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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, 1996
[ ] 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
STRIKER INDUSTRIES, INC.
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(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
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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
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(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
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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 April 11, 1997, 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 [$5.50] of such stock on said date) was approximately $ 43,798,112. As
of April 11, 1997, the number of shares outstanding of the registrant's only
class of Common Stock was 10,912,564.
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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 July 15, 1985, 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 subsidiaries, Striker Paper
Corporation (Striker Paper), Striker Paper Canada, Inc. (Striker Canada) 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 1996).
(b) Stable low-tech nature of products.
(c) Consistent industry growth.
(d) Historically non-cyclical demand for products.
(e) Low product liability exposure
Management believes that asphalt roofing products are the best low-cost
products to protect a roof system. Additionally, management believes that
asphalt roofs are installed on approximately 90% of the single family
residences in North America.
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
proprietary 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 would use in its dry felt paper saturation process (if
the Company were saturating). 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. Raw materials pricing has fluctuated in recent years as the result
of international demand for recycled paper and due to new cardboard plants
coming on line in North America. 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' regions 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.
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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 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
("SSC"), 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. Effective April
1, 1996, the Company sold Striker Services to a third party (see Note 15 to the
consolidated financial statements).
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 its acquisition strategy and on maximizing sales of
dry felt paper, the Company temporarily suspended manufacturing
asphalt-saturated felt during July, 1994. The Company anticipates that it will
resume manufacturing asphalt-saturated felt in the future. Consequently, the
Company has identified projects necessary for 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 anticipates completing required projects so
that production of "Striker Lightning Fast Felt" may begin as soon as it
becomes economically feasible.
Effective January 1, 1996, the Company adopted Statement of Financial
Accounting Standards No. 121 "Accounting for the Impairment of Long-Lived
Assets and for Long-Lived Assets to be Disposed of "("SFAS 121"). This
statement requires that long-lived assets and certain identifiable intangibles
to be held and used by an entity be reviewed for impairment whenever events or
changes indicate the carrying amount of an asset may not be recoverable.
In order to concentrate on its acquisition strategy and on maximizing sales of
dry felt paper, the Company temporarily suspended asphalt-saturating felt
operations in July, 1994. The Company has identified projects necessary for
improving the existing saturated paper lines to accommodate the production of a
value-added product. The Company anticipates completing the required projects
in the future when it becomes economically feasible.
Pursuant to the adoption of SFAS 121, the Company accounted for the impairment
of its saturating equipment by reducing the carrying amount by approximately
$391,000 for the year ended December 31, 1996. An analysis was completed
comparing the carrying value to an independent valuation. The carrying value
was adjusted to reflect the amount per the independent valuation. The reduction
in carrying value was posted as other expense, a component of Selling, general
and administrative Expenses in the accompanying consolidated statements of
operations for the year ended December 31, 1996. This impairment affected the
United States operations only.
The Company has approximately twenty-four 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, shingles. To date, the Company has
had to compete with its felt paper competitors, most of which are larger in
size and have greater financial resources. Management believes it can become
competitive by being a low cost producer or by private labeling its production.
To achieve its strategic goals, the Company will be required to significantly
lower costs, capture a significant market share and 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 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 roofing market) and reroofing and repairs (approximately 80
percent of the North American roofing 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.
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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 were 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 in part upon the mix of raw materials
used in the manufacture of the dry felt and the quoted market price of the raw
materials. In addition, pursuant to customer acceptance of the dry felt
contracts, the Company has a non-committing agreement not to saturate. During
the fourth quarter of 1996, the Sales Contracts terminated. Two of the three
contract customers renewed their contracts for an additional period of twelve
months with no change in terms. The third customer continues to order product
outside of any contract stipulations. Management believes that there is a
sufficient market for its product and that the Company will be able to sell its
total production to existing and potential new customers.
During the year ended December 31, 1996, three contract customers accounted for
36 percent, 25 percent and 13 percent of revenues. These same customers
accounted for 12 percent, 7 percent and 25 percent of accounts receivable,
respectively, at December 31, 1996. During the year ended December 31, 1995,
three 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.
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 (Stephens Mill) and Thorold, Canada (Thorold
Mill) 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
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 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 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 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 worked 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. On June 27, 1996, an
inspector from the ADPCE performed an inspection in accordance with the
provisions of the federal Clean Water Act, the Water and Air Pollution Control
Act, and the regulations promulgated thereunder. The inspection revealed that
the Company was in compliance with the terms of its permit. 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. Management believes that the
Company has remained in compliance of its water discharge permit during 1996.
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In conjunction with the work performed on the closed water loop system, the
Company removed dirt and sludge from the bottom of the filtering ponds at the
Stephens Mill. The dirt and sludge removed from the filtering ponds were placed
on an isolated area of land at the mill. The Company notified the ADPCE and
requested approval for clean-up. The Company received approval from the ADPCE
to re-cover and cap the sludge, without requirement for any digging up or
removal of any thereof. The Company began work on capping the sludge August 2,
1996. The Company anticipates that this project will be completed by May 15,
1997. The work being performed will bring the Company in compliance with
provisions of the ADPCE landfill permit.
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 place the Company at a competitive disadvantage since its
competition is subject to the same laws and regulations to a substantially
similar degree. The Company has invested time and approximately $227,000 to
modify facilities and assure compliance with applicable environmental quality
laws through December 31, 1996. 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,
1996, the Company believes it is in substantial compliance with all
environmental regulatory reporting, operations and permitting requirements
applicable to it. The Company believes that the completion of the capping of
the dirt and sludge material will bring it in compliance with all applicable
laws, permits and regulations.
EMPLOYEES
As of the date of this annual report, the Company has approximately 108
employees, all of whom are full-time employees.
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 production 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 mostly in good condition and
repair. In February, 1997, the Stephens Mill experienced a severe storm that
caused roof damage to a section of one of the main buildings. The Company
carries insurance for the building and contents and fully expects to have
necessary repairs made to repair the damage (see Note 19 to the consolidated
financial statements).
Prior to its sale, SSC both owned approximately 2
acres of land and leased an adjacent facility on Mangum Road in Houston, Texas
where it operated an OCC gathering operation (see Note 15 to the consolidated
financial statements).
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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 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 first 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.
In connection with the securing of bridge loan financing in the fourth quarter
of 1996 and first quarter 1997, the assets mentioned above are now also subject
to a second lien in favor of BlueStone Capital Partners LP ("BlueStone"), as
agent for the Original Issue Discount Note (the "1996 E Notes") holders.
The felt mill plant facility owned by the Company's Canadian subsidiary,
Striker Canada, 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 Canada are likewise mortgaged in favor
of, and to secure indebtedness owing by Striker Canada to, Laurentian Bank of
Canada (formerly North American Trust Company), its successors and assignees. On
January 16, 1997, a fire occurred at the Thorold Mill. The fire caused
structural and machinery damage. The Company believes that the insurance
coverage is adequate and that all necessary repairs will be made in order to
restart the plant (see Note 19 to the consolidated financial statements).
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, 1996, of $54,712. The
Company also leases certain machinery and equipment and office space from third
parties under non-cancelable long-term operating leases expiring from 1997
through 1999, under the terms of which total rental expense for the year ended
December 31, 1996, was $323,284.
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 administrative offices in Houston, Texas, are
adequately covered by insurance.
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Item 3. LEGAL PROCEEDINGS
On April 25, 1996, the Company signed an agreement to combine in a merger
transaction (the "Transaction") with the indirect parent corporation of one of
the largest privately-owned manufacturers of asphalt shingles and built up
roofing (GS Roofing). The closing of the Transaction had been extended in
writing by mutual agreement of the parties to April 21, 1997, provided that (i)
a Registration Statement required to raise the equity component of the
financing required for closing was filed with the Securities and Exchange
Commission (which document was filed with the Securities and Exchange
Commission December 26, 1996) and (ii) the merger became effective on or before
April 21, 1997 or within incremental five business day periods of time
thereafter so long as bona fide marketing efforts were being conducted by the
underwriters with a view to such Registration Statement becoming effective on
or before April 30, 1997.
On or about February 4, 1997, via facsimile transmission the President of GS
Roofing, Donald F. Smith, sent a notice to the Company of his and, resultantly,
GS Roofing's repudiation of the Transaction. Subsequent to that date, the
Company made protracted attempts to reinstate the Transaction, without success.
Accordingly, management ultimately retained counsel and filed suit against
Newgen Holdings, Inc., Gen Holdings, Inc., GS Roofing Products Company, Inc.,
Donald F. Smith and Maredon-I, Ltd. alleging, among other things, a breach of
contract by the defendants resulting from the defendants' wrongful repudiation
of the binding agreements between the Company and the defendants providing for
the Transaction, which action by the defendants severely impaired the Company's
ability to complete the equity and debt offerings which were a critical part of
the Transaction. The lawsuit is in the preliminary stages, no Answer has yet
been filed by the defendants and pre-trial discovery has not yet commenced.
Accordingly, the Company is unable at present to express any opinion regarding
the probable outcome of this litigation.
In connection with the Transaction, the Company received bridge financing from
its underwriter, BlueStone. As is customary with bridge financing, both the
Company and the 1996 E noteholders contemplated payment of the bridge notes out
of the debt and equity financing of the Transaction. Subsequent to December 31,
1996, and following repudiation of the Transaction by Donald F. Smith and GS
Roofing, et al, the Company received a demand notice from BlueStone
accelerating the due date of the 1996 E Notes to April 3, 1997 from April 25,
1997. The Company is currently negotiating with BlueStone to remedy the
default. The 1996 E Notes are secured by a second and subordinate lien and
security interest on the assets of each of the Company's U.S. subsidiaries,
including its Stephens, Arkansas plant, junior in priority to the lien on the
same assets held by its senior lender. The 1996 E Notes are also guaranteed by
each of the Company's U.S. subsidiaries. If the Company is unable to
renegotiate the terms of the 1996 E Notes or obtain other financing for the
payment thereof, the bridge notes will remain in default and will have a
material adverse impact on the Company and its ability to operate.
The Company and its subsidiaries are not parties to any material legal
proceedings, other than routine claims and disputes arising in the normal
course of the Company's business, substantially all of which are being resolved
and settled in due course by agreement, except, (i) a suit filed April 7, 1997
against the Company's Canadian subsidiary, Striker Canada, in the Ontario Court
(General Division) in St. Catharines, Ontario asserting claims arising out of
the termination of employment of a former employee of Striker Canada. The
Company denies the claims or the amount thereof asserted in the Canadian suit
and intends to defend the suit vigorously. Management of the Company does not
believe that any legal proceedings pending against it at the date of this
report, individually or in the aggregate, will have a material adverse effect
on the Company's operations or results of operations.
Item 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
No matter was submitted during the fourth quarter of fiscal year 1996 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 continued to June 9, 1994 in the over-the-counter electronic bulletin board
market. 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 1996 6-1/4 5-3/4
Second quarter 1996 7 5-3/4
Third quarter 1996 6-7/8 6
Fourth quarter 1996 6-3/4 6-3/4
High Low
---- ---
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
</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 1996 6-1/4 5-1/2
Second quarter 1996 6-1/4 5-3/4
Third quarter 1996 6-7/8 6
Fourth quarter 1996 6-5/8 5-1/8
High Low
---- ---
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
</TABLE>
The approximate number of record holders of Common Stock of the Company at
March 31, 1997, was 1,992. 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.
8
<PAGE> 10
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,
----------------------------------------------------------------------------
1996 1995 1994 1993 1992
---- ---- ---- ---- ----
<S> <C> <C> <C> <C> <C>
Operations:
Revenues $ 7,342,748 $ 7,983,577 $ 7,977,888 $ 5,933,079 $ 4,956,222
Income/(loss)
from operations (5,588,979) (1,032,403) (1,631,368) (2,424,981) (83,769)
Fully diluted
earnings (loss) per
common and
common equivalent
share ($ 0.59) ($ 0.13) $ 0.04 ($ 0.43) ($ 0.01)
Current assets 1,844,565 1,740,645 1,349,473 1,568,265 986,221
Current liabilities 7,486,896 3,919,753 1,319,812 3,037,036 1,000,395
Working capital (5,642,331) (2,179,108) 29,661 (1,468,771) (14,174)
Total assets 19,200,466 18,322,444 6,837,929 5,862,446 3,421,426
Long-Term Obligations
and Equity:
Long-term obligations:
Long-term debt 534,650 1,188,230 -- 2,000,000 --
Indebtedness to related
parties 5,300,000 1,200,000 1,252,641 -- --
Other long-term
obligations 18,750 68,717 100,600 137,062 154,394
Total long-term
obligations 5,853,400 2,456,947 1,353,241 2,137,062 154,394
Stockholders' Equity $ 5,860,170 $ 11,945,744 $ 4,164,876 $ 688,348 $ 2,266,637
</TABLE>
9
<PAGE> 11
Item 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS
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,
--------------------------
1996 1995 1994
---- ---- ----
<S> <C> <C> <C>
Revenue $ 7,342,748 $ 7,983,577 $ 7,977,888
Cost of Sales 7,334,629 7,023,242 7,926,095
----------- ----------- -----------
Gross Margin 8,119 960,335 51,793
Selling, general and
administrative 5,597,098 1,992,738 1,683,161
----------- ----------- -----------
Operating loss (5,588,979) (1,032,403) (1,631,368)
Interest expense, net (840,510) (311,004) (255,757)
Other income 33,773 144,688
----------- ----------- -----------
Net loss before
extraordinary item $(6,249,489) $(1,309,634) $(1,742,437)
=========== =========== ===========
</TABLE>
COMPARISON OF YEARS ENDED DECEMBER 31, 1996, 1995 AND 1994
Sales for the year ended December 31, 1996 were $7,342,748, a decrease of
$640,829 from sales of $7,983,577 for the year ended December 31, 1995. The
decrease in sales is primarily due to a decrease in the average realized sales
price of dry felt and a decrease in the quantity of dry felt sold by the
Stephens Mill of approximately 1,400 tons that was partially offset by the
increase in the quantity of dry felt sold by the Thorold Mill.
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.
Gross margin decreased to $8,119 (0.1 percent of total sales) for the year
ended December 31, 1996 from a gross margin of $960,335 (12 percent of total
sales) for the year ended December 31, 1995. The decrease in gross margin is
primarily due to an increase in utility usage and rates, lower realized sales
prices for dry felt and the fact that no pulp hedge gain was realized in the
1996 period (see Note 13 to the consolidated financial statements). In
addition, the Company incurred significant operating expenses associated with
the ongoing refurbishment and July start-up of the Thorold Mill.
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).
10
<PAGE> 12
Selling, general and administrative expenses increased by $3,604,360 (180.9
percent) to $5,597,098 for the year ended December 31, 1996, from $1,992,738
for the year ended December 31, 1995. This increase was due to (i) the
write-off of approximately $1,770,000 of deferred acquisition costs as a result
of GS Roofing's repudiation of the planned merger with Striker (ii) an increase
in office expenses (iii) an increase in executive compensation and (iv)
severance costs associated with a staff reduction made in anticipation of
consolidating the administrative functions of Striker with that of GS Roofing.
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.
Interest expense, net, increased to $840,510 for the year ended December 31,
1996, from $311,004 for the year ended December 31, 1995. This increase is due
to the increase in secured borrowings and subordinated debt borrowings during
1996 and the amortization of deferred financing costs.
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.
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, 1996, 1995 AND 1994
Cash flows used by operating activities increased to $4,631,485 for the year
ended December 31, 1996 from cash flows provided by operating activities of
$821,082 for the year ended December 31, 1995. The increase primarily resulted
from the significant loss sustained by the Company and increase in accounts
payable and accrued liabilities. In addition, the Company incurred significant
costs associated with the start-up of the Thorold Mill.
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 investing activities decreased to $610,515 for the year
ended December 31, 1996 from $4,658,474 for the year ended December 31, 1995.
The decrease was primarily due to a decrease in expenditures for property and
equipment that was partially offset by the proceeds from the sale of the
Company's former subsidiary, SSC.
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 provided by financing activities increased to $5,392,918 for the
year ended December 31, 1996 from $3,960,210 for the year ended December 31,
1995. The increase is primarily due to subordinated note financings used for
the Transaction costs and working capital in the 1996 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.
11
<PAGE> 13
LIQUIDITY AND CAPITAL RESOURCES
For the year ended December 31, 1996, the Company had an operating loss and
experienced short-term liquidity concerns.
The Company devoted substantial amounts of cash to acquisition activities for
the Transaction. The Company raised over $3,000,000 in subordinated debt in 1996
(including $735,000 raised in January, 1997) to pay for the costs of the
Transaction. Because approximately $500,000 of Transaction costs were not
funded, accounts payable were aged beyond their terms. It was the intention of
the Company to pay all outstanding debt and past-due payables upon the closing
of the Transaction. Due to the significant resources devoted to the Transaction
and the subsequent repudiation by Donald F. Smith and GS Roofing, et al, the
Company's ability to repay debt operations, pay past-due accounts payable,
finance needed capital projects and continue has been gravely impaired.
The Company experienced an increase in current liabilities for the year ended
December 31, 1996 from the year ended December 31, 1995. The increase in current
liabilities has resulted in a working capital deficit of $5,642,331. The
increase is primarily due to a significant increase in short-term debt used to
fund corporate development activities, capital improvements and operations. The
Company has requested a waiver of certain debt covenants from Lauventian Bank of
Canada related to its term note agreement, as of the date of this report, the
Company had not received the waiver. Therefore, the Company has reclassified all
of the term note agreements as current debt on the Consolidated Balance Sheet.
In addition, the Company experienced an increase in current liabilities and
accounts payable due to the increased expenses associated with both mills
operating during 1996 that were not sufficiently 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. The
capital improvements continued through April, 1996. Upon restarting the Thorold
Mill in July, 1996, several repairs were necessary to the paper line in order
to operate. As a result of these repairs, no saleable production or cash flow
was generated by the Thorold Mill. These unfunded costs resulted in an increase
of accounts payable and accrued liabilities.
Several capital improvements were made to the Stephens Mill during the year
ended December 31, 1995 that extended into June, 1996. The improvements and
additions made were necessary to meet regulatory requirements. These
improvements were only partially financed.
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 geographic locations of the plants
facilitate distribution of products to the midwest, southwest, southeast, and
northeast markets. However, for the Company to benefit fully from the
improvements made to the plants, the Company must operate the plants at capacity
(typically 11.5 months per year). In addition, the Company must identify,
finance and complete capital projects that will allow the plants to operate at
lower costs.
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. The
Company must continue to monitor operations and identify and implement capital
projects that will improve efficiencies and lower costs. While the Company
continues to monitor its program of operational realignment and cost
reductions, however, 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 Transaction costs and/or working capital needs.
On June 5, 1996, the Company issued $1,300,000 in aggregate principal amount of
10.25 % Subordinated Notes (the "1996 B Notes") to twelve international
investors, five of which are stockholders. The 1996 B Notes mature on December
31, 1998 and interest is payable quarterly beginning July 1, 1996. The proceeds
of the 1996 B Notes were used for Transaction costs and/or working capital
needs.
12
<PAGE> 14
On July 10, 1996, the Company issued $1,500,000 in aggregate principal amount
of 10.25 % Subordinated Notes (the "1996 C Notes") to nine international
investors, six of which are stockholders. The 1996 C Notes mature on December
31, 1998 and interest is payable quarterly beginning July 1, 1996. The proceeds
of the 1996 C Notes were used for Transaction costs and/or working capital
needs.
The Company issued $798,000 in aggregate principal amount of Subordinated Notes
(the "1996 D Notes") dated October 28, 1996 to twenty-two investors. The 1996 D
Notes mature at the earlier of (i) 5/15/97, or (ii) closing of any public or
private debt or equity financing exceeding $10.5 million. The proceeds of the
1996 D Notes were used for Transaction costs and/or working capital needs.
During November and December, 1996, the Company issued $1,575,000 in aggregate
principal amount of Original Issue Discount Notes (the "1996 E Notes") to
sixteen investors represented by BlueStone. On January 21, 1997, the Company
issued an additional $735,000 in aggregate principal amount of the 1996 E notes
to six investors. The 1996 E Notes mature at the earlier of (i) 4/25/97,
subject to extension or earlier payment upon the terms, or occurrence of the
events, more fully provided in the 1996 D Notes. The proceeds of the 1996 E
Notes were used for Transaction costs and/or working capital needs. Subsequent
to December 31, 1996, and following repudiation of the Transaction by Donald F.
Smith and GS Roofing, et al, the Company received a demand notice from Blue
Stone accelerating the due date of the 1996 E Notes to April 3, 1997 from April
25, 1997. Management is currently in discussions with BlueStone to waive the
default notice and extend the due date.
On January 16, 1997, the Company experienced a fire at its Thorold Mill. The
fire was caused by an electrical short in the main building which houses the
paper line. The fire caused extensive damage to a part of the building and the
sheet forming section of the paper line. The Company immediately contacted its
insurance carrier and started planning the rebuilding of the damaged part of the
plant and replacement of the fire damaged equipment. The estimates available at
the date of this Report indicate damage of approximately $1,500,000 US. The
Company's insurance policy calls for 90% of replacement cost. Management
believes that the insurance coverage on the plant and its contents of $5,000,000
US is more than adequate to cover all the costs of rebuilding and replacing all
fire damage to the plant and equipment. The Company anticipates that additional
routine repairs and maintenance will be necessary prior to start-up. As of the
date of this report, the Company anticipates having the repairs completed and
resuming full operation on or about May 31, 1997. The ability of the Company to
resume operations will be dependent upon sufficient cash availability for start-
up costs, aged payable payments and working capital. Management has estimated
that the start-up of the Thorold Mill will require additional working capital of
approximately $350,000 US. The Company is pursuing several financing options in
order to raise the cash necessary to recommence operations.
Management believes cash generated by operations of both mills, once its
Thorold Mill is fully operational, will adequately fund the cash needs of the
Company's operations for the remainder of the year. To meet working capital
requirements and expand its business, the Company will need to borrow
additional amounts, obtain an additional third-party credit facility and/or
restructure its existing debt. 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 is pursuing additional
financing arrangements which might include private or public sales of equity or
debt securities. However, there can be no assurances that the Company will be
able to obtain any additional debt or equity financing.
The ability of the Company to achieve successful operations and realize its
assets is dependent upon many factors including profitable operation of both
Plants, penetration of existing and new markets at profitable margin and volume
levels and cash liquidity.
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 commenced being 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.
13
<PAGE> 15
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 effect 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 ("Northern") 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 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, 1996 and 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 that expired January
1, 1997. At the date of this report, the Company was working with the Canadian
lender to obtain a waiver. As the Company has not received a waiver, the Company
has reclassified the Canadian Facility as current debt for the year ended
December 31, 1996.
Management is currently pursuing various strategies in order to provide needed
liquidity, finance the acquisition of a saturating plant in Georgia and provide
financing for capital projects. Management believes that negotiations regarding
restructuring existing debt and obtaining new debt and/or equity financing are
vital to continuing operations. Pursuant to this view, Management is in
discussion with the 1996 D noteholders to extend the maturity date of the notes
to December 31, 1998. Management is currently in discussions with BlueStone to
waive the default notice that has resulted from the cancellation of the merger
by GS Roofing and Donald F. Smith, et al. Management believes that the ability
to obtain a waiver from BlueStone will facilitate our current
investors/shareholders to infuse additional capital into the Company without the
threat of foreclosure proceedings. Management is currently engaged in
negotiations with investor/shareholders to obtain an immediate $1,000,000 in
subordinated debt and an additional offering of debt and/or equity securities in
order to retire the BlueStone 1996 E Notes and to provide a portion of the
financing needed for the saturating plant acquisition. In addition, Management
is in discussions with affiliated subordinated debt holders to convert some or
all of their debt into equity (common stock) of the Company.
14
<PAGE> 16
If achieved, the conversion of outstanding affiliated debt would result in
significant savings of cash interest payments and interest expense. The Company
incurred over $3,000,000 of subordinated debt in 1996 to pay costs of the
Transaction. In addition, over $500,000 of transaction costs remain unpaid at
December 31, 1996. Donald F. Smith and GS Roofing's repudiation of the
Transaction raised grave doubts as to their realizability. These costs have
been written off at December 31, 1996. Further, the Company aged other payables
to facilitate payment of certain Transaction costs. The Company had intended to
pay all outstanding debt and past-due accounts payable at the closing of the
Transaction.
While the Company devoted substantial amounts of cash to acquisition activities,
accounts payable and other current liabilities increased. Management is aware
that the Company will need to raise money in order to reduce accounts payable.
Discussions and presentations are being made by Management to various banks and
financial institutions to obtain financing for a potential plant acquisition,
capital improvement projects and short-term working capital. The Company is in
current negotiation with a manufacturer of saturated felt located in Georgia,
which is a current customer of the Company, to acquire their plant. Management
believes that the acquisition of this plant will absorb allocated costs of
administration and provide an additional source of cash. During the previous
eighteen months, Management has identified several capital improvement projects
that would allow the Stephens Mill and Thorold Mill to operate more efficiently
with significant cost savings and gained production capacity. Management
believes that these improvements are necessary to be competitive and provide
adequate margins that would allow the Company to operate at a profit. The
ability to extend maturity dates will allow the Company to focus on immediate
and near-term projects that will improve the operating efficiency, thereby
giving the Company the ability to generate a positive cash flow that will allow
for future debt repayments.
Management believes that strategic acquisitions can enhance profitability and
increase investor/shareholder's value in the Company. The Company intends to
focus on strategic acquisitions in order to grow, gain economies of scale and
allocate administrative costs. Management believes that profitability through
operational changes and improvements and acquisitions will facilitate credit
facilities at favorable terms that could be used for growth and consolidation.
Management believes some, if not all, of the above mentioned strategies will
allow the Company to obtain sufficient working capital and acquisition
financing to continue with its plan of growth through acquisitions. However,
there can be no assurance that any of these objectives will be achieved.
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 February 1997, the Financial Accounting Standards Board issued Statement of
Financial Accounting Standards No. 128, "Earnings per Share" ("SFAS 128"). SFAS
128 specifies the compilation, presentation and disclosure requirements for
earnings per share for entities with publicly held common stock or potential
common stock. The requirements of this statement will be effective for fiscal
years beginning after December 15, 1997. Management does not believe that the
implementation of SFAS 128 will have a material effect on its financial
statements.
FORWARD-LOOKING INFORMATION
This Annual Report on Form 10-K contains "forward-looking statements" within
the meaning of Section 27A of the Securities Act of 1933, as amended, and
Section 21E of the Securities Exchange Act of 1934, as amended. All statements
other than statements of historical facts included in this report including,
without limitation, statements regarding the Company's business strategy,
plans, objectives and beliefs of management for future operations, Striker
Industries, Inc. are forward looking statements. Although the Company believes
the expectations and beliefs reflected in such forward-looking statements are
reasonable, it can give no assurance that such expectations will prove to have
been correct. Important factors that could cause actual results to differ
materially from the Company's expectations ("Cautionary Statements") are
discussed in Item I "Business" and Item 7 "Management's Discussion and Analysis
of Financial Condition and Results of Operations".
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.
15
<PAGE> 17
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.
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."
16
<PAGE> 18
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 44 1993 1993
President and Chief Executive
Officer
Director
William B. Locander......... Director 52 1993 N/A
Matthew D. Pond............. Chief Financial Officer 33 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, 1996 all filing requirements applicable to the
Company's officers, Directors and greater than 10% stockholders were met.
17
<PAGE> 19
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, 1996, 1995, and 1994 to the Company's Chief Executive
Officer and Chief Financial 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........ 1996 $419,000 $31,000 -0- -0- -0-
President and Chief 1995 $139,583 -0- -0- -0- -0-
Executive Officer 1994 $158,333 -0- -0- -0- 1,000,000
Matthew D. Pond........ 1996 $240,000 -0- -0- -0- -0-
Chief Financial 1995 $ 64,583 -0- -0- -0- -0-
Officer 1994 $ 58,333 -0- -0- -0- 600,000
</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 for David A. Collins
and 60,000 shares on January 1 of each of 1994 and 1995, 120,000 shares on
January 1, 1996 and 180,000 shares on January 1 of each of 1997 and 1998 for
Matthew D. Pond.
(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, 1996.
Option Grants. No options were granted to the Chief Executive Officer or the
Chief Financial Officer during the fiscal year ended December 31, 1996.
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, 1996 by the Chief Executive Officer and Chief Financial
Officer listed in the preceding table and the fiscal year-end value of
unexercised options held by the Chief Executive Officer and Chief Financial
Officer:
<TABLE>
<CAPTION>
NUMBER OF VALUE OF UNEXERCISED
UNEXERCISED OPTIONS IN-THE-MONEY OPTIONS
AT AT
DECEMBER 31, 1996 DECEMBER 31, 1996 (1)
----------------- --------------------
SHARES
ACQUIRED
ON VALUE NOT NOT
NAME EXERCISE REALIZED EXERCISABLE EXERCISABLE EXERCISABLE EXERCISABLE
-------- -------- ----------- ----------- ----------- -----------
<S> <C> <C> <C> <C> <C> <C>
David A. Collins 250,000 $1,250,000 750,000 0 $3,750,000 0
Matthew D. Pond 25,000 $125,000 215,000 360,000 $1,075,000 $1,800,000
</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, 1996 ($6.00 per share), calculated with reference
to the closing price of the Company's Common Stock on the NASDAQ SmallCap
Market 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.
18
<PAGE> 20
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 1996. 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 that consist of the
following elements: base compensation, cash bonuses and awards uner Company's
1994 Amended and Restated Incentive Stock Plan (Stock Plan).
Executive base compensation for senior executives (including the Chief
Executive Officer and Chief Financial 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 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 comparable companies 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.
During 1996, a small cash bonus was awarded to the Chief Executive Officer. 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.
19
<PAGE> 21
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, 1996 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, 1996, 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 (1) Beneficial Ownership Class
----- -------------------- -------------------- -----
<S> <C> <C> <C>
Common David A. Collins 2,340,481; Direct (2) 20.0%
One Riverway, Suite 2450
Houston, Texas 77056
Common Northern Globe Building Materials, Inc. 1,345,790; Direct 12.3%
22 Sydenham Street
P O Box 966
Brantford, Ontario
Canada N3T 5S1
Common All named executive officers and 2,580,481; Direct (3) 21.8%
Directors as a group (3 persons)
</TABLE>
On or about April 15, 1996, David A. Collins and Matthew D. Pond exercised a
combined total of 275,000 shares at $1 per share, pursuant to their respective
non-qualified stock option agreements. The shares were issued in exchange for
two separate promissory notes aggregating $275,000, secured by the pledge by
each maker of a part of all of the shares acquired.
- -------------------------------
(1) Excludes shares held of record as nominee for others by Cede & Co.
(2) Includes 750,000 shares that may be acquired upon the exercise of vested
exercisable options
(3) Includes 1,240,000 shares that may be acquired upon the exercise of vested
exercisable options
Item 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
Management in not aware of any transaction since January 1, 1996, or currently
proposed transaction, to which the Company or any of its Subsidiaries was or is
to be a party, in which the amount involved exceeds $60,000 and in which any
director or executive officer of the Company, or any security holder known by
the Company to own of record or beneficially more that 5% of any class of the
Company's Common Stock, or any members of the immediate family of any of the
foregoing persons had, or will have, a direct or indirect material interest.
20
<PAGE> 22
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.
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).
2.4 Plan and Agreement of Merger among Striker Industries, Inc.,
GSR Industries, Inc., Striker Acquisition No. 3, Inc., Newgen
Holding, Inc., Donald F. Smith, Edward T. Nesselroade, et al
dated as of November 29, 1996.
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 (filed as Exhibit 4.2 to the Company's 1995 Form
10-K, and incorporated herein by reference).
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).
21
<PAGE> 23
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).
4.5 10.25% Subordinated Promissory Note of the Company's
Wholly-owned subsidiary, West Oxford Industries, Inc.,
maturing December 31, 1998 ($1,300,000 in aggregate principal
amount) issued February 16, 1996 (filed as Exhibit 4.5 to the
Company's 1995 Form 10-K, and incorporated herein by
reference).
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. (filed as Exhibit 4.6
to the Company's 1995 Form 10-K, and incorporated herein by
reference).
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 (filed as Exhibit 4.7 to the Company's 1995 Form
10-K, and incorporated herein by reference).
4.8 General Security Agreement dated July 13, 1995 between Striker
Paper Canada, Inc. and North American Trust Company (filed as
Exhibit 4.8 to the Company's 1995 Form 10-K, and incorporated
herein by reference).
4.9 Financial Assistance Agreement dated May 16, 1995 between
Ontario Development Corporation, Striker Paper Canada, Inc.
and Striker Industries, Inc. (filed as Exhibit 4.9 to the
Company's 1995 Form 10-K, and incorporated herein by
reference).
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 (filed as Exhibit 4.10 to
the Company's 1995 Form 10- K, and incorporated herein by
reference).
4.11 Mortgage and Security Agreement between the Company's indirect
Wholly-owned Subsidiary, Striker Holdings, Inc., and Finova
Capital Corporation dated as of April 25, 1995 securing
payment of all Obligations owing by the Company and any of its
subsidiary corporations to Finova Capital Corporation.
4.12 10.25 % Subordinated Promissory Note of the Company's
Wholly-owned Subsidiary, West Oxford Industries, Inc.,
maturing December 31, 1998 ($1,300,000 in aggregate principal
amount) issued June 5, 1996.
4.13 10.25 % Subordinated Promissory Note of the Company's
Wholly-owned Subsidiary, West Oxford Industries, Inc.,
maturing December 31, 1998 ($1,500,000 in aggregate principal
amount) issued July 10, 1996.
4.14 Guaranty of the Company covering all Subordinated Promissory
Notes of its Wholly-owned subsidiary, West Oxford Industries,
Inc., referred to in Exhibits 4.5, 4.12 and 4.13.
4.15 10% Convertible Subordinated Note of the Company's
Wholly-owned Subsidiary, West Oxford Industries, Inc., dated
October 28, 1996 ($798,000 in aggregate principal amount),
with Exhibit A thereto.
4.16 Letter agreement dated January 23, 1997 amending the first
paragraph only of all 10% Convertible Subordinated Notes dated
October 28, 1996 referred to in Exhibit 4.15.
4.17 Guaranty of the Company covering all 10% Convertible
Subordinated Notes dated October 28, 1996, of its Wholly-owned
subsidiary, West Oxford Industries, Inc., referred to in
Exhibit 4.15.
22
<PAGE> 24
4.18 Original Issue Discount Promissory Note of the Company
($2,310,000 in original principal amount) issued by the
Company on November 26, 1996 and on January 21, 1997.
4.19 Warrant of the Company issued on November 26, December 2 and
December 18 and on January 21, 1997 to holders of the
Company's Original Issue Discount Notes covering the right to
purchase, in the aggregate, up to 330,000 shares of the
Company's common stock.
4.20 Security Agreement dated as of January 21, 1997 between the
Company's Wholly-owned subsidiaries, West Oxford Industries,
Inc., Striker Holdings, Inc. and Striker Paper Corporation,
and BlueStone Capital Partners, LP, Agent for the holders of
the Original Issue Discount Promissory Notes of the Company
referred to in Exhibit 4.18.
4.21 Mortgage Agreement dated as of January 21, 1997 between the
Company's Wholly-owned Subsidiary, Striker Holdings, Inc., and
BlueStone Capital Partners, LP, Agent for the holders of the
Company's Original Issue Discount Promissory Notes referred to
in Exhibit 4.18, second subordinate and junior in priority to
the Mortgage and Security Agreement in favor of Finova Capital
Corporation referred to in Exhibit 4.11, securing payment of
the Company's Original Issue Discount Notes referred to in
Exhibit 4.18.
10.1 Dry Felt Purchase/Sale Agreement dated as of April 1, 1995
between Striker Paper Corporation and G.A.P. Roofing, Inc.
(filed as Exhibit 10.1 to the Company's 1995 Form 10-K, and
incorporated herein by reference).
10.2 Dry Felt Purchase/Sale Agreement dated as of April 1, 1995
between Striker Paper Corporation and Tarco Building
Materials, Inc. (filed as Exhibit 10.2 to the Company's 1995
Form 10-K, and incorporated herein by reference).
10.3 Dry Felt Purchase/Sale Agreement dated as of April 1, 1995
between Striker Paper Corporation and United Roofing
Manufacturing Company, Inc. (filed as Exhibit 10.3 to the
Company's 1995 Form 10-K, and incorporated herein by
reference).
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).
