the Company's
base compensation policy. In general, however, the Board of Directors
considers the credentials, length of service, experience, and consistent
performance of each individual senior executive when setting compensation
levels.
The Revenue Reconciliation Act of 1993 restricts the ability of a publicly-held
corporation to deduct compensation in excess of $1,000,000 paid to its Chief
Executive Officer and the four most highly compensated officers. Based on its
current compensation structure, the Company does not anticipate that any of its
officers will reach the $1,000,000 threshold.
Because it determined that base salary for 1995 provided sufficient
remuneration for the Chief Executive Officer, the Board awarded no cash bonus
or stock option to such officer in 1995. The Company's Stock Plan is intended
to provide key employees, including the Chief Executive Officer and the named
executive officers of the Company and its subsidiaries, with a continuing
proprietary interest in the Company, with a view to increasing the interest in
the Company's welfare of those personnel who share the primary responsibility
for the management and growth of the Company. Moreover, the Stock Plan
provides a significant non-cash form of compensation, which is intended to
benefit the Company by enabling it to continue to attract and to retain
qualified personnel.
17
<PAGE> 19
Item 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT
Based upon information contained in (i) the certified Shareholder List of the
Company as of December 31, 1995 prepared by the Company's Transfer Agent,
American Securities Transfer, Inc., and (ii) Information Statements pursuant to
Rule 13d-1 received by the Company subsequent to December 31, 1995, plus (iii)
securities deemed outstanding pursuant to Rule 13d-3 (d) (1) of the Exchange
Act at the date of this Annual Report, the following table sets forth certain
information regarding the beneficial ownership of the Company's Common Stock by
each person known to the Company to be the owner of more than five percent of
the outstanding shares of its Common Stock, and by each executive officer named
in the Summary Compensation Table (see "Executive Compensation") and by all
Directors and executive officers of the Company as a group:
<TABLE>
<CAPTION>
(1) (2) (3) (4)
Title of Name and Address of Amount and Nature of Percent of
Class Beneficial Owner Beneficial Ownership Class
----- ---------------- -------------------- -----
<S> <C> <C> <C>
Common David A. Collins 2,340,481; Direct (1) 19.8%
One Riverway, Suite 2450
Houston, Texas 77056
Common Northern Globe Building Materials, Inc. 1,345,790; Direct 11.4%
22 Sydenham Street
P O Box 966
Brantford, Ontario
Canada N3T 5S1
Common Rigel Investment Corp. 645,362; Direct 5.5%
Calle 52, No. 17
Bella Vista, Apartado 1094
Panama 1, Republic of Panama
Common All named executive officers and 2,580,481; Direct (2) 21.8%
Directors as a group (3 persons)
</TABLE>
- ---------------
(1) Includes 1,000,000 shares that may be acquired upon the exercise of
vested options
(2) Includes 1,240,000 shares that may be acquired upon the exercise of
vested options
18
<PAGE> 20
Item 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
Since January 1, 1995, the following transactions involving an amount in excess
of $60,000 in each instance have occurred between the Company and Rigel
Investment Corp., a Panamanian corporation and a security-holder which the
Company understands and believes is the owner of record or beneficially of more
than five percent of the outstanding shares of the Company's Common Stock.
(1) On or about March 1, 1995, the Company issued to Rigel Investment
Corp. at par for cash its $200,000 original principal amount 10.25%
Subordinated Note due December 31, 1998, the interest thereon being
payable quarterly beginning July 1, 1995.
(2) On or about February 16, 1995, at a Warrant purchase price of $1.50
per share (a total purchase price of $100,000), the Company issued a
Warrant expiring on February 28, 1997 to Rigel Investment Corp. to
purchase an aggregate of 66,667 shares of the Common Stock of the
Company at an exercise price of $2.00 per share escalating to $2.65
per share over the life of the Warrant. In June, 1995, Rigel
Investment Corp. exercised the Warrant at the $2.00 per share exercise
price (an aggregate exercise price of $133,334) and the Company
contemporaneously issued and delivered to the exercising Warrant
holder 66,667 shares of its authorized but unissued Common Stock.
(3) On or about February 16, 1996, the Company issued to Rigel Investment
Corp. at par for cash its $300,000 original principal amount 10.25%
Subordinated Note due December 31, 1998, the interest thereon being
payable quarterly beginning July 1, 1996.
During 1995, certain international investors reimbursed the Company $132,000
for salaries paid to certain of the Company's executive employees to compensate
the Company for time of the employees spent on special projects for the
investors which were not related to the Company.
19
<PAGE> 21
PART IV
Item 14. EXHIBITS, FINANCIAL STATEMENT SCHEDULES AND REPORTS ON FORM 8-K
(a) List of Financial Statements:
See : "Index to Financial Statements" set forth on Page F-1 of this
Form 10-K."
(b) Reports on Form 8-K:
A Current Report on Form 8-K dated December 6, 1995, reporting the
change of the independent accountants of the Company from Arthur
Andersen LLP to KPMG Peat Marwick LLP, was filed by the Company during
the quarter ended December 31, 1995.
(c) Exhibits.
<TABLE>
<S> <C>
2.1 Stock Purchase Agreement dated as of December 3, 1992, between
Collins Acquisition Group, Inc., and Hallwood Energy Partners
L.P., Hallwood Consolidated Resources Corporation and Hallwood
Oil and Gas, Inc., and Amendment to Stock Purchase Agreement
dated January 13, 1993, between the same parties (filed as
Exhibit 2.1 to the Company's Annual Report on Form 10-KSB for
the period ended December 31, 1993, hereinafter referred to as
the "1993 Form 10-KSB," and hereby incorporated by reference).
2.2 Plan of Reorganization and Agreement dated April 23, 1993,
between the Company and Striker Industries, Inc. (now Striker
Holdings, Inc.), with the Agreement and Plan of Merger of even
date therewith attached as Annex A thereto (filed as Exhibit
2.2 to the Company's 1993 Form 10-KSB, and incorporated herein
by reference).
2.3 Asset Purchase Agreement dated as of March 10, 1995, between
Northern Globe Building Materials, Inc., and the Company
(filed as Exhibit 2.3 to the Company's 1994 Form 10-KSB, and
incorporated herein by reference).
3.1 Certificate of Incorporation of the Company and all Amendments
thereto (filed as Exhibit 3.1 to the Company's 1993 Form
10-KSB, and incorporated herein by reference).
3.2 By-laws of the Company (filed as Exhibit 3.2 to the Company's
1993 Form 10-KSB, and incorporated herein by reference).
4.1 Pages 1, 2 and 3 of the Certificate of Amendment to the
Company's Certificate of Incorporation filed in the office of
the Secretary of State of Delaware on September 27, 1993
(included as part of Exhibit 3.1 above and filed as Exhibit
4.1 to the Company's 1993 Form 10-KSB, and incorporated herein
by reference).
4.2 Security Agreement between the Company's wholly-owned
subsidiary, Striker Paper Corporation, and Finova Capital
Corporation dated April 25, 1995 covering a revolving credit
facility.
4.3 Warrant of the Company issued in February and March 1995 to
purchase, in the aggregate, up to 1,000,000 shares of the
Company's Common Stock (filed as Exhibit 10.8 to the Company's
1994 Form 10-KSB, and incorporated herein by reference).
4.4 10.25% Subordinated Note of the Company maturing December 31,
1998 ($1,200,000 in the aggregate principal amount) issued
March 2, 1995 (filed as Exhibit 10.10 to the Company's 1994
Form 10-KSB, and incorporated herein by reference).
</TABLE>
20
<PAGE> 22
<TABLE>
<S> <C>
4.5 10.25% Subordinated Note of the Company maturing December 31,
1998 ($1,300,000 in aggregate principal amount) issued
February 16, 1996.
4.6 Credit facilities' commitment letter agreement dated May 16,
1995 between North American Trust Company of Hamilton,
Ontario, Canada and the Company's wholly-owned Canadian
subsidiary, Striker Paper Canada, Inc.
4.7 $2,000,000 Canadian dollar amount Debenture of Striker Paper
Canada, Inc. in favor of North American Trust Company, dated
July 13, 1995.
4.8 General Security Agreement dated July 13, 1995 between Striker
Paper Canada, Inc. and North American Trust Company.
4.9 Financial Assistance Agreement dated May 16, 1995 between
Ontario Development Corporation, Striker Paper Canada, Inc.
and Striker Industries, Inc.
4.10 Warrant of the Company to purchase up to 150,000 shares of the
Company's Common Stock issued to Ontario Development
Corporation, dated September 8, 1995.
10.1 Dry Felt Purchase/Sale Agreement dated as of April 1, 1995
between Striker Paper Corporation and G.A.P. Roofing, Inc.
10.2 Dry Felt Purchase/Sale Agreement dated as of April 1, 1995
between Striker Paper Corporation and Tarco Building
Materials, Inc.
10.3 Dry Felt Purchase/Sale Agreement dated as of April 1, 1995
between Striker Paper Corporation and United Roofing
Manufacturing Company, Inc.
10.4 Lease Agreement dated February 8, 1994, between Coventry Fund
I Ltd. and the Company, covering the Company's leased
administrative and finance offices in Houston, Texas (filed as
Exhibit 10.4 to the Company's 1993 Form 10-KSB, and
incorporated herein by reference).
10.5 1994 Amended and Restated Incentive Stock Plan of the Company
(filed as Exhibit 10.9 to the Company's 1994 Form 10-KSB, and
incorporated herein by reference).
10.6 Employment Agreement effective June 1, 1994, between Striker
Paper Corporation and Jill Blicher (filed as Exhibit 10.11 to
the Company's 1994 Form 10-KSB, and incorporated herein by
reference).
16.1 Letter dated December 8, 1995 from Arthur Andersen to the
Securities and Exchange Commission complying with Item
304(a)(3) of Regulation S-K.
</TABLE>
21
<PAGE> 23
<TABLE>
<S> <C>
21.1 The following is a list of all subsidiaries of the Company and
the respective state or province of incorporation of each
subsidiary. The Company owns directly, of record and
beneficially, all of the voting stock of Striker Holdings,
Inc., Striker Services Corporation, Striker Paper Canada,
Inc., Striker Services Canada, Inc. and West Oxford
Industries, Inc. Striker Holdings, Inc., in turn, owns
directly, of record and beneficially, all of the voting stock
of Striker Paper Corporation. Each subsidiary conducts its
business under its corporate name designated below:
</TABLE>
<TABLE>
<CAPTION>
Name State (Province) of Incorporation
---- ---------------------------------
<S> <C>
Striker Holdings, Inc. Texas
Striker Paper Corporation Arkansas
Striker Services Corporation Texas
Striker Paper Canada, Inc. Province of Ontario, Canada
Striker Services Canada, Inc. Province of Ontario, Canada
West Oxford Industries, Inc. Texas
</TABLE>
<TABLE>
<S> <C>
23.1 Independent Auditors' Consent
23.2 Consent of Independent Public Accountant
</TABLE>
22
<PAGE> 24
SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) of the Securities Exchange
Act of 1934, the Company has duly caused this report to be signed on its behalf
by the undersigned, thereunto duly authorized.
STRIKER INDUSTRIES, INC.
by: David A. Collins
-----------------------------------
David A. Collins, President and
Chief Executive Officer
DATE: April 15, 1996
In accordance with the requirements of the Securities Exchange Act of 1934,
this report has been signed below by the following persons on behalf of the
Company and in the capacities and on the date indicated:
<TABLE>
<CAPTION>
Signature Title Date
<S> <C> <C>
David A. Collins April 15, 1996
- -------------------------- --------------
David A. Collins Director, President and
Chief Executive Officer
Matthew D. Pond April 15, 1996
- -------------------------- --------------
Matthew D. Pond Director, Chief Financial
Officer
</TABLE>
23
<PAGE> 25
ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA
INDEX TO FINANCIAL STATEMENTS
<TABLE>
<CAPTION>
Page
----
<S> <C>
CONSOLIDATED FINANCIAL STATEMENTS OF
STRIKER INDUSTRIES, INC.
Independent Auditors' Reports F-2
Consolidated Balance Sheets - December 31, 1995 and December 31, 1994 F-4
Consolidated Statements of Operations -
Years ended December 31, 1995, 1994 and 1993 F-5
Consolidated Statements of Stockholders' Equity -
Years ended December 31, 1995, 1994, and 1993 F-6
Consolidated Statements of Cash Flows -
Years ended December 31, 1995, 1994, and 1993 F-7
Notes to Consolidated Financial Statements F-9
</TABLE>
F-1
<PAGE> 26
INDEPENDENT AUDITORS' REPORT
To the Board of Directors and Stockholders
Striker Industries, Inc.:
We have audited the accompanying consolidated balance sheet of Striker
Industries, Inc. (a Delaware corporation), and subsidiaries as of December 31,
1995, and the related consolidated statements of operations, changes in
stockholders' equity and cash flows for the year then ended. These financial
statements are the responsibility of the Company's management. Our
responsibility is to express an opinion on these financial statements based on
our audit.
We conducted our audit in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to
obtain reasonable assurance about whether the financial statements are free of
material misstatement. An audit includes examining, on a test basis, evidence
supporting the amounts and disclosures in the financial statements. An audit
also includes assessing the accounting principles used and significant
estimates made by management, as well as evaluating the overall financial
statement presentation. We believe that our audit provides a reasonable basis
for our opinion.
In our opinion, the financial statements referred to above present fairly, in
all material respects, the financial position of Striker Industries, Inc., and
subsidiaries as of December 31, 1995, and the results of their operations and
their cash flows for the year then ended, in conformity with generally accepted
accounting principles.
KPMG Peat Marwick LLP
Houston, Texas
March 22, 1996
F-2
<PAGE> 27
REPORT OF INDEPENDENT PUBLIC ACCOUNTANTS
To Striker Industries, Inc.:
We have audited the accompanying consolidated balance sheet of Striker
Industries, Inc. (a Delaware corporation), and subsidiaries as of December 31,
1994, and the related consolidated statements of operations, changes in
stockholders' equity and cash flows for the two years then ended. These
financial statements are the responsibility of the Company's management. Our
responsibility is to express an opinion on these financial statements based on
our audits.
We conducted our audits in accordance with generally auditing standards. Those
standards require that we plan and perform the audit to obtain reasonable
assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence
supporting the amounts and disclosures in the financial statements. An audit
also includes assessing the accounting principles used and significant
estimates made by management, as well as evaluating the overall financial
statement presentation. We believe that our audits provide a reasonable basis
for our opinion.
The Company has entered into a series of transactions with several
international investors which are currently shareholders and creditors of the
Company and thus related parties to the Company. Many of these transactions
are conducted through foreign partnership or corporate-type entities. These
transactions are described in Notes 1, 6, 7, 9, 12 and 13 to the accompanying
financial statements. The effect of certain of these transactions was to
increase net income for the year ending December 31, 1994, by approximately
$2,600,000 more than it would have been had these transactions not occurred.
Additionally, the Company incurred operating losses of $1,631,000 and
$2,425,000 during the years ended 1994 and 1993, respectively, and the
accompanying financial statements have been prepared based on the assumption
that the Company will continue operations. Management has implemented an
operational realignment as more fully discussed in Note 1 and has obtained an
agreement from an officer/shareholder and an international investor to provide
up to $3,000,000, if necessary, to allow the Company to continue its normal
operations.
In our opinion, the financial statements referred to above present fairly, in
all material respects, the financial position of Striker Industries, Inc., and
subsidiaries as of December 31, 1994, and the results of their operations and
their cash flows for the two years then ended, in conformity with generally
accepted accounting principles.
ARTHUR ANDERSEN LLP
Houston, Texas
March 10, 1995
F-3
<PAGE> 28
STRIKER INDUSTRIES, INC. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
<TABLE>
<CAPTION>
December 31,
------------------------------
Assets 1995 1994
------ ------------ -------------
<S> <C> <C>
Current assets:
Cash and cash equivalents $ 141,557 $ 18,739
Cash, restricted as to use 360,000 -
Accounts receivable:
Trade 403,742 475,421
Other 152,731 65,939
Inventories:
Raw materials 41,073 58,217
Finished goods 130,910 245,455
Spare parts 247,875 291,253
Prepaid expenses and other current assets 262,757 194,449
------------ -------------
Total current assets 1,740,645 1,349,473
Property and equipment, net 16,295,437 4,891,801
Deferred costs and other, net 286,362 596,655
------------ -------------
Total assets $ 18,322,444 $ 6,837,929
============ =============
Liabilities and Stockholders' Equity
------------------------------------
Current liabilities:
Trade accounts payable 2,438,271 662,320
Accrued liabilities 215,602 608,526
Revolving lines of credit 875,909 -
Current portion of term loans 338,069 -
Current obligations under capital leases 51,902 48,966
------------ -------------
Total current liabilities 3,919,753 1,319,812
Long-term liabilities:
Notes payable to affiliates 1,200,000 1,252,641
Term loans, net of current portion 1,188,230 -
Capital lease obligation 68,717 100,600
------------ -------------
Total long-term liabilities 2,456,947 1,353,241
------------ -------------
Stockholders' equity:
Preferred stock, $.20 par value, 5,000,000 shares
authorized, none issued - -
Common stock, $0.20 par value, 25,000,000 shares
authorized, 10,599,564 and 8,687,106 shares issued,
respectively 2,119,913 1,737,421
Stock subscriptions receivable (236,000) (450,000)
Additional paid-in capital 13,688,119 5,126,832
Accumulated deficit (3,559,011) (2,249,377)
Foreign currency translation adjustment (67,277) -
------------ -------------
Total stockholders' equity 11,945,744 4,164,876
Commitments and contingencies
------------ -------------
Total liabilities and stockholders' equity $ 18,322,444 $ 6,837,929
============ =============
</TABLE>
See accompanying notes to consolidated financial statements.
F-4
<PAGE> 29
STRIKER INDUSTRIES, INC., AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF OPERATIONS
<TABLE>
<CAPTION>
Year ended December 31,
--------------------------------------------------
1995 1994 1993
------------ -------------- ------------
<S> <C> <C> <C>
Revenues $ 7,983,577 $ 7,977,888 $ 5,933,079
Cost of sales 7,023,242 7,926,095 7,109,471
------------ -------------- ------------
Gross margin 960,335 51,793 (1,176,392)
Selling, general and administrative expenses, net
of salary reimbursements of $132,000,
$132,000 and $192,500, respectively 1,992,738 1,683,161 1,248,589
------------ -------------- ------------
Operating loss (1,032,403) (1,631,368) (2,424,981)
------------ -------------- ------------
Other income (expense):
Interest expense, net (311,004) (255,757) (111,053)
Other income 33,773 144,688 20,962
------------ -------------- ------------
Loss before income taxes and
extraordinary item (1,309,634) (1,742,437) (2,515,072)
Income taxes - - -
------------ -------------- ------------
Net loss before extraordinary item (1,309,634) (1,742,437) (2,515,072)
------------ -------------- ------------
Extraordinary item, gain on extinguishment
of debt - 2,101,495 -
------------ -------------- ------------
Net income (loss) $ (1,309,634) $ 359,058 $ (2,515,072)
============ ============== ============
Income (loss) per common share:
Loss before extraordinary item $ (.13) $ (.17) $ (.43)
Extraordinary item - .21 -
------------ -------------- ------------
Net income (loss) $ (.13) $ .04 $ (.43)
============ ============== ============
</TABLE>
See accompanying notes to consolidated financial statements.
F-5
<PAGE> 30
STRIKER INDUSTRIES, INC., AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CHANGES IN STOCKHOLDERS' EQUITY
<TABLE>
<CAPTION>
Common stock Stock Additional
------------------------- subscriptions paid-in
Shares Amount receivable capital
---------- ----------- ---------------- ------------
<S> <C> <C> <C> <C>
Balances, December 31, 1992 5,589,236 $ 1,117,847 $ -- $ 1,245,318
Capital contribution -- -- -- 119,376
Merger costs incurred -- -- -- (524,077)
Purchase of shares from former officer -- -- -- --
Private placements of common stock-
November 8, 1993 1,818,180 363,636 -- 1,636,364
December 31, 1993 1,600,000 320,000 (1,150,000) 1,280,000
Private placement costs -- -- -- (108,516)
Net loss -- -- -- --
---------- ----------- ---------------- ------------
Balances, December 31, 1993 9,007,416 1,801,483 (1,150,000) 3,648,465
Capital contribution -- 172,477
Conversion of 9.75% convertible
subordinated notes 642,855 128,571 -- 1,896,422
Issuance of treasury stock -- -- -- 180,000
Cancellation of treasury stock (963,165) (192,633) -- (770,532)
Payments received for stock-
subscribed payments -- -- 700,000 --
Net income -- -- -- --
---------- ----------- ---------------- ------------
Balances, December 31, 1994 8,687,106 1,737,421 (450,000) 5,126,832
Warrants issued -- -- -- 950,000
Warrants exercised 566,668 113,334 -- 1,020,002
Common stock issued for Thorold
Canada plan acquisition 1,345,790 269,158 -- 7,038,523
Fees on warrants issued and exercised -- -- -- (233,238)
Write-off of stock subscriptions receivable -- -- 214,000 (214,000)
Foreign currency translation -- -- -- --
Net loss -- -- -- --
---------- ----------- ---------------- ------------
Balances, December 31, 1995 10,599,564 $ 2,119,913 $ (236,000) $ 13,688,119
========== =========== ================ ============
<CAPTION>
Treasury Accumulated Total
Accumulated stock foreign currency stockholders'
deficit at cost adjustment equity
------------ ------------ ------------------ ---------------
<S> <C> <C> <C> <C>
Balances, December 31, 1992 $ (93,363) $ (3,165) $ -- $ 2,266,637
Capital contribution -- -- -- 119,376
Merger costs incurred -- -- -- (524,077)
Purchase of shares from former officer -- (1,000,000) -- (1,000,000)
Private placements of common stock-
November 8, 1993 -- -- -- 2,000,000
December 31, 1993 -- -- -- 450,000
Private placement costs -- -- -- (108,516)
Net loss (2,515,072) -- -- (2,515,072)
------------ ------------ ------------------ ---------------
Balances, December 31, 1993 (2,608,435) (1,003,165) -- 688,348
Capital contribution -- -- -- 172,477
Conversion of 9.75% convertible
subordinated notes -- -- 2,024,993
Issuance of treasury stock 40,000 -- 220,000
Cancellation of treasury stock 963,165 -- --
Payments received for stock-
subscribed payments -- -- -- 700,000
Net income 359,058 -- -- 359,058
------------ ------------ ------------------ ---------------
Balances, December 31, 1994 (2,249,377) -- -- 4,164,876
Warrants issued -- -- -- 950,000
Warrants exercised -- -- -- 1,133,336
Common stock issued for Thorold
Canada plan acquisition -- -- -- 7,307,681
Fees on warrants issued and exercised -- -- -- (233,238)
Write-off of stock subscriptions receivable -- -- -- --
Foreign currency translation -- -- (67,277) (67,277)
Net loss (1,309,634) -- -- (1,309,634)
------------ ------------ ------------------ ---------------
Balances, December 31, 1995 $ (3,559,011) $ -- $ (67,277) $ 11,945,744
============ ============ ================== ===============
</TABLE>
See accompanying notes to consolidated financial statements.
F-6
<PAGE> 31
STRIKER INDUSTRIES, INC., AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
<TABLE>
<CAPTION>
Year ended December 31,
---------------------------------------------
1995 1994 1993
------------ ------------- ------------
<S> <C> <C> <C>
Cash flows from operating activities:
Net income (loss) $ (1,309,634) $ 359,058 $ (2,515,072)
Adjustments to reconcile net income (loss) to net cash
used in operating activities:
Depreciation and amortization 749,139 539,189 354,996
Extraordinary gain -- (2,101,495) --
Interest expense on convertible subordinated notes
not paid due to conversion of notes -- 78,930 --
Reimbursement for executive salaries (132,000) (132,000) --
Gain on pulp hedge contract -- (493,529) --
Loss on sale of property and equipment -- 3,889 --
Changes in assets and liabilities:
(Increase) decrease in short-term investment -- 250,000 (250,000)
(Increase) decrease in accounts receivable (15,113) 155,498 (5,317)
(Increase) decrease in inventories 175,067 (160,438) (252,497)
Increase in prepaid expenses and other current assets (68,308) (63,476) (37,536)
Increase (decrease) in accounts payable and accrued liabilities 1,421,931 (120,724) 365,033
Increase (decrease) in deferred revenue -- (106,340) 106,340
------------ ------------- ------------
Net cash provided by (used) in operating activities 821,082 (1,791,438) (2,234,053)
------------ ------------- ------------
Cash flows from investing activities:
Purchases of property and equipment (3,981,769) (1,462,414) (1,969,275)
Increase in deferred acquisition costs (316,705) (358,359) (220,122)
Proceeds from sales of property and equipment -- 18,623 --
Restricted cash (360,000) -- --
------------ ------------- ------------
Net cash used in investing activities (4,658,474) (1,802,150) (2,189,397)
------------ ------------- ------------
Cash flows from financing activities:
Merger costs paid -- -- (524,077)
Proceeds from private placements of common stock -- -- 2,450,000
Private placement costs -- -- (108,516)
Capital contributions -- 79,857 119,376
Warrants issued 950,000 -- --
Warrants exercised 1,133,336 -- --
Warrant fees paid (233,238) -- --
Proceeds from issuance of convertible subordinated notes -- 2,500,000 2,000,000
Proceeds from revolving lines of credit 6,572,536 -- 500,000
Repayment of revolving lines of credit (5,701,045) (499,140) (860)
Shareholder advances -- -- 1,630,000
Repayment of shareholder advances -- -- (1,630,000)
Proceeds from fixed-asset line of credit 1,608,000 -- 2,250,000
Repayments of fixed-asset line of credit (77,283) -- (2,250,000)
Principal payments on capital leases (28,947) (21,482) (31,015)
Proceeds received from issuance of common stock subscribed -- 700,000 --
Repayment of obligation for purchase of treasury stock -- (1,000,000) --
Deferred and other costs paid (342,508) (167,645) --
Proceeds from affiliate notes payable 1,200,000 2,156,000 --
Repayment of affiliate notes payable (1,120,641) (185,210) --
Proceeds from receivable factoring facility -- 4,167,852 --
Repayment of receivable factoring facility -- (4,167,852) --
------------ ------------- ------------
Net cash provided by financing activities 3,960,210 3,562,380 4,404,908
------------ ------------- ------------
Net increase (decrease) in cash 122,818 (31,208) (18,542)
Cash and cash equivalents, beginning of year 18,739 49,947 68,489
------------ ------------- ------------
Cash and cash equivalents, end of year $ 141,557 $ 18,739 $ 49,947
============ ============= ============
</TABLE>
See accompanying notes to consolidated financial statements.
F-7
<PAGE> 32
STRIKER INDUSTRIES, INC., AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
<TABLE>
<CAPTION>
Year ended December 31,
---------------------------------
1995 1994 1993
----------- --------- ---------
<S> <C> <C> <C>
Supplemental schedule of noncash investing and financing activities:
Conversion of 9.75% convertible subordinated notes to common stock $ -- 4,578,930 --
Issuance of stock to an entity in consideration of acquisition
assistance provided -- 220,000 --
Issuance of common stock in consideration of acquisiton of Thorold Mill 7,307,681 -- --
Cancellation of treasury stock -- 963,165 --
Capital contributions from an affiliate in the form of
forgiveness of notes payable -- 92,620 --
Reimbursement of executive salaries from an affiliate in
the form of forgiveness of notes payable 132,000 132,000 --
Gain on pulp hedge contract with an affiliate in the form of
forgiveness of notes payable 467,772 493,529 --
Purchase of shares of common stock from former officer -- 1,000,000
Financing of insurance premiums -- 55,236
Acquisition of property and equipment under noncancelable
long-term capital leases 34,441 23,849 24,575
=========== ========= =========
</TABLE>
See accompanying notes to consolidated financial statements.
F-8
<PAGE> 33
STRIKER INDUSTRIES, INC., AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
DECEMBER 31, 1995 and 1994
1. ORGANIZATION AND OPERATIONS:
Merger and Recapitalization
Striker Industries, Inc. (formerly Striker Petroleum Corporation, hereinafter
referred to as Striker or the Company), a Delaware corporation, was
incorporated on January 30, 1981, to engage primarily in oil and gas
exploration, development and production in the United States.
Striker Petroleum Corporation ceased operations and was inactive for the period
commencing May 1991 and ending upon consummation of the merger in September
1993 described below.
On September 22, 1993, by means of a reverse triangular merger, SPC
Acquisition, Inc., a wholly owned subsidiary of Striker Petroleum Corporation,
merged with and into Striker Industries, Inc., a Texas corporation (now Striker
Holdings, Inc., hereinafter referred to as Holdings), in consummation of a
reorganization of Striker Petroleum Corporation with Holdings pursuant to a
Plan of Reorganization Agreement (the Plan of Reorganization) between Striker
Petroleum Corporation and Holdings under the provisions of which Holdings
became a wholly owned subsidiary of the Striker Petroleum Corporation. Under
the provisions of the agreement and plan of merger constituting an integral
part of the Plan of Reorganization, all shares of common stock of Holdings
outstanding immediately prior to the effective date of the merger were
automatically converted on the effective date into an aggregate of 107,238,408
shares of common stock, $0.01 par value per share, of Striker Petroleum
Corporation, and each holder of record of outstanding shares of common stock of
Holdings, immediately prior to the merger, became the owner of a proportionate
part of such shares equal to his or its percentage ownership interest in
Holdings immediately prior to the merger. Two executives of Holdings and
Imperial Equities Limited, a Panamanian corporation, were the owners of 25
percent, 25 percent and 50 percent, respectively, of the issued and outstanding
common stock of Holdings immediately prior to the merger and, accordingly, the
respective ownerships of stock of Holdings of each of the two Holdings
executives were automatically converted on the effective date of the merger
into 26,809,602 shares of common stock of Striker Petroleum Corporation and the
ownership of stock of Holdings of Imperial Equities Limited was automatically
converted into 53,619,204 shares of common stock of Striker Petroleum
Corporation which shares represented direct beneficial ownership of Striker
Petroleum Corporation by the two executives referred to above and Imperial
Equities Limited of approximately 24 percent, 24 percent and 48 percent,
respectively.
As part of the merger transaction, the name of Striker Industries, Inc., was
changed to Striker Holdings, Inc. (Holdings or Old Industries).
The intent and purpose of the reorganization by merger of Striker Petroleum
Corporation with Holdings was to reactivate Striker Petroleum Corporation and
change the nature of its business in order to enable Striker Petroleum
Corporation to achieve profitable operations in an entirely new business.
Accordingly, from and after the effective date of the Merger, the business of
Striker Petroleum Corporation became that of Holdings, namely the recycling and
manufacturing of pulp products into paper-based felt and asphalt-saturated felt
paper for use in the roofing industry. Following consummation of the Merger,
the Certificate of Incorporation of Striker Petroleum Corporation was further
amended on September 27, 1993, to (a) decrease the number of authorized shares
of Striker Petroleum Corporation's common stock to 25,000,000 and increase the
par value thereof from $0.01 per share to $0.20 per share simultaneously with a
1-for-20 reverse stock split of the issued (but not the authorized and
unissued) common stock, including shares of common stock of Striker Petroleum
Corporation held by it as treasury shares, (b) decrease the par value of the
preferred stock of Striker Petroleum Corporation from $1 to $0.20 per share and
(c) change the name of Striker Petroleum Corporation to Striker Industries,
Inc.
F-9
<PAGE> 34
Financial Condition and Basis of Preparation
For the year ended December 31, 1995, the Company had an operating loss and
experienced short-term liquidity concerns. Though these conditions exist, the
Company experienced positive cash flows from operations for the year ended
December 31, 1995.
The Company experienced an increase in current liabilities for the year ended
December 31, 1995 from the year ended December 31, 1994. The increase in
current liabilities resulted in a working capital deficit of $2,179,108. The
increase is primarily due to capital improvements at the Thorold and Stephens
plants and corporate development activities not funded by the Company's
existing debt facilities.
After having been idled for two years by its previous owners, the Thorold plant
needed extensive capital improvements, additions, and repairs. These necessary
capital improvements, additions and repairs were partially financed. However,
since the plant was idled while the improvements were made, there was no
production. The Company's cash resources were limited and consequently, the
balance of the project was financed by increasing current liabilities. As of
the date of this report, the Canadian projects are near completion and
management expects production to begin in the near future.
Several capital improvements were made to the Stephens plant during the year
ended December 31, 1995. The improvements and additions improved efficiency
and meet regulatory requirements. These improvements were only partially
financed. As of the date of this report, the Company is benefiting from the
capital improvements made and is producing paper more efficiently.
Management believes that the improvements made to the Stephens and Thorold
plants, will benefit the operations of the Company. The improvements to the
Plants will allow production of varying grades of paper (lightweight, medium
weight, and heavyweight) more efficiently than before. This will allow the
Company to produce paper for all geographic markets. In addition, the Plants
are geographically dispersed to facilitate distribution to the midwest,
southwest, southeast, and northeast markets.
The factors listed above have led to the working capital deficit. Management
has continued to monitor its operational realignment that was implemented
during 1994 that included (a) head count reductions, (b) use of lower cost raw
material vendors, (c) obtaining alternative lower cost raw materials sourcing
and (d) a preventative maintenance program to reduce downtime and repairs.
While the Company continues to monitor its program of operational realignment
and cost reductions, there can be no assurance that such cost reductions will
allow the Company to achieve profitability.
On February 16, 1996, the Company issued $1,300,000 of 10.25% Subordinated
Notes (the 1996 Notes) to seven purchasers. The proceeds of the 1996 Notes
were used for working capital needs.
Management believes its existing funds, its existing financial arrangements and
operating cash flows will adequately fund the cash needs of the Company's
operations during the next year. However, to continue to expand its business
and meet working capital requirements, the Company may need to borrow
additional amounts or obtain an additional third-party credit facility. The
Company currently has two existing credit lines, consisting of revolving lines
of credit and term loans collateralized by receivables, inventories and fixed
assets. The Company remains flexible to pursue alternate financing
arrangements which might include private or public sales of equity or debt
securities.
The ability of the Company to achieve successful operations and realize its
assets is dependent upon many factors including successful operation of the
saturating line, penetration of existing markets at profitable margin and
volume levels and continued cash liquidity. The Company recently completed the
process of realigning its mill operations to cut costs, improve productivity
and increase profitability.
F-10
<PAGE> 35
The accompanying financial statements have been prepared based on the
assumption that the Company will be able to continue operations. An
officer/stockholder and an international investor who is a stockholder of the
Company have agreed to provide additional financial support in the event the
Company does not have available cash or cash equivalents to meet its then
current obligations and continue its normal business operations. This
additional support, not exceeding in the aggregate $3,000,000, during an
18-month period ending September 30, 1996, would only be provided if liquid
assets or financing from other sources cannot be arranged.
2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES:
Principles of Consolidation
The accompanying consolidated financial statements include the accounts of
Striker and its wholly owned subsidiaries. All material intercompany accounts
and transactions have been eliminated.
Inventories
Inventories are stated at the lower of cost or market using the average cost
method. The finished goods inventories include materials, direct labor and
plant overhead.
Restricted Cash
At December 31, 1995, cash restricted as to use of $360,000, represents short
term certificates of deposit pledged to the Company's Canadian Lender.
Property and Equipment
Property and equipment are recorded at cost. Expenditures for major renewals
and betterments, which extend the original estimated economic useful lives of
the applicable assets, are capitalized. Expenditures for normal repairs and
maintenance are charged to expense as incurred.
Depreciation
The Company used the straight-line method of depreciation for all assets for
the years ended December 31, 1994 and 1993. Effective January 1, 1995, the
Company changed its method of depreciation for substantially all machinery and
equipment from straight-line to a units-of-production method. The
units-of-production method provides for depreciation charges proportionate to
the level of production activity thereby recognizing that depreciation of the
Company's machinery is related to physical wear of the equipment and represents
a method common to that used by many in the pulp and paper industry. The
cumulative effect of the change to the units-of-production method was
insignificant to the consolidated results for the year ended December 31, 1995
and is not expected to be significant in the future.
Deferred Costs and Other, Net
Deferred costs and other, net, include organization costs and deferred
acquisition and financing costs in 1995 and 1994. The organization costs are
being amortized over a five-year period on a straight-line basis. The deferred
acquisition costs were added to the cost of the assets acquired after the
acquisition was completed (see Note 14). Deferred financing costs are being
amortized over the life of the related respective financing obtained.
Income Taxes
Income taxes include deferred taxes arising from the recognition of revenues
and expenses in different periods for income tax and financial statement
purposes. The Company accounts for income taxes in accordance with Statement
of Financial Accounting Standards (SFAS) No. 109, "Accounting for Income
Taxes."
F-11
<PAGE> 36
Revenue Recognition
The Company generally recognizes revenue when products are shipped or when the
customer has accepted the product.
Earnings (Loss) Per Common Share
The computation of earnings or loss per share in each year is based on the
weighted average number of common shares outstanding. When dilutive, stock
options and warrants are included as share equivalents using the treasury stock
method. The number of shares used in computing the earnings (loss) per share
was 9,867,633 in 1995, 10,011,806 in 1994 and 5,859,871 in 1993. Primary and
fully diluted earnings per share are the same for each of these years. The
Company's convertible subordinated notes were not considered in the calculation
of loss per common share for 1993, as their effect would have been
antidilutive.
Translation of Foreign Currency Financial Statements
Assets and liabilities of foreign subsidiaries have been translated into United
States dollars at the applicable rates of exchange in effect at the end of the
period reported. Revenues and expenses have been translated at the applicable
weighted average rates of exchange in effect during the period reported.
Translation adjustments are reflected as a separate component of stockholders'
equity. Any transaction gains and losses are included in net income.
Use of Estimates
The preparation of financial statements in conformity with generally accepted
accounting principles requires management to make estimates and assumptions
that affect the reported amounts of assets and liabilities and disclosure of
contingent assets and liabilities at the date of the financial statements and
the reported amounts of revenues and expenses during the reporting period.
Actual results could differ from the estimates.
New Accounting Pronouncements Not Yet Adopted
In March 1995, the Financial Accounting Standards Board issued Statement of
Financial Accounting Standards No. 121, Accounting for the Impairment of
Long-lived Assets and for Long-lived Assets to be Disposed of (FAS 121). FAS
121 is effective for fiscal years beginning after December 15, 1995. The
Company has substantially completed the analysis required by FAS 121 and, as a
result, the Company believes that the adoption of FAS 121 in the first quarter
of 1996 will not materially affect the Company's consolidated results of
operations or its financial condition.
In October 1995, the Financial Accounting Standards Board approved the issuance
of SFAS No. 123, Accounting for Stock-Based Compensation. This SFAS
establishes financial accounting and reporting standards for stock-based
employee compensation plans. SFAS No. 123 allows a company to adopt a fair
value based method of accounting for an employee stock-based compensation plan
or to continue to use the intrinsic value based method of accounting prescribed
by Accounting Principles Board (APB) Opinion No. 25, Accounting for Stock
Issued to Employees, the Company's current accounting method. Under the
intrinsic value method, the Company has recorded no compensation expense for
stock options granted, as the exercise price of allocations granted has been
equal to the closing price of the Company's common stock on the date of grant.
However, under the fair value method, the Company would record compensation
expense for similar grants based on an option-pricing model that takes into
account the exercise price and expected life of the option, the current price
of the stock and its expected volatility and the risk-free interest rate for
the expected term of the option. The Company has undertaken a preliminary
study of SFAS No. 123 and has determined that the Company will continue to
follow the intrinsic value method. The disclosures required by SFAS No. 123
will be included in the Company's consolidated financial statements for the
year ended December 31, 1996.
F-12
<PAGE> 37
Cash Flow Information
For purposes of reporting cash flows, cash and cash equivalents include cash
and short-term investments which mature within three months of their date of
purchase.
3. PROPERTY AND EQUIPMENT, NET:
The Company's property and equipment consisted of the following:
<TABLE>
<CAPTION>
December 31, December 31,
Useful Life 1995 1994
----------- ---- ----
<S> <C> <C> <C>
Machinery, equipment and vehicles 5 - 12 years $ 15,906,470 $ 4,744,128
Buildings 25 years 855,216 507,949
Computer and office equipment 5 years 711,244 445,927
Land improvements 5 years 140,427 38,590
Machinery, equipment and
vehicles under capital leases 2 - 5 years 236,703 213,050
Land - 215,000 50,000
------------ ------------
18,065,060 5,999,644
Less- Accumulated depreciation
and amortization (1,769,623) (1,107,843)
------------ ------------
$ 16,295,437 $ 4,891,801
============ ============
</TABLE>
4. DEFERRED COSTS AND OTHER, NET:
The Company's deferred costs and other, net, consisted of the following:
<TABLE>
<CAPTION>
December 31, December 31,
1995 1994
---- ----
<S> <C> <C>
Deferred acquisition costs $ 11,004 $ 560,678
Deferred financing costs 170,404 15,545
Deposits 73,190 2,220
Patents 25,029 --
Organization costs 82,291 78,026
Less- Accumulated amortization (75,556) (59,814)
---------- ----------
$ 286,362 $ 596,655
========== ==========
</TABLE>
5. INCOME TAXES:
The Company did not recognize a provision for income taxes for the year ended
December 31, 1995. The Company had tax-basis operating loss carryforwards of
approximately $4,500,000 at December 31, 1995, which expire from 2007 through
2009.
F-13
<PAGE> 38
Federal income taxes provided were different from the amount computed by
applying the statutory U.S. federal income tax rate (34 percent) for the
following reasons:
<TABLE>
<CAPTION>
Years ended
December 31
--------------------------------------
1995 1994 1993
---- ---- ----
<S> <C> <C> <C>
Tax provision (benefit) at statutory rates $ (445,275) $ 77,000 $ (377,000)
(Increase) decrease resulting from-
deferred tax asset valuation allowance 442,275 (97,000) 376,000
Miscellaneous 3,000 20,000 1,000
---------- -------- ----------
$ -- $ -- $ --
========== ======== ==========
</TABLE>
The tax effect of temporary differences and tax attributes representing
deferred tax liabilities and assets are as follows at December 31:
<TABLE>
<CAPTION>
Deferred Benefit (Provision)
for the Year Ended
----------------------------------------------------------------------
December 31, December 31, December 31,
1995 1994 1993
---- ---- ----
<S> <C> <C> <C>
Current deferred income tax assets-
Current capital lease obligation $ 18,000 $ 1,000 $ 6,000
Accruals 39,000 - 13,000
Inventory 2,000 (1,000) 3,000
Valuation allowances (49,000) 4,000 (16,000)
----------- ---------- -----------
Total current deferred income tax assets, net $ 10,000 $ 4,000 $ 6,000
=========== ========== ===========
Noncurrent deferred income tax assets (liabilities)-
Net operating loss carryforwards $ 1,514,000 $ (21,000) $ 501,000
Property and equipment (502,000) (71,000) (125,000)
Assets under capital lease (72,000) - (32,000)
Noncurrent capital lease obligations 45,000 (5,000) 20,000
Valuation allowances (995,000) 93,000 (370,000)
----------- ---------- -----------
Total noncurrent deferred income tax
liabilities, net $ (10,000) $ (4,000) $ (6,000)
=========== ========== ===========
</TABLE>
F-14
<PAGE> 39
6. DEBT:
The Company's debt consisted of the following at:
<TABLE>
<CAPTION>
December 31, December 31,
1995 1994
---- ----
<S> <C> <C>
Subordinated notes payable, 10.25% due 12/31/98 $ 1,200,000 $ --
Note Payable to an affiliate -- 1,252,641
Stephens:
Term loan, prime +3.5%, due 5/31/98 846,050 --
Revolving line of credit, prime + 3.5% 520,274 --
Canadian Facility:
Term loan, prime + 2.5% due 11/01/00 680,250 --
Revolving line of credit, prime +2.5% 355,635 --
Capitalized lease obligations bearing interest at
rates from 10% to 18% maturing between 1996
and 2000, secured by underlying machinery,
vehicles and computer equipment. 120,619 149,566
----------- -----------
3,722,828 1,402,207
Less- Current maturities (1,265,881) (48,966)
----------- -----------
$ 2,456,947 $ 1,353,241
=========== ===========
</TABLE>
On March 2, 1995, the Company issued $1,200,000 of 10.25% Subordinated Notes
(the 1995 Notes) to seven international investors, three of which are
stockholders. The 1995 Notes mature on December 31, 1998, and interest is
payable quarterly beginning July 1, 1995. The proceeds of the 1995 Notes were
used to pay down the affiliate notes payable.
On May 4, 1995, the Company entered into a financing agreement consisting of a
term loan based upon the liquidation value of certain of the Company's fixed
assets at the Stephens mill and a revolving line of credit based upon eligible
accounts receivable assets (collectively "the Stephens Facility"). Advances
under the Facility are limited to $2,500,000 in the aggregate and bear interest
at prime plus 3.5%.
On July 28, 1995, the Company's Canadian Subsidiary, Striker Paper Canada Inc.
("Striker Canada"), entered into a financing agreement with a Canadian lender
consisting of a term loan based upon the liquidation value of certain of
Striker Canada's fixed assets and a revolving line of credit based upon
eligible accounts receivable (collectively "the Canadian Facility"). Advances
under the Canadian Facility are limited to $2,000,000 Canadian in the aggregate
and bear interest at Canadian prime plus 2.5%. At December 31, 1995, Striker
Canada was not in compliance with certain covenants of the Canadian Facility.
However, a waiver was obtained for the year ended December 31, 1995.
At December 31, 1995, there were no amounts available under the lines of
credit.
Aggregate maturities for subordinated notes payables, current and long-term
debt and capital leases obligations for each of the five years subsequent to
December 31, 1995 were approximately:
<TABLE>
<CAPTION>
Amount
------
<S> <C>
1996 $1,265,881
1997 620,807
1998 1,823,804
1999 9,409
2000 2,297
</TABLE>
Interest paid for the years ended December 31, 1995, 1994 and 1993, was
$322,915, $221,309 and $116,531, respectively.
F-15
<PAGE> 40
7. CONVERSION OF 9.75% CONVERTIBLE SUBORDINATED NOTES:
From December 22, 1993, through June 20, 1994, the Company issued $4,500,000 of
9.75% Convertible Subordinated Notes due December 31, 1998 (the Notes), to
independent and unrelated non-U.S. accredited investors. The terms of the
Notes provided, among other things, that the Notes were convertible at the
option of the noteholder into common stock of the Company at any time after
June 30, 1995, at a rate of $7 per share. Effective June 21, 1994, the Company
amended the Note agreements to allow the noteholders to convert the Notes at
the stated conversion rate through June 30, 1994. All outstanding Notes were
converted by the noteholders in separate transactions on or about June 29,
1994, into an aggregate of 642,855 shares of the Company's common stock.
The Company recorded this conversion as an extraordinary gain in the
accompanying consolidated financial statements. The market price used for this
calculation ($3.15) was the average closing price of the Company's common stock
for the period from April 5, 1994 (commencement of active trading of the
Company's common stock), through June 29, 1994. The components of the
extraordinary gain are as follows:
<TABLE>
<S> <C>
9.75% subordinated notes converted $ 4,500,000
Accrued interest 78,930
Less -
Market value of shares issued upon conversion (2,024,993)
Unamortized deferred financing costs (452,442)
-------------
Extraordinary item, gain on extinguishment of debt $ 2,101,495
=============
</TABLE>
8. LEASES:
The Company leases certain machinery, equipment and vehicles and certain
computer and office equipment under noncancelable long-term capital leases.
Future minimum lease payments under all noncancelable long-term capital leases
as of December 31, 1995, are as follows:
<TABLE>
<S> <C>
1996 $ 70,591
1997 53,788
1998 9,154
1999 8,781
2000 2,927
-----------
Total minimum lease payments 145,241
Less- Amount representing interest and insurance 24,622
-----------
Present value of net minimum lease payments 120,619
Less- Current portion 51,902
-----------
Capital lease obligations, long-term $ 68,717
===========
</TABLE>
The Company also leases certain office and warehouse space under noncancelable
long-term operating leases. Future minimum lease payments under all
noncancelable long-term operating leases as of December 31, 1995, are as
follows:
<TABLE>
<S> <C>
1996 $ 72,660
1997 61,869
1998 52,043
1999 13,011
---------
Thereafter --
=========
</TABLE>
F-16
<PAGE> 41
Total rental expense pursuant to noncancelable long-term operating leases was
approximately $57,142, $49,283 and $47,200 for the years ended December 31,
1995, 1994 and 1993, respectively.
9. STOCKHOLDERS' EQUITY:
During the quarter ended March 31, 1995, the Company authorized the issuance of
1,000,000 Warrants to purchase one share each of Common Stock of the Company at
a Warrant Price of $1.50 per warrant and an Exercise Price of $2.00 per share
escalating to $2.65 per share over the term of the Warrant which expires on
February 28, 1997. During the quarter ended March 31, 1995, $850,000 was
received by the Company upon issuance of 566,668 Warrants to six international
investors, four of which are stockholders. During the quarter ended June 30,
1995, an additional $100,000 was received upon issuance of 66,667 Warrants.
During the quarter ended June 30, 1995, 566,668 Warrants were exercised at the
exercise price of $2.00 per share. The Company received $1,133,336 for 566,668
shares of Common Stock of the Company. As of December 31, 1995, 66,667
warrants remained outstanding.
The Company paid $71,000 upon the issuance and $160,000 upon the exercise, in
commissions to an affiliate of the Company in connection with the placement and
exercise of the Warrants during the six months ended June 30, 1995. The
Company reflected the commissions paid as a reduction of Additional Paid in
Capital.
On November 8, 1993, the Company issued 363,636 shares of its common stock to
each of five international, independent and unrelated offerees (an aggregate of
1,818,180 shares) in separate and independent private placements, in
consideration, in each instance of the transfer and assignment by each offeree
to the Company of all of the offeree's right, title and interest in $400,000 in
assigned amount ($2,000,000 in the aggregate) of certificates of deposit,
subject to a pledge of the assigned certificate(s) as collateral securing
payment of the Company's fixed asset line of credit. These certificates of
deposit in combination with the proceeds of $750,000 in stockholder advances
were used to retire the Company's fixed-asset line of credit in November 1993.
On December 31, 1993, the Company issued 320,000 shares of its common stock to
each of five international, independent and unrelated offerees (an aggregate of
1,600,000 shares) in separate and independent offshore private placement
transactions, in consideration, in each instance, of the sum of $320,000,
payable $90,000 cash at the time of subscription with the balance of $230,000,
in each instance, being represented by the purchaser's promissory note in such
principal amount, bearing interest at the rate of 9.75 percent per annum
payable quarterly, with the note principal being payable to the Company in two
annual installments of $115,000 each on May 1, 1994 and 1995 (an aggregate
consideration of $450,000 cash and notes of the purchasers aggregating
$1,150,000). The Company received $250,000 in aggregate prepayments on the
notes in January 1994. The $250,000 prepayment amount was used to retire the
Company's line-of-credit indebtedness to Charter Bank, Houston, and the cash
proceeds of the stock sale were used primarily to pay the cash portion of the
purchase price of the shares of common stock of the Company redeemed by the
Company from a former officer in February 1994 discussed below.
Prior to December 31, 1993, the Company agreed to purchase 1,000,000 shares of
its common stock from a former officer of the Company for $350,000 in cash and
a $650,000 note bearing interest at 9.75 percent. The note was payable in
installments of $100,000 on February 18, 1994, and $550,000 on May 15, 1994.
The note was paid in full in 1994.
Effective January 1, 1994, the Company created the 1994 Stock Option Plan (the
Plan) which provides for the grant of stock options for up to 4,000,000 shares
of common stock to the officers and employees of the Company and its
subsidiaries. The board of directors, which administers the Plan, has
authority to determine the individuals to whom, and the time at which, options
shall be granted, as well as the number of shares to be covered by each grant.
Effective January 1, 1994, a total of 2,275,000 options was granted to current
officers and employees at an exercise price equivalent to the fair value of the
common stock at such date of $1.00 per share. Effective November 30, 1994,
150,000 options were granted to an employee at an exercise price equivalent to
the fair value of the common stock at such date of $5.50 per share. Effective
March 15, 1995, 150,000 options were granted to an employee at an exercise
price equivalent to the fair value of the common stock at such date of $5.50
per share. Such options vest at varying rates per year and expire on December
31, 2013, if not previously exercised. At
F-17
<PAGE> 42
December 31, 1995, options covering 960,000 shares were vested. As of December
31, 1995, no options granted under the Plan had been exercised.
During the year ended December 31, 1994, the Company issued a warrant to an
affiliate of an officer/stockholder for $65,000. The warrant provides that the
affiliate may purchase up to 50,000 shares of common stock of the Company
through January 1, 1997, at an exercise price of $5.00 per share.
The Company has 5,000,000 authorized shares of preferred stock, none of which
has been issued or is outstanding.
10. COMMITMENTS AND CONTINGENCIES:
Litigation
The Company is not a party to any material legal proceedings, other than
various routine claims and disputes arising in the normal course of the
Company's business. The Company does not believe that such claims and
disputes, individually or in the aggregate, will have a material adverse effect
on the Company's operations or financial condition.
During 1995, the Company entered into sales contracts (the Sales Contracts)
with three of its major customers. Under terms of the Sales Contracts, the
customers are required to purchase at least 1,900 tons of dry felt each month,
in the aggregate, for a period of eighteen months at prices based upon the mix
of raw materials used in the manufacture of the dry felt and the quoted market
price of the raw materials.
During 1995, the Company entered into an agreement with the Sierra Club
(Sierra) and the Arkansas Department of Pollution Control and Ecology (ADPCE)
to settle claims brought by those parties concerning non-toxic discharges in
excess of state water permits for the Stephens, Arkansas mill. The Company
paid to ADPCE a civil penalty in the amount of $15,000 for excess discharges
beyond permit allowances into Smackover Creek, near the Stephens, Arkansas
mill. In addition, the Company agreed with ADPCE and Sierra to contribute
$55,000 to environmental projects in the state of Arkansas. The contribution
was paid in full during 1995. The Company has been working with environmental
engineering companies to put in place the plans and equipment necessary to
improve and ultimately eliminate the non-toxic discharges. The Company has
received preliminary approval from the ADPCE and the state health department to
begin construction of a closed loop system. As of March 27, 1996, the closed
loop system's construction was completed. The $15,000 civil penalty and the
$55,000 contribution for environmental projects have been recorded as other
expense in the accompanying consolidated statements of operations.
11. CONCENTRATION OF CREDIT RISK AND
SIGNIFICANT CUSTOMER TRANSACTIONS:
During the year ended December 31, 1995, three contract customers accounted for
33 percent, 18 percent and 18 percent of revenues, respectively. These same
customers accounted for 28 percent, 18 percent and 16 percent of accounts
receivable, respectively, at December 31, 1995. During the year ended December
31, 1994, two customers accounted for 23 percent and 13 percent of revenues.
These same customers accounted for 4 percent and 8 percent of accounts
receivable, respectively, at December 31, 1994.
The Company's present customers are primarily distributors and wholesalers of
roofing materials used in the residential construction industry. As a result,
the Company is subject to demand fluctuations resulting from the level of
residential construction and repair work which is impacted by various economic
factors.
F-18
<PAGE> 43
12. RELATED-PARTY TRANSACTIONS:
During 1994 and 1993, an affiliate of an officer/stockholder made capital
contributions to the Company of $107,477 and $75,000, respectively.
Additionally, the Company paid $224,900 and $65,218 to such affiliate during
1994 and 1993, respectively, in connection with private placements of the
Company's convertible subordinated notes and common stock during 1994 and 1993.
In the first quarter of 1993, the Company purchased from an officer/stockholder
of the Company for $100,000 various leasehold improvements, furniture and
computer and office equipment. During 1993, the same officer/stockholder paid
legal fees of the Company related to the merger totaling $25,117. This payment
was treated as a merger cost and a capital contribution. Additionally, during
1993, an affiliate of this stockholder paid legal fees of the Company related
to the merger totaling $19,259. This payment was treated as a merger cost and
a capital contribution.
During 1995, 1994 and 1993, affiliates of an officer/stockholder of the Company
and international investors reimbursed the Company $132,000, $132,000 and
$192,500, respectively, for salaries paid to certain executive employees.
These payments were made to compensate the Company for the time that the
employees spent working on special projects for the affiliates which were not
related to the Company. The Company has treated these amounts as reimbursement
of salary expense for the years ended December 31, 1995, 1994 and 1993.
During the year ended December 31, 1994, the Company received advances under
notes payable totaling $2,156,000 from affiliates of an officer/stockholder and
international investors (Note 6). The proceeds of this note were used for
working capital.
13. PULP HEDGE CONTRACT:
During the six months ended June 30, 1994, certain traditional sources of raw
materials used by Striker Paper were not able to provide the quantity of raw
materials required to meet Striker Paper's level of production of dry felt at a
satisfactory price. Accordingly, Striker Paper experienced a dramatic increase
in the cost of its raw materials. In an effort to mitigate its exposure to
rising raw material costs, the Company created a new subsidiary, Striker
Services, to obtain one component of the raw materials, old corrugated
cardboard (OCC), in sufficient quantities to meet its production requirements.
Quantities of OCC obtained in excess of that required to meet the Company's
production level may be sold to third parties at market prices.
As a result of continued concern about rising raw material costs and the
uncertainty of the success of the OCC gathering operations of Striker Services,
the Company entered into a pulp hedge contract (the Hedge) effective July 1,
1994 with an international investor which was also a stockholder and a
noteholder, to effectively hedge against rising raw material prices. The terms
of the Hedge provided for a term of six months and for a fixed notional amount
which would be an approximation of Striker Paper's pulp needs for production in
Stephens, Arkansas. The Hedge provided that the amount of net gain or loss, as
applicable, would be equivalent to the difference between the designated strike
price, as set forth in the Hedge contract, and the Company's imputed cost. The
Hedge provided that SSC's imputed cost would be the lessor of: (i) SSC's cash
cost (as defined) or (ii) 95 percent of the market price for OCC as quoted in
industry publications. The Hedge was canceled by the Company effective July 1,
1995. No activity was recorded for the remainder of the year ended December
31, 1995. Gains of $467,772 and $493,529 from the Hedge have been recorded as
reductions of cost of goods sold for the year ended December 31, 1995 and 1994,
respectively.