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
<PAGE> 25
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>
<CAPTION>
Name State (Province) of Incorporation
---- ---------------------------------
<S> <C>
Striker Holdings, Inc. Texas
Striker Paper Corporation Arkansas
Striker Paper Canada, Inc. Province of Ontario, Canada
Striker Services Canada, Inc. Province of Ontario, Canada
West Oxford Industries, Inc. Texas
</TABLE>
23.1 Consent of KPMG Peat Marwick LLP
23.2 Consent of Arthur Andersen LLP
27 Financial Data Schedule
24
<PAGE> 26
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, 1997
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:
Signature Title Date
David A. Collins April 15, 1997
- ---------------------- --------------
David A. Collins Director, President and
Chief Executive Officer
Matthew D. Pond April 15, 1997
- --------------------- --------------
Matthew D. Pond Director, Chief Financial
Officer
25
<PAGE> 27
ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA
INDEX TO FINANCIAL STATEMENTS
Page
----
CONSOLIDATED FINANCIAL STATEMENTS OF
STRIKER INDUSTRIES, INC.
Independent Auditors' Reports F-2
Consolidated Balance Sheets - December 31, 1996 and December 31, 1995 F-4
Consolidated Statements of Operations -
Years ended December 31, 1996, 1995 and 1994 F-5
Consolidated Statements of Stockholders' Equity -
Years ended December 31, 1996, 1995, and 1994 F-6
Consolidated Statements of Cash Flows -
Years ended December 31, 1996, 1995, and 1994 F-7
Notes to Consolidated Financial Statements F-9
F-1
<PAGE> 28
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,
1996 and 1995, and the related consolidated statements of operations, changes
in stockholders' equity and cash flows for the 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 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 audits provide 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, 1996 and 1995, and the results of their
operations and their cash flows for the years then ended, in conformity with
generally accepted accounting principles.
The accompanying consolidated financial statements have been prepared assuming
that the Company will continue as a going concern. As discussed in Note 1 to the
consolidated financial statements, the Company has suffered recurring losses
from operations that raise substantial doubt about its ability to continue as a
going concern. Management's plans in regard to these matters are also described
in Note 1. As discussed in Note 6 to the consolidated financial statements, the
Company was in technical default of certain financial covenants in connection
with its Canadian bank facility. Based on current estimates of available cash
flow, management does not believe it will have sufficient cash to make the
mandatory payment. Accordingly, the entire amount outstanding under the bank
facility of approximately $1,000,000 has been classified as a current liability
in the accompanying consolidated financial statements. Management's plans in
regard to this matter is described in Note 6 to the consolidated financial
statements. The consolidated financial statements do not include any adjustments
that might result from the outcome of this uncertainty.
As discussed in Note 2 to the consolidated financial statements, the Company
has adopted the provisions of the Financial Accounting Standards Board's
Statement of Financial Accounting Standards No. 121, "Accounting for the
Impairment of Long-Lived Assets and for Long-Lived Assets to be Disposed Of" in
1996.
KPMG Peat Marwick LLP
Houston, Texas
April 15, 1997
F-2
<PAGE> 29
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> 30
STRIKER INDUSTRIES, INC. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
December 31, 1996 and 1995
<TABLE>
<CAPTION>
Assets 1996 1995
------ ---- ----
<S> <C> <C>
Current assets:
Cash and cash equivalents $ 292,485 141,557
Cash, restricted as to use 360,000 360,000
Accounts receivable:
Trade 492,533 403,742
Inventories: Other, net of bad debt allowance of 489,671 and 0
for December 31, 1996 and 1995, respectively
Raw materials 25,221 41,073
Finished goods 210,301 130,910
Prepaid expenses and other current assets 418,958 262,757
------------ ----------
Total current assets 1,844,565 1,492,770
Property and equipment, net 15,943,490 16,543,312
Deferred costs and other, net 1,412,411 286,362
------------ ----------
Total assets $ 19,200,466 18,322,444
============ ==========
Liabilities and Stockholders' Equity
------------------------------------
Current liabilities:
Trade accounts payable $ 2,524,519 2,438,271
Accrued liabilities 932,515 215,602
Revolving line of credit 529,950 875,909
Current portion of long term debt 3,463,950 338,069
Current obligations under capital leases 35,962 51,902
------------ ----------
Total current liabilities 7,486,896 3,919,753
Long-term liabilities:
Notes payable to affiliates 5,300,000 1,200,000
Term loans, net of current portion 534,650 1,188,230
Capital lease obligation 18,750 68,717
------------ ----------
Total long-term liabilities 5,853,400 2,456,947
------------ ----------
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, 10,912,564 and 10,599,564 shares issued,
respectively 2,184,913 2,119,913
Stock subscriptions receivable (275,000) (236,000)
Additional paid-in capital 14,098,034 13,688,119
Accumulated deficit (9,988,500) (3,559,011)
Foreign currency translation adjustment (84,277) (67,277)
Less treasury stock at cost, 12,000 shares in 1996 (75,000) --
------------ ----------
Total stockholders' equity 5,860,170 11,945,744
Commitments and contingencies
Total liabilities and stockholders' equity $ 19,200,466 18,322,444
============ ==========
</TABLE>
See accompanying notes to consolidated financial statements.
F-4
<PAGE> 31
STRIKER INDUSTRIES, INC., AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF OPERATIONS
For the years ended December 31, 1996, 1995 and 1994
<TABLE>
<CAPTION>
Year ended December 31,
------------------------------------------
1996 1995 1994
---- ---- ----
<S> <C> <C> <C>
Revenues $ 7,342,748 $ 7,983,577 $ 7,977,888
Cost of sales 7,334,629 7,023,242 7,926,095
----------- ----------- -----------
Gross margin 8,119 960,335 51,793
Selling, general and administrative expenses, net
of salary reimbursements of $0,
$132,000 and $192,500, respectively 5,597,098 1,992,738 1,683,161
----------- ----------- -----------
Operating loss (5,588,979) (1,032,403) (1,631,368)
----------- ----------- -----------
Other income (expense):
Interest expense, net (840,510) (311,004) (255,757)
Other income -- 33,773 144,688
----------- ----------- -----------
Loss before income taxes and
extraordinary item (6,249,489) (1,309,634) (1,742,437)
Income taxes -- -- --
----------- ----------- -----------
Net loss before extraordinary item (6,249,489) (1,309,634) (1,742,437)
----------- ----------- -----------
Extraordinary item, gain on extinguishment
of debt -- -- 2,101,495
----------- ----------- -----------
Net income (loss) $(6,249,489) $(1,309,634) $ 359,058
=========== =========== ===========
Income (loss) per common share:
Loss before extraordinary item $ (.59) $ (.13) $ (.17)
Extraordinary item -- -- .21
----------- ----------- -----------
Net income (loss) $ (.59) $ (.13) $ .04
=========== =========== ===========
</TABLE>
See accompanying notes to consolidated financial statements.
F-5
<PAGE> 32
STRIKER INDUSTRIES, INC., AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CHANGES IN STOCKHOLDERS' EQUITY
For the years ended December 31, 1996, 1995 and 1994
<TABLE>
<CAPTION>
Common stock Stock Additional
------------------------------ subscriptions paid-in
Shares Amount receivable capital
------ ------ ---------- -------
<S> <C> <C> <C> <C>
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
Common stock issued 50,000 10,000 189,915
Employee stock subscriptions issued 275,000 55,000 (275,000) 220,000
Payments received for stock-
subscribed payments -- -- 236,000 --
Treasury stock issued (12,000) -- -- --
Foreign currency translation -- -- -- --
Net loss -- -- -- --
---------- ----------- ------------ -----------
Balances, December 31, 1996 10,912,564 $ 2,184,913 $ (275,000) $14,098,034
========== =========== ============ ===========
</TABLE>
<TABLE>
<CAPTION>
Treasury Accumulated Total
Accumulated stock foreign currency stockholders
deficit at cost adjustment equity
------- ------- ---------- ------
<S> <C> <C> <C> <C>
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
Common stock issued -- -- -- 199,915
Employee stock subscriptions issued -- -- -- --
Payments received for stock-
subscribed payments -- -- -- 236,000
Treasury stock purchased -- (75,000) -- (75,000)
Foreign currency translation -- -- (17,000) (17,000)
Net loss (6,429,484) -- -- (6,429,489)
------------ ----------- ------------ -----------
Balances, December 31, 1996 $ (9,538,977) $ (75,000) $ (84,277) $ 5,860,170
============ =========== ============ ===========
</TABLE>
See accompanying notes to consolidated financial statements.
F-6
<PAGE> 33
STRIKER INDUSTRIES, INC., AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
For the years ended December 31, 1996, 1995 and 1994
<TABLE>
<CAPTION>
Year ended December 31,
-----------------------------------------
1996 1995 1994
---- ---- ----
<S> <C> <C> <C>
Cash flows from operating activities:
Net income (loss) $(6,429,484) (1,309,634) 359,058
Adjustments to reconcile net income (loss) to net cash
used in operating activities:
Depreciation and amortization 804,085 749,139 539,189
Impairment of fixed asset 391,635 -- --
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:
Decrease in short-term investment -- -- 250,000
(Increase) decrease in accounts receivable 18,873 (15,113) 155,498
(Increase) decrease in inventories (63,540) 175,067 (160,438)
Increase in prepaid expenses and other current assets (156,201) (68,308) (63,476)
Increase (decrease) in accounts payable and accrued liabilities 803,162 1,421,931 (120,724)
Increase (decrease) in deferred revenue -- -- (106,340)
----------- ---------- ----------
Net cash provided by (used) in operating activities (4,631,475) 821,082 (1,791,438)
----------- ---------- ----------
Cash flows from investing activities:
Purchases of property and equipment (1,414,286) (3,981,764) (1,462,414)
Increase in deferred acquisition costs -- (316,705) (358,359)
Proceeds from sales of property and equipment 803,771 -- 18,623
Restricted cash -- (360,000) --
----------- ---------- ----------
Net cash used in investing activities (610,515) (4,658,474) (1,802,150)
----------- ---------- ----------
Cash flows from financing activities:
Proceeds from private placements of common stock 200,000 -- --
Capital contributions -- -- 79,857
Warrants issued -- 950,000 --
Warrants exercised -- 1,133,336 --
Warrant fees paid -- (233,238) --
Proceeds from issuance of convertible subordinated notes 2,373,000 -- 2,500,000
Proceeds from revolving lines of credit 6,615,975 6,572,536 --
Repayment of revolving lines of credit (6,960,975) (5,701,045) (499,140)
Proceeds from fixed-asset line of credit 517,500 1,608,000 --
Repayments of fixed-asset line of credit (418,200) (77,283) --
Principal payments on capital leases (65,906) (28,947) (21,482)
Proceeds received from issuance of common stock subscribed 236,000 -- 700,000
Repayment of obligation for purchase of treasury stock (75,000) -- (1,000,000)
Deferred and other costs paid (1,128,518) (342,508) (167,645)
Proceeds from affiliate notes payable 4,100,000 1,200,000 2,156,000
Repayment of affiliate notes payable -- (1,138,826) (185,210)
Proceeds from receivable factoring facility -- -- 4,167,852
Repayment of receivable factoring facility -- -- (4,167,852)
----------- ---------- ----------
Net cash provided by financing activities 5,392,918 3,942,025 3,562,380
----------- ---------- ----------
Net increase (decrease) in cash 150,928 122,818 (31,208)
Cash and cash equivalents, beginning of year 141,557 18,739 49,947
----------- ---------- ----------
Cash and cash equivalents, end of year $ 292,485 141,557 18,739
</TABLE>
See notes to accompanying consolidated financial statements.
F-7
<PAGE> 34
STRIKER INDUSTRIES, INC., AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
For the years ended December 31, 1996, 1995 and 1994
<TABLE>
<CAPTION>
Year ended December 31,
------------------------------------
1996 1995 1994
<S> <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 acquisition 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
========== ========= =========
</TABLE>
See notes to accompanying consolidated financial statements.
F-8
<PAGE> 35
STRIKER INDUSTRIES, INC., AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
DECEMBER 31, 1996 and 1995
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 July 15, 1985, 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 (the 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.
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> 36
Financial Condition and Basis of Preparation
For the year ended December 31, 1996, the Company had an operating loss and
experienced short-term liquidity concerns.
On April 25, 1996, the Company signed an agreement to combine in a merger
transaction (the "Transaction") with the indirect parent corporation of one of
the largest privately-owned manufacturers of asphalt shingles and built up
roofing (GS Roofing).
The Company devoted substantial amounts of cash to acquisition activities for
the Transaction. The Company raised over $3,000,000 in subordinated debt in 1996
(including $735,000 raised in January, 1997) to pay for the costs of the
Transaction. Because approximately $500,000 of Transaction costs were not
funded, accounts payable was aged beyond their terms. It was the intention of
the Company to pay all outstanding debt and past-due payables upon the closing
of the Transaction. Due to the significant resources devoted to the Transaction
and the subsequent repudiation by Donald F. Smith and GS Roofing, et al, the
Company's ability to repay this debt, past-due accounts payable, finance needed
capital projects and continue has been gravely impaired.
The Company experienced an increase in current liabilities for the year ended
December 31, 1996 from the year ended December 31, 1995. The increase in current
liabilities has resulted in a working capital deficit of $5,642,331. The
increase is primarily due to a significant increase in short-term debt used to
fund corporate development activities, capital improvements and operations. The
Company has requested a waiver of certain debt covenants from Lauventian Bank of
Canada related to its term note agreement, as of the date of this report, the
Company had not received the waiver. Therefore, the Company has reclassified all
of the term note agreement as current debt on the Consolidated Balance Sheet. In
addition, the Company experienced an increase in current liabilities and
accounts payable due to the increased expenses associated with both mills
operating during 1996 that were not sufficiently 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. The
capital improvements continued through April, 1996. Upon restarting the Thorold
Mill in July, 1996, several repairs were necessary to the paper line in order
to operate. As a result of these repairs, no saleable production or cash flow
was generated by the Thorold Mill. These unfunded costs resulted in an increase
of accounts payable and accrued liabilities.
Several capital improvements were made to the Stephens Mill during the year
ended December 31, 1995 that extended into June, 1996. The improvements and
additions made were necessary to meet regulatory requirements. These
improvements were only partially financed.
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 geographic locations of the plants
facilitate distribution of products to the midwest, southwest, southeast, and
northeast markets. However, for the Company to benefit fully from the
improvements made to the plants, the Company must operate the plants at capacity
(typically 11.5 months per year). In addition, the Company must identify,
finance and complete capital projects that will allow the plants to operate at
lower costs.
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. The
Company must continue to monitor operations and identify and implement capital
projects that will improve efficiencies and lower costs. While the Company
continues to monitor its program of operational realignment and cost
reductions, however, 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 Transaction costs and working capital needs.
On June 5, 1996, the Company issued $1,300,000 in aggregate principal amount of
10.25 % Subordinated Notes (the "1996 B Notes") to twelve international
investors, five of which are stockholders. The 1996 B Notes mature on December
31, 1998 and interest is payable quarterly beginning July 1, 1996. The proceeds
of the 1996 B Notes were used for Transaction costs and/or working capital
needs.
F-10
<PAGE> 37
On July 10, 1996, the Company issued $1,500,000 in aggregate principal amount
of 10.25 % Subordinated Notes (the "1996 C Notes") to nine international
investors, six of which are stockholders. The 1996 C Notes mature on December
31, 1998 and interest is payable quarterly beginning July 1, 1996. The proceeds
of the 1996 C Notes were used for Transaction costs and/or working capital
needs.
The Company issued $798,000 in aggregate principal amount of Subordinated Notes
(the "1996 D Notes") dated October 28, 1996 to twenty-two investors. The 1996 D
Notes mature at the earlier of (i) 5/15/97, or (ii) closing of any public or
private debt or equity financing exceeding $10.5 million. The proceeds of the
1996 D Notes were used for Transaction costs and/or working capital needs.
During November and December, 1996, the Company issued $1,575,000 in aggregate
principal amount of Original Issue Discount Notes (the "1996 E Notes") to
sixteen investors represented by BlueStone. On January 21, 1997, the Company
issued an additional $735,000 in aggregate principal amount of the 1996 E notes
to six investors. The 1996 E Notes mature at the earlier of (i) 4/25/97,
subject to extension or earlier payment upon the terms, or occurrence of the
events, more fully provided in the 1996 D Notes. The proceeds of the 1996 E
Notes were used for Transaction costs and/or working capital needs. Management
is currently in discussions with BlueStone to waive the default notice and
extend the due date.
On January 16, 1997, the Company experienced a fire at its Thorold Mill. The
fire was caused by an electrical short in the main building which houses the
paper line. The fire caused extensive damage to a part of the building and the
sheet forming section of the paper line. The Company immediately contacted its
insurance carrier and started planning the rebuilding of the damaged part of the
plant and replacement of the fire damaged equipment. The estimates available at
the date of this report indicate damage of approximately $1,500,000 US. The
Company's insurance policy calls for 90% of replacement cost. Management
believes that the insurance coverage on the plant and its contents of $5,000,000
US is more than adequate to cover all the costs of rebuilding and replacing all
fire damage to the plant and equipment. The Company anticipates that additional
routine repairs and maintenance will be necessary prior to start-up. As of the
date of this report, the Company anticipates having the repairs completed and
the resuming of full operation on or about May 31, 1997. The ability of the
Company to resume operations will be dependent upon sufficient cash availability
for start-up costs, aged payable payments and working capital. Management has
estimated that the start-up of the Thorold Mill will require approximately
$350,000 US. The Company is pursuing several financing options in order to raise
the cash necessary to begin operations.
Management believes cash generated by operations of both mills, once its
Thorold Mill is fully operational will adequately fund the cash needs of the
Company's operations for the remainder of the year. To meet working capital
requirements and expand its business, the Company will need to borrow
additional amounts, obtain an additional third- party credit facility and/or
restructure its existing debt. 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 is pursuing additional
financing arrangements which might include private or public sales of equity or
debt securities. However, there can be no assurances that the Company will be
able to obtain any additional debt or equity financing.
Management is currently pursuing various strategies in order to provide needed
liquidity, finance the acquisition of a saturating plant in Georgia and provide
financing for capital projects. Management believes that negotiations regarding
restructuring existing debt and obtaining new debt and/or equity financing are
vital to continuing operations. Pursuant to this view, Management is in
discussion with the 1996 D noteholders to extend the maturity date of the notes
to December 31, 1998. Management is currently in discussions with BlueStone to
waive the default notice that has resulted from the cancellation of the merger
by GS Roofing and Donald F. Smith, et al. Management believes that the ability
to obtain a waiver from BlueStone will facilitate our current
investors/shareholders to infuse additional capital into the Company without the
threat of foreclosure proceedings. Management is currently engaged in
negotiations with investor/shareholders to obtain an immediate $1,000,000 in
subordinated debt and an additional offering of debt and/or equity securities in
order to retire the BlueStone 1996 E Notes and to provide a portion of the
financing needed for the saturating plant acquisition. In addition, Management
is in discussions with affiliated subordinated debt holders to convert some or
all of their debt into equity (common stock) of the Company.
F-11
<PAGE> 38
If achieved, the conversion of outstanding affiliated debt would result in
significant savings of cash interest payments and interest expense. The Company
incurred over $3,000,000 of subordinated debt in 1996 to pay costs of the
Transaction. In addition, over $500,000 of Transaction costs remain unpaid at
December 31, 1996. Donald F. Smith and GS Roofing's, et al, repudiation of the
Transaction raised grave doubts as to their realizability. These costs have
been written off at December 31, 1996. Further, the Company aged other payables
to facilitate payment of certain Transaction costs. The Company had intended to
pay all outstanding debt and past-due accounts payable at the closing of the
Transaction.
While the Company devoted substantial amounts of cash to acquistion activities,
accounts payable and other current liabilities increased. Management is aware
that the Company will need to raise money in order to reduce accounts payable.
Discussions and presentations are being made by Management to various banks and
financial institutions to obtain financing for a potential plant acquisition,
capital improvement projects and short-term working capital. The Company is in
current negotiation with a manufacturer of saturated felt, which is a current
customer of the Company, to acquire their plant. Management believes that the
acquisition of this plant will absorb allocated costs of administration and
provide an additional source of cash. During the previous eighteen months,
Management has identified several capital improvement projects that would allow
the Stephens Mill and Thorold Mill to operate more efficiently with significant
cost savings and gained production capacity. Management believes that these
improvements are necessary to be competitive and provide adequate margins that
would allow the Company to operate at a profit. The ability to extend maturity
dates will allow the Company to focus on immediate and near-term projects that
will improve the operating efficiency, thereby giving the Company the ability to
generate a positive cash flow that will allow for future debt repayments.
Management believes that strategic acquisitions can enhance profitability and
increase investor/shareholders' value in the Company. The Company intends to
focus on strategic acquisitions in order to grow, gain economies of scale and
allocate administrative costs. Management believes that profitability through
operational changes and improvements and acquisitions will facilitate credit
facilities at favorable terms that could be used for growth and consolidation.
Management believes some, if not all, of the above mentioned strategies will
allow the Company to obtain sufficient working capital and acquisition
financing to continue with its plan of growth through acquisitions. However,
there can be no assurance that any of these objectives will be achieved.
The ability of the Company to achieve successful operations and realize its
assets is dependent upon many factors including profitable operation of both
mills, penetration of existing and new markets at profitable margin and volume
levels and cash liquidity.
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, 1996, 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.
F-12
<PAGE> 39
Effective January 1, 1996, the Company adopted Statement of Financial
Accounting Standards No. 121 "Accounting for the Impairment of Long-Lived
Assets and for Long-Lived Assets to be Disposed Of ("SFAS 121"). This
statement requires that long-lived assets and certain identifiable intangibles
to be held and used by an entity be reviewed for impairment whenever events or
changes indicate the carrying amount of an asset may not be recoverable.
In order to concentrate on its acquisition strategy and on maximizing sales of
dry felt paper, the Company temporarily suspended asphalt-saturating felt
operations in July, 1994. The Company has identified projects necessary for
improving the existing saturated paper lines to accommodate the production of a
value-added product. The Company anticipates completing the required projects
in the future when it becomes economically feasible.
Pursuant to the adoption of SFAS 121, the Company accounted for the impairment
of its saturating equipment by reducing the carrying amount by approximately
$391,000 for the year ended December 31, 1996. An analysis was completed
comparing the carrying value to an independent valuation. The carrying value
was adjusted to reflect the amount per the independent valuation. The reduction
in carrying value was posted as other expense, a component of Selling, general
and administrative Expenses in the accompanying consolidated statements of
operations for the year ended December 31, 1996. This impairment affected the
United States operations only.
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 the 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 1996 and 1995. The organization costs are
being amortized over a five-year period on a straight-line basis. As of the
year ended December 31, 1996, the Company's organization costs have been fully
amortized. Where applicable the deferred acquisition costs are added to the
cost of the assets acquired after the acquisition is completed. Deferred
financing costs are being amortized over the life of the related respective
financing obtained.
Income Taxes
The Company uses the asset and liability method of accounting for income taxes.
Under this method, deferred tax assets and liabilities are determined based on
differences between financial reporting and tax bases of assets and liabilities
and are measured using the enacted tax rate and laws that will be in effect
when the differences are expected to reverse.
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 10,823,263 in 1996, 9,867,633 in 1995 and 10,011,806 in 1994. Primary and
fully diluted earnings per share are the same for each of these years.
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.
F-13
<PAGE> 40
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 Pronouncement
In February 1997, the Financial Accounting Standards Board issued Statement of
Financial Accounting Standards No. 128, "Earnings per Share" ("SFAS 128").
SFAS 128 specifies the compilation, presentation and disclosure requirements for
earnings per share for entities with publicly held common stock or potential
common stock. The requirements of this statement will be effective for fiscal
years beginning after December 15, 1997. Management does not believe that the
implementation of SFAS 128 will have a material effect on its financial
statements.
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 1996 1995
----------- ---- ----
<S> <C> <C> <C>
Machinery, equipment and vehicles 5 - 12 years $ 15,993,022 $ 15,906,470
Buildings 25 years 807,229 855,216
Computer and office equipment 5 years 728,092 711,244
Land improvements 5 years 260,760 140,427
Machinery, equipment and
vehicles under capital leases 2 - 5 years 139,266 236,703
Spare parts - 274,472 247,875
Land - 150,000 215,000
-------- -------
18,352,841 18,312,935
Less- Accumulated depreciation
and amortization (2,409,351) (1,769,623)
----------- ----------
$ 15,943,490 $ 16,543,312
============ ============
</TABLE>
Due to the long-term nature and slow turn-over, spare parts inventory has been
reclassified for the 1995 consolidated financial statements to conform with the
current presentation.
F-14
<PAGE> 41
4. DEFERRED COSTS AND OTHER, NET:
The Company's deferred costs and other, net, consisted of the following:
<TABLE>
<CAPTION>
December 31, December 31,
1996 1995
---- ----
<S> <C> <C>
Deferred financing costs $ 1,344,297 $ 170,404
Deferred acquisition costs - 11,004
Deposits 47,751 73,190
Patents 25,029 25,029
Less- Accumulated amortization (4,666) -
Organization costs 78,025 82,291
Less- Accumulated amortization (78,025) (75,556)
----------- ---------
$ 1,412,411 $ 286,362
=========== =========
</TABLE>
5. INCOME TAXES:
The Company did not recognize a provision for income taxes for the year ended
December 31, 1996. The Company had tax-basis operating loss carryforwards of
approximately $11,700,000 at December 31, 1996, which expire from 2007 through
2011.
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
---------------------------------
1996 1995 1994
---- ---- ----
<S> <C> <C> <C>
Tax provision (benefit) at statutory rates $(2,186,000) $(445,275) $ 77,000
(Increase) decrease resulting from-
deferred tax asset valuation allowance 2,266,000 442,275 (97,000)
Miscellaneous (80,000) 3,000 20,000
----------- --------- --------
$ -- $ -- $ --
=========== ========= ========
</TABLE>
F-15
<PAGE> 42
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,
1996 1995 1994
---- ---- ----
<S> <C> <C> <C>
Current deferred income tax assets-
Current capital lease obligation $ - $ 18,000 $ 1,000
Accruals 21,000 39,000 -
Inventory (2,000) 2,000 (1,000)
Valuation allowances (19,000) (49,000) 4,000
----------- ----------- --------------
Total current deferred income tax assets, net $ - $ 10,000 $ 4,000
=========== ============ ==============
Noncurrent deferred income tax assets (liabilities)-
Net operating loss carryforwards $ 3,997,000 $ 1,514,000 $ (21,000)
Property and equipment (706,000) (502,000) (71,000)
Assets under capital lease - (72,000) -
Noncurrent capital lease obligations - 45,000 (5,000)
Valuation allowances (3,291,000) (995,000) 93,000
---------- ------------ --------------
Total noncurrent deferred income tax liabilities,
net $ - $ (10,000) $ (4,000)
=========== =========== ==============
</TABLE>
6. DEBT:
The Company's debt consisted of the following at:
<TABLE>
<CAPTION>
December 31, December 31,
1996 1995
---- ----
<S> <C> <C>
Subordinated notes payable, 10.25% due 12/31/98 $ 5,300,000 $ 1,200,000
Subordinated Notes payable @ 13% interest, due the
earlier of (i) 5/15/97, or (ii) the closing of any public
or private debt or equity financing exceeding $10.5 million 798,000 --
Original Issue Discount Notes due the earlier of (i) 4/25/97, or
(ii) the closing of any public or private debt or equity
financing exceeding $10.5 million 1,575,000 --
Stephens:
Term loan, prime (8.25%) +3.5%, due 5/31/98 652,850 846,050
Revolving line of credit, prime + 3.5% 164,148 520,274
Canadian Facility:
Term loan, prime (6.5%)+ 2.5% due 4/01/01 972,750 680,250
Revolving line of credit, prime +2.5% 365,802 355,635
Capitalized lease obligations bearing interest at
rates from 10% to 18% maturing between 1996
and 2000, secured by underlying machinery,
vehicles and computer equipment. 54,712 120,619
------- -------
9,883,262 3,722,828
Less- Current maturities and revolving lines of credit (4,029,862) (1,265,881)
--------- ---------
$ 5,853,400 $ 2,456,947
========= =========
</TABLE>
F-16
<PAGE> 43
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
and a waiver was obtained for the year ended December 31, 1995. At December 31,
1996, Striker Canada was not in compliance with certain covenants of the
Canadian Facility. As of the date of this report, though the Company is still
attempting to obtain a waiver, none has been obtained for the year ended
December 31, 1996. Therefore, the Company has reclassified the entire Canadian
Facility as current debt for the year ended December 31, 1996.
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.
On June 5, 1996, the Company issued $1,300,000 in aggregate principal amount of
10.25 % Subordinated Notes (the "1996 B Notes") to twelve international
investors, five of which are stockholders. The 1996 B Notes mature on December
31, 1998 and interest is payable quarterly beginning July 1, 1996. The proceeds
of the 1996 B Notes were used for working capital needs.
On July 10, 1996, the Company issued $1,500,000 in aggregate principal amount
of 10.25 % Subordinated Notes (the "1996 C Notes") to nine international
investors, six of which are stockholders. The 1996 C Notes mature on December
31, 1998 and interest is payable quarterly beginning July 1, 1996. The proceeds
of the 1996 C Notes were used for working capital needs.
The Company issued $798,000 in aggregate principal amount of Subordinated Notes
(the "1996 D Notes") to several investors. The 1996 D Notes mature at the
earlier of (i) 5/15/97, or (ii) closing of any public or private debt or equity
financing exceeding $10.5 million. The proceeds of the 1996 D Notes were used
for working capital needs.
The Company issued $1,575,000 in aggregate principal amount of Original Issue
Discount Notes (the "1996 E Notes") to sixteen investors. The 1996 E Notes
mature at the earlier of (i) 4/25/97, or (ii) closing of any public or private
debt or equity financing exceeding $10.5 million. The proceeds of the 1996 E
Notes were used for working capital needs (see Note 10 to the consolidated
financial statements).
At December 31, 1996, there were no amounts available under the lines of
credit.
F-17
<PAGE> 44
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, 1996 were approximately:
<TABLE>
<CAPTION>
Amount
------
<S> <C>
1997 $4,029,862
1998 5,841,939
1999 8,052
2000 3,409
2001 -
</TABLE>
Interest paid for the years ended December 31, 1996, 1995 and 1994, was
$628,113, $322,915 and $221,309, respectively.
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, 1996, are as follows:
<TABLE>
<S> <C>
1997 $ 35,962
1998 7,289
1999 8,052
2000 3,409
2001 -
------
Present value of net minimum lease payments 54,712
Less- Current portion 35,962
------
Capital lease obligations, long-term $ 18,750
======
</TABLE>
F-18
<PAGE> 45
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, 1996, are as
follows:
<TABLE>
<S> <C>
1997 $ 63,491
1998 67,892
1999 16,973
Thereafter -
</TABLE>
Total rental expense pursuant to noncancelable long-term operating leases was
approximately $323,284, $57,142 and $49,283 for the years ended December 31,
1996, 1995 and 1994, 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.
F-19
<PAGE> 46
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 December 31, 1996, options covering
1,275,000 shares were vested. As of December 31, 1996, 275,000 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.
On or about April 15, 1996, David A. Collins and Matthew D. Pond exercised a
combined total of 275,000 shares at $1 per share, pursuant to their respective
non-qualified stock option agreements. The shares were issued in exchange for
two separate promissory notes aggregating $275,000, secured by the pledge by
each maker of a part of all of the shares acquired.
During July, 1996, the Company advanced an employee approximately $80,000 for a
stock purchase. During December, 1996, the Company accepted 12,000 shares of
its common stock as partial payment of the employee's receivable balance in the
amount of $75,000. The common stock purchased is reflected as Treasury stock on
the consolidated financial statement at cost.
10. COMMITMENTS AND CONTINGENCIES:
Contingencies
On April 25, 1996, the Company signed an agreement to combine in a merger
Transaction with the indirect parent corporation of one of the largest
privately-owned manufacturers of asphalt shingles and built up roofing (GS
Roofing). The closing of the Transaction had been extended in writing by mutual
agreement of the parties to April 21, 1997, provided that (i) a Registration
Statement required to raise the equity component of the financing required for
closing was filed with the Securities and Exchange Commission (which document
was filed with the Securities and Exchange Commission December 26, 1996) and
(ii) the merger became effective on or before April 21, 1997 or within
incremental five business day periods of time thereafter so long as bona fide
marketing efforts were being conducted by the underwriters with a view to such
Registration Statement becoming effective on or before April 30, 1997.
On or about February 4, 1997, via facsimile transmission the President of GS
Roofing, Donald F. Smith, sent a notice to the Company of his and resultantly,
GS Roofing's repudiation of the Transaction. Subsequent to that date, the
Company made protracted attempts to reinstate the Transaction, without success.
Accordingly, management ultimately retained counsel and filed suit against
Newgen Holdings, Inc., Gen Holdings, Inc., GS Roofing Products Company, Inc.,
Donald F. Smith and Maredon-I, Ltd. alleging, among other things, a breach of
contract by the defendants resulting from the defendants' wrongful repudiation
of the binding agreements between the Company and the defendants providing for
the Transaction, which action by the defendants severely impaired the Company's
ability to complete the equity and debt offerings which were a critical part of
the Transaction. The lawsuit is in the preliminary stages, no Answer has yet
been filed by the defendants and pre-trial discovery has not yet commenced.
Accordingly, the Company is unable at present to express any opinion regarding
the probable outcome of this litigation.
In connection with the Transaction, the Company received bridge financing from
the underwriter, BlueStone. As is customary with bridge financing, both the
Company and the 1996 E noteholders contemplated payment of the bridge notes out
of the debt and equity financing of the Transaction. Subsequent to December 31,
1996, and following repudiation of the Transaction by Donald F. Smith and GS
Roofing, et al, the Company received a demand notice from BlueStone
accelerating the due date of the 1996 E Notes to April 3, 1997 from April 25,
1997. The Company is currently negotiating with BlueStone to remedy the
default. The 1996 E Notes are secured by a second and subordinate lien and
security interest on the assets of each of the Company's U.S. subsidiaries,
including its Stephens, Arkansas plant, junior in priority to the lien on the
same assets held by its senior lender. The 1996 E Notes are also guaranteed by
each of the Company's U.S. subsidiaries. If the Company is unable to
renegotiate the terms of the 1996 E Notes or obtain other financing for the
payment thereof, the bridge notes will remain in default and will have a
material adverse impact on the Company and its ability to operate.
The Company and its subsidiaries are not parties to any material legal
proceedings, other than routine claims and disputes arising in the normal
course of the Company's business, substantially all of which are being resolved
and settled in due course by agreement, except, (i) a suit filed April 7, 1997
against the Company's Canadian subsidiary, Striker Canada, in the Ontario Court
(General Division) in St. Catharines, Ontario asserting claims arising out of
the termination of employment of a former employee of Striker Canada. The
Company denies the claims or the amount thereof asserted in the Canadian suit
and intends to defend the suit vigorously. Management of the Company does not
believe that any legal proceedings pending against it at the date of this
report, individually or in the aggregate, will have a material adverse effect
on the Company's operations or results of operations.
F-20
<PAGE> 47
Commitments
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 were 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 in part 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 fourth quarter of 1996, the Sales
Contracts terminated. Two of the three contract customers renewed their
contracts for an additional period of twelve months with no change in terms..
The third customer continues to order product outside of any contract
stipulations. Management believes that there is a sufficient market for its
product and that the Company will be able to sell its total production to
existing and potential new customers.
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 had 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 for the
year ended December 31, 1995. Management believes that the Company has remained
in compliance of its permit during 1996.
11. CONCENTRATION OF CREDIT RISK AND
SIGNIFICANT CUSTOMER TRANSACTIONS:
During the year ended December 31, 1996, three contract customers accounted for
36 percent, 25 percent and 13 percent of revenues. These same customers
accounted for 12 percent, 7 percent and 17 percent of accounts receivable,
respectively, at December 31, 1996. During the year ended December 31, 1995,
three 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.
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-21
<PAGE> 48
12. RELATED-PARTY TRANSACTIONS:
During 1994, an affiliate of an officer/stockholder made capital contributions
to the Company of $107,477. Additionally, the Company paid $224,900 to such
affiliate during 1994, in connection with private placements of the Company's
convertible subordinated notes and common stock during 1994.
During 1995 and 1994, affiliates of an officer/stockholder of the Company and
international investors reimbursed the Company $132,000 and $132,000,
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 and 1994. There was no
reimbursement of salary expense for the year ended December 31, 1996.
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. 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
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.
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
Corporation, 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.
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 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.
F-22
<PAGE> 49
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. SALE OF SUBSIDIARY
Effective April 1, 1996, the Company sold 100% of the outstanding shares of its
subsidiary, SSC, for consideration equal to the adjusted net book value of SSC
after giving affect to the capitalization of the intercompany account payable
owing to the Company by SSC.
16. 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.
F-23
<PAGE> 50
17. INFORMATION ABOUT THE COMPANY'S OPERATIONS IN
DIFFERENT GEOGRAPHIC AREAS FOR THE YEAR ENDED
DECEMBER 31, 1996:
<TABLE>
<CAPTION>
United
States Canada Total
------ ------ -----
<S> <C> <C> <C>
Sales to unaffiliated customers $ 5,930,339 $ 1,412,409 $ 7,342,748
=========== =========== ===========
Gross margin $ 452,997 $ (444,878) $ 8,119
========= =========== =======
Selling, general and administrative
expenses (5,387,660) (209,438) (5,597,098)
Other income (expense) (730,542) (109,968) (840,510)
--------- --------- ---------
Loss before income taxes and
extraordinary item (5,665,205) (764,284) (6,429,489)
=========== ========= ============
Identifiable assets $ 10,992,606 8,207,860 $ 19,200,466
========== ========= ==========
</TABLE>
All operations in 1994 and prior were in the United States.
18. ACCOUNTING FOR STOCK-BASED COMPENSATION:
The Company has adopted the disclosure-only provisions of SFAS 123, "Accounting
for Stock-Based Compensation." Accordingly, no compensation cost has been
recognized for its fixed stock option plans. The Company granted 150,000
options in 1995 at an option price of $5.75 at a fair market value of $5.75 on
date of grant. If the Company had elected to recognize compensation cost based
on the fair value of the options at the grant date as prescribed by SFAS 123,
net loss and net loss per share would approximate the pro forma amounts
indicated below:
1996 1995
---- ----
Net loss - as reported $(6,429,489.00) $(1,309,634.00)
Net loss - pro forma $ 6,519,937.00 $ 1,400,122.00
Net loss per share - as reported $(.59) $(.13)
Net loss per share - pro forma $(.60) $(.14)
The fair value of each option grant is estimated on the date of grant using the
Black-Scholes option-pricing model with the following weighted average
assumptions:
1996 1995
---- ----
Expected dividend yield 0% 0%
Expected price volatility 50% 50%
Risk-free interest rate 7.11% 7.11%
Expected life of option 5 years 5 years
The effects of applying SFAS 123 in the pro forma disclosure are not indicative
of future amounts. SFAS 123 does not apply to awards prior to 1995, and
additional awards in future years were not anticipated.
19. SUBSEQUENT EVENTS (UNAUDITED):
On January 16, 1997, the Company experienced a fire at its Thorold Mill. The
fire was caused by an electrical short in the main building which houses the
paper line. The fire caused extensive damage to a part of the building and the
sheet forming section of the paper line. The Company immediately contacted its
insurance carrier and started planning the rebuilding of the damaged part of the
plant and replacement of the fire damaged equipment. The estimates available at
the date of this report indicate damage of approximately $1,500,000 US. The
Company's insurance policy calls for 90% of replacement cost. Management
believes that the insurance coverage on the plant and its contents of $5,000,000
US is more than adequate to cover all the costs of rebuilding and replacing all
fire damage to the plant and equipment. The Company anticipates that additional
routine repairs and maintenance will be necessary prior to start-up. As of the
date of this report, the Company anticipates having the repairs completed and
the resuming of full operation on or about May 31, 1997. The ability of the
Company to resume operations will be dependent upon sufficient cash availability
for start-up costs, aged payable payments and working capital. Management has
estimated that the start-up of the Thorold Mill will require approximately
$350,000 US. The Company is pursuing several financing options in order to raise
the cash necessary to begin operations.
On January 21, 1997, the Company issued an additional $735,000 in aggregate
principal amount of Original Issue Discount Notes (the "1996 E Notes") to six
investors, providing net proceeds to the Company of $632,839. This is an
addition to the $1,575,000 principal amount of Original Issue Discount Notes
issued prior to December 31, 1996. The 1996 E Notes total $2,310,000 amongst
twenty-two investors and mature at the earlier of (i) 4/25/97, or (ii) closing
of any public or private debt or equity financing exceeding $10.5 million. The
proceeds of the 1996 E Notes were used for working capital needs. Management is
currently in discussions with BlueStone to waive the default notice and extend
the due date.
F-24
<PAGE> 51
On or about February 25, 1997, the Company's Stephens Mill experienced a strong
storm in connection with tornadic activity in the region. The Stephens Mill
did not suffer any damage from tornadoes, however, the heavy rains associated
with the storm surge did damage the roof covering a section of one the main
buildings. The area damaged was not being utilized by the Company. The area is
currently partioned and no activity is allowed in or about the area. The
Company is currently working with the insurance company to file a claim and to
begin repairs to the roof and its support beams. The Company expects that the
repairs will be completed by May 15, 1997.
On February 28, 1997, March 5, 1997 and March 11, 1997, the Company received
advances from investors. These advances resulted in net proceeds received by
the Company in the total amount of $579,532. The proceeds of the advances were
used for working capital needs.
F-25
<PAGE> 52
INDEX TO EXHIBITS
Exhibits Description
-------- -----------
2.4 Plan and Agreement of Merger among Striker Industries, Inc.,
GSR Industries, Inc., Striker Acquisition No. 3, Inc., Newgen
Holding, Inc., Donald F. Smith, Edward T. Nesselroade, et al
dated as of November 29, 1996.
4.11 Mortage and Security Agreement between the Company's indirect
Wholly-owned Subsidiary, Striker Holdings, Inc., and Finova
Capital Corporation dated as of April 25, 1995 securing
payment of all Obligations owing by the Company and any of its
subsidiary corporations to Finova Capital Corporation.
4.12 10.25 % Subordianted Promissory Note of the Company's
Wholly-owned Subsidiary, West Oxford Industries, Inc.,
maturing December 31, 1998 ($1,300,000 in aggregate principal
amount) issued June 5, 1996.
4.13 10.25 % Subordianted Promissory Note of the Company's
Wholly-owned Subsidiary, West Oxford Industries, Inc., maturing
December 31, 1998 ($1,500,000 in aggregate principal amount)
issued July 10, 1996.
4.14 Guaranty of the Company covering all Subordinated Promissory
Notes of its Wholly-owned subsidiary, West Oxford Industries,
Inc., referred to in Exhibits 4.5, 4.12 and 4.13.
4.15 10% Convertible Subordinated Note of the Company's
Wholly-owned Subsidiary, West Oxford Industries, Inc., dated
October 28, 1996 ($798,000 in aggregate principal amount),
with Exhibit A thereto.
4.16 Letter agreement dated January 23, 1997 amending the first
paragraph only of all 10% Convertible Subordinated Notes dated
October 28, 1996 referred to in Exhibit 4.15.
4.17 Guaranty of the Company covering all 10% Convertible
Subordinated Notes dated October 28, 1996, of its Wholly-owned
subsidiary, West Oxford Industries, Inc., referred to in
Exhibit 4.15.
4.18 Original Issue Discount Promissory Note of the Company
($2,310,000 in original principal amount) issued by the
Company on November 26, 1996 and on January 21, 1997.
4.19 Warrant of the Company issued on November 26, December 2 and
December 18 and on January 21, 1997 to holders of the
Company's Original Issue Discount Notes covering the right to
purchase, in the aggregate, up to 330,000 shares of the
Company's Common Stock.
4.20 Security Agreement dated as of January 21, 1997 between the
Company's Wholly-owned subsidiaries, West Oxford Industries,
Inc., Striker Holdings, Inc. and Striker Paper Corporation,
and BlueStone Capital Partners, LP, Agent for the holders of
the Original Issue Discount Promissory Notes of the Company
referred to in Exhibit 4.18.
4.21 Mortgage Agreement dated as of January 21, 1997 between the
Company's Wholly-owned Subsidiary, Striker Holdings, Inc., and
BlueStone Capital Partners, LP, Agent for the holders of the
Company's Original Issue Discount Promissory Notes referred to
in Exhibit 4.18, second subordinate and junior in priority to
the Mortgage and Security Agreement in favor of Finova Capital
Corporation referred to in Exhibit 4.11, securing payment of
the Company's Original Issue Discount Notes referred to in
Exhibit 4.18.
2.1 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>
<CAPTION>
Name State (Province) of Incorporation
---- ---------------------------------
<S> <C>
Striker Holdings, Inc. Texas
Striker Paper Corporation Arkansas
Striker Paper Canada, Inc. Province of Ontario, Canada
Striker Services Canada, Inc. Province of Ontario, Canada
West Oxford Industries, Inc. Texas
</TABLE>
23.1 Consent of KPMG Peat Marwick LLP
23.2 Consent of Arthur Andersen LLP
27 Financial Data Schedule
<PAGE> 1
Execution Copy
EXHIBIT 2.4
PLAN AND AGREEMENT OF MERGER
AMONG
STRIKER ACQUISITION NO. 1
STRIKER ACQUISITION NO. 3
AND
NEWGEN HOLDING, INC.
DATED AS OF NOVEMBER 29, 1996
<PAGE> 2
TABLE OF CONTENTS
<TABLE>
ARTICLE 1
THE MERGER
<S> <C> <C>
1.1. Preliminary Transactions ............................................. 2
1.1.1. Exchange of Acquisition No. 1 Shares .......................... 2
1.1.2. Striker Merger ................................................ 2
1.1.3. Financing ..................................................... 3
1.1.4. Public Offering ............................................... 3
1.2. Merger ............................................................... 3
1.2.1. Surviving Corporation ......................................... 3
1.2.2. Stockholder Approval .......................................... 3
1.2.3. Effective Date ................................................ 3
1.2.4. Name and Continued Corporate Existence of Surviving
Corporation ................................................... 4
1.2.5. Governing Law and Articles of Incorporation of Surviving
Corporation ................................................... 4
1.2.6. Bylaws of Surviving Corporation ............................... 4
1.2.7. Directors of Surviving Corporation ............................ 4
1.2.8. Officers of Surviving Corporation ............................. 4
1.2.9. Vacancies ..................................................... 5
1.2.10. Capital Stock of Surviving Corporation ....................... 5
1.2.11. Conversion of Securities Upon Merger ......................... 5
1.2.11.1. General ............................................ 5
1.2.11.2. Conversion of Acquisition No. 3's Stock ............ 5
1.2.11.3. Conversion of Newgen's Stock ....................... 6
1.2.11.4. Exchange of Acquisition No. 3's Stock Certificate .. 6
1.2.11.5. Exchange of Newgen's Certificates .................. 6
1.2.12. Unclaimed Funds; No Escheat .................................. 7
1.2.13. Acquisition No. 3's Transfer Books Closed .................... 7
1.2.14. Assets and Liabilities of Merging Corporations Become
Those of Surviving Corporation ............................... 7
1.2.15. Conveyances to Surviving Corporation ......................... 7
1.2.16. Accounting Treatment ........................................ 8
1.2.17. Dissenting Stockholders of Newgen ............................ 8
1.2.18. Dissenting Stockholders of Acquisition No. 3 ................. 8
1.2.19. Stockholders Meetings ........................................ 8
1.2.19.1. Calling of Meetings ................................. 8
1.2.19.2. Grant of Proxy ...................................... 8
1.2.19.3. Expiration of Proxies ............................... 10
1.2.19.4. Revocation of Prior Proxies ......................... 10
</TABLE>
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TABLE OF CONTENTS
(CONTINUED)
<TABLE>
<CAPTION>
PAGE
----
<S> <C>
ARTICLE 2
REPRESENTATIONS AND WARRANTIES
OF NEWGEN AND THE INSIDERS
2.1. Representations and Warranties of Newgen and the Insiders .................... 10
2.1.1. Organization and Standing ............................................ 10
2.1.2. Agreement Authorized and its Effect on Other Obligations ............. 11
2.1.3. Capitalization ....................................................... 10
2.1.4. Subsidiaries ......................................................... 11
2.1.5. Financial Statements ................................................. 11
2.1.5.1. Newgen Financial Statements ................................. 11
2.1.5.2. Projections ................................................. 12
2.1.6. Liabilities .......................................................... 12
2.1.7. Additional Newgen Information ........................................ 12
2.1.7.1. Real Estate ................................................ 12
2.1.7.2. Machinery and Equipment .................................... 12
2.1.7.3. Inventory .................................................. 13
2.1.7.4. Receivables ................................................ 13
2.1.7.5. Payables ................................................... 13
2.1.7.6. Insurance .................................................. 14
2.1.7.7. Material Contracts ......................................... 14
2.1.7.8. Employee Compensation Plans ................................ 14
2.1.7.9. Certain Salaries ........................................... 14
2.1.7.10. Bank Accounts .............................................. 14
2.1.7.11. Employee Agreements ........................................ 14
2.1.7.12. Patents .................................................... 14
2.1.7.13. Trade Names ................................................ 14
2.1.7.14. Promissory Notes ........................................... 14
2.1.7.15. Guaranties ................................................. 14
2.1.7.16. Financial Statements ....................................... 14
2.1.7.17. Reserves and Accruals ...................................... 14
2.1.7.18. Material Leases ............................................ 14
2.1.7.19. Environment ................................................ 14
2.1.8. No Undisclosed Defaults .............................................. 15
2.1.9. Absence of Certain Changes and Events ................................ 15
2.1.9.1. Financial Change ........................................... 15
2.1.9.2. Property Damage ............................................ 15
2.1.9.3. Dividends .................................................. 15
</TABLE>
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TABLE OF CONTENTS
(Continued)
<TABLE>
<CAPTION>
PAGE
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<S> <C> <C>
2.1.9.4. Capitalization Change ................................. 15
2.1.9.5. Labor Disputes ........................................ 15
2.1.9.6. Other Material Changes ................................ 15
2.1.10. Taxes .......................................................... 16
2.1.11. Intellectual Property .......................................... 16
2.1.12. Title to Properties ............................................ 16
2.1.13. Litigation ..................................................... 17
2.1.14. Environmental Compliance ....................................... 17
2.1.14.1. Environmental Conditions ............................. 17
2.1.14.2. Permits, etc ......................................... 17
2.1.14.3. Compliance ........................................... 17
2.1.14.4. Past Compliance ...................................... 18
2.1.14.5. Environmental Claims ................................. 18
2.1.14.6. Renewals ............................................. 18
2.1.14.7. Asbestos and PCBs .................................... 18
2.1.15. Compliance with Other Laws ..................................... 18
2.1.16. Finder's Fee ................................................... 19
2.1.17. Compliance with ERISA .......................................... 19
2.1.17.1. Prohibited Transactions .............................. 19
2.1.17.2. Plan Termination; Material Liabilities................ 19
2.1.17.3. Accumulated Funding Deficiency ....................... 19
2.1.17.4. Relationship of Benefits to Pension Plan Assets ...... 20
2.1.17.5. Execution of Agreements .............................. 20
2.1.17.6. Fiduciary Liability .................................. 20
2.1.17.7. Pending Claims ....................................... 20
2.1.17.8. Multiemployer Plans .................................. 20
2.1.17.9. No Reportable Event .................................. 20
2.1.18. Investigations; Litigation ..................................... 21
2.1.19. Product Warranty ............................................... 21
2.1.20. Information for Striker Proxy Statement ........................ 21
2.1.21. FIRPTA ......................................................... 21
2.1.22. Effect of Disclosure ........................................... 21
2.2. Representations and Warranties of the Stockholders ..................... 21
2.2.1. Ownership of Shares ............................................. 21
2.2.2. Organization; Power, Binding Agreement .......................... 22
2.2.3. No Conflicts .................................................... 22
2.2.4. No Encumbrances ................................................. 22
2.2.5. Finder's Fee .................................................... 23
</TABLE>
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TABLE OF CONTENTS
(Continued)
<TABLE>
<CAPTION>
PAGE
----
<S> <C> <C>
ARTICLE 3
REPRESENTATIONS AND WARRANTIES OF
Acquisition No. 1 AND Acquisition No. 3
3.1. Representations and Warranties of Acquisition No. 1 ..................... 23
3.1.1. Organization and Standing ....................................... 23
3.1.2. Agreement Authorized and its Effect on Other Obligations ........ 23
3.1.3. Capitalization .................................................. 23
3.1.4. Compliance with Other Laws ...................................... 24
3.1.5. Investigations; Litigation ...................................... 24
3.1.6. Finder's Fee .................................................... 24
3.2. Representations and Warranties of Acquisition No. 3 ..................... 24
3.2.1. Organization and Standing ....................................... 24
3.2.2. Capitalization .................................................. 25
3.2.3. Agreement Authorized ............................................ 25
3.2.4. Investigations, Litigation ...................................... 25
3.2.5. Finder's Fee .................................................... 25
3.2.6. Solvency ........................................................ 25
ARTICLE 4
OBLIGATIONS PENDING EFFECTIVE DATE
4.1. Agreements of Newgen .................................................... 25
4.1.1. Maintenance of Present Business ................................. 26
4.1.2. Maintenance of Properties ....................................... 26
4.1.3. Maintenance of Books and Records ................................ 26
4.1.4. Compliance with Law ............................................. 26
4.1.5. Inspection of Each Merging Corporation .......................... 26
4.1.6. Hart-Scott-Rodino ............................................... 26
4.1.7. Notice of Material Developments ................................. 26
4.1.8. Prohibition of Certain Employment Contracts ..................... 27
4.1.9. Prohibition of Certain Loans .................................... 27
4.1.10. Prohibition of Certain Commitments .............................. 27
4.1.11. Disposal of Assets .............................................. 27
4.1.12. Maintenance of Insurance ........................................ 28
4.1.13. No Amendment to Articles of Incorporation, etc .................. 28
4.1.14. No Issuance, Sale, or Purchase of Securities .................... 28
</TABLE>
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TABLE OF CONTENTS
(Continued)
<TABLE>
<CAPTION>
PAGE
----
<S> <C> <C>
4.1.15. Prohibition on Dividends ....................................... 28
4.1.16. Supplemental Financial Statements .............................. 28
4.2. Additional Agreements of Newgen, the Insiders and the Stockholders ...... 28
4.2.1. Acquisition Proposals .......................................... 28
4.2.1.1. No Solicitation ....................................... 29
4.2.2. Expenses of Stockholders ................................ 29
4.2.3. Noncompetition .......................................... 29
ARTICLE 5
CONDITIONS PRECEDENT TO OBLIGATIONS
5.1. Conditions Precedent to Obligations of Newgen ........................... 31
5.1.1. Representations and Warranties True at Effective Date ............ 31
5.1.2. No Material Litigation ........................................... 31
5.1.3. Opinion of Acquisition No. 1 and Acquisition No. 3 Counsel ....... 31
5.1.4. Stockholder Approval ............................................. 32
5.1.5. Consent of Certain Parties in Privity With Striker ............... 32
5.1.6. Hart-Scott-Rodino ................................................ 32
5.1.7. Preliminary Transactions ......................................... 32
5.2. Conditions Precedent to Obligations of Acquisition No. 1
and Acquisition No. 3 ................................................... 33
5.2.1. Representations and Warranties of Newgen and Insiders True at
Effective Date .................................................. 33
5.2.2. Representations and Warranties of Stockholders True at Effective
Date ............................................................ 33
5.2.3. No Material Litigation .......................................... 33
5.2.4. Opinion of Newgen's Counsel ..................................... 33
5.2.5. Stockholder Approval ............................................ 34
5.2.6. Consent of Certain Parties in Privity with Newgen ............... 34
5.2.7. Hart-Scott-Rodino ............................................... 34
5.2.8. Preliminary Transactions ........................................ 35
5.2.9. Insider Employment Agreements ................................... 35
5.2.10. Completion of Due Diligence ..................................... 35
5.2.11. Granule Plant Project (the "Granule Plant") ..................... 35
5.2.12. Wilmington Labor Dispute ........................................ 35
</TABLE>
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TABLE OF CONTENTS
(Continued)
<TABLE>
<CAPTION>
PAGE
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<S> <C>
ARTICLE 6
TERMINATION AND ABANDONMENT
6.1. Termination ............................................................. 35
6.1.1. By Mutual Consent ................................................ 36
6.1.2. By Acquisition No. 3 Because of Dissenting Stockholders .......... 36
6.1.3. By Acquisition No. 3 Because of Conditions Precedent ............. 36
6.1.4. By Acquisition No. 3 Because of Solicitation of Acquisition
Proposals ....................................................... 36
6.1.5. By Acquisition No. 3 Because of Material Adverse Change .......... 36
6.1.6. By Newgen Because of Conditions Precedent ........................ 36
6.1.7. By Acquisition No. 3 or Newgen Because of Legal Proceedings ...... 36
6.1.8. By Acquisition No. 3 or Newgen if Merger not Effective by April
21, 1997 ........................................................ 36
6.2. Termination by Board of Directors ....................................... 36
6.3. Effect of Termination; Expenses ......................................... 36
6.4. Waiver of Conditions .................................................... 37
ARTICLE 7
ADDITIONAL AGREEMENTS
7.1. Registration Statement; Proxy Statement/Prospectus ...................... 37
7.1.1. Filing With the Commission ....................................... 37
7.1.2. Cooperation of Newgen ............................................ 37
7.1.3. Best Efforts for Commission Clearance ............................ 38
7.1.4. Expenses ......................................................... 38
7.2. Indemnification by Newgen as to Proxy Statement/Prospectus .............. 38
7.3. Indemnification by Striker and Acquisition No. 1 as to Proxy
Statement/Prospectus .................................................... 38
7.4. Waivers ................................................................. 39
ARTICLE 8
MISCELLANEOUS
8.1. Entirety ................................................................ 40
8.2. Counterparts ............................................................ 40
8.3. Notices and Waivers ..................................................... 40
8.4. Termination of Representations, Warranties, etc ......................... 41
8.5. Table of Contents and Captions .......................................... 41
</TABLE>
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TABLE OF CONTENTS
(Continued)
<TABLE>
<CAPTION>
PAGE
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<C> <C>
8.6. Successors and Assigns ............................................... 41
8.7. Severability ......................................................... 41
8.8. Applicable Law ....................................................... 41
8.9. Effective Date ....................................................... 41
8.10. Public Announcements ................................................. 42
EXHIBITS AND APPENDICES
Exhibit A...................................... Newgen Common Stock Owned by the Stockholders
</TABLE>
-vii-
<PAGE> 9
PLAN AND AGREEMENT OF MERGER
PLAN AND AGREEMENT OF MERGER (this "Agreement"), dated as of November
29, 1996, among Striker Industries, Inc., a Delaware corporation ("Striker"),
GSR Industries, Inc., a Delaware corporation formerly known as Striker
Acquisition No. 1 ("Acquisition No. 1"), Striker Acquisition No. 3, Inc., a
Texas corporation and a wholly-owned subsidiary of Acquisition No. 1
("Acquisition No. 3"), Newgen Holding, Inc., a Texas corporation ("Newgen" or
the "Surviving Corporation"), Donald F. Smith ("Smith"), Edward T. Nesselroade
("Nesselroade"), Maredon-1, Ltd., a Texas limited partnership (the "Smith
Partnership"), and EPDSJ, Ltd., a Texas limited partnership (the "Nesselroade
Partnership"). Smith and Nesselroade are referred to collectively herein as the
"Insiders." The Smith Partnership and the Nesselroade Partnership are referred
to collectively herein as the "Stockholders." Acquisition No. 3 and Newgen are
sometimes hereinafter collectively referred to as the "Merging Corporations."
W I T N E S S E T H:
WHEREAS, Striker is a corporation duly organized and validly existing
under the laws of the State of Delaware, with its principal executive offices
at One Riverway, Suite 2450, Houston, Texas 77056; and
WHEREAS, Newgen is a corporation duly organized and validly existing
under the laws of the State of Texas, with its principal executive offices at
5525 MacArthur Boulevard, Suite 900, Irving, Texas 75038; and
WHEREAS, the respective boards of directors of Striker and Newgen deem
it desirable and in the best interests of their respective corporations and
their respective stockholders to enter into a series of transactions pursuant
to which, among other things, (i) Striker will become a wholly-owned subsidiary
of Acquisition No. 1 and (ii) Acquisition No. 1 may acquire a portion of the
outstanding capital stock of Newgen through an exchange of stock with certain
Newgen stockholders electing to participate therein and will acquire the
balance of the outstanding capital stock of Newgen through a merger pursuant to
the provisions of Article 5.01 of the Texas Business Corporation Act (the
"Texas Act") of Acquisition No. 3 into Newgen in exchange for the Merger
Consideration set forth in Section 1.2.11.3 hereof, and have proposed, declared
advisable, and approved such merger (the "Merger) pursuant to this Plan and
Agreement of Merger (this "Agreement"), which Agreement has been duly approved
by resolutions of the respective boards of directors of Acquisition No. 1,
Acquisition No. 3 and Newgen.
NOW, THEREFORE, in consideration of the premises and of the mutual
covenants and agreements herein contained, and to prescribe the terms and
conditions of the Merger contemplated hereby, the mode of carrying the same
into effect, the manner and basis of converting (i) the presently outstanding
shares of common stock, par value $1.00 per share, of Acquisition No. 3
("Acquisition No. 3 Common Stock") into shares of Class A common stock, par
value $0.01 per share, of Newgen ("Newgen Common Stock") and (ii) the presently
outstanding shares of Newgen Common Stock
<PAGE> 10
(excluding those shares, if any, of Newgen Common Stock held by Acquisition No.
1 pursuant to the Stock Exchange Agreement described in Section 1.1.1 hereof,
and those shares of Newgen Common Stock held as treasury shares by Newgen, all
of which shall cease to exist) into the right to receive the Merger
Consideration described in Section 1.2.11.3 hereof, and such other details and
provisions as are deemed necessary or proper, the parties hereto hereby agree
as follows:
ARTICLE 1
THE MERGER
1.1. Preliminary Transactions.
1.1.1. Exchange of Acquisition No. 1 Shares. On or before the
Effective Date (as defined in Section 8.9 hereof), all of the
stockholders of Newgen, (the "Exchanging Stockholders") will have
entered into an agreement (the "Stock Exchange Agreement") with
Acquisition No. 1 pursuant to which the Exchanging Stockholders shall
agree to, on and as of the Effective Date, transfer to Acquisition No.
1 in a transaction intended to qualify for nonrecognition treatment
under Section 351 of the Internal Revenue Code of 1986, as amended (the
"Code"), the number of shares of Newgen Common Stock set forth opposite
their names on Exhibit A to the Stock Exchange Agreement in exchange
for such number of shares of the common stock, par value $.20 share, of
Acquisition No. 1 ("Acquisition No. 1 Common Stock") as is necessary to
vest in the Exchanging Stockholders an interest in Acquisition No. 1
Common Stock equal to 100% of all the issued and outstanding
Acquisition No. 1 Common Stock minus (a) the shares of Acquisition No.
1 Common Stock to be issued in connection with the Striker Merger
described in Section 1.1.2 hereof, (b) the shares of Acquisition No. 1
Common Stock to be purchased by the Equity Investors described in
Section 1.1.3 hereof, and (c) the shares of Acquisition No. 1 Common
Stock to be purchased by the public in an initial public offering
described in Section 1.1.4 hereof
1.1.2. Striker Merger. On or before the Effective Date, Striker
and Acquisition No. 2, Inc., a Delaware corporation and a wholly-owned
subsidiary of Acquisition No. 1 ("Acquisition No. 2") shall have
entered into an agreement by which, pursuant to the provisions of
Section 251(a) of the Delaware General Corporation Law (the "DGCL"),
Acquisition No. 2 will be, on and as of the Effective Date, merged with
and into Striker, with Striker as the surviving corporation (the
"Striker Merger"), and as a result of the Striker Merger (a) Striker
shall become a wholly-owned subsidiary of Acquisition No. 1, and (b)
the Striker stockholders (not properly perfecting their dissenters'
rights) will have, as of the Effective Date, an interest in Acquisition
No. 1 Common Stock equal to 100% of all issued and outstanding
Acquisition No. 1 Common Stock minus (i) the shares of Acquisition No.
1 Common Stock issued to the Exchanging Stockholders as described in
Section 1.1.1 hereof, (ii) the shares of Acquisition No. 1 Common
Stock to be purchased by the Equity Investors
2
<PAGE> 11
described in Section 1.1.3 hereof and (iii) the shares of Acquisition
No. 1 Common Stock to be purchased by the public in an initial public
offering described in Section 1.1.4 hereof
1.1.3. Financing. On and as of the Effective Date, Acquisition
No. 1 shall (a) issue to one or more equity investors (the "Equity
Investors") such number of shares of Acquisition No. 1 Common Stock as
is necessary to vest in the Equity Investors an interest in the
Acquisition No. 1 Common Stock equal to 100% of all issued and
outstanding Acquisition No. 1 Common Stock minus (i) the shares of
Acquisition No. 1 Common Stock issued to the Exchanging Stockholders as
described in Section 1.1.1 hereof and (ii) the shares of Acquisition
No. 1 Common Stock issued in the Striker Merger as described in Section
1.1.2 hereof, and (b) enter into a series of loan transactions with
certain lenders, with the net proceeds of such loan transactions, when
added to the net proceeds from the sale of Acquisition No. 1 Common
Stock to the Equity Investors described above, to be sufficient
Acquisition No. 1 to pay the Merger Consideration (as defined in
Section 1.2.11.3 hereof) and to pay the other costs and expenses of
Acquisition No. 1 and its affiliates in connection with the
transactions contemplated by this Agreement (the transactions described
in this Section 1.1.3 hereof, being referred to herein collectively as
the "Financing").
1.1.4. Public Offering. On and as of the Effective Date, a
registration statement on Form S-1 (the "Registration Statement") will
have been declared effective by the Securities and Exchange Commission
(the "Commission") under the Securities Act of 1933, as amended (the
"Securities Act"), relating to the offer and sale of shares of
Acquisition No. 1 capital stock, plus such additional shares as are
necessary to cover any over-allotments (the "Over-Allotment"), for
offer and sale to the public pursuant to an underwriting agreement
between the Company and BlueStone Capital Partners, L.P., as
representative (the "Representative") of the several underwriters;
1.2. Merger
1.2.1. Surviving Corporation. Subject to the approval and
adoption of this Agreement by the requisite vote of the stockholders
and approval of the boards of directors of each of the Merging
Corporations, and to the other conditions hereinafter set forth, Newgen
and Acquisition No. 3 shall be, upon the Effective Date, merged into a
single surviving corporation, which shall be Newgen, which shall
continue its corporate existence and remain a Texas corporation
governed by and subject to the laws of that State.
1.2.2. Stockholder Approval. This Agreement shall be submitted
for adoption and approval by the respective stockholders of each of the
Merging Corporations in accordance with the applicable laws of the
State of Texas at separate meetings called and held for such purpose.
1.2.3. Effective Date. The Merger shall become effective on the
Effective Date (as defined in Section 8.9 hereof).
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1.2.4. Name and Continued Corporate Existence of Surviving
Corporation. On the Effective Date, the identity, existence, purposes,
powers, objects, franchises, rights, and immunities of Newgen, the
surviving corporation of the Merger, shall continue unaffected and
unimpaired by the Merger, and the corporate identity, existence,
purposes, powers, objects, franchises, rights, and immunities of
Acquisition No. 3 shall be wholly merged into Newgen, the surviving
corporation, and Newgen shall be fully vested therewith. Accordingly,
on the Effective Date, the separate existence of Acquisition No. 3,
except insofar as continued by statute, shall cease.
1.2.5. Governing Law and Articles of Incorporation of Surviving
Corporation. The laws of Texas shall continue to govern the Surviving
Corporation. On and after the Effective Date, the Articles of
Incorporation of Newgen shall be the articles of incorporation of the
Surviving Corporation until further amended in the manner provided by
law.
1.2.6. Bylaws of Surviving Corporation. On the Effective Date,
the Bylaws of Newgen shall be the Bylaws of the Surviving Corporation
until altered, amended, or repealed, or until new bylaws shall be
adopted in accordance with the provisions of law, the Articles of
Incorporation of Newgen, and the Bylaws of Newgen.
1.2.7. Directors of Surviving Corporation. The names of the
persons who, upon the Effective Date, shall constitute the board of
directors of the Surviving Corporation, and who shall hold office until
the first annual meeting of stockholders of the Surviving Corporation
next following the Effective Date, are as follows:
Name
----
David A. Collins
Matthew D. Pond
Donald F. Smith
Edward T. Nesselroade
1.2.8. Officers of Surviving Corporation. The names of the
persons who, upon the Effective Date, shall constitute the officers of
the Surviving Corporation, and who shall hold office, subject to the
Bylaws of the Surviving Corporation, until the first meeting of
directors following the next annual meeting of stockholders thereof,
are as follows:
Name Office
---- ------
Donald F. Smith Chairman of the Board, President
and Chief Operation Officer
David A. Collins Chief Executive Officer
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Name Office
---- ------
Matthew D. Pond Chief Financial Officer, Senior
Vice President, Secretary and
Treasurer
Edward T. Nesselroade Senior Vice President Operations
Jerry L. Kegley Vice President and Chief
Administrative Officer
Timothy G. Moore Vice President - Human Resources
Steven E. Wilcox Vice President - Eastern Sales
Gerald P. Byrnes Vice President - Western Sales
Thomas V. Gruss Vice President - Commercial Services
J. Michael Stone Vice President - Corporate
Development and Technology
Kevin P. Delaney Vice President and General Counsel
1.2.9. Vacancies. If on or after the Effective Date, a vacancy
shall for any reason exist in the board of directors or in any of the
offices of the Surviving Corporation, such vacancy shall be filled in
the manner provided in the Articles of Incorporation and Bylaws of the
Surviving Corporation.
1.2.10. Capital Stock of Surviving Corporation. The authorized
number of shares of capital stock of the Surviving Corporation, and the
par value, designations, preferences, rights, and limitations thereof,
and the express terms thereof, shall be as set forth in the Articles of
Incorporation of the Surviving Corporation.
1.2.11. Conversion of Securities Upon Merger.
1.2.11.1. General. The manner and basis of converting
the issued and outstanding shares of the capital stock of
Acquisition No. 3 into shares of the capital stock of Newgen,
and the manner and basis of converting the issued and
outstanding shares of the capital stock of Newgen into the
Merger Consideration herein provided for shall be as hereinafter
set forth in this Section 1.2.11.
1.2.11.2. Conversion of Acquisition No. 3's Stock. On the
Effective Date, each share of Acquisition No. 3 Common Stock
then issued and outstanding, without
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any action on the part of Acquisition No. 1, the holder
thereof, shall automatically become and be converted into one
fully paid and nonassessable share of the issued and
outstanding Newgen Common Stock.
1.2.11.3. Conversion of Newgen's Stock. On the Effective
Date, each share of Newgen Common Stock then issued and
outstanding (excluding any shares held by Acquisition No. 1, all
of which shares shall cease to exist), without any action on the
part of the holders thereof, shall automatically become and be
converted into the right to receive $135.47 in cash (the "Merger
Consideration") from Acquisition No. 1 upon surrender, in
accordance with Section 1.2.11.5 hereof, of certificates
theretofore evidencing shares of Newgen Common Stock, and all
shares of capital stock of Newgen then held in the treasury of
Newgen shall be canceled and shall cease to exist.
1.2.11.4. Exchange of Acquisition No. 3's Stock
Certificate. On the Effective Date, Acquisition No. 1 shall
surrender the outstanding certificate theretofore representing
shares of Acquisition No. 3 Common Stock to Newgen and shall
receive in exchange therefor a certificate or certificates
representing the number of whole shares of Newgen Common Stock
into which the shares of Acquisition No. 3 Common Stock
theretofore represented by the certificate so surrendered shall
have been converted as aforesaid.
1.2.11.5. Exchange of Newgen's Certificates. Commencing
on the Effective Date, each holder having certificates
registered in his name theretofore representing shares of Newgen
Common Stock (other than certificates representing Newgen Common
Stock held by Acquisition No. 1 or held in Newgen's treasury)
may surrender all such certificates to Newgen, and such holder
shall be entitled upon such surrender to receive in exchange
therefor a certified or bank cashier's check in the amount of
$135.47 for each share of Newgen Common Stock so surrendered.
From and after the Effective Date and to the date of such
surrender, each outstanding certificate theretofore
representing shares of Newgen Common Stock registered in the
name of a holder (other than certificates representing Newgen
Common Stock held by Acquisition No. 1 or held in Newgen's
treasury) shall represent the right, and only the right, to
receive payment in cash of the Merger Consideration into which
such shares of Newgen Common Stock have been so automatically
converted; no interest shall accrue or be payable with respect
to such amounts pending the surrender of Newgen certificates in
exchange therefor.
1.2.11.6. Cancellation of Newgen Options. On the
Effective Date, each outstanding employee stock option referred
to in Section 2.1.3 hereof shall be automatically canceled and
shall cease to exist and shall be settled thereafter by the
Surviving Corporation by payment to the holder thereof of cash
or cash equivalents in an amount equal to the Merger
Consideration multiplied by the number shares of
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<PAGE> 15
Newgen Common Stock into which such options are exercisable
held by such holder less the aggregate exercise price of such
options held by such holder.
1.2.12. Unclaimed Funds; No Escheat. Subject to any contrary
stipulation of governing law, all funds or other consideration held by
Newgen or Acquisition No. 1 for the payment of the Merger Consideration
into which the aforesaid outstanding shares of Newgen Common Stock
shall have been converted in the Merger, and remaining unclaimed for
one year after the Effective Date, shall continue to be held by Newgen
or Acquisition No. 1; and the holder of any unexchanged certificate or
certificates which before the Effective Date represented shares of
Newgen Common Stock entitled to payment of the Merger Consideration
shall thereafter look only to Newgen or Acquisition No. 1 for exchange
or payment thereof upon surrender of such certificate or certificates
to Newgen or Acquisition No. 1.