F-19
<PAGE> 44
14. ASSET PURCHASE OF THOROLD MILL
On May 5, 1995, the asset purchase transaction of the land, building and
equipment of Northern Globe Building Materials, Inc.'s idled dry felt mill in
Thorold, Ontario, Canada (the "Thorold Mill") pursuant to the Asset Purchase
Agreement between Northern Globe Building Materials, Inc. (Northern), dated
March 10, 1995 was consummated. The purchase price of the assets purchased was
1,345,790 shares of common stock of the Company and $250,000 cash. The assets
purchased were recorded at the sum of the estimated market value of the shares
of Common Stock issued ($5.50 per share), cash paid and acquisition costs
incurred in connection with the purchase. The physical properties and assets
purchased were recorded at the total consideration paid of $8,667,642.
The physical properties and assets purchased had formerly been used to
manufacture dry felt paper, but had not been in operation and had been idled
and wholly inactive for more than two years by its previous owners preceding
their purchase by the Company. The Company has reactivated the idled dry felt
mill and will produce dry felt at Thorold, Ontario, Canada for sale to parties
in the roofing industry.
Pro forma information assuming the acquisition had been completed at January 1,
1994 or January, 1995 is not meaningful since the Thorold plant had been idled
for the two years prior to the Company's acquisition.
15. DISCLOSURES ABOUT FAIR VALUE OF FINANCIAL INSTRUMENTS
The following methods and assumptions were used to estimate the fair value of
each class of financial instruments.
Cash and Short-Term Financial Instruments
The carrying amount approximates fair value due to the short maturity
of these instruments.
Long-Term Debt
The carrying value of long-term debt approximates its fair value as
interest rates associated with this debt are either variable or based
on prevailing market rates for the Company.
16. INFORMATION ABOUT THE COMPANY'S OPERATIONS IN
DIFFERENT GEOGRAPHIC AREAS FOR THE YEAR ENDED
DECEMBER 31, 1995:
<TABLE>
<CAPTION>
United
States Canada Total
------ ------ -----
<S> <C> <C> <C>
Sales to unaffiliated customers $ 7,748,879 $ 234,698 $ 7,983,577
=========== ========= ===========
Gross margin $ 1,141,757 $(181,422) $ 960,335
=========== ========= ===========
Selling, general and administrative
expenses (1,960,507) (32,231) (1,992,738)
Other income (expense) (230,872) (46,359) (277,231)
----------- --------- -----------
Loss before income taxes and
extraordinary item (1,049,622) (260,012) (1,309,634)
=========== ========= ===========
Identifiable assets $ 9,881,575 8,440,869 $18,322,444
=========== ========= ===========
</TABLE>
All operations in 1994 and 1993 were in the United States.
F-20
<PAGE> 45
17. SUBSEQUENT EVENTS (UNAUDITED):
On February 16, 1996, the Company issued $1,300,000 of 10.25% Subordinated
Notes (the 1996 Notes) to seven international investors, four of which are
stockholders. The 1996 Notes mature on December 31, 1998, and interest is
payable quarterly beginning July 1, 1996. The proceeds of the 1996 Notes were
used for working capital needs.
On or about February 19, 1996, the Company's Canadian subsidiary received an
additional advance funding under the Canadian Facility in the amount of
$310,000 Can. The proceeds of the additional funding were used for capital
improvement projects and working capital needs.
F-21
<PAGE> 46
EXHIBIT INDEX
4.2 Security Agreement between the Company's wholly-owned
subsidiary, Striker Paper Corporation, and Finova Capital
Corporation dated April 25, 1995 covering a revolving credit
facility.
4.5 10.25% Subordinated Note of the Company maturing December 31,
1998 ($1,300,000 in aggregate principal amount) issued
February 16, 1996.
4.6 Credit facilities' commitment letter agreement dated May 16,
1995 between North American Trust Company of Hamilton,
Ontario, Canada and the Company's wholly-owned Canadian
subsidiary, Striker Paper Canada, Inc.
4.7 $2,000,000 Canadian dollar amount Debenture of Striker Paper
Canada, Inc. in favor of North American Trust Company, dated
July 13, 1995.
4.8 General Security Agreement dated July 13, 1995 between Striker
Paper Canada, Inc. and North American Trust Company.
4.9 Financial Assistance Agreement dated May 16, 1995 between
Ontario Development Corporation, Striker Paper Canada, Inc.
and Striker Industries, Inc.
4.10 Warrant of the Company to purchase up to 150,000 shares of the
Company's Common Stock issued to Ontario Development
Corporation, dated September 8, 1995.
10.1 Dry Felt Purchase/Sale Agreement dated as of April 1, 1995
between Striker Paper Corporation and G.A.P. Roofing, Inc.
10.2 Dry Felt Purchase/Sale Agreement dated as of April 1, 1995
between Striker Paper Corporation and Tarco Building
Materials, Inc.
10.3 Dry Felt Purchase/Sale Agreement dated as of April 1, 1995
between Striker Paper Corporation and United Roofing
Manufacturing Company, Inc.
16.1 Letter dated December 8, 1995 from Arthur Andersen to the
Securities and Exchange Commission complying with Item
304(a)(3) of Regulation S-K.
23.1 Independent Auditors' Consent
23.2 Consent of Independent Public Accountant
27 Financial Data Schedule
<PAGE> 1
EXHIBIT 4.2
SECURITY AGREEMENT
(ACCOUNTS RECEIVABLE,
INVENTORY, MACHINERY AND EQUIPMENT)
BETWEEN
FINOVA CAPITAL CORPORATION
111 WEST 40TH STREET
NEW YORK, NEW YORK 10018
AND
STRIKER PAPER CORPORATION
ONE RIVERWAY, SUITE 2450
HOUSTON, TEXAS 77056
<PAGE> 2
This Security Agreement, made and entered into in New York, New York, this
25th day of April, 1995, by and between STRIKER PAPER CORPORATION, a corporation
existing under and by virtue of the laws of the State of Arkansas, with its
principal place of business located at One Riverway, Suite 2450, Houston, Texas
77056 ("Borrower") and FINOVA CAPITAL CORPORATION, a Delaware corporation, with
its principal place of business located at 111 West 40th Street, New York, New
York 10018 ("FINOVA"). This Agreement sets forth the terms and conditions upon
which FINOVA may, in its sole and absolute discretion, make loans, advances and
other financial accommodations to or for the benefit of Borrower upon the
security referred to herein.
Section 1. DEFINED TERMS
1.1 All terms used herein which are defined in Article 1 or Article 9 of
the Uniform Commercial Code (the "UCC") shall have the same meaning as given
therein unless otherwise defined in this Agreement. All references to the plural
shall also mean the singular.
1.2. "Account" or "Accounts" shall mean all of Borrower's present and
hereafter created accounts receivable, contract rights, general intangibles,
security deposits, trade styles, trademarks, chattel paper, notes, drafts,
acceptances, leases, lease payments, rents, tax refunds, options to purchase
real or personal property, securities, stock options, customer lists, insurance
claims, patents, patent applications, documents, instruments, copyrights,
claims, and any other choses in action, as such terms may be defined in the UCC,
including, without limitation, all obligations for the payment of money arising
out of Borrower's sale, lease or other disposition of goods or other property or
Borrower's rendition of services, and to all of Borrower's merchandise which is
represented thereby whether delivered or undelivered, and to all proceeds
thereof including, but not limited to, the proceeds of any insurance thereon
whether or not specifically assigned to FINOVA.
1.3. "Account Debtor" shall mean each debtor or obligor in any way
obligated on or in connection with any Account.
1.4. "Collateral" shall have the meaning set forth in Section 4.1 hereof.
1.5. "Costs and Expenses" shall include, but not be limited to
commissions, fees, appraisal fees, taxes, title insurance premiums, internal and
external audit expenses for routine and non-routine audits, field examination
expenses, filing, recording and search expenses, reasonable attorney's fees and
disbursements (as may be incurred with respect to the effectuation of this
Agreement or any claim of any nature or litigation whatsoever arising out of or
as a result of the interpretation of this Agreement or the financing provided
for hereunder, including, but not limited to, all fees and expenses for the
service and filing of papers, premiums on bonds and undertakings, fees of
marshals, sheriffs, custodians, auctioneers and others, travel expenses and all
court costs and collection charges), Facility Fees (as defined herein), postage,
wire transfer fees, check dishonor fees and other out of pocket expenses arising
out of relating to the negotiations, preparation, consummation, administration
and enforcement of this Agreement or any other agreement between Borrower and
FINOVA including, but not limited to any guaranty of the Obligations (as defined
herein).
1.6. "Default Rate of Interest" shall have the meaning set forth in
Section 3.2 hereof.
1.7. "Eligible Accounts" shall mean Accounts created by Borrower in the
ordinary course of its business arising out of its sale of goods or rendition of
services, which are and at all times shall continue to be acceptable to FINOVA
in its sole and absolute discretion. Standards of eligibility may be fixed and
revised from time to time solely by FINOVA in its exclusive judgment. In
determining eligibility, FINOVA may, but need not, rely on agings, reports and
schedules of Accounts furnished by Borrower but reliance by FINOVA thereon from
time to time shall not be deemed to limit its right to revise standards of
eligibility at any time without notice as to both Borrower's present and future
Accounts.
1.8. "Events of Default" shall have the meaning set forth in Section 8.1
hereof.
1.9. "Facility Fee" shall have the meaning set forth in Section 3.4
hereof.
1.10. "Line of Credit" as used herein is solely for the purpose of
computing the Facility Fee and does not represent any amount or amounts
available for borrowing purposes nor any limit as to the amount or amounts
available for borrowing purposes, each of which shall be determined at FINOVA's
sole and absolute discretion. Subject to the preceding sentence, Borrower's Line
of Credit is $2,500,000.
<PAGE> 3
1.11. "Net Amount of Eligible Accounts" shall mean the gross amount of
Eligible Accounts less sales, excise or similar taxes, and less returns,
discounts, claims, credits, reserves (as determined by FINOVA in its sole
discretion) and allowances of any nature at any time issued, owing, granted,
outstanding, available or claimed.
1.12. "Obligations" shall mean any and all loans, advances,
accommodations, indebtedness, liabilities, Costs and Expenses and all
obligations of every kind and nature owing by Borrower to FINOVA, however
evidenced, whether as principal, guarantor or otherwise, whether arising under
this Agreement, any supplement hereto, or otherwise, whether now existing or
hereafter arising, whether direct or indirect, absolute or contingent, joint or
several, due or not due, primary or secondary, liquidated or unliquidated,
secured or unsecured, original, renewed, modified or extended, and whether
arising directly or acquired from others (including, without limitation,
wherever applicable, FINOVA's participations or interests in Borrower's
obligations to others) and including, without limitation, FINOVA's charges, of
whatever nature, commissions, interest, expenses, costs and attorneys' fees, all
of which are chargeable to Borrower in connection with any of the foregoing.
1.13. "Records" shall have the meaning set forth in Section 4.1(f) hereof.
1.14. "Renewal Date" shall have the meaning set forth in Section 9.1
hereof.
Section 2. LOANS AND ADVANCES
2.1. FINOVA shall from time to time, in its sole and absolute discretion,
make loans, advances and other financial accommodations to or for the benefit of
Borrower of up to: (a) 80% of the Net Amount of Eligible Accounts (or such
greater or lesser percentage thereof as FINOVA shall, in its sole and absolute
discretion determine); and (b) $590,000 based upon a percentage of the orderly
liquidation value of the Borrower's machinery and equipment (the "M & E
Advance"). The M & E Advance shall be repaid to FINOVA in installments in the
amount of $9,850 per month commencing on the last day of the month in which this
Agreement is executed and delivered to FINOVA and continuing on the last day of
each month thereafter for thirty-five (35) months at which time the entire
balance of the M & E Advance shall be paid to FINOVA. Notwithstanding the
foregoing, FINOVA shall have the right at any time to demand and receive the
immediate repayment of the entire balance of the M & E Advance in the event (a)
of any default or termination under this Agreement; (b) of any reduction in the
value of the Borrower's machinery and equipment; or (c) that FINOVA, in its sole
and absolute discretion, shall consider the M & E Advance insecure.
2.2. All Obligations shall be charged to an account in the Borrower's name
as maintained on FINOVA's books. FINOVA shall render to Borrower a monthly
statement of its account which statement shall be deemed correct, accepted by,
and conclusively binding upon Borrower as an account stated, except to the
extent that Borrower shall deliver to FINOVA written notice of any specific
exceptions thereto within thirty (30) days after the date such statement is
rendered.
2.3. All principal, interest, fees, commissions, charges, Costs and
Expenses incurred with or in respect of this Agreement or any supplement or
amendment hereto (all of which shall be cumulative and not exclusive) and any
and all Obligations shall be charged as an advance to Borrower's account as
maintained by FINOVA.
2.4. All Obligations shall be payable at FINOVA's office specified above
or at such other place as FINOVA may hereafter designate from time to time. If
requested, Borrower shall execute and deliver to FINOVA one or more promissory
notes in form and substance satisfactory to FINOVA to further evidence the
Obligations.
Section 3. INTEREST AND FACILITY FEES
3.1. FINOVA is authorized to charge the Borrower's loan account as an
advance on the first day of each month as follows: (a) all Costs and Expenses;
(b) interest on Borrower's monthly average loan balance; and (c) Letter of
Credit, Guaranty or Acceptance Fees ("LC Fees"), if any. Interest shall be
payable by Borrower to FINOVA at the Prime Rate (the "Prime Rate") plus 3.5%
(the "Interest Rate"). As used herein the term "Prime Rate" shall be deemed to
mean the prime commercial rate charged by Citibank, N.A. in effect on the date
hereof (whether or not such rate is the lowest rate available at such bank) and
as same may be adjusted upwards or downwards from time to time. The Interest
Rate shall never be less than six (6%) percent per annum nor greater than the
highest rate permitted by law. Any change in the Interest Rate shall become
effective on the first day of the month following the month in which the Prime
2
<PAGE> 4
Rate shall have been increased or decreased, as the case may be. The Interest
Rate shall be calculated based on a three hundred sixty (360) day year for the
actual number of days elapsed and shall be charged to Borrower on all
Obligations. All interest charged or chargeable to Borrower shall be deemed as
an additional advance and shall become part of the Obligations. LC Fees, if any,
shall be charged at the rate of 1% per annum of the face amount of the Letter of
Credit, Guaranty or Acceptance. In addition, an additional fee of .5% per month
for each Letter of Credit, Guaranty and Acceptance shall be charged to the
Borrower for each month or part thereof in excess of sixty (60) days that such
Letter of Credit, Guaranty or Acceptance remains open.
3.2. Borrower agrees that upon the occurrence of any Event of Default
(whether caused by the Borrower, an Account Debtor or others), the Interest Rate
on all Obligations shall immediately convert to the rate of 1/15th of 1% per day
(the "Default Rate of Interest") and all interest accruing hereunder together
with all Obligations shall thereafter be payable upon demand.
3.3. In no event shall the Interest Rate or the Default Rate of Interest
exceed the highest rate permitted under any applicable law or regulation. If any
part or provision of this Agreement is in contravention of any such law or
regulation such part or provision shall be deemed amended to conform thereto and
any payments of interest made in excess of such highest rate permitted, if any,
shall be deemed to be payments of principal Obligations to the extent of such
excess.
3.4. Borrower shall pay FINOVA an initial Facility Fee in the amount of
1.5% of the Line of Credit and each year thereafter Borrower shall pay FINOVA an
annual renewal Facility Fee in the amount of 1.0% of the Line of Credit. The
initial Facility Fee is payable upon the execution and delivery of this
Agreement and the annual renewal Facility Fee is payable upon each annual
anniversary date of this Agreement until such time as this Agreement has been
terminated in accordance with its terms.
3.5. Borrower shall pay FINOVA an Audit Fee in the amount of $600 per day
for each auditor performing an examination of the Borrower's books and records,
such Audit Fee to be in addition to all other Costs and Expenses incurred by
FINOVA with regard to each such examination, all of which shall be deemed part
of the Obligations.
Section 4. GRANTING PROVISIONS
4.1. As security for the prompt performance, observance and payment in
full of all Obligations, Borrower hereby grants to FINOVA a continuing security
interest in, lien upon and right of setoff against, and Borrower hereby assigns,
transfers, pledges and sets over to FINOVA the following (which, together with
any of Borrower's other property in which FINOVA may at any time have a security
interest or lien, whether pursuant to any supplement or amendment hereto, or
otherwise, all of which are herein collectively referred to as the
"Collateral"): (a) All of Borrower's present and future Accounts; (b) all of
Borrower's monies, securities and other property and the proceeds thereof, now
or hereafter held or received by, or in transit to, FINOVA from or for Borrower,
or for the account of Borrower, whether for safekeeping, pledge, custody,
transmission, collection or otherwise, and all of Borrower's deposits (general
or special) including, but not limited to security deposits, balances, sums and
credits with FINOVA at any time existing or with a third party for the
Borrower's account; (c) all of Borrower's present and future right, title and
interest, and all of Borrower's present and future rights, remedies, security
and liens, in, to and in respect of the Accounts and other Collateral,
including, without limitation, rights of stoppage in transit, replevin,
repossession and reclamation and other rights and remedies of an unpaid vendor,
lienor or secured party, guarantees or other contracts of suretyship with
respect to the Accounts, deposits or other security for the obligation of any
Account Debtor, and credit and other insurance; (d) all of Borrower's present
and future right, title and interest in, to and in respect of all goods relating
to, or which by sale have resulted in, Accounts including, without limitation,
all goods described in invoices, documents, contracts or instruments with
respect to, or otherwise representing or evidencing, any Accounts or other
Collateral, including without limitation, all returned, reclaimed or repossessed
goods; (e) all of Borrower's present and future deposit accounts; (f) all of
Borrower's present and future books, records, ledger cards, computer programs
(including all software and data contained in or by any computer whether in the
possession of the Borrower or any other party) and other property and general
intangibles evidencing or relating to the Accounts and any other Collateral or
any Account Debtor, together with the file cabinets, containers, tapes or disks,
in which the foregoing are stored ("Records"); (g) all of Borrower's presently
owned or hereafter acquired inventory; (h) all of Borrower's machinery and
equipment, whether presently owned or hereinafter acquired; (i) all other of
Borrower's present and future general intangibles of every kind and description,
including, without limitation, customer lists, stock options, patent, trademark
and copyright applications, trade names and
3
<PAGE> 5
trademarks, and the goodwill of the business symbolized thereby, patents,
copyrights, licenses and Federal, State and local tax refund claims, leases,
rents and insurance claims of all kinds; and (j) all proceeds of the foregoing,
in any form, including, without limitation, all claims against third parties for
loss or damage to or destruction of any or all of the foregoing. The security
interests granted herein shall remain effective whether or not the Collateral
covered thereby is acceptable to FINOVA or deemed by it to be ineligible for the
purposes of any loans or advances contemplated under this Agreement.
4.2. Borrower shall deliver to FINOVA a duplicate and/or original invoice,
and all original documents evidencing the delivery of goods or the performance
of services with regard to each Account, including but not limited to all
original contracts, orders, invoices, bills of lading, warehouse receipts,
delivery tickets and shipping receipts, together with schedules describing the
Accounts and/or written confirmatory assignments to FINOVA of each Account, in
form and substance satisfactory to FINOVA and duly executed by Borrower,
together with such other information as FINOVA may request. In no event shall
the making (or the failure to make) of any schedule or assignment or the content
of any schedule or assignment or Borrower's failure to comply with the
provisions hereof be deemed or construed as a waiver, limitation or modification
of FINOVA's security interest in, lien upon and assignment of the Collateral or
Borrower's representations, warranties or covenants under this Agreement or any
supplement or amendment hereto.
Section 5. ENFORCEMENT OF RIGHTS IN AND TO COLLATERAL
5.1. Until Borrower's authority to do so is curtailed or terminated at any
time by FINOVA in its sole and absolute discretion, Borrower shall (at
Borrower's expense) collect on FINOVA's behalf as FINOVA's property and in trust
for FINOVA, and deliver to FINOVA in their original form on the same date as the
date of the actual receipt thereof, all checks, drafts, notes, acceptances,
cash, wire transfers and any other evidences of payment, applicable to any
assigned Account. Five (5) working days shall be allowed subsequent to receipt
by FINOVA of all Account Debtor or third party checks and two (2) working days
shall be allowed subsequent to receipt by FINOVA of wire transfers by Account
Debtors or third parties to permit bank clearance and collection.
5.2. FINOVA or FINOVA's representatives shall at all times have free
access to and right of inspection of the Collateral and have full access to and
the right to examine and make copies of Borrower's Records, to confirm and
verify all Accounts, to perform general audits and to do whatever else FINOVA
deems necessary to protect FINOVA's interests. FINOVA may at any time remove
from Borrower's premises or require Borrower or its accountants or auditors to
deliver any Records to FINOVA. FINOVA may, at Borrower's cost and expense, use
any of Borrower's personnel, supplies, computer equipment (including all
computer programs, software and data) and space at Borrower's places of business
or at any other place as FINOVA may designate, as may be reasonably necessary
for the handling of collections.
5.3. Merchandise received in settlement of any assigned Account shall be
received in trust for, segregated and delivered to or for the account of FINOVA.
All returns of merchandise, credits, issued by Borrower, claims or disputes of
Account Debtors whether or not accepted by Borrower or given an allowance of any
nature shall be reported by Borrower to FINOVA at least weekly. Each such report
shall be accompanied by copies of all documentation provided to Borrower in
support of all merchandise returns, credits, claims and disputes. Borrower shall
immediately upon obtaining knowledge thereof report to FINOVA all reclaimed,
repossessed and returned goods, Account Debtor claims and any other matter
affecting the value, enforceability or collectability of Accounts. At FINOVA's
request, any goods reclaimed or repossessed by or returned to Borrower will be
set aside, marked with FINOVA's name and held by Borrower (at Borrower's place
of business or at such other place as FINOVA may designate) for FINOVA'S account
and subject to FINOVA's security interest.
5.4. All claims and disputes relating to Accounts shall be adjusted within
a reasonable time at Borrower's own cost and expense.
5.5. FINOVA is authorized and empowered at any time, with or without the
occurrence of an Event of Default, to compromise or extend the time for payment
of any Account, for such amounts and upon such terms as FINOVA may in its sole
discretion determine, and to accept the return of the merchandise represented by
any Account, all without notice to or consent by Borrower, and without
discharging or affecting Borrower's Obligations hereunder to any extent, and
Borrower will, upon demand, pay to FINOVA the amount of any allowance given or
authorized by FINOVA hereunder. FINOVA shall have the right (in addition to its
other rights hereunder or otherwise), with or without the occurrence of an Event
of Default and without notice to Borrower, to appropriate, set off and apply to
the payment
4
<PAGE> 6
of any or all of the Obligations, any portion or all of the Collateral, in such
manner as FINOVA shall in FINOVA's sole discretion determine, to enforce payment
of any Collateral, to settle, compromise or release in whole or in part, any
amounts owing on any Collateral, to prosecute any action, suit or proceeding
with respect to the Collateral, to extend the time of payment of any and all
Collateral, to make allowances and adjustments with respect thereto, to issue
credits in FINOVA's or Borrower's name, to sell, assign and deliver the
Collateral (or any part thereof) at public or private sale, for cash, upon
credit or otherwise at FINOVA's sole option and discretion, and FINOVA may bid
or become purchaser at any such sale, free from any right of redemption which is
hereby expressly waived.
SECTION 6. REPRESENTATIONS AND WARRANTIES
Borrower hereby represents, warrants and covenants to FINOVA the following
(which shall survive the execution and delivery of this Agreement), the truth
and accuracy of which, and continuing compliance with, being a continuing
condition of the making of all loans and advances hereunder by FINOVA or under
any supplement or amendment hereto:
6.1. Borrower is and shall be the owner of the Collateral free and clear
of all liens, security interests, claims and encumbrances of every kind and
nature, except in FINOVA's favor or as otherwise consented to in writing by
FINOVA, and Borrower shall indemnify and defend FINOVA from and against all
cost, loss and expense with regard to the same. None of Borrower's Accounts nor
any of its inventory has been previously sold or assigned to any person, firm or
corporation and will not be sold or assigned, other than to FINOVA, at any time
during the term of this Agreement without first obtaining FINOVA's consent in
writing. Borrower shall not execute any security agreement or UCC financing
statement in favor of any other party or borrow against the security of any
corporate asset, including but not limited to the Collateral, without first
obtaining FINOVA's consent in writing.
6.2. (a) Without first obtaining FINOVA's consent in writing Borrower will
not directly or indirectly sell, lease, transfer, abandon or otherwise dispose
of all or any portion of Borrower's property or assets (except in the ordinary
course of business) or consolidate or merge with or into any other entity or
permit any other entity to consolidate or merge with or into Borrower;
(b) Borrower will preserve, renew and keep in full force and effect
Borrower's existence and good standing as a corporation and its rights and
franchises with respect thereto;
(c) Borrower will continue to engage in business of the same type as
Borrower is engaged as of the date hereof;
(d) Borrower will give FINOVA thirty (30) days prior written notice of
any proposed change in Borrower's corporate name which notice shall set forth
the new name; and
(e) Borrower shall maintain its premises free of environmental
contamination and, if requested in writing, shall provide FINOVA with insurance
coverage to cover all loss related to any environmental risk.
6.3. Borrower's Records and principal executive office are maintained at
the address referred to herein. Borrower shall not change such location without
FINOVA's prior written consent and prior to making any such change, Borrower
agrees to execute any additional financing statements or other documents or
notices which FINOVA may require.
6.4. Borrower shall maintain its shipping forms, invoices and other
related documents in a form satisfactory to FINOVA and shall maintain its books,
records and accounts in accordance with generally accepted accounting principles
consistently applied. Borrower agrees to furnish FINOVA monthly with accounts
receivable agings, inventory reports (if requested by FINOVA), and interim
financial statements (including balance sheet, statement of income and surplus
account, and cash flow statement) hereafter collectively referred to as "Interim
Financial Statements"), and to furnish FINOVA, at any time or from time to time
with such other information regarding Borrower's business affairs and financial
condition as FINOVA may reasonably request, including, without limitation, cash
flow and other projections, earnings forecasts, schedules, agings and reports.
Borrower hereby irrevocably authorizes and directs all accountants, auditors and
any other third parties to deliver to FINOVA, at Borrower's expense, copies of
Borrower's financial statements, papers related thereto, and other accounting
records of any kind or nature in their possession and to disclose to FINOVA any
information they may have regarding Borrower's business affairs and financial
condition. Borrower shall
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<PAGE> 7
furnish FINOVA with audited financial statements within ninety (90) days of the
end of its fiscal year and certified by independent public accountants selected
by Borrower and as to whom FINOVA has no objection. All financial statements and
information shall fairly present Borrower's financial condition and the results
of Borrower's operations for the periods in which the financial statements are
furnished.
6.5. Each Account represents a valid and legally enforceable indebtedness
based upon a bona fide sale and delivery of goods or rendition of services
usually dealt in by Borrower in the ordinary course of its business which has
been finally accepted by the Account Debtor. Each Account is and will be for a
liquidated amount maturing as stated in the invoice rendered to the Account
Debtor who is unconditionally liable to make payment at maturity of the amount
stated in each invoice, document or instrument evidencing the Account in
accordance with the terms thereof, without offset, defense, deduction,
counterclaim, discount or condition. Every assigned Account, and any evidence of
indebtedness with respect thereto shall be paid in full at maturity. If any
Account is not paid in full at maturity, the amount of such unpaid Account
(whether in whole or in part) may be charged against and deducted from any
advance then or thereafter made by FINOVA to Borrower or, in the event Borrower
then has no borrowing availability, Borrower shall pay FINOVA, upon demand, the
full amount remaining unpaid thereon. Such payment or deduction shall not
constitute a reassignment, and FINOVA may retain the Account as collateral for
all Obligations of Borrower to FINOVA until the same have been fully satisfied.
6.6. All statements made and all unpaid balances appearing in the
invoices, documents and instruments evidencing each Account are true and correct
and are in all respects what they purport to be and all signatures and
endorsements that appear thereon are genuine and all signatories and endorsers
have full capacity to contract. Each Account Debtor is solvent and financially
able to pay in full each Account when it matures. None of the transactions
underlying or giving rise to any Account shall violate any state or federal laws
or regulations, and all documents relating to the Accounts shall be legally
sufficient under such laws or regulations and shall be legally enforceable in
accordance with their terms and all recording, filing and other requirements of
giving public notice under any applicable law have been and shall be duly
complied with.
6.7. Borrower is solvent and will so remain. Borrower's federal, state and
local taxes of every kind and nature, including, but not limited to employment
taxes, are current, and there are no pending tax audits or examinations with
respect to Borrower's federal, state or local tax returns.
6.8. Borrower shall duly pay and discharge all taxes, assessments,
contributions and governmental charges upon or against it or its properties or
assets prior to the date on which penalties attach thereto. Borrower shall be
liable for all taxes and penalties imposed upon any transaction under this
Agreement or any supplement or amendment hereto or giving rise to the Accounts
or any other Collateral or which FINOVA may be required to withhold or pay for
any reason. Borrower agrees to indemnify and hold FINOVA harmless with respect
thereto, and to repay to FINOVA on demand the amount thereof, and until paid by
Borrower such amounts shall be added to and included in Borrower's Obligations.
6.9. There is no investigation by any state, federal or local agency
pending or threatened against Borrower and there is no action, suit, proceeding
or claim pending or threatened against Borrower or Borrower's assets or goodwill
or affecting any transactions contemplated by this Agreement, or any supplement
or amendment hereto, or any agreements, instruments or documents delivered in
connection herewith or therewith before any court, arbitrator, or governmental
or administrative body or agency which if adversely determined with respect to
Borrower would result in any material adverse change in Borrower's business,
properties, assets, goodwill or condition, financial or otherwise.
6.10. The execution, delivery and performance of this Agreement, any
supplement or amendment hereto, or any agreements, instruments and documents
executed and delivered in connection herewith, are within Borrower's corporate
powers, have been duly authorized, are not in contravention of law or the terms
of Borrower's charter, by-laws or other incorporation papers, or of any
indenture, agreement or undertaking to which Borrower is a party or by which
Borrower is bound.
6.11. Borrower shall keep and maintain, at its sole cost and expense,
satisfactory and complete Records including records of all Accounts, all
payments received and credits granted thereon, and all other dealings therewith.
Upon the sale of goods or the rendering of services, Borrower shall make
appropriate entries in its books and records disclosing such assignments of
Accounts to FINOVA, and shall execute and deliver all papers and instruments,
and do
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all things necessary to effectuate this Agreement and facilitate the collection
of the Accounts. FINOVA is hereby vested with all of Borrower's rights,
securities and guarantees with respect to each Account, including the right of
stoppage in transit. Notwithstanding the failure of Borrower to execute and
deliver such written assignment as aforesaid, each Account created by Borrower
shall be deemed assigned to FINOVA and shall become its property.
6.12. If any Account Debtor of Borrower shall reject or return any of the
goods which created an assigned Account, Borrower shall promptly deliver the
same to FINOVA, or notify FINOVA and hold the same, separate and apart from
Borrower's stock, in trust for and subject to the order of FINOVA, and FINOVA
may take and sell the same, without notice, for such price and upon such terms
as it may, in its sole and absolute discretion, determine. Borrower shall remain
liable for any difference between the original invoice price and the net
proceeds of re-sale, after deducting any expenses incurred by FINOVA in
connection with such re-sale. Notwithstanding the foregoing, FINOVA may require
Borrower to pay to it the original invoice price of such rejected or returned
goods. In case any such goods shall be re-sold, the Account thereby created
shall be FINOVA's property and shall be deemed assigned hereunder.
6.13. All monies, Accounts and other property of Borrower which may come
into FINOVA's possession in any manner, and all sums to the credit of Borrower
may be retained by FINOVA and applied to the Obligations or any of the
Borrower's obligations owing to FINOVA's parent, any of its subsidiaries or any
of its affiliates. Borrower's obligations as set forth in the preceding sentence
shall remain applicable and enforceable as against Borrower should FINOVA be
merged into or with any other entity, including, but not limited to, its parent
corporation. Borrower absolutely and unconditionally guarantees and grants a
security interest to FINOVA in and to all of its Collateral to secure any and
all Obligations (including but not limited to all obligations of any entity
which is a parent, subsidiary or affiliate of Borrower, whether arising under
this Agreement or otherwise, and whether or not then due and however created)
which Borrower may at any time owe to FINOVA or its parent, any of its
subsidiaries or any of its affiliates.
6.14. FINOVA's agents and examiners shall have the right at any time
during business hours to review, inspect, examine, check and make copies of
extracts from Borrower's Records.
6.15. Borrower shall, at Borrower's expense, duly execute and deliver, or
shall cause to be duly executed and delivered, such further agreements,
instruments and documents, including, without limitation, additional security
agreements, mortgages, deeds of trust, deeds to secure debt, collateral
assignments, UCC financing statements or amendments and continuations thereof,
landlord's or mortgagee's waivers of liens and consents to the exercise by
FINOVA of all of its rights and remedies hereunder, under any supplement or
amendment hereto, or applicable law with respect to the Collateral. In addition,
Borrower shall do or cause to be done such further acts as may be necessary or
proper, in FINOVA's opinion, to evidence, perfect, maintain and enforce its
security interest and the priority thereof in and to the Collateral and to
otherwise effect the provisions and purposes of this Agreement or any supplement
or amendment hereto. Where permitted by law, Borrower hereby authorizes FINOVA
to execute and file one or more UCC financing statements covering the Collateral
signed only by FINOVA.
Section 7. ADDITIONAL POWERS
7.1. FINOVA shall have the right at any time in its sole and absolute
discretion: (a) to notify Account Debtors that Borrower's Accounts have been
assigned to and are payable to FINOVA; and (b) to collect any and all Accounts
directly in its own name and charge all of its collection costs and expenses
including, but not limited to, its legal expenses to the Borrower's account as
part of the Obligations.
7.2. Borrower hereby appoints FINOVA or FINOVA's designee as Borrower's
attorney-in-fact, at Borrower's own cost and expense, to exercise at any time
all or any of the following powers which, being coupled with an interest, shall
be irrevocable until all Obligations have been paid in full: (a) to redirect,
receive, open and dispose of all mail addressed to Borrower and to notify postal
authorities to change the address for delivery thereof to such address as FINOVA
may designate; (b) to execute and file in Borrower's name financing statements
and amendments under the UCC; (c) to receive, take, endorse, assign, deliver,
accept and deposit, in FINOVA's or Borrower's name, any and all checks, notes,
drafts, acceptances, money orders, remittances or other evidences of payment of
money or Collateral which may come into FINOVA's possession; (d) to sign
Borrower's name on any invoice or bill of lading relating to any of the
Collateral; (e) to sign Borrower's name on any drafts against Account Debtors,
assignments and verifications of Accounts; (f) to transmit to Account Debtors
notice of FINOVA's interest therein and to request from such Account Debtors at
any time, in FINOVA's or Borrower's name or that of FINOVA's designee,
information concerning the Accounts and the
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amounts owing thereon; (g) to notify Account Debtors to make payment directly to
FINOVA; (h) to take or bring, in FINOVA's or Borrower's name, and in FINOVA's
sole and absolute discretion all steps, actions, suits or proceedings deemed
necessary or desirable by FINOVA to effect collection of the Collateral; and (i)
to do all other acts and things necessary to carry out this Agreement. Borrower
hereby releases FINOVA and FINOVA's officers, employees and designees, from all
liability arising from any act or acts under this Agreement or in furtherance
thereof, whether by omission or commission, and whether based upon any error of
judgment or mistake of law or fact.
Section 8. EVENTS OF DEFAULT
8.1. All Obligations shall be, at FINOVA's option, immediately due and
payable without notice or demand and the provision of this Agreement (or any
supplement or amendment hereto) as to future loans and advances to or for the
benefit of Borrower shall, at FINOVA's option, terminate forthwith upon the
occurrence of any one or more of the following events of default (the "Events of
Default"): (a) if Borrower shall fail to pay FINOVA when due any amounts owing
to FINOVA under any Obligation, or shall breach any of the terms, covenants,
conditions or provisions of this Agreement, any supplement or amendment hereto
or any other agreement between Borrower and FINOVA; (b) if any guarantor,
endorser or other person liable on the Obligations shall terminate or breach any
of the terms, covenants, conditions or provisions of any guaranty, endorsement
or other agreement of such person with, or in favor of FINOVA; (c) if any
representation, warranty, or statement of fact made to FINOVA at any time by
Borrower or on Borrower's behalf is false or misleading; (d) if Borrower, or any
guarantor, endorser or other person liable on the Obligations shall become
insolvent, fail to meet its or their debts as they mature, call a meeting of
creditors or have a creditor's committee appointed, make an assignment for the
benefit of creditors, commence or have commenced by or against Borrower or any
guarantor, endorser or other person liable on the Obligations any action or
proceeding for relief under any bankruptcy law, or if a judgment is rendered
against Borrower or any guarantor, endorser or other person liable on the
Obligations (which has not been bonded or otherwise secured) or if Borrower or
any guarantor, endorser or other person liable on the Obligations suspends or
discontinues doing business for any reason, or if a receiver, custodian or
trustee of any kind is appointed with regard to any property of Borrower or
guarantor, endorser or other person liable on the Obligations; (e) if there
shall be a material adverse change in Borrower's business, assets or condition
(financial or otherwise) from the date hereof; (f) if there is any change in
Borrower's majority control or ownership; or (g) if at any time FINOVA shall, in
FINOVA's sole and absolute discretion, consider the Obligations insecure or any
part of the Collateral unsafe, insecure or insufficient and Borrower (or other
person or entity acting on Borrower's behalf) shall not on FINOVA's demand
furnish other Collateral or make payment on account, satisfactory to FINOVA.
8.2. In the event FINOVA seeks to take possession of all or any portion of
the Collateral by judicial process (including, but not limited to, FINOVA
obtaining an order of attachment, a temporary restraining order, a preliminary
or permanent injunction or otherwise) against the Borrower or with regard to the
Collateral, Borrower irrevocably waives: (a) the posting of any bond, surety or
security with respect thereto which might otherwise be required, (b) any demand
for possession prior to the commencement of any suit or action to recover the
Collateral, and (c) any requirement that FINOVA retain possession and not
dispose of any Collateral until after trial or final judgment.
8.3. Borrower agrees that the giving of five (5) days' notice by FINOVA,
sent by ordinary mail, postage prepaid, to Borrower's address set forth herein,
designating the place and time of any public sale or of the time after which any
private sale or other intended disposition of the Collateral is to be made,
shall be deemed to be reasonable notice thereof and Borrower waives any other
notice with respect thereto.
8.4. The net cash proceeds resulting from the exercise of any of FINOVA's
rights or remedies under this Agreement, under the UCC or otherwise, shall be
applied by FINOVA to the payment of the Obligations in such order as FINOVA may
elect, and Borrower shall remain liable to FINOVA for any deficiency. Without
limiting the generality of the foregoing, if FINOVA enters into any credit
transaction, directly or indirectly, in connection with the disposition of any
Collateral, FINOVA shall have the option, at any time, in FINOVA's sole and
absolute discretion, to reduce the Obligations by the amount of such credit
transaction or any part thereof or to defer the reduction thereof until actual
receipt by FINOVA of cash in connection therewith.
8.5. The enumeration of the foregoing rights and remedies is not intended
to be exclusive, and such rights and remedies are in addition to and not by way
of limitation of any other rights or remedies FINOVA may have under the UCC or
other applicable law. FINOVA shall have the right, in FINOVA's sole and absolute
discretion, to determine which rights and remedies, and in which order any of
the same, are to be exercised, and to determine which Collateral
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is to be proceeded against and in which order, and the exercise of any right or
remedy shall not preclude the exercise of any others, all of which shall be
cumulative.
8.6. No act, failure or delay by FINOVA shall constitute a waiver of any
of its rights or remedies. No single or partial waiver by FINOVA of any
provision of this Agreement or any supplement or amendment hereto, or breach or
default thereunder, or of any right or remedy which FINOVA may have shall
operate as a waiver of any other provision, breach, default, right or remedy or
of the same provision, breach, default, right or remedy on a future occasion.
8.7. Borrower waives presentment, notice of dishonor, protest and notice
of protest of all instruments included in or evidencing any of the Obligations
or the Collateral and any and all notices or demands whatsoever (except as
expressly provided herein). FINOVA may, at all times, proceed directly against
Borrower or any guarantor or endorser to enforce payment of the Obligations and
shall not be required to take any action of any kind to preserve, collect or
protect FINOVA's or Borrower's rights in the Collateral.
Section 9. MISCELLANEOUS
9.1. This Agreement shall become effective upon acceptance by FINOVA and
shall continue in full force and effect for a term ending three (3) years from
the date hereof (the "Renewal Date") and from year to year thereafter, unless
and until terminated pursuant to the terms hereof. In addition to FINOVA's right
to declare this Agreement immediately terminated at any time upon the occurrence
of an Event of Default, either party may terminate this Agreement on the Renewal
Date or on the anniversary of the Renewal Date in any year by giving the other
party at least sixty (60) days prior written notice by registered or certified
mail, return receipt requested. No termination of this Agreement, however, shall
relieve or discharge Borrower of Borrower's duties, obligations and covenants
hereunder until all Obligations have been paid in full and FINOVA's continuing
security interest in and to the Collateral shall remain in effect until all such
Obligations have been fully discharged.
9.2. If FINOVA terminates this Agreement upon the occurrence of an Event
of Default or if Borrower terminates this Agreement as to future transactions
other than on the Renewal Date or any anniversary of the Renewal Date, in view
of the impracticality and extreme difficulty in ascertaining FINOVA's actual
damages and by mutual agreement of the parties as to a reasonable calculation of
FINOVA's lost profits as a result thereof, Borrower hereby agrees that it shall
immediately pay to FINOVA by wire transfer, certified check or bank cashier's
check. Borrower's entire Obligations owing thereunder, plus liquidated damages
of an amount equal to 75% of FINOVA's average monthly charges (inclusive of
interest, Facility Fee, LC Fees, if any, and all other Costs and Expenses,
hereafter, the "Monthly Charges") for the six month period preceding the date of
FINOVA's receipt of Borrower's notice of termination or from the date of this
Agreement, whichever is less, multiplied by the number of months remaining under
this Agreement, but in no event less than $500 per month of the then unexpired
term thereof. Prior to its actual receipt of payment as aforesaid, FINOVA shall
be free to exercise, without limitation, all of its rights under this Agreement
or under any other agreement if may then have with Borrower. Borrower's default
of any provision under this Agreement may be considered and construed at the
sole option of FINOVA, as a termination of this Agreement by Borrower. The
liquidated damages provided for in this paragraph 9.2 shall be deemed included
in the Obligations and shall be presumed to be the amount of damages sustained
by FINOVA due to the Borrower's early termination and Borrower agrees that such
damages are reasonable and appropriate under the circumstances currently
existing.
9.3. This Agreement, and any supplement or amendment hereto and any
agreements, instruments or documents delivered or to be delivered in connection
herewith, constitute the entire agreement and understanding between FINOVA and
Borrower concerning the subject matter hereof and thereof and as such supersedes
all other prior or contemporaneous agreements, understandings, negotiations and
discussions, representations, warranties, commitments, offers, contracts,
whether written or oral, all of which are merged into this Agreement. FINOVA and
Borrower agree that neither party shall be bound by anything not expressed
herein, nor shall this Agreement be modified orally.
9.4. All amendments and modifications of this Agreement shall be in
writing and signed by Borrower and FINOVA, which requirement shall not be
modified by oral agreement or by course of conduct.
9.5. All notices, requests and demands to or upon the respective parties
hereto shall be deemed to have been duly given or made: (a) by hand, immediately
upon sending; (b) upon posting if by Federal Express, Express Mail or
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any other overnight delivery service; or (c) upon posting if by certified mail,
return receipt requested. All notices, requests and demands are to be given or
made to the respective parties at the addresses set forth herein or at such
other addresses as either party may designate in writing by notice in accordance
with the provisions of this paragraph.
9.6. Borrower and FINOVA each hereby waive all rights to a trial by jury
in any action or proceeding of any kind arising out of or relating to this
Agreement, any supplement or amendment hereto, the Obligations, the Collateral
or any such other transaction. Borrower hereby waives all of its rights of
setoff and rights to interpose any defenses and/or counterclaims in the event of
any litigation with respect to any matter connected with this Agreement, any
supplement or amendment hereto, the Obligations, the Collateral or any other
transaction between the parties. Borrower hereby irrevocably consents and
submits to the jurisdiction and venue of the Supreme Court of the State of New
York or the United States District Court for the Southern District of New York
in connection with any action or proceeding of any kind arising out of or
relating to this Agreement, any supplement hereto, the Obligations, the
Collateral or any such other transaction. Borrower agrees that any action
brought by it against FINOVA whether with regard to this Agreement or otherwise
shall be subject to the exclusive jurisdiction and venue of the Supreme Court of
the State of New York, County of New York or the United States District Court
for the Southern District of New York.
9.7. In any litigation brought by FINOVA, Borrower waives personal service
of any summons, complaint or other process and agrees that service thereof may
be made by certified or registered mail directed to Borrower at Borrower's
address set forth below and service so made shall be complete two (2) days after
the same shall have been posted. Within twenty (20) days after such mailing,
Borrower shall appear and answer such summons, complaint or other process,
failing which Borrower shall be deemed in default and judgment may be entered by
FINOVA against Borrower for the amount of the claim and for any other relief
requested therein.
9.8. This Agreement and all transactions hereunder are deemed to be
consummated in the State of New York and shall be governed by and interpreted in
accordance with the substantive and procedural laws of the State of New York. If
any part or provision of this Agreement shall be determined to be invalid or in
contravention of any application law or regulation of the controlling
jurisdiction, such part or provision shall be severed without affecting the
validity of any other part or provision of this Agreement.
9.9. This Agreement shall inure to and be binding upon the parties hereto
and their successors and assigns.
<TABLE>
<S> <C>
WITNESS STRIKER PAPER CORPORATION
/s/ MATTHEW D. POND By: /s/ RANDAL W. MILLER
- ------------------------------------------------- ----------------------------------------------
Matthew D. Pond, Secretary Randal W. Miller, President
ACCEPTED:
ILLEGIBLE FINOVA CAPITAL CORPORATION
- -------------------------------------------------
Tax I.D. Number
/s/ ILLEGIBLE Vice President
-------------------------------------------------
</TABLE>
GUARANTY
1. In consideration of and in order to induce FINOVA Capital Corporation
("FINOVA"), its successors, endorsees or assigns to grant and continue to grant
such advances, loans or extensions of credit directly or indirectly to STRIKER
PAPER CORPORATION (hereinafter, whether one or more, called "Borrower") and to
grant to Borrower such renewals, extensions, forbearances, releases of
collateral or other relinquishment of legal rights as FINOVA may deem advisable,
and for other good and valuable consideration, receipt of which is hereby duly
acknowledged, the undersigned Guarantor(s) (hereinafter, whether one or more,
called "Guarantor", who, if two or more in number, shall be jointly and
severally bound) for the undersigned Guarantor and for their heirs and personal
representatives, or successors, and assigns of the undersigned Guarantor, hereby
absolutely and unconditionally guarantees to FINOVA, its successors, endorsees
and assigns, the prompt and unconditional payment when due (whether at maturity,
by acceleration or otherwise) and at all times thereafter of any and all
obligations or liabilities of every kind, nature and character (including all
renewals,
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extensions and modifications thereof) of Borrower to FINOVA, its successors,
endorsees or assigns howsoever created or arising, whether or not represented by
negotiable instruments or other writings, whether now existing or hereafter
incurred, whether originally contracted with FINOVA or with another and assigned
or transferred to FINOVA or otherwise acquired by FINOVA, whether contracted by
Borrower alone or jointly with others, and whether absolute or contingent,
secured or unsecured, matured or unmatured, including but not limited to any and
all sums, late charges, disbursements, expenses, legal fees and any deficiency
upon enforcement of collateral, agreements and contracts in connection with all
of such obligations.
2. Undersigned Guarantor consents that without notice to or further assent
by undersigned Guarantor, the obligation of Borrower or of any other party for
the liability hereby guaranteed may be renewed, extended, modified, prematured
or released by FINOVA as it may deem advisable in its sole and absolute
discretion, and that any security or securities which FINOVA holds may be
exchanged, sold, released, or surrendered by it, as it may deem advisable in its
sole and absolute discretion, without impairing or affecting the obligation of
undersigned Guarantor hereunder.
3. Undersigned Guarantor waives any and all notice of the acceptance of
this guaranty, or of the creation, renewal or accrual of any obligations or
liability of Borrower to FINOVA, present or future, or of the reliance of FINOVA
upon this guaranty. Any and every obligation or liability of Borrower to FINOVA
herein described shall conclusively be presumed to have been created, contracted
or incurred in reliance upon this guaranty, and all dealings between Borrower
and FINOVA shall likewise be presumed to be in reliance upon this guaranty.
Undersigned Guarantor waives protest, presentment, demand for payment, notice or
default or non-payment and notice of dishonor to or upon undersigned Guarantor,
Borrower or any other party liable for any of Borrower's obligations hereby
granted.
4. This guaranty shall be construed as an absolute and unconditional
guaranty of payment without regard to the validity, regularity or enforceability
of any obligation or purposed obligation of Borrower. FINOVA shall have all of
its remedies under this guaranty without being obliged to resort first to any
security or to any other remedy or remedies to enforce payment or collection of
the obligations hereby guaranteed and may pursue all or any of its remedies at
one or at different times. FINOVA is hereby given a continuing lien for the
purposes and security of this guaranty as well as for any other obligation or
liability (present or future, absolute or contingent, due or not due) of
undersigned Guarantor to FINOVA upon all property and securities now or
hereafter given unto or left in the possession or custody of FINOVA for any
purpose (including property left in safekeeping or custody), by or for the
account of any undersigned Guarantor, and also upon any deposits with or any
credit or claim of any undersigned Guarantor against FINOVA existing from time
to time. FINOVA is hereby authorized and empowered, upon the occurrence of any
of the events set forth in the next succeeding paragraph, to appropriate and
apply to the payment and extinguishment of the liability of undersigned
Guarantor any and all such monies, property, securities, deposits or credit
balances without demand, advertisement or notice, all of which are hereby
expressly waived.
5. Upon the default of Borrower or any undersigned Guarantor with respect
to any obligations or liabilities of either of them to FINOVA or in the event
Borrower or any undersigned Guarantor shall die or become insolvent or make an
assignment for the benefit of creditors, or if a petition in bankruptcy be filed
by or against Borrower or any undersigned Guarantor, or in the event that a
judgment is obtained or warrant of attachment issued against Borrower or any
undersigned Guarantor, or in the event of the appointment of a receiver (either
at law or in equity) of Borrower or of any undersigned Guarantor, or in the
event that a judgment is obtained or warrant of attachment issued against
Borrower or any undersigned Guarantor, or in the event that the financial or
business condition of any of them shall so change as in the opinion of FINOVA
will materially impair its security or increase its risk, all or any part of the
obligations and liabilities of Borrower and/or of undersigned Guarantor to
FINOVA, whether direct or contingent, and of every kind and description, shall,
without notice or demand, become immediately due and payable insofar as this
guaranty is concerned, and shall be taken up forthwith by undersigned Guarantor,
and in any of such events, and whether or not the said liabilities and
obligations are due and payable, FINOVA may (in addition to, and subject to its
rights and remedies under the terms of any special contract with Borrower),
without demand of performance or advertisement or notice of intention to sell or
of time or place of sale, or to redeem, or other notice whatsoever to
undersigned Guarantor or to Borrower (all and each of which demands,
advertisements and notices being hereby expressly waived), sell any and all
collateral which it may hold for said obligations, or under this guaranty, in
one or more parcels, at public or private sale, at FINOVA's office or elsewhere,
at such prices as FINOVA may deem best, either for cash or credit, with the
right of FINOVA at any such sale, public or private, to purchase the whole or
any part of said collateral free from any right or equity of redemption, which
right or equity is hereby expressly waived. FINOVA may, in its uncontrolled
discretion, apply the net proceeds of such sale or sales to payment on account
of the obligations or liabilities of Borrower and undersigned Guarantor in such
manner and order of priority as FINOVA may, in its absolute and uncontrolled
discretion, elect. If
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in the opinion of FINOVA, any collateral deposited hereunder cannot be freely
sold or disposed of at public or private sale (because of any relationship
between the owner and issuer thereof or otherwise), FINOVA shall have the
unqualified right (in addition to all other rights hereunder) to sell the same,
or any part thereof, to a purchaser or purchasers, under investment letters, for
a negotiated price or prices which, under such circumstances, shall be deemed to
be fair and equitable.
6. Any stocks, bonds or other securities held by FINOVA hereunder may,
whether or not Borrower or undersigned Guarantor is in default, be registered
and held in the name of FINOVA or its nominee, and FINOVA or said nominee may
exercise all voting and corporate rights relating thereto as if the absolute
owner thereof.
7. The term "Borrower" as used herein shall include the individual or
individuals, association, partnership or corporation named herein as Borrower,
and (a) any successor individual or individuals, association, partnership or
corporation to which all or substantially all of the business or assets of said
Borrower shall have been transferred, (b) in the case of a partnership Borrower,
any new partnership which shall have been created by reason of the admission of
any new partner or partners therein and/or the dissolution of the existing
partnership by the death, resignation, or other withdrawal of any partner, and
(c) in the case of a corporate Borrower, any other corporation into or with
which said Borrower shall have been merged, consolidated, reorganized, purchased
or absorbed. The right of FINOVA to hold, deal with and dispose of the property
deposited by undersigned Guarantor hereunder, as herein provided, shall continue
unimpaired notwithstanding any invalidity or unenforceability of this guaranty
as against undersigned Guarantor personally.
8. FINOVA's books and records showing the account between FINOVA and
Borrower shall be admissible as evidence in any action or proceeding, shall be
binding upon the undersigned Guarantor for the purpose of establishing the items
therein set forth and shall constitute prima facie proof hereof. FINOVA's
monthly statements rendered to Borrower shall, to the extent to which no written
objection is made within thirty (30) days after the date thereof, constitute an
account stated between FINOVA and Borrower and be binding upon the undersigned
Guarantor.
9. The undersigned Guarantor waives any and all rights of subrogation,
reimbursement, indemnity, exoneration, contribution or any other claim which the
undersigned Guarantor may now or hereafter have against Borrower, or any person
other than a coguarantor directly or contingently liable for the obligations
guaranteed hereunder, or against or with respect to the Borrower's property
(including without limitation, property collateralizing the undersigned
Guarantor's obligations to FINOVA) arising from the existence or performance of
this guaranty. In furtherance and not in limitation of the preceding waiver, the
undersigned Guarantor agrees that any payment to FINOVA by the undersigned
Guarantor pursuant to this guaranty shall be deemed a contribution to the
capital of the Borrower or other obligated party, and any such payment shall not
constitute the undersigned Guarantor a creditor of any such party.
10. The undersigned Guarantor represents and warrants that there is no
existing indemnification agreement, whether qualified or unqualified, between
the undersigned and Borrower. The undersigned waives any right he may otherwise
have to seek a stay from any United States Bankruptcy Court, in which Borrower
may become a debtor, of any claim or cause of action hereinafter asserted
against the undersigned Guarantor on his guaranty, whether in an action
commenced against the undersigned as a guarantor prior to or instituted
following the filing a Chapter 11 petition by or against Borrower. The
undersigned Guarantor further acknowledges that this waiver hereinabove, is
specifically provided to FINOVA as an inducement to it to effect the financial
accommodations provided by FINOVA to Borrower.
11. This guaranty shall, without further reference, pass to, and may be
relied upon and enforced by, any successor or assignee of FINOVA and any
transferee or subsequent holder of any of said liabilities or obligations of
Borrower. This guaranty may be terminated (but only insofar as it may relate to
obligations of Borrower arising subsequent to such termination) upon written
notice to that effect delivered by undersigned Guarantor to an officer of
FINOVA, such termination to be effective only upon the execution by such officer
of a written receipt therefor, and in the event of such termination, undersigned
Guarantor and his or their respective executors, administrators or successors
and assigns shall nevertheless remain liable with respect to obligations
incurred or arising theretofore, and with respect to such obligations and any
renewals, extensions or other liabilities arising out of same, this guaranty
shall continue in full force and effect, and FINOVA shall have all the rights
herein provided for as if no such termination had occurred.
12. The undersigned Guarantor does hereby waive any and all right to a
trial by jury in any action or proceeding based hereon. This guaranty and the
rights an obligations of FINOVA and of the undersigned Guarantor shall be
governed and construed in accordance with the laws of the State of New York. The
undersigned Guarantor hereby
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consents to the jurisdiction of the Supreme Court of the State of New York for a
determination of any dispute connected with this guaranty and authorizes the
service of process on the undersigned Guarantor by registered or certified mail
sent to the undersigned Guarantor at the address or addresses of the undersigned
Guarantor, as the case may be as herein set forth or as set forth on any record
maintained by FINOVA. This guaranty cannot be changed or terminated orally,
shall be interpreted according to the laws of the State of New York, shall be
binding upon the heirs, executors, administrators, successors and assigns of the
undersigned Guarantor and shall inure to the benefit of FINOVA's successors and
assigns.