1.2.13. Acquisition No. 3's Transfer Books Closed. Upon the
Effective Date, the stock transfer books of Acquisition No. 3 shall be
deemed closed, and no transfer of any shares of Acquisition No. 3 shall
thereafter be made or consummated.
1.2.14. Assets and Liabilities of Merging Corporations Become
Those of Surviving Corporation. On the Effective Date, all rights,
privileges, powers, and franchises of each of the Merging Corporations,
and all property, real, personal, and mixed, and all debts due on
whatever account, as well as stock subscriptions and all other things in
action of or belonging to any of the Merging Corporations, shall be
taken by and deemed to be transferred to and shall be vested in the
Surviving Corporation without further act or deed, and all such rights,
privileges, powers, and franchises, property, debts, or things in
action, and all and every other interest of each of the Merging
Corporations shall be thereafter as effectually the property of the
Surviving Corporation as they were of the respective Merging
Corporations, and the title to any real property, whether vested by
deed or otherwise, in either of the Merging Corporations, shall not
revert or be in any way impaired by reason of the Merger; provided
however, that all rights of creditors and all liens upon any properties
of each of the Merging Corporations shall be preserved unimpaired, and
all debts, liabilities and duties of the Merging Corporations shall
thenceforth attach to the Surviving Corporation and may be enforced
against and by it to the same extent as if such debts, liabilities and
duties had been incurred or contracted by it. Any action or proceeding
pending by or against either of the Merging Corporations may be
prosecuted to judgment as if the Merger had not taken place, or the
Surviving Corporation may be substituted in place of either of the
Merging Corporations.
1.2.15. Conveyances to Surviving Corporation. The Merging
Corporations hereby agree, respectively, that from time to time, as and
when requested by the Surviving Corporation, or by its successors and
assigns, they will execute and deliver or cause to be executed and
delivered, all such deeds, conveyances, assignments, and other
instruments, and will take or cause to be taken such further or other
action as the Surviving Corporation, its successors or assigns, may
deem necessary or desirable to vest or perfect in or confirm to the
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<PAGE> 16
Surviving Corporation, its successors and assigns, title to and
possession of all the property, rights, privileges, powers, immunities,
franchises, and interests referred to in this Section 1.2.15 and
otherwise carry out the intent and purposes of this Agreement.
1.2.16. Accounting Treatment. The assets and liabilities of the
Merging Corporations shall be taken up on the books of the Surviving
Corporation in accordance with generally accepted accounting
principles, and the capital surplus and retained earnings accounts of
the Surviving Corporation shall be determined, in accordance with
generally accepted accounting principles, by the board of directors of
the Surviving Corporation. Nothing herein shall prevent the board of
directors of the Surviving Corporation from making any future changes
in its accounts in accordance with law.
1.2.17. Dissenting Stockholders of Newgen. Acquisition No. I
agrees that, if the Merger becomes effective, it promptly will pay to
dissenting stockholders of Newgen the amounts, if any, to which they
are entitled under the provisions of Sections 5.11 through 5.13 of the
Texas Act, provided such dissenters act in strict compliance with such
provisions.
1.2.18. Dissenting Stockholders of Acquisition No. 3. Newgen
agrees that, if the merger of Acquisition No. 3 into Newgen becomes
effective, it promptly will pay to dissenting stockholders of
Acquisition No. 3 the amounts, if any, to which they are entitled under
Sections 5. 11 through 5.13 of the Texas Act, provided such dissenters
act in strict compliance with such provisions.
1.2.19. Stockholders Meetings.
1.2.19.1. Calling of Meetings. Subject to and in
accordance with applicable law, each of Newgen and Acquisition
No. 3, acting through their respective boards of directors,
shall duly call, give notice of, convene and hold a meeting, or
obtain a unanimous consent in lieu thereof as provided by the
Texas Act (each a "Stockholders Meeting") of its respective
stockholders for the purpose of taking all necessary corporate
action to approve and ratify the transactions contemplated by
this Agreement to which they are a party, including the Merger;
and shall include in the notice of the Stockholders Meeting so
given, as applicable, the recommendations of their respective
boards of directors that their respective stockholders vote in
favor of the transactions contemplated by this Agreement,
including the Merger. The Stockholders Meetings required to be
called and held pursuant to this Section 1.2.19.1 shall be
called and held as promptly as practicable after the date
hereof, and in no event later than December 30, 1996.
1.2.19.2. Grant of Proxy. Each Stockholder hereby
severally agrees that at the Stockholders Meeting of Newgen, any
adjournment thereof or any other meeting of the holders of
Newgen Common Stock, however called, or in connection with any
written consent of the holders of voting capital stock of
Newgen, such Stockholder
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<PAGE> 17
shall vote, or cause to be voted, all the shares of Newgen
Common Stock set forth opposite such Stockholder's name on
Exhibit A hereto (the "Existing Shares," and together with any
shares of Newgen Common Stock that become Beneficially Owned or
controlled by such Stockholder after the date hereof and before
the termination of this Agreement, whether upon the exercise of
options, warrants or rights, the conversion or exchange of
convertible or exchangeable securities, or by means of purchase,
dividend, distribution or otherwise (hereinafter collectively
the "Shares"), provided however, that in the event of a stock
dividend or distribution, or any change in the outstanding
capital stock of Newgen by reason of any stock dividend,
split-up, recapitalization, combination, exchange of shares or
the like, the term "Shares" shall be deemed to refer to and
include the Shares as well as all such stock dividends and
distributions and any shares into which or for which any or all
of the Shares may be changed or exchanged), Beneficially Owned
or controlled by such Stockholder (i) in favor of the Merger,
the execution and delivery by Newgen of this Agreement and the
approval of the terms of each of the other actions contemplated
by this Agreement and any actions required in furtherance
thereof and hereof, (ii) against any change in a majority of the
persons who constitute the board of directors of Newgen and
(iii) against any action in furtherance of a Transaction
Proposal (as defined in Section 4.2.1.1 hereof) other than as
contemplated by this Agreement, and any other action that is
intended, or could reasonably be expected, to impede, interfere
with, delay, postpone, or materially adversely affect the Merger
and the transactions contemplated by this Agreement. In
furtherance thereof, each Stockholder hereby irrevocably
appoints Striker and its officers, agents and nominees, with
full power of substitution, as proxy, being an appointment
coupled with an interest, to vote the Shares for and in the
name, place and stead of such Stockholder at the Stockholders
Meeting of Newgen or at any adjournment thereof or any other
meeting of the holders of Newgen Common Stock, however called,
or pursuant to any consent in lieu of a meeting, or otherwise,
to approve this Agreement and the Merger, and the other
agreements and transactions contemplated hereby (the "Proxies").
The Proxies shall be irrevocable, each being coupled with an
interest sufficient in law to support an irrevocable proxy.
Except as otherwise provided in this Agreement, the Shares may
be voted by and in the manner determined by such Stockholder in
its sole discretion. Such Stockholder shall not enter into any
agreement or understanding with any person the effect of which
would be inconsistent or violative of the provisions and
agreements contained in this Section 1.2.19.2. For purposes of
this Agreement, "Beneficially Owned" or "Beneficial Ownership"
with respect to any securities shall mean "beneficial ownership"
of such securities as determined pursuant to Rule 13d-3 under
the Securities Exchange Act of 1934, as amended (the "Exchange
Act"), including pursuant to any agreement, arrangement or
understanding whether or not in writing.
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1.2.19.3. Expiration of Proxies. The Proxies granted
pursuant to Section 1.2.19.2 above shall expire upon the
earliest to occur of (i) the Effective Date and (ii) the
termination of this Agreement.
1.2.19.4. Revocation of Prior Proxies, Each Stockholder
hereby revokes any and all previous proxies with respect to the
Shares.
ARTICLE 2
REPRESENTATIONS AND WARRANTIES
OF NEWGEN AND THE INSIDERS
2.1. Representations and Warranties of Newgen and the Insiders. Each of
Newgen and the Insiders represents and warrants as follows:
2.1.1. Organization and Standing. Newgen is a corporation duly
organized, validly existing and in good standing under the laws of the
state of Texas, has full requisite corporate power and authority to
carry on its business as it is currently conducted, and to own and
operate the properties currently owned and operated by it, and is duly
qualified or licensed to do business and is in good standing as a
foreign corporation authorized to do business in all jurisdictions in
which the character of the properties owned or the nature of the
business conducted by it would make such qualification or licensing
necessary, except where the failure to be so qualified or licensed
would not have a material adverse effect on its financial condition,
properties or business.
2.1.2. Agreement Authorized and its Effect on Other Obligations.
The execution and delivery of this Agreement has been authorized by the
board of directors of Newgen and subject to the approval of this
Agreement by the requisite vote of the stockholders of Newgen under the
laws of its state of incorporation, the consummation of the
transactions contemplated hereby have been duly and validly authorized
by all necessary corporate action on the part of Newgen, and this
Agreement is a valid and binding obligation of Newgen enforceable
against Newgen (subject to normal equitable principles) in accordance
with its terms, except as enforceability may be limited by bankruptcy,
insolvency, reorganization, debtor relief or similar laws affecting the
rights of creditors generally. At the Effective Date, the consummation
of the Merger contemplated by this Agreement will not conflict with or
result in a violation or breach of any term or provision of, nor
constitute a default under (I) the Articles of Incorporation or Bylaws
of Newgen or (ii) any obligation, indenture, mortgage, deed of trust,
lease, contract or other agreement to which Newgen or any of its
subsidiaries is a party or by which any of them or their properties are
bound, except as disclosed on Schedule 2.1.2 hereto.
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2.1.3. Capitalization. The authorized capitalization of Newgen
consists of 10,000,000 shares of Newgen Common Stock and Class B common
stock, par value $.01 per share ("Class B Common StocK"), and 377,650
shares of preferred stock, par value $1.06 per share ("Preferred
Stock"), of which at September 30, 1996, 535,272 shares of Newgen
Common Stock were issued and outstanding and no shares of either Class
B Common Stock or of Preferred Stock were issued and outstanding; at
the same date, Newgen did not have any outstanding options, warrants,
calls or commitments of any character relating to any of its authorized
but unissued shares of capital stock other than employee stock options
covering an aggregate of 3,150 shares of Newgen Common Stock. At
September 30, 1996, 77,841 shares of Newgen Common Stock were in
Newgen's treasury. All issued and outstanding shares of Newgen Common
Stock are validly issued, fully paid and non-assessable and are not
subject to preemptive rights. Other than as set forth in Schedule 2.1.3
hereto or as otherwise contemplated by this Agreement, none of the
outstanding shares of Newgen Common Stock is subject to any voting
trusts, voting agreement or other agreement or understanding with
respect to the voting thereof, nor is any proxy in existence with
respect thereto.
2.1.4. Subsidiaries. Schedule 2.1.4 hereto lists the subsidiary
corporations of Newgen existing at the date hereof, and shows as to
each of such subsidiary corporations the percentage of the total
outstanding stock thereof which is owned by Newgen. All outstanding
shares of stock of the subsidiary corporations owned by Newgen are
validly issued, fully paid, and nonassessable, and Newgen has good and
marketable title thereto free and clear of any mortgage, pledge, lien,
charge, security interest, option, right of first refusal, preferential
purchase right, defect, encumbrance or other right or interest of any
other person (each, an "Encumbrance"). Each such subsidiary is a
corporation duly organized, validly existing, and in good standing
under the laws of the jurisdiction under which it is incorporated and
has full requisite corporate power and authority to own its property
and carry on its business as presently conducted by it and is, or on
the Effective Date will be, duly qualified or licensed to do business
and is, or on the Effective Date will be, in good standing as a foreign
corporation authorized to do business in all jurisdictions in which the
character of the properties owned or the nature of the business
conducted makes such qualification or licensing necessary, except where
the failure to be so qualified or licensed would not have a material
adverse effect on the financial condition, properties or business of
such subsidiary. As hereinafter used in this Article 2, the term
"Newgen" also includes any and all of its directly and indirectly held
subsidiaries.
2.1.5. Financial Statements.
2.1.5. 1. Newgen Financial Statements. Newgen has
delivered to Striker copies of Newgen's audited consolidated
balance sheet and related statements of income, stockholders'
equity, and cash flows, with appended notes as at and for
Newgen's fiscal years ended December 31, 1991, 1992, 1993, 1994
and 1995 and also has delivered to Striker copies of Newgen's
unaudited consolidated balance
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sheets and related statements of income as at and for the three
months ended March 31, 1996 and as of and for the nine months
ended September 30, 1996. Such financial statements are complete
in all material respects, present fairly the financial condition
of Newgen as at the dates and for the periods indicated, and
have been prepared in accordance with generally accepted
accounting principles applied on a consistent basis, except as
noted therein and except for the absence of notes for the March
31, 1996 and September 30, 1996 unaudited consolidated financial
statements as well as statements of stockholder's equity and
cashflows. The accounts receivable reflected in the September
30, 1996 unaudited consolidated balance sheet, or which have
been thereafter acquired by Newgen, have been collected or are
collectible at the aggregate recorded amounts thereof less
applicable reserves and accrued volume rebates, which reserves
and accruals are adequate. The inventories of Newgen reflected
in the September 30, 1996 unaudited consolidated balance sheet,
or which have thereafter been acquired by it, consist of items
of a quality usable and salable in the normal course of Newgen's
business, and the values at which inventories are carried are at
the lower of cost or market.
2.1.5.2. Projections. Newgen has provided Striker with
the projections set forth on Schedule 2.1.5.2 hereto. Such
projections were prepared in good faith and are based upon
assumptions that are reasonable in light of all of the
information in possession of management of Newgen.
2.1.6. Liabilities. Newgen does not have any liabilities or
obligations, either accrued, absolute or contingent nor does Newgen or
either of the Insiders have any knowledge of any potential liabilities
or obligations, which would materially adversely affect the value and
conduct of the business of Newgen, other than those (i) reflected or
reserved against in the September 30, 1996 unaudited consolidated
balance sheet of Newgen, (ii) incurred in the ordinary course of
business since September 30, 1996 or (iii) set forth on Schedule 2.1.6
hereto.
2.1.7. Additional Newgen Information. Attached as Schedule 2.1.7
hereto are true, complete and correct lists of the following items
(which will be periodically updated by Newgen and delivered to Striker
through the Effective Date), and Newgen agrees that upon the request of
Striker, and in any event no more than once every 30 day period
following the date hereof, it will furnish to Striker true, complete
and correct copies of any documents referred to in such lists:
2.1.7. 1. Real Estate. All real property and structures
thereon owned, leased or subject to a contract of purchase and
sale, or lease commitment, by Newgen, with a description of the
nature and amount of any Encumbrances thereon;
2.1.7.2. Machinery and Equipment. All machinery,
transportation equipment, tools, equipment, furnishings, and
fixtures (excluding such items as did not have a
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cost basis of $50,000 or more at their respective dates of
acquisition by Newgen) owned, leased or subject to a contract of
purchase and sale, or lease commitment, by Newgen with a
description of the nature and amount of any Encumbrances
thereon;
2.1.7.3. Inventory. All inventory items or groups of
inventory items owned by Newgen, excluding raw materials and
work in process, which raw materials and work in process are
valued on the September 30, 1996 unaudited consolidated
financial statements, together with the amount of any
Encumbrances thereon;
2.1.7.4. Receivables. All accounts and notes receivable
of Newgen, together with (i) aging schedules by invoice date and
due date, (ii) the amounts provided for as an allowance for bad
debts, (iii) the identity and location of any asset in which
Newgen holds a security interest to secure payment of the
underlying indebtedness, and (iv) a description of the nature
and amount of any Encumbrances on such accounts and notes
receivable;
2.1.7.5. Payables. All accounts and notes payable of
Newgen, together with an appropriate aging schedule;
2.1.7.6. Insurance. All insurance policies or bonds
currently maintained by Newgen, including title insurance
policies, with respect to Newgen, including those covering
Newgen's properties, buildings, machinery, equipment, fixtures,
employees and operations, as well as a listing of any premiums,
audit adjustments or retroactive adjustments due or pending on
such policies or any predecessor policies;
2.1.7.7. Material Contracts. All contracts (including
purchase and sale contracts and representative contracts) not
made in the ordinary course of business, including leases under
which Newgen is lessor or lessee, which are to be performed in
whole or in part after the Effective Date, and which involve or
may involve aggregate payments by or to Newgen of $10,000 or
more after such date;
2.1.7.8. Employee Compensation Plans. All bonus,
incentive compensation, deferred compensation, profit-sharing,
retirement, pension, welfare, group insurance, death benefit, or
other fringe benefit plans, arrangements or trust agreements of
Newgen, together with copies of the most recent reports with
respect to such plans, arrangements, or trust agreements filed
with any governmental agency and all Internal Revenue Service
determination letters that have been received with respect to
such plans (collectively, "Employee Plans");
2.1.7.9. Certain Salaries. The names and salary rates of
all present officers and employees of Newgen whose current
regular annual salary rate, together with any bonuses paid or
payable to such persons for the fiscal year ended December 31,
1995, or since that date, is $50,000 or more, and, to the extent
existing on the date of this
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Agreement all arrangements with respect to any bonuses to be
paid to them from and after the date of this Agreement;
2.1.7.10. Bank Accounts. The name of each bank in which
Newgen has an account and the names of all persons authorized to
draw thereon;
2.1.7.11. Employee Agreements. Any collective
bargaining agreements of Newgen with any labor union or other
representative of employees, including amendments, supplements,
and written or oral understandings, and all employment and
consulting and severance agreements of Newgen;
2.1.7.12. Patents. All patents, trademarks, copyrights
and other intellectual property rights owned, licensed, or used
by Newgen;
2.1.7.13. Trade Names. All trade names and fictitious
names used or held by Newgen, whether and where such names are
registered and where used;
2.1.7.14. Promissory Notes. All long-term and short-term
promissory notes, installment contracts, loan agreements, credit
agreements, and any other agreements of Newgen relating thereto
or with respect to collateral securing the same;
2.1.7.15. Guaranties. All indebtedness, liabilities and
commitments of others and as to which Newgen is a guarantor,
endorser, co-maker, surety, or accommodation maker, or is
contingently liable therefor and all letters of credit, whether
stand-by or documentary, issued by any third party;
2.1.7.16. Financial Statements. Financial statements
(which may be in summary form) containing the information
described in Section 2.1.5 hereof and Section 4.1.16 hereof,
prepared in the manner described in such Sections;
2.1.7.17. Reserves and Accruals. All accounting reserves
and accruals maintained in the Newgen unaudited financial
statements as of September 30, 1996, including a report on the
status of all unresolved warranty claims in existence on such
date;
2.1.7.18. Material Leases. All leases to which Newgen is
a party and which involve or may involve aggregate payments by
Newgen of $10,000 or more per month after the Effective Date;
and
2.1.7.19. Environment. All environmental permits,
approvals, certifications, licenses, registrations, orders and
decrees applicable to current operations conducted by Newgen and
all environmental audits, assessments, investigations and
reviews
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conducted by Newgen within the last five years on any property
owned or used by Newgen copies of which shall be provided by
supplement to Schedule 2.1.4.
Schedule 2.1.7 hereto shall be true, complete and correct as of
the Effective Date, except for items contained in Sections 2.1.7.1,
2.1.7.16 and the detail of unresolved warranty claims provided under
Section 2.1.7.17, which are true, complete and correct as of March 31,
1996 and except for items contained in Sections 2.1.7.2, 2.1.7.3,
2.1.7.4, 2.1.7.5 and the balance of the detail for reserves and
accruals provided under Section 2.1.7.17, which are true, complete and
correct as of February 29, 1996.
2.1.8. No Undisclosed Defaults. Except as may be specified in
Schedule 2.1.7 and Schedule 2.1.8, Newgen is not a party to, or bound
by, any material contract or material arrangement of any kind to be
performed after the Effective Date, nor is Newgen in default in any
material obligation or covenant on their part to be performed under any
material obligation, lease, contract, order, plan or other arrangement
except as identified in Schedule 2.1.7 and Schedule 2.1.8.
2.1.9. Absence of Certain Changes and Events. Except as set
forth in Schedule 2.1.9 hereto, other than as a result of the
transactions contemplated by this Agreement, since September 30, 1996,
there has not been:
2.1.9.1. Financial Change. Any material adverse change
in the financial condition, backlog, operations, assets,
liabilities or business of Newgen;
2.1.9.2. Property Damage. Any material damage,
destruction, or loss to the business or properties of Newgen
(whether or not covered by insurance);
2.1.9.3. Dividends. Any declaration, setting aside, or
payment of any dividend or other distribution in respect of the
Newgen Common Stock, or any direct or indirect redemption,
purchase or any other acquisition by Newgen of any such stock;
2.1.9.4. Capitalization Change. Any change in the
capital stock or in the number of shares or classes of Newgen's
authorized or outstanding capital stock as described in Section
2.1.3 hereof,
2.1.9.5. Labor Disputes. Any labor dispute (other than
routine grievances);
or
2.1.9.6. Other Material Changes. Any other event or
condition known to Newgen or either of the Insiders particularly
pertaining to and adversely affecting the operations, assets or
business of Newgen (other than events or conditions which are
15
<PAGE> 24
of a general or industry-wide nature and of general public
knowledge) which would constitute a material adverse change.
2.1.10. Taxes. Except as set forth in Schedule 2.1.10 hereto,
all federal, state and local income, value added, sales, use,
franchise, gross revenue, turnover, excise, payroll, property,
employment, customs duties and any and all other tax returns, reports,
and estimates have been filed with appropriate governmental agencies,
domestic and foreign, by Newgen for each period for which any returns,
reports, or estimates were due (taking into account any extensions of
time to file before the date hereof); all taxes shown by such returns
to be payable and any other taxes due and payable have been paid other
than those being contested in good faith by Newgen; and the tax
provision reflected in Newgen's unaudited financial statements as of
September 30, 1996 is adequate, in accordance with generally accepted
accounting principles, to cover liabilities of Newgen at the date
thereof for all taxes, including any assessed interest, assessed
penalties and additions to taxes of any character whatsoever applicable
to Newgen or its assets or business. Except as set forth on Schedule
2.1.10 hereto, no waiver of any statute of limitations executed by
Newgen with respect to any income or other tax is in effect for any
period. Except as set forth on Schedule 2.1.10 hereto, the income tax
returns of Newgen have never been examined by the Internal Revenue
Service or the taxing authorities of any other jurisdiction. There are
no tax liens on any assets of Newgen except for taxes not yet currently
due and those which could not reasonably be expected to result in a
material adverse change to Newgen.
2.1.11 Intellectual Property. Except as set forth in Schedule
2.1.11 hereto, Newgen owns or possesses licenses to use all patents,
patent applications, trademarks and service marks (including
registrations and applications therefor), trade names, copyrights and
written know-how, trade secrets and all other similar proprietary data
and the goodwill associated therewith (collectively, the "Intellectual
Property") that are either material to the business of Newgen or that
are necessary for the manufacture, use or sale of any products
manufactured, used or sold by Newgen, including all such Intellectual
Property listed in Schedule 2.1.7 hereto. The Intellectual Property is
owned or licensed by Newgen free and clear of any Encumbrance other
than such Encumbrances as are listed in Schedule 2.1.11 hereto. Except
as otherwise indicated in such Schedule, Newgen has not granted to any
other person any license to use any Intellectual Property. Newgen has
not received any notice of infringement, misappropriation, or conflict
with, the intellectual property rights of others in connection with the
use by Newgen of the Intellectual Property.
2.1.12. Title to Properties. Newgen has good and indefeasible
title to all its properties, interests in properties and assets, real
and personal, reflected in the September 30, 1996 unaudited financial
statements referred to in Section 2.1.5 hereof or in Schedule 2.1.7
hereto, free and clear of any Encumbrance of any nature whatsoever,
except (i) liens and Encumbrances reflected in the unaudited balance
sheet of Newgen dated September 30, 1996 referred to in Section 2.1.5
hereof or in Schedule 2.1.7 hereto, (ii) liens for current taxes not yet
due and payable, and (iii) such imperfections of title, easements and
Encumbrances, if any,
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<PAGE> 25
as are not substantial in character, amount or extent and do not and
will not materially detract from the value, or interfere with the
present use, of the property subject thereto or affected thereby, or
otherwise materially impair business operations. All leases pursuant to
which Newgen leases (whether as lessee or lessor) any substantial
amount of real or personal property are in good standing, valid, and
effective; and there is not, under any such leases, any existing
default or event of default or event which with notice or lapse of
time, or both, would constitute a default by Newgen and in respect to
which Newgen has not taken adequate steps to prevent a default from
occurring. The buildings and premises of Newgen that are used in its
business are in good operating condition and repair, subject only to
ordinary wear and tear. All major items of equipment of Newgen are in
good operating condition and in a state of reasonable maintenance and
repair, ordinary wear and tear excepted, and are free from any known
defects except as may be repaired by routine maintenance and such minor
defects as to not substantially interfere with the continued use
thereof in the conduct of normal operations.
2.1.13. Litigation. Except as set forth in Schedule 2.1.13
hereto, there is no suit, action, or legal, administrative,
arbitration, or other proceeding or governmental investigation pending
to which Newgen is a party or, to the knowledge of Newgen or either of
the Insiders might become a party or which particularly affects Newgen,
nor is any change in the zoning or building ordinances directly
affecting the real property or leasehold interests of Newgen, pending
or, to the knowledge of Newgen or either of the Insiders, threatened.
2.1.14. Environmental Compliance. Except as set forth in
Schedule 2.1.14 hereto, which Schedule may be supplemented prior to the
Effective Date in the event the closing contemplated by the Master
Agreement Re Rock Quarry occurs on or before the Effective Date, with
information concerning the property acquired in such closing:
2.1.14.1. Environmental Conditions. There are no
environmental conditions or circumstances, including, without
limitation, the presence or release of any hazardous substance,
on any property presently or previously owned by Newgen, or on
any property to which hazardous substances or waste generated by
Newgen's operations or use of its assets were disposed of, which
would result in a material adverse change in the business or
business prospects of Newgen;
2.1.14.2. Permits, etc. Newgen has in full force and
effect all environmental permits, licenses, approvals and other
authorizations required to conduct its operations, other than
those that are not material to the business or operations of
Newgen, and is operating in compliance thereunder;
2.1.14.3. Compliance. Newgen's operations and use of its
assets do not violate in any material respect any applicable
federal, state or local law, statute, ordinance, rule,
regulation, order or notice requirement pertaining to (a) the
condition or protection of air, groundwater, surface water,
soil, or other environmental media,
17
<PAGE> 26
(b) the environment, including natural resources or any activity
which affects the environment or (c) the regulation of any
pollutants, contaminants, waste, substances (whether or not
hazardous or toxic), including, without limitation, the
Comprehensive Environmental Response Compensation and Liability
Act (42 U.S.C. Section 9601 el seq.), the Hazardous Materials
Transportation Act (49 U.S.C. Section 1801 el seq.), the
Resource Conservation and Recovery Act (42 U.S.C. Section 1609
et seq.), the Clean Water Act (33 U.S.C. 1251 et seq.), the
Clean Air Act (42 U.S.C. Section 7401 et seq.), the Toxic
Substances Control Act (I 7 U. S.C. Section 2601 et seq.), the
Federal Insecticide Fungicide and Rodenticide Act (7 U.S.C.
Section 136 et seq.), the Safe Drinking Water Act (42 U. S. C.
Section 201 and Section 300f et seq.), the Rivers and Harbors Act
(33 U. S. C. Section 401 et seq.), the Oil Pollution Act (33
U.S.C. Section 2701 et seq.) and analogous federal, interstate,
state and local requirements, as any of the foregoing may have
been amended or supplemented from time to time (collectively the
"Applicable Environmental Laws");
2.1.14.4. Past Compliance. None of the operations or
assets of Newgen has ever been conducted or used in such a
manner as to constitute violation of any of the Applicable
Environmental Laws, other than violations that in the aggregate
are not material to the business or operations of Newgen;
2.1.14.5. Environmental Claims. No notice has been
served on Newgen from any entity, governmental agency or
individual regarding any existing, pending or threatened
investigation, inquiry, enforcement action or litigation related
to alleged violations under any Applicable Environmental Laws,
or regarding any claims for remedial obligations, response costs
or contribution under any Applicable Environmental Laws;
2.1.14.6. Renewals. Neither Newgen nor either of the
Insiders know of any reason Acquisition No. I would not be able
to renew any of the permits, licenses, or other authorizations
required pursuant to any Applicable Environmental Laws to
operate and use any of Newgen's assets for their current
purposes and uses; and
2.1.14.7. Asbestos and PCBs. No material amounts of
friable asbestos currently exist on any property owned or
operated by Newgen, nor do polychlorinated biphenyls exist in
concentrations of 50 parts per million or more in electrical
equipment owned or being used by Newgen in its operations or on
its properties.
2.1.15. Compliance with other laws. Except as set forth in
schedule 2.1.15 hereto, Newgen is not in violation of or in default
with respect to, or in alleged violation of or alleged default with
respect to, the Occupational Safety and Health Act (29 U.S. C. Sections
65 1 ET SEQ.) as amended, or any other applicable law or any applicable
rule, regulation, or any writ or decree of any court or any
governmental commission, board, bureau, agency, or instrumentality, or
18
<PAGE> 27
delinquent with respect to any report required to be filed with any
governmental commission, board, bureau, agency or instrumentality.
2.1.16. Finder's Fee. All negotiations relative to this
Agreement and the transactions contemplated hereby have been carried on
by Newgen and its counsel directly with Striker and Acquisition No. 1
and their counsel, without the intervention of any other person in such
manner as to give rise to any valid claim against any of the parties
hereto for a brokerage commission, finder's fee or any similar
payments, other than fees payable by Striker to KPMG Baymark Capital
LLP pursuant to the engagement letter between Striker and KPMG Baymark
Capital LLP dated February 26, 1996 (the "Engagement Letter).
2.1.17. Compliance with ERISA. Each benefit plan set forth on
Schedule 2.1.17 hereto (the "Benefit Plans"), which are all of the
employer benefit plans of Newgen complies currently, and has complied
in the past, in form and operation, with the applicable provisions of
the Employee Retirement Income Security Act of 1974, as amended
("ERISA"), the Code and other applicable laws. All contributions
required to be made to each Benefit Plan under the terms of such
Benefit Plan, ERISA or other applicable laws have been timely made.
2.1.17.1. Prohibited Transactions. Newgen has not
engaged in any transaction in connection with which it could be
subject (either directly or indirectly) to a material liability
for either a civil penalty assessed pursuant to Section 502(I)
of ERISA or a tax imposed by Section 4975 of the Code.
2.1.17.2. Plan Termination; Material Liabilities. There
has been no termination of an "employee pension benefit plan" as
defined in ERISA which is subject to Title IV of ERISA (a
"Statutory Plan") or trust created under any Statutory Plan that
would give rise to a material liability to the Pension Benefit
Guaranty Corporation ("PBGC") on the part of Newgen. All
Statutory Plans intended to be tax-qualified under Section
401(a) or 403(a) of the Code have received favorable
determination letters from the Internal Revenue Service,
including amendments required by the Tax Reform Act of 1986. All
Plans have been amended to reflect the Unemployment Compensation
Amendments Act of 1982 and Revenue Reconciliation Act of 1993.
Each of such Plans is in qualified status. No material liability
to the PBGC has been or is expected to be incurred with respect
to any Statutory Plan. The PBGC has not instituted proceedings
to terminate any Statutory Plan. There exists no condition or
set of circumstances which presents a material risk of
termination or partial termination of any Statutory Plan by the
PBGC.
2.1.17.3. Accumulated Funding Deficiency. Full payment
has been made of all amounts which are required under the terms
of each Statutory Plan, ERISA or other applicable laws, domestic
and foreign, to have been paid as contributions to such
Statutory Plan as of December 31, 1994, and no accumulated
funding deficiency (as defined in Section 302 of ERISA and
Section 412 of the Code), whether or not
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<PAGE> 28
waived, exists with respect to any Statutory Plan or, other than
as set forth on Schedule 2.1.17.3 hereto, with respect to any
foreign employee pension benefit plan maintained by Newgen or
any of its subsidiaries.
2.1.17.4. Relationship of Benefits to Pension Plan
Assets. The current value of all accrued benefits, both vested
and unvested, under all Statutory Plans does not exceed the
current value of the assets of such Statutory Plans allocable to
such accrued benefits, except as disclosed in the financial
statements described in Section 2.1.5 hereof For purposes of the
representation in this Section 2.1.17.4, the term "current
value" has the meaning specified in Section 4062(b)(1.A) of
ERISA, the term "accrued benefit" has the meaning specified in
Section 3 of ERISA and "current value" is based upon the same
actuarial assumptions used by Newgen for funding.
2.1.17.5. Execution of Agreements. The execution and
delivery of this Agreement and the consummation of the
transactions contemplated hereby will not involve any
transaction which is subject to the prohibitions of Section 406
of ERISA or in connection with which a tax could be imposed
pursuant to Section 4975 of the Code.
2.1.17.6. Fiduciary Liability. There have been no acts,
failures to act, omissions or transactions involving a Statutory
Plan or the assets thereof which could result in imposition on
Newgen (whether direct or indirect) of damages or liability in
actions brought under Section 502 or Sections 404 through 409 of
ERISA.
2.1.17.7. Pending Claims. There are no claims, pending
or, to Newgen's or either of the Insiders' knowledge,
threatened, involving any of the Benefit Plans by any current or
former employee (or beneficiary thereof) of Newgen which allege
any violation of ERISA or the terms of the Benefit Plans, nor is
there any reasonable basis to anticipate any claims involving
such Benefit Plans which would likely be successfully
maintained against Newgen.
2.1.17.8. Multiemployer Plans. Except AS set forth in
Schedule 2.1.17.8 hereto, neither Newgen nor any trade or
business (whether or not incorporated) which together with
Newgen would be deemed to be a "single employer" within the
meaning of Section 4001(b) of ERISA or Subsections 414(b), (c),
(m) or (o) of the Code sponsors, maintains, or contributes to,
or has at any time in the six-year period preceding the date of
this Agreement sponsored, maintained or contributed to, any plan
(not exempt from the provisions of ERISA), including, but not
limited to, any plan which is A "multiemployer plan" as such
term is defined in Section 3(37) or 4001(a)(3) of ERISA.
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<PAGE> 29
2.1.17.9. No Reportable Event. There has been no
"reportable event" (within the meaning of Section 4043(b) of
ERISA with respect to a Statutory Plan) or any "prohibited
transaction" (as such term is defined in Section 406 of ERISA
and Section 4975(c) of the Code) with respect to any of the
Employee Plans. All reporting and disclosure requirements under
Title I of ERISA have been met.
2.1.18. Investigations; Litigation. Except as required pursuant
to the Hart-Scott-Rodino Antitrust Improvements Act of 1976, and the
rules and regulations promulgated thereunder, (collectively, "HSR"),
and except as set forth on Schedule 2.1.18 hereto, (i) no investigation
or review by any governmental entity with respect to Newgen or any of
the transactions contemplated by this Agreement is pending or, to the
best of Newgen's and each of the Insider's knowledge, threatened, nor
has any governmental entity indicated to Newgen an intention to conduct
the same, and (ii) there is no action, suit or proceeding pending or, to
the best of Newgen's and each of the Insider's knowledge, threatened
against or affecting Newgen at law or in equity, or before any federal,
state, municipal or other governmental department, commission, board,
bureau, agency or instrumentality, that either individually or in the
aggregate, does or is likely to result in any material adverse change
in the financial condition, properties or business of Newgen.
2.1.19. Product Warranty. Except as set forth on Schedule 2.1.19
hereto, the reserve for warranty claims provided in the unaudited
consolidated financial statements of Newgen as of and for the nine
months ended September 30, 1996 is (and the reserve for warranty claims
provided in all other unaudited financial statements of Newgen
delivered to Striker after the date hereof will be) adequate to provide
for all warranty claims regarding the products sold by Newgen in the
past up to September 30, 1996 (and up to such other date of any
unaudited financial statements delivered by Newgen to Striker after the
date hereof) and there are no existing liabilities of Newgen for any
such claims in excess of the amount of such reserve that, in the
aggregate, would constitute a material adverse change in the financial
condition, properties or business of Newgen.
2.1.20. Information for Striker Proxy Statement. All information
and data (including financial statements) concerning Newgen that is or
will be included in the Proxy Statement/Prospectus described in Section
7.1 hereof to be used by Striker in connection with the transactions
contemplated by this Agreement will be furnished by Newgen for
inclusion therein and will not contain any untrue statement of a
material fact or omit to state a material fact necessary in order to
make the statements contained therein not misleading.
2.1.21. FIRPTA. Newgen does not have any stockholders who are
not United States citizens.
2.1.22. Effect of Disclosure. Any information required to be set
forth on any Schedule to this Agreement shall be deemed to be included
in such Schedule if such information is contained on any other
Schedule.
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<PAGE> 30
2.2. Representations and Warranties of the Stockholders. Each
Stockholder hereby severally represents and warrants as follows:
2.2.1. Ownership of Shares. Such Stockholder is the record and
beneficial owner of the number of Existing Shares set forth opposite
its name on Exhibit A hereto. On the date hereof the Existing Shares
set forth opposite such Stockholder's name on Exhibit A hereto
constitute all of the shares of Newgen Common Stock owned of record or
Beneficially Owned by such Stockholder or any affiliate thereof Such
Stockholder has (a) sole voting power and sole power to issue
instructions with respect to the matters set forth in Sections 1.2.19
hereof, and (b) sole power of disposition, conversion, the right to
demand appraisal rights and to agree to all of the matters set forth in
this Agreement, in each case with respect to all of the Existing
Shares, with no limitations, qualifications or restrictions on such
rights, subject to any approval required under HSR, applicable
securities laws and the terms of this Agreement.
2.2.2. Organization; Power; Binding Agreement. Such Stockholder
has been duly formed and is validly existing as a limited partnership
in good standing under the laws of the State of Texas. Such Stockholder
has the legal capacity, power and authority to enter into and perform
all of such Stockholder's obligations under this Agreement. All
proceedings required to be taken by or on the part of such Stockholder
to authorize the execution of this Agreement and the implementation of
the Merger contemplated hereby have been taken. The execution, delivery
and performance of this Agreement by such Stockholder will not violate
any other agreement to which such Stockholder is a party including,
without limitation, any voting agreement stockholders agreement or
voting trust. This Agreement has been duly and validly executed and
delivered by such Stockholder and constitutes a valid and binding
agreement of such Stockholder, enforceable against such Stockholder in
accordance with its terms, except as such enforceability may be limited
by applicable bankruptcy, insolvency and similar laws affecting
creditors' rights generally and to general principles of equity
(whether considered in a proceeding in equity or at law). There is no
beneficiary or holder of a voting trust certificate or other interest
of any trust of which such Stockholder is trustee whose consent is
required for the execution and delivery of this Agreement or the
consummation by such Stockholder of the transactions contemplated
hereby except as have been obtained.
2.2.3. No Conflicts. No filing with, and no permit,
authorization, consent or approval of, any state or federal public body
or authority is necessary for the execution of this Agreement by such
Stockholder and the consummation by such Stockholder of the
transactions contemplated hereby except as required by applicable
securities laws and HSR. Neither the execution and delivery of this
Agreement by such Stockholder nor the consummation of the transactions
contemplated hereby will result in a default (or give rise to any right
of termination, cancellation or acceleration) under any of the terms,
conditions or provisions of any note, license, agreement or other
instrument or obligation to which such Stockholder is a party or by
which such Stockholder or any of its assets may be bound, or
22
<PAGE> 31
violate any order, writ, injunction, decree, statute, rule or
regulation applicable to such Stockholder or any of such Stockholder's
properties or assets.
2.2.4. No Encumbrances. Such Stockholder's Existing Shares and
the certificates representing such Existing Shares are now held by such
Stockholder, or by a nominee or custodian for the benefit of such
Stockholder, free and clear of all liens, claims, security interests,
proxies, voting trusts or agreements, understandings or arrangements or
any other encumbrances whatsoever, except for any such Encumbrances or
Proxies arising hereunder.
2.2.5. Finder's Fee. All negotiations relative to this Agreement
and the transactions contemplated hereby have been carried upon by such
Stockholder and his respective counsel, directly with Striker and
Acquisition No. 1 and their counsel, without intervention of any other
person as the result of any act of such Stockholder and so far as is
known by such Stockholder, without intervention of any other person in
such a manner as to give rise to any valid claim against any of the
parties hereto for a brokerage commission, finder's fee or any similar
payments, except for fees payable by Striker under the Engagement
Letter.
ARTICLE 3
REPRESENTATIONS AND WARRANTIES OF
ACQUISITION No. 1 AND ACQUISITION No. 3
3.1. Representations and Warranties of Acquisition No. 1. Acquisition
No. 1 represents and warrants as follows:
3.1.1. Organization and Standing. Acquisition No. 1 is a
corporation duly organized, validly existing and in good standing under
the laws of the State of Delaware, has full requisite corporate power
and authority to carry on its business as it is currently conducted,
and to own and operate the properties currently owned and operated by
it, and is duly qualified or licensed to do business and is in good
standing as a foreign corporation authorized to do business in all
jurisdictions in which the character of the properties owned or the
nature of the business conducted by it would make such qualification or
licensing necessary.
3.1.2. Agreement Authorized and its Effect on Other Obligations.
The consummation of the transactions contemplated hereby have been duly
and validly authorized by all necessary corporate action on the part of
Acquisition No. 1, and this Agreement is a valid and binding obligation
of Acquisition No. 1 enforceable (subject to normal equitable
principles) in accordance with its terms, except as enforceability may
be limited by bankruptcy, insolvency, reorganization, debtor relief or
similar laws affecting the rights of creditors generally. At the
Effective Date, the consummation of the Merger contemplated by this
Agreement will not result in the breach of any term or provision of or
constitute a default
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<PAGE> 32
under any obligation, indenture, mortgage, deed of trust, lease,
contract or other agreement to which Acquisition No. 1 or any of its
subsidiaries, is a party.
3.1.3. Capitalization. The capitalization of Acquisition No. I
consists of 10,000,000 shares of preferred stock, par value $.20 per
share, of which at the date hereof, no shares were issued or
outstanding; and 50,000,000 shares of Acquisition No. 1 Common Stock,
of which at the date hereof, no shares were issued and outstanding and
no shares were reserved for issuance.
3.1.4. Compliance with Other Laws. Acquisition No. 1 is not in
violation of or in default with respect to, or in alleged violation of
or alleged default with respect to, any applicable law or any
applicable rule, regulation, or any writ or decree of any court or any
governmental commission, board, bureau, agency, or instrumentality, or
delinquent with respect to any report required to be filed with any
governmental commission, board, bureau, agency or instrumentality which
would have a material adverse affect upon its financial condition,
properties or business.
3.1.5. Investigations, Litigation. Except as required pursuant
to HSR, (i) no investigation or review by any governmental entity with
respect to Acquisition No. 1 in connection with any of the transactions
contemplated by this Agreement is pending or, to the best of
Acquisition No. 1's knowledge, threatened, nor has any governmental
entity indicated to Acquisition No. 1 an intention to conduct the same,
and (ii) there is no action, suit or proceeding pending or, to the best
of Acquisition No. 1's knowledge, threatened against or affecting
Acquisition No. 1 by any federal, state, municipal or other
governmental department, commission, board, bureau, agency or
instrumentality, which either individually or in the aggregate, does or
is likely to result in any material adverse change in the financial
condition, properties or businesses of Acquisition No. 1.
3.1.6. Finder's Fee. All negotiations relative to this Agreement
and the transactions contemplated hereby have been carried on by
Acquisition No. 1 and its counsel directly with Newgen and its counsel,
without the intervention by any other person as the result of any act
of Acquisition No. 1 in such a manner as to give rise to any valid
claim against any of the parties hereto for any brokerage commission,
finder's fee or any similar payments, except for payments by Striker
under the Engagement Letter.
3.1.7. Solvency. As determined on the Effective Date,
Acquisition No. 1 shall be Solvent (defined below), both immediately
prior to and after giving effect to the transactions contemplated by or
referred to in this Agreement, including the payment of all legal,
accounting and other fees related to the foregoing. The term "Solvent,"
when used with respect to a party to this Agreement, means that the
present fair saleable value of such party's assets on a going concern
basis is in excess of the total amount of its liabilities (including
contingent liabilities) and such party is able to pay its debts as they
become due.
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3.2. Representations and Warranties of Acquisition No. 3. Acquisition
No. 3 represents and warrants as follows:
3.2.1. Organization and Standing. Acquisition No. 3 is a
corporation duly organized, validly existing, and in good standing
under the laws of Texas.
3.2.2. Capitalization. The authorized capital stock of
Acquisition No. 3 consists of 1,000 shares of common stock par value
$1.00 per share, of which at the date hereof, 1,000 shares were issued,
outstanding, and held beneficially by Acquisition No. 1.
3.2.3. Agreement Authorized. The consummation of the
transactions contemplated hereby have been duly and validly authorized
by all necessary corporate action on the part of Acquisition No. 3, and
this Agreement is a valid and binding obligation of Acquisition No. 3
enforceable (subject to normal equitable principles) in accordance with
its terms, except as enforceability may be limited by bankruptcy,
insolvency, reorganization, debtor relief, or similar laws affecting
the rights of creditors generally.
3.2.4. Investigations; Litigation. Except as required pursuant
to HSR, (i) no investigation or review by any governmental entity with
respect to Acquisition No. 3 in connection with any of the transactions
contemplated by this Agreement is pending or, to the best of
Acquisition No. 3's knowledge, threatened, nor has any governmental
entity indicated to Acquisition No. 3 an intention to conduct the same
and (ii) there is no action, suit or proceeding pending or, to the best
of Acquisition No. 3's knowledge, threatened against or affecting
Acquisition No. 3 at law or in equity, or before any federal, state,
municipal or other governmental department, commission, board, bureau,
agency or instrumentality, which either individually or in the
aggregate, does or is likely to have a material adverse affect in its
financial condition, properties or business taken as a whole.
3.2.5. Finder's Fee. All negotiations relative to this Agreement
and the transactions contemplated hereby have been carried on by
Acquisition No. 3 and its counsel and Newgen and its counsel, without
the intervention of any other person as the result of any act of
Acquisition No. 3 in such a manner as to give rise to any valid claim
against any of the parties hereto for any brokerage commission,
finder's fee or any similar payments except for payments by Striker
under the Engagement Letter.
3.2.6. Solvency. As determined on the Effective Date,
Acquisition No. 3 shall be Solvent both immediately prior to and after
giving effect to the transactions contemplated by or referred to in
this Agreement, including the payment of all legal, accounting and
other fees related to the foregoing.
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ARTICLE 4
OBLIGATIONS PENDING EFFECTIVE DATE
4.1. Agreements of Newgen. As used in this Article 4, the term "Newgen"
also includes each of its directly and indirectly held subsidiaries. Newgen
agrees that since September 30, 1996, it has, and from the date hereof to the
Effective Date, it will:
4.1. 1. Maintenance of Present Business. Other than as
contemplated by this Agreement or in the Schedules to this Agreement
(i) operate its business only in the usual, regular, and ordinary
manner so as to maintain the goodwill it now enjoys and, (ii) to the
extent consistent with such operation, use all reasonable efforts to
(a) preserve intact its present business organization, (b) keep
available the services of its present officers and employees, and (c)
preserve its relationships with customers, suppliers, jobbers,
distributors, and others having business dealings with it;
4.1.2. Maintenance of Properties. At its expense, maintain all
of its property and assets in customary repair, order, and condition,
reasonable wear and use and damage by fire or casualty excepted;
4.1.3. Maintenance of Books and Records. Maintain its books of
account and records in the usual, regular, and ordinary manner, in
accordance with generally accepted accounting principles applied on a
consistent basis;
4.1.4. Compliance with Law. Duly comply in all material respects
with all laws applicable to it and to the conduct of its business;
4.1.5. Inspection of Each Merging Corporation. Permit
Acquisition No. 1, Acquisition No. 3 and Striker and their respective
officers and authorized representatives, during normal business hours,
to inspect Newgen's records and to consult with its officers,
employees, attorneys, and agents for the purpose of determining the
accuracy of the representations and warranties hereinabove made and the
compliance with covenants contained in this Agreement. Each of
Acquisition No. 3 and Striker agrees that it and its officers and
representatives shall hold all data and information obtained with
respect to Newgen in confidence and each further agrees that it will
not use such data or information or disclose the same to others, except
(i) to the extent such data or information either are, or become,
published or a matter of public knowledge, other than by breach of this
Section 4.1.5, or (ii) for any purpose contemplated by, or in a dispute
under, this Agreement;
4.1.6. Hart-Scott-Rodino. File such materials as are required
under HSR with respect to the transactions contemplated hereby and
shall cooperate with Striker and Acquisition No. 3 to the extent
necessary to assist Striker, Acquisition No. 1 and Acquisition No. 3 in
the preparation of such filings;
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4.1.7. Notice of Material Developments. Promptly notify
Acquisition No. 1, Acquisition No. 3 and Striker in writing of any
"material adverse change" in, or any changes which, in the aggregate,
could result in a "material adverse change" in, the consolidated
financial condition, business or affairs of Newgen, whether or not
occurring in the ordinary course of business. As used in this
Agreement, the term "material adverse change' means any change, event,
circumstance or condition (collectively, a "Change") which when
considered with all other Changes would reasonably be expected to
result in a "loss" having the effect of so fundamentally adversely
affecting the business or financial prospects of Newgen, that the
benefits reasonably expected to be obtained by Striker and Acquisition
No. 1 as a result of the transactions contemplated by this Agreement
would be jeopardized with relative certainty. The term "loss" shall
mean any and all direct or indirect payments, obligations, assessments,
losses, loss of income, liabilities, fines, penalties, costs and
expenses paid or incurred or more likely than not to be paid or
incurred, or diminutions in value of any kind or character (whether or
not known or unknown, conditional or unconditional, choate or inchoate,
liquidated or unliquidated, secured or unsecured, accrued, absolute,
contingent or otherwise) that are more likely than not to occur,
including without limitation penalties, interest on any amount payable
to a third party as a result of the foregoing and any legal or other
expenses reasonably incurred or more likely than not to be incurred in
connection with investigating or defending any demands, claims, actions
or causes of action that, if adversely determined, would likely result
in losses, and all amounts paid in settlement of claims or actions;
provided, however, that losses shall be net of any insurance proceeds
entitled to be received from a nonaffiliated insurance company on
account of such losses (after taking into account any costs incurred in
obtaining such proceeds and any increase in insurance premiums as a
result of a claim with respect to such proceeds);
4.1.8. Prohibition of Certain Employment Contracts. Except as
contemplated by Section 5.2.9, 5.2.9 hereof, not enter into any
contracts of employment that (i) cannot be terminated on notice of 14
days or less or (ii) provide for any severance payments or benefits
covering a period beyond the termination date (other than those which
Striker or Acquisition No. 3 has previously approved) except as may be
required by law;
4.1.9. Prohibition of Certain Loans. Not incur any borrowings
except (i) additional borrowings under its existing revolving credit
facilities, (ii) the prepayment by customers of amounts due or to
become due for goods sold or services rendered or to be rendered in the
future, (iii) trade payables incurred in the ordinary course of
business, (iv) other borrowings incurred in the ordinary course of
business to finance normal operations, but in no event to exceed
$50,000 in aggregate principal amount or (v) as is otherwise agreed to
in writing by Striker or Acquisition No. 3;
4.1.1O. Prohibition of Certain Commitments. Not enter into
commitments of a capital expenditure nature which would exceed
$10,000,000, in the aggregate, except (i) in connection with the Granule
Plant Project as described in Section 5.2.11 hereof, (ii) as may be
necessary for the maintenance of existing facilities, machinery and
equipment in good
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operating condition and repair in the ordinary course of business,
(iii) as may be required by law or (iv) as is otherwise agreed to in
writing by Striker or Acquisition No. 3;
4.1.11. Disposal of Assets. Not sell dispose of or encumber, any
property or assets, except (i) in the ordinary course of business, (ii)
in an amount not in excess of $50,000 in aggregate depreciated cost
basis, (iii) as is otherwise agreed to in writing by Striker or
Acquisition No. 3 or (iv) for the sale of the glass mat line and
related real and personal property to Shuller International, Inc.
("Shuller") that is currently leased by Shuller.
4.1.12. Maintenance of Insurance. Maintain insurance upon all
its properties and with respect to the conduct of its business of such
kinds and in such amounts as is customary in the type of business in
which it is engaged, but not less than that presently carried by it,
which insurance may be added to from time to time in its discretion;
4.1.13. No Amendment to Articles of Incorporation, etc. Not
amend its certificate or articles of incorporation or bylaws or other
organizational documents or merge or consolidate with or into any other
corporation or change in any manner the rights of its capital stock or
the character of its business;
4.1.14. No Issuance, Sale, or Purchase of Securities. Not issue
or sell, or issue options or rights to subscribe to, or enter into any
contract or commitment to issue or sell (upon conversion or otherwise),
any shares of its capital stock or subdivide or in any way reclassify
any shares of its capital stock, or acquire, or agree to acquire, any
shares of its capital stock; provided, however, that the issuance of
Newgen Common Stock upon the exercise of options issued before the date
hereof shall be permitted.
4.1.15. Prohibition on Dividends. Not declare or pay any
dividend on shares of its capital stock or make any other distribution
of assets to the holders thereof, and
4.1.16. Supplemental Financial Statements. Deliver to Striker
within 30 days after the end of each fiscal quarter of Newgen beginning
on the date hereof and through the Effective Date, unaudited
consolidated and consolidating balance sheets and related unaudited
statements of income as of the end of each fiscal quarter of Newgen,
and as of the corresponding fiscal quarter of the previous fiscal year.
Newgen hereby represents and warrants that such unaudited consolidated
and consolidating financial statements shall (i) be complete in all
material respects except for the omission of notes, statements of
stockholders' equity and cash flows, and schedules contained in audited
financial statements, (ii) present fairly the financial condition of
Newgen as at the dates indicated and the results of operations for the
respective periods indicated and (iii) shall have been prepared in
accordance with generally accepted accounting principles applied on a
consistent basis, except as noted therein and except for the absence of
notes as well as statements of stockholders' equity and cash flows.
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4.2. Additional Agreements of Newgen, the Insiders and the
Stockholders. From the date hereof until the Effective Date:
4.2. 1. Acquisition Proposals. Neither Newgen, the Insiders nor
either of the Stockholders shall directly or indirectly:
4.2.1. 1. No Solicitation. Authorize or permit any of
its or his respective agents to: (i) solicit, initiate,
encourage (including by way of furnishing information) or take
any other action to facilitate, any inquiry or the making of any
proposal which constitutes, or may reasonably be expected to
lead to, any acquisition or purchase of a substantial amount of
assets of, or any equity interest in, Newgen or any of its
subsidiaries or any merger, consolidation, business combination,
sale of substantially all assets, sale of securities,
recapitalization, liquidation, dissolution or similar
transaction involving Newgen or any of its subsidiaries (other
than the transactions contemplated by this Agreement) or any
other material corporate transaction the consummation of which
would or could reasonably be expected to impede, interfere with,
prevent or materially delay the transactions contemplated by
this Agreement (collectively, "Transaction Proposals") or agree
to or endorse any Transaction Proposal or (ii) propose, enter
into or participate in any discussions or negotiations regarding
any of the foregoing, or furnish to another person any
information with respect to its business, properties or assets
or any of the foregoing, or otherwise cooperate in any way with,
or assist or participate in, facilitate or encourage, an effort
or attempt by any other person to do or seek any of the
foregoing. If the board of directors of Newgen, either of the
Insiders or either of the Stockholders receives a Transaction
Proposal, then Newgen or such Stockholder, as the case may be,
shall immediately inform Striker and Acquisition No. 3 of the
terms and conditions of such proposal and the identity of the
person making it and shall keep Striker and Acquisition No. 3
fully informed of the status and details of any such Transaction
Proposal and of all steps it is taking in response to such
Transaction Proposal.
4.2.2. Expenses of Stockholders. Newgen will not incur, or if
incurred will not pay, more than $250,000 of the professional fees and
expenses of the Insiders or the Stockholders in connection with the
negotiation of this Agreement and the closing of the transactions
contemplated hereby.
4.2.3. Noncompetition. Except as otherwise consented to or
approved in writing by Striker, each of Smith and the Smith Partnership
agrees that for a period of 60 months from the date of termination of
Smith's employment under the Smith Employment Agreement (defined in
Section 5.2.9 hereof), and each of Nesselroade and the Nesselroade
Partnership agree that for a period of 60 months from the date of
termination of Nesselroade's services under the Nesselroade Consulting
Agreement (defined in Section 5.2.9 hereof), they will not, directly or
indirectly, acting alone or as a member of a partnership or as an
officer, director, employee, consultant representative, holder of, or
investor in as much as 5% of any security
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of any class of any corporation or other business entity (i) engage in
any business in competition with the business or businesses conducted
by Newgen or Striker at the date of cessation (the "Cessation Date") of
Smith's or Nesselroade's respective employment or services under the
Smith Employment Agreement or the Nesselroade Consulting Agreement, as
the case may be, or in any manufacturing business the products of which
at the Cessation Date are sold to and marketed by Newgen or Striker in
any state of the United States, any province of Canada, or any foreign
country in which Newgen or Striker transacts business on Cessation
Date; (ii) request any present or future customers or suppliers of
Newgen or Striker to curtail or cancel their business with Newgen or
Striker; (iii) disclose to any person, firm or corporation any trade,
technical or technological secrets of Newgen or Striker or any details
of their organization or business affairs or (iv) induce or actively
attempt to influence any employee of Newgen or Striker to terminate his
employment. Each of the Insiders and the Stockholders agrees that if
either the length of time or geographical area set forth in this
Section is deemed too restrictive in any court proceeding, the court
may reduce such restrictions to those which it deems reasonable under
the circumstances. The obligations expressed in this Section 4.2.1.3
are in addition to any other obligations that either of the Insiders or
Stockholders may have under the laws of the State of Texas requiring an
employee of a business or a stockholder who sells his stock in a
corporation (including a disposition in a merger) to limit his
activities so that the goodwill and business relations of his employer
and of the corporation whose stock he has sold (and any successor
corporation) will not be materially impaired. Each Insider and
Stockholder further agrees and acknowledges that Newgen and Striker do
not have any adequate remedy at law for the breach or threatened breach
by either of the Insiders or Stockholders of this covenant, and agree
that Newgen or Striker may, in addition to the other remedies which may
be available to it hereunder, file a suit in equity to enjoin such
Insider or Stockholder from such breach or threatened breach. If any
provisions of this Section 4.2.1.3 are held to be invalid or against
public policy, the remaining provisions shall not be affected thereby.
Each of the Insiders and Stockholders acknowledges that the covenants
set forth in this Section are being executed and delivered by such
Insider and Stockholder in consideration of the covenants of Newgen and
Striker contained in this Agreement, and for other good and valuable
consideration, receipt of which is hereby acknowledged.
4.3 Shareholders Agreement. Each of the Stockholders hereby agrees that
to the extent any of the agreements or other actions to be performed by such
Stockholder hereunder or by the Exchanging Shareholders under the Stock
Exchange Agreement would violate any provision of that certain Amended and
Restated Management Shareholders Agreement dated October 25, 1993 by and among
Newgen and its shareholders (the "Shareholders Agreement"), the Shareholders
Agreement shall be deemed to be amended hereby by written consent of each of
the Stockholders to allow such agreements or other actions. Additionally, each
of the Stockholders hereby consent to the termination of the Shareholders
Agreement, such consent to be effective as of the Effective Date and if the
Stock Exchange Agreement is consummated, immediately prior to the closing of
the Stock Exchange Agreement.
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ARTICLE 5
CONDITIONS PRECEDENT TO OBLIGATIONS
5.1. Conditions Precedent to Obligations of Newgen. As used in this
Article 5, the term "Newgen" also includes each of its directly and indirectly
held subsidiaries. The obligation of Newgen to consummate and effect the Merger
hereunder shall be subject to the satisfaction of the following conditions, or
to the waiver thereof by Newgen in the manner contemplated by Section 6.4
hereof, before the Effective Date:
5.1. 1. Representations mad Warranties True at Effective Date.
The representations and warranties of Acquisition No. 1 and Acquisition
No. 3 herein contained shall be, in all material respects, true as of
and at the Effective Date with the same effect as though made at such
date, except as affected by transactions permitted or contemplated by
this Agreement; Acquisition No. 1 and Acquisition No. 3 shall have
performed and complied, in all material respects, with all covenants
required by this Agreement to be performed or complied with by
Acquisition No. 1 and Acquisition No. 3 before the Effective Date; and
Acquisition No. 1 and Acquisition No. 3 shall have delivered to Newgen
a certificate, dated the Effective Date and signed by their respective
chairmen of the board or presidents, and by their respective chief
financial or accounting officers, to both such effects.
5.1.2. No Material Litigation. No suit, action, or other
proceeding shall be pending or threatened before any court or
governmental agency in which it will be, or it is, sought to restrain
or prohibit or to obtain damages or other relief in connection with
this Agreement or the consummation of the transactions contemplated
hereby.
5.1.3. Opinion of Acquisition No. 1 and Acquisition No. 3
Counsel. Newgen shall have received a favorable opinion, dated as of
the Effective Date, from Porter & Hedges, L.L.P., counsel for
Acquisition No. 1 and Acquisition No. 3, in form and substance
satisfactory to Newgen, to the effect that (i) Acquisition No. 1 and
Acquisition No. 3 have been duly incorporated and are validly existing
as corporations in good standing under the laws of their respective
states of corporation; (ii) all corporate proceedings required to be
taken by or on the part of Acquisition No. 1 and Acquisition No. 3 to
authorize the execution of this Agreement and the implementation of the
Merger contemplated hereby have been taken; (iii) this Agreement has
been duly executed and delivered by, and is the legal, valid and
binding obligation of, Acquisition No. 1 and Acquisition No. 3, and is
enforceable against Acquisition No. 1 and Acquisition No. 3 in
accordance with its terms, except as enforceability may be limited by
(a) equitable principles of general applicability or (b) bankruptcy,
insolvency, reorganization, fraudulent conveyance or similar laws
affecting the rights of creditors generally, and except that no opinion
need be expressed as to the enforceability of any indemnification
provisions of this Agreement; and (v) except as specified by such
counsel (such exceptions to be acceptable to Newgen) such counsel does
not know of any material litigation, proceedings, or governmental
investigation pending or threatened against or
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relating to Acquisition No. 1 or Acquisition No. 3, any of their
affiliates, or their respective properties or businesses in which it is
sought to restrain, prohibit or otherwise affect the consummation of
the transactions contemplated by this Agreement. Such opinion also
shall cover such other matters incident to the transactions herein
contemplated as Newgen and its counsel may reasonably request. In
rendering such opinion, such counsel may rely upon (i) certificates of
public officials and of officers of Acquisition No. 1 and Acquisition
No. 3 as to matters of fact and (ii) the opinion or opinions of other
counsel, which opinions shall be reasonably satisfactory to Newgen, as
to matters other than federal or Delaware corporate law.
5.1.4. Stockholder Approval. The approval required under the
laws of its state of incorporation of holders of outstanding capital
stock of Newgen entitled to vote thereon of the Merger contemplated by
this Agreement shall have occurred, and such approval shall not have
been amended, modified or rescinded on or before the Effective Date.
5.1.5. Consent of Certain Parties in Privity With Striker. The
holders of any material indebtedness of Striker or Acquisition No. 1,
the lessors of any material property leased by Striker or Acquisition
No. 1, and the other parties to any other material agreements to which
Striker or Acquisition No. 1 is a party shall, to the extent required,
have consented to the transactions contemplated hereby.
5.1.6. Hart-Scott-Rodino. All waiting periods required by HSR
shall have expired with respect to the transactions contemplated by
this Agreement, or early termination with respect thereto shall have
been obtained without the imposition of any governmental request or
order requiring the sale or disposition or holding separate (through a
trust or otherwise) of particular assets or businesses of Striker, its
affiliates or any component of Newgen or other actions as a
pre-condition to the expiration of any waiting period or the receipt of
any necessary governmental approval or consent. In addition, any
approvals required under state laws comparable to HSR shall have been
obtained.
5.1.7. Preliminary Transactions. Each of the Preliminary
Transactions described in Section 1. I shall have been consummated on
and as of the Effective Date, except that if the Stock Exchange
Agreement is not entered into on or before the Effective Date, then
only the Striker Merger and the Financing shall have been consummated
on and as of the Effective Date.
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5.2. Conditions Precedent to Obligations of Acquisition No. 1 and
Acquisition No. 3. The obligations of Acquisition No. 1 and Acquisition No. 3
to consummate and effect the Merger hereunder shall be subject to the
satisfaction of the following conditions, or to the waiver thereof by
Acquisition No. 1 or Acquisition No. 3 in the manner contemplated by Section
6.4 hereof before the Effective Date.
5.2.1. Representations and Warranties of Newgen and Insiders
True at Effective Date. The representations and warranties of Newgen
and the Insiders herein contained shall be, in all material respects,
true as of and at the Effective Date with the same effect as though
made at such date, except as affected by transactions permitted or
contemplated by this Agreement. Each of Newgen and the Insiders shall
have performed and complied in all material respects with all covenants
required by this Agreement to be performed or complied with by them
before the Effective Date; and each of Newgen and the Insiders shall
have delivered to Acquisition No. 1 and Acquisition No. 3 a
certificate, dated the Effective Date and signed by Newgen or such
Insider (with such certificate of Newgen being signed by its chairman
of the board or its president, and by its chief financial or accounting
officer), to both such effects.
5.2.2. Representations and Warranties of Stockholders True at
Effective Date. The representations and warranties of the Stockholders
herein contained shall be in all material respects true as of and at
the Effective Date with the same effect as though made at such date,
except as effected by transactions permitted or contemplated by this
Agreement. Each of the Stockholders shall have performed and complied
in all material respects with all covenants required by this Agreement
to be performed or complied with by them before the Effective Date; and
each of the Stockholders shall have delivered to Acquisition No. 1 and
Acquisition No. 3 a certificate, dated the Effective Date and signed by
such Stockholder, to both such effects.
5.2.3. No Material Litigation. No suit, action, or other
proceeding shall be pending or threatened before any court or
governmental agency in which it will be, or it is, sought to
restrain or prohibit or to obtain damages or other relief in connection
with this Agreement or the consummation of the Merger contemplated
hereby or which might result in a material adverse change in the value
of the assets and business of Newgen.
5.2.4. Opinion of Newgen's Counsel. Acquisition No. 1 and
Acquisition No. 3 shall have received a favorable opinion, dated the
Effective Date, from Vial, Hamilton, Koch & Knox, L.L.P., counsel to
Newgen, the Insiders and the Stockholders, in form and substance
satisfactory to Acquisition No. 1 and Acquisition No. 3, to the effect
that (i) Newgen and each of its subsidiaries has been duly incorporated
and is validly existing as a corporation in good standing under the
laws of its state of incorporation; (ii) all outstanding shares of
Newgen Common Stock and the capital stock of each of its subsidiaries
have been validly issued and are fully paid and nonassessable and free
of preemptive rights; (iii) all corporate or other proceedings required
to be taken by or on the part of Newgen to authorize the
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execution of this Agreement and the implementation of the Merger
contemplated hereby have been taken; (iv) each of the Stockholders has
been duly formed and is validly existing as a limited partnership in
good standing under the laws of the State of Texas; (v) all proceedings
required to be taken by or on the part of each of the Stockholders to
authorize the execution of this Agreement and the implementation of the
Merger contemplated hereby have been taken, (vi) this Agreement has
been duly executed and delivered by, and is the legal, valid and
binding obligation of Newgen, each of the Insiders and each of the
Stockholders and is enforceable against Newgen, each of the Insiders
and each of the Stockholders in accordance with its terms, except as
the enforceability may be limited by (a) equitable principles of
general applicability or (b) bankruptcy, insolvency, reorganization,
fraudulent conveyance or similar laws affecting the rights of creditors
generally and except that no opinion need be expressed as to the
enforceability of any indemnification provisions of this Agreement; and
(vii) except as specified by such counsel (such exceptions to be
acceptable to Acquisition No. 1 and Acquisition No. 3) such counsel
does not know of any material litigation, proceedings or governmental
investigation, pending or threatened against or relating to Newgen or
any of its subsidiaries or their respective properties or businesses in
which it is sought to restrain, prohibit or otherwise affect
consummation of the transactions contemplated by this Agreement. Such
opinion shall also cover such other matters incident to the
transactions herein contemplated as Acquisition No. 1 and Acquisition
No. 3 and its counsel may reasonably request. In rendering such
opinion, such counsel may rely upon (i) certificates of public
officials, officers of Newgen, general partners of the Stockholders, or
the Insiders as to matters of fact and (ii) on the opinion or opinions
of other counsel, which opinions shall be reasonably satisfactory to
Acquisition No. 3, as to matters other than federal, Texas, Delaware
corporate law or New York corporate law.
5.2.5. Stockholder Approval. The holders of the requisite
majority of the outstanding shares of Acquisition No. 3 Common Stock
shall have approved the Merger contemplated by this Agreement, and such
approval shall not have been amended, modified or rescinded before the
Effective Date.
5.2.6. Consent of Certain Parties in Privity with Newgen. The
holders of any material indebtedness of Newgen, the lessors of any
material property leased by Newgen, and the other parties to any other
material agreements to which Newgen is a party shall, to the extent
required, have consented to the Merger contemplated hereby.
5.2.7. Hart-Scott Rodino. All waiting periods required by HSR
shall have expired with respect to the transactions contemplated by
this Agreement or early termination with respect thereto shall have
been obtained without the imposition of any governmental request or
order requiring the sale or disposition or holding separate (through a
trust or otherwise) of particular assets of Newgen, its affiliates or
any component of Striker or other actions as pre-condition to the
expiration of any waiting period or the receipt of any necessary
governmental approval or consent. In addition, any approvals required
under state laws comparable to HSR shall have been obtained.
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5.2.8.Preliminary Transactions. Each of the Preliminary
Transactions described in Section 1.1 shall have been consummated on
and as of the Effective Date, except that if the Stock Exchange
Agreement is not entered into on or before the Effective Date, then
only the Striker Merger and the Financing shall have been consummated
on and as of the Effective Date.
5.2.9. Insider Employment Agreements. Smith shall have executed
an employment agreement (the "Smith Employment Agreement") with
Acquisition No. 1, or a designated affiliate of Acquisition No. 1, for
a term beginning on the Effective Date and expiring on December 31,
1998. Nesselroade shall have executed an employment/consulting
agreement (the "Nesselroade Consulting Agreement") with Acquisition No.
1, or a designated affiliate of Acquisition No. 1, for a term beginning
on the Effective Date and expiring on December 31, 1998. Compensation
under such agreements will be at least equal to the compensation
currently in effect for each such Insider, including each such
Insider's presently scheduled 1996 salary increases and "guaranteed
bonus" as set forth in Newgen's "annual bonus letter," and such
agreements shall otherwise be reasonably satisfactory to all parties
thereto.
5.2.10. Completion of Due Diligence. Acquisition No. 3 and
Striker shall have completed the due diligence examination contemplated
by Section 4.1.5 hereof and the information concerning Newgen received
pursuant to such investigation shall, to Acquisition No. 3's sole
satisfaction, be consistent with the representations and warranties of
Newgen, the Insiders and the Stockholders set forth herein in all
material respects.
5.2.11. Granule Plant Project (the "Granule Plant"). Newgen or
its affiliates will have consummated the transactions contemplated by
the Master Agreement Re Rock Quarry concerning a long term lease and a
supply agreement with respect to the operation of the quarry to be used
in connection with the operations of the proposed Granule Plant, and,
if required, the supplement to Schedule 2.1.14 hereto contemplated in
Section 2.1.14 shall have been delivered and the information contained
therein shall be acceptable to Acquisition No. 3.
5.2.12. Wilmington Labor Dispute. By December 31, 1996 the
Wilmington, California facility will be operating at or above the
conversion factors and total unit production level at which it was
operating before the beginning of the labor dispute pending before the
National Labor Relations Board's Region 21 concerning ILWU Local 26
against Newgen, and concerning Newgen against ILWU Local 26.
ARTICLE 6
TERMINATION AND ABANDONMENT
6.1. Termination. As used in this Article 6, the term "Newgen" also
includes each of its directly and indirectly held subsidiaries. Anything
contained in this Agreement to the contrary notwithstanding, this Agreement may
be terminated and the Merger contemplated hereby abandoned
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<PAGE> 44
at any time (whether before or after the approval and adoption thereof by the
stockholders of Newgen or Acquisition No. 3) before the Effective Date:
6. 1. 1. By Mutual Consent. By mutual consent of Acquisition No.
3, Newgen and each of the Insiders and the Stockholders.
6.1.2. By Acquisition No. 3 Because of Dissenting Stockholders.
By Acquisition No. 3, if the holders of any shares of Newgen Common
Stock elect to exercise the right to dissent under applicable
provisions of Texas law in connection with the Merger contemplated by
this Agreement.
6.1.3. By Acquisition No. 3 Because of Conditions Precedent. By
Acquisition No. 3, if any condition set forth in Section 5.2 hereof has
not been met and has not been waived.
6.1.4. By Acquisition No. 3 Because of Solicitation of
Acquisition Proposals. By Acquisition No. 3 if Newgen or either of the
Insiders or either of the Stockholders has breached the provisions of
Section 4.2.1.1 hereof.