13. Guarantor agrees that, whenever an attorney is used to obtain payment
under or otherwise enforce this guaranty or to enforce, declare or adjudicate
any rights or obligations under this guaranty or with respect to collateral,
whether by legal proceeding or by any other means whatsoever, FINOVA's
reasonable attorney's fee plus costs and expenses shall be payable by each
Guarantor against whom this guaranty or any obligation or right hereunder is
sought to be enforced, declared or adjudicated. Guarantor, if more than one,
shall be jointly and severally bound and liable hereunder and if any of the
undersigned is a partnership, also the members thereof individually. FINOVA and
Guarantor, in any litigation (whether or not arising out of or relating to
obligations, liabilities or collateral security or any of the matters contained
in this guaranty) in which FINOVA and any of them shall be adverse parties,
waive trial by jury. In addition, Guarantor waives the performance of each and
every condition precedent to which Guarantor might otherwise be entitled by law.
FINOVA shall have the right to fill in any blank spaces left in this guaranty
(including the name of "Borrower"), to date this guaranty and to correct patent
errors therein.
14. The Guarantor acknowledges that this guaranty and the Guarantor's
obligations under this guaranty are and shall at all times continue to be
absolute and unconditional in all respects and shall at all times be valid and
enforceable irrespective of any other agreements or circumstances of any kind or
nature whatsoever which might otherwise constitute a defense to this guaranty
and the obligations of the Guarantor under this guaranty or the obligations of
any other person or party (including, without limitation, the Borrower) relating
to this guaranty or the obligations of the Guarantor hereunder or otherwise with
respect to any transactions involving the Borrower and FINOVA. This Guaranty
sets forth the entire agreement and understanding of FINOVA and Guarantor and
Guarantor absolutely, unconditionally and irrevocably waives any and all right
to assert any defense, set-off, counterclaim or cross-claim of any nature
whatsoever (including, but not limited to, fraud in the inducement and
commercial disposition of collateral of the Guarantor or Borrower) with respect
to this Guaranty or the obligations of the Guarantor under this guaranty or the
obligations of any other person or party (including, without limitation,
Borrower) relating to this guaranty or the obligations of the Guarantor under
this guaranty or otherwise with respect to any transactions involving the
Borrower and FINOVA in any action or proceeding brought by its successors and
assigns, to collect the Debt or any portion thereof, or to enforce, the
obligations of the Guarantor under this guaranty. The Guarantor acknowledges
that no oral or other agreements, understandings, representations or warranties
exists with respect to this guaranty or with respect to the obligations of the
Guarantor under this guaranty, except as specifically set forth in this
guaranty.
15. No executory agreement and no course of dealing between undersigned
Guarantor and FINOVA shall be effective to change or modify this guaranty in
whole or in part; nor shall any change, modification or waiver of any rights or
powers of FINOVA be valid or effective unless in writing or signed by an
authorized officer of FINOVA.
IN WITNESS WHEREOF, the undersigned Guarantor has hereunto set his hand and
seal the day and year first above written.
WITNESS:
/s/ DAVID A. COLLINS (L.S.)
- --------------------------------------
David A. Collins, Guarantor
11302 Memorial Drive
- --------------------------------------
Houston, Texas 77024
- --------------------------------------
Address
###-##-####
- --------------------------------------
Social Security Number
13
<PAGE> 15
/s/ MATTHEW D. POND (L.S.)
----------------------------------------
Matthew D. Pond, Guarantor
1231 West Pierre
----------------------------------------
Houston, Texas 77019
----------------------------------------
Address
###-##-####
----------------------------------------
Social Security Number
/s/ RANDAL W. MILLER
----------------------------------(L.S.)
Randal W. Miller, Guarantor
[ILLEGIBLE]
----------------------------------------
[ILLEGIBLE]
----------------------------------------
Address
[ILLEGIBLE]
----------------------------------------
Social Security Number
STATE OF TEXAS )
ss.:
COUNTY OF HARRIS )
On this 25th day of April, 1995, before me personally appeared David A.
Collins, to me known, and known to me to be the individuals described in and who
executed the foregoing instrument and they duly and severally acknowledged to me
that they executed the same.
<TABLE>
<S> <C>
[SEAL: /s/ MARTHA R. ROGERS
MARTHA R. ROGERS -----------------------------------------------------
NOTARY PUBLIC, STATE OF TEXAS NOTARY PUBLIC
MY COMMISSION EXPIRES
FEB. 28, 1997]
</TABLE>
STATE OF TEXAS )
ss.:
COUNTY OF HARRIS )
On this 25th day of April, 1995, before me personally appeared Matthew D.
Pond, to me known, and known to me to be the individuals described in and who
executed the foregoing instrument and they duly and severally acknowledged to me
that they executed the same.
<TABLE>
<S> <C>
[SEAL: /s/ MARTHA R. ROGERS
MARTHA R. ROGERS -----------------------------------------------------
NOTARY PUBLIC, STATE OF TEXAS NOTARY PUBLIC
MY COMMISSION EXPIRES
FEB. 28, 1997]
</TABLE>
14
<PAGE> 16
STATE OF TEXAS )
ss.:
COUNTY OF HARRIS )
On this 25th day of April, 1995, before me personally appeared Randal W.
Miller, to me known, and known to me to be the individuals described in and who
executed the foregoing instrument and they duly and severally acknowledged to me
that they executed the same.
<TABLE>
<S> <C>
[SEAL] /s/ MARTHA R. ROGERS
MARTHA R. ROGERS -----------------------------------------------------
NOTARY PUBLIC, STATE OF TEXAS NOTARY PUBLIC
MY COMMISSION EXPIRES
FEB. 28, 1997
</TABLE>
15
<PAGE> 1
EXHIBIT 4.5
THE SECURITIES REPRESENTED BY THIS NOTE HAVE NOT BEEN REGISTERED UNDER THE
SECURITIES ACT OF 1933, AS AMENDED (THE "SECURITIES ACT"), OR ANY OTHER
APPLICABLE SECURITIES LAW. THE SECURITIES REPRESENTED BY THIS NOTE MAY NOT BE
TRANSFERRED EXCEPT PURSUANT TO AN EFFECTIVE REGISTRATION STATEMENT UNDER, OR IN
A TRANSACTION EXEMPT FROM REGISTRATION UNDER, THE SECURITIES ACT AND IN
ACCORDANCE WITH ANY OTHER APPLICABLE SECURITIES LAWS.
SUBORDINATED PROMISSORY NOTE
No.
$ Houston, Texas February 16, 1996
FOR VALUE RECEIVED, the undersigned, WEST OXFORD INDUSTRIES, INC., a Texas
corporation ("Maker"), promises to pay to the order of
("Holder"), the principal amount of $ , together with interest on the
principal balance from time to time remaining unpaid at the rate and upon the
terms provided in this Note. Each payment or pre-payment under this Note shall
be made in lawful money of the United States of America at the mailing address
of the Holder set forth in the Signature Page to the Subscription Agreement
between Maker and Holder dated February 16, 1996, or as subsequently provided in
writing by Holder to Maker.
1. PAYMENT TERMS. The entire unpaid principal balance of this Note, plus
all accrued and unpaid interest on this Note, is due and payable on December 31,
1998 (the "Maturity Date"). Interest on the outstanding principal balance of
this Note shall be due and payable on the first day of each July 1, October 1,
January 1, and April 1 as it accrues, and on the Maturity Date.
2. INTEREST RATE. The unpaid principal balance of this Note from time to
time outstanding will accrue interest from the date of this Note until the
Maturity Date (and thereafter until paid) at a fixed rate which shall be equal
to ten and one quarter percent (10.25%) per annum, and shall be calculated on a
365 day basis.
3. PREPAYMENT. Maker may prepay all or any portion of this Note at any
time, without premium or penalty.
4. SUBORDINATION. All principal and interest obligations of Maker to
Holder under this Note shall be subordinate to all other Obligations in right of
payment. Upon the occurrence of a default under an Obligation, Maker may not pay
the amounts due under this Note prior to payment in full (or cancellation, as
the case may be) of all Obligations. Notwithstanding the foregoing, until a
default occurs under an Obligation, Maker may pay the amounts due under this
Note. If Holder receives any payment from Maker in violation of this section,
Holder shall hold any such payment in trust for Maker and shall promptly turn
such payment over to Maker in the form received (with any necessary
endorsements), to be applied to the Obligations. For purposes of this section,
the term "Obligation" or "Obligations" means all obligations of Maker to all
parties other than the holder of this Note or the other Subordinated Promissory
Notes due December 31, 1998, issued by Maker.
5. EVENTS OF DEFAULT. The term "Default," as used in this Section, shall
mean Maker fails to pay all or any portion of the amounts due under this Note
when due and such failure continues for 30 days after Maker receives written
notice of such failure from Holder.
6. REMEDIES OF HOLDER. Upon the occurrence of a Default under the terms of
this Note, Holder shall have the following rights:
PAGE 1 of 3 PAGES
<PAGE> 2
A. Acceleration. Holder may, at its option, and upon giving notices
required by applicable law, declare the entire principal balance of this Note
and the accrued but unpaid interest thereon, immediately due and payable.
B. Other Rights. Holder shall have all rights and remedies available at
law or equity.
7. WAIVER OF JURY TRIAL. MAKER AND HOLDER HEREBY WAIVE TO THE FULLEST
EXTENT PERMITTED BY LAW, THEIR RIGHT TO A JURY TRIAL OF ANY CLAIM OR CAUSE OF
ACTION BASED UPON OR ARISING OUT OF THIS NOTE OR THE TRANSACTIONS CONTEMPLATED
HEREBY. The scope of this waiver is intended to be all-encompassing of any and
all disputes that may be filed in any court and that relate to the subject
matter of this transaction, including, without limitation, contract claims, tort
claims, breach of duty claims, and all other common law and statutory claims.
Each party further warrants and represents that it has reviewed this waiver with
its legal counsel, and that it knowingly and voluntarily waives its jury trial
rights following consultation with legal counsel. THIS WAIVER IS IRREVOCABLE,
MEANING THAT IT MAY NOT BE MODIFIED EITHER ORALLY OR IN WRITING, AND THIS WAIVER
SHALL APPLY TO ANY SUBSEQUENT AMENDMENTS, RENEWALS, SUPPLEMENTS, OR
MODIFICATIONS TO THIS NOTE. IN THE EVENT OF LITIGATION, THIS NOTE MAY BE FILED
AS A WRITTEN CONSENT TO A TRIAL BY THE COURT.
8. RESTRICTIONS ON TRANSFER. (a) The initial Holder hereby certifies,
warrants, and covenants to Maker, under penalties of perjury, that (i) Holder
(and any person on whose behalf Holder is acting) is not a United States person
as that term is defined in the income tax laws of the United States, (ii) Holder
is the beneficial owner of the Note, (iii) Holder is not a ten percent (10%)
shareholder of Maker as defined by The Internal Revenue Code of 1986 (as
amended, the "Code") Section 871(h)(3),(iv) a United States Internal Revenue
Service Form W-8 shall be executed by or on behalf of Holder, and (v) Holder
promises to notify Maker within 30 days of occurrence if its country of
citizenship, residence, or organization is found to be, or changes to, the
United States.
(b) Each subsequent Holder who is not a United States person will be
required to certify to Maker the information set out in subsection (a) above by
execution of a Transfer Statement in the form attached to this Note as Exhibit A
in order to effect the transfer of record title of the Note to the transferee on
the books of Maker. Any transferee who is a United States person shall also
submit such a Transfer Statement with paragraph B thereof deleted and United
States Internal Revenue Service Form W-9 attached.
(c) Any subsequent Holder who is or becomes a United States person shall
promptly provide to Maker a United States Internal Revenue Form W-9.
(d) Each Holder shall recertify the information set forth in subsection (a)
above to Maker annually or as more frequently requested by Maker.
9. CAPTIONS AND CERTAIN DEFINITIONS. The captions, headings, and
arrangements used in this Note are for convenience only and do not affect,
limit, amplify, or modify the terms and provisions of this Note. As used in this
Note, the term (a) "Holder" means "Holder" as defined in the preamble to this
Note and all subsequent holders or transferees of this Note, and (b) "Maker"
means "Maker" as defined in the preamble to this Note and its successors and
assigns.
PAGE 2 OF 3 PAGES
<PAGE> 3
10. APPLICABLE LAW. This Note and shall be governed by and construed in
accordance with the laws of the State of Texas and the laws of the United States
applicable to transactions within such State.
WEST OXFORD INDUSTRIES, INC.
a Texas corporation
By:
---------------------------------
Name: Robert B.B. Smith
Title: Executive Vice President
PAGE 3 of 3 PAGES
<PAGE> 4
EXHIBIT A
TRANSFER STATEMENT
A. The undersigned Holder ("Holder") hereby transfers and conveys all of
Holder's right, title, and interest in and to that one certain Note initially
executed to be effective on by West Oxford Industries, Inc.
("Maker"), to , as initial Holder, in the original Principal
Amount of $ Subordinated Promissory Note due December 31,
1998, No. (hereinafter "the Note"), subject to the terms of the Note,
to ("Transferee").
B. Transferee certifies, warrants and covenants to Holder and Maker, under
penalties of perjury, that (i) the Transferee (and any person on whose behalf
Transferee is acting) is not a United States person as that term is defined
under the income tax laws of the United States, (ii) the Transferee is the
beneficial owner of the Note, (iii) the Transferee is not a ten percent (10%)
shareholder of Maker as defined by United States Internal Revenue Code Section
871(h)(3); (iv) a United States Internal Service Form W-8 executed by or on
behalf of the Transferee is attached hereto; and (v) the Transferee promises to
notify Maker within 30 days of occurrence if its country of citizenship,
residence or organization is found to be, or changes to, the United States.
TRANSFEREE:
- --------------------------------------
By:
----------------------------------
Name:
--------------------------------
Title:
---------------------------------
Date:
---------------------------------
Address of Transferee:
- --------------------------------------
- --------------------------------------
- --------------------------------------
WEST OXFORD INDUSTRIES, INC.
By:
----------------------------------
Name:
--------------------------------
Title:
---------------------------------
Date:
---------------------------------
HOLDER/TRANSFEROR:
- --------------------------------------
By:
----------------------------------
Name:
--------------------------------
Title:
---------------------------------
Date:
---------------------------------
<PAGE> 1
EXHIBIT 4.6
[LOGO] ALL AMOUNTS EXPRESSED IN CANADIAN DOLLARS
2 King Street East
Hamilton, Ontario LBN 1A3
Telephone: (905) 526-6331
Facsimile: (905) 525-2766
May 16, 1995 CONFIDENTIAL
Striker Paper Canada, Inc. formerly
Northern Striker Inc.,
c/o Striker Industries, Inc.
One Riverway, Suite 1250
Houston, TX 77056
Attention: Matt Pond
Dear Sir:
RE: OFFER OF FINANCE
North American Trust Company (North American) is pleased to offer the following
facilities subject to the following terms and conditions:
BORROWER: STRIKER PAPER CANADA, INC. (FORMERLY NORTHERN STRIKER, INC.)
LENDER PARTICIPATION:
North American may in its discretion subject to the borrower's prior reasonable
approval arrange for the funding or assignment of all or part of the credit
facilities, either at the time of the initial advance or from time to time in
future, to North American Life, or to one or more other financial institutions
(which may or may not be affiliated with North American).
FACILITIES:
<TABLE>
<CAPTION>
LOAN # TYPE AMOUNT
------------------------ ------------------------ ----------
<S> <C> <C>
1 Operating $ 500,000
2 Term $ 500,000
3 Term(ODC) $1,000,000
</TABLE>
PROGRAM:
Purpose: 1. Operating line to finance receivables and inventory
2. Term Loan to finance plant improvements
3. Term Loan to finance plant improvements
Source: North American Trust
- --------------------------------------------------------------------------------
North American Trust Company Conditional Offer Page 1
23-May-95
<PAGE> 2
Changes to the program may only be made with our prior written approval.
AVAILABILITY CONDITIONS:
Aggregate Advances under Loan #2 and #3 to be limited to the aggregate of 75% of
real property appraisal plus 75% of existing plant liquidation value appraisal.
Advances under loan #1 will be margined at each month end and will be limited
during the subsequent month to maximum advances as determined by the following
margin requirements: 75% of under 90 day assigned acceptable accounts receivable
(where both a receivable and payable exist with the same entity the two amounts
will be offset with the net balance only included in margined receivables) less
all prior claims (i.e. source deductions, UIC, CPP, GST, WCB, accounts payable
and cheques outstanding to suppliers with valid PMSI registrations, etc.) North
American may deduct the whole of any account receivable when any portion of it
is in excess of 90 days aging and North American is not satisfied with the
collectibility of the account.
Advances under loan #2 will be available at closing after all disbursement
conditions have been satisfied.
Advances under loan #3 will be made against certified invoices in accordance
with Jacobs Serrine report, and:
Progress draws will be limited to certified value of work completed less
holdback of 10% which will be withheld from each construction advance until
expiry of the lien period (45 days);
North American shall not be required to make any advance unless, prior to making
such advance, it is satisfied that the unadvanced portion of the loan will be
sufficient to pay the cost to complete the project. Where insufficient
unadvanced funds would remain, the borrower shall be required to pay such
additional funds to North American as to make the unadvanced portion of the loan
equal to the cost to complete;
Sub-searches will be conducted at the borrower's expense prior to each advance;
North American will require five days notice for each progress draw;
Non-payment of property taxes when due will be considered a default under the
loan.
During the term of the Loan, the Borrower shall:
a) Request North American's approval of major engineering & architectural change
notices, major being defined as $100,000.
b) Remove any encumbrance, lien or charge created against the Project within 7
days of written notice.
c) Request funds solely for the Project.
d) Allow North American to have access to the Project at all times.
e) Acknowledge that we have the right pay to contractors and suppliers directly
through our Solicitor's trust account.
f) Request North American's approval of all leases entered into for the Project.
g) All advances will be made through our Solicitor's trust account.
- --------------------------------------------------------------------------------
North American Trust Company Conditional Offer Page 2
23-May-95
<PAGE> 3
FUNDING CONDITIONS:
All progress draws will be supported by the following documents in a form and
substance satisfactory to North American:
a) From the Borrower:
i) a written draw request indicating the amount and to whom funds are to
be disbursed and including certificates by an authorized officer of the
Borrower to the effect that:
- advances do not exceed the aggregate of the value of work performed
and in place;
- based on latest estimates, the unused portion of the construction
financing is sufficient to fully complete the Project and to retire
all payables relating to the Project;
- the costs with respect to which advances pertain are properly
incurred in accordance with the budget and are in a form consistent
with the original budget.
ii) project expense summary outlining item, budget, cost to date,
application of proceeds & cost to complete;
iii) billing statements, invoices, etc. from suppliers, architects, etc. to
support non-general contract items;
iv) a statutory declaration that all accounts payable in respect of the
Project for the period 30 days prior to the date of the billing
statements have been paid except for holdbacks;
b) From the Project Contractor:
i) a certificate to the effect that;
- all work is done in accordance with approved plans & specifications &
in a good & workmanlike manner;
- that construction work is progressing within the original time
schedule;
- that portion of the Borrower's requisition covering direct
construction costs represents work completed on the Project less 10
percent (10.0%) holdback;
- the remaining construction budget as approved by North American is
sufficient to complete the Project.
TERM:
The outstanding balance of all facilities will be due and payable at the expiry
of the respective term for each facility (the "Maturity Date"). Terms for these
facilities will mature as follows:
<TABLE>
<CAPTION>
LOAN # MATURITY DATE OF LOAN
- ------- ----------------------------------
<S> <C>
2 & 3 5 years from date of disbursement
1 annual review
</TABLE>
- --------------------------------------------------------------------------------
North American Trust Company Conditional Offer Page 3
23-May-95
<PAGE> 4
INTEREST RATE:
Interest shall be payable on the 1st day of each month on the balance from time
to time outstanding of the facilities, and on any other monies due and payable
hereunder, both before and after maturity, default or judgment, at the Loan
Rate. The first interest payment shall be due on the 1st day of the month
following drawdown.
Floating Rate Loans:
The Loan Rate for facilities 1 & 2 shall be determined at a variable annual rate
which is from time to time (2.5%) two and one-half percentage points above North
American's Prime Lending Rate, calculated and compounded monthly, computed from
the respective dates of advance of monies by North American to the Borrower (the
"Variable Rate").
The Loan Rate for facility #3 shall be determined at a variable annual rate
which is from time to time (.5%) one-half percentage points above North
American's Prime Lending Rate, calculated and compounded monthly, computed from
the respective dates of advance of monies by North American to the Borrower (the
"Variable Rate").
Fixed Rate Option:
The Borrower may elect, upon 30 days' written notice at its sole option, to have
the Loan Rate for facility #2 calculated at an annual fixed interest rate for
periods of 2 to 5 years to be selected by the Borrower (the "Fixed Rate
Period"), provided the period chosen must terminate on or before the Maturity
Date of the loan. The rate of interest shall be 3.5% above the particular Cost
of Funds Rate in effect on the date the facilities are funded which is quoted
with reference to the shortest period in full years which is equal to or greater
than the Fixed Rate Period.
Following the expiry of or prior to any fixed interest rate period, interest
will revert back to the Variable Rate.
In the event that a new fixed interest rate period is not chosen by the Borrower
within 30 days of the expiry of any fixed interest rate period, the Borrower
shall be deemed to have chosen a Fixed Rate Period that terminates closest to
and before or on the Maturity Date of the loan.
The Borrower will issue a Promissory Note and replacements therefor as required
in respect of each fixed interest rate, each such note to reflect the monthly
payments during each such period. Upon any change in the interest rate, the
remaining payments shall be adjusted so that at the new interest rate the
balance of the loan would be amortized over the balance of the original
amortization period.
All principal and interest payments will be net of withholding taxes, if
applicable.
REPAYMENT AND AMORTIZATION:
Loan #2 & 3 the principal amount of the financing is to be repaid by 60
equal monthly installments on the 1st of each month commencing December 1, 1995.
Interest payable monthly.
- --------------------------------------------------------------------------------
North American Trust Company Conditional Offer Page 4
23-May-95
<PAGE> 5
We may, as our option, extend the dates for scheduled principal repayments if
disbursement is delayed.
The Borrower authorizes North American Trust Company to prepare monthly debits,
by electronic entry, in amounts sufficient to cover payments on the loan and the
Borrower authorizes and instructs the Borrower's bank to honour those debits.
However, the Borrower agrees to pay by cheque if requested by North American
Trust Company. Please attach the Borrower's cheque marked "VOID" to this Offer
and complete the attached "SUREPAY" form (Schedule "C"). The Borrower also
agrees to renew this authorization if the Borrower changes its bank, branch or
account.
SECURITY:
The Borrowers and Guarantors named below will provide the following security on
our standard documentation as applicable:
The Borrower will execute our standard form of Promissory Note for each loan.
The Borrower will provide security on North American's standard Demand
Debenture. General Security Agreement, and Specific Security Agreement conveying
a first charge on all the assets of the borrower.
The guarantee on our standard form for $500,000 of Striker Industries, Inc.
supported by a standby letter of credit from an acceptable bank for the full
amount of the guarantee.
An acceptable guarantee issued by Ontario Development Corporation for
$1,000,000.
A pledge of all the voting shares of the borrower.
The following will postpone all repayment and claims and interest thereon.
NAME: Striker Industries, Inc.
Upon acceptance, our Solicitor will contact your Solicitor to obtain the
information necessary to prepare the security documents. Our Solicitor's fees
and disbursements will be for your account.
INSURANCE:
Insurance appropriate to the assets and risks involved will be maintained by the
Borrower in the manner and to the extent prescribed by us. Loss under physical
damage insurance will be payable to North American as mortgagee. Liability
insurance will include mortgagee as an additional insured. Our standard
certificates of insurance are to be completed by an authorized representative(s)
of the Borrower's insurer(s). Insurance requirements are to be completed to the
satisfaction of North American's insurance consultant.
- --------------------------------------------------------------------------------
North American Trust Company Conditional Offer Page 5
23-May-95
<PAGE> 6
COVENANTS:
All covenants will be included in the standard security documentation outlined
above under SECURITY. The Borrower will not without the prior written consent of
North American allow any of the following to be breached. As required the
Borrower will prepare and deliver to North American a Covenant Compliance
Certificate signed by an Officer of the Company.
All covenants set out in this schedule shall be determined on the basis of the
consolidated/combined financial statements and reports of the following
companies:
Northern Striker, Inc.
Working Capital will be maintained at not less than $250,000.
Current Ratio will be maintained at not less than a ratio of 1.25:1.
Tangible Net Worth will not reduce below $6,000,000.
The ratio of Financial Indebtedness to Tangible Net Worth will not exceed 1:1.
Interest Coverage will be maintained at 2:1.
The Borrower shall not permit the annualized Cash Flow during any period to fall
below 1.5 times the sum of:
1) the Debt Service (plus dividends) for the financial year in which such
period occurs; and
2) $100,000 (being an annual allowance for capital expenditures).
During the term of the financing the Borrower will not, without our prior
approval:
- - incur capital expenditures in excess of $300,000, in each fiscal year (net of
long term debt incurred for said period);
- - enter into any financial indebtedness (in excess of $300,000 in any fiscal
year);
- - make loans to or investments in, or give guarantees on behalf of others;
- - permit voting control to change;
- - purchase or redeem any shares;
- - pay any dividends;
- - allow aggregate (shareholder) (management) remuneration including salary,
dividends, bonuses, etc. (net of any amounts either reinvested into the
Borrower and effectively postponed or reinvested into the capital stock of the
Borrower) to exceed $720,000 in any fiscal year management shall include for
the purposes of this clause: all budgeted administration costs to be provided
by Striker Industries, Inc.; and,
- - enter into any restricted lease.
- - Dispose of the assets over which the Lender has charge.
- - Grant any charges on the assets.
- - The Borrower will not incur any other indebtedness with the exception of
payroll and other normal operating expenses.
- - Amend any material contracts, specifically including the approval of any
change in the management contracts for plant operations.
- - Permit any change in the nature of the business or purpose for which the
assets are used.
- --------------------------------------------------------------------------------
North American Trust Company Conditional Offer Page 6
23-May-95
<PAGE> 7
- -Pay any dividends or make any form of withdrawal that would cause an event of
default.
DEFINITIONS:
Definitions for any expressions and terms used herein and the Covenants are more
specifically described in Scheduled "B" attached hereto. All terms, expressions,
and covenants are formally defined in the standard security documentation.
EVENTS OF DEFAULT:
Events of default are as stipulated in our standard security documentation,
including the following:
Default under or non-compliance with any covenant, term or condition stipulated
herein.
Default under any other financing provided by North American and its affiliates
to the Borrower or to its associated company(ies) will constitute default under
this financing.
The Borrower will notify North American in writing of any material litigation,
proceedings, or disputes and will furnish all reasonable information requested
announcing the status thereof.
REPORTING CONDITIONS:
The Borrower will provide the following reports within the time period
specified;
Audited financial statements within 90 days after the end of each year;
Unaudited monthly financial statements (and a covenant certificate), signed by
an Officer of the Company within 30 days after the end of the month;
Annual budget & forecast including a Profit & Loss, Balance Sheet and Cash flow
statement all prepared on a monthly basis within 90 days after its Fiscal Year
End.
Aged listings of Accounts Receivable and Accounts Payable and an Inventory
declaration and a margining certificate (signed by an Officer of the Company)
within 30 days of each month end.
Striker Industries, Inc. will also provide their annual audited financial
statements within 90 days of its fiscal year.
HAZARDOUS SUBSTANCES:
The security documentation includes our required standard restrictive
Environmental clauses, warranties, and representations respecting Hazardous
Materials (North American must approve all Permitted Substances, and list them
in the security documentation, if any are required for the Normal Business
operations of the Borrower and any Guarantors.
- --------------------------------------------------------------------------------
North American Trust Company Conditional Offer Page 7
23-May-95
<PAGE> 8
Normal Business of the Borrower and any Guarantors is to be defined in the
security documentation).
DUE DILIGENCE REQUIREMENTS:
1) Prior to credit authorization North American will complete full due diligence
as is normal for facilities of this nature which will include analysis of
industry, customer base, financial reports and forecasts, receivables quality
and other standard analysis (SATISFIED).
2) Receipt of the following requirements or reports prior to credit
authorization:
i) Receipt of a new real estate appraisal providing an income, (cost), and
direct sales market evaluation by a firm satisfactory to North
American. Appraisal to be completed with a basis of evaluation and
utilization of market comparables, and capitalization rates, all
satisfactory to North American (SATISFIED);
ii) Receipt of an up-to-date orderly liquidation value appraisal by a firm
satisfactory to North American for the company's equipment and
machinery (SATISFIED);
iii) Receipt of an Environmental Audit completed by a firm satisfactory to
North American. Audit Report conclusions to be satisfactory to North
American with respect to the following:
a) Absence of Hazardous materials at all business locations of the
Borrower.
b) Operation of the business is in compliance with Environmental Standards.
c) Geophysical analysis re: Underground storage tanks to be completed, and
paint chip analysis as per Jacobs Serrine report.
DISBURSEMENT:
Our funds will be disbursed after completion of the following to North
American's satisfaction:
1) Receipt of credit authorization from North American's credit authorities.
(SATISFIED)
2) Completion of all security, insurance and supporting documentation,
satisfactory to our Solicitor and satisfactory legal opinion of our Solicitor
as to title to assets, validity of security and such other matters as North
American requires.
3) Confirmation of the program expenditures and the investment of any other
funds required to finance the Program.
4) Completion of the following contingent conditions on a basis satisfactory to
North American.
- --------------------------------------------------------------------------------
North American Trust Company Conditional Offer Page 8
23-May-95
<PAGE> 9
i) Receipt of a new real estate appraisal providing an income (cost), and
direct sales market evaluation by a firm satisfactory to North
American. Appraisal to be completed with a basis of evaluation and
utilization of market comparables, and capitalization rates, all
satisfactory to North American.
ii) Receipt of an up-to-date liquidation value (60 day sale value)
appraisal by a firm satisfactory to North American for the company's
equipment and machinery.
iii) Receipt of an Environmental Audit completed by a firm satisfactory to
North American. Audit Report conclusions to be satisfactory to North
American with respect to the following:
a) Absence of Hazardous materials at all business locations of the
Borrower (and any Guarantors)
b) Operation of the business is in compliance with Environmental
Standards.
A standby fee of 2% per annum on the undisbursed amount will be calculated and
payable on the 1st day of each month commencing 90 days after we confirm
approval in writing of this Offer in writing. We may deduct these fees from our
disbursements.
Initial disbursement of our funds must be no later than 90 days after we confirm
approval in writing of this Offer. (Lapsing Date), and any extension of that
date is subject to our prior written approval.
The disbursement of our funds may be withheld if, in our opinion, a material
adverse change in risk has occurred.
WARRANTY:
By the Borrower's acceptance of this Offer of Finance, the Borrower warrants
that all information which the Borrower furnishes is true and correct.
CANCELLATION:
This Offer of Finance, when accepted by the Borrower and approved by our Credit
Committee, will be a binding contract. If the first advance hereunder has not
been made by the Lapsing Date, North American may terminate this Offer of
Finance, but the Borrower shall nonetheless pay all costs incurred by North
American in connection with this Offer of Finance or in preparing to make any
advance hereunder (including legal expenses) plus (three months' interest on the
total amount of these facilities at the highest rate of interest which would be
applicable to any portion thereof) or (the amount (if any) by which: (a) three
months' interest on the total amount of these facilities at the highest rate of
interest which would be applicable to any portion thereof, exceeds, (b) any
commitment fee paid by the Borrower hereunder;) which amount represents a
genuine
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North American Trust Company Conditional Offer Page 9
23-May-95
<PAGE> 10
pre-estimate by the parties of damages which would be suffered by North American
in the circumstances and not a penalty.
NON MERGER:
This Offer will not merge upon completion and execution of security
documentation.
The agreements, covenants, terms, and conditions contained in this Offering
letter shall not merge on the taking of the security in favour of North
American.
EXPENSES:
All reasonable costs incurred by North American, including legal, insurance,
consultant and out of pocket expenses in connection with the putting in place of
the security provided for herein and the administration and enforcement of the
credit facilities shall be payable on demand by the Borrower to North American.
OTHER:
A loan set up fee of $30,000 is to be paid and earned upon acceptance of this
offer representing the costs of setting up the loan.
(option for U.S.$ loans)
If North American is or becomes subject to any withholding tax or any other tax
with respect to payments of principal, interest or other amounts payable in
connection with these facilities (except taxes on the overall net income of
North American), the Borrower shall compensate North American in full for any
resulting loss incurred by North American, in an amount as certified by North
American.
SIGN/TOMBSTONES:
The Borrower acknowledges and agrees that the Lender shall have the right to
provide a sign to its specifications, and at the Lender's expense, indicating
the source of financing during the construction period. The Borrower agrees to
erect and prominently display any sign so provided in a conspicuous location on
the mortgaged premises and the sign will remain until the building is completed.
The Borrower further acknowledges and agrees that the Lender, at its expense,
may announce this loan transaction in the media. It is further agreed that such
announcement shall be in form and content, acceptable to the Borrower.
ACCEPTANCE:
This Offer and the attached Schedule is open for acceptance until May 25, 1995.
A non-refundable commitment fee of $30,000 is earned and payable at the time of
acceptance.
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North American Trust Company Conditional Offer Page 10
23-May-95
<PAGE> 11
North American acknowledges prior receipt of $15,000. (USD) applied as a credit
to this fee.
We look forward to receiving your acceptance and developing a solid business
relationship with you in the future.
Yours truly,
/s/ W. M. FINN
- ------------------------------------
W. M. Finn
Manager
Accepted this 23rd day of May, 1995.
Northern Striker, Inc.
Per: /s/ MATTHEW POND
- ------------------------------------
Name: MATTHEW POND
- ------------------------------------
Title: CFO
- ------------------------------------
Per:
- ------------------------------------
Name:
- ------------------------------------
Title:
- ------------------------------------
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North American Trust Company Conditional Offer Page 11
23-May-95
<PAGE> 12
SCHEDULE "B"
To CONDITIONAL OFFER OF FINANCE dated May 8, 1995 made by North American to
Northern Striker, Inc.
DEFINITIONS: All expression, terms, and covenants are formally defined in the
standard security documentation. As used herein the following expressions shall
substantially have the following meanings:
"Adjusted Pre-tax Earnings" of the Company means the sum of i) net income of the
Company for the period in question, after extraordinary items, capital gains and
capital losses but before provision for taxes respecting such income, and ii)
amounts paid to the Management Group and deducted from income of the Company for
the period in question, to the extent such amounts have been either (a) applied
to subscribe for share capital of the Company, or (b) advanced to the Company
and effectively postponed in favour of North American;
"Prepayment Date" means the Maturity Date of any Fixed Rate Period when the
Fixed Rate is in effect, or the first day of the twelfth month of each year
following the Final Advance Date when the Variable Rate is in effect.
"Annualized Cash Flow" means the Cash Flow for the period in question, divided
by the proportion which the period in question is of the financial year in which
the period occurs.
"Cash Flow" of the Company for any period means the after-tax profit of the
Company for the period:
(a) plus depreciation and amortization;
(b) less profit or plus loss resulting from the recognition of the
Company's minority interest in investments;
(c) plus deferred income tax;
(d) less capitalized expenses;
(e) plus after-tax portion of management bonuses;
(f) less gain or plus loss on the sale of fixed assets; and
(g) less the minority shareholders' share of losses or plus the minority
shareholders' share of profits from consolidated Subsidiaries.
as have been deducted or added in determining such profit.
"Cost of Funds Rate" or "COF", means the annual base rate of interest which
North American establishes and quotes from time to time at Toronto as the
reference rate of interest to determine interest rates it will charge at such
time for fixed rate loans for a particular term and to which it may refer as its
"Cost of Funds" such rate being subject to change at any time without notice.
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North American Trust Company Conditional Offer Page 12
23-May-95
<PAGE> 13
"Current Ratio" of the Company means Current Assets Divided by current
liabilities. Current assets exclude amounts due to, invested in, or due from
shareholders, affiliates, and related parties; Current Liabilities exclude all
postponed amounts and balloon payments.
"Debt Service" of the Company for any period means the aggregate principal
payments on Long Term Debt (including, without limitation, the principal
component of capital lease obligations) due and payable, or scheduled to be due,
during such period;
"Financial Indebtedness" of the Company means the aggregate (without
duplication) of the following amounts:
(a) money borrowed, indebtedness represented by notes payable, and drafts
accepted representing extensions of credit (including, as regards any
note or draft issued at a discount, any amount that could reasonably be
regarded as being the amortized portion of such discount as at the date
of determination);
(b) all obligations (whether or not with respect to the borrowing of money)
which are evidenced by bonds, debenture, notes or other similar
instruments or not so evidenced but which would be considered to be
indebtedness for borrowed money;
(c) all indebtedness upon which interest charges are customarily paid;
(d) net amounts payable pursuant to interest swap arrangements;
(e) capital lease obligations and all other indebtedness issued or assumed
as full or partial payment for property or services or by way of capital
contribution;
(f) all letters of credit and letters of guarantee issued by a financial
institution at the request of or for the benefit of the Company;
(g) any guarantee (other than by endorsement of negotiable instruments for
collection or deposit in the ordinary course of business) in any manner,
directly or indirectly, of any part or all of any obligation of a type
referred to in any of paragraphs (a) to (e) above;
(h) any of the foregoing amounts in respect of any Subsidiary of the
Company whose accounts are not required under generally accepted
accounting principles to be consolidated with the accounts of the
Company; including (without limitation) all Obligations
but excluding:
(i) trade payables, expenses accrued in the ordinary course of business,
customer advance payments and deposits received in the ordinary course
of business unless the time for due payment of which extends, or is
intended to extend, more than twelve months from the date as of which
the determination of Financial Indebtedness is being made; and,
(j) indebtedness of the Company which is effectively postponed in favour of
North American.
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North American Trust Company Conditional Offer Page 13
23-May-95
<PAGE> 14
"Future Debt Service" of the Company for any period means the aggregate
principal payments on Long Term Debt (including, without limitation, the
principal component of capital lease obligations) scheduled to be due during
such period, but in the case of Long Term Debt which matures during such period
the payments scheduled to be due shall be deemed to be the amount of principal
that would have been amortized over that period in accordance with the
amortization schedule applicable to the debt if the debt had not matured.
"Hazardous Substance" means any substance or combination of substances which is
or may become hazardous, toxic, injurious or dangerous to persons, property,
air, land, water, flora, fauna or wildlife, and includes but is not limited to
any contaminants, pollutants, dangerous substances, liquid wastes, industrial
wastes, hauled liquid wastes, toxic substances, hazardous wastes, hazardous
materials or hazardous substances as defined in or pursuant to any Environmental
Laws or Orders pursuant thereto.
"Interest Coverage" means the ratio of (a) the sum of (i) Adjusted Pre-tax
Earnings and (ii) Interest Expense to (b) Interest Expense in respect of any
period, expressed as a percentage.
"Effective Tangible Net Worth" means Tangible Net Worth plus long term deferred
tax liabilities.
"Restricted Lease" means any lease of real or personal property other than a
lease which would be classified as capital lease.
"Tangible Net Worth" of the Company means the aggregate of share capital, earned
and contributed surplus (or less any deficit), plus any indebtedness of the
Company which is effectively postponed in favour of North American, less the
aggregate of:
(a) any amount due from directors, officers, shareholders and Affiliates;
(b) the amount of any investments in Affiliates;
(c) intangible assets including (without limitation) goodwill, franchises,
copyrights, trademarks and patents; and,
(d) any appraisal increase credit.
"Working Capital" of the company means Current assets minus Current liabilities.
Current assets exclude amounts due to, invested in, or due from shareholders,
affiliates, and related parties; Current Liabilities exclude all postponed
amounts and balloon payments.
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North American Trust Company Conditional Offer Page 14
23-May-95
<PAGE> 15
SCHEDULE "C"
SUREPAY AUTHORIZATION
(PLEASE COMPLETE IN FULL)
LOAN NO. -
- --------------------------------------------------------------------------------
FIRST NAME LAST NAME AS SHOWN ON BANK RECORDS
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NAME OF BANK/FINANCIAL INSTITUTION
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BRANCH ADDRESS/STREET
- --------------------------------------------------------------------------------
CITY PROVIDENCE POSTAL CODE
- --------------------------------- -------------------------------------
BANK/TRANSIT NUMBER ACCOUNT NO.
I/we hereby request and authorize North American to draw a cheque on the first
day of each month under its "SUREPAY PLAN" against my account at the bank or
financial institution indicated hereon (or any of its branches) for the purpose
of making payment on my loan. I/we understand that if any adjustment is required
in the amount of the monthly payment, I/we will be notified of the adjustment
and the amount of my SUREPAY cheque will be changed effective as of the month
shown on the notice. My bank or financial institution is authorized to deal with
such cheques as if signed by me/us.
- ------------------------------
DATE
- --------------------------------------------------------------------------------
SIGNATURE(S) AS SHOWN ON BANK RECORDS
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North American Trust Company Conditional Offer Page 15
23-May-95
<PAGE> 16
SCHEDULE "D"
INSURANCE REQUIREMENTS
1. General
<TABLE>
<S> <C>
i) All insurance policies referred to herein shall be in a form and with insurers acceptable to
North American, and shall contain the original signatures of the insurers (not only the
insurance broker or agent).
ii) All policies shall be permitted to contain reasonable deductibles.
iii) All property policies shall contain a standard mortgage clause showing North American as Loss
Payee, and shall provide for 30 days' prior written notice to North American of any adverse
material change or cancellation.
iv) If the Borrower fails to purchase and maintain in good standing such minimum insurance as is
required herein, North American may, but shall not be obligated to, purchase and maintain
such insurance at the sole expense of the Borrower (inclusive of any disbursements by North
American in this regard); or North American may use any other means at its disposal under the
terms of the mortgage.
v) It is understood and agreed that the Insurance Requirements contained herein are a minimum
guide only, and are subject to change from time to time, at North American's discretion.
Although they must be adhered to throughout the life of the mortgage, they in no way
represent an opinion as to the full scope of insurance coverage a prudent Borrower would
arrange to adequately protect its interests and the interest of North American; and the
Borrower must govern itself accordingly.
</TABLE>
2. Specific
The following policies of insurance must be submitted to North American, as
required in Section 1 of this Schedule.
<TABLE>
<S> <C>
i) "All Risks" of physical loss or damage including earthquake, flood and collapse showing:
a) A sum insured of 100% of the full replacement costs of the property, without deduction for
foundations and footings. The replacement cost wording is to have the "same or adjacent site"
clause deleted, and the policy must include increased cost of by-laws coverage, and
demolition and debris removal for damaged and undamaged property coverage.
Co-insurance must either be waived or Stated Amount.
b) A sum insured of 100% of the projected annual rents or revenue with a minimum period of
indemnity of 12 months, or such greater period as North American may require.
</TABLE>
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North American Trust Company Conditional Offer Page 16
23-May-95
<PAGE> 17
ii) "Broad Form Boiler & Machinery" with the same limits and by-laws extensions
as the "All Risks" policy described in Section 2.i)a) above.
iii) "Comprehensive General Liability" with a limit of at least $1,000,000 for
any one occurrence or such greater amount as North American may reasonably
require. The policy shall include the IBC 2313 wording, or its equivalent,
for limited pollution cover, if required by North American.
If there are any questions regarding North American's insurance requirements,
please contact our insurance consultants directly at:
Intech Risk Management Ltd.
155 University Avenue, Suite 206
Toronto, Ontario
M5H 3B6
Phone: (416) 363-0083
Fax: (416) 363-7188
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North American Trust Company Conditional Offer Page 17
23-May-95
<PAGE> 1
EXHIBIT 4.7
DEBENTURE
$2,000,000.00 July 13, 1995
ARTICLE 1
PRINCIPAL SUM AND INTEREST
1.1 PRINCIPAL SUM AND INTEREST
For value received STRIKER PAPER CANADA, INC. (hereinafter
called the "Company") having its chief executive office at 100 Ormond Street
South, Thorold, Ontario (Fax #:(905) 227-8385) shall pay to the order of North
American Trust Company (hereinafter called "North American") on demand the sum
of TWO MILLION Dollars ($2,000,000.00) in lawful money of Canada at the office
of North American at 2 King Street East, Hamilton, Ontario, L8N 1A3 (Fax #:
905-525-2766) or such other place as North American may from time to time
designate, together with interest on the principal sum at the rate of 25% per
annum, both before and after default and judgment.
ARTICLE 2
INTERPRETATION
2.1 DEFINITIONS
As used herein the following expressions shall have the
following meanings:
"ADJUSTED PRE-TAX EARNINGS" of the Company means the sum of (a) the net income
of the Company for the period in question, after extraordinary items, capital
gains and capital losses but before provision for taxes respecting such income,
and (b) amounts paid to the Management Group and deducted from income of the
Company for the period in question, to the extent such amounts have been either
(i) applied to subscribe for share capital of the Company, or (ii) advanced to
the Company and effectively postponed in favour of North American;
"AFFILIATE" has the meaning ascribed to such term in the Business Corporations
Act or the Company Act, as the case may be, of the Applicable Province,
including the corporations referred to as Affiliates in Schedule "E" hereto;
"ANNUALIZED CASH FLOW" means the Cash Flow for the period in question, divided
by the proportion which the period in question is of the financial year in
which the period occurs;
"APPLICABLE PROVINCE" means the province where the office of North American
referred to herein is located;
"BUSINESS DAY" means any day except Saturday, Sunday or a statutory holiday;
"CAPITAL EXPENDITURE" means any expenditure which would be chargeable to
capital or fixed asset accounts and includes the total of all instalments of
rental expressed to be payable during the whole term of each lease of personal
property which would be classified as a capital lease;
"CASH FLOW" of the Company for any period means the after-tax profit of the
Company for the period:
(a) plus depreciation and amortization;
(b) less profit or plus loss resulting from the recognition of the
Company's minority interest in investments;
(c) plus deferred income tax;
<PAGE> 2
Page 2
(d) less capitalized expenses;
(e) plus after-tax portion of management bonuses;
(f) less gain or plus loss on the sale of fixed assets; and
(g) less the minority shareholders' share of losses or plus the
minority shareholders' share of profits from consolidated
Subsidiaries
as have been deducted or added in determining such profit;
"COMPANY" means STRIKER PAPER CANADA, INC., its successors and permitted
assigns;
"CURRENT RATIO" means the ratio of Current Assets to Current Liabilities;
"CURRENT ASSETS" of the Company means the aggregate current assets but
excluding amounts owing to the Company by any person not dealing at arm's
length with the Company except in respect of credit extended on normal trade
terms arising on the sale of Inventory in the ordinary course of business;
"CURRENT LIABILITIES" of the Company means the aggregate liabilities which are
payable within twelve months from the date as of which the determination of
such liabilities is being made, including the portion of Financial Indebtedness
which is due within twelve months from such date, but excluding any amounts
effectively postponed in favour of North American, and in the case of Long Term
Debt which matures during such period the payments scheduled to be due shall be
deemed to be the amount of principal that would have been amortized over that
period in accordance with the amortization schedule applicable to the debt if
the debt had not matured;
"DEBT SERVICE" of the Company for any period means the aggregate principal
payments on Long Term Debt (including, without limitation, the principal
component of capital lease obligations) due and payable, or scheduled to be
due, during such period;
"ENCUMBRANCE" means any mortgage, lien, pledge, assignment, charge, security
interest, title retention agreement, hypothec, levy, execution, seizure,
attachment, garnishment, right of distress or other claim in respect of
property of any nature or kind whatsoever howsoever arising (whether
consensual, statutory or arising by operation of law or otherwise) and includes
arrangements known as sale and lease-back, sale and buy-back and sale with
option to buy-back;
"ENVIRONMENTAL ASSESSMENT" means any inquiry, investigation or report of the
environmental condition of the Premises;
"ENVIRONMENTAL LAWS" means all applicable federal, provincial, regional, state,
municipal or local laws, common law, statutes, regulations, ordinances, codes,
rules, guidelines, requirements, certificates of approval, licences or permits
relating to Hazardous Substances or the use, consumption, handling,
transportation, storage or Release thereof including without limitation (and in
addition to any such laws relating to the environment generally) any such laws
relating to public health, occupational health and safety, product liability or
transportation;
"ENVIRONMENTAL ORDER" means any prosecution, order, decision, notice,
direction, report, recommendation or request issued, rendered or made by any
Governmental Authority in connection with Environmental Laws or Environmental
Orders;
"EVENT OF DEFAULT" means any one or more of the events set out or referred to
in Section 6.1;
"FINANCIAL INDEBTEDNESS" of the Company means the aggregate (without
duplication) of the following amounts:
(a) money borrowed, indebtedness represented by notes payable, and
drafts accepted representing extensions of credit (including,
as regards any note or draft issued
<PAGE> 3
Page 3
at a discount, any amount that could reasonably be regarded as
being the amortized portion of such discount as at the date of
determination);
(b) all obligations (whether or not with respect to the borrowing
of money) which are evidenced by bonds, debentures, notes or
other similar instruments or not so evidenced but which would
be considered to be indebtedness for borrowed money;
(c) all indebtedness upon which interest charges are customarily
paid;
(d) net amounts payable pursuant to interest swap arrangements;
(e) capital lease obligations and all other indebtedness issued or
assumed as full or partial payment for property or services or
by way of capital contribution;
(f) all letters of credit and letters of guarantee issued by a
financial institution at the request of or for the benefit of
the Company;
(g) any guarantee (other than by endorsement of negotiable
instruments for collection or deposit in the ordinary course
of business) in any manner, directly or indirectly, of any
part or all of any obligation of a type referred to in any of
paragraphs (a) to (e) above; and
(h) any of the foregoing amounts in respect of any Subsidiary of
the Company whose accounts are not required under generally
accepted accounting principles to be consolidated with the
accounts of the Company;
including (without limitation) all Obligations BUT EXCLUDING:
(i) trade payables, expenses accrued in the ordinary course of
business, customer advance payments and deposits received in
the ordinary course of business unless the time for due
payment of which extends, or is intended to extend, more than
twelve months from the date as of which the determination of
Financial Indebtedness is being made; and
(j) indebtedness of the Company which is effectively postponed in
favour of North American.
"FUTURE DEBT SERVICE" of the Company for any period means the aggregate
principal payments on Long Term Debt (including, without limitation, the
principal component of capital lease obligations) scheduled to be due during
such period, but in the case of Long Term Debt which matures during such period
the payments scheduled to be due shall be deemed to be the amount of principal
that would have been amortized over that period in accordance with the
amortization schedule applicable to the debt if the debt had not matured;
"GOVERNMENTAL AUTHORITY" means any nation, government, province, state, region,
municipality or other political subdivision or any governmental department,
ministry, commission, board, agency or instrumentality or other public
authority or person, domestic or foreign, exercising executive, legislative,
judicial, regulatory or administrative functions of, or pertaining to,
government, and any corporation or other entity owned or controlled (through
stock or capital ownership, or otherwise) by any of the foregoing and includes
any court of competent jurisdiction;
"GUARANTOR" means any person who has guaranteed the indebtedness of the Company
in favour of North American;
<PAGE> 4
Page 4
"HAZARDOUS SUBSTANCE" means any substance, combination of substances or
by-product of any substance which is or may become hazardous, toxic, injurious
or dangerous to any person, property, air, land, water, flora, fauna or
wildlife; and includes but is not limited to contaminants, pollutants, wastes
and dangerous, toxic, deleterious or designated substances as defined in or
pursuant to any Environmental Laws or Environmental Orders;
"HEAD LEASE" means any lease (whether now existing, presently arising or
created in future) whereby the Premises or any part thereof are demised and
leased to the Company;
"INSTRUMENT" means this Debenture, any of the Security Documents or any other
agreement or instrument (whether now existing, presently arising or created in
future) delivered by the Company or by any Guarantor to North American;
"INTEREST COVERAGE" means the ratio of (a) the sum of (i) Adjusted Pre-tax
Earnings and (ii) Interest Expense to (b) Interest Expense in respect of any
period;
"INTEREST EXPENSE" means the expense for interest and all other charges
incurred in respect of all indebtedness of the Company in respect of any
period, including all rental expense under each lease which would be
classified as a capital lease (other than the principal component thereof);
"INVENTORY" means property of the Company, including vehicles, held for sale or
lease or that have been leased or that are to be furnished or have been
furnished under a contract of service or that are raw materials, work in
process or materials used or consumed in a business or profession;
"LEASE" means any lease (whether now existing, presently arising or created in
future) whereby the Premises or any part thereof are demised and leased by
the Company to any person;
"LONG TERM DEBT" of the Company means that part of the aggregate liabilities,
including Financial Indebtedness, which matures by its terms on, or is
renewable at the sole option of the Company to, a date more than 12 months
from the date as of which the determination of such liabilities is being made,
excluding the portion thereof that is included in Current Liabilities (other
than the final payment due in respect of any Long Term Debt);
"MANAGEMENT GROUP" means the directors and officers of the Company from time to
time, including the individuals referred to as the Management Group in Schedule
"E" hereto;
"MORTGAGED PROPERTY" means all property and assets of the Company whether
specifically charged or subjected to the floating charge under Section 3.1
(except as excluded pursuant to Section 3.2);
"NORMAL BUSINESS" has the meaning ascribed thereto in Schedule "E" hereof;
"NORTH AMERICAN" means North American Trust Company, its successors and assigns,
and holders from time to time of this Debenture;
"OBLIGATIONS" means all monies now or at any time and from time to time
hereafter owing or payable by the Company to North American and all other
obligations (whether now existing, presently arising or created in the future)
of the Company in favour of North American, and whether direct or indirect,
absolute or contingent, matured or not, whether arising from agreement or
dealings between North American and the Company or from any agreement or
dealings with any third person by which North American may be or become in any
manner whatsoever a creditor or other obligee of the Company or however
otherwise arising and whether the Company be bound alone or with another or
others and whether as principal or surety, including, without limitation,
monies payable or obligations arising in connection with the Offer of Finance;
<PAGE> 5
Page 5
"OCCUPANTS" means the Company, its tenants and other occupants of any Premises;
"OFFER OF FINANCE" means at any time the prevailing agreement between the
Company and North American setting out the terms and conditions applicable to
the borrowings by the Company from North American, and for the time being means
the letter specified as the Offer of Finance in Schedule "E" hereto;
"PERMITTED ENCUMBRANCES" means the following:
(A) Title qualifications as set out in the letter of opinion from
Mr. William Lambert of Lang Michener to North American Trust
Company dated July 24, 1995;
(a) liens for taxes, assessments, governmental charges or levies
not for the time being due and delinquent;
(b) easements, rights of way or other similar rights in land
existing at the date of this Debenture which individually or
in the aggregate do not in North American's opinion materially
detract from the value of the property concerned or materially
impair its use in the operation of the business of the
Company;
(c) rights reserved to or vested in any Governmental Authority by
the terms of any lease, license, franchise, grant or permit,
or by any statutory provision, to terminate the same or to
require annual or other periodic payments as a condition of
the continuance thereof;
(d) any Encumbrance the validity of which is being contested by
the Company in good faith by appropriate legal proceedings and
in respect of which either
(i) security adequate in the opinion of North American
has been provided to it to ensure payment of such
liens
or
(ii) North American is of the opinion that such liens are
not materially prejudicial to the security hereof;
(e) any reservations, limitations, provisos and conditions
expressed in any original grant from the Crown which do not in
North American's opinion materially detract from the value of
the property concerned or materially impair its use in the
operation of the business of the Company;
(f) title defects or irregularities which, in the opinion of
counsel to North American, are of a minor nature and in the
aggregate will not in North American's opinion materially
detract from the value of the property concerned or materially
impair its use in the operation of the business of the
Company;
(g) Purchase Money Securities; and
(h) the Encumbrances set out in Schedule "C" hereto;
"PERMITTED SUBSTANCES" has the meaning ascribed to such term in Schedule "E"
hereto;
"PREMISES" means the lands and premises included in the Specifically Mortgaged
Property (including without limitation the lands and premises referred to in
Schedule "A" hereto) and any other premises owned or occupied by the Company
from time to time;
"PURCHASE MONEY SECURITY" means any Encumbrance given, reserved, created,
assumed or arising by operation of law, whether or not in favour of the
transferor, after the date hereof to provide or secure, or to provide the
Company with funds to pay the whole or any part of, the consideration for the
acquisition of tangible personal property other than Inventory where:
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(a) the principal amount of such Encumbrance is at least 75% but
not greater than 100% of the cost to the Company of all of the
property encumbered thereby, and
(b) the Encumbrance only covers the property being acquired by the
Company
and includes the renewal, extension or refunding of any such Encumbrance and of
the indebtedness represented thereby upon the same property provided that the
indebtedness secured thereby and the security therefor are not increased
thereby;
"RECEIVER" shall include one or more of a receiver, receiver-manager or
receiver and manager of all or a portion of the undertaking, property and
assets of the Company appointed by North American pursuant to this Debenture or
by or under any judgment or order of a court;
"RELEASE" includes abandon, add, deposit, discharge, disperse, dispose, dump,
emit, empty, escape, leach, leak, migrate, pour, pump, release or spill;
"RESTRICTED LEASE" means any lease of real or personal property other than a
lease which would be classified as capital lease;
"SECURITY DOCUMENTS" means, collectively, this Debenture and all other
agreements and other instruments delivered to North American by the Company
(whether now existing or presently arising) for the purpose of establishing,
perfecting, preserving or protecting any security held by North American in
respect of any Obligations;
"SHAREHOLDER OWNERSHIP" has the meaning ascribed to such term in Schedule "E"
hereto;
"SPECIFICALLY MORTGAGED PROPERTY" means all property and assets expressed
herein to be now, or which may hereafter become, subject to the fixed and
specific charge of this Debenture;
"SUBSIDIARY" means a corporation in which the Company owns, directly and/or
indirectly through one or more Subsidiaries, a majority of shares carrying the
right to elect at least a majority of the members of the board of directors;
"TANGIBLE NET WORTH" of the Company means the aggregate of share capital,
earned and contributed surplus (or less any deficit), plus any indebtedness of
the Company which is effectively postponed in favour of North American, less
the aggregate of (a) any amount due from its directors, officers, shareholders
and Affiliates, (b) the amount of any investments in its Affiliates, (c)
intangible assets including (without limitation) goodwill, franchises,
copyrights, trademarks and patents, and (d) any appraisal increase credit;
"VOTING CONTROL" means the direct or indirect ownership or control of a
sufficient number of outstanding shares of a corporation to elect a majority of
its directors; and "Voting Control of the Company" means the Voting Control of
the Company stated in the Offer of Finance or such different Voting Control as
shall have been effected with the prior written consent of North American; and
"WORKING CAPITAL" means the amount (if any) by which Current Assets exceed
Current Liabilities.