6.1.5. By Acquisition No. 3 Because of Material Adverse Change.
By Acquisition No. 3, if there has been a material adverse change in
the financial condition or business of Newgen since the date of the
most recent financial statements referred to in Section 2.1.5.
6.1.6. By Newgen Because of Conditions Precedent. By Newgen, if
any condition set forth in Section 5.1 hereof has not been met and has
not been waived.
6.1.7. By Acquisition No. 3 or Newgen Because of Legal
Proceedings. By either Acquisition No. 3 or Newgen if any suit, action,
or other proceeding shall be pending or threatened by the federal or a
state government before any court or governmental agency, in which it
is sought to restrain, prohibit, or otherwise affect the consummation
of the merger contemplated hereby.
6.1.8. By Acquisition No. 3 or Newgen if Merger not Effective by
April 21, 1997. By either Acquisition No. 3 or Newgen, if the Merger
shall not have become effective on or before April 21, 1997.
6.2. Termination by Board of Directors. An election of Acquisition No.
3 to terminate this Agreement and abandon the merger as provided in Section 6.1
shall be exercised on behalf of Acquisition No. 3 by its board of directors. An
election of Newgen to terminate this Agreement and abandon the Merger as
provided in Section 6.1 hereof shall be exercised on behalf of Newgen by its
board of directors.
6.3. Effect of Termination; Expenses. In the event of a termination and
abandonment of this Agreement pursuant to and in accordance with the provisions
of Section 6.1 hereof, then this
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<PAGE> 45
Agreement shall become void and have no effect. In such event, notwithstanding
any other provisions of this Agreement to the contrary, all expenses relating
to the transactions contemplated by this Agreement will be paid by the party
incurring them.
6.4. Waiver of Conditions. Subject to the requirements of any
applicable law, any of the terms or conditions of this Agreement may be waived
at any time by the party which is entitled to the benefit thereof (which waiver
shall be, in the case of corporate parties, by action taken by the board of
directors, the executive committee of the board of directors, or the chief
executive officer of such corporate party).
ARTICLE 7
Additional Agreements
7.1. Registration Statement; Proxy Statement/Prospectus.
7. 1. 1. Filing With the Commission. For the purposes of (i)
holding a meeting of the stockholders of Striker to approve the Striker
Merger and (ii) registering with the Commission and with applicable
state securities authorities the issuance of Acquisition No. 1 Common
Stock to holders of Striker Common Stock in connection with the Striker
Merger, the parties hereto shall cooperate in the preparation of an
appropriate registration statement of Acquisition No. 1 on Form S-4 or
S-1 (such registration statement, together with all and any amendments
and supplements thereto, being herein referred to as the "Registration
Statement"), which shall include a proxy statement/prospectus of
Striker satisfying all applicable requirements of the DGCL, the
Securities Act of 1933, as amended (the "Securities Act"), the Exchange
Act, applicable state securities laws and the rules and regulations
thereunder (such proxy statement/prospectus, together with any and all
amendments or supplements thereto, being herein referred to as the
"Proxy Statement/Prospectus").
7.1.2. Cooperation of Newgen. As hereinafter used in this
Article 7, the term "Newgen" also includes each of its directly and
indirectly held subsidiaries. Newgen shall furnish Striker and
Acquisition No. 1 with such information concerning Newgen as is
necessary in order to cause the Registration Statement and the Proxy
Statement/Prospectus, insofar as they relate to Newgen, to be prepared
in accordance with Section 7.1.1. Newgen shall have the right to
review and approve the information concerning Newgen and its
subsidiaries included in the Registration Statement. Newgen agrees
promptly to advise Striker and Acquisition No. 1 if at any time before
the stockholders meeting of Striker or the effective date of the
Registration Statement any information provided by Newgen for use in
the Proxy Statement/Prospectus becomes incorrect or incomplete in any
material respect, and to provide Striker and Acquisition No. 1 with the
information needed to correct such inaccuracy or omission.
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<PAGE> 46
7.1.3. Best Efforts for Commission Clearance. Striker and
Acquisition No. 1 will, as soon as practicable, file with the
Commission and applicable state securities agencies on a confidential
basis a form of preliminary proxy statement/prospectus that will in a
revised form ultimately comprise part of the Registration Statement and
shall use its best efforts to cause the Registration Statement to
become effective under the Securities Act and applicable state
securities laws at the earliest practicable date. Acquisition No. 1
shall advise Newgen promptly when the Registration Statement has become
effective and of any supplements or amendments thereto, and Acquisition
No. 1 shall furnish Newgen with copies of all such documents. Before
the Effective Date or the termination of this Agreement, each party
shall consult with the other with respect to any other material (other
than the Proxy Statement/Prospectus) that might constitute a
"prospectus" relating to the Striker Merger within the meaning of the
Securities Act.
7.1.4. Expenses. Acquisition No. 1 shall bear the costs of all
Commission filing fees with respect to the Registration Statement, the
costs of qualifying the shares of Acquisition No. 1 Common Stock
covered by the Registration Statement under applicable state securities
laws to the extent necessary and all printing and mailing costs in
connection with the preparation and mailing of the Proxy
Statement/Prospectus to the Striker stockholders. Striker, Acquisition
No. 1 and Newgen shall each bear their own legal and accounting
expenses in connection with the Registration Statement.
7.2. Indemnification by Newgen as to Proxy Statement Prospectus. Newgen
and each of the Insiders, severally (in proportion to their respective
ownership interests in Newgen), agrees to indemnify and hold harmless Striker,
Acquisition No. 1 and their respective officers and directors and each person
who controls Striker or Acquisition No. 1 within the meaning of Section 15 of
the Securities Act or Section 20 of the Exchange Act against any and all
losses, claims, damages, or liabilities, joint or several, to which any of them
may become subject under the Securities Act, the Exchange Act or any other
similar state statute or similar principal of common law, and to reimburse them
for any legal or other expenses incurred by them in connection with
investigating any claims and defending any actions, to the extent such losses,
claims, damages, liabilities, or actions arise out of or are based upon (i) any
false, misleading or untrue statement or alleged false, misleading or untrue
statement of a material fact, insofar as it relates to Newgen, contained in the
Proxy Statement/Prospectus in the form mailed to the stockholders of Striker,
or (ii) the omission or alleged omission to state in the Proxy
Statement/Prospectus a material fact required to be stated therein or necessary
to make the statements therein not misleading, and insofar as the same relates
to Newgen.
7.3. Indemnification by Striker and Acquisition No. 1 as to Proxy
Statement Prospectus. Striker and Acquisition No. 1, agree to indemnify and
hold harmless Newgen and its officers and directors and each person who
controls Newgen within the meaning of Section 15 of the Securities Act or
Section 20 of the Exchange Act against any and all losses, claims, damages, or
liabilities, joint or several, to which any of them may become subject under
the Securities Act, the Exchange Act or any other similar state statute or
similar principal of common law, and to reimburse them for any legal or other
expenses incurred by them in connection with investigating any claims and
defending any
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<PAGE> 47
actions, to the extent such losses, claims, damages, liabilities, or actions
arise out of or are based upon (i) any false, misleading or untrue statement or
alleged false, misleading or untrue statement of a material fact, insofar as it
relates to Striker or Acquisition No. 1 contained in the Proxy
Statement/Prospectus in the form mailed to the stockholders of Striker or (ii)
the omission or alleged omission to state in the Proxy Statement/Prospectus a
material fact required to be stated therein or necessary to make the statements
therein not misleading, and insofar as the same relates to Striker or
Acquisition No. 1, as the case may be.
7.4. Waivers. Striker, Acquisition No. 1 and Acquisition No. 3 hereby
make the following waivers:
7.4. 1. Breaches of Representations and Warranties. The
representations and warranties of the Stockholders and the Insiders in
this Agreement (and in any certificates delivered by either of the
Stockholders or either of the Insiders, including those required under
Sections 5.2.1 and 5.2.2 hereof and those attached to the opinion
delivered pursuant to Section 5.2.4 hereof) shall terminate in
accordance with Section 8.4. If Striker or any of its affiliates before
the Effective Date discovers that any representations or warranties
made by the Insiders or the Stockholders herein was or is not true, and
as a result, a material adverse change is in existence, then, absent
fraud on the part of the Stockholder or the Insider whose
representation or warranty was not true, the only remedy available to
Striker, Acquisition No. 1 or Acquisition No. 3 or any of their
affiliates shall be to terminate this Agreement in accordance with
Article 6 hereof. If Striker, Acquisition No. 1 or Acquisition No. 3 or
any of their affiliates discovers after the Effective Date that any of
the representations or warranties made by the Insiders or the
Stockholders herein was not true when made or at the Effective Date,
then absent fraud, Striker, Acquisition No. 1 and Acquisition No. 3 and
their affiliates shall have no cause of action or remedy against the
Insider or the Stockholder who made such untrue representation or
warranty. Absent fraud, on the part of the Insider or the Stockholder
who made an untrue representation or warranty, no monetary damages
shall accrue against any such Insider or Stockholder for making a
representation or warranty that was not true, and Striker, Acquisition
No. 1 and Acquisition No. 3 and their affiliates hereby waive, release
and discharge any cause of action, in law or in equity, that any of
them otherwise would have had or could have had by virtue of such
untrue representation or warranty.
7.4.2 Environmental Matters. Striker, Acquisition No. 1 and
Acquisition No. 3 affirm that upon consummation of the Merger, the
Surviving Corporation will assume any liabilities arising out of the
matters set forth in Schedule 2.1.14 hereto and also will assume any
other liabilities arising out of violations of any environmental laws,
including but not limited to the Applicable Environmental Laws, made by
Newgen and any of its affiliates. Striker, Acquisition No. 1 and
Acquisition No. 3 and their affiliates hereby waive any rights they
might otherwise have against either of the Insiders or either of the
Stockholders for contribution, indemnification or subrogation with
respect to any damages, fines or other penalties arising out of the
violation by Newgen or any of its affiliates of any environmental
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laws, including but not limited to, the Applicable Environmental Laws,
provided however, that the Surviving Corporation shall not be liable
for any damages, fines or other penalties enforced against any Insider
for such Insider's personal violations of environmental laws, and the
Surviving Corporation shall not be required to indemnify, or otherwise
hold harmless any such Insider from such personal liabilities.
7.4.3 Further Assurances. On the written request of a majority
in interest of the Stockholders, the Surviving Corporation shall cause
any of its affiliates to make the affirmations and waivers to the
Stockholders contained in this Section 7.4.
7.4.4 Survival. THE provisions of this Section 7.4 shall survive
the closing of the Merger.
ARTICLE 8
MISCELLANEOUS
8.1. Entirety. This Agreement embodies the entire agreement between the
parties with respect to the subject matter hereof and all prior agreements
between the parties with respect thereto are hereby superseded in their
entirety.
8.2. Counterparts. Any number of counterparts of this Agreement may be
executed and each such counterpart shall be deemed to be an original
instrument, but all such counterparts together shall constitute but one
instrument.
8.3. Notices and Waivers. Any notice or waiver to be given to any party
hereto shall be in writing and shall be delivered by courier, sent by facsimile
transmission or first class registered or certified mail, postage prepaid,
return receipt requested.
IF TO STRIKER
Addressed to:
Striker Industries, Inc.
One Riverway, Suite 2450
Houston, Texas 77056
Attn: Robert I. Beck
Facsimile: (713) 964-7222
With a copy to:
Porter & Hedges, L.L.P.
700 Louisiana, 35th Floor
Houston, Texas 77210-4744
Attention: Samuel N. Allen
Facsimile: (713) 228-1331
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<PAGE> 49
IF TO NEWGEN, AN INSIDER OR A STOCKHOLDER
Addressed to: With a copy to:
Newgen Holding, Inc. Vial, Hamilton, Koch & Knox, L.L.P.
5525 MacArthur Boulevard 1717 Main Street, Suite 4400
Suite 900 Dallas, Texas 75201
Irving, Texas 75083 Attn: Gary L. Woolfolk
Attn: Donald F. Smith Facsimile: (214) 712-4402
Facsimile: (972) 580-5692
Any communication so addressed and mailed by first-class registered or
certified mail, postage prepaid, with return receipt requested, shall be deemed
to be received on the third business day after so mailed, and if delivered by
courier or facsimile to such address, upon delivery during normal business
hours on any business day.
8.4. Termination of Representations, Warranties, etc. The respective
representations and warranties contained in Articles 2 and 3 shall expire with,
and be terminated and extinguished by, the Merger pursuant to this Agreement at
the time of the consummation thereof on the Effective Date. This Paragraph 8.4
shall have no effect upon any other right or obligation of the parties in
connection with this Agreement or otherwise, whether to be exercised or
performed before or after the Effective Date.
8.5. Table of Contents and Captions. The table of contents and captions
contained in this Agreement are solely for convenient reference and shall not
be deemed to affect the meaning or interpretation of any article, section, or
paragraph hereof.
8.6. Successors and Assigns. This Agreement shall be binding upon and
shall inure to the benefit of and be enforceable by the successors and assigns
of the parties hereto.
8.7. Severability. If any term, provision covenant or restriction of
this Agreement is held by a court of competent jurisdiction to be invalid,
void, or unenforceable, the remainder of the terms, provisions, covenants and
restrictions shall remain in full force and effect and shall in no way be
affected, impaired or invalidated. It is hereby stipulated and declared to be
the intention of the parties that they would have executed the remaining terms,
provisions, covenants and restrictions without including any of such which may
be hereafter declared invalid, void or unenforceable.
8.8. Applicable Law. This Agreement shall be governed by and construed
and enforced in accordance with the laws of the State of Texas.
8.9. Effective Date. The Merger shall become effective upon the filing
of Articles of Merger by each of the Merging Corporations with the Secretary of
State of the State of Texas. The
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date upon which the Merger shall become effective is referred to in this
Agreement as the "Effective Date."
8.10. Public Announcements. The parties agree that before the Effective
Date that they shall not, without the prior written consent of the other
parties hereto, make any public announcement regarding the existence of this
Agreement, the contents hereof or the transactions contemplated hereby, and to
obtain the prior approval of the other party as to the content of such
announcement, which approval shall not be unreasonably withheld. The parties
further agree that any such announcement will not disclose the identity of any
of the parties to this Agreement other than Striker, Acquisition No. 1 or
Acquisition No.3. However, the foregoing shall not apply to any announcement or
written statement which, upon the written advice of counsel, is required by law
to be made, except that the party required to make such announcement shall,
whenever practicable, consult with and solicit prior approval from such other
party concerning the timing and content of such legally required announcement
or statement before it is made.
IN WITNESS WHEREOF, the Insiders have executed this Agreement and the
other parties hereto have caused this Agreement to be signed in their
respective corporate or partnership names by their respective duly authorized
representatives, all as of the day and year first above written.
NEWGEN HOLDING, INC.
By: /s/ DONALD F. SMITH
-------------------------------
Donald F. Smith, President
STRIKER INDUSTRIES, INC.
By: /s/ DAVID A. COLLINS
-------------------------------
David A. Collins, President
GSR INDUSTRIES, INC.
By: /s/ DAVID A. COLLINS
-------------------------------
David A. Collins, President
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STRIKER ACQUISITION NO. 3, INC.
By: /s/ DAVID A. COLLINS
-------------------------------
David A. Collins, President
INSIDERS
/s/ DONALD F. SMITH
----------------------------------
Donald F. Smith, Individually
EDWARD T. NESSELROADE
----------------------------------
Edward T. Nesselroade, Individually
STOCKHOLDERS
MAREDON -I, LTD.
/s/ DONALD F. SMITH
----------------------------------
Donald F. Smith, General Partner
EPDSJ, LTD.
/s/ EDWARD T. NESSELROADE
----------------------------------
Edward T. Nesselroade, General Partner
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EXHIBIT A
EXISTING SHARES
STOCKHOLDER SHARES OF NEWGEN COMMON STOCK OWNED
----------- -----------------------------------
Maredon -I, Ltd. 276,352
EPDSJ, Ltd. 153,072
<PAGE> 1
EXHIBIT 4.11
MORTGAGE AND SECURITY AGREEMENT
(INCLUDES FUTURE ADVANCES)
THIS MORTGAGE AND SECURITY AGREEMENT (INCLUDES FUTURE ADVANCES) dated
as of April 25, 1995 (the "Mortgage") is from STRIKER HOLDINGS, INC., a Texas
corporation (the "Company" having its principal office at One Riverway, Suite
2450, Houston, Texas 77056 to FINOVA CAPITAL CORPORATION, a Delaware
corporation (the "Mortgagee" or "FINOVA") having its principal place of
business located at 111 West 40th Street, New York, New York 10018.
This Mortgage is also a Security Agreement and Financing Statement
under the Uniform Commercial Code of Arkansas and in compliance therewith the
following information is set forth:
1. The names and addresses of the Debtor and Mortgagee are:
Debtor: STRIKER HOLDINGS, INC.
One Riverway, Suite 2450
Houston, Texas 77056
Mortgagee: FINOVA CAPITAL CORPORATION
111 West 40th Street
New York, New York 10018
2. The property covered by this Mortgage, Security Agreement and
Financing Statement is described in the Granting Clauses hereof.
3. Some or all of the furniture, fixtures, equipment and other
property described herein is or may become fixtures.
4. The Company is the record owner of the real estate described
in Annex A attached hereto and made a part hereof.
RECITALS:
A. The Company has entered into a revolving credit Security
Agreement (Accounts Receivable, Inventory, Machinery and Equipment) dated as of
April 25, 1995, (the "Agreement") in which the Mortgagee agrees to provide to
the Company a revolving credit facility maturing three (3) years from date and
renewed from year to year thereafter, unless and until terminated pursuant to
the terms of the Agreement, which indebtedness shall consist of loans, advances
and other financial accommodations to or for the benefit of the Company of up
to: (a) 80% of the Net Amount of Eligible Accounts, as defined in the
Agreement, (or such greater or lesser percentage
<PAGE> 2
thereof as FINOVA shall, in its sole and absolute discretion determine); (b)
$590,000 based upon a percentage of the orderly liquidation value of the
Company'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 the 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 the 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.
B. Pursuant to said Agreement, the Company is granting to FINOVA
a first perfected security interest in: (a) All of the Company's present and
future accounts; (b) all of the Company'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 the Company, or for the account of the Company, whether
for safekeeping, pledge, custody, transmission, collection or otherwise, and
all of the Company's deposits (general or special) including, but not limited
to security deposits, balances, sum and credits with FINOVA at any time
existing or with a third party for the Company's account; (c) all of the
Company's present and future right, title and interest, and all of the
Company's present and future rights, remedies, security and liens, in, to and
in respect of the accounts as defined in the Agreement and other collateral, as
defined in the Agreement, 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, as defined in the Agreement,
and credit and other insurance; (d) all of the Company'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 the Company's present and future deposit accounts; (f) all of the
Company'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 Company 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 the Company's
presently owned or hereafter acquired inventory; (h) all of the Company's
machinery and equipment, whether presently owned or hereinafter acquired; (i)
all other of the Company's present and future general intangibles of every kind
and description, including, without limitation, customer lists, stock options,
patent, trademark and copy right applications, trade names and 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
2
<PAGE> 3
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.
C. In addition, the Company has agreed to unconditionally
guarantee the performance of all obligations and liabilities and payment of all
amounts due and payable, including any renewals, extensions, and modifications
thereof under the terms of three Security Agreements (Accounts Receivable,
Inventory Machinery and Equipment) entered on April 25, 1995, between FINOVA
and Striker Industries, Inc., a Delaware corporation, Striker Paper
Corporation, an Arkansas corporation, and Striker Services, Inc., a Texas
corporation, hereinafter the "Corporate Guaranty".
D. In order to further secure the payment of all Obligations (as
that term is defined in Section 1.12 of the Agreement) under the Agreement and
under the said Corporate Guaranty, the Company is hereby granting to FINOVA a
first mortgage in certain Real Property and other Collateral as hereafter
defined and described in the Granting Clauses herein.
E. All amounts due and payable and all obligations and
liabilities, including all renewals, extensions and modifications thereof, and
the performance by the Company of its obligations and agreements under and
pursuant to the Agreement or this Mortgage and the other Security Documents as
hereinafter defined, are fully and unconditionally guaranteed by David A.
Collins, Matthew D. Pond and Randal W. Miller pursuant to a Guaranty Agreement
dated as of April 25, 1995 from Guarantors to the Mortgagee.
F. All indebtedness and Obligations (as that term is defined in
Section 1.12 of the Agreement), all fees and additional amounts and other sums
at any time due and owing from, or required to be paid by the Company under the
terms of the Agreement, this Mortgage, the Corporate Guaranty and any other
security documents executed by Company to secure same (hereinafter "Security
Documents"), or any other note, mortgage or security agreement executed and
delivered by the Company pursuant to the Agreement or the Corporate Guaranty
and any extensions, renewals or modifications of any of the above are
hereinafter sometimes referred to as the "Indebtedness Hereby Secured".
G. The Company is duly authorized under all applicable provisions
of law, its Certificate of Incorporation and By-laws to issue, execute, and
deliver this Mortgage and to convey, assign and grant a security interest in
the Collateral (as hereinafter defined) to the Mortgagee, as security for the
Indebtedness Hereby Secured and all corporate action and all consents,
approvals and other authorizations and all other acts and things necessary to
make this Mortgage the valid, binding and legal instrument for the security of
the Indebtedness Hereby Secured have been done and performed.
NOW, THEREFORE, THIS MORTGAGE WITNESSETH that the, Company, in
consideration of the premises and of the sum of Ten Dollars ($10.00) received
by the Company from the Mortgagee and other good and valuable consideration,
receipt whereof is hereby
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<PAGE> 4
acknowledged, and in order to secure the payment of the said Obligations
evidenced by the said Agreement, the said Corporate Guaranty and the payment of
all other Indebtedness Hereby Secured and the performance and observance of all
the covenants, agreements and conditions contained in this Mortgage, the
Security Documents, the Corporate Guaranty and the Agreement, the Company does
hereby warrant, mortgage, pledge, assign, bargain, hypothecate, convey, grant,
transfer, grant a first perfected security interest in and set over unto the
Mortgagee and its successors and assigns, all of its estate, right, title and
interest in and to all and singular the following described properties, rights,
interest and privileges and all of the, Company's estate, right, title and
interest therein, thereto and thereunder, if any (all of which properties
hereby mortgaged, assigned, pledged and in which a first perfected security
interest has been granted or intended so to be are hereinafter collectively
referred to as the "Collateral"):
GRANTING CLAUSES
I. REAL PROPERTY
The parcels of land in Ouachita County, State of Arkansas described in
Annex A attached hereto and made a part hereof, together with the entire
interest of the Company in and to all buildings, structures, improvements and
appurtenances now standing, or at any time hereafter construed or placed, upon
such land, including all right, title and interest of the Company, if any, in
and to all building material, building equipment and fixtures of every kind
and nature whatsoever on said land or in any building, structure or improvement
now or hereafter standing on said land which are classified as fixtures under
applicable law and which are, used in connection with the operation,
maintenance or protection of said buildings, structures and improvements as
such (including, without limitation, all air conditioning, ventilating,
plumbing, heating, lighting and electrical systems and apparatus, all
communications equipment and intercom systems and apparatus, all sprinkler
equipment and apparatus and all elevators and escalators) and the reversion or
reversions, remainder or remainders, in and to said land, and together with the
entire interest of the Company in and to all and singular the tenements,
hereditaments, easements, rights of way, rights, privileges and appurtenances
to said land, belonging or in anywise appertaining thereto, including, without
limitation, the entire right, title and interest of the Company in, to and
under any streets, ways, alleys, gores or strips of land adjoining said land,
and all claims or demands whatsoever of the Company either in law or in equity,
in possession or expectancy, of, in and to said land, it being the intention of
the parties hereto that, so far as may be permitted by law, all property of the
character hereinabove described, which is now owned or is hereafter acquired by
the Company and is affixed or attached or annexed to said land, shall be and
remain or become and constitute a portion of said land and the, security
covered by and subject to the Lien of this Mortgage, together with all
accessions, parts and appurtenances appertaining or attached thereto and all
substitutions, renewals or replacements of and additions, improvements,
accessions and accumulations to any and all thereof, and together with all
rents and the present and continuing right to make claim for, collect, receive
and receipt for any and all of such rents (all of which properties are
hereinafter referred to as the "Real Property").
4
<PAGE> 5
II. TRADE PROPERTY
All materials, furniture, furnishings, machinery, goods, fixtures,
equipment to be erected or located on the Real Property and including, but
not limited to, all heating, plumbing, lighting, water heating, cooking,
laundry, refrigerating, incinerating, communications, ventilating and
air conditioning equipment, disposals, dishwashers, recreational, lawn
maintenance equipment, sprinkler systems, fire extinguishing apparatus and
equipment, water tanks, engines, machines, boilers, dynamos, stokers,
elevators, motors, cabinets, shades, blinds, partitions, window screens, screen
doors, storm windows, awnings, drapes, rugs, and other floor coverings,
furniture, furnishings, radios and television sets and wiring and antennae
therefor, and all fixtures, accessions and appurtenances thereto, and all
renewals or replacements of or substitutions for any of the foregoing, together
with all other goods, equipment, furnishings, fixtures, machinery and furniture
owned by the Company now or hereafter attached or affixed to or used in and
about the building or buildings now erected or hereafter to be erected on the
Real Property, or otherwise located on the Real Property and all fixtures,
accessions and appurtenances thereto, and all renewals or replacements of or
substitutions for any of the, foregoing (all of which properties are
hereinafter referred to as "Trade Property").
III. CONDEMNATION AWARDS AND PAYMENTS
All judgments, awards of damages, settlements and other compensation
heretofore or hereafter made resulting from condemnation proceedings or the
taking of the Real Property or any part thereof or any improvements now or at
any time hereafter located thereon or any easement or other appurtenances
thereto under the power of eminent domain, or any similar power or right
(including any award from the United States Government at any time after the
allowance of the claim therefor, the ascertainment of the amount thereof and
the issuance of the warrant for the payment thereof), whether permanent or
temporary, or for any damage (whether caused by such taking or otherwise) to
said Real Property or any part thereof or the improvements thereon or any part
thereof, or to any rights appurtenant thereto, including severance and
consequential damage, and any award for change of grade of streets
(collectively, "Condemnation Awards").
IV. PROCEEDS
All proceeds of the conversion, voluntary or involuntary, of any of
the foregoing into cash or other liquidated claims, including, without
litigation, all proceeds and payments of insurance, related to the Collateral.
SUBJECT HOWEVER, as to all property or rights in property at any time
subject to the Lien hereof (whether now owned or hereafter acquired), to
Permitted Encumbrances, as defined in Section 1.8 hereof.
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TO HAVE AND TO HOLD the Collateral unto the Mortgagee and its
successors and assigns forever for the purpose of securing performance of each
agreement, covenant and warranty of the Company contained in the Agreement, the
Corporate Guaranty, this Mortgage, the Security Documents and payment of the
Indebtedness Hereby Secured. It is understood and agreed that this Mortgage is
to secure the obligation of the Company to repay, without preference or
priority, all sums due or to become due in respect to the indebtedness pursuant
to the Agreement and the Corporate Guaranty, including those sums heretofore
advanced, those of even date herewith and those to be earned or advanced in the
future as specified in said Agreement and the Corporate Guaranty. THIS
CONVEYANCE SHALL ALSO STAND AS SECURITY FOR ALL FUTURE ADVANCES AND ANY
ADDITIONAL INDEBTEDNESS OF THE COMPANY TO MORTGAGEE, WHETHER IT BE INCURRED FOR
ANY BUSINESS OR NON-BUSINESS PURPOSE THAT WAS RELATED, WHOLLY UNRELATED, SIMILAR
OR DISSIMILAR TO THE PURPOSE OF THE ORIGINAL OBLIGATIONS AND INDEBTEDNESS
EVIDENCED BY THE AGREEMENT AND/OR THE CORPORATE GUARANTY.
PROVIDED NEVERTHELESS, and these presents are upon the express
condition that if the Company performs the covenants herein contained and the
Mortgagee is paid the full amount of all indebtedness and all other sums due or
payable hereunder, under the Agreement, the Corporate Guaranty or under the
Security Documents and all other Indebtedness Hereby Secured, the estate, right
and interest of the Mortgagee in the property hereby conveyed and granted a
first perfected security interest in shall cease and this Mortgage shall become
null and void, but otherwise to remain in full force and effect.
It is agreed and understood by the parties hereto that:
1. Any part of the security herein described, and any
security described in the Agreement, the Corporate Guaranty, Security
Documents or any other mortgage or other instrument now or hereafter
given to secure the Indebtedness Hereby Secured, may be released by or
at the direction of the Mortgagee without affecting the Lien hereof on
the remainder or the obligations of the Company on and in respect of
the Indebtedness Hereby Secured and any person acquiring any direct or
indirect interest in the security herein described or in any security
described in the Agreement, the Corporate Guaranty or Security
Documents or any other mortgage, or other instrument now or hereafter
given to secure the Indebtedness Hereby Secured shall take the same
subject to all of the provisions hereof.
2. The Company for itself and all who may claim through
or under it waives to the extent permitted by law any and all right to
have the property and estates comprising the Collateral or any other
property of the Company constituting security for the Indebtedness
Hereby Secured marshalled upon any foreclosure of the Lien hereof, or
to have the Collateral hereunder and the property covered by any other
mortgage or deed of trust securing the Indebtedness Hereby Secured
marshalled upon any foreclosure of any
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of said mortgages or deeds of trust, and agrees that any court having
jurisdiction to foreclose such Lien may order the Collateral sold as
an entirety.
3. Upon the occurrence and during the continuance of any
Event of Default hereunder the Mortgagee has, among other things, the
right to foreclose on the Collateral and dispose of the same. The
Mortgagee's deed (if permitted by law) or Sheriff's deed or other
instrument of conveyance, transfer or release (which, if permitted by
law, may be executed by the Mortgagee in its own name or as
attorney-in-fact for the Company and the Mortgagee is hereby
irrevocably appointed attorney-in-fact for the Company to, in the
event that an Event of Default shall have occurred and be continuing,
so execute such deed or other instruments of conveyance, transfer or
release) shall be effective to convey and transfer to the grantee an
indefeasible title to the property covered thereby, discharged of all
rights of redemption (to the extent permitted by law) by the Company
or any person claiming under it, and to bar forever all claims by the
Company or the Mortgagee to the property covered thereby and no
grantee from the Mortgagee or Sheriff shall be under any duty to
inquire as to the authority of the Mortgagee or Sheriff to execute the
same, or to see to the application of the purchase money.
SECTION 1. DEFINITIONS.
Except as otherwise specifically provided herein, the following terms
shall have the following meanings for all purposes of this Mortgage:
"Account", "Chattel Paper", "Documents", "General Intangibles",
"Instruments", "Inventory", "Patents", "Securities", "Trademarks," and
"Tradenames" shall each have the meaning set forth in the Uniform Commercial
Code.
"Agreement" shall have the meaning ascribed to it in Recital A of this
Mortgage.
"Company" shall mean not only Striker Holdings, Inc., but also its
successors and assigns.
"Default" shall mean any event which would constitute an Event of
Default as that term is defined in Section 8.1 of the Agreement if all
requirements in connection therewith for the giving of notice, the lapse of
time and the happening of any further condition, event or act had been
satisfied.
"Default Rate" shall mean the rate set forth in Paragraph 3.2 of the
Agreement.
"Eligible Investments" shall mean:
(a) Investments in commercial paper maturing in 270 days or less
from the date of issuance which, at the time of acquisition thereof, is
accorded the highest rating by at least two
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of the following rating agencies: Standard & Poor's Corporation, Moody's
Investors Service, Inc. or Duff & Phelps;
(b) Investments in direct obligations of the United States of
America or any agency or instrumentality of the United States of America, the
payment or guarantee of which constitutes a full faith and credit obligation of
the United States of America, in either case, maturing in twelve months or less
from the date of acquisition thereof;
(c) Investments in certificates of deposit maturing within one
year from the date of issuance thereof, issued by a bank or trust company
organized under the laws of the United States or any state thereof, having
capital, surplus and undivided profits aggregating at least $500,000,000 and
whose long-term certificates of deposit are, at the time of acquisition
thereof, rated AA or better by Standard & Poor's Corporation or Aa or better by
Moody's Investors Service, Inc; and
(d) Investments in Federally tax-exempt municipal bonds maturing
in twelve months or less from the date of acquisition thereof and, at the time
of acquisition, is rated "AAA" or better by Standard & Poor's Corporation or
"Aaa" or better by Moody's Investors Service, Inc.
"Environmental Claim" shall mean any written administrative,
regulatory or judicial action, judgment, order, consent decree, suit, demand,
demand letter, claim, lien, notice of noncompliance or violation, enforcement
or adjudicatory proceeding arising (a) pursuant to any Environmental Law or
Governmental Approval issued under any such Environmental Law, (b) from the
presence, use, generation, storage, treatment, Release, threatened Release,
disposal, remediation or other existence of any Hazardous Substance, (c) from
any removal, remedial, corrective or other response action pursuant to an
Environmental Law or the order of a Governmental Authority, (d) from any third
party seeking damages, contribution, indemnification, cost recovery,
compensation, injunctive relief in connection with a Hazardous Substance
arising from alleged injury or threat of injury to health, safety, natural
resources or the environment, or (e) from any lien in favor of a Governmental
Authority or other Person in connection with a Release, threatened Release or
disposal of a Hazardous Substance.
"Environmental Law" shall mean any international, federal, state or
local statute, law, regulation, order, consent decree, judgment, permit,
license, code, covenant, deed restriction, common law, treaty, convention,
ordinance or other legal requirement relating to public health, safety or
protection of the environment, including, without limitation, those relating to
releases, discharges or emissions to air, water, land or groundwater, to the
withdrawal or use of groundwater, to the use and handling of polychlorinated
biphenyls or asbestos, to the disposal, treatment, storage or management of
hazardous or solid waste, or Hazardous Substances or crude oil, or any fraction
thereof, or to exposure to toxic or hazardous materials, to the handling,
transportation, discharge or release of gaseous or liquid Hazardous Substances
and any regulation, order, notice or demand having the force and effect of law
issued pursuant to such law, statute or ordinance, in each case applicable to
the property of the Company, Holdings or their Subsidiaries or the operation,
construction or modification of any thereof, including without limitation the
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following: the Comprehensive Environmental Response, Compensation and
Liability Act of 1980, as amended by the Superfund Amendments and
Reauthorization Act of 1986, the Solid Waste Disposal Act, as amended by the
Resource Conservation and Recovery Act of 1976 and the Hazardous and Solid
Waste Amendments of 1984, the Hazardous Materials Transportation Act, as
amended, the Federal Water Pollution Control Act, as amended by the Clean Water
Act of 1976, the Safe Drinking Water Control Act, the Clean Air Act of 1966, as
amended, the Toxic Substances Control Act of 1976, the Occupational Safety and
Health Act of 1977, as amended, the Emergency Planning and Community
Right-to-Know Act of 1986, the National Environmental Policy Act of 1975, the
Oil Pollution Act of 1990 and any similar or implementing state law, and any
state statute and any further amendments to these laws providing for financial
responsibility for cleanup or other actions with respect to the release or
threatened release of Hazardous Substances or crude oil, or any fraction
thereof and all rules, regulations, guidance documents and publication
promulgated thereunder.
"Event of Loss" with respect to the Collateral shall mean the loss or
destruction of the Collateral or a substantial portion thereof, which shall
include, without limitation, damage which renders repair impractical or
uneconomical, or any other event which shall render the Collateral permanently
unfit for use.
"Governmental Authority" shall mean any international, foreign,
federal, state, regional county, local or other governmental authority.
"Guaranty Agreement" shall have the meaning assigned thereto in
Recital C hereof.
"Hazardous Substance" shall mean any hazardous, or toxic chemical,
waste, byproduct, pollutant, contaminant, compound, product or substance,
including, without limitation, asbestos, polychlorinated biphenyls, petroleum
(including crude oil or any fraction thereof), and any material the exposure,
to, or manufacture, possession, presence, use generation, storage,
transportation, treatment, release, disposal, abatement, cleanup, removal,
remediation or handling of which, is prohibited, controlled or regulated by any
Environmental Law.
"Impositions" shall have the meaning assigned thereto in Section
2.7(a) hereof.
"Lien" shall mean any interest in property securing an obligation owed
to, or a claim by, a Person other than the owner of the property, whether such
interest is based on the common law, statute or contract, and including but not
limited to the security interest lien arising from a mortgage, encumbrance,
pledge, conditional sale or trust receipt or a lease consignment or bailment
for security purposes. The term shall include reservations, exceptions,
encroachments, easements, rights-of-way, covenants, conditions, restrictions,
leases and other title exceptions and encumbrances; (including, with respect to
stock, stockholder agreements, voting trust agreements, buy-back agreements and
all similar arrangements) affecting property.