2.2 INTERPRETATION
2.2.1 "THIS DEBENTURE", "HERETO", "HEREBY", "HEREUNDER", "HEREIN",
and similar expressions refer to the whole of this Debenture
and not to any particular Article, Section, subsection,
paragraph, clause, subdivision or other portion hereof.
2.2.2 The expression "NOT DEALING AT ARM'S LENGTH" has the meaning
ascribed to it by the Income Tax Act (Canada).
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2.2.3 Except as expressly provided herein, terms which are defined
in the Personal Property Security Act of the Applicable
Province shall have the same meaning where used herein.
2.2.4 Words importing the singular number only include the plural
and vice versa and words importing gender shall include all
genders and words importing persons include individuals,
partnerships, corporations, trusts, unincorporated
associations, joint ventures, Governmental Authorities and
other entities.
2.2.5 All financial or accounting determinations, reports and
statements provided for in this Debenture shall be made or
prepared in accordance with generally accepted accounting
principles applied in a consistent manner and shall, unless
otherwise indicated in the Offer of Finance, be made and
prepared on a consolidated basis.
2.2.6 The headings of the Articles and Sections are inserted for
convenience of reference only and shall not affect the
construction or interpretation of this Debenture.
2.2.7 If the Applicable Province is Ontario:
(a) if any of the forms or words contained herein are
also contained in Column One of Schedule "B" of the
Short Forms of Mortgages Act and distinguished by a
number therein, this Debenture shall be deemed to
include and shall have the same effect as if it
contained the form of words in Column Two of Schedule
"B" of the said Short Forms of Mortgages Act
distinguished by the same number, and this Debenture
shall be interpreted as if the Short Forms of
Mortgages Act were still in full force and effect;
(b) the implied covenants deemed to be included in a
charge under subsection 7(1) of the Land Registration
Reform Act shall be and are hereby expressly
excluded from the terms of this Debenture; and
(c) in the event of any inconsistency between the
covenants, agreements and obligations of the Company
contained or included in this Debenture and the
covenants, agreements and obligations of the charges
contained in the standard charge terms, if any,
prescribed under the said Land Registration Reform
Act, the covenants, agreements and obligations of the
Company expressly contained or included in this
charge shall prevail.
2.3 GOVERNING LAW
This Debenture shall be governed by and construed in
accordance with the laws of the Applicable Province.
ARTICLE 3
SECURITY
3.1 CHARGE
In consideration of the sum of One Dollar ($1.00) now paid to
it by North American (receipt of which is hereby acknowledged), and to secure
the due payment of the principal, interest and all other moneys from time to
time owing upon the security of this Debenture (including all future advances
and re-advances), and the performance by the Company
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of all its obligations hereunder, but subject to the exceptions set forth in
Section 3.2, the Company hereby:
3.1.1 grants, sells, assigns, conveys, transfers, mortgages, pledges
and charges, as and by way of fixed and specific mortgage,
pledge and charge to and in favour of North American:
(a) all lands and other real and immovable property of
every nature and kind whatsoever wheresoever situate
now owned by or leased to the Company or at any time
and from time to time hereafter owned by or leased to
the Company, together with all appurtenances,
buildings, fixtures (including without limitation
erections, fixed machinery and fixed equipment) and
tenant improvements presently situated thereon or
which may at any time hereafter be constructed or
placed thereon or used in connection therewith,
including without limitation the property described
in Schedule "A" hereto; and
(b) all furniture, machinery, equipment, vehicles, and
accessories and other goods and chattels of every
nature and kind whatsoever wheresoever situate now or
at any time and from time to time hereafter owned by
the Company, and including without limitation the
property described in Schedule "B" hereto; and
3.1.2 charges with payment to North American of all sums payable
hereunder as and by way of a floating charge the whole of the
undertaking of the Company and all of its property and assets,
real and personal, movable and immovable, tangible and
intangible, of every nature and kind whatsoever and
wheresoever situate, both present and future (other than
property and assets from time to time effectively subjected to
the fixed and specific mortgages and charges created hereby or
by any instrument supplemental hereto).
3.2 EXCEPTIONS AS TO LEASES
The last day of any term of years reserved by any lease,
verbal or written, or any agreement therefor, now held or hereafter acquired by
the Company is excepted out of the Mortgaged Property, but the Company shall
stand possessed of any such reversion upon trust to assign and dispose thereof
as North American may direct. Where the giving of a fixed and specific mortgage
and charge on any real or personal property held by the Company under lease
requires the consent of the lessor of such property, the giving of the fixed
and specific mortgage and charge hereunder on such property shall not take
effect until such consent is obtained or legally dispensed with but the
suspension of the effect of the fixed and specific mortgage and charge on such
property shall not affect the fixed and specific mortgage and charge on any
other property of the Company.
3.3 ASSIGNMENT OF LEASES AND RENTS
As further security as aforesaid, the Company hereby assigns,
transfers and sets over unto North American all rents payable from time to time
under all Leases, together with the benefit of all covenants, agreements and
provisoes contained in the Leases in favour of the Company, including the
benefit of all guarantees and indemnities contained therein or related thereto,
and hereby grants and mortgages unto North American the reversion to all such
Leases.
3.4 HABENDUM
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TO HAVE AND TO HOLD the Mortgaged Property and all of the
rights hereby conferred unto North American, its successors and assigns
forever, but subject nevertheless to the provisions and with the powers herein
set forth.
3.5 CHARGE VALID IRRESPECTIVE OF ADVANCE OF MONEY
The mortgages, pledges and charges hereby created shall have
effect and be deemed to be effective whether or not the monies or obligations
hereby secured or any part thereof shall be advanced or owing or in existence
before or after or upon the date of this Debenture and neither the giving of
this Debenture nor any advance of funds shall oblige North American to advance
any funds or any additional funds. The Company acknowledges that the parties
have not agreed to postpone the time for attachment of any of the charges
created hereby, including the floating charge created hereby, all of which
shall attach upon the execution hereof. The Company acknowledges that value has
been given.
3.6 SUPPLEMENTAL INDENTURES
The Company shall from time to time on demand by North
American execute and deliver such further deeds or indentures supplemental
hereto, which shall thereafter form part hereof, for the purpose of mortgaging
to North American any property now owned or hereafter acquired by the Company
and falling within the description of the Mortgaged Property, for correcting or
amplifying the description of any property hereby mortgaged or intended so to
be, or for any other purpose not inconsistent with the terms of this Debenture.
3.7 CONTINUING SECURITY
Notwithstanding the principal amount expressed to be payable
hereunder or the rate of interest stated herein to be payable thereon, this
Debenture and any other security given with North American's consent in
replacement thereof, substitution therefor or in addition thereto shall be held
by North American as general and continuing security for due payment and
performance of all Obligations, including without limitation all costs and
amounts payable pursuant hereto and interest on the Obligations at the rate or
rates applicable thereto in accordance with the Offer of Finance or the
prevailing agreement between North American and the Company. Notwithstanding
that the principal amount, together with interest thereon, is expressed to be
payable hereunder on demand, North American shall not demand payment thereof
unless an Event of Default has occurred. If at any time the aggregate amount of
all Obligations exceeds the amount expressed herein to be secured hereby, North
American may elect and from time to time re-elect as to what portion of the
Obligations shall be secured hereby, and in default of any such election this
Debenture shall be deemed to secure the last of the Obligations to be
satisfied. Any and all payments made at any time in respect of the Obligations
and the proceeds realized from any securities held therefor (including moneys
realized from the enforcement of this Debenture) may be applied (and reapplied
from time to time notwithstanding any previous application) to such part or
parts of the Obligations as North American sees fit. North American may hold as
additional security hereunder any increase or profits or other proceeds
realized from the Mortgaged Property (including money) for such period of time
as North American sees fit. The Company shall be accountable for any deficiency
and North American shall be accountable for any surplus.
3.8 DEFEASANCE
Provided that if the Company, its successors or assigns or any
of them, make or cause to be made due payment or performance of all
Obligations, without any reduction or abatement, and of all taxes, rates,
levies, charges or assessments payable by the Company upon the Mortgaged
Property or in respect thereof no matter by whom or by what authority imposed
which North American shall have paid or shall have been rendered liable to pay,
then everything in this Debenture shall be absolutely null and void and North
American shall on request therefor by the Company at that time surrender this
Debenture to the Company, but until that time it
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shall remain in full force and effect despite the repayment or satisfaction
from time to time of the whole or any part of the Obligations. Nothing in this
proviso or this Debenture shall make the Company liable to pay to North
American any tax, rate or charge imposed upon North American in respect of the
income derived by it in respect of the principal sum hereby secured. North
American is the person entitled to receive the money payable hereunder and to
give a discharge hereof and to cancel this Debenture.
ARTICLE 4
REPRESENTATIONS AND WARRANTIES
4.1 GENERAL REPRESENTATIONS AND WARRANTIES
The Company represents, warrants and covenants to and with
North American as follows:
4.1.1 Incorporation and Status
The Company is duly incorporated and validly subsisting under
the laws of its jurisdiction of incorporation and has the
corporate power and capacity to own its properties and assets
and to carry on its business as presently carried on by it or
as contemplated in the Offer of Finance to be carried on by it
and holds all material licences, permits and assets as are
required to own its properties and assets and to carry on
business in each jurisdiction in which it does so.
4.1.2 Power and Capacity
The Company has the corporate power and capacity to enter into
each of the Security Documents to which it is a party and to
do all acts and things as are required or contemplated
hereunder or thereunder to be done, observed and performed by
it.
4.1.3 Due Authorization and Enforceability
The Company has taken all necessary corporate action to
authorize the execution, delivery and performance of each of
the Security Documents to which it is a party and each such
document constitutes, or upon execution and delivery will
constitute, a valid and binding obligation of the Company
enforceable against it in accordance with its terms, subject
only to the following qualifications:
(a) an order of specific performance and an injunction
are discretionary remedies, and in particular, may
not be available where damages are considered an
adequate remedy; and,
(b) enforcement may be limited by bankruptcy, insolvency,
liquidation, reorganization, reconstruction and other
similar laws generally affecting enforceability of
creditors' rights.
4.1.4 No Contravention
The execution and delivery of this Debenture and the other
Security Documents and the performance by the Company of its
obligations thereunder (i) does not and will not violate any
law or any provision of the articles, by-laws, constating
documents or other organizational documents of the Company or
constitute a breach of any existing contractual or other
obligation of the Company or
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contravene any license or permit to which the Company is
subject, (ii) will not result in the creation of, or require
the Company to create, any Encumbrance in favour any person
other than North American and Ontario Development Corporation
pursuant to its May 2, 1995 Offer of Loan Guarantee to Striker
Paper Canada, Inc., and (iii) will not result in or permit the
acceleration of the maturity of any indebtedness or other
obligation of the Company.
4.1.5 No Consents Required
No authorization, consent or approval of, or filing with or
notice to, any person is required in connection with the
execution, delivery or performance of this Debenture or any of
the other Security Documents by the Company.
4.1.6 Permitted Use
The Premises are not subject to any easements (except for
minor easements for public utilities for the supply of
domestic utility services) or restrictions or covenants that
run with the land (except as registered and complied with) or
any other restrictions on use whatsoever whether consensual,
statutory or by operation of law, except zoning and building
by-laws which are complied with.
4.1.7 Leases
With respect to each Lease now existing:
(a) the copy of the Lease provided to North American
contains the entire agreement between the Company,
the lessee and any guarantor, surety or indemnitor
respecting the subject matter and there have been no
modifications, amendments or extensions thereto or
thereof;
(b) the Lease is in full force and effect and in good
standing; to the best of the Company's knowledge, no
lessee, guarantor, surety or indemnitor under or in
respect of the Lease has any defence, set-off or
counterclaim;
(c) no rent or other sum payable under the Lease has been
paid in advance except as set out in the Lease.
4.1.8 Head Leases
With respect to each Head Lease now existing:
(a) the copy of the Head Lease provided to North American
contains the entire agreement between the Company,
the lessor and any guarantor, surety or indemnitor
respecting the subject matter and there have been no
modifications, amendments or extensions thereto or
thereof,
(b) the Head Lease is in full force and effect and in
good standing.
4.1.9 Financial Statements
The financial statements of the Company in the form delivered
by the Company to North American have been prepared in
accordance with generally accepted accounting principles and
fairly, completely and accurately present the financial
condition of the Company and the financial information
presented therein for the period and as at the date thereof.
Since the date of the last financial statements delivered to
North American there has been no development which has had or
will have a material adverse effect upon the business,
property, financial condition
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or prospects of the Company or upon the ability of the Company
to perform its obligations under any of the Security
Documents.
4.1.10 Solvency
The Company is not an insolvent person within the meaning of
the Bankruptcy and Insolvency Act (Canada).
4.1.11 No Litigation
There are no actions, suits, judgments, awards or proceedings
pending or, to the knowledge of the Company, threatened
against the Company before any court or government department,
commission, board, agency or instrumentality, domestic or
foreign, or before any other authority, or before any
arbitrator of any kind, which would, if determined adversely
to the Company, materially adversely affect its business,
property, financial condition or prospects or its ability to
perform any of the provisions of any Security Document to
which it is a party or which purports to affect the legality,
validity or enforceability of any Security Document, and the
Company is not in default with respect to any judgment, order,
writ, injunction, award, rule or regulation of any
Governmental Authority or any arbitrator, which individually
or in the aggregate results in any such material adverse
effect.
4.1.12 No Default
The Company is not in default or breach under any material
commitment or obligation (including, without limitation,
obligations in relation to Financial Indebtedness) or under
any order, writ, decree or demand of any Governmental
Authority or with respect to any leases, licences or permits
to own and/or operate material properties and assets or to
carry on business and there exists no state of facts which,
after notice or the passage of time or both, would constitute
such a default or breach; and there are not any proceedings in
progress, pending or threatened, which may result in the
revocation, cancellation, suspension or any adverse
modification of any such leases, licences or permits.
4.1.13 All Material Information Supplied
The Company has provided to North American all material
information relating to the financial condition, business and
prospects of the Company and the Guarantors (if any) and all
such information is true, accurate and complete in all
material respects.
4.1.14 Serial Numbered Goods and Fixtures
Full particulars (including serial number) of each motor
vehicle, trailer, mobile home, boat, outboard motor and
aircraft in which the Company has rights and which is not
Inventory are set out in Schedule "B" hereto. None of the
goods comprised in the Mortgaged Property are fixtures except
any fixtures that are described so that they may be readily
identified in Schedule "B" hereto and that are affixed or
attached to the Premises described in Schedule "A" hereto.
4.1.15 Consumer Goods
None of the Mortgaged Property now owned or hereafter acquired
is now or shall at any time be Consumer Goods of the Company.
4.2 ENVIRONMENTAL REPRESENTATIONS AND WARRANTIES
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The Company represents, warrants and covenants to and with
North American as follows:
4.2.1 The Mortgaged Property and the operations of the Occupants now
and will at all times in future comply in all material
respects with all Environmental Laws and Environmental Orders.
4.2.2 After due and diligent inquiry, it has been found that, except
for Permitted Substances necessary to the carrying on of the
Normal Business of the Company, there is no Hazardous
Substance on or in any of the Premises, no Hazardous Substance
has ever been used, stored, located or Released on or in any
of the Premises, no part of the Premises is or has ever been
contaminated by any Hazardous Substance.
4.2.3 After due and diligent inquiry and save and except as
expressly set out in the Jacobs Engineering report dated June
30, 1995 as delivered to North American it has been found that
there are no:
(a) underground or above-ground storage tanks;
(b) asbestos or material containing asbestos;
(c) urea formaldehyde or material containing urea
formaldehyde;
at, on or under the Premises and none of the foregoing will at
any time in future be placed, installed or Released at, on or
under the Premises without the prior written consent of North
American.
4.2.4 Any underground or above-ground storage tanks located at, on
or under the Premises which have been approved by North
American have been identified, registered, constructed,
operated and maintained as required by Environmental Laws and
Environmental Orders and they are presently in a state of good
condition and repair, have not leaked and are not presently
leaking any of their contents.
4.2.5 There is no judicial or administrative proceeding or
investigation pending and no Environmental Order has been
issued or, to the best of the Company's knowledge, threatened
concerning the possible violation of any Environmental Laws or
Environmental Orders by any of the Occupants, by any of the
operations of the Occupants or otherwise in relation to the
Mortgaged Property.
4.2.6 To the best of the Company's knowledge (after due and diligent
inquiry), no condition exists as to any parcel of real
property contiguous to or in close proximity with the Premises
which would require a qualification to any of the
representations or warranties in this Section if such
condition applied to the Premises.
4.2.7 Except for Permitted Substances necessary to the carrying on
of the Normal Business of the Company, no Hazardous Substance
shall be brought onto or used on or in any part of the
Premises without the prior written consent of North American
and any Hazardous Substance brought onto or into any part of
the Premises or used by any person on or in any part of the
Premises shall be transported, used and stored only in
accordance with all Environmental Laws, other lawful
requirements, prudent industrial standards (including without
limitation any published environmental standards of any
applicable industry association) and any requirements of
applicable insurance policies.
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4.2.8 The Company has created, properly organized and maintained all
documentation and records concerning environmental matters as
required by any Environmental Laws or Environmental Orders and
will maintain such documentation and records at all times in
future as aforesaid.
4.2.9 The Company has provided to North American any Environmental
Assessment and related documentation concerning any of the
Premises in its possession or control and shall promptly
provide to North American any such material as the Company may
obtain in future.
4.2.10 The Company shall promptly notify North American if it:
(a) receives notice from any Governmental Authority of
any violation or potential violation of any
Environmental Laws or Environmental Orders, including
the Release of a Hazardous Substance, which may have
occurred or been committed or is about to occur or be
committed;
(b) receives notice that any administrative or judicial
complaint or Environmental Order has been issued or
filed or is about to be issued or filed against any
of the Occupants or their representatives alleging
violations of any Environmental Laws or Environmental
Orders or requiring the taking of any action in
connection with any Hazardous Substance;
(c) learns of the enactment of any Environmental Laws or
the issuance of any Environmental Orders which may
have a material adverse effect on the Premises or the
operations or the condition, financial or otherwise,
of any of the Occupants; or
(d) knows of or suspects that any Hazardous Substance
(other than a Permitted Substance necessary to the
carrying on of the Normal Business of the Company)
has been brought onto any part of the Premises or
that there is any actual, threatened or potential
Release of any Hazardous Substance (whether or not a
Permitted Substance) on, from, in or under any part
of the Premises.
4.2.11 The Company hereby grants to North American and its employees
and agents an irrevocable and non-exclusive license, subject
to the rights of tenants, to enter any of the Premises to
conduct testing and monitoring with respect to Hazardous
Substances and to remove and analyze any Hazardous Substance
at the cost and expense of the Company (which cost and expense
shall be secured hereby).
4.2.12 The Company shall indemnify North American and hold North
American harmless against and from all loss, costs, damages
and expenses which North American may sustain, incur or be or
become liable for by reason of or arising from the presence,
clean-up, removal or disposal of any Hazardous Substance
referred to in this section or compliance with Environmental
Laws or Environmental Orders relating thereto, including any
clean-up, decommissioning, restoration or remediation of the
Premises and other affected lands or property (and this
indemnification shall survive the satisfaction, release or
extinguishment of the indebtedness secured hereby).
4.3 TITLE
The Company covenants with North American that, subject only
to Permitted Encumbrances, it lawfully owns and is lawfully possessed of the
Mortgaged Property and all
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property and assets indicated by the financial statements which it has
delivered to North American to be owned by it and has good right and authority
to mortgage and charge the same as provided for herein, free and clear of all
Encumbrances (other than Permitted Encumbrances), and it will warrant and
defend the title thereto as well as to any other property, rights and interests
hereafter acquired by the Company. No person has any agreement or right or
option to acquire any of such property (except under unfilled purchase orders
accepted in the ordinary course of business for the sale of Inventory).
ARTICLE 5
COVENANTS OF THE COMPANY
5.1 GENERAL COVENANTS
So long as this Debenture remains outstanding, the Company
covenants and agrees as follows:
5.1.1 To Pay Costs
The Company shall pay all costs, charges and expenses of or
incurred by North American (a) incidental to the preparation,
execution and filing of this Debenture and any other Security
Documents and any instruments relating thereto or required by
the Offer of Finance (including without limitation any
supplemental security or any instrument amending any of the
Security Documents), (b) in inspecting the Mortgaged Property
or in or about taking, recovering or keeping possession of any
of the Mortgaged Property or in any other proceedings taken in
enforcing the remedies provided herein or otherwise in
relation to this Debenture or the Mortgaged Property, or by
reason of non-payment of the moneys hereby secured, (c) the
costs of any sale proceedings hereunder, whether such sale
prove abortive or not, and (d) the costs of any Receiver with
respect to, and all expenditures made by North American or any
Receiver in the course of, doing anything hereby permitted to
be done by North American or such Receiver (including without
limitation any costs and expenditures relating to compliance
with the Bankruptcy and Insolvency Act (Canada)). All such
costs and expenses and other monies payable hereunder,
together with interest at the highest rate applicable to any
Obligations, shall be payable on demand and shall constitute a
charge on the Mortgaged Property. Without limiting the
generality of the foregoing, such costs shall extend to and
include any legal costs incurred by or on behalf of North
American as between solicitor and own client.
5.1.2 To Pay Certain Debts
The Company shall punctually pay and discharge every
obligation, failure to pay or discharge which might result in
any lien or charge or right of distress, forfeiture,
termination or sale or any other remedy being enforced against
the Mortgaged Property and provide to North American when
required satisfactory evidence of such payment and discharge,
but the Company may on giving North American such security (if
any) as North American may require refrain from paying or
discharging any obligation so long as it contests in good
faith its liability therefor.
5.1.3 To Maintain Corporate Existence and Security
The Company shall:
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(a) maintain its corporate existence;
(b) diligently preserve all its rights, licences, powers,
privileges, franchises and goodwill;
(c) observe and perform all of its obligations and comply
with all conditions under leases, licences and other
agreements to which it is a party or upon or under
which any of the Mortgaged Property is held;
(d) carry on and conduct its business in a proper and
efficient manner so as to preserve and protect the
Mortgaged Property and income therefrom;
(e) keep proper books of account with correct entries of
all transactions in relation to its business;
(f) observe and conform to all valid requirements of law
and of any Governmental Authority relative to the
Mortgaged Property or the, carrying on by the Company
of its business;
(g) repair and keep in repair and good order and
condition all property, including the Mortgaged
Property, the use of which is necessary or
advantageous in connection with its business;
(h) immediately notify North American in writing of any
proposed change of name of the Company or of the
Company's chief place of business;
(i) keep North American constantly informed in writing as
to the location of the Mortgaged Property and the
books of account and other records of the Company;
and
(j) effect such registrations as may be required by North
American from time to time to protect the security
hereof
5.1.4 Assignment of Leases and Rentals
(a) Forthwith after making any Lease the Company will
upon request by North American execute and deliver to
North American an assignment in North American's
usual form of all rents payable under the Lease, the
benefit of all covenants, agreements and provisoes
therein contained on the part of the tenant to be
observed and performed, and the benefit of all such
guarantees and indemnities as aforesaid, and the
reversion of such Lease, and upon request by North
American, the Company will also execute and deliver
forthwith to North American all such notices and
other documents as may be required in order to render
such assignment effectual in law; provided, however,
that notwithstanding anything herein contained no
Lease made hereafter by the Company without the
consent in writing of North American shall have
priority over this Debenture; and provided further
that nothing herein contained shall make North
American responsible for the collection of rents
payable under any Lease or for the performance of any
covenants, terms or conditions contained in any such
Lease and North American shall not by virtue of the
provisions of this Debenture be deemed a mortgagee in
possession of such Premises and if North American
shall receive any rents payable under any such Lease,
North American shall be liable to account for only
such rents as actually come into its hands, less
reasonable collection charges in respect thereof.
<PAGE> 17
Page 17
(b) The Company shall at all times perform and discharge
all of the lessor's covenants and obligations under
any Lease.
(c) The Company shall be permitted to collect and receive
the rents as and when they shall become due and
payable according to the terms of each of the Leases,
unless and until an Event of Default shall occur, in
which case North American may give notice in writing
to the tenant, subtenant, occupier, licensee or
guarantor, advising of default. In such event the
Company hereby irrevocably directs such tenant,
subtenant, occupier, licensee or guarantor to make
payments of rental due after receipt of such notice
to North American or as North American may direct,
upon being furnished with a true copy of this
Debenture and the aforesaid notice in writing,
without any further direction or authority being
required by such tenant, subtenant, occupier,
licensee or guarantor.
(d) The Company will not without the written consent of
North American terminate, surrender, amend, alter or
vary the terms and conditions of the Leases or any of
them, reduce any rent provided for under the leases
or accept payment of any rent under the Leases before
payment is due in accordance with the terms thereof
as evidenced by the copies thereof which have been
delivered by the Company to North American. Nor shall
the Company, without the written consent of North
American, waive performance by the tenant under any
of the Leases or release any of the said tenants from
any obligations under their respective Leases.
(e) The Company further agrees that the Company will not
lease or agree to lease any part of the Premises
except at a rent, on terms and conditions and to
tenants which are not less favourable or desirable to
the Company than those winch a prudent landlord would
expect to receive for the premises to be leased.
5.1.5 Head Leases
(a) The Company shall at all times perform and discharge
all of the lessee's covenants and obligations under
any Head Lease.
(b) The Company will not without the written consent of
North American terminate, surrender, amend, alter or
vary the terms and conditions of the any Head Lease.
Nor shall the Company, without the written consent of
North American, waive performance by the landlord
under any of the Head Leases or release any of the
said landlords from any obligations under their
respective Head Leases.
5.1.6 To Insure
The Company shall keep the Mortgaged Property and the
operations of the Company insured in such amounts as North
American may reasonably require against loss or damage by fire
and such other risks as North American may from time to time
specify, with insurers approved by North American. The Company
shall whenever from time to time requested by North American
provide North American with satisfactory evidence of such
insurance and any renewal thereof which shall at all times be
subject to mortgage clauses in a form approved by North
American, and shall at the request of North American forthwith
assign, transfer and deliver unto North American the policy or
policies of such insurance. Evidence satisfactory to North
American of the renewal of every policy of
<PAGE> 18
Page 18
insurance shall be provided to North American at least seven
(7) days before the termination thereof.
5.1.7 To Furnish Proofs
The Company shall forthwith on the happening of any loss or
damage furnish at its own expense all necessary proofs and do
all necessary acts to enable North American to obtain payment
of the insurance monies, which, in the sole discretion of
North American, may be applied in reinstating the insured
property or be paid to the Company or be applied in payment of
the monies owing hereunder, whether due or not then due, or
paid partly in one way and partly in another.
5.1.8 Inspection by North American
The Company shall allow any employees or authorized agents of
North American at any reasonable time to enter the premises of
the Company in order to inspect the Mortgaged Property and to
inspect the books and records of the Company and make
extracts therefrom, and shall permit North American prompt
access to such other persons as North American may deem
necessary or desirable for the purposes of inspecting or
verifying any matters relating to any part of the Mortgaged
Property or the books and records of the Company, provided
that any information so obtained shall be kept confidential,
save as required by North American in exercising its rights
hereunder.
5.1.9 Accounts Receivable
Subject to any Permitted Encumbrances thereon, accounts
receivable shall be received by the Company in trust for North
American; provided that as long as an Event of Default has not
occurred the Company may collect and use the accounts
receivable in the ordinary course of business.
5.1.10 Deliver Information
The Company shall deliver to North American at the close of
each financial year of the Company one copy of its annual
financial statements, which unless otherwise indicated in the
Offer of Finance shall be prepared on an audited basis by
independent auditors of the Company, qualified and entitled to
carry on in the Applicable Province the practice of public
accounting and auditing, including the balance sheet and
statements of income, retained earnings and changes in
financial position, together with all supporting schedules.
Such financial statements shall be signed by an authorized
officer of the Company and shall be accompanied by a detailed
report of the auditors (which report shall not be qualified in
any material respect). The Company shall deliver such
financial statements to North American, together with such
other statements and reports as may be required pursuant to
the Offer of Finance, within the time periods stipulated
therein. The Company shall provide to North American any other
information concerning its financial position and business
operations which North American may from time to time request.
5.1.11 Notice of Litigation and Damage
The Company will promptly give written notice to North
American of (a) all claims or proceedings pending or
threatened against the Company which may give rise to
uninsured liability in excess of $25,000.00 or which may have
a material adverse affect on the business or operations of the
Company and (b) all damage to or loss or destruction of any
property comprising part of the Mortgaged
<PAGE> 19
Page 19
Property which may give rise to an insurance claim in excess
of $25,000; and will supply North American with all
information reasonably requested in respect of any such claim.
5.1.12 Notice of Default
The Company will promptly give written notice to North
American of the occurrence of any Event of Default or of any
event which after notice or lapse of time would constitute an
Event of Default.
5.1.13 Representations and Warranties
The representations and warranties made by the Company in
Article 4 shall be true and correct on each day that this
Debenture or any of the Security Documents remains in force,
with the same effect as if such representations and warranties
had been made and given on and as of such day (except to the
extent any such representation and warranty is expressly
limited to a particular date or particular period or time),
notwithstanding any investigation made at any time by or on
behalf of North American.
5.1.14 Not to Create Certain Charges
The Company shall not, without the prior written consent of
North American, create or permit to arise any Encumbrance on
any of the Mortgaged Property (other than Permitted
Encumbrances), and will not permit any Subsidiary to do the
same (except in favour of the Company).
5.1.15 Not to Sell
The Company shall not, except as otherwise permitted
hereunder, remove, destroy, lease, sell or otherwise dispose
of any of the Mortgaged Property; provided that the Company
may sell or otherwise dispose of furniture, machinery,
equipment, vehicles and accessories which have become worn out
or damaged or otherwise unsuitable for their purposes on
condition that it shall substitute therefor, subject to the
lien hereof and free from prior liens or charges, property of
equal value so that the security hereby constituted shall not
thereby be in any way reduced or impaired; and provided
further that the Company may sell Inventory in the ordinary
course of business and for the purpose of carrying on the
same.
5.1.16 Not to Make Certain Changes
The Company shall not without the prior written consent of
North American:
(a) change its financial year end;
(b) purchase, establish or acquire in any manner any new
business undertaking;
(c) materially change the nature of the Company's
business as presently carried on;
(d) amalgamate, consolidate or merge or enter, into a
partnership, joint venture or syndicate with any
other person, or acquire or establish any Subsidiary;
<PAGE> 20
Page 20
(e) enter into any transaction, or permit any Subsidiary
to do so, outside the ordinary active business
operations of the Company and its Subsidiaries;
(f) acquire or invest in any securities except
instruments or securities issued by a financial
institution or liquid securities traded on a
recognized public securities exchange and acquired
only for the Company's cash management purposes or
permit any Subsidiary to do so; or
(g) remove any of the Mortgaged Property or any of the
books of account or other records of the Company from
the jurisdiction where presently located.
5.1.17 Serial Numbered Goods and Fixtures
Upon the acquisition by the Company from time to time of
rights in any motor vehicles, trailers, mobile homes, boats,
outboard motors or aircraft which are not Inventory and which
are not fully described in Schedule "B" hereto, or upon
repossession by or return to the Company of any such goods,
the Company will forthwith give written notice to North
American of full particulars (including the serial number) of
the same. The Company will not permit goods now or hereafter
comprised in the Mortgaged Property to become fixtures unless
they are, or are to be, affixed or attached to the Premises
described in Schedule "A" hereto and unless the goods are
described in Schedule "B" hereto so that they may be readily
identified.
ARTICLE 6
EVENTS OF DEFAULT AND REMEDIES
6.1 EVENTS OF DEFAULT
The occurrence of any of the following events shall constitute
an Event of Default under this Debenture:
6.1.1 if default occurs in payment when due of any principal,
interest or other amounts payable under this Debenture;
6.1.2 if default occurs in payment or performance of any other
Obligation (whether arising herein or otherwise);
6.1.3 if any representation or warranty made by the Company herein
or in any other Instrument or in any certificate, statement or
report furnished in connection with or pursuant to the Offer
of Finance is found to be false or incorrect in any way so as
to make it materially misleading when made or when deemed to
have been made;
6.1.4 if default occurs in payment or performance of any obligation
in favour of any person to whom the Company is indebted except
obligations to trade creditors incurred in the ordinary course
of business;
6.1.5 if default occurs in payment or performance of any obligation
(whether now existing, presently arising or created in future)
of any Affiliate of the Company in favour of North American;
<PAGE> 21
Page 21
6.1.6 if the Company commits an act of bankruptcy or becomes
insolvent within the meaning of any bankruptcy or insolvency
legislation applicable to it or becomes a bankrupt or a
petition or other process for the bankruptcy of the Company is
filed or instituted which petition or other process is not
validly disputed and defended as required by law fully by the
Company within ten (10) days of service of the petition or
other process on the Company;
6.1.7 if any act, matter or thing is done toward, or any action or
proceeding is launched, had or taken for, terminating the
corporate existence of the Company, whether by winding-up,
surrender of charter or otherwise;
6.1.8 if the Company ceases to carry on its business or makes or
proposes to make any sale of its assets in bulk or any sale of
its assets out of the usual course of its business;
6.1.9 if any proposal is made or any petition is filed by the
Company under any law having for its purpose the extension of
time for payment, composition or compromise of the liabilities
of the Company or other reorganization or arrangement
respecting its liabilities or if the Company gives notice of
its intention to make or file any such proposal or petition
including without limitation an application to any court for
an order to stay or suspend any proceedings of creditors
pending the making or filing of any such proposal or petition;
6.1.10 if any receiver, administrator or manager of the property,
assets or undertaking of the Company or a substantial part
thereof is appointed pursuant to the terms of any trust deed,
trust indenture, debenture or similar instrument or by or
under any judgment or order of any court;
6.1.11 if any balance sheet or other financial statement provided by
the Company to North American pursuant to the provisions
hereof is false or misleading in any material respect;
6.1.12 if the Company permits any sum which has been admitted as due
by it or is not disputed to be due by it and which forms, or
is capable of being made, a charge upon any of the Mortgaged
Property in priority to, or pari passu with, the charge
created by this Debenture to remain unpaid for thirty (30)
days after proceedings have been taken to enforce the same as
such charge;
6.1.13 if any proceedings are taken to enforce any Encumbrance
affecting any of the Mortgaged Property which proceedings are
not validly disputed and defended as referred by law fully by
the Company within ten (10) days of the Company becoming aware
of the proceedings;
6.1.14 if the validity of any Instrument is brought into question or
disputed in whole or in part where the effect of any such
invalidity would materially adversely affect the interests of
North American hereunder or in connection with the Offer of
Finance;
6.1.15 if any action is taken or power or right be exercised by any
Governmental Authority or if any claim or proceeding is
pending or threatened by any person which may have a material
adverse affect on the Company, its business or operations, its
properties or its prospects;
6.1.16 if in the opinion of North American a material adverse change
has occurred in the financial condition or business of the
Company which may impair the ability or willingness of the
Company to perform its obligations hereunder, under the Offer
of Finance or under any other Instrument or if North American
<PAGE> 22
Page 22
considers that the Mortgaged Property is in jeopardy or that
North American is insecure;
6.1.17 if any event occurs with respect to any Guarantor which if a
like event had occurred with respect to the Company would have
constituted an Event of Default.
6.2 CONSEQUENCES OF AN EVENT OF DEFAULT
Upon the occurrence of an Event of Default, any obligation of North
American to make further loans or advances or extend other credit to the
Company shall immediately terminate and all Obligations and all monies secured
hereby shall at the option of North American become forthwith due and payable
whereupon the floating charge hereby created shall crystallize, all of the
rights and remedies hereby conferred in respect of the Mortgaged Property shall
become immediately enforceable and any and all additional and collateral
securities for payment of this Debenture shall become immediately enforceable.
6.3 ENFORCEMENT
Upon the happening of any Event of Default North American may by
instrument in writing declare that the security hereof has become enforceable
and crystallized and North American shall have the following rights and powers:
6.3.1 to enter into possession of all or any part of the Mortgaged
Property;
6.3.2 to preserve and maintain the Mortgaged Property and make such
replacements thereof and additions thereto as it deems
advisable;
6.3.3 to borrow money in the Company's name or in North American's
name or to advance North American's own money to the Company,
in any case upon such terms as North American may deem
reasonable and upon the security hereof;
6.3.4 to pay or otherwise satisfy in whole or in part any
Encumbrances which, in North American's opinion, rank in
priority to the security hereof;
6.3.5 after entry by its officers or agents or without entry to
sell, lease or otherwise dispose in any way whatsoever of all
or any part of the Mortgaged Property either en bloc or
separately at public auction or by tender or by private
agreement and at such time or times and on such terms and
conditions as North American in its absolute discretion may
determine and without any notice to or concurrence of the
Company except as may be required by applicable law; and
6.3.6 by instrument in writing to appoint any person or persons
(whether an officer or officers of North American or not)
(herein called the "Receiver") of all or any part of the
Mortgaged Property and to remove any Receiver so appointed and
appoint another or others in his stead.
The security of this Debenture may be realized and the rights
enforced by any remedy or in any manner authorized or permitted by this
Debenture or by law or equity and no remedy for the realization of the security
hereof shall be exclusive of or dependent upon any other remedy and all or any
remedies may from time to time be exercised independently or in any
combination.
<PAGE> 23
Page 23
6. 4 DISPOSITION
Without limiting the generality of the foregoing it shall be lawful
for North American:
6.4.1 to make any sale, lease or other disposition of the Mortgaged
Property either for cash or upon credit or partly for one and
partly for the other upon such conditions as to terms of
payment as it in its absolute discretion may deem proper;
6.4.2 to rescind or vary any contract for sale, lease or other
disposition that North American may have entered into pursuant
hereto and resell, release or redispose of the Mortgaged
Property with or under any of the powers conferred herein; and
6.4.3 to stop, suspend or adjourn any sale, lease or other
disposition from time to time and to hold the same as
adjourned without further notice.
Upon any such sale, lease or other disposition North American shall
be accountable only for money actually received by it. The Company shall be
accountable for any deficiency and North American shall be accountable for
any surplus. North American may deliver to the purchaser or purchasers of the
Mortgaged Property or any part thereof good and sufficient conveyances or deeds
for the same free and clear of any claim by the Company. The purchaser or
lessee receiving any disposition of the Mortgaged Property or any part thereof
need not inquire whether default under this Debenture has actually occurred but
may as to this and all other matters rely upon a statutory declaration of an
officer of North American, which declaration shall be conclusive evidence as
between the Company and any such purchaser or lessee, and the purchaser or
lessee need not look to the application of the purchase money, rent or other
consideration given upon such sale, lease or other disposition, which shall not
be affected by any irregularity of any nature or kind relating to the
crystallizing or enforcing of the security hereof or the taking of possession
of the Mortgaged Property or the sale, lease or other disposition thereof.
6.5 POWERS OF RECEIVER
Any Receiver appointed as aforesaid shall have the power without
legal process:
6.5.1 to take possession of the Mortgaged Property or any part
thereof wherever the same may be found;
6.5.2 to carry on the business of the Company or any part thereof in
the name of the Company or of the Receiver; and
6.5.3 to exercise on behalf of North American all of the rights and
remedies herein granted to North American,
and without in any way limiting the foregoing the Receiver shall have all the
powers of a receiver appointed by a court of competent jurisdiction. Any
Receiver shall, so far as concerns responsibility for his acts, be deemed the
agent of the Company, and North American shall not be in any way responsible
for any misconduct or negligence on the part of any Receiver or any loss
resulting therefrom.
6.6 APPLICATION OF MONEYS
All moneys actually received by North American or by the Receiver in
enforcing the security of this Debenture shall be applied, subject to the
proper claims of any other person:
6.6.1 first, to pay or reimburse North American and any Receiver
the costs, charges, expenses and advances payable by the
Company in accordance herewith;
6.6.2 second, in or toward the payment to North American of all
other moneys owing hereunder or secured hereby in such order
as North American in its sole discretion may determine; and
<PAGE> 24
Page 24
6.6.3 third, any surplus shall be paid to the Company or its assigns.
6.7 POWERS OF DIRECTORS AND OFFICERS
Upon North American declaring as aforesaid that the security
hereof has become enforceable and crystallized or the Company receiving notice
from North American of the taking of possession of any of the Mortgaged
Property or of the appointment of a Receiver, all the powers, functions, rights
and privileges of the directors and officers of the Company with respect to the
property, business and undertaking of the Company shall cease except to the
extent specifically continued at any time by North American in writing.
6.8 LIMITATIONS ON LIABILITY
Neither the provisions of this Debenture nor anything done
under or pursuant to the rights, remedies and powers conferred upon North
American and the Receiver, whether hereunder or otherwise, will render North
American a mortgagee in possession. Neither North American nor any Receiver
will be bound to collect, dispose of, realize, enforce or sell any Securities,
Instruments, Chattel Paper or Intangibles (including any Accounts) comprised in
the Mortgaged Property or to allow any such Mortgaged Property to be sold or
disposed of, nor will it be responsible for any loss occasioned by any such
sale or other dealing or for any failure to sell or so act, nor will it be
responsible for any failure to take necessary steps to preserve rights against
others in respect of such Mortgaged Property, nor will it be responsible for
any loss occasioned by the failure to exercise any rights in respect of
Mortgaged Property within the time limited for the exercise thereof. Neither
North American nor the Receiver will be obligated to keep Mortgaged Property
separate or identifiable.
ARTICLE 7
GENERAL
7.1 WAIVER
No act or omission by North American in any manner whatever in the
premises shall extend to or be taken to affect any provision hereof or any
subsequent breach or default or the rights resulting therefrom save only
express waiver in writing. A waiver of default shall not extend to, or be taken
in any manner whatsoever to affect the rights of North American with respect
to, any subsequent default, whether similar or not. The Company waives every
defence based upon any or all indulgences that may be granted by North
American.
7.2 OTHER SECURITIES
The rights of North American hereunder shall not be prejudiced nor
shall the liabilities of the Company or of any other person be reduced in any
way by the taking of any other security of any nature or kind whatsoever either
at the time of execution of this Debenture or at any time hereafter.
7.3 NO MERGER OR NOVATION
Neither the taking of any judgment nor the exercise of any power of
seizure or sale shall operate to extinguish the liability of the Company to pay
the moneys hereby secured nor shall the same operate as a merger of any
covenant herein contained or of any other Obligation, nor shall the acceptance
of any payment or other security constitute or create any novation.
7.4 AMALGAMATION
<PAGE> 25
Page 25
The Company acknowledges that if it amalgamates with any other
corporation or corporations (a) the Mortgaged Property and the lien created
hereby shall extend to and include all the property and assets of each of the
amalgamating corporations and the amalgamated corporation and to any property
or assets of the amalgamated corporation thereafter owned or acquired, (b) the
term, "Company", where used herein shall extend to and include each of the
amalgamating corporations and the amalgamated corporation, and (c) the term,
"Obligations", where used herein shall extend to and include the Obligations of
each of the amalgamating corporations and the amalgamated corporation.
7.5 POWER OF ATTORNEY
The Company for valuable consideration irrevocably appoints North
American and its officers from time to time or any of them to be the attorneys
of the Company in the name of and on behalf of the Company to execute and do
any deeds, transfers, conveyances, assignments, assurances and things which the
Company ought to execute and do under the covenants and provisions herein
contained and generally to use the name of the Company in the exercise of all
or any of the powers hereby conferred on North American.
7.6 HOLDER MAY REMEDY DEFAULT
If the Company fails to do anything hereby required to be done by it,
North American may, but shall not be obliged to, do such thing and all sums
thereby expended by North American shall be payable forthwith by the Company,
shall be secured hereby and shall have the benefit of the lien hereby created,
but no such performance by North American shall be deemed to relieve the
Company from any default hereunder.
7.7 PURCHASE MONEY SECURITY INTEREST
The Company acknowledges that the security interest in any item of
Mortgaged Property and its proceeds shall constitute a purchase-money security
interest to the extent it secures Obligations incurred by the Company to enable
the Company to acquire rights in such Mortgaged Property. North American hereby
reserves title to any item of Mortgaged Property which may be sold by North
American to the Company until satisfaction of the Obligations as aforesaid.
7.8 TAXES AND RESERVE REQUIREMENTS
In case North American is or becomes subject to any tax with respect
to payments of principal, interest or other amounts by the Company hereunder or
in respect of any of the Obligations (except for taxes on the overall net
income of North American) or to any reserve or similar requirement against
assets held by, or deposits in or for the account of, or loans by, an office of
North American, or to any other condition with respect to this Debenture, and
the result of any of the foregoing is to increase the cost to North American of
making or maintaining any Obligation or to reduce the income receivable by
North American in respect of any Obligation, then the Company shall pay to
North American on demand that amount which shall compensate North American for
such additional cost or reduction in income. A certificate of North American
setting forth the amount of such additional compensation and the basis therefor
shall be submitted by North American to the Company and shall be conclusive
evidence, in the absence of manifest error, of such amount.
7.9 ADDITIONAL PROVISIONS
Any provisions set forth in Schedule "D" hereto form part hereof to
the same extent and effect as if set forth in the body hereof.
7. 10 NOTICES
<PAGE> 26
Page 26
Any notice or written communication given pursuant to or in connection
with this Debenture shall be in writing and shall be given by delivering the
same personally or by prepaid courier, prepaid registered mail, telex or
telecopier, addressed to the party to be notified at the address of such party
set out herein or at such other address of which such party has given notice to
the other parties hereto. Any such notice shall be conclusively deemed to have
been given and received on the day of actual receipt by the addressee or, if
given by prepaid registered mail, on the third Business Day following the
mailing date (absent a general disruption in postal service.)
7.11 OFFER OF FINANCE
This Debenture is being issued by the Company to North American
pursuant to the terms of the Offer of Finance. All terms and conditions of the
Offer of Finance shall remain in full force and effect, except to the extent
inconsistent with the provisions of this Debenture in which case the
provisions of this Debenture shall govern and prevail.
7.12 RECEIPT
The Company hereby acknowledges receipt of a true copy of this
Debenture and a copy of the financing statement registered under the Personal
Property Security Act of the Applicable Province in respect of the security
created hereby.
7.13 SUCCESSORS AND ASSIGNS, ETC.
This Debenture and all its provisions shall enure to the benefit of
North American, its successors and assigns, the holders from time to time of
this Debenture and shall be binding upon the Company, its successors and
assigns. Time shall be in all respects of the essence hereof. Presentment,
notice of dishonour, protest and notice of protest hereof are waived.
7.14 CONSOLIDATION
This Debenture is subject to the doctrine of consolidation and, if the
Applicable Province is British Columbia, is subject to such doctrine
notwithstanding section 27 of the Property Law Act (British Columbia) as
amended or replaced from time to time.
<PAGE> 27
Page 27
IN WITNESS WHEREOF the Company has hereunto affixed its Corporate Seal
attested by the hands of its proper officers duly authorized in that behalf as
of the 13th day of July, 1995.
Name of Company
STRIKER PAPER CANADA, INC.
PER: /s/ DAVID A. COLLINS
---------------------------------------
DAVID ALLAN COLLINS, PRESIDENT & C.E.O.
PER: /s/ MATTHEW DANIEL POND
---------------------------------------
MATTHEW DANIEL POND, TREASURER & C.F.O.
<PAGE> 28
SCHEDULE "A"
REAL PROPERTY
(SECTION 3.1.1(a))
Municipal Address
100 Ormond Street South
Thorold, Ontario
L2V lZ4
Legal Description
Part of Park Lot 5 and Part of Town Lot PP, Plan 898, Part of Township Lot 29,
Township of Thorold, Parts of William Street Plan 898, as closed by By-Laws
2455 and 1140 (1988), City of Thorold, Regional Municipality of Niagara,
designated as Part 3, Plan 59R-7526. Parts of William Street, Plan 898, as
closed by By-Laws 2455 and 1140 (1988) designated as Parts 1 and 2, Plan
59R-7526, City of Tborold, Regional Municipality of Niagara
<PAGE> 29
SCHEDULE "B"
MACHINERY EQUIPMENT, ETC.
(SECTION 3.1.1(b))
The following goods now located at 100 Ormond Street South, Thorold, Ontario
See Attached
<PAGE> 30
APPENDIX A
- --------------------------------------------------------------------------------
Recommended List of Improvements
<TABLE>
<CAPTION>
- --------------------------------------------------------------------------------
Item Qty Description Duration Equipment Materials Total
and Labor Cost
- --------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
A * 1 Sprout Waldron Model 3 weeks 35,000 15,000 50,000
26H Twin Flow Refiner
(used if available; new=
60,000 USD)
- --------------------------------------------------------------------------------
B * 3 Coil and Shell Assembly 2 weeks 63,000 15,000 78,000
for Clayton Boiler
- --------------------------------------------------------------------------------
C * 2 Service Eaton Drives 6 weeks 23,000 3,000 26,000
- --------------------------------------------------------------------------------
D * 1 New Eaton Drive 3 weeks 2,000 2,000 4,000
Controller
- --------------------------------------------------------------------------------
E** Lot Wastewater Loop Closure 22 weeks 70,000 30,000 100,000
(Appendix C)
- --------------------------------------------------------------------------------
F * 6 Regrind Press Rolls 4 weeks 30,000 6,000 36,000
- --------------------------------------------------------------------------------
G * 1 New Machine Felt 2 weeks 11,000 2,000 13,000
- --------------------------------------------------------------------------------
H * 4 New Line Drive Belts 2 weeks 2,000 1,000 3,000
- --------------------------------------------------------------------------------
I * Lot Instrumentation/ 2 weeks 25,000 10,000 35,000
Electrical
Motor Allowance
- --------------------------------------------------------------------------------
J * Lot Lighting Repairs and 3 weeks 10,000 10,000
Modifications
- --------------------------------------------------------------------------------
K * Lot Condensate System Repairs 3 weeks 5,000 15,000 20,000
- --------------------------------------------------------------------------------
L Lot New Coordinated 26 weeks 170,000 130,000 300,000
Electric Machine Drives
with Control Room
(Including Demolition
of Line Drive System)
- --------------------------------------------------------------------------------
M Lot Sawdust Metering System 10 weeks 20,000 20,000 40,000
- --------------------------------------------------------------------------------
N Lot New Electrical Power 4 weeks 25,000 25,000
Feed
- --------------------------------------------------------------------------------
O Lot New Vacuum Box System 14 weeks 40,000 35,000 75,000
Upgrade
- --------------------------------------------------------------------------------
SUBTOTAL 815,000
- --------------------------------------------------------------------------------
P Lot Design Allowance 225,000
- --------------------------------------------------------------------------------
Q Lot Startup Assistance 40,000
- --------------------------------------------------------------------------------
SUBTOTAL 1,080,000
- --------------------------------------------------------------------------------
Contingency (20%) 215,000
- --------------------------------------------------------------------------------
TOTAL 1,295,000
- --------------------------------------------------------------------------------
</TABLE>
* To be completed prior to plant start-up
**To be initiated with start-up activities
<PAGE> 31
APPENDIX B
- --------------------------------------------------------------------------------
Schedule
<PAGE> 32
Appendix B
Schedule of Events
STRIKER INDUSTRIES
JACOBS-SIRRINE ENGINEERS
<TABLE>
<CAPTION>
1995
------------------------------------------------
Job #16N79300 DATE 1/6/95 BY WS JAN FEB MAR APR MAY JUN JUL AUG SEP OCT NOV DEC
------------------------------------------------
<C> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
DESIGN WASTEWATER LOOP XXXXX
MAKE TIE-IN MODIFICATIONS XX
PROCURE TANKS, FILTERS, PUMPS XXXXXXXXX
INSTALLATION XXXXXXX
CHECKOUT/STARTUP XXX
REMOVE & SHIP EATON DRIVES XX
REFURBISH DRIVES XX
SHIP & REINSTALL DRIVES XX
PROCURE/INSTL NEW CONTROLLER XXX
REMOVE & SHIP PRESS ROLLS X
REGRIND PRESS ROLLS XX
SHIP & REINSTALL PRESS ROLLS X
PROCURE REFINER XX
INSTALL REFINER X
PROCURE BOILER COILS X
INSTALL BOILER COILS X
PROCURE/INSTL NEW BELTS/FELT XXXX
START-UP PLANT
ELECTRICAL/MOTORS CHECKOUT XX
FLUSH PIPING/TANKS XX
FIRE BOILERS X
INSPECT/REPLACE INST XX
START PAPER MACHINE XX
DESIGN, PROCURE, INSTALL
ELECTRIC MACHINE DRIVES XXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXX
DESIGN, PROCURE, INSTALL
VACUUM BOXES XXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXX
DESIGN, PROCURE, INSTALL
SAWDUST METERING SYSTEM XXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXX
</TABLE>
<PAGE> 33
APPENDIX C
- --------------------------------------------------------------------------------
Wastewater System Modifications
Equipment Costs
- --------------------------------------------------------------------------------
Item Qty Description Allowance
(US$)
- --------------------------------------------------------------------------------
S-2 1 Separator, Sweco, Model XS48S88, 48" 12,000
Diameter, Open Top
- --------------------------------------------------------------------------------
P-2 1 Filter Feed Pump, Sherwood, 1 HP, Centrifugal, 1,275
TEFC Drive, 440/3/60 Starter
- --------------------------------------------------------------------------------
P-12 1 Supply Tank Pump, Sherwood, 3 HP, Centrifugal, 1,575
TEFC Drive, 440/3/60 Starter
- --------------------------------------------------------------------------------
T-7,8 2 Supply Tanks, Carbon Steel, 12' Diameter by 30' 25,000
High, Flat Bottom, Cone Top, 25,000 Gallons
Each
- --------------------------------------------------------------------------------
CP-1 1 Control Panel, with Pilot Lights, Relays, 2,615
Annunciator and Acknowledge Button
- --------------------------------------------------------------------------------
LSH-1,2,3 8 Level Switches, Cole-Parmer Catalog Number 220
LSL-1,2,3 G-077188-20, Float Type, 1" Diameter Float
LAH-1, LAL-1
- --------------------------------------------------------------------------------
CV-1,2 2 Control Valves, 3" Ball Type, with Pneumatic 1,000
Actuator, I/P Converter
- --------------------------------------------------------------------------------
1 Lot Construction of Tank Pad, Installation of Above 20,000
Equipment, Piping Modifications and Materials,
Wiring of Electrical
- --------------------------------------------------------------------------------
1 Lot 6.5' Tall, 16" Manway, Flat Bottom, 5-Year 5,000
Warranty, Freight Included. Miscellaneous.
================================================================================
Total Modification Cost 68,685
- --------------------------------------------------------------------------------
<PAGE> 34
SCHEDULE "C"
PERMITTED ENCUMBRANCES
(SECTION )
PERSONAL PROPERTY SECURITY ACT
Secured Party Registration Number Collateral Type Motor Vehicle Amount
- ------------- ------------------- --------------- ------------- ------
All Included $1,000,000.00
Ontario Development Corporation
2nd charge on all chattels,
assets and undertaking to the
extent of $1,000,000.00
MORTGAGES
Mortgagee Registration Number Amount
- --------- ------------------- ------
Ontario Development Corporation $1,000,000.00
$1,000,000.00 Charge/Mortgage of Land
on 100 Ormond Street South, Thorold Ontario
NONE
OTHER SECURED LIABILITIES
Secured Party Registration Particulars Amount
- ------------- ------------------------ ------
NONE
BANK INDEBTEDNESS
- -----------------
Encumbrances covering accounts receivable of the Company arising in the
ordinary course of business or Inventory to secure repayment of any loan or
loans (not exceeding the sum of $NIL in the aggregate) made to the Company by
one or more banks to which the Bank Act (Canada) applies.
<PAGE> 35
1.
SCHEDULE "D"
ADDITIONAL PROVISIONS
So long as this Debenture remains outstanding, the Company covenants and agrees
that, without the prior written consent of North American:
1.1 The Company shall not permit the Current Ratio to fall below the ratio
set out below at any time during the period set opposite:
Ratio Period (start and end dates inclusive)
- ----- ------
1.25 from the present and continuing thereafter
1.2 The Company shall not permit the Working Capital to fall below the
amount set out below at any time during the period set opposite:
Amount Period (start and end dates inclusive)
- ------ ------
$250,000.00 from the present and continuing thereafter
1.3 The Company shall not permit the Annualized Cash Flow during any
period to fall below 150% of the sum of (a) the Debt Service (plus dividends)
for the financial year in which such period occurs and (b) $100,000.00 (being
an annual allowance for Capital Expenditures).
1.4 The Company shall not permit the Tangible Net Worth to fall below the
amount set out below at any time during the period set opposite:
Amount Period (start and end dates inclusive)
- ----- ------
$6,000,000.00 from the present and continuing thereafter
1.5 The Company shall not permit the Interest Coverage to fall below the
ratio set out below at any tune during the period set opposite:
Ratio Period (start and end dates inclusive)
- ----- ------
2 to 1 from the present and continuing thereafter
1.6 The Company shall not permit the ratio of Financial Indebtedness to
Tangible Net Worth to exceed the ratio set out below at any time during the
period set opposite:
Ratio Period (start and end dates inclusive)
- ----- ------
1.0 to 1 from the present and continuing thereafter
1.7 The Company shall not permit Voting Control/Shareholder Ownership to
change.
1.8 Save and except for those Capital Expenditures financed by the May 16,
1995 Offer of Finance of North American to the Company. The Company shall not
make Capital Expenditures or commitments for Capital Expenditures where the
aggregate of all such expenditures and commitments in any financial year would
exceed $300,000.00 (net of long term debt incurred for said period).