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"Material Adverse Effect" shall mean any change or changes or effect
or effects that individually or in the aggregate are or are reasonably likely
to be materially adverse to (a) the assets, business, operations, income or
condition (financial or otherwise) of the Company, (b) transactions
contemplated by this Agreement or the Corporate Guaranty, or (c) the ability of
the Company perform its respective obligations under this Agreement, the
Corporate Guaranty, Security Documents, or this Mortgage.
"Permitted Encumbrances" shall mean the liens described in clauses (a)
through (j) of Section 2.8.
"Person" shall mean an individual, partnership, corporation, trust or
unincorporated organization.
"Restoration" shall have the meaning assigned hereto in Section 3.1(a)(1)
hereof.
"Subsidiary" shall mean any corporation of which more than 50% (by
number of votes) of the Voting Stock is owned and controlled by the Company
and/or one or more corporations which are Subsidiaries.
"Trade Property" shall have the meaning ascribed to it in Granting Clause of
this Mortgage.
"Uniform Commercial Code" shall mean the Uniform Commercial Code as in
effect in the State of Arkansas, as amended.
"Voting Stock" shall mean securities of any class or classes of a
corporation, the holders of which are ordinarily, in the absence of
contingencies, entitled to elect a majority of the corporate directors (or
Persons performing similar functions);
SECTION 2. GENERAL COVENANTS AND WARRANTIES.
The Company covenants, warrants and agrees as follows:
Section 2.1. Agreement and Mortgage Covenants. Each and all of the
provisions, restrictions, covenants and agreements set forth in the Agreement
and the Corporate Guaranty and in each and every supplement thereto or
amendment thereof which at any time or from time to time may be executed and
delivered by the parties thereto or their successors and assigns, are
incorporated herein by reference to the same extent as though each and all of
said terms, provisions, restrictions, covenants and agreements were fully set
out herein and as though any amendment or supplement to the Agreement and
Corporate Guaranty were fully set out in an amendment or supplement to this
Mortgage; and the Company does hereby covenant and agree well and truly to
abide by, perform and be governed and restricted by each and all of the matters
provided for by the Agreement and Corporate Guaranty and so incorporated herein
to the same extent and with the same force and effect as if each and all of
said terms, provisions, restrictions, covenants and agreements so incorporated
herein by reference were set out and repeated herein
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at length, Without limiting the foregoing, the Company covenants and agrees to
pay all taxes, assessments and governmental charges or levies imposed upon this
Mortgage or the Indebtedness Hereby Secured (other than income taxes of the
Mortgagee).
Section 2.2. Ownership of Collateral. The Company covenants and
warrants that it has fee simple title to the Real Property and good and
marketable title to the other Collateral hereinbefore conveyed to the Mortgagee
free and clear of all liens, charges and encumbrances whatever except Permitted
Encumbrances, and the Company has full right, power and authority to convey,
transfer, mortgage arid grant a first perfected security interest in the same to
the, Mortgagee for the uses and purposes in this Mortgage set forth; and the
Company will warrant and defend the title to the Collateral against all claims
and demands whatsoever except Permitted Encumbrances.
Section 2.3. Further Assurances. The Company will, at its own
expense, do, execute, acknowledge and deliver all and every further reasonable,
act, deed, conveyance, transfer and assurance necessary or proper for (a) the
better assuming, conveying, assigning and confirming unto the Mortgagee all of
the Collateral, or property intended so to be, whether, now owned or
hereafter acquired and (b) the perfection of the first security interest
provided for in the Collateral whether now owned or hereafter acquired. The
Mortgagee, as secured party, to the extent permitted by law, may file one or
more financing statements disclosing its security interest in any or all of the
Collateral without the Company's signature appearing thereon. The Company also
hereby grants the Mortgagee, as such secured party a power of attorney to
execute any such financing statement, or amendments and supplements to
financing statements, on behalf of the Company without notice thereof to the
Company, which power of attorney is coupled with an interest and is irrevocable
until the Indebtedness Hereby Secured has been fully satisfied.
Section 2.4. Payment of Principal and Interest. The Company will
duly and punctually pay the principal and interest on all loans, advances,
financial accommodations, obligations and indebtedness evidenced by the
Agreement and the Corporate Guaranty secured hereby according to the terms
thereof
Section 2.5. Maintenance Of Collateral, Other Liens, Compliance
with Laws, tens, Environmental Matters, Etc. Without limiting the provisions of
the Agreement, (a) the Company shall (1) promptly repair, restore, replace, or
rebuild any material buildings, improvements or Trade Property now or hereafter
on the Real Property which may become damaged or be destroyed, (2) keep the
Collateral in good condition and repair, ordinary wear and tear excepted,
without waste, and free from all claims, liens, charges and encumbrances
(except for claims, liens, charges and encumbrances that are being contested
under and in compliance with Section 2.7(c) hereof) other than Permitted
Encumbrances, (3) pay when due any indebtedness which may be secured by a Lien
or charge on the Collateral and upon request provide satisfactory evidence of
the discharge of such Lien to the Mortgagee (unless such payment is being
contested under and in compliance with Section 2.7(c)), (4) comply with all
requirements of law or municipal ordinances, including without limitation all
Environmental Laws, with respect to the Collateral and the use
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thereof, failure to comply with which would be reasonably likely to result in
any material interference with the use or operation of the Collateral by the
Company or would materially adversely affect the assets, business, operations,
income or condition (financial or otherwise) of the Company and its
Subsidiaries, taken as a whole, and (5) make no material alterations in said
Collateral except as required by law or municipal ordinance; provided that the
Company may make such other material alterations so long as such alterations
are completed in compliance with the requirements of paragraphs (b) and (c) of
this Section 2.5.
(b) The Company may, at its expense, (1) construct upon the
Collateral additional buildings, structures and other improvements and (2)
install, assemble and place upon the Collateral any items of Trade Property,
signs, furniture, furnishings, equipment, machinery and other tangible personal
property used or useful in the Company's business, in each case upon compliance
with the provisions of paragraph (a) of this Section 2.5. All such buildings,
structures and other improvements shall be and remain part of the realty and
shall be subject to this Mortgage with respect thereto.
(c) Any repair, restoration, rebuilding, substitution,
replacement, modification, alteration of or addition to the Collateral pursuant
to Section 2.5(b) must not materially impair the market value, structural
integrity or usefulness of the Collateral for use in the ordinary course of
business; shall be performed in a good and workmanlike manner and be
expeditiously completed in compliance in all material respects with all laws,
ordinances, orders, rules, regulations and requirements applicable thereto,
including to the extent necessary to maintain in full force and effect the
policies of insurance required by Section 2.6 hereof. All costs and expenses of
each such repair, restoration, rebuilding, substitution, replacement, the
discharge of all liens filed against the Collateral arising out of the same,
together with all costs and expenses necessary to obtain any permits or
licenses required in connection therewith shall be promptly paid by the Company
(except to the extent such costs and expenses are being contested under and in
compliance with Section 2.7(c)).
(d) The Company:
(1) shall maintain the Collateral in compliance in all material
respects with any applicable Environmental Law;
(2) shall require that all of its tenants and subtenants at the
Collateral comply in all material respects with any applicable
Environmental Law;
(3) shall obtain and maintain in full force and effect all
material Governmental Approvals required for its operations at or on
the Collateral by any applicable Environmental Law;
(4) shall cure any violation of applicable Environmental Law by
any Person at the Collateral;
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(5) shall not, and shall not permit any other Person to,
own or operate on the Collateral any (i) landfill or dump or (ii)
hazardous waste treatment, storage or disposal facility as defined
pursuant to RCRA or any comparable state law;
(6) shall not use, generate, treat, store, release or
dispose Hazardous Substances at or on the Collateral except in the,
ordinary course of its business;
(7) shall within ten (10) Business Days notify the
Mortgagee in writing, of and provide any reasonably requested
documents, upon learning of any of the following which arise in
connection with the Collateral:
(A) any material liability for response or
corrective action, natural resource damage or other harm
pursuant to CERCLA, RCRA or any comparable state law;
(B) any material Environmental Claim,
(C) any material violation of an Environmental
Law or Release of a Hazardous Substance;
(D) any material restriction on the ownership,
occupancy, use or transferability arising pursuing to any (1)
Release, threatened Release, or disposal of a Hazardous
Substance or (ii) Environmental Law; or
(E) any other environmental, natural resource,
health or safety condition, which would reasonably be expected
to have a Material Adverse Effect; and,
(8) at its expense, will conduct any investigation,
study, sampling and testing, and undertake any cleanup, removal,
remedial or other response action necessary to remove, clean up or
abate any material quantity of Hazardous Substance Released or
disposed at or on the Collateral as required by any applicable
Environmental Law and any order or directive from a Governmental
Authority having jurisdiction, except to the extent the Company is
reasonably contesting any Environmental Law or any order or directive
from a Governmental Authority, so long as (i) such contest is in good
faith and by appropriate proceedings, (ii) adequate reserves are
maintained in accordance with GAAP and (iii) no forfeiture will result
from a failure to comply with the contested requirement.
(e) The Company at its own expense and at the reasonable written
request of the Mortgagee shall provide reasonably expeditiously an
environmental report of reasonable scope, form and depth by a consultant
reasonably acceptable to the Mortgagee as to any matter for which notice is
provided pursuant to Section 2.5(d)(7) above or which may reasonably be
believed
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by the Mortgagee to form the basis of an Environmental Claim in connection with
the Collateral. If such a requested environmental report is not delivered
within seventy-five (75) days after receipt of the Mortgagee's request, then
the Mortgagee may arrange for same, and the Company hereby grants to the
Mortgagee and its representatives access to the Collateral and a license to
undertake such an assessment. The reasonable cost of any assessment arranged
for by the Mortgagee pursuant to this provision will be payable by the Company
on demand and added to the obligations secured by this Mortgage and the other
Security Documents.
(f) The Company may use and operate the Collateral for any lawful
purpose not inconsistent with the provisions of the Agreement.
Section 2.6. Insurance. The Company shall, at Company's sole cost and
expense, obtain and maintain or cause to be obtained and maintained in some
company or companies (having a Best's rating of A:XI or better) approved by
FINOVA:
(a) Comprehensive public liability insurance covering claims for
bodily injury, death, and property damage, with such minimum limits as FINOVA
shall, from time to time, specify, but in any event not less than those amounts
customarily maintained by owners of substantially similar property; and
(b) During the course of construction and until all improvements
have been completed, a standard form Builder's Risk Policy on a replacement
cost basis, with an "all risk" endorsement, a course of construction
endorsement, and with a collapse insurance provision, in an amount approved by
FINOVA, with loss payable to the FINOVA under a lender's loss payable
endorsement; and
(c) If any of the Mortgaged Property is within an area known as a
"special flood hazard area" as defined in the Flood Disaster [Protection Act of
1973, a Standard Flood Insurance Policy on the Mortgaged Property as required
by the Act or in the amount of the Indebtedness Hereby Secured, which is
greater; and
(d) Statutory workmen's compensation insurance and employer's
liability insurance for all persons working in or about the Mortgaged Property;
and
(e) Business interruption or loss of rents insurance in a minimum
amount specified by FINOVA; and
(f) hazard insurance upon the Improvements and Tangible Personal
Property, insuring against loss by fire and all other hazards covered by
extended coverage and special extended coverage endorsements (including but not
limited to loss by windstorm, hail, flood, earthquake, tornado, explosion,
riot, aircraft, smoke, vandalism, malicious mischief and vehicle damage) as
FINOVA, in its sole discretion, shall from time to time require, all such
insurance to be issued in such form, with such deductible provision, and for
such amount (which shall, in any event be
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at least equal to the full replacement value of the Collateral) as shall be
satisfactory to FINOVA; and
(g) Such other insurance as the Beneficiary may, from time to time,
reasonably require by notice in writing to the Grantor.
All required insurance policies shall provide for not less than thirty
(30) days' prior written notice to FINOVA of any cancellation, termination, or
material amendment thereto. The Company will cause all policies of hazard
insurance, business interruption insurance and loss of rents insurance to be
payable to FINOVA pursuant to a standard mortgagee clause acceptable to FINOVA
and shall have FINOVA named as loss payee pursuant to a standard loss payee
clause acceptable to FINOVA; and the Company will cause all liability insurance
policies to name FINOVA as additional insured, if FINOVA so requires. Each such
policy shall, in addition, provide that there shall be no recourse against
FINOVA for payment of premiums or other amounts with respect thereto. Hazard
insurance policies shall contain the agreement of the insurer that any loss
thereunder shall be payable to FINOVA notwithstanding any action, inaction or
breach of representation or warranty by the Company. The Company will deposit
said policy or policies of insurance with the FINOVA as further security for
the Obligations, no responsibility for the approval or maintenance of any
insurance (required to be maintained pursuant hereto) being imposed upon
FINOVA. In the event of damage to or destruction of the Collateral by fire or
other casualty, the net proceeds of the insurance shall be applied upon the
Obligations in such manner as FINOVA may elect; or, at the option of FINOVA,
such proceeds may be released to the Company to be used to restore such
property to its former condition. Any insurance policies furnished FINOVA shall
become its property in the event FINOVA becomes the owner of the Mortgaged
Property by foreclosure or otherwise. FINOVA is hereby authorized and
empowered, at its option, to adjust or compromise any loss under any insurance
policies, and to collect and receive the proceeds from any such policy or
policies.
Section 2.7. Payment of Taxes and Other Charges; Contests Thereof.
(a) Without limiting the provisions of the Agreement or the Corporate Guaranty,
the Company will pay and discharge, before the same shall become delinquent,
together, with interest and penalties thereon, if any, (1) all taxes,
assessments (including assessments for benefits from public works or
improvements whenever begun or completed), levies, fees, water and sewer rents
and charges, and all other Governmental charges, general and special, ordinary
and extraordinary, and whether or not within the contemplation of the parties
hereto, which are at any time, levied upon or assessed against it or the
Collateral or any part thereof or upon this Mortgage or the Indebtedness
Secured Hereby, or upon the revenues, rents, issues, income and profits in
respect of the Collateral, or arising, in respect of the occupancy, use or
possession thereof, which failure to pay would result in the creation of a Lien
upon the Collateral or any part thereof, or upon the revenues, rents, issue,
income and profits of the Collateral or in the diminution thereof or would
result in any material interference with the use or operation of the Collateral
by the Company, (2) all corporate franchise, excise and other taxes, fees and
charges assessed, levied or imposed in respect of its corporate existence or
its right to do business in any state, (3) all income, excess
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profits, excise, sales, franchise, gross receipts and other taxes, duties or
imposts, whether of a like or different nature, assessed, levied or imposed by
any governmental authority on it or the Collateral, or any portion thereof, or
upon the revenues, rents, issues, income and profits of the Collateral whether
or not the failure to pay any such tax, duty or impost might in the creation of
a Lien upon any asset of the, Company or the Collateral or any part thereof or
upon the revenues, rents, issues, income and profits of the Collateral or in
the diminution thereof, and whether or not any such tax, duty or impost is
payable directly by the Company or is subject to withholding at the source and
(4) all lawful claims and demands of mechanics, laborers, materialmen and
others which, if unpaid, might result in the creation of a Lien on the
Collateral or upon the revenues, rents, issues, income and profits of the
Collateral and, in general, will do or cause to be done everything necessary so
that the Lien hereof shall be fully preserved at the cost of the Company,
without expense to the Mortgagee (all of which taxes, assessments, levies, fees
and other governmental or non-governmental charges, claims and demands of like
nature are hereinafter, referred to as (Impositions"). The Company shall
discharge any claims or Lien relating to Impositions upon the Collateral.
(b) The Company will pay when due all utility charges which are
incurred by the Company for the benefit of the Collateral or which may become a
charge or Lien against the Collateral for gas, electricity, water or sewer
services furnished to the Collateral and all other assessments or charges of a
similar nature, whether public or private, affecting the Collateral or any
portion thereof, whether or not such taxes, assessments or charges are or may
become Liens thereon.
(c) Contest. Without limiting the Agreement or the Corporate
Guaranty, and always subject to the terms and conditions thereof, the Company
may, in good faith and with reasonable diligence and by appropriate proceedings
diligently prosecuted, contest or cause to be contested the validity or amount
of any such Impositions, provided that:
(1) such contest shall have the effect of preventing (i)
sale, forfeiture of loss of the Collateral or any part thereof or
interest therein to satisfy the same, and (ii) any material
interference with the value, use or occupancy of the Collateral or any
part thereof; and
(2) the Company shall have established with respect to
such Impositions (and any attendant penalties or late fees) reserves
deemed by it to be adequate reserve with respect thereto.
Section 2.8. Limitation on Liens. The Company will not create or incur
or suffer to be incurred or to exist, any mortgage, pledge, security interest,
encumbrance, charge or other Lien of any kind upon the Collateral, whether now
owned or hereafter, acquired, or upon any income or proceeds therefrom, except
the following:
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(a) Liens for property taxes and assessments or governmental
charges or levies, and liens securing claims or demands of mechanics and
materialmen, provided that payment thereof is not overdue or, if overdue, is
being contested in accordance with Section 2.7(c);
(b) Liens of or resulting from any judgment or award, the time for
the, appeal or petition for rehearing of which shall not have expired, or
in respect of which the Company shall at any time in good faith be prosecuting
an appeal or proceeding for, a review and in respect of which a stay of
execution pending such appeal or proceeding for review shall have been secured;
(c) Liens, charges, encumbrances and priority claims incidental to
the conduct of business or the ownership of properties and assets (including
Liens in connection with worker's compensation, unemployment insurance and
other like laws, warehousemen' and attorneys' liens and statutory landlords'
liens) and Liens to secure the performance of bids, tender, or trade contracts,
or to secure statutory obligations, surety or appeal bonds or other Liens of
like general natural incurred in the ordinary course of business and not in
connection with the borrowing of money, provided in each case, the obligation
secured is not overdue or, if overdue, is being contested in accordance with
Section 2.7(c),
(d) minor survey exceptions or minor encumbrances, easements or
reservations, or rights of others for right-of-way, utilities and other similar
purposes, or zoning or other restrictions as to the use of real properties,
and which do not in any event detract from the value of said properties or
materially impair the value thereof or their use in the operation of the
business of the Company;
(e) Liens securing indebtedness of a Subsidiary to the Company or
to another Subsidiary:
(f) Liens created by the Agreement, the Corporate Guaranty, and
the other Security Documents, including without limitation this Mortgage and
Security Agreement and Liens expressly permitted pursuant thereto;
(g) Liens created or incurred after the Closing Date given to
secure the payment of the purchase price incurred in connection with the
acquisition or construction of fixed assets useful and intended to be used in
carrying on the business of the Company, including Liens existing on such fixed
assets at the time of acquisition thereof or at the time of acquisition by the
Company of any business entity then owning such fixed assets, whether or not
such existing Liens were given to secure the payment of the purchase price of
the fixed assets to which they attach so long as they were not incurred,
extended or renewed in contemplation of such acquisition, provided that (1) the
Lien shall attach solely to the fixed assets acquired or constructed, (2) such
Lien shall have been created or incurred within six months of the date of
acquisition or the date of completion of
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construction, (3) at the time of acquisition or construction of such fixed
assets, the aggregate amount remaining unpaid on all indebtedness secured by
Liens on such fixed assets whether or not assumed by the Company shall not
exceed an amount equal to the lesser of the total acquisition price or fair
market value at the time of acquisition or construction of such fixed assets
(as determined in good faith by the Board of Directors of the Company), and (4)
all such indebtedness shall have been incurred within the applicable
limitations provided in the Agreement and the Corporate Guaranty; and
Section 2.9. Advances. If the Company shall fail to comply with
the covenants contained herein or contained in the Agreement and the Corporate
Guaranty and incorporated herein by reference, the Mortgagee, without waiving
any Default or Event of Default or releasing any obligation, may (but shall be
under no obligation to) at any time, thereafter make such payment or perform
such act for the account and at the expense of the Company, and may enter upon
the Collateral or any part thereof for such purpose and take all such action
thereon as, in the opinion of the Mortgagee, may be necessary or reasonably
appropriate therefore. All such so paid by the Mortgagee and all costs and
expenses (including, without limitation, reasonable attorneys' fee and
expenses) so incurred, together with interest thereon at the Default Rate from
the date of payment or incurrence, shall be secured hereby and shall be paid by
the Company to the Mortgagee on demand. The Mortgagee in making any payment
authorized under this Section 2.9 relating to taxes or assessments may do so
according to any bill, statement or estimate procured from the appropriate
public office without inquiry into the accuracy of such bill, statement or
estimate or into the validity of any tax assessment, sale, forfeiture, tax lien
or title or claim thereof. The Mortgagee, in performing any act hereunder, shall
be the sole judge of whether the Company is required to perform the same under
the terms of this Mortgage and no such advance shall be deemed to relieve the
Company from any default hereunder.
Section. 2.10. Recordation. The Company will, at its own expense,
cause this Mortgage and all supplements hereto and any financing statements and
continuation statements required by the Uniform Commercial Code or other law in
respect thereof at all times to be kept recorded and filed at its own expense in
such manner and in such places as may be required by law in order to fully
preserve and protect the rights of the Mortgagee hereunder, and will furnish to
the Mortgagee promptly after the execution and delivery of this Mortgage and of
each supplement and each financing statement or continuation statement, as the
case may be, an opinion of counsel stating that in the opinion of such counsel
this Mortgage or such supplement and/or such financing statement or
continuation statement, as the case may be, has been properly recorded or filed
for record so as to make effective of record the Lien and (subject to Permitted
Encumbrances) the first perfected security interest intended to be created
hereby.
Section 2.11. After-Acquired Property. Any and all property
hereafter acquired which is of the kind or nature described in the Granting
Clauses hereof and is or is intended to become a part thereof, shall ipso facto,
and without any further conveyance, assignment or act on the part of the
Company or the Mortgagee, become and be, subject to the Lien and first
perfected security interest of this Mortgage as fully and completely as though
specifically described herein; but
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nevertheless the Company shall from time to time, if requested by the
Mortgagee, execute, and deliver any and all such further assurances,
conveyances and assignments thereof as the Mortgagee may reasonably require for
the purpose of expressly and specifically subjecting to the Lien and first
perfected security interest of this Mortgage any and all such property subject
to Permitted Encumbrances.
Section 2.12. Indemnification; Waiver of Offset. (a) If the
Mortgagee is made a party defendant to any litigation concerning this Mortgage
or the Collateral or any part thereof or interest therein, then the Company
shall indemnify, defend and hold the Mortgagee harmless from all liability by
reason of said litigation, including reasonable attorneys' fees and expenses
incurred by the Mortgagee in any such litigation, whether or not any such
litigation is prosecuted to judgment. If the Mortgagee commences an action
against the Company to enforce any of the terms hereof or because of the breach
by the Company of any of the terms hereof, or for the recovery of any of the
indebtedness hereby secured, the Mortgagee shall have its reasonable attorneys'
fees and expenses paid by the Company. If the Mortgagee is a party to any
discussion or negotiations relating to any amendment, waivers or consents to
the Agreement, the Corporate Guaranty or this Mortgage or relating to any loan
modification, recasting, settlement or other agreement relating to the
Indebtedness Hereby Secured, then the Company shall indemnify, defend and hold
the Mortgagee harmless from all liability, costs and expenses incurred in
connection therewith, including reasonable attorneys' fees and expenses.
(b) All sums payable by the company hereunder shall be paid without
notice, demand, counterclaim, setoff, deduction or defense and without
abatement, suspension, deferment, diminution or reduction, and the obligations
and liabilities of the Company hereunder shall in no way be released,
discharged or otherwise affected (except as expressly provided herein) by
reason of: (i) any damage to or destruction or of any condemnation or similar
taking of the Collateral or any part thereof; (ii) any restriction or
prevention of or interference with any use of the Collateral or any part
hereof; (iii) any title defect or encumbrance on the Collateral or any part
thereof by title paramount or otherwise; (iv) any bankruptcy, insolvency,
reorganization, liquidation or other like proceeding relating to the
composition, adjustment, dissolution, Mortgagee, or any action taken with
respect to this Mortgage by any trustee or receiver of the Mortgagee, or by any
court, in any such proceeding; (v) any claim which the Company has or might
have against the Mortgagee; (vi) any default or failure on the part of the
Mortgagee to perform or comply with any of the terms hereof or of any other
agreement with the Company; or (vii) any other occurrence whatsoever, whether
similar or dissimilar to the foregoing; whether or not the Company shall have
notice or knowledge of any of the foregoing. Except as expressly proved herein,
the Company waives to the extent permitted by law all rights now or hereafter
conferred by statute or otherwise to any abatement, suspension, deferment,
diminution or reduction of any of the indebtedness Hereby Secured and payable
to the Company.
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SECTION 3. APPLICATION OF INSURANCE AND CERTAIN OTHER MONEYS RECEIVED
BY THE MORTGAGEE.
Section 3.1. Insurance Proceeds and Condemnation Awards. (a) The
amounts received by or payable to the Mortgagee from time to time which
constitute insurance proceeds in respect of any damage to or destruction of the
Collateral or any part thereof or Condemnation Awards or compensation covering
the Collateral (less the actual costs, fees and expenses incurred in the
collection thereof) shall be held by the Mortgagee as part of the Collateral
and shall be applied by the Mortgagee as set forth below:
(1) In the case of an Event of Loss or upon the receipt
of Condemnation Awards or compensation, such proceeds shall be paid
over to the Company from time to time as it may direct upon a written
application signed by the President or any Vice President of the
Company. Such application shall be accompanied by evidence
satisfactory to the Mortgagee supporting such application for the
purpose of paying, or reimbursing the Company for the payment of, the
reasonable cost, as shown by such application, of repairing or
replacing part or all of the Collateral damaged, destroyed or
condemned ("Restoration"), but only if written application is made
therefore within twelve months of the receipt of such proceeds or
Condemnation Award or compensation by the Company, and then only for
and to the extent that the Company shows by such evidence of costs
that the portion of such proceeds or award of compensation remaining
on deposit with the Mortgagee, together with any additional funds
irrevocably allocated or otherwise provided for in a manner
satisfactory to the Mortgagee for such purpose, shall be sufficient to
complete such Restoration and restore or replace the Collateral at
least to the market value and condition which existed immediately
prior to the damage, destruction, condemnation or taking, as the case
may be, free from liens or encumbrances except Permitted Encumbrances.
Every such application for the payment of such proceeds or
Condemnation Award or compensation shall state that no Event of
Default has occurred and is continuing. So long as no Event of Default
shall have occurred and be continuing and upon the written request of
the Company accompanied by evidence satisfactory to the Mortgagee that
the Restoration has been completed and the costs thereof paid in full,
the balance, if any, of such proceeds in excess thereof shall be paid
to the Company. The Mortgagee shall receive a supplement hereto
sufficient, as shown by an opinion of counsel (which may be counsel
for the Company) if requested by the Mortgagee, to grant a valid first
Lien and first perfected security interest (subject to Permitted
Encumbrances) in any additions to or substitutions for the Collateral
to or for the benefit of the Mortgagee, which opinion shall also cover
the filing and/or recording of such supplement (and a financing
statement or similar notice thereof if and to the extent permitted or
required by applicable law) so as to perfect the Lien and security
interest In such additions or substitutions, or in the alternative an
opinion that no such supplement required for such purpose.
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(2) In the event that a written application shall not
have been made within the twelve-month period provided for in Section
3.1(a)(1) for any portion of the insurance proceeds or Condemnation
Award or compensation, as the case may be, the Mortgagee shall apply
such insurance proceeds or awards of compensation in accordance with
Section 4.3.
Section 3.2. Mortgage Title Insurance. Any moneys received by the
Mortgagee as payment for any lost under any policy of mortgage title insurance
which was delivered by the Company shall become part of the Collateral.
Section 3.3. Other Proceeds. Any other moneys received by the
Mortgagee in connection with the release of the Collateral shall be held by the
Mortgagee as part of the Collateral and shall be applied by the Mortgagee upon
the terms and in the manner provided in Section 4.3 hereof.
Section 3.4 Application if Event of Default Exists. If an Event
of Default has occurred and is continuing, all amounts received by the
Mortgagee under this Mortgage, including without limitation, all amounts held
pursuant to Section 3.5 shall be applied in the manner provided for in Section
4.3 hereof in respect of proceeds and avails of the Collateral.
Section 3.5. Investment of Collateral. All monies held by the
Mortgagee hereunder as Collateral shall be invested and reinvested by the
Mortgagee at the direction of the Company in one or more Eligible Investments.
The Mortgagee shall not in any way be held liable by reason of any insufficiency
of such invested Collateral resulting from any loss on any Eligible Investment
included therein. All interest carried on such Eligible Investments shall be
held by the Mortgagee as Collateral hereunder and shall be invested and
reinvested pursuant to this Section 3.5.
SECTION 4. DEFAULTS AND REMEDIES THEREFOR.
Section 4.1. Events of Default. The Company acknowledges and
agrees, without limitation, that each and all of the terms and provisions of
Sections 8.1 through 8.7 of the Agreement, inclusive, have been and are
incorporated into this Mortgage by reference to the same extent as though fully
set out herein and that the term Event of Default wherever used in this
Mortgage shall mean either: (a) an Event of Default as defined in Section 8.1
of the Agreement, or (b) the failure of the Company to comply with any
covenant, agreement or warranty contained in this Mortgage within 30 days after
the earlier of (1) the Mortgagee shall have given written notice thereof to the
Company, or (2) such failure shall first become actually known to a Responsible
Officer of the Company.
Section 4.2. Remedies. When any Event of Default has occurred and
is continuing, the Mortgagee may exercise any one or more or all, and in any
order, of the remedies hereinafter set forth, it being expressly understood
that no remedy herein or in the Agreement or the Corporate Guaranty conferred
is intended to be exclusive of any other remedy or remedies; but each and every
remedy shall be cumulative and shall be, in addition to every other remedy
given herein or now or hereafter existing at law or in equity or by statute:
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(a) Subject to compliance with the Agreement and the Corporate
Guaranty, the Mortgagee may, by notice in writing to the Company declare the
entire unpaid balance of the Indebtedness Hereby Secured to be immediately due
and payable; and thereupon all outstanding principal, together with all accrued
interest thereon and premium, if any, and all other fees or other amounts
payable with respect thereto shall be and become immediately due and payable.
(b) The Mortgagee, personally or by agents or attorneys may, to
the extent permitted by law, enter into and take possession of all or any part
of the Collateral, and may forthwith use, operate and manage the Collateral,
collect the earnings and income therefrom, pay all charges including taxes and
assessments levied thereon and operating and maintenance expenses and all
disbursements and liabilities of the Company hereunder and apply the net
proceeds arising from any such operation of tile Collateral as provided in
Section 4.3 hereof in respect of the, proceeds of a sale of the Collateral. The
right to enter and take possession of the Collateral and use any personal
property therein, to manage, operate and conserve the same, and to collect the
rents, issues and profits thereof, shall be in addition to all other rights or
remedies of the Mortgage hereunder or afforded by law, and may be exercised
concurrently therewith or independently thereof. The expenses (including any
reasonable receiver's, fees, reasonable counsel fees, costs and agent's
compensation) incurred pursuant to the powers herein contained shall be secured
hereby and the Company promises to pay all such expenses upon demand together
with interest thereon at the Default Rate. The Mortgagee shall not be liable to
account to the Company for any action taken pursuant hereto other than to
account for any rents actually received by the Mortgagee. Without taking
possession of the Collateral, the Mortgagee may, in the event the Collateral
becomes vacant or is abandoned, take such reasonable steps as it deems
appropriate to protect and secure the Collateral (including hiring watchmen
therefor) and all costs incurred in so doing shall constitute so much
additional Indebtedness Hereby Secured payable upon demand with interest
thereon at the Default Rate.
(c) The Mortgagee may, if at the time such action may be lawful
and always subject to compliance with any mandatory legal requirements, either
with or without taking possession and either before or after taking possession,
and without instituting any legal proceedings whatsoever, and having first
given notice of such sale to the Company at least 30 days prior to the date of
such sale and having given any other notice which may be required by law, sell
and dispose of said Collateral or any part thereof at public auction or private
sale to the highest bidder, which may be the Company in one lot as an entirety
or in separate lots (the Company for itself and for all who may claim by,
through or under it hereby expressly waiving and releasing all rights to have
the Collateral marshalled to the extent permitted by law), and either for cash
or on credit and on such terms as the Mortgagee may determine and at any place
(whether or not it be the location of the Collateral or any part thereof)
designated in the notice above referred to. Any such sale or sales may be
adjourned from time to time by announcement at the time and place
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appointed for such sale or sales or for any such adjourned sale or sales,
without further published notice.
(d) The Mortgagee may proceed to protect and enforce its rights by
a suit or suits in equity or at law, or for the specific performance of any
covenant or agreement contained herein or in the Agreement, or in aid of the
execution of any power herein or therein granted, or for the foreclosure of
this Mortgage, or for the enforcement of any other appropriate legal or
equitable remedy. Upon the bringing of any suit to foreclose this Mortgage or
to enforce any other remedy available hereunder, the plaintiff shall he
entitled as a matter of right without notice and without giving bond to the
Company or anyone claiming under, by or through it, and without regard to the
solvency or in solvency of the Company or the then value of the promises, to
apply to an appropriate court to have a receiver appointed of all the
Collateral and of the earnings, income, rents, issues, profits and proceeds
thereof, with such power as the court making such appointment shall confer, and
the Company does hereby irrevocably consent to such appointment.
(e) In case of any sale of the Collateral, or of any part thereof,
pursuant to any judgment or decree of any court or otherwise in connection with
the enforcement of any of the terms of this Mortgage the Mortgagee may bid and
become the purchaser, and the purchaser or purchasers, for the purpose of
making settlement for or payment of the purchase price, shall be entitled to
turn in and use the Agreement, the Corporate Guaranty and Guaranties thereof,
and any claims for interest and premium matured and unpaid thereon, in order
that there may be credited as paid on the purchase price the sum apportionable
and applicable to the Agreement and Guaranties thereof, including principal and
interest and premium thereof, out of the net proceeds of such sale after
allowing for the proportion of the total purchase price required to be paid in
actual cash. If at any foreclosure proceeding the Collateral shall be sold for
a sum less than the total amount of indebtedness for which is therein given,
the Mortgagee shall be entitled to the entry of a deficiency decree against the
Company and against the property of the Company for the amount of such
deficiency.
(f) The Mortgagee shall have any and all rights and remedies
(including, without limitation, extra judicial power of sale) provided to a
secured party by the Uniform Commercial Code with respect to any and all parts
of the Collateral which are and which are deemed to be governed by the Uniform
Commercial Code. Without limiting the generality of the foregoing, the
Mortgagee shall, with respect to any part of the Collateral constituting
property of the type in respect of which realization on a Lien or security
interest granted therein is governed by the Uniform Commercial Code, have all
the rights, options and remedies of a secured parry under the Uniform
Commercial Code, including, without limitations the right to the possession of
any such property, or any part thereof, and the right to enter without legal
process any promises where any such property may be found. Any requirement of
said Uniform Commercial Code for
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reasonable notification shall be met by mailing written notice to the
Company at its address set forth in Section 5.3 at least five (5) days
prior to the sale or other event for which such notice is required.
(g) The Mortgagee shall have any and all rights and
remedies provided for in the Agreement.
Section 4.3. Application of Proceeds. The purchase money proceeds
and/or avails of any sale of the Collateral, or any part thereof and the
proceeds and the avails of any remedy hereunder shall be paid to and applied
its follows:
(a) first, to the payment pro rata of costs and expenses of
foreclosure or, suit, if any, and of such sale, and to the extent
permitted by applicable law, the reasonable, compensation of the
Mortgagee, its agents, attorneys and counsel, and of all proper
expenses, liability and advances incurred or made hereunder by the
Mortgagee or such to agents, attorneys and counsel, and of all taxes,
assessments or other superior to the Lien of these presents, except
any taxes, assessments or other superior Lien subject to which said
sale may have been made;
(b) second, the amount then owing or unpaid on the
Agreement and the Corporate Guaranty with respect to principal, premium
and/or fees, if any, and interest; and in case such proceeds shall be
insufficient to pay in full the whole amount so due, owing or unpaid,
upon the Agreement and Corporate Guaranty thereof, first, to the unpaid
premium and/or fees thereon, if any, second to unpaid interest thereon,
and third, to unpaid principal thereof;
(c) third, to the payment of any other sum required to be
paid by the Company pursuant to any provision of this Mortgage, the
Agreement, and the Corporate Guaranty (including indebtedness with
respect to any other instrument given to secure the Indebtedness Hereby
Secured); and
(d) fourth, to the payment of the surplus, if any, to the
Company, its successors and assigns, or to whomsoever may be lawfully
entitles to receive the same.