<PAGE> 36
Page 2
1.9 The Company shall not create, issue, incur or otherwise become liable
upon, directly or indirectly, any Financial Indebtedness or permit any
Subsidiary to do so in excess of $300,000.00 in any fiscal year.
1.10 The Company shall not reduce or make any distribution of its capital,
or redeem, purchase or otherwise retire or pay for any shares in its present or
future capital stock.
1.11 The Company shall not create, allot or issue any shares in its
capital, change its capital structure, enter into any agreement, or make any
offer, to do so or permit any Subsidiary to do any such thing with respect to
the capital or capital structure of such Subsidiary.
1.12 The Company shall not make or repay or guarantee any loan or advance
to any person, or endorse or otherwise become surety or guarantor for or upon,
or indemnify against loss arising from, the obligations of any person, except
by endorsement of negotiable instruments for deposit or collection, and the
Company shall not permit any Subsidiary to do any such thing.
1.13 The Company shall not pay salaries, wages, bonuses, benefits,
management fees, directors' fees or other remuneration or dividends to any
member of the Management Group or any person not dealing at arm's length with
any such member where the total amount of all such payments made to all such
persons during any financial year exceeds or will exceed the sum of
$720,000.00, excluding amounts which have been either (a) applied to subscribe
for share capital of the Company, or (b) advanced to the Company and
effectively postponed in favour of North American.
1.14 The Company shall not declare or pay any dividends (including stock
dividends) upon any present or future capital stock of the Company where the
amount of all such dividends declared or paid in any financial year exceeds or
will exceed $nil.
1.15 For the purposes of the covenants set out in this Schedule, deferred
tax liabilities of the Company (excluding any which are Current Liabilities)
shall be added in determining Tangible Net Worth.
1.16 The Company shall not:
(a) permit the voting control of the Company to change;
(b) enter into any restricted lease;
(c) dispose of any part or all of its assets in which North
American has a security interest;
(d) grant any charges, security interests or other lien on any of
its assets;
(e) incur any other indebtedness with the exception of payroll and
other normal operating expenses;
(f) amend any material contracts specifically including the
approval of any change in the management contracts for its
plant operations;
(g) permit any change in the nature of the business or purpose for
which the assets are used;
(h) pay any dividends or make any form of withdraw that would
cause an event of default.
1.17 All covenants set out in this Schedule shall be determined on the
basis of the consolidated/combined financial statements and reports of the
following companies:
STRIKER PAPER CANADA INC.
<PAGE> 37
SCHEDULE "E"
MISCELLANEOUS PARTICULARS
1.1 "AFFILIATE" includes the following corporations:
STRIKER INDUSTRIES, INC.
1.2 "MANAGEMENT GROUP" includes the following persons:
David Allan Collins
Matthew Daniel Pond
Liberato Panunto
1.3 "NORMAL BUSINESS" means the following activities:
Manufacture and sale of paper and related building products
1.4 "OFFER OF FINANCE" for the time being means the letter of North
American to the Company dated the 16th day of May, 1995, as accepted by the
Company;
1.5 "PERMITTED SUBSTANCES" means the following materials (being necessary
to carry on the Normal Business of the Company):
None
1.6 "SHAREHOLDER OWNERSHIP" means the direct or indirect beneficial
ownership of shares of the Company as follows:
<TABLE>
<CAPTION>
Owner Class of Shares Number of Shares
- ----- --------------- ----------------
<S> <C> <C>
Striker Industries, Inc. Common 8,858,800
</TABLE>
<PAGE> 38
[PROVINCE OF ONTARIO LOGO]
CHARGE/MORTGAGE OF LAND B
FORM 2 - LAND REGISTRATION REFORM ACT
<TABLE>
<S> <C> <C> <C>
FOR OFFICE USE ONLY:
691946 (1) Registry /X/ Land Titles / / (2) Page 1 of 40 pages
------------------------------------------------------------------------------
CERTIFICATE OF REGISTRATION (3) Property Block Property Additional:
CERTIFICAT D'EMREGISTREMENT Identifier(s) See
NIAGARA SOUTH/SUD(59)WELLAND Schedule / /
------------------------------------------------------------------------------
(4) Principal Amount
'95 07 27 15 20 TWO MILLION___________________________________________________
/s/ ILLEGIBLE
New Property Identifiers __________________________________00/100 Dollars $2,000,000.00
------------------------------------------------------------------------------
(5) Description
LAND REGISTRAR/REGISTRATION Additional: Part of Park Lot 5 and Part of Town Lot PP, Plan 898, Part of Township
See Lot 29, Township of Thorold, Parts of William Street Plan 898, as closed by
Schedule / / By-Laws 2455 and 1140 (1988), City of Thorold, Regional Municipality of
- -------------------------------------------------- Niagara, designated as Part 3, Plan 59R-7526. Parts of William Street,
Executions Plan 898, as closed by By-Laws 2455 and 1140 (1988) designated as
Additional: Parts 1 and 2, Plan 59R-7526, City of Thorold, Regional Municipality of
See Niagara
Schedule / /
- ---------------------------------------------------------------------------------------------------------------------------------
(6) This (a) Redescription (b) Schedule for: (7) Interest/Estate Charged
Document New Easement Additional Fee Simple
Contains Plan/Sketch / / Description /x/ Parties / / Other /x/
- ---------------------------------------------------------------------------------------------------------------------------------
(8) Standard Charge Terms - The parties agree to be bound by the provisions in Standard Charge Terms filed as number
and the Chargor(s) hereby acknowledge(s) receipt of a copy of these terms.
- ---------------------------------------------------------------------------------------------------------------------------------
(9) Payment Provisions See Schedule
(a) Principal (b) Interest (c) Calculation
Amount $2,000,000.00 Rate See Schedule % per annum Period
- ---------------------------------------------------------------------------------------------------------------------------------
Interest Y M D Payment First Y M D
(d) Adjustment (e) Date and (f) Payment
Date See Schedule Period On Demand Date See Schedule
- ---------------------------------------------------------------------------------------------------------------------------------
Last Amount
(g) Payment (h) of Each
Date See Schedule Payment See Schedule Dollars $
- ---------------------------------------------------------------------------------------------------------------------------------
Balance See Schedule
(i) Due (j) Insurance
Date See Schedule Dollars $
- ---------------------------------------------------------------------------------------------------------------------------------
(10) Additional Provisions
Continued on
Schedule / /
- ---------------------------------------------------------------------------------------------------------------------------------
(11) Chargor(s) The chargor hereby charges the land to the chargee and certifies that the chargor is at least eighteen years
old and that
- ---------------------------------------------------------------------------------------------------------------------------------
- ---------------------------------------------------------------------------------------------------------------------------------
The chargor(s) acknowledge(s) receipt of a true copy of this charge. Date of Signature
Name(s) Signature(s) Y M D
STRIKER PAPER CANADA, INC. Per: /s/ David A. Collins 1995 07 13
David Allan Collins, President & C.E.O.
Per: /s/ Matthew Daniel Pond 1995 07 13
Matthew Daniel Pond, Treasurer & C.E.O.
- ---------------------------------------------------------------------------------------------------------------------------------
(12) Spouse(s) of Chargor(s) I hereby consent to this transaction. Date of Signature
Name(s) Signature(s) Y M D
- ---------------------------------------------------------------------------------------------------------------------------------
(13) Chargor(s) Address
for Service 100 Ormond Street South, Thorold, Ontario
- ---------------------------------------------------------------------------------------------------------------------------------
(14) Chargee(s)
NORTH AMERICAN TRUST COMPANY
- ---------------------------------------------------------------------------------------------------------------------------------
- ---------------------------------------------------------------------------------------------------------------------------------
(15) Chargee(s) Address
for Service 2 King Street East, Hamilton, Ontario, L8N 1A3
- ---------------------------------------------------------------------------------------------------------------------------------
FOR OFFICE USE ONLY
(16) Assessment Roll Number Cty. Mun. Map Sub. Par. Fees
of Property 27 31 000 004 16400 Registration Fee
- ---------------------------------------------------------------------------------
(17) Municipal Address of Property (18) Document Prepared by:
100 Ormond Street South Lewis, Brown, Scarfone, Hawkins --------------------------
Thorold, Ontario Barristers and Solicitors
L2V 1Z4 Post Office Box 926, Depot One --------------------------
Suite 1050, 120 King Street West
Hamilton, Ontario L8N 3P9 --------------------------
Joseph G. Speranzini, Esq. Total
- ---------------------------------------------------------------------------------------------------------------------------------
</TABLE>
<PAGE> 39
SCHEDULE 1
CERTAIN ADDITIONAL PROVISIONS
to the attached Charge/Mortgage of Land (the "Charge/Mortgage")
between STRIKER PAPER CANADA, INC.
and NORTH AMERICAN TRUST COMPANY ("North American")
Additional Provisions
1. In this Schedule and all other Schedules to the attached
Charge/Mortgage of Land: "Charge" means the attached Charge/Mortgage of Land
and all Schedules thereto (including this Schedule) as the same may be amended
from time to time; "hereof", "hereto", "herein", "hereby" and "hereunder" and
similar expressions mean or refer to this Charge as a whole and not to any
particular part thereof; "Company" means the chargor named in the Charge; and
"North American" means NORTH AMERICAN TRUST COMPANY.
2. By signing this Charge, the Company charges the land described or
referred to in Box 5 on page 1 hereof, including all appurtenances, buildings
and fixtures now or hereafter situate thereon (the "Property"), as security for
the payment by the Company to North American of the principal amount specified
in Box 4 on page 1 hereof and all other amounts payable hereunder.
3. This Charge is held by North American as security for the payment of
all indebtedness of the Company under the debenture issued by the Company to
North American substantially in the form of Schedule 2 hereto. In the event
of any default in payment of any part of the said indebtedness North American
may at any time during the continuance of any such default exercise all of its
rights and remedies hereunder without notice to or control by the Company except
where required by law, and any such remedy may be exercised separately or in
combination and shall be in addition to and not in substitution for any other
rights of North American however created; provided that North American shall not
be bound to exercise any such right or remedy. The proceeds of this Charge may
be applied by North American on account of such part of the said indebtedness
as it chooses without prejudice to North American's claim upon the Company for
any deficiency. North American may grant extensions of time or other
indulgences, take and give up security, accept compositions, grant releases and
discharges and otherwise deal with the Company and with other parties, sureties
or security as North American may see fit without prejudice to the liability of
the Company or North American's rights in respect of this Charge. Payment to
North American of interest for any period in respect of the said indebtedness
shall be deemed payment in satisfaction of the interest payment for the same
period under this Charge. This Charge shall not operate by way of merger of any
of the said indebtedness and no judgment recovered by North American shall
operate by way of merger of or in any way affect the security of this Charge
which is In addition to and not in substitution for any other security now or
hereafter held by North American.
4. The parties hereto agree that all of the terms and provisions contained
in Schedule 2 hereto are expressly included in this Charge as if all references
to "debenture" and "Charged Premises" in Schedule 2 hereto were references to
this Charge and the Property, respectively.
5. The parties hereto agree that upon default by the Company in payment of
any amount hereunder North American may, either before or after any entry, sell
and dispose of the Property either as a whole or in separate parcels, at a
public auction or by tender or by private sale at such time or times as North
American may determine, and may make any such sale either for cash or credit or
part cash and part credit, and with or without advertisement, and with or
without a reserve bid as North American may see fit, and North American may also
rescind or vary any contract of sale that may have been entered into and resell
with or under any of the powers conferred hereunder and adjourn any such sale
<PAGE> 40
Page 2
from time to time and may execute and deliver to the purchaser or purchasers of
the Property or any part thereof a good and sufficient instrument or instruments
for the same, the Manager or Acting Manager of North American's branch mentioned
in Schedule 2 being hereby constituted the irrevocable attorney of the Company
for the purpose of making such sale and executing such instruments, and any such
sale made as aforesaid shall be a perpetual bar both in law and in equity
against the Company and all other persons claiming the Property or any part
thereof by, from, through or under the Company.
6. The parties hereto agree that the covenants deemed to be included in
this Charge by sections 7(1)1 and 7(1)2 of the Land Registration Reform Act,
1984 (the "Act") (as varied herein) shall be in addition to, and not in
substitution for, the covenants and other provisions set forth in this Charge.
In the event of any conflict between any of such implied covenants (as varied
herein) and any other covenant or provisions of this Charge, such other
covenant or provision shall prevail.
7. The parties hereto agree that the covenant deemed to be included in
this Charge by section 7(1)1(iii) of the Act is varied so that such covenant is
as follows: "That the chargor has not done, omitted or permitted anything
whereby the land is or may be encumbered, except as the chargor has reported to
the chargee in writing."
8. The parties hereto agree that the covenants referred to in sections
7(1)1(v), 7(1)1(vi) and 7(1)1(ix) of the Act are excluded from this Charge.
9. The parties hereto agree that the covenant deemed to be included in
this Charge by section 7(1)2 of the Act is varied so that such covenant is, as
follows: "In a charge of freehold land by the beneficial owner, that the chargor
has a good title in fee simple to the land, except as the chargor has reported
to the chargee In writing."
<PAGE> 1
EXHIBIT 4.8
GENERAL SECURITY AGREEMENT
THIS AGREEMENT made the 13th day of July, 1995.
BETWEEN:
STRIKER PAPER CANADA, INC., having its office at 100 Ormond
Street South, Thorold, Ontario, L2V 1Z4 Fax No. (905) 227-8385
(hereinafter called the "COMPANY")
AND
NORTH AMERICAN TRUST COMPANY, having an office at 2 King Street East,
Hamilton, Ontario L8N 1A3, Fax No. (905) 525-2766
(hereinafter called "NORTH AMERICAN")
IN CONSIDERATION of the sum of One Dollar ($1.00) now paid to it by
North American (receipt of which is hereby acknowledged), and to secure the due
payment and performance of all Obligations (hereinafter defined), the Company
hereby agrees with North American and provides as follows:
ARTICLE I
INTERPRETATION
1.1 DEFINITIONS
As used herein the following expressions shall have the following meanings:
"ADJUSTED PRE-TAX EARNINGS" of the Company means the sum of (a) the net income
of the Company for the period in question, after extraordinary items, capital
gains and capital losses but before provision for taxes respecting such income,
and (b) amounts paid to the Management Group and deducted from income of the
Company for the period in question, to the extent such amounts have been either
(i) applied to subscribe for share capital of the Company, or (ii) advanced to
the Company and effectively postponed in favour of North American;
"AFFILIATE" has the meaning ascribed to such term in the Business Corporations
Act or the Company Act, as the case may be, of the Applicable Province,
including the corporations referred to as Affiliates in Schedule "E" hereto;
<PAGE> 2
Page 2
"ANNUALIZED CASH FLOW" means the Cash Flow for the period in question, divided
by the proportion which the period in question is of the financial year in
which the period occurs;
"APPLICABLE PROVINCE" means the province where the office of North American
referred to herein is located;
"BUSINESS DAY" means any day except Saturday, Sunday or a statutory holiday;
"CAPITAL EXPENDITURE" means any expenditure which would be chargeable to
capital or fixed asset accounts and includes the total of all instalments of
rental expressed to be payable during the whole term of each lease of personal
property which would be classified as a capital lease;
"CASH FLOW" of the Company for any period means the after-tax profit of the
Company for the period:
(a) plus depreciation and amortization;
(b) less profit or plus loss resulting from the recognition of the
Company's minority interest in investments;
(c) plus deferred income tax;
(d) less capitalized expenses;
(e) plus after-tax portion of management bonuses;
(f) less gain or plus loss on the sale of fixed assets; and
(g) less the minority shareholders' share of losses or plus the minority
shareholders' share of profits from consolidated Subsidiaries
as have been deducted or added in determining such profit;
"COLLATERAL" means all property and assets of the Company whether specifically
charged or subjected to the floating charge under Section (except as excluded
pursuant to Section 3.2);
"CURRENT RATIO" means the ratio of Current Assets to Current Liabilities;
"CURRENT ASSETS" of the Company means the aggregate current assets but
excluding amounts owing to the Company by any person not dealing at arm's
length with the Company except in respect of credit extended on normal trade
terms arising on the sale of Inventory in the ordinary course of business;
"CURRENT LIABILITIES" of the Company means the aggregate liabilities which are
payable within twelve months from the date as of which the determination of
such liabilities is being made, including the portion of Financial Indebtedness
which is due, within twelve months from such date, but excluding any amounts
effectively postponed in favour of North American, and in the case of Long Term
Debt which matures during such period the payments scheduled to be due shall be
deemed to be the amount of principal that would have been amortized over that
period in accordance with the amortization schedule applicable to the debt if
the debt had not matured;
<PAGE> 3
Page 3
"DEBT SERVICE" of the Company for any period means the aggregate principal
payments on Long Term Debt (including, without limitation, the principal
component of capital lease obligations) due and payable, or scheduled to be
due, during such period;
"ENCUMBRANCE" means any mortgage, lien, pledge, assignment, charge, security
interest, title retention agreement, hypothec, levy, execution, seizure,
attachment, garnishment, right of distress or other claim in respect of
property of any nature or kind whatsoever howsoever arising (whether
consensual, statutory or arising by operation of law or otherwise) and includes
arrangements known as sale and lease-back, sale and buy-back and sale with
option to buy-back;
"ENVIRONMENTAL ASSESSMENT" means any inquiry, investigation or report of the
environmental condition of the Premises;
"ENVIRONMENTAL LAWS" means all applicable federal, provincial, regional, state,
municipal or local laws, common law, statutes, regulations, ordinances, codes,
rules, guidelines, requirements, certificates of approval, licenses or permits
relating to Hazardous Substances or the use, consumption, handling,
transportation, storage or Release thereof including without limitation (and in
addition to any such laws relating to the environment generally) any such laws
relating to public health, occupational health and safety, product liability or
transportation;
"ENVIRONMENTAL ORDER" means any prosecution, order, decision, notice,
direction, report, recommendation or request issued, rendered or made by any
Governmental Authority in connection with Environmental Laws or Environmental
Orders;
"EVENT OF DEFAULT" means any one or more of the events set out or referred to
in Section 6.1;
"FINANCIAL INDEBTEDNESS" of the Company means the aggregate (without
duplication) of the following amounts:
(a) money borrowed, indebtedness represented by notes payable, and
drafts accepted representing extensions of credit (including, as
regards any note or draft issued at a discount, any amount that
could reasonably be regarded as being the amortized portion of such
discount as at the date of determination);
(b) all obligations (whether or not with respect to the borrowing of
money) which are evidenced by bonds, debentures, notes or other
similar instruments or not so evidenced but which would be
considered to be indebtedness for borrowed money;
(c) all indebtedness upon which interest charges are customarily paid;
(d) net amounts payable pursuant to interest swap arrangements;
<PAGE> 4
Page 4
(e) capital lease obligations and all other indebtedness issued or
assumed as full or partial payment for property or services or by
way of capital contribution;
(f) all letters of credit and letters of guarantee issued by a
financial institution at the request of or for the benefit of the
Company;
(g) any guarantee (other than by endorsement of negotiable instruments
for collection or deposit in the ordinary course of business) in
any manner, directly or indirectly, of any part or all of any
obligation of a type referred to in any of paragraphs (a) to (e)
above; and
(h) any of the foregoing amounts in respect of any Subsidiary of the
Company whose accounts are not required under generally accepted
accounting principles to be consolidated with the accounts of the
Company;
including (without limitation) all Obligations BUT EXCLUDING:
(i) trade payables, expenses accrued in the ordinary course of
business, customer advance payments and deposits received in the
ordinary course of business unless the time for due payment of
which extends, or is intended to extend, more than twelve months
from the date as of which the determination of Financial
Indebtedness is being made; and
(j) indebtedness of the Company which is effectively postponed in
favour of North American.
"FUTURE DEBT SERVICE" of the Company for any period means the aggregate
principal payments on Long Term Debt (including, without limitation, the
principal component of capital lease obligations) scheduled to be due during
such period, but in the case of Long Term Debt which matures during such period
the payments scheduled to be due shall be deemed to be the amount of principal
that would have been amortized over that period in accordance with the
amortization schedule applicable to the debt if the debt had not matured;
"GOVERNMENTAL AUTHORITY" means any nation, government, province, state, region,
municipality or other political subdivision or any governmental department,
ministry, commission, board, agency or instrumentality or other public
authority or person, domestic or foreign, exercising executive, legislative,
judicial, regulatory or administrative functions of, or pertaining to,
government, and any corporation or other entity owned or controlled (through
stock or capital ownership or otherwise) by any of the foregoing and includes
any court of competent jurisdiction;
"GUARANTOR" means any person who has guaranteed the indebtedness of the Company
in favour of North American;
<PAGE> 5
Page 5
"HAZARDOUS SUBSTANCE" means any substance, combination of substances or
by-product of any substance which is or may become hazardous, toxic, injurious
or dangerous to any person, property, air, land, water, flora, fauna or
wildlife; and includes but is not limited to contaminants, pollutants, wastes
and dangerous, toxic, deleterious or designated substances as defined in or
pursuant to any Environmental Laws or Environmental Orders;
"INSTRUMENT" means this Agreement, any of the Security Documents or any other
agreement or instrument (whether now existing, presently arising or created
in future) delivered by the Company or by any Guarantor to North American;
"INTEREST COVERAGE" means the ratio of (a) the sum of (i) Adjusted Pre-tax
Earnings and (ii) Interest Expense to (b) Interest Expense in respect of any
period;
"INTEREST EXPENSE" means the expense for interest and all other charges
incurred in respect of all indebtedness of the Company in respect of any
period, including all rental expense under each lease which would be classified
as a capital lease (other than the principal component thereof);
"LEASE" means any lease (whether now existing, presently arising or created in
future whereby the Premises or any part thereof are demised and leased to the
Company;
"LONG TERM DEBT" of the Company means that part of the aggregate liabilities,
including Financial Indebtedness, which matures by its terms on, or is
renewable at the sole option of the Company to, a date more than 12 months
from the date as of which the determination of such liabilities is being made,
excluding the portion thereof that is included in Current Liabilities (other
than the final payment due in respect of any Long Term Debt);
"MANAGEMENT GROUP" means the directors and officers of the Company from time to
time, including the individuals referred to as the Management Group in
Schedule "E" hereto;
"NORMAL BUSINESS" has the meaning ascribed thereto in Schedule "E" hereof;
"OBLIGATIONS" means all monies now or at any time and from time to time
hereafter owing or payable by the Company to North American and all other
obligations (whether now existing, presently arising or created in the future)
of the Company in favour of North American, and whether direct or indirect,
absolute or contingent, matured or not, whether arising from agreement or
dealings between North American and the Company or from any agreement or
dealings with any third person by which North American may be or become in any
manner whatsoever a creditor or other obligee of the Company or however
otherwise arising and whether the Company be bound alone or with another or
others and whether as principal or surety, including, without limitation, monies
payable or obligations arising in connection with the Offer of Finance;
"OCCUPANTS" means the Company, its tenants and other occupants of any Premises;
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"OFFER OF FINANCE" means at any time the prevailing agreement between the
Company and North American setting out the terms and conditions applicable to
the borrowings by the Company from North American, and for the time being means
the letter specified as the Offer of Finance in Schedule "E" hereto;
"PERMITTED ENCUMBRANCES" means the following:
(a) liens for taxes, assessments, governmental charges or levies
not for the time being due and delinquent;
(b) easements, rights of way or other similar rights in land
existing at the date of this Agreement which individually or
in the aggregate do not in North American's opinion materially
detract from the value of the property concerned or materially
impair its use in the operation of the business of the
Company;
(c) rights reserved to or vested in any Governmental Authority by
the terms of any lease, license, franchise, grant or permit,
or by any statutory provision, to terminate the same or to
require annual or other periodic payments as a condition of
the continuance thereof;
(d) any Encumbrance the validity of which is being contested by
the Company in good faith by appropriate legal proceedings and
in respect of which either
(i) security adequate in the opinion of North American
has been provided to it to ensure payment of such
liens
or
(ii) North American is of the opinion that such liens are
not materially prejudicial to the security hereof;
(e) any reservations, limitations, provisos and conditions
expressed in any original grant from the Crown which do not in
North American's opinion materially detract from the value of
the property concerned or materially impair its use in the
operation of the business of the Company;
(f) title defects or irregularities which, in the opinion of
counsel to North American, are of a minor nature and in the
aggregate will not in North American's opinion materially
detract from the value of the property concerned or materially
impair its use in the operation of the business of the
Company;
(g) Purchase Money Securities; and
(h) the Encumbrances set out in Schedule "C" hereto;
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"PERMITTED SUBSTANCES" has the meaning ascribed to such term in Schedule "E"
hereto;
"PREMISES" means all lands and premises owned or occupied by the Company from
time to time (including without limitation the lands and premises referred to
in Schedule "A" hereto);
"PURCHASE MONEY SECURITY" means any Encumbrance given, reserved, created,
assumed or arising by operation of law, whether or not in favour of the
transferor, after the date hereof to provide or secure, or to provide the
Company with funds to pay the whole or any part of, the consideration for the
acquisition of tangible personal property other than Inventory where:
(a) the principal amount of such Encumbrance is at least 75% but
not greater than 100% of the cost to the Company of all of the
property encumbered thereby, and
(b) the Encumbrance only covers the property being acquired by the
Company
and includes the renewal, extension or refunding of any such Encumbrance and of
the indebtedness represented thereby upon the same property provided that the
indebtedness secured thereby and the security therefor are not increased
thereby;
"RECEIVER" shall include one or more of a receiver, receiver-manager or
receiver and manager of all or a portion of the undertaking, property and
assets of the Company appointed by North American pursuant to this Agreement or
by or under any judgment or order of a court;
"RELEASE" includes abandon, add, deposit, discharge, disperse, dispose, dump,
emit, empty, escape, leach, leak, migrate, pour, pump, release or spill;
"RESTRICTED LEASE" means any lease of real or personal property other than a
lease which would be, classified as capital lease;
"SECURITY DOCUMENTS" means, collectively, this Agreement and all other
agreements and other instruments delivered to North American by the Company
(whether now existing or presently arising) for the purpose of establishing,
perfecting, preserving or protecting any security held by North American in
respect of any Obligations;
"SHAREHOLDER OWNERSHIP" has the meaning ascribed to such term in Schedule "E"
hereto;
"SUBSIDIARY" means a corporation in which the Company owns, directly and/or
indirectly through one or more Subsidiaries, a majority of shares carrying the
right to elect at least a majority of the members of the board of directors;
"TANGIBLE NET WORTH" of the Company means the aggregate of share capital,
earned and contributed surplus (or less any deficit), plus any indebtedness of
the Company which is effectively postponed in favour of North American, less
the aggregate of (a) any amount due from its directors, officers, shareholders
and Affiliates, (b) the amount of any investments in
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its Affiliates, (c) intangible assets including (without limitation) goodwill,
franchises, copyrights, trademarks and patents, and (d) any appraisal increase
credit;
"VOTING CONTROL" means the direct or indirect ownership or control of a
sufficient number of outstanding shares of a corporation to elect a majority of
its directors; and "Voting Control of the Company" means the Voting Control of
the Company stated in the Offer of Finance or such different Voting Control as
shall have been effected with the prior written consent of North American; and
"WORKING CAPITAL" means the amount (if any) by which Current Assets exceed
Current Liabilities.
1.2 INTERPRETATION
1.2.1 "THIS AGREEMENT", "HERETO", "HEREBY", "HEREUNDER", "HEREIN",
and similar expressions refer to the whole of this Agreement
and not to any particular Article, Section, subsection,
paragraph, clause, subdivision or other portion hereof.
1.2.2 The expression "NOT DEALING AT ARM'S LENGTH" has the meaning
ascribed to it by the Income Tax Act (Canada).
1.2.3 Except as expressly provided herein, terms which are defined
in the Personal Property Security Act of the Applicable
Province shall have the same meaning where used herein.
1.2.4 Words importing the singular number only include the plural
and vice versa and words importing gender shall include all
genders and words importing persons include individuals,
partnerships, corporations, trusts, unincorporated
associations, joint ventures, Governmental Authorities and
other entities.
1.2.5 All financial or accounting determinations, reports and
statements provided for in this Agreement shall be made or
prepared in accordance with generally accepted accounting
principles applied in a consistent manner and shall, unless
otherwise indicated in the Offer of Finance, be made and
prepared on a consolidated basis.
1.2.6 The headings of the Articles and Sections are inserted for
convenience of reference only and shall not affect the
construction or interpretation of this Agreement.
1.3 GOVERNING LAW
This Agreement shall be governed by and construed in
accordance with the laws of the Applicable Province.
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ARTICLE 3
SECURITY
3.1 CHARGE
Subject to the exceptions set forth in Section , the
Company hereby:
3.1.1 grants, sells, assigns, conveys, transfers, mortgages, pledges
and charges, as and by way of fixed and specific mortgage,
pledge and charge to and in favour of North American, and
grants to North American a security interest in, all personal
property of every nature and kind whatsoever and wheresoever
situate now or at any time and from time to time owned by the
Company or in which or in respect of which the Company has any
interest or rights of any kind, including, without limiting
the generality of the foregoing, the following described
property:
(a) All inventory of whatsoever kind (including vehicles)
and wheresoever situate now owned or hereafter
acquired by the Company including without limiting
the generality of the foregoing, goods for sale or
lease or that have been leased; goods furnished or to
be furnished under a contract of service; goods which
are raw materials, work in process or materials used
or consumed in a business or profession of the
Company; goods used or procured for packing;
furnished goods; industrial growing crops, oil, gas
and other minerals to be extracted; timber to be cut;
and the young of animals after conception
("INVENTORY");
(b) All book accounts and book debts and generally all
accounts, debts, dues, claims, choses in action and
demands of every nature and kind howsoever arising or
secured including letters of credit, and advices of
credit, which are now due, owing or accruing or
growing due to or owned by or which may hereafter
become due, owing or accruing or growing due or owned
by the Company including but not limited to claims
against the Crown and claims under insurance policies
("ACCOUNTS");
(c) All machinery, equipment, tools, apparatus, plants,
fixtures, furniture, vehicles, goods and other
tangible personal property of whatsoever nature and
kind, now owned or hereafter acquired by the Company
other than Inventory ("EQUIPMENT");
(d) All chattel paper now owned or hereafter acquired by
the Company ("CHATTEL PAPER");
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(e) All warehouse receipts, bills of lading and other
documents of title, whether negotiable or otherwise,
now owned or acquired by the Company ("DOCUMENTS OF
TITLE");
(f) All instruments now owned or hereafter acquired by
the Company ("INSTRUMENTS");
(g) All deeds, documents, writings, papers, books of
accounts and other books evidencing or relating to
Accounts, Chattel Paper, Instruments or Documents of
Title or by which such are or may hereafter be
secured, evidenced, acknowledged or made payable, and
all contracts, securities, instruments and other
rights benefits in respect thereof;
(h) All shares, stocks, warrants, bonds, debenture stock
or the like now owned or hereafter acquired by the
Company;
(i) All intangible property now owned or acquired by the
Company including, but not limited to, choses in
action, goodwill patents, trademarks, copyrights and
other industrial property ("INTANGIBLES");
(j) All monies other than trust monies lawfully belonging
to others;
(k) Any property in any form (including fixtures) derived
directly or indirectly from any dealings with any
property herein described (including all products and
cash and non-cash proceeds thereof); indemnification
or compensation for any such property lost,
destroyed, or lawfully or unlawfully taken or
injuriously affected; all additions and accessions
thereto and substitutions and replacements thereof;
(l) All personal property, if any, described in Schedule
"B" hereto; and
3.1.2 charges with payment to North American of all Obligations as
and by way of a floating charge the whole of the undertaking
of the Company and all of its property and assets, real and
personal, movable and immovable, tangible and intangible, of
every nature and kind whatsoever and wheresoever situate, both
present and future (other than property and assets from time
to time effectively subjected to the fixed and specific
mortgages and charges created hereby or by any instrument
supplemental hereto).
3.2 EXCEPTIONS AS TO LEASES
The last day of any term of years reserved by any lease,
verbal or written, or any agreement therefor, now held or hereafter acquired by
the Company is excepted out of the Collateral, but the Company shall stand
possessed of any such reversion upon to assign
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and dispose thereof as North American may direct. Where the giving of a fixed
and specific mortgage and charge on any real or personal property held by the
Company under lease the consent of the lessor of such property, the giving of
the fixed and specific mortgage and charge hereunder on such property shall not
take effect until such consent is obtained or legally dispensed with but the
suspension of the effect of the fixed and specific mortgage and charge on such
property shall not affect the fixed and specific mortgage and on any other
property of the Company.
3.3 CHARGE VALID IRRESPECTIVE OF ADVANCE OF MONEY
The mortgages, pledges and charges hereby created shall have
effect and be deemed to be effective whether or not the monies or obligations
hereby secured or any part thereof shall be advanced or owing or in before or
after or upon the date of this Agreement and neither the giving of this
Agreement nor any advance of funds shall oblige North American to advance any
funds or any additional funds. The Company acknowledges that the parties have
not agreed to postpone the time for attachment of any of the charges hereby,
including the floating charge created hereby, all of which shall attach upon
the execution hereof The Company acknowledges that value has been given.
3.4 SUPPLEMENTAL INDENTURES
The Company shall from time to time on demand by North
American execute and deliver such further deeds or indentures supplemental,
hereto, which shall thereafter form part hereof, for the purpose of mortgaging
to North American any property now owned or acquired by the Company and falling
within the description of the Collateral, for correcting or amplifying the
description of any property hereby mortgaged or intended so to be, or for any
other purpose not inconsistent with the terms of this Agreement
3.5 CONTINUING SECURITY
This Agreement and any other security given with North
American's consent in replacement thereof, substitution therefor or in addition
shall be held by North American as general and continuing security for due
payment and performance of all Obligations, including without limitation all
costs and amounts payable pursuant hereto and interest on the Obligations at
the rate or rates applicable thereto in accordance with the Offer of Finance or
the prevailing agreement between North American and the Company. Any and all
payments made at any time in respect of the Obligations and the proceeds
realized from any securities held therefor (including moneys realized from the
enforcement of this Agreement) may be applied (and reapplied from time to time
notwithstanding any previous application) to such part or parts of the
Obligations as North American sees fit. North American may hold as additional
security hereunder any increase or profits or other proceeds from the
Collateral (including. money) for such period of time as North American sees
fit. The Company shall be accountable for any deficiency and North American
shall be accountable for any surplus.
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ARTICLE 4
REPRESENTATIONS AND WARRANTIES
4.1 GENERAL REPRESENTATIONS AND WARRANTIES
The Company represents, warrants and covenants to and with
North American as follows:
4.1.1 Incorporation and Status
The Company is duly incorporated and validly subsisting under
the laws of its jurisdiction of incorporation and has the
corporate power and capacity to own its properties and assets
and to carry on its business as presently carried on by it or
as contemplated in the Offer of Finance to be carried on by it
and holds all material licenses, permits and assets as are
required to own its properties and assets and to carry on
business in each jurisdiction in which it does so.
4.1.2 Power and Capacity
The Company has the corporate power and capacity to enter into
each of the Security Documents to which it is a party and to
do all acts and things as are required or contemplated
hereunder or thereunder to be done, observed and performed by
it.
4.1.3 Due Authorization and Enforceability
The Company has taken all necessary corporate action to
authorize the execution, delivery and performance of each of
the Documents to which it is a party and each such document
constitutes, or upon execution and delivery will constitute, a
valid and binding obligation of the Company enforceable
subject only to the following
(a) an order of specific Performance and an injunction
are discretionary remedies, and in particular, may
not be available where damages are considered an
adequate remedy; and,
(b) enforcement may be limited by bankruptcy, insolvency,
liquidation, reorganization, reconstruction and other
similar laws generally affecting enforceability of
creditors' rights.
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4.1.4 No Contravention
The execution and delivery of this Agreement and the other
security Documents and the performance by the Company of its
obligations under (i) does not and will not violate any law or
any provision of the articles, by-laws, constating documents
or other documents of the Company or constitute a breach of
any existing contractual or other obligation of the Company or
contravene any license or permit to which the Company is
subject, (ii) will not result in the creation of, or require
the Company to create, any Encumbrance in favour any person
other than North American and (iii) will not result in or
permit the acceleration of the maturity of any indebtedness or
other obligation of the Company.
4.1.5 No Consents Required
No consent or approval of, or filing with or notice to, any
person is in connection with the execution, delivery or
performance of this Agreement or any of the other Security
Documents by the Company.
4.1.6 Leases
With respect to each Lease now existing:
(a) the copy of the Lease provided to North American
contains the entire agreement between the Company,
the lessee and any guarantor, surety or indemnitor
respecting the subject matter and them have been no
modifications, amendments or extensions thereto or
thereof;
(b) the Lease is in full force and effect and in good
standing.
4.1.7 Financial Statements
The financial statements of the Company in the form delivered
by the Company to North American have been prepared in
accordance with generally accepted accounting principles and
fairly, completely and accurately present the financial
condition of the Company and the financial information
presented therein for the period and as at the date thereof.
Since the date of the last financial statements delivered to
North American there has been no development which has had or
will have a material adverse effect upon the business,
property, financial condition or prospects of the Company or
upon the ability of the Company to perform its obligations
under any of the Security Documents.
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4.1.8 Solvency
The company is not an insolvent person within the meaning of
the Bankruptcy and Insolvency Act (Canada).
4.1.9 No Litigation
There are no actions, suits, judgments, awards or proceedings
pending or, to the knowledge of the Company, threatened
against the Company before any court or government department,
commission, board, agency or instrumentality, domestic or
foreign, or before any other authority, or before any
arbitrator of any kind, which would, if determined adversely
to the Company, materially adversely affect its business,
property, financial condition or prospects or its ability to
perform any of the provisions of any Security Document to
which it is a party or which purports, to affect the legality,
validity or enforceability of any Security Document, and the
Company is not in default with respect to any judgment, order,
writ, injunction, award, rule or regulation of any
Governmental Authority or any arbitrator, which individually
or in the aggregate results in any such material adverse
effect.
4.1.10 No Default
The Company is not in default or breach under any material
commitment or obligation (including, without limitation,
obligations in relation to Financial Indebtedness) or under
any order, writ, decree or demand of any Governmental
Authority or with respect to any leases, licenses or permits
to own and/or operate material properties and assets or to
carry on business and there exists no state of facts which,
after notice or the passage of time or both, would constitute
such a default or breach; and there are not any proceedings in
progress, pending or threatened, which may result in the
revocation, cancellation, suspension or any adverse
modification of any such leases, licenses or permits.
4.1.11 All Material Information Supplied
The Company has provided to North American all material
information relating to the financial condition, business and
prospects of the Company and the Guarantors (if any) and all
such information is true, accurate and complete in all
material respects.
4.1.12 Serial Numbered Goods and Fixtures
Full particulars (including serial number) of each motor
vehicle, trailer, mobile home, boat, outboard motor and
aircraft in which the Company has rights and which is not
inventory are set out in Schedule "B" hereto. None of the
goods comprised in the Collateral are fixtures except any
fixtures that are described so
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that they may be readily identified in Schedule "B" hereto and
that are affixed or attached to the Premises described in
Schedule "A" hereto.
4.1.13 Consumer Goods
None of the Collateral now owned or hereafter acquired is now
or shall at any time be Consumer Goods of the Company.
4.2 ENVIRONMENTAL REPRESENTATIONS AND WARRANTIES
The Company represents, warrants and covenants to and with
North American as follows:
4.2.1 The Collateral and the operations of the Occupants now and
will at all times in future comply in all material respects
with all Environmental Laws and Environmental Orders.
4.2.2 After due and diligent inquiry, it has been found except for
Permitted Substances necessary to the carrying on of the
Normal Business of the Company, there is no Hazardous
Substance on or in any of the Premises, no Hazardous Substance
has ever been used, stored, located or Released on or in any
of the Premises, no part of the Premises is or has ever been by
any Hazardous Substance.
4.2.3 After due and diligent inquiry and save and except as
expressly set out in the Jacobs Engineering report dated June
30, 1995 as delivered to North American it has been found that
there are no:
(a) underground or above-ground storage tanks;
(b) asbestos or material containing asbestos,
(c) urea formaldehyde or material containing urea
formaldehyde;
at, on or under the Premises and none of the foregoing will at
any time in future be placed, installed or Released at, on or
under the Premises without the prior written consent of North
American.
4.2.4 Any underground or above-ground storage tanks located at, on
or under the Premises which have been approved by North
American have been identified, constructed, operated and
maintained as required by Environmental Laws and Environmental
Orders and they are presently in a state of good condition
and repair, have not leaked and are not presently leaking
any of their contents.
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4.2.5 There is no judicial or administrative proceeding or
investigation pending and no Environmental Order has been
issued or, to the best of the Company's knowledge, threatened
concerning the possible violation of any Environmental Laws or
Environmental Orders by any of the Occupants, by any of the
operations of the Occupants or otherwise in relation to the
Collateral.
4.2.6 To the best of the Company's knowledge (after due and diligent
inquiry), no condition exists as to any parcel of real
property contiguous to or in close proximity with the Premises
which would require a qualification to any of the
representations or warranties in this Section if such
condition applied to the Premises.
4.2.7 Except for Permitted Substances necessary to the carrying on
of the Normal Business of the Company, no Hazardous Substance
shall be brought onto or used on or in any part of the
Premises without the prior written consent of North American
and any Hazardous Substance brought onto or into any part of
the Premises or used by any person on or in any part of the
Premises shall be transported, used and stored only in
accordance with all Environmental Laws, other lawful
requirements, prudent industrial standards (including without
limitation any published environmental standards of any
applicable industry association) and any requirements of
applicable insurance policies.
4.2.8 The Company has created, properly organized and maintained all
documentation and records concerning environmental matters as
required by any Environmental Laws or Environmental Orders and
will maintain such documentation and records at all times in
future as aforesaid.
4.2.9 The Company has provided to North American any Environmental
Assessment and related documentation concerning any of the
Premises in its possession or control and shall promptly
provide to North American any such material as the Company may
obtain in future.
4.2.10 The Company shall promptly notify North American if it:
(a) receives notice from any Governmental Authority of
any violation or potential violation of any
Environmental Laws or Environmental Orders, including
the Release of a Hazardous Substance, which may have
occurred or been committed or is about to occur or be
committed;
(b) receives notice that any administrative or judicial
complaint or Environmental Order has been issued or
filed or is about to be issued or filed against any
of the, Occupants or their representatives alleging
violations of any Environmental Laws or Environmental
Orders or requiring the taking of any action in
connection with any Hazardous Substance;
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(c) learns of the enactment of any Environmental Laws or
the issuance of any Environmental Orders which may
have a material adverse effect on the Premises or the
operations or the condition, financial or otherwise,
of any of the Occupants; or
(d) knows of or suspects that any Hazardous Substance
(other than a Permitted Substance necessary to the
carrying on of the Normal Business of the Company)
has been brought onto any part of the Premises or
that there is any actual, threatened or potential
Release of any Hazardous Substance (whether or not a
Permitted Substance) on, from, in or under any part of
the Premises.
4.2.11 The Company hereby grants to North American and its employees
and agents an irrevocable and non-exclusive license, subject
to the rights of tenants, to enter any of the Premises to
conduct testing and monitoring with respect to Hazardous
Substances and to remove and analyze any Hazardous Substance
at the cost and expense of the Company (which cost and
expense shall be secured hereby).
4.2.12 The Company shall indemnify North American and hold North
American harmless against and from all loss, costs, damages
and expenses which North American may sustain, incur or be or
become liable for by reason of or arising from the presence,
clean-up, removal or disposal of any Hazardous Substance
referred to in this section or compliance with Environmental
Laws or Environmental Orders relating thereto, including any
clean-up, decommissioning, restoration or remediation of the
Premises and other affected lands or property (and this
indemnification shall survive the satisfaction, release or
extinguishment of the indebtedness secured hereby).
4.3 TITLE
The Company covenants with North American that, subject only to
Permitted Encumbrances, it lawfully owns and is lawfully possessed of the
Collateral and all property and assets indicated by the financial statements
which it has delivered to North American to be owned by it and has good right
and authority to mortgage and charge the same as provided for herein, free and
clear of all Encumbrances (other than Permitted Encumbrances), and it will
warrant and defend the title thereto as well as to any other property, rights
and interests hereafter acquired by the Company. No person has any agreement or
right or option to acquire any of such property (except under unfilled purchase
orders accepted in the ordinary course of business for the sale of Inventory).
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ARTICLE 5
COVENANTS OF THE COMPANY
5.1 GENERAL COVENANTS
So long as this Agreement remains outstanding, the Company
covenants and agrees as follows:
5.1.1 To Pay Costs
The Company shall pay all costs, charges and expenses of or
incurred by North American (a) incidental to the preparation,
execution and filing of this Agreement and any other Security
Documents and any instruments relating thereto or required by
the Offer of Finance (including without limitation any
supplemental security or any instrument amending any of the
Security Documents), (b) in inspecting the Collateral or in or
about taking, recovering or keeping possession of any of the
Collateral or in any other proceedings taken in enforcing the
remedies provided herein or otherwise in relation to this
Agreement or the Collateral, or by reason of non-payment of the
moneys hereby secured, (c) the costs of any sale proceedings
hereunder, whether such sale prove abortive or not, and (d)
the costs of any Receiver with respect to, and all
expenditures made by North American or any Receiver in the
course of, doing anything hereby permitted to be done by North
American or such Receiver (including without limitation any
costs and expenditures relating to compliance with the
Bankruptcy and Insolvency Act (Canada)). All such costs and
expenses and other monies payable hereunder, together with
interest at the highest rate applicable to any Obligations,
shall be payable on demand and shall constitute a charge on the
Collateral. Without limiting the generality of the foregoing,
such costs shall extend to and include any legal costs incurred
by or on behalf of North American as between solicitor and own
client
5.1.2 To Pay Certain Debts
The Company shall punctually pay and discharge every
obligation, failure to pay or discharge which might result in
any lien or charge or right of distress, forfeiture,
termination or sale or any other remedy being enforced against
the Collateral and provide to North American when required
satisfactory evidence of such payment and discharge, but the
Company may on giving North American such security (if any) as
North American may require refrain from paying or discharging
any obligation so long as it contests in good faith its
liability therefor.
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5.1.3 To Maintain Corporate Existence and Security
The Company shall:
(a) maintain its corporate existence;
(b) diligently preserve all its rights, licenses, powers,
privileges, franchises and goodwill;
(c) observe and perform all of its obligations and comply
with all conditions under leases, licenses and other
agreements to which it is a party or upon or under
which any of the Collateral is held;
(d) carry on and conduct its business in a proper and
efficient manner so as to preserve and protect the
Collateral and income therefrom;
(e) keep proper books of account with correct entries of
all transactions in relation to its business;
(f) observe and conform to all valid requirements of law
and of any Governmental Authority relative to the
Collateral or the carrying on by the Company of its
business;
(g) and keep in repair and good order and condition all
property, including the Collateral, the use of which
is necessary or advantageous in connection with its
business;
(h) immediately notify North American in writing of any
proposed change of name of the Company or of the
Company's chief place of business;
(i) keep North American constantly informed in writing as
to the location of the Collateral and the books of
account and other records of the Company; and
(j) effect such registrations as may be required by North
American from time to time to protect the security
hereof.
5.1.4 Leases
(a) The Company shall at all times perform and discharge
all of the lessee's covenants and obligations under
any Lease.
(b) The Company will not without the written consent of
North American terminate, surrender, amend, alter or
vary the terms and conditions of the
<PAGE> 20
Page 20
any Lease. Nor shall the Company, without the written
consent of North American, waive performance by the
landlord under any of the Leases or release any of
the said landlords from any obligations under their
respective Leases.
5.1.5 To Insure
The Company shall keep the Collateral and the operations of
the Company insured in such amounts as North American may
reasonably require against loss or damage by fire and such
other risks as North American may from time to time specify,
with insurers approved by North American. The Company shall
whenever from time to time requested by North American provide
North American with satisfactory evidence of such insurance
and any thereof which shall at all times be subject to
mortgage clauses in a form approved by North American, and
shall at the request of North American forthwith assign,
transfer and deliver unto North American the policy or
policies of such insurance. Evidence satisfactory to North
American of the renewal of every shall be provided to North
American at least seven (7) days termination thereof.
5.1.6 To Furnish Proofs
The Company shall forthwith on the happening of any loss or
damage furnish at its own all necessary proofs and do all
necessary acts to enable North American to obtain payment of
the insurance monies, which, in the sole discretion of North
American, may be applied in reinstating the insured property
or be paid to the Company or be applied in payment of the
monies owing hereunder, whether due or not then due, or paid
partly in one way and partly in another.
5.1.7 Inspection by North American
The Company shall allow any employees or authorized agents of
North American at any reasonable time to enter the premises of
the Company in order to inspect the Collateral and to inspect
the books and records of the Company and make therefrom, and
shall permit North American prompt access to such other
persons as North American may deem necessary or desirable for
the purposes of inspecting or verifying any matters relating
to any part of the Collateral or the books and records of the
Company, provided that any information so obtained shall be
kept confidential, save as required by North American in
exercising its rights hereunder.
<PAGE> 21
Page 21
5.1.8 Accounts
Subject to any Permitted Encumbrances thereon, Accounts shall
be received by the Company in trust for North American;
provided that as long as an Event of Default has not occurred
the Company may collect and use the Accounts in the ordinary
course of business.
5.1.9 Deliver Information
The Company shall deliver to North American at the close of
each financial year of the Company one copy of its annual
financial statements, which unless otherwise indicated in the
Offer of Finance shall be prepared on an audited basis by
independent auditors of the Company, qualified and entitled to
carry on in the Applicable Province the practice of public
accounting and auditors including the balance sheet and
statements of income, and changes in financial position,
together with all supporting schedules. Such financial
statements shall be signed by an authorized officer of the
Company and shall be accompanied by a detailed report of the
auditors (which report shall not be qualified in any material
respect). The Company shall deliver such financial statements
to North American together with such other statements and
reports as may be required pursuant to the Offer of Finance,
within the time periods stipulated therein. The Company shall
provide to North American any other information concerning its
financial position and business operations which North
American may from time to time request.
5.1.10 Notice of Litigation and Damage
The company will promptly give written notice to North
American of (a) all claims or proceedings pending or
threatened against the Company which may give rise to
uninsured liability in excess of $25,000.00 or which may have
a material adverse affect on the business or operations of the
Company and (b) all damage to or loss or destruction of any
property comprising part of the Collateral which may give rise
to an insurance claim in excess of $25,000; and will supply
North American with all information reasonably requested in of
any such claim.
5.1.11 Notice of Default
The Company will promptly give written notice to North
American of the occurrence of any Event of Default or of any
event which after notice or lapse of time would constitute an
Event of Default.
<PAGE> 22
Page 22
5.1.12 Representations and Warranties
The representations and warranties made by the Company in
Article 4 shall be true and correct on each day that this
Agreement or any of the Security Documents remains in force,
with the same effect as if such representations and warranties
had been made and given on and as of such day (except to the
extent any such representation and warranty is expressly
limited to a particular date or particular period or time),
notwithstanding any investigation made at any time by or on
behalf of North American.
5.1.13 Not to Create Certain Charges
The Company shall not, without the prior written consent of
North American, create or permit to arise any Encumbrance on
any of the Collateral; (other than Permitted Encumbrances),
and will not permit any Subsidiary to do the same (except in
favour of the Company).
5.1.14 Not to Sell
The Company shall not, except as otherwise permitted
hereunder, remove, destroy, lease, sell or dispose of any of
the Collateral; provided that the Company may sell or
otherwise dispose of Equipment which has become worn out or
damaged or otherwise unsuitable for the purposes on condition
that it shall substitute subject to the lien hereof and free
from liens or charges, property of equal value so that the
security hereby constituted shall not thereby be in any way
reduced or impaired; and provided further that the Company may
sell Inventory in the ordinary course of business and for the
purpose of carrying on the same.
5.1.15 Not to Make Certain Changes
The Company shall not without the prior written consent of
North American:
(a) change its financial year end;
(b) purchase, establish or acquire in any manner any new
business undertaking;
(c) materially change the nature of the Company's
business as presently carried on;
(d) amalgamate, consolidate or merge or enter into a
partnership, joint venture or syndicate with any
other person, or acquire or establish any Subsidiary;
<PAGE> 23
Page 23
(e) enter into any transaction, or permit any Subsidiary
to do so, outside the ordinary active business
operations of the Company and its Subsidiaries;
(f) acquire or invest in any securities except
instruments or securities issued by a financial
institution or liquid securities traded on a
recognized public securities exchange and acquired
only for the Company's cash management purposes or
permit any Subsidiary to do so; or
(g) remove any of the Collateral or any of the books of
account or other records of the Company from the
jurisdiction where presently located.
5.1.16 Serial Numbered Goods and Fixtures
Upon the acquisition by the Company from time to time of
rights in any motor vehicles, trailers, mobile homes, boats,
outboard motors or aircraft which are not Inventory and which
are not fully described in Schedule "B" hereto, or upon
repossession by or return to the Company of any such goods,
the Company will forthwith give written notice to North
American of full particulars (including the serial number) of
the same. The Company will not permit goods now or hereafter
comprised in the Collateral to become fixtures unless they
are, or are to be, affixed or attached to the
Premises described in Schedule "A" hereto and unless the goods
are described in Schedule "B" hereto so that they may be
readily identified.
ARTICLE 6
EVENTS OF DEFAULT AND REMEDIES
6.1 EVENTS OF DEFAULT
The occurrence of any of the following events shall constitute
an Event of Default under this Agreement:
6.1.1 if default occurs in payment or performance of any Obligation
(whether arising herein or otherwise);
6.1.2 if any representation or warranty made by the Company herein
or in any other Instrument or in any certificate, statement or
report furnished in connection with or pursuant to the Offer
of Finance is found to be false or incorrect in any way so as
to make it materially misleading when made or when deemed to
have been made;
<PAGE> 24
Page 24
6.1.3 if default occurs in payment or performance of any obligation
in favour of any person to whom the Company is indebted except
obligations to trade creditors incurred in the ordinary course
of business;
6.1.4 if default occurs in payment or performance of any obligation
(whether now existing, presently arising or created in future)
of any Affiliate of the Company in favour of North American;
6.1.5 if the Company commits an act of bankruptcy or becomes
insolvent within the meaning of any bankruptcy or insolvency
legislation applicable to it or becomes a bankrupt or a
petition or other process for the bankruptcy of the Company is
filed or instituted, which petition or other process is not
validly disputed and defended as required by law fully by the
Company within ten (10) days of service of the petition or
other process on the Company;
6.1.6 if any act, matter or thing is done toward, or any action or
proceeding is launched, had or taken for, terminating the
corporate existence of the Company, whether by winding-up,
surrender of charter or otherwise;
6.1.7 if the Company ceases to carry on its business or makes or
proposes to make any sale of its assets in bulk or any sale of
its assets out of the usual course of its business;
6.1.8 if any proposal is made or any petition is filed by the
Company under any law having for its purpose the extension of
time for payment, composition or compromise of the liabilities
of the Company or other reorganization or arrangement
respecting its liabilities or if the Company gives notice of
its intention to make or file any such proposal or petition
including without limitation an application to any court for
an order to stay or suspend any proceedings of creditors
pending the making or filing of any such proposal or petition;
6.1.9 if any receiver, administrator or manager of the property,
assets or undertaking of the Company or a substantial part
thereof is appointed pursuant to the terms of any trust deed,
trust indenture, debenture or similar instrument or by or
under any judgment or order of any court;
6.1.10 if any balance sheet or other financial statement provided by
the Company to North American pursuant to the provisions
hereof is false or misleading in any material respect;
6.1.11 if the Company permits any sum which has been admitted as due
by it or is not disputed to be due by it and which forms, or
is capable of being made, a charge upon any of the Collateral
in priority to, or pari passu with, the charge created by this
Agreement to remain unpaid for thirty (30) days after
proceedings have been taken to enforce the same as such
charge;
<PAGE> 25
Page 25
6.1.12 if any proceedings are taken to enforce any Encumbrance
affecting any of the Mortgaged Property which proceedings are
not validly disputed and defended as referred by law fully by
the Company within ten (10) days of the Company becoming aware
of the proceedings;
6.1.13 if the validity of any Instrument is brought into question or
disputed in whole or in part where the effect of any such
invalidity would materially adversely affect the interests of
North American hereunder or in connection with the Offer of
Finance;
6.1.14 if any action is taken or power or right be exercised by any
Governmental Authority or if any claim or proceeding is
pending or threatened by any person which may have a material
adverse affect on the Company, its business or operations, its
properties or its prospects;
6.1.15 if in the opinion of North American a material adverse change
has ocurred in the financial condition or business of the
Company which may impair the ability or willingness of the
Company to perform its obligations hereunder, under the Offer
of Finance or under any other Instrument or if North American
considers that the Collateral is in jeopardy or that North
American is insecure;
6.1.16 if any event occurs with respect to any Guarantor which if a
like event had occurred with respect to the Company would have
constituted an Event of Default.
6.2 CONSEQUENCES OF AN EVENT OF DEFAULT
Upon the occurrence of an Event of Default, any obligation of
North American to make further loans or advances or extend other credit to the
Company shall immediately terminate and all Obligations and all monies secured
hereby shall at the option of North American become forthwith due and payable
whereupon the floating charge hereby created shall crystallize all of the
rights and remedies hereby conferred in respect of the Collateral shall become
immediately enforceable and any and all additional and collateral securities
for payment of this Agreement shall become immediately enforceable.
6.3 ENFORCEMENT
Upon the happening of any Event of Default North American may
by instrument in writing declare that the security hereof has become
enforceable and crystallized and North American shall have the following
rights and powers:
6.3.1 to enter into possession of all or any part of the Collateral;
6.3.2 to preserve and maintain the Collateral and make such
replacements thereof and additions thereto as it deems
advisable;
<PAGE> 26
Page 26
6.3.3 to borrow money in the Company's name or in North American's
name or to advance North American's own money to the Company,
in any case upon such as North American may deem reasonable
and upon the security hereof;
6.3.4 to pay or otherwise satisfy in whole or in part any
Encumbrances which, in North American's opinion, rank in
priority to the security hereof;
6.3.5 after entry by its officers or agents or without entry to
sell, lease or otherwise dispose in any way whatsoever of all
or any part of the Collateral either en bloc or separately at
public auction or by tender or by private agreement and at
such time or times and on such terms and conditions as North
American in its absolute discretion may determine and without
any notice to or concurrence of the Company except as may be
required by applicable law, and another or others in his
stead.
6.3.6 by instrument in writing to appoint any person or persons
(whether an officer or officers of North American or not)
(herein called the "Receiver") of all or any part of the
Collateral and to remove any Receiver so appointed and appoint
The security of this Agreement may be realized and the rights
enforced by any remedy or in any manner authorized or permitted by this
Agreement or by law or equity and no remedy for the on of the security hereof
shall be exclusive of or dependent upon any other remedy and all or any remedies
may from time to time be exercised independently or in any combination.
6.4 DISPOSITION
Without limiting the generality of the foregoing it shall be
lawful for North American:
6.4.1 to make any sale, lease or other disposition of the Collateral
either for cash or upon credit or partly for one and partly
for the other upon such conditions as to terms of payment as
it in its absolute discretion may deem proper,
6.4.2 to rescind or vary any contract for sale, lease or other
disposition that North American may have entered into pursuant
hereto and resell, release or redispose of the Collateral with
or under any of the powers conferred herein; and
6.4.3 to stop, suspend or adjourn any sale, lease or other
disposition from time to time and to hold the same as
adjourned without further notice.
Upon any such sale, lease or other disposition North American
shall be accountable only for money actually received by it. The Company shall
be accountable for any deficiency and North American shall be accountable for
any surplus. North American may deliver to the purchaser or purchasers of the
Collateral or any part thereof good and sufficient
<PAGE> 27
Page 27
conveyances or deeds for the same free and clear of any claim by the Company.
The purchaser or lessee receiving any disposition of the Collateral or any part
thereof need not inquire whether default under this Agreement has actually
occurred but may as to this and all other matters rely upon a statutory
declaration of an officer of North American, which declaration shall be
conclusive evidence as between the Company and any such purchaser or lessee, and
the purchaser or lessee need not look to the application of the purchase money,
rent or other consideration given upon such sale, lease or other disposition,
which shall not be affected by any irregularity of any nature or kind relating
to the crystallizing or enforcing of the security hereof or the taking of
possession of the Collateral or the sale, lease or other disposition thereof.
6.5 POWERS OF RECEIVER
Any Receiver appointed as aforesaid shall have the power
without legal process:
6.5.1 to take possession of the Collateral or any part thereof
wherever the same may be found;
6.5.2 to carry on the business of the Company or any part thereof in
the name of the Company or of the Receiver; and
6.5.3 to exercise on behalf of North American all of the rights and
remedies herein granted to North American,
and without in any way limiting the foregoing the Receiver shall have all the
powers of a receiver appointed by a court of competent jurisdiction. Any
Receiver shall, so far as concerns responsibility for his acts, be deemed the
agent of the Company, and North American shall not be in any way responsible for
any misconduct or negligence on the part of any Receiver or any loss resulting
therefrom.
6.6 APPLICATION OF MONEYS
All moneys actually received by North American or by the
Receiver in enforcing the security of this Agreement shall be applied, subject
to the proper claims of any other person:
6.6.1 first, to pay or reimburse North American and any Receiver the
costs, charges, expenses and advances payable by the Company
in accordance herewith;
6.6.2 second, in or toward the payment to North American of all
other moneys owing hereunder or secured hereby in such order
as North American in its sole discretion may determine; and
6.6.3 third, any surplus shall be paid to the Company or its
assigns.
<PAGE> 28
Page 28
6.7 POWERS OF DIRECTORS AND OFFICERS
Upon North American declaring as aforesaid that the security
hereof has become enforceable and crystallized or the Company receiving notice
from North American of the taking of possession of any of the Collateral or of
the appointment of a Receiver, all the powers, functions, rights and privileges
of the directors and officers of the Company with respect to the property,
business and undertaking of the Company shall cease except to the extent
specifically continued at any time by North American in writing.
6.8 LIMITATIONS ON LIABILITY
Neither the provisions of this Agreement nor anything done
under or pursuant to the rights, remedies and powers conferred upon North
American and the Receiver, whether hereunder or otherwise, will render North
American a mortgagee in possession. Neither North American nor any Receiver
will be bound to collect, dispose of, realize, enforce or sell my securities,
Instruments, chattel paper or Intangibles (including any Accounts) comprised in
the Collateral or to allow any such Collateral to be sold or disposed of, nor
will it be responsible for any loss occasioned by any such sale or other
dealing or for any failure to sell or so act, nor will it be responsible for
any failure to take necessary steps to preserve rights against others in
respect of such Collateral, nor will it be responsible for any loss occasioned
by the failure to exercise any rights in of Collateral within the time limited
for the exercise thereof. Neither North American nor the Receiver will be
obligated to keep Collateral separate or identifiable.
ARTICLE 7
GENERAL
7.1 WAIVER
No act or omission by North American in any manner whatever in
the premises shall extend to or be taken to affect any provision hereof or any
subsequent breach or default or the rights resulting therefrom save only
express waiver in writing. A waiver of default shall not extend to, or be taken
in any manner whatsoever to affect the rights of North American with respect
to, any subsequent default, whether similar or not. The Company waives every
defence based upon any or all indulgences that may be granted by North
American.
7.2 OTHER SECURITIES
The rights of North American hereunder shall not be prejudiced
nor shall the liabilities of the Company or of any other person be reduced in
any way by the taking of any other security of any nature or kind whatsoever
either at the time of execution of this Agreement or at any time hereafter.
<PAGE> 29
Page 29
7.3 NO MERGER OR NOVATION
Neither the taking of any judgment nor the exercise of any power of
seizure or sale shall operate to extinguish the liability of the Company to
pay the moneys hereby secured nor shall the same operate as a merger of
any covenant herein contained or of any other Obligation, nor shall the
acceptance of any payment or other security constitute or create any novation.
7.4 AMALGAMATION
The Company acknowledges that if it amalgamates with any other
corporation or corporations (a) the Collateral and the lien created hereby
shall extend to and include all the property and assets of each of the
amalgamating corporations and the amalgamated corporation and to any property
or assets of the amalgamated corporation thereafter owned or acquired, (b) the
term "Company", where used herein shall extend to and include each of the
amalgamating corporations and the amalgamated corporation, and (c) the term,
"Obligations", where used herein shall extend to and include the Obligations of
each of the amalgamating corporations and the amalgamated corporation.
7.5 POWER OF ATTORNEY
The Company for valuable consideration irrevocably appoints North
American and its officers from time to time or any of them to be the attorneys
of the Company in the name of and on behalf of the Company to execute and
do any deeds, transfers, conveyances, assignments, assurances and things which
the Company ought to execute and do under the covenants and provisions herein
contained and generally to use the name of the Company in the exercise of all
or any of the powers hereby conferred on North American.
7.6 NORTH AMERICAN MAY REMEDY DEFAULT
If the Company fails to do anything hereby required to be done by
it, North American may, but shall not be obliged to, do such thing and all sums
thereby expended by North American shall be payable forthwith by the Company,
shall be secured hereby and shall have the benefit of the lien hereby created,
but no such performance by North American shall be deemed to relieve the
Company from any default hereunder.
7.7 PURCHASE MONEY SECURITY INTEREST
The Company acknowledges that the security interest in any item of
Collateral and its proceeds shall constitute a purchase-money security interest
to the extent it secures Obligations incurred by the Company to enable the
Company to acquire rights in such Collateral. North American hereby reserves
title to any item of Collateral which may be sold by North American to the
Company until satisfaction of the Obligations as aforesaid.
<PAGE> 30
Page 30
7.8 TAXES AND RESERVE REQUIREMENTS
In case North American is or becomes subject to any tax with
respect to payments of principal, interest or other amounts by the Company
hereunder or in respect of any of the Obligations (except for taxes on the
overall net income of North American) or to any reserve or requirement against
assets held by, or deposits in or for the account of, or loans by, an office of
North American, or to any other condition with respect to this Agreement, and
the result of any of the foregoing is to increase the cost to North American of
making or maintaining any Obligation or to reduce the income receivable by
North American in respect of any Obligation, then the Company shall pay to
North American on demand that amount which shall compensate North American for
such additional cost or reduction in income. A certificate of North American
forth the amount of such additional compensation and the basis therefor shall
be submitted by North American to the Company and shall be conclusive evidence,
in the absence of manifest error, of such amount.
7.9 ADDITIONAL PROVISIONS
Any provisions set forth in Schedule "D" hereto form part
hereof to the same extent and effect as if set forth in the body hereof.
7.10 NOTICES
Any notice or written given pursuant to or in connection with
this Agreement shall be in writing and shall be given by delivering the same
personally or by prepaid courier, prepaid registered mail, telex or telecopier,
addressed to the party to be notified at the address of such party set out
herein or at such other address of which such party has given notice to the
other parties hereto. Any such notice shall be conclusively deemed to have been
given and received on the day of actual receipt by the addressee or, if given
by prepaid registered mail, on the third Business Day following the mailing
date (absent a general disruption on in postal service.)
7.11 OFFER OF FINANCE
This Agreement is being issued by the Company to North
American pursuant to the terms of the Offer of Finance. All terms and
conditions of the Offer of Finance shall remain in full force and effect,
except to the extent inconsistent with the provisions of this Agreement in
which case the provisions of this Agreement shall govern and prevail.
7.12 RECEIPT
The Company hereby acknowledges receipt of a true copy of this
Agreement and a copy of the financing statement registered under the Personal
Property Security Act of the Applicable Province in respect of the security
created hereby.
<PAGE> 31
Page 31
7.13 SUCCESSORS AND ASSIGNS, ETC.
This Agreement and all its provisions shall enure to the benefit of
North American, its successors and assigns and shall be binding upon the
Company, its successors and assigns, and every reference herein to a party
hereto shall include such party's successors and assigns as if specifically
named. Time shall be in all respects of the essence hereof.
IN WITNESS WHEREOF the Company has hereunto affixed its Corporate
Seal attested by the hands of its proper officers duly authorized in that
behalf as of the 13th day of July, 1995.
STRIKER PAPER CANADA, INC.
Per:
/s/ DAVID ALLAN COLLINS
------------------------------
David Allan Collins, President and C.E.O.
c/s
Per:
/s/ MATTHEW DANIEL POND
------------------------------
Matthew Daniel Pond, Treasurer and C.F.O.
<PAGE> 32
SCHEDULE "A"
REAL PROPERTY
(SECTION 3.1.1(a))
Municipal Address
100 Ormond Street South
Thorold, Ontario
L2V 1Z4
Legal Description
Part of Park Lot 5 and Part of Town Lot PP, Plan 898, Part of Township Lot 29,
Township of Thorold, Parts of William Street Plan 898, as closed by By-Laws
2455 and 1140 (1988), City of Thorold, Regional Municipality of Niagara,
designated as Part 3, Plan 59R-7526. Parts of William Street, Plan 898, as
closed by By-Laws 2455 and 1140 (1988) designated as Parts 1 and 2, Plan
59R-7526, City of Thorold, Regional Municipality of Niagara
<PAGE> 33
SCHEDULE "B"
MACHINERY, EQUIPMENT, ETC.
(SECTION 3.1.1(b))
The following goods now located at 100 Ormond Street South, Thorold, Ontario
See Attached
<PAGE> 34
APPENDIX A
- --------------------------------------------------------------------------------
Recommended List of Improvements
<TABLE>
<CAPTION>
- --------------------------------------------------------------------------------
Item Qty Description Duration Equipment Materials Total
and Labor Cost
- --------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
A * 1 Sprout Waldron Model 3 weeks 35,000 15,000 50,000
26H Twin Flow Refiner
(used if available; new=
60,000 USD)
- --------------------------------------------------------------------------------
B * 3 Coil and Shell Assembly 2 weeks 63,000 15,000 78,000
for Clayton Boiler
- --------------------------------------------------------------------------------
C * 2 Service Eaton Drives 6 weeks 23,000 3,000 26,000
- --------------------------------------------------------------------------------
D * 1 New Eaton Drive 3 weeks 2,000 2,000 4,000
Controller
- --------------------------------------------------------------------------------
E** Lot Wastewater Loop Closure 22 weeks 70,000 30,000 100,000
(Appendix C)
- --------------------------------------------------------------------------------
F * 6 Regrind Press Rolls 4 weeks 30,000 6,000 36,000
- --------------------------------------------------------------------------------
G * 1 New Machine Felt 2 weeks 11,000 2,000 13,000
- --------------------------------------------------------------------------------
H * 4 New Line Drive Belts 2 weeks 2,000 1,000 3,000
- --------------------------------------------------------------------------------
I * Lot Instrumentation/ 2 weeks 25,000 10,000 35,000
Electrical
Motor Allowance
- --------------------------------------------------------------------------------
J * Lot Lighting Repairs and 3 weeks 10,000 10,000
Modifications
- --------------------------------------------------------------------------------
K * Lot Condensate System Repairs 3 weeks 5,000 15,000 20,000
- --------------------------------------------------------------------------------
L Lot New Coordinated 26 weeks 170,000 130,000 300,000
Electric Machine Drives
with Control Room
(Including Demolition
of Line Drive System)
- --------------------------------------------------------------------------------
M Lot Sawdust Metering System 10 weeks 20,000 20,000 40,000
- --------------------------------------------------------------------------------
N Lot New Electrical Power 4 weeks 25,000 25,000
Feed
- --------------------------------------------------------------------------------
O Lot New Vacuum Box System 14 weeks 40,000 35,000 75,000
Upgrade
- --------------------------------------------------------------------------------
SUBTOTAL 815,000
- --------------------------------------------------------------------------------
P Lot Design Allowance 225,000
- --------------------------------------------------------------------------------
Q Lot Startup Assistance 40,000
- --------------------------------------------------------------------------------
SUBTOTAL 1,080,000
- --------------------------------------------------------------------------------
Contingency (20%) 215,000
- --------------------------------------------------------------------------------
TOTAL 1,295,000
- --------------------------------------------------------------------------------
</TABLE>
* To be completed prior to plant start-up
**To be initiated with start-up activities
<PAGE> 35
APPENDIX B
- --------------------------------------------------------------------------------
Schedule
<PAGE> 36
Appendix B
Schedule of Events
STRIKER INDUSTRIES
JACOBS-SIRRINE ENGINEERS
<TABLE>
<CAPTION>
1995
------------------------------------------------
Job #16N79300 DATE 1/6/95 BY WS JAN FEB MAR APR MAY JUN JUL AUG SEP OCT NOV DEC
------------------------------------------------
<C> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
DESIGN WASTEWATER LOOP XXXXX
MAKE TIE-IN MODIFICATIONS XX
PROCURE TANKS, FILTERS, PUMPS XXXXXXXXX
INSTALLATION XXXXXXX
CHECKOUT/STARTUP XXX
REMOVE & SHIP EATON DRIVES XX
REFURBISH DRIVES XX
SHIP & REINSTALL DRIVES XX
PROCURE/INSTL NEW CONTROLLER XXX
REMOVE & SHIP PRESS ROLLS X
REGRIND PRESS ROLLS XX
SHIP & REINSTALL PRESS ROLLS X
PROCURE REFINER XX
INSTALL REFINER X
PROCURE BOILER COILS X
INSTALL BOILER COILS X
PROCURE/INSTL NEW BELTS/FELT XXXX
START-UP PLANT
ELECTRICAL/MOTORS CHECKOUT XX
FLUSH PIPING/TANKS XX
FIRE BOILERS X
INSPECT/REPLACE INST XX
START PAPER MACHINE XX
DESIGN, PROCURE, INSTALL
ELECTRIC MACHINE DRIVES XXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXX
DESIGN, PROCURE, INSTALL
VACUUM BOXES XXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXX
DESIGN, PROCURE, INSTALL
SAWDUST METERING SYSTEM XXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXX
</TABLE>
<PAGE> 37
APPENDIX C
- --------------------------------------------------------------------------------
Wastewater System Modifications
Equipment Costs
- --------------------------------------------------------------------------------
Item Qty Description Allowance
(US$)
- --------------------------------------------------------------------------------
S-2 1 Separator, Sweco, Model XS48S88, 48" 12,000
Diameter, Open Top
- --------------------------------------------------------------------------------
P-2 1 Filter Feed Pump, Sherwood, 1 HP, Centrifugal, 1,275
TEFC Drive, 440/3/60 Starter
- --------------------------------------------------------------------------------
P-12 1 Supply Tank Pump, Sherwood, 3 HP, Centrifugal, 1,575
TEFC Drive, 440/3/60 Starter
- --------------------------------------------------------------------------------
T-7,8 2 Supply Tanks, Carbon Steel, 12' Diameter by 30' 25,000
High, Flat Bottom, Cone Top, 25,000 Gallons
Each
- --------------------------------------------------------------------------------
CP-1 1 Control Panel, with Pilot Lights, Relays, 2,615
Annunciator and Acknowledge Button
- --------------------------------------------------------------------------------
LSH-1,2,3 8 Level Switches, Cole-Parmer Catalog Number 220
LSL-1,2,3 G-077188-20, Float Type, 1" Diameter Float
LAH-1, LAL-1
- --------------------------------------------------------------------------------
CV-1,2 2 Control Valves, 3" Ball Type, with Pneumatic 1,000
Actuator, I/P Converter
- --------------------------------------------------------------------------------
1 Lot Construction of Tank Pad, Installation of Above 20,000
Equipment, Piping Modifications and Materials,
Wiring of Electrical
- --------------------------------------------------------------------------------
1 Lot 6.5' Tall, 16" Manway, Flat Bottom, 5-Year 5,000
Warranty, Freight Included. Miscellaneous.
================================================================================
Total Modification Cost 68,685
- --------------------------------------------------------------------------------
<PAGE> 38
SCHEDULE "C"
PERMITTED ENCUMBRANCES
(SECTION )
PERSONAL PROPERTY SECURITY ACT
Secured Party Registration Number Collateral Type Motor Vehicle Amount
- ------------- ------------------- --------------- ------------- ------
All Included $1,000,000.00
Ontario Development Corporation
2nd charge on all chattels,
assets and undertaking to the
extent of $1,000,000.00
MORTGAGES
Mortgagee Registration Number Amount
- --------- ------------------- ------
Ontario Development Corporation $1,000,000.00
$1,000,000.00 Charge/Mortgage of Land
on 100 Ormond Street South, Thorold Ontario
NONE
OTHER SECURED LIABILITIES
Secured Party Registration Particulars Amount
- ------------- ------------------------ ------
<PAGE> 39
NONE
BANK INDEBTEDNESS
- -----------------
Encumbrances covering accounts receivable of the Company arising in the
ordinary course of business or Inventory to secure repayment of any loan or
loans (not exceeding the sum of $NIL in the aggregate) made to the Company by
one or more banks to which the Bank Act (Canada) applies.
<PAGE> 40
1.
SCHEDULE "D"
ADDITIONAL PROVISIONS
So long as this Debenture remains outstanding, the Company covenants and agrees
that, without the prior written consent of North American:
1.1 The Company shall not permit the Current Ratio to fall below the ratio
set out below at any time during the period set opposite:
Ratio Period (start and end dates inclusive)
- ----- ------
1.25 from the present and continuing thereafter
1.2 The Company shall not permit the Working Capital to fall below the
amount set out below at any time during the period set opposite:
Amount Period (start and end dates inclusive)
- ------ ------
$250,000.00 from the present and continuing thereafter
1.3 The Company shall not permit the Annualized Cash Flow during any
period to fall below 150% of the sum of (a) the Debt Service (plus dividends)
for the financial year in which such period occurs and (b) $100,000.00 (being
an annual allowance for Capital Expenditures).
1.4 The Company shall not permit the Tangible Net Worth to fall below the
amount set out below at any time during the period set opposite:
Amount Period (start and end dates inclusive)
- ----- ------
$6,000,000.00 from the present and continuing thereafter
1.5 The Company shall not permit the Interest Coverage to fall below the
ratio set out below at any tune during the period set opposite:
Ratio Period (start and end dates inclusive)
- ----- ------
2 to 1 from the present and continuing thereafter
1.6 The Company shall not permit the ratio of Financial Indebtedness to
Tangible Net Worth to exceed the ratio set out below at any time during the
period set opposite:
<PAGE> 41
2.
Ratio Period (start and end dates inclusive)
- ----- ------
1.0 to 1 from the present and continuing thereafter
1.7 The Company shall not permit Voting Control/Shareholder Ownership to
change.
1.8 Save and except for those Capital Expenditures financed by the May 16,
1995 Offer of Finance of North American to the Company. The Company shall not
make Capital Expenditures or commitments for Capital Expenditures where the
aggregate of all such expenditures and commitments in any financial year would
exceed $300,000.00 (net of long term debt incurred for said period).
1.9 The Company shall not create, issue, incur or otherwise become liable
upon, directly or indirectly, any Financial Indebtedness or permit any
Subsidiary to do so in excess of $300,000.00 in any fiscal year.
1.10 The Company shall not reduce or make any distribution of its capital,
or redeem, purchase or otherwise retire or pay for any shares in its present or
future capital stock.
1.11 The Company shall not create, allot or issue any shares in its
capital, change its capital structure, enter into any agreement, or make any
offer, to do so or permit any Subsidiary to do any such thing with respect to
the capital or capital structure of such Subsidiary.
1.12 The Company shall not make or repay or guarantee any loan or advance
to any person, or endorse or otherwise become surety or guarantor for or upon,
or indemnify against loss arising from, the obligations of any person, except
by endorsement of negotiable instruments for deposit or collection, and the
Company shall not permit any Subsidiary to do any such thing.
1.13 The Company shall not pay salaries, wages, bonuses, benefits,
management fees, directors' fees or other remuneration or dividends to any
member of the Management Group or any person not dealing at arm's length with
any such member where the total amount of all such payments made to all such
persons during any financial year exceeds or will exceed the sum of
$720,000.00, excluding amounts which have been either (a) applied to subscribe
for share capital of the Company, or (b) advanced to the Company and
effectively postponed in favour of North American.
1.14 The Company shall not declare or pay any dividends (including stock
dividends) upon any present or future capital stock of the Company where the
amount of an such dividends declared or paid in any financial year exceeds or
will exceed $nil.
1.15 For the purposes of the covenants set out in this Schedule, deferred
tax liabilities of the Company (excluding any which are Current Liabilities)
shall be added in determining Tangible Net Worth.
<PAGE> 42
1.16 The Company shall not:
(a) permit the voting control of the Company to change;
(b) enter into any restricted lease;
(c) dispose of any part or all of its assets in which North
American has a security interest;
(d) grant any charges, security interests or other lien on any of
its assets;
(e) incur any other indebtedness with the exception of payroll and
other normal operating expenses;
(f) amend any material contracts specifically including the
approval of any change in the management contracts for its
plant operations;
(g) permit any change in the nature of the business or purpose for
which the assets are used;
(h) pay any dividends or make any form of withdraw that would
cause an event of default.
1.17 All covenants set out in this Schedule shall be determined on the
basis of the consolidated/combined financial statements and reports of the
following companies:
Striker Paper Canada, Inc.
<PAGE> 43
4.
SCHEDULE "E"
MISCELLANEOUS PARTICULARS
1.1 "AFFILIATE" includes the following corporations:
STRIKER INDUSTRIES, INC.
1.2 "MANAGEMENT GROUP" includes the following persons:
David Allan Collins
Matthew Daniel Pond
Liberato Panunto
1.3 "NORMAL BUSINESS" means the following activities:
Manufacture and sale of paper and related building products
1.4 "OFFER OF FINANCE" for the time being means the letter of North
American to the Company dated the 16th day of May, 1995, as accepted by the
Company;
1.5 "PERMITTED SUBSTANCES" means the following materials (being necessary
to carry on the Normal Business of the Company):
None
1.6 "SHAREHOLDER OWNERSHIP" means the direct or indirect beneficial
ownership of shares of the Company as follows:
<TABLE>
<CAPTION>
Owner Class of Shares Number of Shares
- ----- --------------- ----------------
<S> <C> <C>
Striker Industries, Inc. Common 8,858,800
</TABLE>
<PAGE> 1
EXHIBIT 4.9
1995/06/05
FINANCIAL ASSISTANCE AGREEMENT
THIS AGREEMENT made as of the 16th day of May, 1995.
B E T W E E N:
ONTARIO DEVELOPMENT CORPORATION, incorporated
by Special Act of the Legislature of the
Province of Ontario, and having its head
office in the City of Toronto, in the said
Province, (herein called the "Corporation")
OF THE FIRST PART
- and -
STRIKER PAPER CANADA, INC., a company
incorporated under the laws of the Province
of Ontario, having its head office at the
City of Thorold, in the Regional Municipality
of Niagara, (herein called the "Borrower")
OF THE SECOND PART
- and -
STRIKER INDUSTRIES, INC., (herein called the
"Guarantor")
OF THE THIRD PART
WITNESSETH THAT:
WHEREAS the Borrower has applied to NORTH AMERICAN TRUST COMPANY,
(hereinafter called the "Lender") and which Lender is acceptable to the
Corporation for a term loan in the principal amount of ONE MILLION DOLLARS
($1,000,000.00), (hereinafter called the "Guaranteed Loan") to be used for
plant upgrade (hereinafter called the "Project", sometimes also referred to as
the "Program") of its manufacturing operations located at the City of Thorold,
in the Regional Municipality of Niagara;
AND WHEREAS the Borrower, in order to induce the Lender to make the
said loan, has asked the Corporation to guarantee the Borrower's repayment to
the Lender of an amount not exceeding the sum of ONE MILLION DOLLARS
($1,000,000.00), which the Corporation upon and subject to the terms,
provisions and conditions herein contained has agreed to do;
NOW THEREFORE the parties hereto in consideration of the covenants and
conditions herein contained and to be observed and performed by them and each
of them do hereby covenant and agree with each other as follows:
1. PROJECT
The Corporation will, subject to this agreement and as herein
provided, execute and deliver to the Lender a guarantee of the
obligation of the Borrower to make due payment of the Guaranteed Loan
to the Lender on terms and conditions set out in the form of the draft
guarantee annexed hereto as Schedule "A", (such executed form of
guarantee being hereinafter called the "Guarantee"), such Guaranteed
Loan shall be used by the Borrower to assist the Borrower in financing
the Project, more particularly described as follows:
<TABLE>
<S> <C>
Equipment - new $ 896,000.00
Equipment - upgrading 190,000.00
Building improvements 49,000.00
Engineering costs, etc. 365,000.00
-------------
$1,500,000.00
=============
</TABLE>
<PAGE> 2
- 2 -
2. FINANCING
The Borrower proposes to finance the cost of the Project as
follows:
<TABLE>
<S> <C>
Guaranteed Loan $1,000,000.00
Term Loan -
North American Trust Company 500,000.00
-------------
$1,500,000.00
=============
</TABLE>
3. INDEMNIFICATION SUMS
The Borrower covenants and agrees to indemnify and save harmless the
Corporation from and against any payments, losses, costs and expenses which the
Corporation may sustain, incur or become liable for under, on account of, by
reason of or arising out of the Guarantee given by the Corporation to the
Lender for the Guaranteed Loan together with interest at the Lender's Prime
Rate as defined in the Debenture, calculated daily and compounded monthly until
paid in full (hereinafter called "Indemnification sums").
4. SECURITY
So long as the Guarantee to the Lender is outstanding and the
Corporation has not been released from the Guarantee by the Lender, the
Borrower will forthwith furnish to the Corporation the following as additional
security and not in substitution for any other security now or hereafter held
by the Corporation, for payment of all monies (including, without in any way
restricting the generality of the foregoing, the Indemnification Sums) due or
to become due by it to the Corporation and for the performance and observance
of all other covenants and conditions herein contained and to be observed and
performed by the Borrower, all in form and substance satisfactory to the
Corporation:
(a) Debenture secured by:
(i) a fixed and specific mortgage of and charge on real
property described as Part of Park Lot 5 and Part of
Town Lot PP898, Parts 1, 2 and 3, RP 59R-7527 and
Part 1 RP59R-7527, City of Thorold, Ontario, subject
only to a prior charge not exceeding $500,000.00 in
favour of a lender acceptable to the Corporation;
(ii) a fixed and specific mortgage of and charge on all
chattels now owned and hereafter acquired located at
the premises described in (i) above, or at such other
place or places as the business of the Borrower may
from time to time be located, subject only to prior
charges not exceeding $500,000.00 in favour of a
lender acceptable to the lender acceptable to the
corporation;
(ii) a floating charge on all other assets and
undertaking, subject only to chartered bank
security on accounts receivable and inventory and a
prior floating charge (General Security Agreement)
not to exceed $500,000.00 in favour of a lender
acceptable to the Corporation;
(iv) negative covenants against the creation of any
mortgage or charge on assets or sale thereof.
(b) Guarantee of Striker Industries Inc. (the "Guarantor") in the
amount of $1,000,000.00;
(c) Common Share purchase warrants in bearer form to purchase
150,000 common shares of Stiker Industries, Inc. (the
<PAGE> 3
- 3 -
"Warrants"). The Warrants are to expire April 30, 2000 and be
exercisable at any time until expiration, at $5.75 U.S. per
common share. The Warrants are to be in a form satisfactory to
the Corporation and, without limiting the generality of the
foregoing, are to be fully assignable, contain anti-dilution
provisions and piggyback registration rights in respect of the
warrants and the underlying common shares.
(d) Landlord's Waiver of Distraint.
5. INSURANCE
The Borrower shall insure and keep insured while this agreement
remains in force and effect, against loss or damage by fire, its buildings,
improvements, fixtures, equipment and inventory in amounts acceptable to the
Corporation and shall insure against such other risks as the Corporation may
specify in amounts acceptable to the Corporation, and shall with regard to
those items in which the Corporation has an interest, cause loss to be made
payable to the Corporation as its interest may appear, and shall forthwith
provide to the Corporation the original policy or policies of insurance or, if
the Corporation requests, certified copies thereof.
The Borrower shall also insure and keep insured against public
liability for a reasonable amount considering the nature of business carried
on by the Borrower.
6. PLAN, SPECIFICATIONS, ETC.
The Borrower shall forthwith furnish to the Corporation plans,
specifications and proposed contracts for the building or extension involved in
the Project, and unless these plans, specifications and contracts are
satisfactory to the Corporation, the Guarantee will not be tendered pursuant to
this agreement. The Borrower shall not materially depart from the plans and
specifications furnished without the prior consent in writing of the
Corporation, but minor changes may be made during construction provided the
Corporation is notified in writing.
7. PRE-DISBURSEMENT REQUIREMENTS
The Guarantee will not be tendered nor Disbursement Reports issued to
the Lender by the Corporation until the Borrower has:
(a) complied with the provisions of Paragraphs 4, 5, 6 and 9
hereof;
(b) obtained and forwarded to the Corporation clearances from the
Ministry of the Environment and Energy (to be requested by the
Corporation);
(c) arranged the necessary financing for the Project from sources
other than the Corporation, as set out in Paragraph 2 hereof;.
(d) expended on account of the Project such funds as arranged
under (c) above as the Corporation may require;
(e) obtained and forwarded to the Corporation confirmation of a
Borrower's chartered bank (or other lender) term loan of
$500,000.00 on terms and conditions satisfactory to the
Corporation;
(f) obtained and forwarded to the Corporation a satisfactory legal
opinion in respect of the Warrants from U.S.A. security
counsel for Striker Industries Inc.;
(g) obtained and forwarded to the Corporation a breakdown of
machinery to be acquired and applicable confirmed purchase
orders for $896,000.00 as well as equipment upgrading for
$190,000.00;
<PAGE> 4
- 4 -
(h) obtained and forwarded to the Corporation confirmation from
the Borrower's chartered bank that it has approved a line of
credit of at least $500,000.00;
(i) obtained and forwarded to the Corporation a clearance from the
Ministry of Labour (to be requested by the Corporation);
(j) delivered to the Corporation completion by the Borrower of the
Pre-authorized Payment Form, authorizing the Corporation to
draw monthly cheques or prepare debits, by paper or electronic
entry to cover the quarterly Guarantee Fee pursuant to
Paragraph 12 hereof;
(k) obtained and forwarded to the Corporation confirmation from
the Lender that it will notify the Corporation when the
Borrower is in default of a term of the Guaranteed Loan;
(l) Guaranteed Loan. The Borrower shall have provided to the
Corporation a fully executed (i.e. by both Borrower and
Lender) letter agreement with respect to the Guaranteed Loan,
which indicates terms and conditions of the Guaranteed Loan,
including,
(i) principal amount: not to exceed ONE MILLION DOLLARS
($1,000,000.00);
(ii) interest rate: Lender's Prime Rate. In this
Agreement, Prime Rate means the annual rate of
interest charged by the Lender's chartered bank, at
the chartered bank's principal office in Ontario,
being charged by it on that date, for loans made in
Canadian currency to its most creditworthy commercial
customers in Canada;
(iii) provision that principal upon the Guaranteed Loan
shall be repaid in consecutive monthly installments
of $16,666.67, commencing the 15th day of DECEMBER,
1995. Interest is to be paid monthly.
7.1 As the Corporation must be satisfied that the loan proceeds are used
for the intended purposes, requests for disbursements must be
submitted on the prescribed forms, supported by invoices and other
applicable documents.
Each request shall be accompanied by:
(i) a Certificate of Cost to be signed by the President and Chief
Financial Officer of the Borrower; and
(ii) a schedule which lists invoices by each category of the
Program. The invoices are to be referenced to the approved
Project and shall indicate which invoices have been paid and
which have not been paid.
7.2 The Guarantee in the amount of $1,000,000.00 will be released after
all other financing has been injected and/or applied to approved
Program costs prior to the Guarantee release.
Thereafter the Corporation may, at its sole discretion and as it deems
prudent, authorize the Lender to make advances under the Guaranteed Loan, which
authorization is evidenced, by a Disbursement Report.
The Corporation reserves the right to withhold delivery of the
Guarantee or to refuse to issue Disbursement Reports in the event of material
adverse change in the financial condition of the Borrower or a material
deviation from the approved Project.
<PAGE> 5
- 5 -
The Corporation reserves the right to physically inspect the
manufacturing operations of the Borrower including the Project before
delivering the Guarantee to the Lender or issuing Disbursement Reports.
The Corporation may refuse to issue Disbursement Reports in respect of
any balance of the Guaranteed Loan undrawn after December 31, 1995.
8. OVERRUNS
If at any time it appears to the Corporation that the cost of the
Project will exceed the estimated cost, the Corporation may require evidence of
the Borrower's ability to finance the extra cost. Notwithstanding anything
herein contained, neither compliance with the provisions of the aforementioned
paragraphs, nor the making of any advance or advances by the Lender pursuant to
this agreement shall oblige the Corporation to permit the Lender to make further
advances under the Guaranteed Loan.
9. STATUTORY COMPLIANCE
The Borrower shall at all times during the term of this Agreement
observe and conform to all requirements of any governmental or municipal
authority relative to any of the property and assets of the Borrower or to the
conduct of the Borrower's business and undertaking, including without
restricting the foregoing, compliance in all respects with the provisions of
the Employment Equity Act, 1993, Occupational Health and Safety Act (Ontario),
Environmental Protection Act (Ontario) and the Ontario Water Resources Act.
10. GUARANTEED LOAN
The Borrower shall at all times observe and comply with the terms of
the Guaranteed Loan, including payment of all monies owing thereunder and duly
and faithfully perform the obligations thereunder.
11. REDUCTION OF GUARANTEED LOAN
The Borrower shall reduce the Guaranteed Loan by consecutive monthly
payments of SIXTEEN THOUSAND, SIX HUNDRED AND SIXTY-SIX DOLLARS AND SIXTY-SEVEN
CENTS ($16,666.67), from and including the 15th day of DECEMBER, 1995, to and
including the 15th day of NOVEMBER, 2000. Interest is to be paid monthly.
12. GUARANTEE FEE
The Borrower shall pay a guarantee fee equal to 1% per annum,
calculated on the average monthly outstanding balance of principal and interest
on the Guaranteed Loan as confirmed by the Lender and payable in arrears at the
end of each fiscal quarter of the Corporation (the end of March, June,
September and December) with interest on overdue amounts at the rate set in
this Agreement. The amount due is payable on the 15th day of the month
following the end of each fiscal quarter.
13. FINANCIAL STATEMENTS, CERTIFICATES, ETC.
The Borrower and the Guarantor shall, while this agreement remains in
force and effect, provide the Corporation with the following:
(a) annual audited financial statements of the Borrower and the
Guarantor, prepared by a professional accountant, as soon as
practicable, but not later than one Hundred and Twenty (120)
days of the end of its fiscal year; such statements to include
balance sheet, a statement of profit and loss, and a statement
of surplus accompanied by a certificate stating, that during
the period covered by the financial statements, the Borrower
and the Guarantor were not in breach or violation of any of
the
<PAGE> 6
- 6 -
covenants contained in Paragraph 15 hereof, such certificate
to be issued by:
(i) a professional accountant or the auditor, as the case
may be, or
(ii) two officers of the Borrower or the Guarantor, as the
case may be;
(b) consolidated interim financial statements, as requested, and
such other information as the Corporation may from time to
time require.
14. NOTIFICATION
The Borrower shall cause the Lender to notify the Corporation in
writing on or before the 15th day of each month in each year, of the
outstanding balance owing by the Borrower to the Lender under the Guaranteed
Loan as of the last day of the month immediately preceding the date of the
aforesaid notification.
15. NEGATIVE COVENANTS AND RESTRICTIONS
The Borrower and the Guarantor will not, so long as this agreement
remains in force and effect, without the prior written consent of the
Corporation:-
(a) (i) sell, lease or otherwise dispose of any of its
assets;
(ii) release,, surrender or abandon possession of any of
its assets;
(iii) move or transfer any of its assets from their present
location;
(iv) create, permit, assume, have outstanding, or suffer
to exist, any mortgage, charge, pledge, assignment,
lien, encumbrance or other security whether fixed or
floating on its undertaking, property or assets or
any part thereof, or pledge, assign or transfer any
such assets as security for leaseback, provided that
this covenant shall not apply to any mortgage,
charge, lien, hypothecation or other encumbrance upon
property:
1. given as security permitted under the
floating charge or other provision of any
debenture held by the Corporation and given
by the Borrower in compliance with the
requirements of this agreement, or
2. arising by operation of law, or
3. given in extension or renewal or replacement
thereof upon the same property if the
principal amount of the indebtedness secured
thereby is not increased; or
4. existing on the date hereof and disclosed in
writing to the Corporation.
PROVIDED that the covenants contained in this paragraph
dealing with the sale, release and pledging of charged
property shall in no way hinder or prevent the Borrower from
selling, pledging, assigning or giving purchase money security
or securities on any and all inventory or stock-in-trade and
accounts receivable to any person or bank or banks under the
Bank Act of Canada or otherwise, in the ordinary course of
business and for the purpose of carrying on the same;
<PAGE> 7
- 7 -
PROVIDED further that the Borrower may, however, at any time,
without the prior written consent of the Corporation, sell or
otherwise dispose of machinery, fixtures, equipment and
vehicles which are not necessary to or useful in connection
with its business and undertaking, or which have become worn
out or damaged or otherwise unsuitable for its purpose,
provided that it shall forthwith substitute therefor, subject
to the mortgage, lien and charge held by the Corporation, free
from prior liens or charges, property of equal value so that
the security of the Corporation shall not thereby be in any
way reduced or impaired. The Borrower shall report annually
to the Corporation the machinery, fixtures, equipment and
vehicles sold or otherwise disposed of by the Borrower or
which have been worn out or damaged or otherwise unsuitable
for its purpose and any replacement of or addition to the
same;
(b) reduce its share capital, issue any new shares, alter,
transfer or permit the transfer of any shares in the Borrower
or make any other change in the share structure or ownership
of the Borrower;
(c) make any loan to, investment in, or guarantee on behalf of any
other person or corporation;
(d) pass a resolution or institute proceedings for its winding-up,
liquidation or dissolution or consent to the filing of any
petitions thereto.
15.1 Default under any loan agreements or any agreements entered into
between the Borrower and the Corporation or the Province of Ontario
with respect to loans and guarantees shall constitute default under
all other agreements between the Borrower and the Corporation or the
Province of Ontario.
16. MANUFACTURING OPERATIONS
Subject to planned shutdowns for employee vacations or plant
maintenance, the Borrower agrees that it shall continuously conduct
manufacturing operations continuously at City of Thorold, in the Regional
Municipality of Niagara, in the Province of Ontario until the Corporation is
released from its obligations under the Guarantee.
17. INSPECTION
The Borrower shall, so long as this agreement remains in force and
effect, permit any person designated by the Corporation to visit and inspect
any of its premises and its corporate books and financial records, and shall
discuss with and disclose to, and shall permit and instruct its auditors and
bankers to discuss with and disclose to any person designated by the
Corporation, its affairs, finances and accounts at all times and as often as
the Corporation may request.
18. FURTHER ASSURANCES
The Borrower shall, so long as this agreement remains in force and
effect, from time to time make, do, execute, acknowledge and deliver or cause
or permit to be made, done, executed, acknowledged or delivered, all such
further and other lawful acts, deeds, things, devices, covenants and assurances
as may be required by the corporation for the purpose of better accomplishing
and effecting the intention of this agreement and for the purpose of ensuring
that the Borrower's business is operated in a prudent, proper and businesslike
manner, and for such other purposes as the Corporation deems necessary for the
protection of its interest in the said business.
<PAGE> 8
- 8 -
19. RETAINING EXPERTS
The Corporation may retain the services and obtain the opinion or
advice of or information and assistance from any lawyer, accountant, surveyor,
architect, engineer or other professional or expert personnel as it may deem
necessary both before and after any money is advanced. The Corporation may pay
proper and reasonable compensation for all such legal and other advice or
assistance obtained as aforesaid. The Borrower shall repay to the Corporation
all such expenses incurred.
20. PAYMENT OF COSTS
The Borrower shall, whether or not monies are advanced in pursuance of
this Guaranteed Loan, pay all costs, charges and reasonable out-of-pocket
expenses expressly including legal fees, inspection fees and disbursements
incurred by the Corporation relative to this agreement, the security to be
taken and the services of expert personnel retained hereunder.
21. NON-PERFORMANCE OF COVENANTS AND MISSTATEMENTS
If the Borrower shall fail to perform any covenant on its part herein
contained, the Corporation may in its absolute discretion but without being
bound to do so perform any such covenant capable of being performed by it and
if any such covenant requires the payment or expenditure of money or if the
assets shall become subject to any lien or charge ranking in whole or in part
in priority to the charge held by the Corporation pursuant to this Agreement,
the Corporation may make such payment and/or pay or discharge the said prior
lien or charge from its own funds, but shall be under no obligation to do so;
and all sums so paid or expended by the Corporation shall immediately be
payable by the Borrower to the Corporation and shall bear interest at the
Lender's prime rate per annum as defined herein from the date of demand until
paid. No such performance or payment shall relieve the Borrower from any
default under this Agreement or any consequences of such default.
The Corporation may terminate the Guarantee and require that the
Lender make demand on the Borrower for the payment of the Guaranteed Loan and
release the Corporation from its obligations under the Guarantee (a) upon
discovery by the Corporation of any material misstatement in the Borrower's
application for financial assistance, or the supporting material furnished in
connection therewith, or (b) upon any breach, default or failure of performance
or observance of any covenant, provision or condition herein contained or any
security contemplated hereby.
22. INTERNAL PROCEEDINGS
The sufficiency and propriety of the Corporation's internal corporate
proceedings and of the approval of the Lieutenant Governor in council, if
required, shall be presumed in all the Corporation's dealings with the Borrower
and shall not be open to question or attack on any ground whatsoever.
23. WAIVER
No waiver or condonation by the Corporation of any breach, default or
failure of performance of any covenant or condition herein contained, or
contained in any of the security documents shall extend to or be taken in any
manner to affect the Corporation's right in respect of any subsequent breach,
default or failure of performance.
24. CHANGES OR MODIFICATIONS
In the event that either the Corporation or the Borrower shall desire
any change or modification in any of the terms and conditions of the
Corporation's letter of offer, as accepted by the Borrower such change or
modification requested by either party and agreed to by the other party shall
be formalized in accordance with the Corporation's internal procedure for
approval of notices of
<PAGE> 9
- 9 -
change. An extract from such notice of change, setting out the change or
modification as approved by the Corporation, will be forwarded to the Borrower,
whereupon such change or modification will have the effect of and shall be
considered as amending the relevant provisions of this Agreement.
25. NOTICES
Any demand, notice or communication to be made or given hereunder
shall be in writing and may be made or given by personal delivery or mailed by
first class registered mail, postage prepaid or by transmittal by facsimile,
telecopy or other electronic means of communication addressed to the respective
parties as follows:
TO THE CORPORATION:
ONTARIO DEVELOPMENT CORPORATION,
56 Wellesley Street, West,
5th Floor,
Toronto, Ontario,
M7A 2E1,
Attention: Chief Operating Officer,
Facsimile No.: (416) 326-1113,
TO THE BORROWER:
STRIKER PAPER CANADA, INC.,
100 Ormond Street, South,
P.O. Box 10,
Thorold, Ontario,
L2V 3Y7,
Attention: Mr. Matthew Pond,
Facsimile No.:
or to such other address or facsimile number or telecopy number as either party
may from time to time notify the other in accordance with this Paragraph 25.
Any demand, notice or communication made or given by personal delivery shall be
conclusively deemed to have been given on the day of actual delivery thereof.
Any demand, notice or communication made or given by facsimile or other
electronic means of communication, made or given at a time when it would be
received by the recipient during its normal business hours on a business day,
shall be deemed to be received at the time it is sent; otherwise, such
electronic communication shall be deemed to be received on the first business
day following the transmittal thereof. Any demand, notice or communication
mailed by registered mail shall be deemed to have been received on the third
business day following the day on which it was mailed.
26. BINDING EFFECT
This Agreement shall enure to the benefit of and shall be binding upon
the parties hereto and their respective successors and assigns, and shall
remain in full force and effect until the Guaranteed Loan together with all
other sums due under the terms of the Guaranteed Loan and under this Agreement
have been paid in full to the Lender and the Corporation respectively, and the
Corporation has been released from the Guarantee, provided, however, that no
assignment or transfer of the Borrower's interest hereunder shall be binding
upon the Corporation, without prior written consent of the Corporation,
provided, further, that regardless of the date of execution, this Agreement
shall be effective and binding in respect of all monies advanced at any time
after the date of approval by the Corporation to guarantee repayment of the
Guaranteed Loan to the Lender.
27. SEVERABILITY
Each and every provision of this Agreement shall be treated as
separate and distinct and in the event of any provision hereof being declared
invalid such provision shall be deemed to be severable and all other provisions
hereof shall remain in full force and effect.
<PAGE> 10
- 10 -
28. REVOCATION
Notwithstanding anything hereinbefore contained, the Corporation at
its sole discretion and option, may either revoke the offer of Loan Guarantee
and declare it null and void or extend the time limits in any of the following
events:
(1) If the Borrower fails to execute the Financial Assistance
Agreement within sixty (60) days of the date of mailing of the
said Agreement, and/or
(2) If all the legal documentation relating to security required
by the Corporation is not completed to its satisfaction within
ninety (90) days of the date of mailing of the said
documentation, and/or
(3) If the Borrower fails to initiate the Project within One
Hundred and Twenty (120) days from the date of completion of
all legal documentation and/or thereafter fails to actively
pursue the Project to completion.
29. INTERPRETATION
This Agreement shall be read with such changes of gender and number as
the context may require. Capitalized Terms used herein and not otherwise
defined shall have the meaning respectively ascribed thereto in the Guarantee.
30. GOVERNING LAW
This Agreement and the rights of the parties hereto shall be governed
in all respects by and construed in accordance with the laws of the Province of
Ontario.
IN WITNESS WHEREOF the parties hereto have hereunto affixed their
hands and seals or set their respective corporate seals under the hands of
their proper officers duly authorized in that behalf, as the case may be.
ONTARIO DEVELOPMENT CORPORATION
Per: /s/ DAVID WRIGHT
--------------------------------
David Wright
Manager, Lending Operation
/s/ ELANA ANDRICCIOLA
------------------------------------
c/s
Elana Andricciola
Associate Secretary
STRIKER PAPER CANADA, INC.
Per: /s/ [ILLEGIBLE]
--------------------------------
/s/ MATTHEW D. POND
------------------------------------
c/s
Matthew D. Pond
Chief Financial Officer
IN CONSIDERATION of the Corporation making this loan to the Borrower,
in which the Guarantor has an interest, and in consideration of the sum of TWO
DOLLARS ($2.00) now paid by the Corporation to the Guarantor, the Guarantor
hereby acknowledges and agrees to comply with all relevant terms and conditions
of this Agreement.
STRIKER INDUSTRIES, INC.
Per: /s/ [ILLEGIBLE] c/s
--------------------------------
<PAGE> 11
SCHEDULE A
1995/05/15
Project
THIS GUARANTEE made as of the day of , 1995.
B E T W E E N:
ONTARIO DEVELOPMENT CORPORATION, a company
incorporated by Special Act of the
Legislature of the Province of Ontario,
(herein called the "Development Corporation")
OF THE FIRST PART
- and -
NORTH AMERICAN TRUST COMPANY,
(herein called the "Lender")
OF THE SECOND PART
W H E R E A S:
1. The Development Corporation is empowered and authorized to enter into
a Guarantee with the Lender that has agreed to make a loan to the Borrower upon
terms and conditions satisfactory to the Development Corporation, and which
loan is utilized for purposes approved by the Development Corporation.
2. The Lender has agreed to lend the principal sum of ONE MILLION DOLLARS
($1,000,000.00) to the Borrower which, according to the terms of an agreement
between the Borrower and the Development Corporation ("Financial Assistance
Agreement"), shall be utilized by the Borrower for an approved Project, and the
repayment of which loan is guaranteed by the Development Corporation in
accordance with the terms and conditions of this Guarantee.
<PAGE> 12
- 2 -
NOW THEREFORE THIS AGREEMENT WITNESSETH that in consideration of the
premises and the covenants herein contained, the Development Corporation
covenants and agrees with the Lender as follows:
1.01 In this Agreement, the words below shall have the following meanings:
(a) "Acceleration Delay Period" shall have the meaning ascribed to it in
Section 3.02 hereof;
(b). "Borrower" means STRIKER PAPER CANADA, INC., a company incorporated
pursuant to the laws of the Province of Ontario;
(c) "Claim" means a claim or demand for payment by the Lender to the
Development Corporation pursuant to the terms of this Guarantee upon
default of the Loan by the Borrower;
(d) "Disbursement Report means a report issued by the Development
Corporation to the Lender, at the request of the Borrower, which
authorizes the Lender, subject to the usual discretion of the Lender,
to make an advance upon the Loan in the stipulated amount,
(e) "Guaranteed Amount" means up to the maximum principal amount of
$1,000,000.00 which amount shall be reduced in accordance with Section
2.03 (a) of this Guarantee;
(f) "Guarantee Period" means a period of time commencing as of the date
of the delivery of this Guarantee, and terminating upon the 15th day
of NOVEMBER, 2000, unless otherwise extended in writing by the
Development Corporation;
(g) "Loan" means a loan in the principal amount of $1,000,000.00 made by
the Lender to the Borrower upon the terms and conditions of an
agreement dated the day of 1995, ("Lender's
Agreement"), and unless the contrary is indicated, includes the
principal and accrued and unpaid interest thereon;
(h) "Loan Default Period" shall have the meaning ascribed to it in Section
3.01 hereof;
(i) "Prime Rate" means the Prime Rate charged by the Lender's chartered
bank.
<PAGE> 13
- 3 -
II. GUARANTEE OF LOAN
2.01 Guarantee: Upon and subject to the terms of this Guarantee, the
Development Corporation guarantees payment to the Lender of the Loan as set out
in Section 2.03 hereof. This Guarantee shall be a continuing guarantee and,
subject to Section 2.03 hereof, shall apply to any principal or interest due or
remaining unpaid to the Lender under the Loan.
2.02 Disbursement Report: The guarantee as set out in Section 2.01
above shall apply to the Loan only to the extent that advances upon the Loan by
the Lender have been authorized through the issuance of a Disbursement Report
to the Lender by the Development Corporation. Issuance of a Disbursement Report
to the Lender is irrevocable authority to the Lender by the Development
Corporation to make an advance upon the Loan to the Borrower in the amount
shown in the Disbursement Report.
2.03 Guarantee Limit: The maximum amount payable by the Development
Corporation pursuant to this Guarantee in respect of principal, or interest, or
otherwise, is as follows:
(a) Principal. Unless otherwise agreed in writing by the Development
Corporation:
(i) up to and including the 14th day of DECEMBER, 1995, the sum
of $1,000,000.00;
(ii) the said sum of $1,000,000.00 shall be automatically reduced
in each and every month (on the 15th day of the month) in
each and every year until the Loan is fully repaid, by the
amount of $16,666.67, commencing upon the 15th day of
DECEMBER, 1995;
(iii) provided however the reduction on account of principal as
outlined in clause (ii) above, shall cease to reduce and
shall remain in the amount thereof in effect immediately
prior to the date of commencement of and during each of
<PAGE> 14
- 4 -
the Loan Default Period and Acceleration Delay Period, as
outlined in Section 3 of this Guarantee.
(b) Interest. Unless otherwise agreed in writing by the Development
Corporation, the maximum amount payable by the Development
Corporation pursuant to this Guarantee upon Claims by the Lender in
respect of accrued and unpaid interest upon the Loan, is
(i) prior to a Loan Default Period, interest at the Prime Rate in
respect of a one month period, upon the Guaranteed Amount at
the start of such Loan Default Period;
(ii) Loan Default Period. Interest at the Prime Rate upon the
Guaranteed Amount during the Loan Default Period;
(iii) Acceleration Delay Period. Interest at the Prime Rate upon
the Guaranteed Amount during the Acceleration Delay Period;
and
(iv) Interest after Claim. Interest at the Prime Rate upon the
total liability of the Development Corporation to the Lender
hereunder which total liability is the aggregate of the sums
calculated in accordance with this section, from the date of
Claim by the Lender, until paid by the Development
Corporation.
2.04 Termination of Guarantee:
(a) This Guarantee shall terminate on the expiry of the Guarantee
Period; provided however, that the Development Corporation
may terminate this Guarantee (i) on the discovery by the
Development Corporation of any material misstatement in the
Borrower's application for financial assistance, or the
supporting material furnished in connection therewith, or
(ii) upon a breach, default or failure of performance or
observance of any
<PAGE> 15
- 5 -
covenant, provision or condition contained in the Financial
Assistance Agreement or any of the security documents
contemplated thereby which is not remedied within 30 days
after the Development Corporation gives written notice to
each of the Borrower and the Lender of such breach, default
or failure;
(b) Notwithstanding the termination of this Guarantee pursuant to
Section 2.04 (a) above, the Development Corporation will
remain fully liable under this Agreement in respect of all
liability incurred by the Development Corporation pursuant to
the provisions of this Guarantee prior to its termination,
as aforesaid;
(c) Upon the termination of this Guarantee pursuant to Section
2.04 (a) above, the Lender shall immediately cease making
advances under the Loan and may and, upon the written
request of the Development Corporation, shall submit a Claim
to the Development Corporation in respect of all liability
incurred by the Development Corporation pursuant to this
Guarantee. The Lender shall submit such Claim within 20 days
of receipt by the Lender of the Development Corporation's
request, failing which, notwithstanding any other provision
hereof, the Lender shall release and discharge the
Development Corporation of any and all of the obligations of
the Development Corporation to the Lender hereunder. The
Development Corporation shall provide the Borrower with a
copy of any request sent to the Lender pursuant to this
subsection (c).
<PAGE> 16
- 6 -
III. LOAN DEFAULT PERIOD AND ACCELERATION DELAY PERIOD
3.01 Loan Default Period. If at any time, or from time to time, the
Borrower is in default in payment of interest or principal upon the Loan
(excluding any days of grace otherwise permitted to the Borrower), and the
Lender so notifies the Development Corporation in writing within 15 days of the
default, a Loan Default Period shall commence as of the date of default and
continue until the Default is remedied or a claim in respect of the default is
made, whichever is earlier. At any time during the Loan Default Period, the
Development Corporation may upon written request require the Lender to
accelerate repayment of the Loan and the Lender shall promptly do so. Failing
payment of the accelerated amount within 10 business days, the Lender shall
immediately make a Claim in accordance with Section 5.02 hereof. During the
Loan Default Period there shall be no reduction in the maximum amount payable
on account of principal of the Loan as of the commencement of the Loan Default
Period, and any interest upon the Loan that accrues and is unpaid during the
Loan Default Period, shall be guaranteed by the Development Corporation in
accordance with the provisions of this Guarantee.
3.02 Acceleration Delay Period. Upon default by the Borrower in the
performance or observance of any term or condition of the Loan, which default
the Lender (in its sole discretion) is unwilling to waive, and which default
entitles the Lender to accelerate principal repayment and enforce security held
in respect of the Loan,
(a) the Lender shall give to the Development Corporation notice
in writing specifying the default prior to the Lender
accelerating principal payments under the Loan, or taking any
action to enforce collection of the Loan (if security is
taken for the Loan by Lender), unless the Development
Corporation has already required acceleration pursuant to
Section 3.01 hereof, and upon such notice being given an
Acceleration Delay Period shall commence
<PAGE> 17
- 7 -
as of the date of such notice and continue until the default
is remedied or a claim in respect of the default is made or a
period of 90 days elapses, whichever is earliest;
(b) following receipt of notice of default and prior to
acceleration and/or enforcement by the Lender, the
Development Corporation shall have 90 days to:
(i) pay to the Lender the sum in arrears due and payable by
the Borrower; and
(ii) cause the default to be remedied; and
(c) if the sum is not paid nor the default remedied within
the said 90-day period, or if at any time, the
Development Corporation notifies the Lender during the
90-day period that it does not intend to pay such sums
or remedy such default, the Lender may accelerate
repayment of the principal outstanding under the Loan,
enforce its security (if any) for the Loan, and may make
a Claim upon the Guarantee in accordance with the terms
hereof.
PROVIDED HOWEVER, notwithstanding the foregoing, if the
Lender in good faith, believes the security for the Loan may be in imminent
jeopardy, or that a right or a remedy may be lost or impaired if immediate
action is not taken, then the Lender may accelerate principal repayment and
enforce security (if any) held for the Loan, without first giving notice of
default to the Development Corporation. If the Lender acts in accordance with
this proviso, it shall,
(a) within 15 days of the acceleration give written notice
to the Development Corporation of the steps it has taken
to accelerate repayment of principal and/or enforce
security for the Loan; and
(b) submit a Claim to the Development Corporation within 20
days of receipt by the Lender of the Development
Corporation's written request to do so, failing which
the Lender shall release and discharge the Development
Corporation of all obligations of the Development
Corporation to the Lender hereunder.
<PAGE> 18
- 8 -
If the Lender has accelerated principal, or commenced enforcement of
security for the Loan in accordance with this proviso, the Lender shall
reinstate the Loan into good standing and cease to enforce security for the
Loan, if the Development Corporation, within the same 90-day period, pays to
the Lender any sum which was due and payable upon the Loan prior to
acceleration by the Lender, and causes the default to be remedied.
IV. LOAN
4.01 Advances: Advances under the Loan shall be made by the Lender in
accordance with usual lending practices and the Lender's Agreement, but no
advances shall be made until the Lender shall have received from the
Development Corporation a Disbursement Report for the amount of the advance.
Provided however that no advances under the Loan shall be applied by the Lender
to reduce any other indebtedness of the Borrower to the Lender save and except
for scheduled payments of principal and interest.
The Disbursement Report shall be evidence to the Lender that the amount to
be advanced represents a proper expenditure by the Borrower on account of an
approved Project.
4.02 Appropriation by Lender to Loan:
(a) The Lender shall appropriate payments of the Borrower to the Loan
in accordance with the Lender's Agreement; and
(b) If the Borrower and Lender are engaged in further lending-borrowing
activities with each other during the time which the Loan is
outstanding, and if the Loan is in default, the Development
Corporation may inspect the records of the Lender insofar as they
relate to the Loan, in order to determine the manner in which
payments have been appropriated by the Lender to the Loan.
<PAGE> 19
- 9 -
4.03 Availability of Information to Development Corporation:
The Lender shall make available, or confirm, information with
respect to the Loan, at any time and from time to time during normal business
hours, upon request by the Development Corporation, which information may
include,
(a) the amount and date of any advances made under the Loan;
(b) the amount and date of any payments received and applied by the
Lender to the reduction of the Loan, or any interest thereon;
(c) the amount of outstanding advances under the Loan and accrued and
unpaid interest thereon;
(d) any default by the Borrower in payment of outstanding advances
under the Loan or interest thereon, and which continues for a
period in excess of sixty (60) days; and.
(e) any other matter which, in the opinion of the Development
Corporation, may affect the liability of the Development
Corporation under the Guarantee.
Provided however the Development Corporation shall remain fully
liable under this Guarantee notwithstanding the failure of the Lender to comply
with the requirements of this section unless the Lender has wilfully, to the
detriment of the Development Corporation, failed to comply with those
requirements.
4.04 Indulgences: The Development Corporation acknowledges and agrees
that the Lender may without the consent of or notice to the Development
Corporation take and give up its security, and may grant indulgences to the
Borrower and otherwise deal with the Borrower and others as the Lender may see
fit, the whole without in any way limiting or lessening the obligations and
liabilities of the Development Corporation under this Guarantee. Provided
however, that the Lender's Agreement shall not be amended in any material way
without the prior written consent of the Development Corporation.
<PAGE> 20
- 10 -
V. CLAIMS
5.01 Lender Claim: The Lender may make one or more Claims to the
Development Corporation hereunder in accordance with the terms of this
Guarantee, at any time during the Guarantee Period, provided that,
(a) the Lender shall first have made demand for payment upon the Loan
in at least the same amount upon the Borrower; and
(b) the Borrower shall have failed within ten business days to have
paid the Loan to the Lender in accordance with that demand.
5.02 Evidence to Development Corporation: Upon claim for payment by the
Lender, to the Development Corporation, pursuant to this Guarantee, the Lender
shall provide evidence to the Development Corporation that,
(a) the Borrower is in default of the Loan;
(b) the Lender has made demand for payment upon the Loan to
the Borrower, and the Borrower has failed to pay the Loan within
ten business days; and
(c) the amount and dates of advances by the Lender, and any repayment
by the Borrower upon the Loan;
all in the form and manner as may be requested by the Development Corporation
acting reasonably.
5.03 Security: If security for the Loan is held by the Lender, and upon
payment of the Claim by the Development Corporation, the Development
Corporation shall be subrogated to the position of the Lender with respect to
that security:
(a) the Lender shall assign the security for the Loan to the
Development Corporation in the event that there is no indebtedness
of the Borrower to the Lender in excess of the Guaranteed Amount;
or
(b) in the event that there is indebtedness owing by the Borrower to
the Lender in excess of the Guaranteed
<PAGE> 21
- 11 -
Amount, the Lender may enforce security held for the Loan, and if
the Lender is enforcing security, the Lender shall include in its
claim the amount paid by the Development Corporation hereunder. If
the Lender is enforcing security:
(i) Enforcement proceedings shall be carried out in a proper and
expeditious manner, after due consideration of all remedies
available pursuant to the terms of the security held for the
Loan, and which enforcement proceedings shall be for the
purpose only of maximizing repayment of any amounts advanced
and outstanding pursuant to the Loan, and for no other
purpose whatsoever;
(ii) Any assets taken or seized by the Lender shall be disposed
of by public auction, or pursuant to a public call for
tenders, or, with the prior written consent of the
Development corporation by private sale;
(iii) The proceeds of realization of security, after deduction of
reasonable costs of realization, and the amount of the claim
owing to the Lender in excess of the Guaranteed Amount shall
be paid forthwith to the Development Corporation.
5.04 Release: Upon earlier of payment of the Claim or Claims by the
Development Corporation and receipt by the Lender of all amounts outstanding on
the Guaranteed Loan, Lender shall release and forever discharge the Development
Corporation and the Province of Ontario from all manner of actions, causes of
action, suits, covenants and demands whatsoever, whether at law or in equity,
which the Lender has or ever had, arising out of or in any way connected with
this Guarantee, and this Guarantee shall be forthwith delivered up to the
Development Corporation by the Lender.
<PAGE> 22
- 12 -
VI. MISCELLANEOUS
6.01 Amendments and Waivers: No modification of or amendment to this
Guarantee shall be valid or binding unless set forth in writing and duly
executed by the Development Corporation and the Lender hereto and no waiver of
any breach of any term or provision of this Guarantee shall be effective or
binding unless made in writing and signed by the party purporting to give the
same and, unless otherwise provided, shall be limited to the specific breach
waived.
6.02 Notice: Any Claim, notice or other communication required or
permitted to be given under the provisions of this Guarantee, shall be in
writing and shall be made or given by personal delivery or by facsimile, to the
parties as follows:
the Lender:
NORTH AMERICAN TRUST COMPANY,
2 King Street, East,
Hamilton Ontario,
L9H 1B8,
Attention: Mr. Mike Finn,
Manager, Business Lending
Facsimile No.: (905) 525-2766
the Development Corporation:
ONTARIO DEVELOPMENT CORPORATION,
56 Wellesley Street, West,
Queen's Park,
Toronto, Ontario,
M7A,2E1,
Attention: Chief Operating Officer,
Facsimile No.: (416) 326-1021,
or to such other address as either party may from time to time notify the other
in accordance with this section. Any Claim, notice or other communication made
or given by personal delivery shall be conclusively deemed to have been given
on the day of actual delivery thereof, or, if made or given by facsimile, on
the first business day following the transmittal thereof.
6.03 Governing Law: This Guarantee and the rights of the parties hereto
shall be governed in all respects by and construed in accordance with the laws
of the Province of Ontario.
<PAGE> 23
- 13 -
6.04 Binding Effect: This Guarantee is binding upon the Development
Corporation, its successors and assigns, and is binding upon and the benefit
hereof extends to the Lender and its successors and assigns, provided however,
that the Lender shall not assign the benefit hereof without the prior written
consent of the Development Corporation.
6.05 Headings, Etc.: The division of this Guarantee into sections,
subsections, paragraphs and subparagraphs and the insertion of headings are for
convenience of reference only, and it shall not affect the construction or
interpretation hereof.
IN WITNESS WHEREOF THE DEVELOPMENT CORPORATION has this day of ,
1995, hereunto caused to be Affixed its corporate seal under the hands of its
proper officers duly authorized in that behalf.
ONTARIO DEVELOPMENT CORPORATION
By:
----------------------------------------
c/s
By:
-----------------------------------------
AND IN FURTHER WITNESS WHEREOF the Minister of Finance has,
pursuant to Section 13 of the Development Corporations Act, R.S.O.1990, c. D.10
executed this Guarantee recognizing the same as binding upon and as the
obligation of the Province of Ontario.
DATED at TORONTO, this day of 1995.
--------------------------------------------
Minister of Finance
<PAGE> 24
- 14 -
DATED the 16th day of May, 1995.
B E T W E E N:
ONTARIO DEVELOPMENT CORPORATION
- and -
STRIKER PAPER CANADA, INC.
FINANCIAL ASSISTANCE AGREEMENT
ONTARIO DEVELOPMENT CORPORATION,
56 Wellesley Street, West,
Queen's Park,
Toronto, Ontario,
M7A 2E1.
<PAGE> 1
EXHIBIT 4.10
THIS WARRANT HAS NOT BEEN REGISTERED UNDER THE SECURITIES ACT OF 1933 (THE
"ACT") AND IS OFFERED PURSUANT TO EXEMPTIONS FROM THE REGISTRATION REQUIREMENTS
OF THE ACT; ACCORDINGLY, NEITHER THIS WARRANT NOR ANY INTEREST THEREIN MAY BE
OFFERED OR SOLD, TRANSFERRED, PLEDGED OR OTHERWISE DISPOSED OF IN THE UNITED
STATES OR TO U. S. PERSONS IN THE ABSENCE OF SUCH REGISTRATION OR AN EXEMPTION
THEREFROM UNDER THE ACT AND THE RULES AND REGULATIONS THEREUNDER AND COMPLIANCE
OTHERWISE BY THE HOLDER HEREOF WITH THE PROVISIONS OF THIS WARRANT.
WARRANT
to Purchase Common Stock of
STRIKER INDUSTRIES, INC.
Expiring April 30, 2000
THIS IS TO CERTIFY THAT, for value received, ONTARIO DEVELOPMENT
CORPORATION (the "Holder") is entitled to purchase from STRIKER INDUSTRIES,
INC., a Delaware corporation (the "Corporation"), at any time and from time to
time after the date hereof to and including the expiration date of April 30,
2000 at the place where the Warrant Office designated pursuant to Section 3.1
is located, at a cash purchase price or consideration per share of U.S. $5.75
(adjusted, if applicable, pursuant to the terms of this Warrant, the "Exercise
Price") up to 150,000 shares of duly authorized, validly issued, fully paid and
nonassessable shares of Common Stock (the "Common Stock"), $0.20 par value per
share, of the Corporation, and is entitled also to exercise the other
appurtenant rights, powers and privileges hereinafter set forth. Transfer and
exercise of this Warrant are subject to compliance with the provisions of
Sections 2.1 and 3.3 of this Warrant.
1
<PAGE> 2
ARTICLE I.
Terms Defined
As used in this Warrant, unless the context otherwise requires, the
following terms have the respective meanings set forth below or in the Section
indicated:
Board of Directors -- the Board of Directors of the Corporation.
Common Stock -- the Corporation's authorized Common Stock, par value
$0.20 per share.
Corporation -- Striker Industries, Inc., a Delaware corporation
Holder -- the entity designated in the first paragraph of this Warrant
as the initial holder hereof and any person, firm corporation or other entity
who or which becomes a permitted assignee or transferee hereof under the term
and conditions of this Warrant prior to its termination.
Outstanding -- when used with reference to Common Stock at any date, all
issued shares of Common Stock at such date, except shares then held in the
treasury of the Corporation.
Person -- any individual, corporation, association or other entity or
individual.
Act -- the Securities Act of 1933, as amended, and the rules and
regulations promulgated by the Securities and Exchange Commission thereunder,
all as the same shall be in effect at the time.
Warrant -- this Warrant and any Warrant delivered in accordance with
Section 3.3 or 6.11.
Warrant Office -- the office of the Corporation specified in
Section 3.1.
Warrant Shares -- the shares of Common Stock purchased or purchasable by
the Holder of this Warrant upon exercise thereof under the terms and conditions
of this Warrant.
ARTICLE II
Exercise of Warrant
2.1 Conditions to and Method of Exercise. This Warrant may only be
exercised (i) upon compliance with or satisfaction of the conditions set forth
in Section 3.3, and (ii) in whole or in part (but not as to a fractional share
of Common Stock) at any one or more time or times prior to the expiration date.
To exercise this Warrant following compliance with or satisfaction of the
conditions set forth in Section 3.3, the Holder shall deliver to the
Corporation at the Warrant Office designated in Section 3.1(a) a written notice
in the form of the Exercise Notice attached as Exhibit A hereto, stating
therein
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<PAGE> 3
the election of the Holder to exercise this Warrant in the manner provided in
this Section 2.1 and in the Exercise Notice, (b) payment in full of the
Exercise Price of the Warrant Shares the Holder then elects to purchase
hereunder, as set forth in the first paragraph of this Warrant immediately
preceding ARTICLE I hereof (in the manner hereinafter described in this Section
2.1), and (c) this Warrant. This Warrant shall be deemed to be exercised on the
date of receipt by the Corporation of the Exercise Notice, accompanied by
payment for the Warrant Shares the Holder then elects to purchase hereunder and
surrender of thus Warrant as aforesaid, and such date is herein referred to as
the "Exercise Date". Upon such exercise (subject as aforesaid), the Corporation
shall issue and deliver to the Holder a certificate for the full number of the
Warrant Shares then being purchased by the Holder hereunder, against the
receipt by the Corporation of the total Exercise Price payable hereunder for
such Warrant Shares, in U.S. dollars in cash, and, unless the Warrant shall
have expired, a new Warrant representing the number of Warrant Shares, if any,
with respect to which this Warrant shall not then have been exercised. Upon
exercise of this Warrant under circumstances, and in the manner, complying
with the requirements of this Section 2.1, the Holder shall be deemed to have
become a holder of record of the shares of Common Stock with respect to which
this Warrant is then exercised on the Exercise Date.
2.2. Fractional Shares. Instead of any fractional shares of Common
Stock which would otherwise be issuable upon exercise of this Warrant, no
shares will be issued for less than one a share and the Corporation shall issue
a certificate for the next larger number of whole shares of Common Stock for
any fraction of a share which is one-half or greater.
ARTICLE III.
Warrant Office; Transfer
3.1. Warrant Office. The Corporation shall maintain an office for
certain purposes specified herein (the Warrant Office), which office shall
initially be the Corporation's office at One Riverway, Suite 2450, Houston,
Texas 77056 and may subsequently be such other office of the Corporation or of
my transfer agent of the Common Stock in the continental United States as to
which written notice has previously been given to the Holder. The Corporation
shall maintain at the Warrant Office a register for the Warrant, in which the
Corporation shall record the name and address of the person or entity in whose
name this Warrant has been issued, as well as the name and address of each
permitted assignee of the rights of the registered owner hereof under the
provisions of this Warrant.
3.2. Ownership of Warrant. The Corporation may deem and treat the
Person in whose name this warrant is registered as the holder and owner hereof
(notwithstanding any notations of ownership or writing hereon made by anyone
other than the Corporation) for all purposes and shall not be affected by any
notice to the contrary, until presentation of this Warrant for registration
of a transfer permitted under the provisions hereof.
3.3 Additional Restrictions on Exercise and Transfer.
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<PAGE> 4
(a) Restrictions in General. Notwithstanding any provisions
contained in this Warrant to the contrary, this Warrant shall not be
transferred or exercised and the Warrant Shares shall not be transferable
except in compliance with the provisions of this Section 3.3, which provisions
are intended, among other things, to insure compliance with the provisions of
the Act in respect of the transfer or exercise of this Warrant or transfer of
the Warrant Shares after exercise. Prior to the expiration date hereof, this
Warrant, including all rights to acquire the Warrant Shares represented by, and
upon exercise of, this Warrant, may be transferred and assigned in whole, but
not in part, by the Holder hereof, but only upon compliance with the provisions
of Section 3.3(b) hereof. Further, the Holder may not (i) exercise this Warrant
prior to delivery to the Corporation of the opinion of counsel referred to in,
and to the effect described in, clause (1) of Section 3.3(b), unless or until
registration of the Warrant Shares under the Act has become effective, or (ii)
transfer the Warrant Shares after exercise prior to delivery to the Corporation
of the opinion of counsel referred to in, and to the effect described in,
clause (1) of Section 3.3(b) hereof, unless or until registration of the
Warrant Shares under the Act has become effective.
(b) Statement of Intention to Transfer or Exercise, Opinion of
Counsel. The Holder of this Warrant, by his or its acceptance hereof, agrees
that prior to (i) any proposed transfer and assignment of this Warrant, or (ii)
any exercise of the Warrant or transfer of the Warrant Shares after exercise of
this Warrant, the Holder will deliver to the Corporation a statement setting
forth either the Holder's intention with respect to a proposed assignment of
the Warrant or his or its intention with respect to the retention or
disposition of the Warrant Shares or the intention of the Holder's prospective
transferee with respect to his or its retention or disposition of the Warrant
Shares (whichever is involved), accompanied in any such case with a signed copy
of the opinion of Holder's counsel, or such other counsel as shall be
acceptable to the Corporation as to the necessity or non-necessity for
registration under the Act in connection with any such assignment, exercise or
transfer. The following provisions shall then apply:
(1) If, in the opinion of Holder's counsel, concurred in by counsel to the
Corporation the proposed transfer and assignment of the Warrant, or
the proposed exercise of this Warrant or the proposed transfer of the
Warrant Shares may be effected without registration under the Act of
this Warrant or the Warrant Shares, as the case may be, then the
Holder of this Warrant shall be entitled to transfer and assign this
Warrant or to exercise this Warrant or to transfer the Warrant Shares
in accordance with the statement of intention delivered by the Holder
to the Corporation.
(2) If, in the opinion of Holder's counsel concurred in by counsel to the
Corporation, either the proposed transfer and assignment of this
Warrant, or the exercise of this Warrant or the proposed transfer of
the Warrant Shares may not be effected without registration under the
Act of this Warrant or the Warrant Shares, as the case may be, or in
the event that counsel to the Corporation does not concur with the
opinion of Holder's counsel with respect to any such transaction, the
Holder of this Warrant shall not be entitled to transfer and assign
this Warrant or to transfer the Warrant Shares, as the case may be
until such registration is effected.
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<PAGE> 5
(3) If an effective registration statement filed under the Act is not in
effect with respect to any proposed transfer and assignment of this
Warrant or with respect to an exercise of this Warrant or a transfer
of the Warrant Shares, as the case may be, the Holder will deliver to
the Corporation at the time of consummation of any such transaction
permitted under the provisions of Section 3.3(b)(1) a written statement
from the Holder or the proposed transferee, as the case may be, to the
effect that (i) the Warrant or the Warrant Shares, as applicable, are
being acquired by the Holder or such transferee for its or his own
account for investment purposes and not with a view to or for sale or
distribution, (ii) the Holder or the transferee consents to the
placing of a legend on the Warrant or the Warrant Shares starting in
substance that the Warrant or the Warrant Shares have not been
registered under the Act and may not be sold, offered for sale,
encumbered or otherwise transferred except in compliance with the Act
and applicable rules and regulations of the Commission promulgated
thereunder, (iii) the Corporation is authorized to place a "stop
transfer order" in the register maintained by it at the Warrant Office
with respect to the Warrant or with its transfer agent with respect to
the Warrant Shares, as applicable, and (iv) the Holder or the
transferee agrees to indemnify the Corporation against all liability,
cost or expense arising out of or resulting from any offer, sale,
contribution or other disposition of the Warrant or the Warrant Shares
by the Holder or the proposed transferee in violation of the Act.
(c) Method of Transfer of Warrant. To transfer and assign this
Warrant following compliance with or satisfaction of the aforesaid conditions
set forth in this Section 3.3., the Holder shall deliver to the Corporation at
the Warrant Office designated in Section 3.1 (a) the Assignment Form attached
as Exhibit B hereto duly executed by the Holder, with its or his signature
guaranteed as provided therein, and (b) this Warrant for cancellation and
reissuance to the Holder or the transferee, as applicable.
3.4. Expenses of Delivery of the Warrant. The Corporation shall
pay all expenses and other charges payable in connection with the preparation,
issuance and delivery hereunder of this Warrant, any Warrant issued upon a
permitted transfer and assignment of this Warrant or a partial exercise hereof
and/or issuance and delivery of the underlying Warrant Shares.
ARTICLE IV.
Capital Changes; Anti-Dilution
4.1 Unrestricted Authority of Corporation. The existence of this
Warrant shall not affect in any way the right or power of the Corporation, its
Board of Directors and/or shareholders to make or authorize any or all
adjustments, recapitalizations, reorganizations or other changes in the
Corporation's capital structure or its business, or any merger or consolidation
of the Corporation, or any additional issuance of shares of the Corporation's
Common Stock or any issuance of bonds, debentures, preferred or piror
preference stock ahead of or affecting the Common Stock of the Corporation of
the rights thereof, or the dissolution or liquidation of the Corporation, or
any sale or transfer of all or any part of its assets or business, or any other
corporate act or proceeding, whether of a similar character or
5
<PAGE> 6
otherwise, and no adjustment hereunder of the Warrant Shares or the Exercise
Price shall be made with respect to any of the foregoing, save and except as
provided in Sections 4.2 and 4.3 hereof.
4.2. Stock Splits, Stock Dividends, Etc. In the event of any stock
split, stock dividend, combination or shares or other capital reorganization or
reclassification of capital stock of the Corporation which materially affects
the value of the Warrant Shares, appropriate adjustment in the number of
Warrant Shares then subject to this Warrant or the Exercise Price specified
herein or both, shall be made by the Board of Directors of the Corporation to
the extent that the Board of Directors may deem equitable, and by acceptance of
this Warrant, the Holder hereby agrees that the determination of the Board of
Directors of the Corporation with respect to any such adjustment shall be
conclusive and binding; provided, however, that a stock dividend in an amount
equal to 5% or less shall not be deemed to materially affect the value of the
Warrant Shares subject to this Warrant.
4.3. Merger, Consolidation or Sale of Assets. If the Corporation
proposes to sell substantially all of its assets to, or merger into or
consolidate with, any other Person, the Corporation shall give notice to the
Holder as set forth below permitting the Holder to exercise this Warrant in
full upon compliance with, and in the manner provided in, Section 2.1 hereof. If
the Corporation is to be liquidated, or if in connection with a sale of assets
or a merger or consolidation the Corporation is to give the Holder notice
entitling it to exercise this Warrant in full, the Corporation shall cause at
least 15 days' prior written notice of any such event to be mailed to the
Holder stating therein the date on which any such sale of assets, merger,
consolidation or liquidation shall take place or the record date (which shall
be not less than 10 days after the date of mailing of the Corporation's notice)
set for the determination of the holders of capital stock of the Corporation
entitled to participate with respect thereto, and thereafter for a period of 15
days after such notice shall have been mailed to the Holder, the Holder shall
have the right to exercise this Warrant in full with respect to all of the
Warrant Shares purchasable by it hereunder upon compliance with, and in the
manner provided in, Section 2.1 of this Warrant. To the extent this Warrant
remains unexercised after expiration of such 15-day period of time, this
Warrant shall expire and be void and of no further force or effect.
4.4. Options and Convertible Securities. Prior to the time of
exercise of this Warrant, no adjustment hereunder of the Warrant Shares or the
Exercise Price shall be made with respect to shares of Common Stock of the
Corporation issuable under (i) options, warrants or other rights to purchase or
acquire Common Stock, including shares under incentive, restricted or qualified
stock option plans of the Corporation, (ii) securities, including Preferred
Stock of the Corporation, by their terms convertible into or exchangeable for
Common Stock, or (iii) options, warrants or rights to purchase such convertible
or exchangeable securities.
ARTICLE V.
"Piggyback" Registration; Indemnification
5.1 "Piggyback" Registration Rights. If at any time or times the
Corporation proposes to register any of its securities under the Act, the
Corporation at such time agrees to give prompt notice of its intent to register
to the Holder, if the Holder is then the registered holder of the Warrant or
the
6
<PAGE> 7
Warrant Shares, and/or to a permitted transferee(s) of Warrant Shares (a
"Permitted Transferee(s)" for purposes of this ARTICLE V) received in
compliance herewith from a Holder. If the Warrant has not previously been
exercised, or if exercised and the Holder and/or any Permitted Transferee(s)
wishes to have all or any part of the Warrant Shares then owed of record by it
or him included in any such registration, the Holder shall, if the Warrant has
not been exercised previously, within 15 business days after receipt of such
notice, exercise this Warrant in accordance with the provisions of Section 2.1,
and the Holder and/or a Permitted Transferee(s) shall make written request of
the Corporation within such 15 business day period of time to include all or
some designated part of the Warrant Shares in such registration under the
terms and conditions hereinafter set forth in this Section 5.1. The Corporation
agrees that it will then use its best efforts to include in such registration
the number of the Warrant Shares so requested by the Holder and/or a Permitted
Transferee(s), provided that the Holder and/or a Permitted Transferee(s) shall
agree, within such 15-day time period to (i) sell and distribute such Warrant
Shares in the method adopted by and through underwriters acting for the
Corporation, (ii) bear a prorata share of underwriters' commissions and other
expenses which by law may be required to be paid by a selling shareholder, and
(iii) accept with the Corporation a prorata reduction in the number of
Warrant Shares to be sold to the extent that the Corporation's underwriters are
unwilling to purchase for sale and distribution, or sell for the account of the
Corporation and its selling shareholders a total number of shares which the
Corporation and the selling shareholders, including the Holder and/or a
Permitted Transferee(s), desire to sell. If the Holder and/or a Permitted
Transferee(s) becomes entitled to piggyback registration rights hereunder and
desires to have Warrant Shares included in such registration, the Holder and/or
a Permitted Transferee(s) shall promptly provide to the Corporation such
information with respect to its or his Warrant Shares to be so registered as is
required for such registration statement
5.2 indemnification. In the event of any registration of Warrant
Shares under the Act pursuant to this ARTICLE V, the Corporation will indemnify
and hold harmless the Holder and any Permitted Transferee(s) and each other
person, if any, which or who control (within the meaning of the Act) the Holder
and/or a Permitted Transferee(s) against any losses, claims, damages, or
liabilities, joint or several, to which the Holder, any Permitted Transferee(s)
or any such controlling person may become subject under the Act or otherwise,
to the extent that such losses, claims, damages or liabilities (or proceedings
in respect thereof) arise out of or are based upon any untrue statement or
alleged untrue statement of any material fact contained, on the effective date
thereof, in any registration statement under which such securities were
registered under the Act, in any preliminary prospectus or final prospectus
contained therein, or in any amendment or supplement thereto, or arise out of
or are based upon the omission to state therein a material fact required to be
stated therein or necessary to make the statements therein not misleading, and
will reimburse the Holder, any Permitted Transferee(s) and each such
controlling person for any legal or other expenses reasonably incurred by the
Holder, any Permitted Transferee(s) or such controlling person in connection
with investigating or defending any loss, claim, damage, liability or
proceeding, except insofar as any such losses, claims, damages, liabilities or
expenses result from an untrue statement or omission contained in information
furnished in writing to the Corporation by the Holder and/or any Permitted
Transferee(s), as a selling shareholder, expressly for use therein. In
connection with any registration statement in which the Holder and/or a
Permitted Transferee(s) is participating in accordance with the provisions of
this ARTICLE V, the Holder and any Permitted Transferee(s) will furnish to the
Corporation in writing such information as
7
<PAGE> 8
shall reasonably be requested by the Corporation for use in any such
registration statement or prospectus, and the Holder and any such Permitted
Transferee(s) hereby agrees to indemnify the Corporation, its directors and
officers and each person, if any, who or which controls the Corporation within
the meaning of the Act, against any losses, claims, damages, liabilities and
expenses resulting from any untrue statement or alleged untrue statement of a
material fact or any omission or alleged omission of a material fact required
to be stated in the registration statement or prospectus or necessary to make
the statements therein not misleading, but only to the extent that such untrue
statement or omission is contained in information so furnished in writing by
the Holder and/or any Permitted Transferee(s) as a selling shareholder
expressly for use therein.
5.3 Acknowledgment of Rights. The Corporation will, at the time of
the exercise of this Warrant in accordance with the terms hereof, upon the
request of the Holder and/or any Permitted Transferee(s), acknowledge in
writing its continuing obligation to afford to the Holder and to the Permitted
Transferee(s) the piggyback registration rights with respect to the Warrant
Shares to which the Holder and the Permitted Transferee(s) shall continue to be
entitled after such exercise in accordance with the provisions of this Warrant,
provided that if the Holder and/or a Permitted Transferee(s) shall fail to make
any such request, such failure shall not affect the continuing obligation of
the Corporation to afford such rights to the Holder and to the Permitted
Transferee(s).
ARTICLE VI.
Miscellaneous
6.1. Costs. The Corporation shall pay all documentary, stamp,
transfer or other transactional taxes attributable to the issuance or delivery
of shares of Common Stock of the Corporation upon exercise of this Warrant.
6.2. Reservation of Shares, Boston Stock Exchange and NASDAQ
SmallCap Market Listings. The Corporation shall reserve at all times so long as
this Warrant remains outstanding, out of it authorized but unissued shares of
Common Stock, solely for the purpose of effecting the exercise of this Warrant,
sufficient shares of Common Stock to provide for the exercise hereof. The
Corporation shall also promptly notify the Boston Stock Exchange and NASDAQ of
the issuance of this Warrant and shall cause the shares of Common Stock
underlying this Warrant to be listed on the Boston Stock Exchange and the
NASDAQ SmallCap Market for subsequent issuance by the Corporation upon official
notice of issuance.
6.3 Valid Issuance. All of Common Stock which may be issued upon
an exercise of this Warrant will upon issuance by the Corporation be duly and
validly issued, fully paid and nonassessable and free from all taxes, liens and
charges with respect to the issuance thereof and the Corporation shall take no
action which will cause a contrary result (including, without limitation, any
action which would cause the Exercise Price to be less than the par value of
the Common Stock).
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<PAGE> 9
6.4. Investment Representations. By acceptance of this Warrant, the
Holder represents, warrants and confirms to the Corporation that this Warrant
is being issued to the Holder without any form of general solicitation or
advertising of any kind by the Corporation or any of its agents or
representatives and the terms and provisions hereof have been arrived at
through direct communication between the Corporation and the Holder. Further,
the Holder has been advised as to the business and affairs of the Corporation,
and at a reasonable time prior to the date hereof, the Holder has been given
the opportunity to ask questions and receive answers concerning the Corporation
and to obtain additional information with respect to the business and affairs
of the Corporation in the possession of the Corporation, necessary to verify the
accuracy of the information furnished to it by the Corporation and that,
accordingly, the Holder has evaluated the risks of an investment in the Warrant
and has made an informed investment decision with respect thereto. By such
acceptance, the Holder further confirms, represents and warrants that (i) the
Warrant, in view of the economic risks associated therewith and the size and
amount of shares of the Corporation's Common Stock underlying the Warrant, is an
appropriate and suitable investment for the Holder and the financial condition
of the Holder is such that it is capable of bearing the economic risks of such
investment, and (ii) the Holder is acquiring the Warrant, and will acquire the
shares of Common Stock of the Corporation underlying the Warrant upon the
exercise thereof, for the Holder's own account for investment and not with a
view to any public sale on distribution thereof, except as permitted under the
Act and the rules and regulations promulgated thereunder.
6.5. Entire Agreement. This Warrant contains the entire agreement
between the Holder and the Corporation with respect to the shares of Common
Stock of the Corporation which may be purchased upon exercise hereof and all
transactions relating thereto and supersedes all prior arrangements or
understandings with respect thereto.
6.6. Governing Law. This Warrant shall be governed by and construed
in accordance with the laws of the State of Delaware, U.S.A.
6.7. Waiver and Amendment. Any term or provision of this Warrant may
be waived at any time by the party which is entitled to the benefits thereof
and any term or provision of this Warrant may be amended or supplemented at
any time by agreement of the Holder and the Corporation, except that any waiver
of any term or condition of, or any amendment or supplement to, this Warrant
must be in writing. A waiver of any breach or failure to enforce any of the
terms or conditions of this Warrant shall not in any way effect, limit or waive
a party's rights hereunder at any time to enforce strict compliance thereafter
with every term or condition of this Warrant.
6.8. Illegality. In the event that any one or more of the
provisions contained in this Warrant shall be determined to be invalid, illegal
or unenforceable in any respect for any reason, the validity, legality and
enforceability of any such provision in any other respect and the remaining
provisions of this Warrant shall not, at the election of the party for whom the
benefit of the provision exists, be in any way impaired.
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<PAGE> 10
6.9. Copy of Warrant. A copy of this Warrant shall be filed among
the records of the Corporation.
6.10. Notice. Any notice or other document required or permitted to
be given or delivered to the Holder shall be delivered at, or sent by certified
or registered mail to, the Holder at the last address shown on the books of the
Corporation maintained at the Warrant Office for the registration of this
Warrant or at any more recent address of which the Holder shall have notified
the Corporation in writing. Any notice or other document required or permitted
to be given or delivered to the Corporation shall be delivered at, or sent by
certified or registered mail to, the Corporation at the Warrant Office provided
for in Section 3.1 hereof or such other address in the United States as shall
have been furnished by the Corporation to the Holder in writing.
6.11. Limitation of Liability; Not a Stockholder. No provision of
this Warrant shall be construed as conferring upon the Holder the right to
vote, consent, receive dividends or receive notice (other than as herein
expressly provided) in respect of meetings of shareholders for the election of
directors of the Corporation or in respect of any other matter involving or
pertaining to shareholders of the Corporation. No provision hereof, in the
absence of affirmative action by the Holder to purchase shares of Common Stock,
and no mere enumeration herein of the rights or privileges of the Holder shall
give rise to any inability of the Holder for the Exercise Price of the Warrant
Shares or as a Shareholder of the Corporation, whether such liability is
asserted by the Corporation or by creditors of the Corporation.
6.12. Exchange, Loss, Destruction, Etc. of Warrant. Upon receipt of
evidence satisfactory to the Corporation of the loss, theft, mutilation or
destruction of this Warrant, and in the case of any such loss, theft or
destruction upon delivery of a bond of indemnity in such form and amount as
shall be reasonably be satisfactory to the Corporation, or in the event of such
mutilation, upon surrender and cancellation of this Warrant, the Corporation
shall make and deliver a new Warrant of like tenor, in lieu of such lost,
stolen, destroyed or mutilated Warrant. Any Warrant issued under the provisions
of this Section 6.11 in lieu of any Warrant alleged to be lost, destroyed or
stolen, or in lieu of any mutilated Warrant, shall constitute an original
contractual obligation on the part of the Corporation. This Warrant shall
promptly be cancelled by the Corporation upon the surrender hereof in
connection with any exchange or replacement. The Corporation shall pay all
expenses and charges payable in connection with the preparation, execution and
delivery of a Warrant pursuant to this Section 6.11.
IN WITNESS WHEREOF, the Corporation has caused this Warrant to be
signed in its name.
Dated: September 8, 1995.
STRIKER INDUSTRIES, INC.
By /s/ MATTHEW D. POND
-----------------------------------
Matthew D. Pond,
Chief Financial Officer
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<PAGE> 11
EXERCISE NOTICE
The undersigned, the Holder identified in that certain Warrant to
purchase Common Stock of Striker Industries, Inc. dated ________ __, 1995,
being entitled to exercise the Warrant under the provisions of Section 2.1
thereof, hereby elects to exercise the Warrant with respect to __________
Warrant Shares subject thereto and to purchase such number of the Warrant
Shares to which the undersigned is entitled upon the exercise of the Warrant,
and herewith tenders payment in full of the Exercise Price payable therefor
under the provisions of Section 2.1 of the Warrant, and tenders the Warrant to
the Corporation for cancellation upon the issuance of the Warrant Shares
purchasable thereunder, and, unless the Warrant shall have expired, a new
Warrant for the number of Warrant Shares, if any, with respect to which the
Warrant is not exercised hereby.
Dated:__________, 19__
-------------------------------------
(Name of Warrant Holder)
By
-----------------------------------
Authorized Signatory
Address:
-------------------------------------
-------------------------------------
EXHIBIT A
<PAGE> 12
ASSIGNMENT
To Be Executed by the Holder
in Order to Assign Warrant
THE WARRANT REPRESENTED HEREBY HAS NOT BEEN REGISTERED UNDER FEDERAL OR STATE
SECURITlES LAWS AND TRANSFER THEREOF HAS BEEN RESTRICTED. ANY TRANSFER OR
PURPORTED TRANSFER DESCRIBED IN THIS FORM OF ASSIGNMENT SHALL NOT BE EFFECTIVE
UNTIL AND UNLESS THE PROPOSED TRANSFEREE COMPLIES WITH THE RESTRICTIONS ON
TRANSFER DESCRIBED IN THE WARRANT.
FOR VALUE RECEIVED, the undersigned hereby sells, assigns and transfers unto
Name:
-----------------------------------------------------------
(please print or type)
Address:
-----------------------------------------------------------
-----------------------------------------------------------
Social Security or
Taxpayer ID. No.
-----------------------------------------------------------
the undersigned's right to purchase the full number of shares of Common Stock
represented by this Warrant, and hereby irrevocably constitutes and appoints
_______________ attorney to transfer the same on the books of the Corporation
with full power of substitution in the premises.
Dated:
--------------- -----------------------------------
Holder
Signature Guaranteed
-----------------------------------
THE HOLDER'S SIGNATURE ON THIS ASSIGNMENT FORM MUST CORRESPOND TO THE NAME OF
HOLDER AS WRITTEN ON THE FACE OF THIS WARRANT IN EVERY PARTICULAR, WITHOUT
ALTERATION OR ENLARGEMENT OR ANY CHANGE WHATSOEVER, AND MUST BE GUARANTEED BY A
COMMERCIAL BANK OR TRUST COMPANY OR A MEMBER FIRM OF A NATIONAL STOCK EXCHANGE.
EXHIBIT B
<PAGE> 1
EXHIBIT 10.1
DRY FELT PURCHASE/SALE AGREEMENT
THIS AGREEMENT made effective as of April 1, 1995 (the "Agreement") by
and between G.A.P. Roofing, Inc., an Oklahoma, corporation, hereinafter
referred to as "GAP", with its principal place of business located in Pryor,
Oklahoma, and Striker Paper Corporation, an Arkansas corporation, hereinafter
referred to as "Striker", with its executive and administrative offices located
in Houston, Texas.
WITNESSETH:
WHEREAS, GAP is a manufacturer of a broad line of organic (felt-based)
rolled roofing products primarily for sale to the residential roofing market,
with manufacturing facilities in the South Central United States; and
WHEREAS, since 1991 Striker has been engaged at its parent
corporations' Stephens, Arkansas plant in the business of recycling and
manufacturing of pulp product into paper-based felt and the asphalt saturation
of paper-based felt into rolled roofing products; and
WHEREAS, all price and cost amounts referred to in this Agreement and
any schedule attached hereto, shall mean, and are hereby agreed to be
denominated in, U.S. dollars; and
NOW THEREFORE, in consideration of the above recitals and the mutual
and dependent covenants and agreements contained in this Agreement, the parties
hereto agree as follows:
1. Term. Except as otherwise hereinafter provided, this Agreement
shall continue in full force and effect for a period commencing April 1, 1995
and ending November 15, 1995 (the "Initial Term"), and shall continue in effect
for an additional term commencing January 15, 1996 and ending November 15, 1996
and for successive terms commencing January 15 and ending November 15 of each
calendar year thereafter (each a "Renewal Term") unless and until either party
hereto elects to terminate this Agreement after the Initial Term by giving
written notice of termination to the other not less am 60 days prior to the
expiration date of any Renewal Term.
2. Provisions Regarding Dry Felt.
(a) During the term of this Agreement, GAP agrees to
purchase from Striker the minimum monthly quantity of dry felt set forth below
(the "Minimum Monthly Purchase Amount"):
<TABLE>
<CAPTION>
Basis Weight Minimum Quantity(1)
------------ -------------------
<S> <C>
Heavy-Weight Dry Felt (31-551b) 0 tons
Light-Weight Dry Felt (21-301b) 900 tons
</TABLE>
- ---------------
(1) Note: Minimum Monthly Purchase Amount shall be 1/2 of the above
quantity for any 15 day calendar month during the Initial or any Renewal Term
of this Agreement.
<PAGE> 2
according to the current specification parameters with respect to heavy-weight
dry felt currently being manufactured by Striker for GAP at the date hereof,
FOB Striker plant shipping point, at a purchase price per ton (the "Dry Felt
Purchase Price") as set forth in Schedule 2(a) hereto, and Striker agrees to
cause to be manufactured and to sell to GAP such Minimum Monthly Purchase
Amount of dry felt on the terms set forth herein and in Schedule 2(a).
3. Order and Shipping Procedures.
With respect to orders of dry felt purchased by GAP from Striker
pursuant to Section 2, the following shall apply:
(a) Orders. On or about the 28th day of each month during
the term of this Agreement, Striker shall deliver a sales order to GAP for the
quantity (not less than the Minimum Monthly Purchase Amount) and weights of dry
felt to be purchased by GAP from Striker the following month, which dry felt
shall be shipped to GAP in accordance with the provisions of Section 4(d). With
respect to any month and with respect to which Striker is informed in advance
by GAP that it wishes to purchase a quantity of dry felt in excess of the
Minimum Monthly Purchase Amount, Striker agrees, in good faith, to endeavor to
furnish to GAP the amount of dry felt in excess of the Minimum Monthly Purchase
Amount for such month, to the extent possible within the constraints of the
manufacturing capacity of Striker and the level of its prior third party
customer commitments.
(b) Invoices. Striker will bill GAP at time of shipment
by written invoice which shall contain the following information relating to
the dry felt shipped:
(i) Description
(ii) Quantity and basis weight, and
(iii) Per ton purchase price applicable.
All local, state and U. S. federal excise, sales and use taxes, when
applicable, shall be stated separately on Striker's invoice.
(c) Payment of Purchase Price; Freight Charges; Title
Passage. GAP shall pay Striker the Dry Felt Purchase Price, as the case may be,
of all dry felt shipped pursuant to this Agreement within 30 days after the
date of shipment thereof from a Striker plant to the location designated by GAP
(the "Designated Location"). Freight and other charges associated with
transportation of all dry felt shipped by Striker to GAP hereunder, including
insurance, shall be borne and paid by GAP unless GAP requests in advance that
Striker arrange for transportation of the dry felt to be shipped to it
hereunder by a third party. If transportation of dry felt shipped is arranged
by Striker for GAP by a third party, freight and other charges of the carrier
will be billed as a separate line item on the invoice by Striker to GAP and any
such transportation and
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<PAGE> 3
related charges shall be paid by GAP to Striker within 30 days from date of
shipment of the dry felt for which such freight charges are incurred. Title to
all dry felt manufactured and shipped by Striker to GAP under the provisions of
this Agreement, as well as all risk of loss with respect thereto, shall pass to
GAP at Striker's plant shipping point at time of shipment.
(d) Shipments; Time and Preparation. Striker shall ship
to, or make available for pick-up by, GAP within 30 days of manufacture the
quantity and weight of dry felt purchased by and sold to GAP under the
provisions of Sections 2 and 3 of this Agreement. The dry felt sold to GAP
shall be suitably prepared for shipping by Striker, and such preparation for
shipment shall not be materially different than that done with respect to
shipments of dry felt by Striker to GAP before the effective date of this
Agreement. No charge shall be made to GAP for the cost of packing, packaging
and loading the dry felt. The cost of shipping to, and unloading at, the
Designated Location shall be borne by GAP.
(e) Claims for Damage, During Shipment. Any discernible
loss or damage to a shipment made or arranged by Striker pursuant to paragraph
(c) above must be indicated by a notation with respect thereto made by GAP or
the carrier's agent on the delivery receipt before the receipt is signed by
GAP. Notation must clearly specify the extent of the discernible loss, shortage
or damage. Concealed damage must be reported to Striker or the third party
carrier within five days from the date of delivery to GAP. The filing of claims
with a third party carrier for loss or damage in transportation must be made
within one month after date of delivery to GAP, or in case of non-delivery,
within two months after a reasonable time for delivery has elapsed. If GAP
desires the assistance of Striker in filing such claims, GAP must report the
claims asserted to Striker within a reasonable time so as to enable Striker to
comply with the carrier's requirements.
(f) Quality; Inspection. All dry felt manufactured by
Striker for GAP shall be manufactured in accordance with the specifications of
dry felt currently being purchased by GAP from Striker as at the date hereof
and heretofore accepted by Striker. During the term of this Agreement, GAP may
elect from time to time to inspect any dry felt manufactured by Striker for
shipment to GAP hereunder during the time the dry felt is held at Striker's
plant in Stephen's Arkansas and pending its shipment to GAP. If GAP elects to
perform any such inspection, Striker shall provide all reasonable facilities
and assistance to GAP and its representatives for the purpose of such
inspection, without cost to GAP. At the time of any such inspection, Striker
shall make available to GAP and its representatives copies of all dry felt
specification letters and applicable inventory records with respect to the dry
felt to be inspected. If GAP should reject any dry felt so inspected, GAP shall
promptly notify Striker of such rejection in writing, specifying in detail the
reasons for its rejection. Striker shall then have the option to replace the
rejected and non-conforming dry felt or to make an acceptable adjustment
otherwise with respect thereto with GAP. Any representative of GAP sent by it
to conduct any inspection(s) permitted under the provisions of this Section
4(f) must be a full time bona fide employee of GAP.
(g) No Warehousing. All dry felt to be manufactured and
sold by Striker to
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<PAGE> 4
GAP hereunder is to be shipped to, or made available for pick-up by, GAP within
30 days of manufacture, and title thereto passes hereunder at Striker's plant
shipping point at time of shipment. If, however, arrangements for shipping of
dry felt are not made by GAP or GAP fails to pick up any quantity of dry felt
ordered by it hereunder within such 30-day period, Striker shall not be
obligated to store or warehouse any dry felt which GAP has failed for any
reason to make arrangements to ship or pick up within such time period, and
Striker shall promptly notify GAP of this fact and the quantity of dry felt
involved. If within five business days after such notice to GAP, such dry felt
has not been removed from Striker's plant premises, Striker shall then have the
right to arrange for storage of such dry felt at GAP's expense off-site
Striker's premises and at GAP's risk of loss.
4. Price Adjustments. During the term hereof, if there is a
market increase or decrease of 5% or greater within any month during the term
hereof compared to the immediately preceding month or interim monthly period in
the price of old corrugated containers, mixed paper, newsprint or other papers,
wood chips, sawdust, woodflour and/or other pulp materials (the "Raw
Materials") necessary to manufacture the dry felt to be sold to GAP under
Sections 2 and 3 above, then Striker will adjust the per-ton Dry Felt Purchase
Price set forth in Schedule 2(a) by delivering to GAP written notice of the
computed adjustment in the Dry Felt Purchase Price. In no event shall the Dry
Felt Purchase Price be adjusted to an amount less than the Dry Felt Purchase
Price determined under Schedule 2(a). Striker will endeavor to provide 10-14
day advance notice regarding the effective date of any price change. GAP shall
have 5 business days from the receipt date of Striker's computed adjustment
notice within which to accept or reject Striker's computed Dry Felt Purchase
Price adjustment. If GAP fails to respond in writing within such 5-business day
period, Striker will assume the Dry Felt Purchase Price adjustment has been
accepted. If GAP responds in writing within the 5-business day period rejecting
the Dry Felt Purchase Price adjustment, the following shall apply:
(a) Good Faith Negotiations. If GAP rejects Striker's
proposed Dry Felt Purchase Price adjustment, Striker and GAP shall enter into
good faith negotiations, for a period of not more than 5 days, to reach an
agreement on the adjustment of the Dry Felt Purchase Price. During this 5 day
period, executives of both parties who are familiar with the facts of the
proposed Dry Felt Purchase Price adjustment shall meet at a mutually acceptable
time and place to exchange relevant information and to attempt to resolve the
disagreement
(b) Mediation. In the event Striker and GAP are unable to
reach agreement with respect to Striker's computed adjustment of the Purchase
Price pursuant to Section 4(a) above, then Striker and GAP agree to try in good
faith, for a period of 60 days (the "Mediation Period") to settle the
disagreement by mediation. Each of Striker and GAP shall have 5 business days
with which to designate in writing one or more individuals with authority to
resolve the dispute on its respective behalf. Within 10 business days after the
date of designation of the authorized individual(s) of each of Striker and GAP,
such individuals shall make a good faith effort to select a person to mediate
the computed Purchase Price adjustment. If no mediator has been selected under
this procedure within such time period, the individual(s) authorized to act
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<PAGE> 5
on behalf of each of Striker and GAP shall jointly request a State or Federal
District Judge of their choosing sitting in Houston, Harris County, Texas,
acting in his individual capacity (or if they cannot agree, the then-acting
President of the Houston Bar Association), to supply within 10 business days a
list of potential qualified attorney-mediators. Within 5 business days after
receipt of the list, the individual(s) acting on behalf of each of Striker and
GAP shall rank the proposed mediators in numerical order of preference,
simultaneously exchange such list, and select as the mediator the individual
receiving the highest combined ranking. If such mediator is not available to
serve, the parties shall proceed to contact the mediator who was next highest
in ranking until a mediator is selected from such list. In consultation with
the mediator selected, the parties shall then promptly designate a mutually
convenient time and place in Houston, Texas for the mediation, such time to be
no later than 15 days after selection of the mediator. In the mediation, each
party shall be represented by persons with authority and discretion to
negotiate a resolution of the computed Purchase Price adjustment, and may be
represented by counsel. The mediator shall determine the format for the
meetings, and the mediation session shall be private. The mediator will keep
confidential all information learned in private caucus with any party unless
specifically authorized by such party to make disclosure of the information to
the other party. The parties agree that the mediation shall be governed by the
provisions of Chapter 154 of the Texas Remedies and Practice Code and such
other rules as the mediator shall prescribe. Fees and expenses of the mediator
shall be shared equally by the parties. The mediator shall be disqualified as a
witness, consultant, expert or counsel for any party with respect to the matter
being mediated and any related matters. Mediation is a compromise negotiation
for purposes of federal and state mediation and constitutes privileged
communication under Texas law. The entire mediation process is confidential and
the conduct thereof and all statements, promises, offers, views and opinions
expressed during the course thereof shall not be discoverable or admissible in
any legal proceeding for any purpose.
(c) Arbitration. In the event that Striker and GAP are
unable to reach agreement as to the computed adjustment of the Purchase Price
by the end of the mediation Period (or any extension of the Mediation Period by
mutual agreement of the parties) the amount of the computed Purchase Price
adjustment shall be submitted promptly for resolution to binding arbitration
before a single arbitrator who shall be a person who is a retired Civil
District Judge formerly sitting in Harris County, Texas selected by the person
then serving as the President of the Houston Bar Association at the request of
either Striker or GAP. The arbitrator shall be fully compensated in accordance
with his normal hourly or per diem rate for all time spent by him on the
arbitration proceeding. Pending final award, arbitrator compensation and
expenses shall be advanced equally by Striker and GAP. The arbitration
proceeding shall be conducted in accordance with the rules of the American
Arbitration Association. The place of arbitration shall be in Houston, Texas at
any location as the arbitrator directs, having due regard for the convenience
of the parties, witnesses and the arbitrator. The result of such binding
arbitration may be enforced pursuant to the Texas General Arbitration Act.
(d) Considerations During Mediation and Arbitration. In
determining the amount of the computed Dry Felt Purchase Price adjustment any
mediator or arbitrator engaged
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<PAGE> 6
in accordance with this Section 4 shall consider the monthly increase or
decrease in market prices of the Raw Materials as computed from the prices
reported in "Official Board Markets" or other market price sources in the
industry. Until final resolution of any computed Dry Felt Purchase Price
adjustment pursuant to any written notice of computed adjustment from Striker
to GAP during the term of this Agreement, purchase and sales of dry felt under
the terms and provisions of this Agreement shall continue without interruption
or abatement, and the Dry Felt Purchase Price to be invoiced in the interim by
Striker to GAP under any provision of this Agreement shall be the Dry Felt
Purchase Price computed by Striker; provided, however, that all payments by GAP
to Striker for dry felt throughout the entire interim period and until the
subject of the computed adjustment in the Dry Felt Purchase Price is resolved
hereunder either by mediation or arbitration shall be made at the Dry Felt
Purchase Price in effect immediately prior to delivery by Striker to GAP of a
written notice of computed adjustment. If the result of such mediation or
arbitration is an increase in the Dry Felt Purchase Price, GAP shall owe the
difference between the increased price and the price paid by it during the
interim period to Striker which increase shall be paid within 15 days following
the final determination of the computed adjustment in the Dry Felt Purchase
Price; conversely, if the result of such mediation or arbitration is a decrease
in the Dry Felt Purchase Price, a credit in the amount of the aggregate
decrease shall be owed by Striker to GAP and shall likewise be paid within 15
days following final determination of such computed adjustment.
5. Representations, Warranties and Covenants of GAP. GAP
represents and warrants to Striker as follows:
(a) Organization; Good Standing. GAP is a corporation
duly organized, validly existing and in good standing under the laws of the
State of Oklahoma. GAP has all requisite corporate power and authority and
legal right to enter into this Agreement and perform its obligations hereunder.
(b) Authority. GAP has taken all necessary corporate
action to approve this Agreement and the performance of its respective
obligations hereunder.
(c) Compliance with Other Instruments, etc. Neither the
execution nor delivery of this Agreement, nor the consummation of the
transaction contemplated hereby or thereby will conflict with or result in any
violation of, or constitute a default under, any provisions of the Certificate
of Incorporation or By-laws of GAP or any material agreement, mortgage,
indenture, franchise, license, permit, authorization, lease or other
instrument, judgment, decree, order, law or regulation by which GAP is bound.
No consent of any governmental agency or other third party is required to be
obtained by GAP with respect to the transactions contemplated hereby, except
for such consents have been obtained before the date hereof.
(d) Solvency. GAP is not insolvent and the transactions
referred to in and contemplated by this Agreement do not and will not render
GAP insolvent, and the obligations hereunder to perform such transactions have
not been undertaken and committed by GAP with
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<PAGE> 7
any actual intent to hinder, delay or defraud any present or future creditor of
GAP. In view of the nature of the particular businesses conducted and proposed
to be conducted by GAP based upon the actual and anticipated needs for capital
to operate its respective businesses, the transactions referred to in and
contemplated by this Agreement will not leave GAP with unreasonably small
capital with which to engage in their respective businesses, or in any business
or transaction in which they intend to engage.
(e) Brokers. All negotiations relative to this Agreement
and the transactions contemplated hereby have been carried on in a manner such
that they will not give rise to any valid claim for a finder's fee, brokerage
commission or other like payment by any person intervening in the transactions
as a result of actions taken by or on behalf of GAP.
(f) Continuation in Business; Source of Demand.
Throughout the term of this Agreement, GAP shall continue to be engaged in the
manufacturing business in which it is engaged at the date of this Agreement and
hereby covenants and agrees it and its affiliates will exert every reasonable
effort to provide a steady and reliable source of demand for the residential
roofing products currently being manufactured by it and for the dry felt
product sold by Striker related thereto.
6. Representations, Warranties and Covenants of Striker. Striker
represents and warrants to GAP as follows:
(a) Organization; Good Standing. Striker is a corporation
duly organized, validly existing and in good standing under the laws of the
state of Arkansas and has all requisite corporate power and authority and legal
right to enter into this Agreement and perform its obligations hereunder.
(b) Authority. Striker has taken all necessary corporate
action to approve this Agreement and the performance of its obligations
hereunder.
(c) Compliance with Other Instruments, Etc. Neither the
execution or delivery of this Agreement, nor the consummation of the
transactions contemplated hereunder, will conflict with or result in any
violation of, or constitute a default under, any provision of the Certificate
of Incorporation or By-laws of Striker or any material agreement, mortgage,
indenture, franchise, license, permit, authorization, lease or other
instrument, judgment, decree, order, law or regulation by which Striker is
bound. No consent of any governmental agency or other third party is required
to be obtained by Striker with respect to the transaction contemplated hereby,
except for such consents as have been obtained before the date hereof.
(d) Solvency. Striker and its parent corporation are not
insolvent and the transactions referred to in and contemplated by this
Agreement do not and will not render Striker insolvent, and the obligations
hereunder to perform such transactions have not been undertaken and committed
by Striker with any actual intent to hinder, delay or defraud any present or
future
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creditor of Striker. In view of the nature of the particular business conducted
and proposed to be conducted by Striker based upon the actual and anticipated
needs for capital to operate such businesses, the transactions referred to in
and contemplated by this Agreement will not leave Striker with unreasonably
small capital with which to engage in its businesses, or in any business or
transaction in which it intends to engage.
(e) Brokers. All negotiations relative to this Agreement
and the transactions contemplated hereby have been carried on in a manner such
that they will not give rise to any valid claim for a finder's fee, brokerage
commission or other like payment by any person intervening in the transactions
as a result of actions taken by or on behalf of Striker.
(f) Continuation in Business; Source of Supply.
Throughout the term of this Agreement, Striker and its parent corporations
shall continue to be engaged in the felt product recycling and paper-based felt
manufacturing business in which they are engaged at the date of this Agreement
and hereby covenants and agrees with GAP that Striker will exert every
reasonable effort to provide a steady and reliable source of supply of dry felt
paper for GAP and itself, to the extent provided in this Agreement.
7. Cancellation for Cause. Either party hereto may cancel this
Agreement if the other is in default of any material provisions of this
Agreement and such default is not cured within 30 days from the effective date
of a notice of default from a party hereto to the other specifying the nature
of the default and the corrective action, if any, to be taken to cure the
default, and if such corrective action is not taken within such 30-day period
of time, this Agreement shall terminate and be of no further force and effect
effective on and as of the 30th day following the effective date of such notice
of default.
8. Notices. Any notice, request, instruction or other document to
be given hereunder by either party to the other shall be given in writing and
delivered personally or sent by registered or certified mail postage prepaid,
or by facsimile transmission to the respective addresses of the parties set
forth below. Notice by personal delivery shall be effective upon receipt,
notice deposited in the United States mail in the manner aforesaid shall be
effective three days after deposit, and notice sent by facsimile transmission
shall be effective upon confirmation to the notifying party of receipt of the
transmission. Notice given in any other manner shall be effective only if and
when received by the party to be notified. For purposes of this Agreement, the
addresses of the parties shall be as follows:
If to GAP: GAP Roofing, Inc.
Rt. 3, Box 68-10
Pryor, Oklahoma 74361
Attn: Mary Passmore
Fax No. (918) 825-5207
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If to Striker: Striker industries, Inc.
One Riverway, Suite 2450
Houston, Texas 77056
Attn: R. W. Miller, President
Fax No. (713) 622-9410
With a copy to: Robert I. Beck, Esq.
Zimmerman, Flaum & Axelrad, P.C.
3030 Post Oak Boulevard, 13th Floor
Houston, Texas 77056
Fax No. (713) 963-0859
Either party hereto may change its respective address aforesaid by notice given
to the other party hereto in accordance with the provisions of this Section 8.
9. Miscellaneous. The parties hereto further agree as follows:
(a) Compliance with Laws. In performing this Agreement,
all applicable governmental laws, regulations, orders and other rules of duly
constituted authority will be followed and complied with in all respects by
each party hereto.
(b) Assignment. No assignment by either party of any
right hereunder, including the right to money due or to become due under this
Agreement, or delegation of any duties under this Agreement shall be binding
upon the other party without its written consent first had and obtained.
(c) Non-Waiver. Any failure by either party hereto to
enforce any provision of this Agreement shall not constitute a waiver of such
provision(s) or prejudice the right of either party hereto to enforce such
provision(s) at any subsequent time.
(d) Headings. Headings used in this Agreement are for
convenience of reference only and shall not affect the interpretation of this
Agreement.
(e) Partial Invalidity. If any provision of this
Agreement is or becomes void or unenforceable by force or operation of law, the
other provisions hereof shall remain valid and enforceable.
(f) Modification. Oral statements and understandings are
not valid or binding, and no change, modification or waiver of any provision of
this Agreement shall be valid or binding unless it is in writing, signed by
both parties hereto and bears a date or effective date subsequent to the date
hereof.
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<PAGE> 10
(g) Force Majeure. Any foregoing provision of this
Agreement to the contrary notwithstanding, neither party hereto shall be liable
to the other for any loss, injury, delay, damages or other casualties suffered
or incurred by a party hereto due to strikes or other adverse union activity,
riots, storms, fires, explosions, acts of God, war, embargo, governmental
action, or any other cause similar thereto which is beyond the reasonable
control of a party hereto, and any failure or delay by either party hereto in
the performance of any of its obligations under this Agreement due to one or
more of the foregoing causes shall not be considered a breach of this Agreement.
(h) Entire Agreement. This Agreement contains the entire
agreement of the undersigned parties hereto with respect to the subject matter
hereof and neither party hereto shall be bound by any communication between
them with respect to the subject matter hereof unless the same is in writing
and bears a date contemporaneous with or subsequent to the date hereof.
(i) Governing Law. This Agreement shall be construed and
enforced in accordance with the laws of the state of Texas.
(j) This Agreement is being executed on April 6, 1995,
but will become effective on April 1, 1995.
IN WITNESS WHEREOF, each party to this Agreement has caused it to be
executed on its behalf by its undersigned officers hereunto duly authorized on
April 6, 1995 effective as of the date first above indicated.
G.A.P. Roofing, Inc.
BY: /s/ MARY PASSMORE
-----------------------------------
Mary Passmore, Vice President
STRIKER PAPER CORPORATION
BY: /s/ R. W. MILLER
-----------------------------------
R. W. Miller, President
10
<PAGE> 1
EXHIBIT 10.2
DRY FELT PURCHASE/SALE AGREEMENT
THIS AGREEMENT made effective as of April 1, 1995 (the "Agreement") by
and between Tarco, Inc., an Arkansas Subchapter S Corporation and Tarco of
Texas, a Texas Subchapter S Corporation, hereinafter referred to as "Tarco",
with its principal place of business located in North Little Rock, Arkansas,
and Striker Paper Corporation, an Arkansas corporation, hereinafter referred to
as "Striker" with its executive and administrative offices located in Houston,
Texas.
W I T N E S S E T H:
WHEREAS, Tarco is a manufacturer of a broad line of organic
(felt-based) rolled roofing products primarily for sale to the residential
roofing market, with manufacturing facilities in the South Central United
States; and
WHEREAS, since 1991 Striker has been engaged at its parent
corporations' Stephens, Arkansas plant in the business of recycling and
manufacturing of pulp product into paper-based felt and the asphalt saturation
of paper-based felt into rolled roofing products; and
WHEREAS, all price and cost amounts referred to in this Agreement and
any schedule attached hereto, shall mean, and are hereby agreed to be
denominated in, U.S. dollars; and
NOW THEREFORE, in consideration of the above recitals and the mutual
and dependent covenants and agreements contained in this Agreement, the parties
hereto agree as follows:
1. Term. Except as otherwise hereinafter provided, this Agreement
shall continue in full force and effect for a period commencing April 1, 1995
and ending November 15, 1995 (the "Initial Term"), and shall continue in effect
for an additional term commencing January 15, 1996 and ending November 15, 1996
and for successive terms commencing January 15 and ending November 15 of each
calendar year thereafter (each a "Renewal Term") unless and until either party
hereto elects to terminate this Agreement after the Initial Term by giving
written notice of termination to the other not less than 60 days prior to the
beginning of any Renewal Term beginning with the January 15, 1997 to November
15, 1997 renewal term.
2. Provisions Regarding Dry Felt.
(a) During the term of this Agreement, Tarco agrees to
purchase from Striker the minimum monthly quantity of dry felt set forth below
(the "Minimum Monthly Purchase Amount"):
<TABLE>
<CAPTION>
Basis Weight Minimum Quantity(1)
------------ -------------------
<S> <C>
Heavy-Weight Dry Felt (31-551b) 600 tons
Light-Weight Dry Felt (21-301b) 0 tons
</TABLE>
- ---------------
(1) Note: Minimum Monthly Purchase Amount shall be 1/2 of the above
quantity for any 15 day calendar month during the Initial or any Renewal Term
of this Agreement.
<PAGE> 2
according to the current specification parameters with respect to heavy-weight
dry felt currently being manufactured by Striker for Tarco at the date hereof,
FOB Striker plant shipping point, at a purchase price per ton (the "Dry Felt
Purchase Price") as set forth in Schedule 2(a) hereto, and Striker agrees to
cause to be manufactured and to sell to Tarco such Minimum Monthly Purchase
Amount of dry felt on the terms set forth herein and in Schedule 2(a).
3. Order and Shipping Procedures.
With respect to orders of dry felt purchased by Tarco from Striker
pursuant to Section 2, the following shall apply:
(a) Orders. On or about the 28th day of each month during
the term of this Agreement, Striker shall deliver a sales order to Tarco for
the quantity (not less than the Minimum Monthly Purchase Amount) and weights of
dry felt to be purchased by Tarco from Striker the following month, which dry
felt shall be shipped to Tarco in accordance with the provisions of Section
4(d). With respect to any month and with respect to which Striker is informed
in advance by Tarco that it wishes to purchase a quantity of dry felt in excess
of the Minimum Monthly Purchase Amount, Striker agrees, in good faith, to
endeavor to furnish to Tarco the amount of dry felt in excess of the Minimum
Monthly Purchase Amount for such month, to the extent possible within the
constraints of the manufacturing capacity of Striker and the level of its prior
third party customer commitments.
(b) Invoices. Striker will bill Tarco at time of shipment
by written invoice which shall contain the following information relating to
the dry felt shipped:
(i) Description
(ii) Quantity and basis weight, and
(iii) Per ton purchase price applicable.
All local, state and U.S. federal excise, sales and use taxes, when applicable,
shall be stated separately on Striker's invoice.
(c) Payment of Purchase Price; Freight Charges; Title
Passage. Tarco shall pay Striker the Dry Felt Purchase Price, as the case may
be, of all dry felt shipped pursuant to this Agreement within 30 days after the
date of shipment thereof from a Striker plant to the location designated by
Tarco (the "Designated Location"). Freight and other charges associated with
transportation of all dry felt shipped by Striker to Tarco hereunder, including
insurance, shall be borne and paid by Tarco unless Tarco requests in advance
that Striker arrange for transportation of the dry felt to be shipped to it
hereunder by a third party. If transportation of dry felt shipped is arranged
by Striker for Tarco by a third party, freight and other charges of the carrier
will be billed as a separate line item on the invoice by Striker to Tarco and
any such transportation and
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<PAGE> 3
related charges shall be paid by Tarco to Striker within 30 days from date of
shipment of the dry felt for which such freight charges are incurred. Title to
all dry felt manufactured and shipped by Striker to Tarco under the provisions
of this Agreement, as well as all risk of loss with respect thereto, shall pass
to Tarco at Striker's plant shipping point at time of shipment.
(d) Shipments; Time and Preparation. Striker shall ship
to, or make available for pick-up by, Tarco within 30 days of manufacture the
quantity and weight of dry felt purchased by and sold to Tarco under the
provisions of Sections 2 and 3 of this Agreement. The dry felt sold to Tarco
shall be suitably prepared for shipping by Striker, and such preparation for
shipment shall not be materially different than that done with respect to
shipments of dry felt by Striker to Tarco before the effective date of this
Agreement. No charge shall be made to Tarco for the cost of packing, packaging
and loading the dry felt. The cost of shipping to, and unloading at, the
Designated Location shall be borne by Tarco.
(e) Claims for Damage During Shipment. Any discernible
loss or damage to a shipment made or arranged by Striker pursuant to paragraph
(c) above must be indicated by a notation with respect thereto made by Tarco or
the carrier's agent on the delivery receipt before the receipt is signed by
Tarco. Notation must clearly specify the extent of the discernible loss,
shortage or damage. Concealed damage must be reported to Striker or the third
party carrier within five days from the date of delivery to Tarco. The filing
of claims with a third party carrier for loss or damage in transportation must
be made within one month after date of delivery to Tarco, or in case of
non-delivery, within two months after a reasonable time for delivery has
elapsed. If Tarco desires the assistance of Striker in filing such claims,
Tarco must report the claims asserted to Striker within a reasonable time so as
to enable Striker to comply with the carrier's requirements.
(f) Quality; Inspection. All dry felt manufactured by
Striker for Tarco shall be manufactured in accordance with the specifications
of dry felt currently being purchased by Tarco from Striker as at the date
hereof and heretofore accepted by Striker. During the term of this Agreement,
Tarco may elect from time to time to inspect any dry felt manufactured by
Striker for shipment to Tarco hereunder during the time the dry felt is held at
Striker's plant in Stephen's Arkansas and pending its shipment to Tarco. If
Tarco elects to perform any such inspection, Striker shall provide all
reasonable facilities and assistance to Tarco and its representatives for the
purpose of such inspection, without cost to Tarco. At the time of any such
inspection, Striker shall make available to Tarco and its representatives
copies of all dry felt specification letters and applicable inventory records
with respect to the dry felt to be inspected. If Tarco should reject any dry
felt so inspected, Tarco shall promptly notify Striker of such rejection in
writing, specifying in detail the reasons for its rejection. Striker shall then
have the option to replace the rejected and non-conforming dry felt or to make
an acceptable adjustment otherwise with respect thereto with Tarco. Any
representative of Tarco sent by it to conduct any inspection(s) permitted under
the provisions of this Section 4(f) must be a full time bona fide employee of
Tarco.
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<PAGE> 4
(g) No Warehousing. All dry felt to be manufactured and
sold by Striker to Tarco hereunder is to be shipped to, or made available for
pick-up by, Tarco within 30 days of manufacture, and title thereto passes
hereunder at Striker's plant shipping point at time of shipment. If, however,
arrangements for shipping of dry felt are not made by Tarco or Tarco fails to
pick up any quantity of dry felt ordered by it hereunder within such 30-day
period, Striker shall not be obligated to store or warehouse any dry felt which
Tarco has failed for any reason to make arrangements to ship or pick up within
such time period, and Striker shall promptly notify Tarco of this fact and the
quantity of dry felt involved. If within five business days after such notice
to Tarco, such dry felt has not been removed from Striker's plant premises,
Striker shall then have the right to arrange for storage of such dry felt at
Tarco's expense off-site Striker's premises and at Tarco's risk of loss.
4. Price Adjustments. During the term hereof, if there is a
market increase or decrease of 5% or greater within any month during the term
hereof compared to the immediately preceding month or interim monthly period in
the price of old corrugated containers, mixed paper, new print or other papers,
wood chips, sawdust, woodflour and/or other pulp materials (the "Raw
Materials") necessary to manufacture the dry felt to be sold to Tarco under
Sections 2 and 3 above, then Striker will adjust the per-ton Dry Felt Purchase
Price set forth in Schedule 2(a) by delivering to Tarco written notice of the
computed adjustment in the Dry Felt Purchase Price. In no event shall the Dry
Felt Purchase Price be adjusted to an amount less than the Dry Felt Purchase
Price determined under Schedule 2(a). In no event shall the Dry Felt Purchase
Price be adjusted to an amount less than the Dry Felt Purchase Price determined
under Section 2(a) and, if Tarco rejects Striker's Dry Felt Purchase adjustment
in the manner provided herein for the reason that Tarco asserts that Striker's
proposed adjustment is greater than 105% of the average of two current separate
per ton dry felt purchase price quotes obtained by Tarco from two independent
outside domestic dry felt suppliers used by Tarco, which quotes are no more
than two weeks old and may be evidenced by invoices of the suppliers or by
signed letters of the suppliers on their respective letterheads, the Dry Felt
Purchase Price shall not be adjusted to an amount that is more than 105% of the
average of the two independent outside domestic suppliers dry felt purchase
quotes of Tarco provided to Striker. Striker will endeavor to provide 10-14
day advance notice regarding the effective date of any price change. Tarco
shall have 5 business days from the receipt date of Striker's computed
adjustment notice within which to accept or reject Striker's computed Dry Felt
Purchase Price adjustment. If Tarco fails to respond in writing within such
5-business day period, Striker will assume the Dry Felt Purchase Price
adjustment has been accepted. If Tarco responds in writing within the
5-business day period rejecting the Dry Felt Purchase Price adjustment, the
following shall apply:
(a) Good Faith Negotiations. If Tarco rejects Striker's
proposed Dry Felt Purchase Price adjustment, Striker and Tarco shall enter into
good faith negotiations, for a period of not more than 5 days, to reach an
agreement on the adjustment of the Dry Felt Purchase Price. During this 5 day
period, executives of both parties who are familiar with the facts of the
proposed Dry Felt Purchase Price adjustment shall meet at a mutually acceptable
time and place to exchange relevant information and to attempt to resolve the
disagreement.
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<PAGE> 5
(b) Mediation. In the event Striker and Tarco are unable
to reach agreement with respect to Striker's computed adjustment of the
Purchase Price pursuant to Section 4(a) above, then Striker and Tarco agree to
try in good faith, for a period of 60 days (the "Mediation Period") to settle
the disagreement by mediation. Each of Striker and Tarco shall have 5 business
days with which to designate in writing one or more individuals with authority
to resolve the dispute on its respective behalf. Within 10 business days after
the date of designation of the authorized individual(s) of each of Striker and
Tarco, such individuals shall make a good faith effort to select a person to
mediate the computed Purchase Price adjustment. If no mediator has been
selected under this procedure within such time period, the individual(s)
authorized to act on behalf of each of Striker and Tarco shall jointly request
a State or Federal District Judge of their choosing sitting in Houston, Harris
County, Texas, acting in his individual capacity (or if they cannot agree, the
then-acting President of the Houston Bar Association), to supply within 10
business days a list of potential qualified attorney-mediators. Within 5
business days after receipt of the list, the individual(s) acting on behalf of
each of Striker and Tarco shall rank the proposed mediators in numerical order
of preference, simultaneously exchange such list, and select as the mediator
the individual receiving the highest combined ranking. If such mediator is not
available to serve, the parties shall proceed to contact the mediator who was
next highest in ranking until a mediator is selected from such list. In
consultation with the mediator selected, the parties shall then promptly
designate a mutually convenient time and place in Houston, Texas for the
mediation, such time to be no later than 15 days after selection of the
mediator. In the mediation, each party shall be represented by persons with
authority and discretion to negotiate a resolution of the computed Purchase
Price adjustment, and may be represented by counsel. The mediator shall
determine the format for the meetings, and the mediation session shall be
private. The mediator will keep confidential all information learned in private
caucus with any party unless specifically authorized by such party to make
disclosure of the information to the other party. The parties agree that the
mediation shall be governed by the provisions of Chapter 154 of the Texas
Remedies and Practice Code and such other rules as the mediator shall
prescribe. Fees and expenses of the mediator shall be shared equally by the
parties. The mediator shall be disqualified as a witness, consultant, expert or
counsel for any party with respect to the matter being mediated and any related
matters. Mediation is a compromise negotiation for purposes of federal and
state mediation and constitutes privileged communication under Texas law. The
entire mediation process is confidential and the conduct thereof and all
statements, promises, offers, views and opinions expressed during the course
thereof shall not be discoverable or admissible in any legal proceeding for any
purpose.
(c) Arbitration. In the event that Striker and Tarco are
unable to reach agreement as to the computed adjustment of the Purchase Price
by the end of the mediation Period (or any extension of the Mediation Period by
mutual agreement of the parties) the amount of the computed Purchase Price
adjustment shall be submitted promptly for resolution to binding arbitration
before a single arbitrator who shall be a person who is a retired Civil
District Judge formerly sitting in Harris County, Texas selected by the person
then serving as the President of the Houston Bar Association at the request of
either Striker or Tarco. The arbitrator shall be fully compensated in
accordance with his normal hourly or per diem rate for all time spent by
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<PAGE> 6
him on the arbitration proceeding. Pending final award, arbitrator compensation
and expenses shall be advanced equally by Striker and Tarco. The arbitration
proceeding shall be conducted in accordance with the rules of the American
Arbitration Association. The place of arbitration shall be in Houston, Texas at
any location as the arbitrator directs, having due regard for the convenience
of the parties, witnesses and the arbitrator. The result of such binding
arbitration may be enforced pursuant to the Texas General Arbitration Act.
(d) Considerations During Mediation and Arbitration. In
determining the amount of the computed Dry Felt Purchase Price adjustment, any
mediator or arbitrator engaged in accordance with this Section 4 shall consider
the monthly increase or decrease in market prices of the Raw Materials as
computed from the prices reported in "Official Board Markets" or other market
price sources in the industry. Until final resolution of any computed Dry Felt
Purchase Price adjustment pursuant to any written notice of computed adjustment
from Striker to Tarco during the term of this Agreement, purchase and sales of
dry felt under the terms and provisions of this Agreement shall continue
without interruption or abatement, and the Dry Felt Purchase Price to be
invoiced in the interim by Striker to Tarco under any provision of this
Agreement shall be the Dry Felt Purchase Price computed by Striker; provided,
however, that all payments by Tarco to Striker for dry felt throughout the
entire interim period and until the subject of the computed adjustment in the
Dry Felt Purchase Price is resolved hereunder either by mediation or
arbitration shall be made at the Dry Felt Purchase Price in effect immediately
prior to delivery by Striker to Tarco of a written notice of computed
adjustment. If the result of such mediation or arbitration is an increase in
the Dry Felt Purchase Price, Tarco shall owe the difference between the
increased price and the price paid by it during the interim period to Striker
which increase shall be paid within 15 days following the final determination
of the computed adjustment in the Dry Felt Purchase Price; conversely, if the
result of such mediation or arbitration is a decrease in the Dry Felt Purchase
Price, a credit in the amount of the aggregate decrease shall be owed by
Striker to Tarco and shall likewise be paid within 15 days following final
determination of such computed adjustment.
5. Representations, Warranties and Covenants of Tarco.
Tarco represents and warrants to Striker as follows:
(a) Organization; Good Standing. Tarco is a corporation
duly organized, validly existing and in good standing under the laws of the
State of Arkansas. Tarco has all requisite corporate power and authority and
legal right to enter into this Agreement and perform its obligations hereunder.
(b) Authority. Tarco has taken all necessary corporate
action to approve this Agreement and the performance of its respective
obligations hereunder.
(c) Compliance with Other Instruments, etc. Neither the
execution nor delivery of this Agreement, nor the consummation of the
transaction contemplated hereby or thereby will conflict with or result in any
violation of, or constitute a default under, any provisions of the
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<PAGE> 7
Certificate of Incorporation or By-laws of Tarco or any material agreement,
mortgage, indenture, franchise, license, permit, authorization, lease or other
instrument, judgment, decree, order, law or regulation by which Tarco is bound.
No consent of any governmental agency or other third party is required to be
obtained by Tarco with respect to the transactions contemplated hereby, except
for such consents have been obtained before the date hereof.
(d) Solvency. Tarco is not insolvent and the transactions
referred to in and contemplated by this Agreement do not and will not render
Tarco insolvent, and the obligations hereunder to perform such transactions
have not been undertaken and committed by Tarco with any actual intent to
hinder, delay or defraud any present or future creditor of Tarco. In view of
the nature of the particular businesses conducted and proposed to be conducted
by Tarco based upon the actual and anticipated needs for capital to operate its
respective businesses, the transactions referred to in and contemplated by this
Agreement will not leave Tarco with unreasonably small capital with which to
engage in their respective businesses, or in any business or transaction in
which they intend to engage.
(e) Brokers. All negotiations relative to this Agreement
and the transactions contemplated hereby have been carried on in a manner such
that they will not give rise to any valid claim for a finder's fee, brokerage
commission or other like payment by any person intervening in the transactions
as a result of actions taken by or on behalf of Tarco.
(f) Continuation in Business; Source of Demand.
Throughout the term of this Agreement, Tarco shall continue to be engaged in
the manufacturing business in which it is engaged at the date of this Agreement
and hereby covenants and agrees it and its affiliates will exert every
reasonable effort to provide a steady and reliable source of demand for the
residential roofing products currently being manufactured by it and for the dry
felt product sold by Striker related thereto.
6. Representations, Warranties and Covenants of Striker. Striker
represents and warrants to Tarco as follows:
(a) Organization; Good Standing. Striker is a corporation
duly organized, validly existing and in good standing under the laws of the
state of Arkansas and has all requisite corporate power and authority and legal
right to enter into this Agreement and perform its obligations hereunder.
(b) Authority. Striker has taken all necessary corporate
action to approve this Agreement and the performance of its obligations
hereunder.
(c) Compliance with Other Instruments, Etc. Neither the
execution or delivery of this Agreement, nor the consummation of the
transactions contemplated hereunder, will conflict with or result in any
violation of, or constitute a default under, any provision of the Certificate
of Incorporation or By-laws of Striker or any material agreement, mortgage,
indenture,
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<PAGE> 8
franchise, license, permit, authorization, lease or other instrument, judgment,
decree, order, law or regulation by which Striker is bound. No consent of any
governmental agency or other third party is required to be obtained by Striker
with respect to the transaction contemplated hereby, except for such consents
as have been obtained before the date hereof.
(d) Solvency. Striker and its parent corporation are not
insolvent and the transactions referred to in and contemplated by this
Agreement do not and will not render Striker insolvent, and the obligations
hereunder to perform such transactions have not been undertaken and committed
by Striker with any actual intent to hinder, delay or defraud any present or
future creditor of Striker. In view of the nature of the particular business
conducted and proposed to be conducted by Striker based upon the actual and
anticipated needs for capital to operate such businesses, the transactions
referred to in and contemplated by this Agreement will not leave Striker with
unreasonably small capital with which to engage in its businesses, or in any
business or transaction in which it intends to engage.
(e) Brokers. All negotiations relative to this Agreement
and the transactions contemplated hereby have been carried on in a manner such
that they will not give rise to any valid claim for a finder's fee, brokerage
commission or other like payment by any person intervening in the transactions
as a result of actions taken by or on behalf of Striker.
(f) Continuation in Business; Source of Supply.
Throughout the term of this Agreement, Striker and its parent corporations
shall continue to be engaged in the felt product recycling and paper-based felt
manufacturing business in which they are engaged at the date of this Agreement
and hereby covenants and agrees with Tarco that Striker will exert every
reasonable effort to provide a steady and reliable source of supply of dry felt
paper for Tarco and itself, to the extent provided in this Agreement.
7. Cancellation for Cause. Either party hereto may cancel this
Agreement if the other is in default of any material provisions of this
Agreement and such default is not cured within 30 days from the effective date
of a notice of default from a party hereto to the other specifying the nature
of the default and the corrective action, if any, to be taken to cure the
default, and if such corrective action is not taken within such 30-day period
of time, this Agreement shall terminate and be of no further force and effect
effective on and as of the 30th day following the effective date of such notice
of default. In the event of a termination of this Agreement under the
provisions of this Section 7, the remedy(ies) of the non-defaulting party
against the defaulting party hereunder shall be determined under the applicable
provisions of the Chapter 2, Subchapter G, captioned "Remedies", of the Texas
Uniform Commercial Code, as promulgated in the Business and Commerce Code of
the State of Texas, as it exists at the date hereof or is hereafter amended;
provided, however, it is agreed that neither party hereto shall seek or be
entitled to recover from the other consequential damages extending beyond the
non-defaulting party's right of recovery of compensatory damages from the
defaulting party under the Code limited only to the defaulting party's breach
of or default under this Agreement.
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<PAGE> 9
8. Notices. Any notice, request, instruction or other document
to be given hereunder by either party to the other shall be given in writing
and delivered personally or sent by registered or certified mail, postage
prepaid, or by facsimile transmission to the respective addresses of the
parties set forth below. Notice by personal delivery shall be effective upon
receipt, notice deposited in the United States mail in the manner aforesaid
shall be effective three days after deposit, and notice sent by facsimile
transmission shall be effective upon confirmation to the notifying party of
receipt of the transmission. Notice given in any other manner shall be
effective only if and when received by the party to be notified. For purposes
of this Agreement, the addresses of the parties shall be as follows:
If to Tarco: Tarco Building Materials, Inc.
9315 U. S. Hwy 165 (England Highway)
North Little Rock, Arkansas 72117
Attn: David E. Snowden, Jr.
Fax No. (501) 945-7718
If to Striker: Striker Paper Corporation
One Riverway, Suite 2450
Houston, Texas 77056
Attn: R. W. Miller, President
Fax No. (713) 622-9410
With a copy to: Striker Paper Corporation
One Riverway, Ste. 2450
Houston, Texas 77056
Attn: Robert I. Beck, Esq., General Counsel
Fax No. (713) 622-9410
Either party hereto may change its respective address aforesaid by notice given
to the other party hereto in accordance with the provisions of this Section 8.
9. Miscellaneous. The parties hereto further agree as follows:
(a) Compliance with Laws. In performing this Agreement,
all applicable governmental laws, regulations, orders and other rules of duly
constituted authority will be followed and complied with in all respects by
each party hereto.
(b) Assignment. No assignment by either party of any
right hereunder, including the right to money due or to become due under this
Agreement, or delegation of any duties under this Agreement shall be binding
upon the other party without its written consent first had and obtained.
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(c) Non-Waiver. Any failure by either party hereto to
enforce any provision of this Agreement shall not constitute a waiver of such
provision(s) or prejudice the right of either party hereto to enforce such
provision(s) at any subsequent time.
(d) Headings. Headings used in this Agreement are for
convenience of reference only and shall not affect the interpretation of this
Agreement.
(e) Partial Invalidity. If any provision of this
Agreement is or becomes void or unenforceable by force or operation of law, the
other provisions hereof shall remain valid and enforceable.
(f) Modification. Oral statements and understandings are
not valid or binding, and no change, modification or waiver of any provision of
this Agreement shall be valid or binding unless it is in writing, signed by
both parties hereto and bears a date or effective date subsequent to the date
hereof.
(g) Force Majeure. Any foregoing provision of this
Agreement to the contrary notwithstanding, neither party hereto shall be liable
to the other for any loss, injury, delay, damages or other casualties suffered
or incurred by a party hereto due to strikes or other adverse union activity,
riots storms, fires, explosions, acts of God, war, embargo, governmental action,
or any other cause similar thereto which is beyond the reasonable control of a
party hereto, and any failure or delay by either party hereto in the
performance of any of its obligations under this Agreement due to one or more
of the foregoing causes shall not be considered a breach of this Agreement.
(h) Entire Agreement. This Agreement contains the entire
agreement of the undersigned parties hereto with respect to the subject matter
hereof and neither party hereto shall be bound by any communication between
them with respect to the subject matter hereof unless the same is in writing
and bears a date contemporaneous with or subsequent to the date hereof.
(i) Governing Law. This Agreement shall be construed and
enforced in accordance with the laws of the state of Texas.
(j) This Agreement is being executed on July 19, 1995,
but will become effective on April 1, 1995.
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IN WITNESS WHEREOF, each party to this Agreement has caused it to be
executed on its behalf by its undersigned officers hereunto duly authorized on
July 19, 1995 effective as of the date first above indicated.
TARCO BUILDING MATERIALS, INC.
by: /s/ DAVID E. SNOWDEN
--------------------------------------
David E. Snowden, Jr. Vice President
STRIKER PAPER CORPORATION
by: /s/ R. W. MILLER
--------------------------------------
R. W. Miller, President
11
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EXHIBIT 10.3
DRY FELT PURCHASE/SALE AGREEMENT
THIS AGREEMENT made effective as of April 1, 1995 (the "Agreement") by
and between United Roofing Manufacturing Company, an Alabama corporation,
hereinafter referred to as "United" with its principal place of business
located in Eutaw, Alabama, and Striker Paper Corporation, an Arkansas
corporation, hereinafter referred to as "Striker" with its executive and
administrative offices located in Houston, Texas.
W I T N E S S E T H:
WHEREAS, United is a manufacturer of a broad line of organic
(felt-based) rolled roofing products primarily for sale to the residential
roofing market, with manufacturing facilities in the South Eastern United
States; and
WHEREAS, since 1991 Striker has been engaged at its parent
corporations' Stephens, Arkansas plant in the business of recycling and
manufacturing of pulp product into paper-based felt and the asphalt saturation
of paper-based felt into rolled roofing products; and
WHEREAS, all price and cost amounts referred to in this Agreement and
any schedule attached hereto, shall mean, and are hereby agreed to be
denominated in, U. S. dollars; and
NOW THEREFORE, in consideration of the above recitals and the mutual
and dependent covenants and agreements contained in this Agreement, the parties
hereto agree as follows:
1. Term. Except as otherwise hereinafter provided, this Agreement
shall continue in full force and effect for a period commencing April 1, 1995
and ending November 15, 1995 (the "Initial Term"), and shall continue in effect
for an additional term commencing January 15, 1996 and ending November 15, 1996
and for successive terms commencing January 15 and ending November 15 of each
calendar year thereafter (each a "Renewal Term") unless and until either party
hereto elects to terminate this Agreement after the Initial Term by giving
written notice of termination to the other not less than 30 days prior to the
expiration date of any Renewal Term.
2. Provisions Regarding Dry Felt.
(a) During the term of this Agreement, United agrees to
purchase from Striker the minimum monthly quantity of dry felt set forth below
(the "Minimum Monthly Purchase Amount"):
Basis Weight Minimum Quantity(1)
------------ -------------------
Heavy-Weight Dry Felt (31-551b) 400 tons
Light-Weight Dry Felt (21-301b) 0 tons
- --------------------------
(1) Note: Minimum Monthly Purchase Amount shall be 1/2 of the above
quantity for any 15 day calendar month during the Initial or any Renewal Term
of this Agreement.
<PAGE> 2
according to the current specification parameters with respect to heavy-weight
dry felt currently being manufactured by Striker for United at the date hereof,
FOB Striker plant shipping point, at a purchase price per ton (the "Dry Felt
Purchase Price") as set forth in Schedule 2(a) hereto, and Striker agrees to
cause to be manufactured and to sell to United such Minimum Monthly Purchase
Amount of dry felt on the terms set forth herein and in Schedule 2(a).
3. Order and Shipping Procedures.
With respect to orders of dry felt purchased by United from Striker
pursuant to Section 2, the following shall apply:
(a) Orders. On or about the 28th day of each month during
the term of this Agreement, Striker shall deliver a sales order to United for
the quantity (not less than the Minimum Monthly Purchase Amount) and weights of
dry felt to be purchased by United from Striker the following month, which dry
felt shall be shipped to United in accordance with the provisions of Section
4(d). With respect to any month and with respect to which Striker is informed
in advance by United that it wishes to purchase a quantity of dry felt in
excess of the Minimum Monthly Purchase Amount, Striker agrees, in good faith,
to endeavor to furnish to United the amount of dry felt in excess of the
Minimum Monthly Purchase Amount for such month, to the extent possible within
the constraints of the manufacturing capacity of Striker and the level of its
prior third party customer commitments.
(b) Invoices. Striker will bill United at time of
shipment by written invoice which shall contain the following information
relating to the dry felt shipped:
(i) Description
(ii) Quantity and basis weight, and
(iii) Per ton purchase price applicable.
All local, state and U. S. federal excise, sales and use taxes, when
applicable, shall be stated separately on Striker's invoice.
(c) Payment of Purchase Price; Freight Charges; Title
Passage. United shall pay Striker the Dry Felt Purchase Price, as the case may
be, of all dry felt shipped pursuant to this Agreement within 30 days after the
date of shipment thereof from a Striker plant to the location designated by
United (the "Designated Location"). Freight charges associated with
transportation will be billed as a separate line calculated at the current rate
per mile ($1.25), or at Striker's current rate at the time, if Striker is the
carrier. If Striker is not the carrier but arranges for an outside carrier's
services, freight charges will be billed as a separate line item on the
invoice. If United arranges for their own freight, no freight charge will be
included on the invoice. Any such transportation and related charges shall be
paid by United to Striker within
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<PAGE> 3
30 days from the date of shipment of the dry felt for which such freight
charges are incurred. Title to all dry felt manufactured and shipped by Striker
to United under the provisions of this Agreement shall pass to United at
Striker's plant shipping point at time of shipping. Risk of loss will rest with
the carrier while in transit and will pass to United upon delivery of product
to United's receiving location.
(d) Shipments; Time and Preparation. Striker shall ship
to, or make available for pick-up by, United within 30 days of manufacture the
quantity and weight of dry felt purchased by and sold to United under the
provisions of Sections 2 and 3 of this Agreement. The dry felt sold to United
shall be suitably prepared for shipping by Striker, and such preparation for
shipment shall not be materially different than that done with respect to
shipments of dry felt by Striker to United before the effective date of this
Agreement. No charge shall be made to United for the cost of packing, packaging
and loading the dry felt. The cost of shipping to, and unloading at, the
Designated Location shall be borne by United.
(e) Claims for Damage During Shipment. Any discernible
loss or damage to a shipment made or arranged by Striker pursuant to paragraph
(c) above must be indicated by a notation with respect thereto made by United
or the carrier's agent on the delivery receipt before the receipt is signed by
United. Notation must clearly specify the extent of the discernible loss,
shortage or damage. Concealed damage must be reported to Striker or the third
party carrier within five days from the date of delivery to United. The filing
of claims with a third party carrier for loss or damage in transportation must
be made within one month after date of delivery to United, or in case of
non-delivery, within two months after a reasonable time for delivery has
elapsed. If United desires the assistance of Striker in filing such claims,
United must report the claims asserted to Striker within a reasonable time so
as to enable Striker to comply with the carrier's requirements.
(f) Quality; Inspection. All dry felt manufactured by
Striker for United shall be manufactured in accordance with the specifications
of dry felt currently being purchased by United from Striker as at the date
hereof and heretofore accepted by United. During the term of this Agreement,
United may elect from time to time to inspect any dry felt manufactured by
Striker for shipment to United hereunder during the time the dry felt is held
at Striker's plant in Stephens, Arkansas and pending its shipment to United. If
United elects to perform any such inspection, Striker shall provide all
reasonable facilities and assistance to United and its representatives for the
purpose of such inspection, without cost to United. At the time of any such
inspection, Striker shall make available to United and its representatives
copies of all dry felt specification letters and applicable inventory records
with respect to the dry felt to be inspected. If United should reject any dry
felt so inspected, United shall promptly notify Striker of such rejection in
writing, specifying in detail the reasons for its rejection. Striker shall then
have the option to replace the rejected and non-conforming dry felt or to make
an acceptable adjustment otherwise with respect thereto with United. Any
representative of United sent by it to conduct any inspection(s) permitted
under the provisions of this Section 4(f) must be a full time bona fide
employee of United.
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<PAGE> 4
(g) No Warehousing. All dry felt to be manufactured and
sold by Striker to United hereunder is to be shipped to, or made available for
pick-up by, United within 30 days of manufacture, and title thereto passes
hereunder at Striker's plant shipping point at time of shipment. If, however,
arrangements for shipping of dry felt are not made by United or United fails to
pick up any quantity of dry felt ordered by it hereunder within such 30-day
period, Striker shall not be obligated to store or warehouse any dry felt which
United has failed for any reason to make arrangements to ship or pick up within
such time period, and Striker shall promptly notify United of this fact and the
quantity of dry felt involved. If within five business days after such notice
to United, such dry felt has not been removed from Striker's plant premises,
Striker shall then have the right to arrange for storage of such dry felt at
United's expense off-site Striker's premises and at United's risk of loss.
4. Price Adjustments. During the term hereof, if there is a
market increase or decrease of 5% or greater within any month during the term
hereof compared to the immediately preceding month or interim monthly period in
the price of old corrugated containers, mixed paper, new print or other papers,
wood chips, sawdust, woodflour and/or other pulp materials (the "Raw
Materials") necessary to manufacture the dry felt to be sold to United under
Sections 2 and 3 above, then Striker will adjust the per-ton Dry Felt Purchase
Price set forth in Schedule 2(a) by delivering to United written notice of the
computed adjustment in the Dry Felt Purchase Price. In no event shall the Dry
Felt Purchase Price be adjusted to an amount less than the Dry Felt Purchase
Price determined under Schedule 2(a). Striker will provide 10-14 day advance
notice regarding the effective date of any price change. United shall have 5
business days from the receipt date of Striker's computed adjustment notice
within which to accept or reject Striker's computed Dry Felt Purchase Price
adjustment. If United fails to respond in writing within such 5-business day
period, Striker will assume the Dry Felt Purchase Price adjustment has been
accepted. If United responds in writing within the 5-business day period
rejecting the Dry Felt Purchase Price adjustment, the following shall apply:
(a) Good Faith Negotiations. If United rejects Striker's
proposed Dry Felt Purchase Price adjustment, Striker and United shall enter
into good faith negotiations, for a period of not more than 5 days, to reach
an agreement on the adjustment of the Dry Felt Purchase Price. During this 5
day period, executives of both parties who are familiar with the facts of
the proposed Dry Felt Purchase Price adjustment shall meet at a mutually
acceptable time and place to exchange relevant information and to attempt to
resolve the disagreement.
(b) Mediation. In the event Striker and United are unable
to reach agreement with respect to Striker's computed adjustment of the
Purchase Price pursuant to Section 4(a) above, then Striker and United agree to
try in good faith, for a period of 60 days (the "Mediation Period") to settle
the disagreement by mediation. Each of Striker and United shall have 5 business
days with which to designate in writing one or more individuals with authority
to resolve the dispute on its respective behalf. Within 10 business days after
the date of designation of the authorized individual(s) of each of Striker and
United, such individuals shall make a good faith effort to select a person to
mediate the computed Purchase Price adjustment. If no mediator
4
<PAGE> 5
has been selected under this procedure within such time period, the
individual(s) authorized to act on behalf of each of Striker and United shall
jointly request a State or Federal District Judge of their choosing sitting in
Houston, Harris County, Texas, acting in his individual capacity (or if they
cannot agree, the then-acting President of the Houston Bar Association), to
supply within 10 business days a list of potential qualified attorney-mediators.
Within 5 business days after receipt of the list, the individual(s) acting on
behalf of each of Striker and United shall rank the proposed mediators in
numerical order of preference, simultaneously exchange such list, and select as
the mediator the individual receiving the highest combined ranking. If such
mediator is not available to serve, the parties shall proceed to contact the
mediator who was next highest in ranking until a mediator is selected from such
list. In consultation with the mediator selected, the parties shall then
promptly designate a mutually convenient time and place in Houston, Texas for
the mediation, such time to be no later than 15 days after selection of the
mediator. In the mediation, each party shall be represented by persons with
authority and discretion to negotiate a resolution of the computed Purchase
Price adjustment, and may be represented by counsel. The mediator shall
determine the format for the meetings, and the mediation session shall be
private. The mediator will keep confidential all information learned in private
caucus with any party unless specifically authorized by such party to make
disclosure of the information to the other party. The parties agree that the
mediation shall be governed by the provisions of Chapter 154 of the Texas
Remedies and Practice Code and such other rules as the mediator shall
prescribe. Fees and expenses of the mediator shall be shared equally by the
parties. The mediator shall be disqualified as a witness, consultant expert or
counsel for any party with respect to the matter being mediated and any related
matters. Mediation is a compromise negotiation for purposes of federal and
state mediation and constitutes privileged communication under Texas law. The
entire mediation process is confidential and the conduct thereof and all
statements, promises, offers, views and opinions expressed during the course
thereof shall not be discoverable or admissible in any legal proceeding for any
purpose.
(c) Arbitration. In the event that Striker and United are
unable to reach agreement as to the computed adjustment of the Purchase Price
by the end of the mediation Period (or any extension of the Mediation Period by
mutual agreement of the parties) the amount of the computed Purchase Price
adjustment shall be submitted promptly for resolution to binding arbitration
before a single arbitrator who shall be a person who is a retired Civil
District Judge formerly sitting in Harris County, Texas selected by the person
then serving as the President of the Houston Bar Association at the request of
either Striker or United. The arbitrator shall be fully compensated in
accordance with his normal hourly or per diem rate for all time spent by him on
the arbitration proceeding. Pending final award, arbitrator compensation and
expenses shall be advanced equally by Striker and United. The arbitration
proceeding shall be conducted in accordance with the rules of the American
Arbitration Association. The place of arbitration shall be in Houston, Texas at
any location as the arbitrator directs, having due regard for the convenience
of the parties, witnesses and the arbitrator. The result of such binding
arbitration may be enforced pursuant to the Texas General Arbitration Act.
5
<PAGE> 6
(d) Considerations During Mediation and Arbitration. In
determining the amount of the computed Dry Felt Purchase Price adjustment, any
mediator or arbitrator engaged in accordance with this Section 4 shall consider
the monthly increase or decrease in market prices of the Raw Materials as
computed from the prices reported in "Official Board Markets" or other market
price sources in the industry. Until final resolution of any computed Dry Felt
Purchase Price adjustment pursuant to any written notice of computed adjustment
from Striker to United during the term of this Agreement, purchase and sales of
dry felt under the terms and provisions of this Agreement shall continue
without interruption or abatement, and the Dry Felt Purchase Price to be
invoiced in the interim by Striker to United under any provision of this
Agreement shall be the Dry Felt Purchase Price computed by Striker; provided,
however, that all payments by United to Striker for dry felt throughout the
entire interim period and until the subject of the computed adjustment in the
Dry Felt Purchase Price is resolved hereunder either by mediation or
arbitration shall be made at the Dry Felt Purchase Price in effect immediately
prior to delivery by Striker to United of a written notice of computed
adjustment. If the result of such mediation or arbitration is an increase in
the Dry Felt Purchase Price, United shall owe the difference between the
increased price and the price paid by it during the interim period to Striker
which increase shall be paid within 15 days following the final determination
of the computed adjustment in the Dry Felt Purchase Price; conversely, if the
result of such mediation or arbitration is a decrease in the Dry Felt Purchase
Price, a credit in the amount of the aggregate decrease shall be owed by
Striker to United and shall likewise be paid within 15 days following final
determination of such computed adjustment.
5. Representations, Warranties and Covenants of United.
United represents and warrants to Striker as follows:
(a) Organization; Good Standing. United is a corporation
duly organized, validly existing and in good standing under the laws of the
State of Alabama. United has all requisite corporate power and authority and
legal right to enter into this Agreement and perform its obligations hereunder.
(b) Authority, United has taken all necessary corporate
action to approve this Agreement and the performance of its respective
obligations hereunder.
(c) Compliance with Other Instruments, etc. Neither the
execution nor delivery of this Agreement, nor the consummation of the
transaction contemplated hereby or thereby will conflict with or result in any
violation of, or constitute a default under, any provisions of the Certificate
of Incorporation or By-laws of United or any material agreement, mortgage,
indenture, franchise, license, permit, authorization, lease or other
instrument, judgment, decree, order, law or regulation by which United is
bound. No consent of any governmental agency or other third party is required
to be obtained by United with respect to the transactions contemplated hereby,
except for such consents have been obtained before the date hereof.
6
<PAGE> 7
(d) Solvency. United is not insolvent and the
transactions referred to in and contemplated by this Agreement do not and will
not render United insolvent, and the obligations hereunder to perform such
transactions have not been undertaken and committed by United with any actual
intent to hinder, delay or defraud any present or future creditor of United. In
view of the nature of the particular businesses conducted and proposed to be
conducted by United based upon the actual and anticipated needs for capital to
operate its respective businesses, the transactions referred to in and
contemplated by this Agreement will not leave United with unreasonably small
capital with which to engage in their respective businesses, or in any business
or transaction in which they intend to engage.
(e) Brokers. All negotiations relative to this Agreement
and the transactions contemplated hereby have been carried on in a manner such
that they will not give rise to any valid claim for a finder's fee, brokerage
commission or other like payment by any person intervening in the transactions
as a result of actions taken by or on behalf of United.
(f) Continuation in Business; Source of Demand.
Throughout the term of this Agreement, United shall continue to be engaged in
the manufacturing business in which it is engaged at the date of this Agreement
and hereby covenants and agrees it and its affiliates will exert every
reasonable effort to provide a steady and reliable source of demand for the
residential roofing products currently being manufactured by it and for the dry
felt product sold by Striker related thereto.
6. Representations, Waranties and Covenants of Striker.
Striker represents and warrants to United as follows:
(a) Organization; Good Standing. Striker is a corporation
duly organized, validly existing and in good standing under the laws of the
state of Arkansas and has all requisite corporate power and authority and legal
right to enter into this Agreement and perform its obligations hereunder.
(b) Authority. Striker has taken all necessary corporate
action to approve this Agreement and the performance of its obligations
hereunder.
(c) Compliance with Other Instruments, Etc. Neither the
execution or delivery of this Agreement, nor the consummation of the
transactions contemplated hereunder, will conflict with or result in any
violation of, or constitute a default under, any provision of the Certificate
of Incorporation or By-laws of Striker or any material agreement, mortgage,
indenture, franchise, license, permit, authorization, lease or other
instrument, judgment, decree, order, law or regulation by which Striker is
bound. No consent of any governmental agency or other third party is required
to be obtained by Striker with respect to the transaction contemplated hereby,
except for such consents as have been obtained before the date hereof.
7
<PAGE> 8
(d) Solvency. Striker and its parent corporation are not
insolvent and the transactions referred to in and contemplated by this
Agreement do not and will not render Striker insolvent, and the obligations
hereunder to perform such transactions have not been undertaken and committed
by Striker with any actual intent to hinder, delay or defraud any present or
future creditor of Striker. In view of the nature of the particular business
conducted and proposed to be conducted by Striker based upon the actual and
anticipated needs for capital to operate such businesses, the transactions
referred to in and contemplated by this Agreement will not leave Striker with
unreasonably small capital with which to engage in its businesses, or in any
business or transaction in which it intends to engage.
(e) Brokers. All negotiations relative to this Agreement
and the transactions contemplated hereby have been carried on in a manner such
that they will not give rise to any valid claim for a finder's fee, brokerage
commission or other like payment by any person intervening in the transactions
as a result of actions taken by or on behalf of Striker.
(f) Continuation in Business; Source of Supply.
Throughout the term of this Agreement, Striker and its parent corporations
shall continue to be engaged in the felt product recycling and paper-based felt
manufacturing business in which they are engaged at the date of this Agreement
and hereby covenants and agrees with United that Striker will exert every
reasonable effort to provide a steady and reliable source of supply of dry felt
paper for United and itself, to the extent provided in this Agreement.
7. Cancellation for Cause. Either party hereto may cancel this
Agreement if the other is in default of any material provisions of this
Agreement and such default is not cured within 30 days from the effective date
of a notice of default from a party hereto to the other specifying the nature
of the default and the corrective action, if any, to be taken to cure the
default, and if such corrective action is not taken within such 30-day period
of time, this Agreement shall terminate and be of no further force and effect
effective on and as of the 30th day following the effective date of such notice
of default.
8. Notices. Any notice, request, instruction or other document to
be given hereunder by either party to the other shall be given in writing and
delivered personally or sent by registered or certified mail, postage prepaid,
or by facsimile transmission to the respective addresses of the parties set
forth below. Notice by personal delivery shall be effective upon receipt,
notice deposited in the United States mail in the manner aforesaid shall be
effective three days after deposit, and notice sent by facsimile transmission
shall be effective upon confirmation to the notifying party of receipt of the
transmission. Notice given in any other manner shall be effective only if and
when received by the party to be notified. For purposes of this Agreement, the
addresses of the parties shall be as follows:
8
<PAGE> 9
If to United: United Roofing Manufacturing Company, Inc.
P.O. Box 30 (Finches Ferry Road)
Eutaw, Alabama 35462
Attn: Lee Ann Livingston
Fax No. (205) 372-2506
If to Striker: Striker Paper Corporation
One Riverway, Suite 2450
Houston, Texas 77056
Attn: R. W. Miller, President
Fax No. (713) 622-9410
With a copy to: Striker Paper Corporation
One Riverway, Ste. 2450
Houston, Texas 77056
Attn: Robert I. Beck, Esq., General Counsel
Fax No. (713) 622-9410
Either party hereto may change its respective address aforesaid by notice given
to the other party hereto in accordance with the provisions of this Section 8.
9. Miscellaneous. The parties hereto further agree as follows:
(a) Compliance with Laws. In performing this Agreement,
all applicable governmental laws, regulations, orders and other rules of duly
constituted authority will be followed and compiled with in all respects by
each party hereto.
(b) Assignment. No assignment by either party of any
right hereunder, including the right to money due or to become due under this
Agreement, or delegation of any duties under this Agreement shall be binding
upon the other party without its written consent first had and obtained.
(c) Non-Waiver. Any failure by either party hereto to
enforce any provision of this Agreement shall not constitute a waiver of such
provision(s) or prejudice the right of either party hereto to enforce such
provision(s) at any subsequent time.
(d) Headings. Headings used in this Agreement are for
convenience of reference only and shall not affect the interpretation of this
Agreement.
(e) Partial Invailidity. If any provision of this
Agreement is or becomes void or unenforceable by force or operation of law, the
other provisions hereof shall remain valid and enforceable.
9
<PAGE> 10
(f) Modification. Oral statements and understandings are
not valid or binding, and no change, modification or waiver of any provision of
this Agreement shall be valid or binding unless it is in writing, signed by
both parties hereto and bears a date or effective date subsequent to the date
hereof.
(g) Force Majeure. Any foregoing provision of this
Agreement to the contrary notwithstanding, neither party hereto shall be liable
to the other for any loss, injury, delay, damages or other casualties suffered
or incurred by a party hereto due to strikes or other adverse union activity,
riots, storms, fires, explosions, acts of God, war, embargo, governmental
action, or any other cause similar thereto which is beyond the reasonable
control of a party hereto, and any failure or delay by either party hereto in
the performance of any of its obligations under this Agreement due to one or
more of the foregoing causes shall not be considered a breach of this Agreement
(h) Entire Agreement. This Agreement contains the entire
agreement of the undersigned parties hereto with respect to the subject matter
hereof and neither party hereto shall be bound by any communication between
them with respect to the subject matter hereof unless the same is in writing
and bears a date contemporaneous with or subsequent to the date hereof.
(i) Governing Law. This Agreement shall be construed and
enforced in accordance with the laws of the state of Texas.
(j) This Agreement is being executed on June 9, 1995, but
will become effective on April 1, 1995.
IN WITNESS WHEREOF, each party to this Agreement has caused it to be
executed on its behalf by its undersigned officers hereunto duly authorized on
June 9, 1995 effective as of the date first above indicated.
UNITED ROOFING MANUFACTURING COMPANY, INC.
by: /s/ LEE ANN LIVINGSTON
----------------------------------------
Lee Ann Livingston, President
STRIKER PAPER CORPORATION
by: /s/ R. W. MILLER
----------------------------------------
R. W. Miller, President
10
<PAGE> 1
ARTHUR
ANDERSEN
ARTHUR ANDERSEN & CO. SC
-----------------------------------
Arthur Andersen LLP
-----------------------------------
Suite 1300
711 Louisiana Street
Houston TX 77002-2786
713 237 2323
December 6, 1995
Office of the Chief Accountant
SECPS Letter File
Securities and Exchange Commission
Mail Stop 9-5
450 Fifth Street, N.W.
Washington, D.C. 20549
via facsimile - (202) 942-9656
Dear Sirs:
We have read Item 4 included in the attached Form 8-K dated December 6, 1995 of
Striker Industries, Inc. (Commission File No. 1-0096) filed with the Securities
and Exchange Commission and are in agreement with the statements contained
therein.
Very truly yours,
/s/ ARTHUR ANDERSEN LLP
Copy to: Mr. Matthew D. Pond
Chief Financial Officer
Striker Industries, Inc.
<PAGE> 1
EXHIBIT 23.1
INDEPENDENT AUDITORS' CONSENT
The Board of Directors and Stockholders
Striker Industries, Inc.:
We consent to the incorporation by reference in the Registration
Statements (No. 333-00633 on Form S-8 and 33-59595 on Form S-3) of our report
dated March 22, 1996, relating to the consolidated balance sheet Striker
Industries, Inc. and subsidiaries as of December 31, 1995, and the related
consolidated statements of operations, stockholders' equity and cash flows for
the period then ended, which report appears in the December 31, 1995, annual
report on Form 10-K of Striker Industries, Inc.
/s/ KPMG PEAT MARWICK LLP
--------------------------
KPMG Peat Marwick LLP
Houston, Texas
April 15, 1996
<PAGE> 1
EXHIBIT 23.2
CONSENT OF INDEPENDENT PUBLIC ACCOUNTANTS
As independent public accountants, we hereby consent to the incorporation by
reference in the registration statements (No. 333-00633 on Form S-8 and No.
33-59595 on Form S-3) of our report dated March 10, 1995 on the consolidated
balance sheet as of December 31, 1994, and the related consolidated statements
of operations, changes in stockholders' equity and cash flows for the two years
then ended included in Striker Industries, Inc.'s Form 10-K for the fiscal year
ended December 31, 1995. Reference is made to said report which includes an
additional paragraph referring to Notes 1, 6, 7, 12 and 13 to the financial
statements describing certain transactions with several international investors
which were shareholders and creditors of the Company and thus related parties
to the Company. Many of these transactions were conducted through foreign
partnership or corporate-type entities. The effect of certain of these
transactions was to increase net income for the year ending December 31, 1994,
by approximately $2,600,000 more than it would have been had these transactions
not occurred. The additional paragraph also discusses operating losses incurred
by the Company of $1,631,000 and $2,425,000 during the years ended 1994 and
1993, respectively, and that the financial statements referred to above were
prepared based on the assumption that the Company will continue operations.
Management had implemented an operational realignment as more fully discussed in
Note 1 to the financial statements referred to above and had obtained an
agreement from an officer/shareholder and an international investor to provide
up to $3,000,000, if necessary, to allow the Company to continue its normal
operations.
/s/ ARTHUR ANDERSEN LLP
Houston, Texas
April 12, 1996
<TABLE> <S> <C>
<ARTICLE> 5
<S> <C>
<PERIOD-TYPE> 12-MOS
<FISCAL-YEAR-END> DEC-31-1995
<PERIOD-END> DEC-31-1995
<CASH> 141,557
<SECURITIES> 0
<RECEIVABLES> 556,473
<ALLOWANCES> 0
<INVENTORY> 419,858
<CURRENT-ASSETS> 1,740,645
<PP&E> 18,065,060
<DEPRECIATION> 1,769,623
<TOTAL-ASSETS> 18,322,444
<CURRENT-LIABILITIES> 3,919,753
<BONDS> 0
<COMMON> 2,119,913
0
0
<OTHER-SE> 9,825,831
<TOTAL-LIABILITY-AND-EQUITY> 18,322,444
<SALES> 7,983,577
<TOTAL-REVENUES> 7,983,577
<CGS> 7,023,242
<TOTAL-COSTS> 9,015,980
<OTHER-EXPENSES> 33,773
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 311,004
<INCOME-PRETAX> (1,309,634)
<INCOME-TAX> 0
<INCOME-CONTINUING> 0
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> (1,309,634)
<EPS-PRIMARY> (0.13)
<EPS-DILUTED> (0.13)
</TABLE>