Section 4.4. Waiver of Extension, Appraisement and Stay Laws. The
Company covenants that, upon the occurrence and the continuance of an Event of
Default and the acceleration of the Indebtedness Hereby Secured pursuant to
Section 4.2(a) and to the extent that such rights may then be lawfully waived,
it will not at any time thereafter insist upon or plead, or in any manner
whatever claim or take any benefit or advantage of, any stay or extension law
both statutory and common law, now or at any time hereafter in force, or claim,
take or insist upon any benefit or advantage of or from any law both statutory
and common law, now or hereafter, in force providing for the valuation or
appraisement of the Collateral or any part thereof prior to any sale or sales
thereof to be made pursuant to any provision herein contained, or to the
decree, judgment or order of
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any court of competent jurisdiction or, after confirmation of any such sale or
sales claim or exercise any right under common law or any statute now or
hereafter made, or enacted by any state or otherwise to redeem the property so
sold or any part thereof, and hereby expressly waives for itself and on behalf
of each and every person who may claim under it, all benefit and advantage of
any such law or laws both statutory and common law, which would otherwise be
available to any such Person in connection with the enforcement of any of the
Mortgagee's remedies hereunder; and covenants that it will not in connection
with any such enforcement proceedings invoke or utilize any such law or laws or
otherwise hinder, delay or impede the execution of any power herein granted and
delegated to the Mortgagee but will suffer and permit the execution of every
such power as though no such law or laws had been made, enacted or existed. The
foregoing waivers as well as the waivers hereinafter set forth in this Section
4.4 shall particularly include but not be limited to all of the Company's
rights of appraisement and redemption under the Act of the General Assembly of
the State of Arkansas approved May 8, 1899, and all rights under the Act of the
General Assembly of the State of Arkansas entitled ' "An Act to Regulate the
Foreclosure of Mortgages" ', approved February 9, 1933.".
The Company hereby waives any and all rights of redemption from sale
under any order or decree of foreclosure pursuant to rights herein granted, on
behalf of the Company, and each and every Person acquiring any interest in, or
title, to the Collateral described herein subsequent to the date of this
Mortgage, and on behalf of all other Persons to the extent permitted by
applicable law.
Any sale, whether under any power of sale hereby given or by virtue of
judicial proceedings, shall operate to divest all right, title, interest, claim
and demand whatsoever, either at law or in equity, of the Company in and to the
property sold and shall be a perpetual bar, both at law and in equity, against
the Company, its successors and assigns, and against any and all Persons
claiming the property sold or any part thereof under, by or through the Company,
its successors or assigns.
Section 4.5. Effect of Discontinuance of Proceedings. In case the
Mortgagee shall have proceeded to enforce any right under the Mortgage by
foreclosure, sale, entry or otherwise, and such proceedings shall have been
discontinued through written notice to the Company by the Mortgagee or shall
have been determined adversely, then and in every such case the Company and the
Mortgagee shall be restored to its position and rights hereunder as they
existed immediately prior to the commencement of such proceedings with respect
to the property subject to the Lien and first perfected security interest of
this Mortgage.
Section 4.6. Delay of Omission Not a Waiver. No delay, failure, or
omission of the Mortgagee to exercise any right or power arising from any Event
of Default on the part of the Company shall exhaust or impair any such right or
power or prevent its exercise during the continuance of such Event of Default.
No waiver by the Mortgagee of any such Event of Default, whether such waiver be
full or partial, shall extend to or be taken to affect any subsequent Event of
Default or to impair the rights resulting therefrom, except as may be otherwise
provided
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herein. No right, power or remedy hereunder, is intended to be exclusive of any
other right, power or remedy but each and every right, power or remedy shall be
cumulative and in addition to any and every other right, power or remedy given
hereunder or otherwise existing. Nor shall the giving, taking or enforcement of
any other or additional security, collateral or guaranty for the payment of the
indebtedness secured under this Mortgage operate to prejudice, waive or affect
the security of this Mortgage, or any rights, powers or remedies hereunder; nor
shall the Mortgagee be required to first look to, enforce or exhaust such other
or additional security, collateral or guaranties.
Section 4.7. Costs and Expenses of Foreclosure. In any suit to
foreclose the Lien or first perfected security interest hereon there shall be
allowed and included as additional Indebtedness Hereby Secured in the decree
for sale till expenditures and expenses which may be, paid or incurred by or on
behalf of the Mortgagee for reasonable attorney's fees, reasonable appraiser's
fees, outlays for documentary and expert evidence, stenographic charges,
publication costs and costs (which may be, estimated as the items to be
expended after the entry of the decree) of procuring all such abstracts of
title, title searches and examination, guarantee policies, and similar data and
assurances with respect to title as the Mortgagee may deem to be reasonably
necessary either to prosecute any foreclosure action or to evidence to the
bidder at any sale pursuant thereto the true condition of the title to or the
value of the Collateral, all of which expenditures shall become so much
additional Indebtedness Hereby Secured which the Company agrees to pay and all
of such shall be immediately due and payable with interest thereon from the
date of expenditure until paid at the Default Rate.
Section 4.8. Note to Become Due Upon Sale By Mortgagee. Upon any sale
under or by virtue of this Mortgage, whether pursuant to foreclosure, power of
sale or otherwise, the entire, unpaid principal amount due to the Mortgagee
under the Agreement, the Corporate Guaranty, and the Guaranties thereof,
hereunder, or otherwise, shall, unless the Mortgagee shall expressly declare
otherwise, or, if not previously declared due and payable, immediately become
due and payable, together with interest accrued thereon and premium and/or
fees, if any, and all other indebtedness which this Mortgage by its terms
secures, anything contrary in this Mortgage, the Agreement, the Corporate
Guaranty, the Guaranties thereof, or any other instrument to the contrary
notwithstanding.
SECTION 5. MISCELLANEOUS:
Section 5.1. Successors and Assigns. Whenever any of the parties
hereto is referred to, such reference shall be deemed to include the,
successors and assigns of such party; and all the covenants, promises and
agreements in this Mortgage contained by or on behalf of the Company, or by or
on behalf of the Mortgagee, shall bind and inure to the benefit of the
respective successors and assigns of such parties whether so expressed or not.
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Section 5.2. Severability. The unenforceability or invalidity of
any provision of provisions of this Mortgage shall not render any other
provision or provisions herein contained unenforceable or invalid.
Section 5.3. Addresses for Notices and Demands. All communications
provided for herein shall be in writing and shall be deemed to have been given
(unless otherwise required by the specific provisions hereof in respect of any
matter) when delivered personally or when deposited in the United States mail,
registered or certified, postage prepaid, or mailed prepaid overnight air
courier, addressed as follows:
If to the Company: STRIKER HOLDINGS, INC.
One Riverway, Suite 2450
Houston, Texas 77056
If to the Mortgagee: FINOVA CAPITAL CORPORATION
111 West 40th Street
New York, New York 10018
with a copy to: Jeffrey A. Wurst, Esq.
RUSKIN, MOSCOU, EVANS &
FALTISHCHEK, P.C.
170 Old Country Road
Mineola, New York 11501
or as to either party at such other address as such party may designate by
notice duly given in accordance with this Section to the other party.
Section 5.4. Headings and Table of Contents. The headings of the
sections of this Mortgage and the table of contents are inserted for purposes
of convenience only and shall not be construed to affect the meaning or
construction of any of the provisions hereof.
Section 5.5. Release of Mortgage. This Mortgage shall be a
continuing agreement in every respect and shall remain in full force and effect
until all of the Indebtedness Hereby Secured shall have been fully paid and
satisfied and any commitment of the Mortgagee to extend any credit to the
Company under the Agreement, the Corporate Guaranty, or otherwise, shall have
terminated. Upon such termination of the Agreement and the Corporate Guaranty,
the mortgagee shall, upon the request and at the expense of the Company,
forthwith release all its liens and security interests hereunder.
Section 5.6. Counterparts. This Mortgage may be executed, edged
and delivered in any number of counterparts, each of such counterparts
constituting an original but all together only one Mortgage.
27
<PAGE> 28
Section 5.7. Successor Mortgagee. The Mortgagee may, at any time,
by instrument in writing, appoint a successor or successors to, or discharge
and appoint a new Mortgagee the place of, any Mortgagee named herein or acting
hereunder, which instrument, executed and acknowledged by the Mortgagee; and
recorded in the office of the County Recorder of the county wherein the
Collateral is situated, shall be conclusive proof of the proper substitution of
such successor or successors or new Mortgagee, who shall have all the estate
powers, duties, rights and privileges of the predecessor Mortgagee,
Section 5.8. Governing Law. This Mortgage shall be governed by and
construed and interpreted in accordance with the laws of the State of New York
except to the extent the real and personal property laws of the Sate of
Arkansas, including laws relating to the creation, perfection and enforcement
of liens on real and personal property located in Arkansas, shall necessarily
apply to the enforcement of the security covered by this Mortgage.
Section 5.9. Time. Time shall be of the essence of this Mortgage.
Section 5.10. No Oral Change. This Mortgage may only be modified or
amended by an agreement in writing signed by Mortgagor and Mortgagee, and may
only be released, discharged, or satisfied of record by an agreement in writing
signed by Mortgagee.
Section 5.11. Security Agreement (Accounts Receivable Inventory,
Machinery and Equipment). This Mortgage is subject to all of the terms,
covenants and conditions of a certain revolving credit security Agreement dated
as of April 25, 1995 and entered into between the Company and Mortgagee (such
Agreement, as it may be amended, supplemented or otherwise modified) and the
Corporate Guaranty, which Agreement, Corporate Guaranty and all of the terms,
covenants and conditions thereof are by this reference incorporated herein and
made a part hereof with the same force and effect as if set forth at length
herein. All advances made and all indebtedness arising and accruing under this
Agreement and the Corporate Guaranty from time to time shall be secured by this
Mortgage. In the event of any conflict or ambiguity between the terms,
covenants and conditions of this Mortgage and the Agreement or the Corporate
Guaranty, the terms, covenants and conditions which shall enlarge the rights
and remedies of Mortgagee and the interest of Mortgagee in the Collateral,
afford Mortgagee greater financial security in the Collateral and better assure
payment of the Indebtedness Secured Hereby in full, shall control.
IN WITNESS WHEREOF, the Company has caused this Mortgage to be executed
in its behalf by its President and attested by its Secretary as of the day and
year first above written.
STRIKER HOLDINGS, INC.
By: /s/ DAVID A. COLLINS
----------------------------------
Printed Name: David A. Collins
Its President and CEO
28
<PAGE> 29
ATTEST:
By: /s/ MATTHEW D. POND
--------------------------
Printed Name: Matthew D. Pond
----------------
Its Secretary
-------------------------
ACKNOWLEDGEMENT
STATE OF TEXAS )
) ss.
COUNTY OF HARRIS )
I, Brenda Benz Melton a Notary Public in and for the County and State
aforesaid, do hereby certify that David A. Collins personally known to me to be
the same person whose name is as President & CEO of STRIKER HOLDINGS, INC., a
Texas corporation, subscribed to the foregoing instrument, appeared before me
this day in person and acknowledged that he, being thereunto duly authorized,
signed and sealed with the seal of said Corporation, and delivered the said
instrument as the free and voluntary act of said Corporation and a his own free
and voluntary act, for the uses and purposes therein set forth.
Given under by hand and notarial seal this 18th day of August, 1995.
/s/ BRENDA BENZ MELTON
--------------------------------
Notary Public
County of Residence: Harris
--------------------------------
[SEAL]
My Commission Expires:
February 13, 1999
- -------------------------
This Instrument was prepared by:
EICHENBAUM, SCOTT, MILLER
LILES & HEISTER, P.A.
124 W. Capitol Avenue, Suite 1400
Little Rock, Arkansas 72201-3736
(501)376-4531
<PAGE> 30
A part of the NW 1/2 NE 1/2 and a part of the NE 1/2 NW 1/2 of Section 22,
Township 15 South, Range 19 West, Ouachita County, Arkansas particularly
described as follows:
COMMENCE at the Southeast corner of the NW 1/2 NE 1/2 and run N02 degrees 02'
09" E 42.09 feet to a net wire fence;
THENCE, N87 degrees 48' 10"W 87.30 feet along said fence to a 5/8" rod for
the POINT OF BEGINNING of the tract herein described being described as 68 feet
North and 155 West of the Southeast corner of said NW 1/2 NE 1/2 in a warranty
deed from Travis and Fauver to Elk Roofing Manufacturing Company recorded in
Book 273 at page 239;
THENCE, N87 degrees 18' 00"W along said fence 534.57 feet to a 1" pipe;
THENCE, N88 degrees 08' 27"W along said fence 363.09 feet to a 3/4" pipe;
THENCE, S88 degrees 46' 43"W along said fence 80.13 feet to a 5/8" rod;
THENCE, N87 degrees 44' 59"W along said fence 419.87 feet to a 3/4" pipe;
THENCE, N87 degrees 48' 36"W along said fence and fence-line extended 229.00
feet to a 3/8" rebar;
THENCE, N32 degrees 04' 50"W 63.00 feet to a 3/4" iron rod;
THENCE, N00 degrees 55' 24"W 226.37 feet to a 3/8" rebar set in the
Southeastern right-of-way of the St. Louis-Southwestern Railway: point being at
1,187 feet Southwesterly along the right-of-way from the South right of way of
a county road;
THENCE, N55 degrees 25' 13"E along said Southeastern right-of-way 307.38
feet to a 3/8" rebar;
THENCE, N12 degrees 51' 53"W 99.65 feet to a 1/2" rod set as the Southwest
corner of a tract conveyed by Harry R. and Ann Arring Roofing Company recorded
in Book 362 at Page 187, said rod being in a fence corner;
THENCE, N12 degrees 51' 53"W along said fence 406.27 feet to a 3/4" pipe;
THENCE, N41 degrees 25' 17"E 485.04 feet to a 1-1/4" pipe set as the
Northwest corner of the NW 1/2 NE 1/2;
THENCE, S87 degrees 16' 34"E along the North line of said NW 1/2 N 1/2E
403.00 feet to a 3/8" rebar;
THENCE, S34 degrees 30' 09"W 66.84 feet to a 3/8" rebar set in the East
right-of-way of a gravel public road as located by a sur Pipeline Corporation
in 1962;
THENCE, S25 degrees 46' 50"E along said right-of-way 80.00 feet to a 3/8"
rebar;
THENCE, S23 degrees 06' 53"E along said right-of-way 142,65 feet to a 3/8"
rebar set in the Northwestern right-of-way of said rebar
THENCE, S61 degrees 28' 05"E parallel with the centerline of a county road
112.56 feet to a 3/8" rebar set in the Southeastern of said railroad, said
point also being the Southwestern corner of a tract conveyed by Stephens
Trucking Company to Elk Roofing recorded in Book 323 at page 291;
THENCE, N55 degrees 51' 52"E along the Southeastern right-of-way of said
railroad 112.20 feet;
THENCE, N57 degrees 55' 23"E along said right-of way 67.66 feet to a 3/8"
rebar;
THENCE, S02 degrees 02' 09"W 135.69 feet to a 3/8" rebar in the Northern
right-of-way of said county road;
THENCE, S20 degrees 10' 16"W 41.14 feet to a 3/8" rebar set in the South
right-of-way of said county road;
THENCE, S74 degrees 01' 11"E along said right-of-way 642.98 feet to a 3/8
rebar in the East line of said NW 1/2 NE 1/2;
THENCE, S02 degrees 02' 09"W along said East line 830.51 feet to a fence;
THENCE, N87 degrees 48' 10"W along said fence 87.30 feet to the point of
beginning, containing 40.414 acres more or less.
LESS AND EXCEPT 1.955 acres in St. Louis - Southwestern Railway right-of-ways
leaving an aggregate of 38.459 acres, of acres are in the NW 1/2 NE 1/2 and
7.460 acres are in the NE 1/2 NW 1/2.
<PAGE> 1
EXHIBIT 4.12
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 June 5, 1996
FOR VALUE RECEIVED, the undersigned, WEST OXFORD INDUSTRIES, INC., a
Texas corporation ("Maker"), promised 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 June 4, 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 prepayment 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 "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> 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 of 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 Service
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: /s/ MATTHEW D. POND
---------------------------------
Name: Matthew D. Pond
Title: Chief Financial Officer
PAGE 3 of 3 PAGES
<PAGE> 4
EXHIBIT A
TRANSFER STATEMENT
A. The undersigned Holder ("Holder") hereby transfer 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. ______________ (hereafter "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 Revenue 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: HOLDER/TRANSFEROR:
- -------------------------------------- --------------------------------------
By: By:
---------------------------------- ----------------------------------
Name: Name:
------------------------------- -------------------------------
Title: Title:
------------------------------- -------------------------------
Date: Date:
-------------------------------- --------------------------------
Address of Transferee:
- --------------------------------------
- --------------------------------------
- --------------------------------------
WEST OXFORD INDUSTRIES, INC.
By:
----------------------------------
Name:
--------------------------------
Title:
-------------------------------
Date:
--------------------------------
<PAGE> 1
EXHIBIT 4.13
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 July 10, 1996
FOR VALUE RECEIVED, the undersigned, WEST OXFORD INDUSTRIES, INC., a
Texas corporation ("Maker"), promised 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 June 4, 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 October,
January, April, and July 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 prepayment 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 "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 means 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> 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 Service 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: /s/ MATTHEW D. POND
Name: Matthew D. Pond
Title: Chief Financial Officer
<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. ______________ (hereafter "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 Revenue 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: HOLDER/TRANSFEROR:
- -------------------------------------- --------------------------------------
By: By:
---------------------------------- ----------------------------------
Name: Name:
------------------------------- -------------------------------
Title: Title:
------------------------------- -------------------------------
Date: Date:
-------------------------------- --------------------------------
Address of Transferee:
- --------------------------------------
- --------------------------------------
- --------------------------------------
WEST OXFORD INDUSTRIES, INC.
By:
----------------------------------
Name:
--------------------------------
Title:
-------------------------------
Date:
--------------------------------
<PAGE> 1
GUARANTY
THIS GUARANTY is executed as of , by Striker Industries,
Inc., a Delaware corporation (the "Guarantor"), for the benefit of each holder
(a "Holder") of the Subordinated Promissory Notes (each a "Note") issued by
West Oxford Industries, Inc. (the "Borrower") on the date hereof.
Guarantor guarantees to Holder the prompt payment at maturity (by
acceleration or otherwise), and at all times thereafter, of the Guaranteed Debt
(defined below), as follows:
1. "Guaranteed Debt" shall mean the Notes, including all principal and
interest payable thereon. Unless otherwise stated, terms defined in the Note
have the same meanings when used in this Guaranty.
2. If Guarantor becomes liable for any indebtedness owing by Borrower
to Holder, other than under this Guaranty, such liability will not be in any
manner impaired or affected by this Guaranty, and the rights of Holder under
this Guaranty are cumulative of any and all other rights that Holder may ever
have against Guarantor. The exercise by Holder of any right or remedy under
this Guaranty or otherwise will not preclude the concurrent or subsequent
exercise of any other right or remedy under this Guaranty or otherwise will not
preclude the concurrent or subsequent exercise of any other right or remedy.
3. Holder shall notify Guarantor in writing of any Default or
Potential Default prior to exercising any remedies for such Default and
Guarantor shall have the right to cure any such Default or Potential Default
within thirty Business Days after receiving any such notice. If, while a
Default exists, Borrower fails to pay the entire unpaid balance of the
Obligation then due and payable and Guarantor fails to cure such Default within
thirty Business days after receiving notice of such Default from Holder, then
Guarantor shall, on demand and without further notice of dishonor and without
any notice having been given to Guarantor previous to such demand of either the
acceptance by Holder of this Guaranty or the creation or incurrence of any
Guaranteed Debt, pay the amount of the Guaranteed Debt then due and payable to
Holder, and it is not necessary for Holder, in order to enforce such payment by
Guarantor, first or contemporaneously to institute suit or exhaust remedies
against Borrower or others liable on such indebtedness or to enforce rights
against any collateral securing such indebtedness.
4. This Guaranty benefits Holder and its successors and permitted
assigns and binds Guarantor and its successors and permitted assigns. The
rights and benefits of this Guaranty may not be transferred.
STRIKER INDUSTRIES, INC.
By: /s/ DAVID A. COLLINS
----------------------------
Name: David A. Collins
--------------------------
Title: President and Chief
Executive Officer
<PAGE> 1
EXHIBIT 4.15
10% CONVERTIBLE SUBORDINATED NOTE
$ October 28, 1996
ON OR BEFORE the earlier of (i) May 15, 1997 or (ii) the closing of any
public or private debt or equity financing of Maker or its direct or indirect
parent corporation exceeding $10.5 million, for value received, the
undersigned, WEST OXFORD INDUSTRIES, INC., a Texas corporation ("Maker"),
promises to pay , at the corporate offices of Maker in Houston, Texas,
or, at Maker's option, by Maker's check mailed to the payee herein name at her
or its address furnished in writing to Maker the principal sum of ($ )
DOLLARS, together with interest on the principal balance hereof from time to
time remaining unpaid from October 15, 1996 until maturity at the rate of 10%
per annum, such interest to be paid by Maker to the payee herein named at
maturity contemporaneously with the then unpaid balance of the principal sum
hereof.
This Note is one of a duly authorized issue of Notes of Maker designated
as its 10% Convertible Subordinated Notes issued under that certain
Confidential Private Placement Memorandum of Maker dated July 15, 1996 relating
to a private placement of a maximum of $1,000,000 in aggregate principal sum of
Convertible Subordinated Notes of Maker (the "Convertible Notes"), all of like
tenor and effect, issued in varying denominations and maturing as above set
forth. Each and all of the Convertible Notes are in parity and pari passu and
no one of the Convertible Notes is senior or junior in right of payment to the
other, but each and all are of equal rank and dignity.
The privilege is reserved to pay or prepay, from time to time and at any
time, all or any part of the principal amount of this Note, without premium or
penalty, provided that a like and proportionate payment or prepayment of
principal is made contemporaneously on all other then outstanding Convertible
Notes.
To exercise this prepayment option, Maker shall give written notice at
least 7 days prior to the prepayment date specified in the notice to all
holders of its Convertible Notes then outstanding at the last address of each
holder known to Maker. Upon any partial prepayment of this Note, the holder
hereof shall surrender the same to Maker at its principal office in Houston,
Texas for endorsement hereon of such prepayment, or, at the option of Maker, in
exchange, without charge to the holder for making such exchange, for a new
Convertible Note of Maker in the principal amount of the principal sum hereof
remaining after credit for such prepayment(s), and otherwise having and
containing the same terms and provisions as the Note surrendered.
<PAGE> 2
At the option of the holder of this Note, at any time after the date
hereof and prior to the first to occur of (i) the filing of a Registration
Statement with respect to any debt or equity financing of Maker or its direct
or indirect parent corporation exceeding $10.5 million, regarding which filing
Maker shall give the holder hereof written notice at his or its address as
reflected in the books and records of Maker not less than 4 days prior to the
filing date, (ii) the prepayment by Maker of all or any part of the unpaid
principal amount of this Note in accordance with the foregoing terms hereof or
(iii) the maturity of this Note, but not thereafter, the entire principal
amount of this Note, but not any part thereof, may be converted, with respect
to the event of the filing of a Registration Statement(s), at any time after
the date of the notice of filing until the close of business on the date
immediately preceding the date of filing; with respect to the event of a
prepayment of this Note, at any time after the date of the notice of prepayment
until the close of business on the 3rd day prior to the prepayment date
specified in the prepayment notice given by Maker to all holders of its
Convertible Notes; and with respect to the maturity of this Note, at any time
prior to the date immediately preceding the maturity date hereof, at the then
unpaid principal amount of this Note into shares of Common Stock, $0.20 par
value per share, of Maker's parent corporation, Striker Industries, Inc.
("Striker") having ordinary voting rights at the conversion price per share
which shall be the mean of the high and low trade prices of a share of Common
Stock of Striker as quoted in the NASDAQ SmallCap market on the 5th trading day
prior to the date of the conversion notice delivered within the applicable
conversion period provided herein by the holder to Maker in accordance with the
terms hereof. In order to exercise the conversion privilege, the holder of this
Note shall give written notice in the form attached to Striker at its corporate
offices at One Riverway, Suite 2450, Houston, Texas 77056 to the effect that
the holder elects to convert this Note, enclosing this Note with such notice
and stating therein the name and address in and to which certificates for
shares of Common Stock of Striker shall be issuable and delivered upon such
conversion. As promptly as practicable after receipt of such notice and
surrender of this Note as aforesaid, Striker shall issue and deliver to the
holder, or on his or its written order, a certificate or certificates for the
full number of shares of Common Stock of Striker issuable upon conversion of
this Note in accordance with the provisions hereof and such conversion shall be
deemed to have been effected on the date on which such notice of conversion
shall be received by Striker and this Note shall have been surrendered as
aforesaid, and the person in whose name any certificate for shares of Common
Stock of Striker shall be issuable upon such conversion shall be deemed to have
become on said date the holder of record of the shares represented thereby.
When this Note is surrendered to Striker for conversion as aforesaid, it shall
promptly be canceled by Maker. No adjustment in respect of interest or
dividends will be made upon any conversion. Striker shall not be required to
issue any fractional shares of its Common Stock upon conversion of this Note,
and all fractional shares shall be rounded up to the nearest whole share.
In the event of any stock split, stock dividend, combination of shares or
other capital reorganization or reclassification of capital stock of Striker,
or any additional issuance(s) of shares of Striker Common Stock subsequent to
the initial date of issuance of the Convertible Notes, the Board of Directors
of Maker shall determine whether or not, and to the extent that, any adjustment
should be made to the conversion price stated therein and herein, and by
acceptance of this Note, the holder hereby agrees that a determination of
Maker's Board of Directors with respect to any such adjustment, if any, shall
be conclusive and binding; provided, however, that a
<PAGE> 3
stock dividend in an amount equal to 5% or less shall not be deemed to require
any adjustment in the conversion price under any circumstance. Further, prior
to the conversion of this Note under the terms hereof, no adjustment of the
conversion price shall be made with respect to shares of Common Stock of
Striker issuable under (i) options, warrants or other rights to purchase or
acquire Common Stock, including shares under incentive, restricted or qualified
stock options of Striker; (ii) securities of Striker, including shares of its
Preferred Stock, and/or other debt securities of Striker, whether senior or
subordinated debt securities and whether secured or unsecured, which by their
terms are convertible into or exchangeable for Common Stock of Striker; or
(iii) options, warrants or rights to purchase any such convertible or
exchangeable securities of Striker. In the event of any adjustment to the
conversion price provided herein, Maker shall cause a notice of such adjustment
to be mailed to each holder of shares of its Subordinated Notes within 10 days
after any such determination.
Striker shall at all times reserve and keep available out of its
authorized but unissued Common Stock, for the purpose of issuance upon
conversion of Convertible Notes of Maker, such number of shares of its Common
Stock as shall from time to time be sufficient to effect the conversion of all
of Maker's outstanding Convertible Notes and the issuance of shares of its
Common Stock in exchange therefor upon conversion thereof. All shares of Common
Stock of Striker which shall be issued upon conversion of Convertible Notes of
Maker, shall when so issued upon any such conversion, be duly and validly
issued, fully paid and nonassessable shares of Striker's Common Stock. The
issuance of certificates representing shares of Common Stock of Striker upon
conversion of this Note shall be made without charge to the holder hereof.
The indebtedness evidenced by this Note, and any renewal and extension thereof,
is and shall be subordinate and junior in right of payment to Senior
Indebtedness of Striker and its consolidated subsidiaries, including Maker. As
used herein, the term "Senior Indebtedness" means all indebtedness (both
principal and interest), obligations and liabilities of Striker and its
consolidated subsidiaries heretofore, contemporaneously or hereafter incurred
(including, without limitation, any renewals, extensions, amendments or
modifications -thereof without notice to or the consent of the holders of any
of the Convertible Notes), other than indebtedness evidenced by the Convertible
Notes (each and all of which, as above provided, are in parity and pari passu,
with no one thereof being senior or junior in right of payment to the other and
all of which are of equal rank and dignity), including this Note, unless by the
terms of the instrument or instruments creating or evidencing such indebtedness
it is provided that such indebtedness is not senior to the Convertible Notes.
Without limiting the effect of the foregoing, the term "subordinate and junior"
as used herein shall include within its meanings the following: that (i) in the
event of any insolvency or bankruptcy proceedings, or any receivership,
liquidation, reorganization or other similar proceedings in connection
therewith relative to Striker and its consolidated subsidiaries and its or
their creditors or property, or in the event of any proceedings for voluntary
liquidation, dissolution or other winding-up of Striker and its consolidated
subsidiaries, whether or not involving insolvency or bankruptcy, or in the
event of any assignment for the benefit of creditors or any other marshaling of
assets of Striker and its consolidated subsidiaries, then all Senior
Indebtedness shall first be paid in full, or such payment be provided for,
before any payment shall be made on account of any of the Convertible Notes
(but in any of such events, after the payment of all Senior Indebtedness,
payment on account of the Convertible Notes shall be made before any
<PAGE> 4
payment is made or any assets of Striker or its consolidated subsidiaries are
set apart for payment or distribution to the holders of capital stock of
Striker), and (ii) in the event that the Convertible Notes are declared due and
payable in the manner hereinafter provided because of the occurrence of an
Event of Default, holders of the Convertible Notes shall be entitled to payment
only after there shall first have been paid in full Senior Indebtedness, or
such payment shall have been provided for.
In the event one or more of the following Events of Default shall have occurred
and be continuing (and the term "Event(s) of Default as used herein shall mean
any one or more of the following events or conditions):
(a) Default in the payment by Maker when due of the interest on, or the
principal sum of, any of the Convertible Notes when the same shall be due
and payable under the terms and provisions thereof and continuance of such
failure for a period of 10 business days;
(b) The filing by Maker, Striker or any wholly-owned subsidiary of Striker
(Maker, Striker and/or any of wholly-owned subsidiary of Striker being
hereinafter in this subparagraph (b) referred to singly or in the
aggregate, as the case may be, as "Striker") of a petition in voluntary
bankruptcy, or the making by Striker of a general assignment for the
benefit of creditors, or the filing by it of any petition or answer
seeking or consenting to a reorganization, arrangement, adjustment,
composition, liquidation, dissolution, winding-up or any other such relief
for itself or its creditors, or the filing of an answer by Striker
admitting the material allegations of the petition filed against it in any
such proceeding, or the consenting by Striker to, or the acquiescence of
Striker in, the appointment of any receiver, trustee, liquidator (or other
person or entity exercising similar functions) of Striker or of all or any
substantial part of the property of Striker;
then and in each and every such case, unless the principal of all of the
Convertible Notes shall have already become due and payable, holders of
Convertible Notes entitled to payment of at least 75% in aggregate unpaid
principal amount of the Convertible Notes then outstanding, but not otherwise,
shall, upon 10 days' written notice to Maker of default (such notice to
identify the Event of Default) declare the unpaid principal of, and all accrued
and unpaid interest on, the Convertible Notes then outstanding, including this
Note, to be due and payable and upon any such declaration, the same shall be
and become immediately due and payable. This provision, however, is subject to
the condition that it at any time before the principal of the Convertible Notes
shall have been so declared due and payable, all Events of Default shall have
been cured, then such Events of Default shall be deemed to have been waived by
the holders of the Convertible Notes. This provision is subject to the further
condition that it at any time after the unpaid principal of and accrued and
unpaid interest on the Convertible Notes shall have been so declared due and
payable, and before any judgment or decree for the payment of monies due shall
have been obtained or entered, Maker shall pay or shall deposit with a paying
agent a sufficient sum to pay all accrued and unpaid interest upon all of the
Convertible Notes and every other Event of Default hereunder shall have been
made good, then and in every such case, the holders of not less than 75% in
aggregate unpaid principal amount of the Convertible Notes then outstanding, by
written notice to Maker, may waive all defaults and rescind and annul such
declaration and its
<PAGE> 5
consequences; but no such waiver or rescission or annulment shall extend to or
shall affect any subsequent Event of Default or impair any right hereunder
consequent thereon. The holder of this Note shall have no right to institute
any suit, action or proceeding in equity or in law for the execution of any
power conferred hereunder or for the appointment of a receiver or for the
enforcement of any other remedy under or upon this Note unless such holder,
with the joinder of other holders of Convertible Notes of Maker entitled to
payment of at least 75% in aggregate unpaid principal amount of the Convertible
Notes then outstanding, including this Note, shall previously have given Maker
written notice of an existing Event of Default and of the continuance thereof
as hereinabove provided. Such notification is hereby declared in every such
case to be a condition precedent to any action or cause of action hereunder or
upon the Convertible Notes or for the appointment of a receiver or for any
other remedy hereunder. No delay or omission of the holder of Convertible
Notes, including this Note, to exercise any right or power of such holder(s)
accruing upon or after occurrence of an Event of Default and continuance
thereof as aforesaid shall impair any such right or power or shall be construed
to be a waiver of any such Event of Default or an acquiescence therein; and
every power and remedy given hereunder to holders of the Convertible Notes may
be exercised from time to time and as often as may be deemed expedient by the
holders of the Convertible Notes. No remedy herein conferred upon the holders
of Convertible Notes, including this Note, is intended to be exclusive of any
other remedy or remedies, but each and every such remedy shall be cumulative
and shall be in addition to every other remedy given hereunder or now or
hereafter existing at law or in equity or by statute, subject only to the
foregoing provisions hereof. Whenever in the Convertible Notes it is provided
that holders of a specified percentage in aggregate unpaid principal amount of
the Convertible Notes then outstanding may take any action (including the
making of any demand or request, the giving of any notice, consent or waiver or
the taking of any other action), the fact that at the time of taking of any
such action the holders of Convertible Notes of such specified percentage have
joined therein may be conclusively evidenced and established by any instrument
or any number of instruments of similar tenor executed by holders of
Convertible Notes in person or by agent or proxy duly and lawfully appointed in
writing. The fact and date of the execution by any holder of a Convertible Note
of any instrument may be proved by the certificate of any Notary Public or
other officer of any jurisdiction within the United States authorized to take
acknowledgment of deeds to be recorded in such jurisdiction, or any United
States consular official, stating therein that the person executing such
instrument acknowledged to him the execution thereof or by an affidavit of the
witness to such execution sworn to before any such Notary Public or United
States consular official.
Any notice, request, instruction, consent, demand or other communication at any
time required or permitted to be given or furnished hereunder shall be deemed
sufficiently given or furnished if in writing and delivered personally to the
party to be notified or deposited in the United States mail in first class
registered or certified mail form, with return receipt requested, postage
prepaid, or by facsimile transmission, if to Striker, addressed to it at its
address above set forth or by facsimile transmission to (713) 622-9410, and if
to the holder of this Note, at or to his or its address or facsimile number, if
available, as reflected in the books and records of Maker. Notice by personal
delivery shall be effective upon receipt; notice deposited in the United States
mail in the manner aforesaid shall be effective on the date of receipt or the
third day after the same is deposited in the
<PAGE> 6
United States mail in such form, whichever is earlier, and notice sent by
facsimile transmission shall be effective upon confirmation to the notifying
party of receipt of the transmission.
The maker hereof and all endorsers, sureties and guarantors hereof, as
well as all other persons liable or to become liable on this Note, hereby waive
grace, notice, including, but not limited to, notice of acceleration of notice
of intent to accelerate, demand for presentment for payment, notice of
nonpayment, protest, notice of protest and/or dishonor, filing of suit and
diligence in collection, as well as any notice of or defense on account of the
extension of time for payment or change in the method of payment hereof and
consent to any and all renewals and extensions in the time of payment hereof
Notwithstanding any foregoing provision of this Note to the contrary, the
indebtedness evidenced by this Note may be satisfied and paid in full, and shall
be canceled, in exchange for and upon issuance to the payee herein named of a
number of shares of Common Stock of Maker's direct or indirect parent
corporation under the circumstances described, and calculated in the manner set
forth, in sections 2 and 3 of that certain letter agreement of even date
herewith between the payee herein named and Maker's parent corporation, Striker
Industries, Inc., a copy of which is attached hereto, marked Exhibit A for
identification and hereby made a part hereof for all pertinent purposes.
THIS NOTE HAS BEEN ACQUIRED BY THE PAYEE HEREIN NAMED FOR HIS OR ITS OWN
ACCOUNT AS PRINCIPLE AND WITHOUT INTENT TO DISTRIBUTE OR RESELL THE SAME, IN
WHOLE OR IN PART. THIS NOTE HAS NOT BEEN REGISTERED UNDER THE SECURITIES ACT OF
1933, AS AMENDED, OR UNDER ANY STATE SECURITIES' LAWS (COLLECTIVELY HEREIN THE
"ACTS"); ACCORDINGLY, IT MAY NOT BE SOLD, OFFERED FOR SALE, PLEDGED,
HYPOTHECATED OR OTHERWISE TRANSFERRED OR ASSIGNED IN THE ABSENCE OF AN
EFFECTIVE REGISTRATION STATEMENT AS TO THE NOTE UNDER ANY OF THE APPLICABLE
ACTS, OR AN OPINION OF COUNSEL SATISFACTORY TO MAKER TO THE EFFECT THAT SUCH
REGISTRATIONS ARE NOT REQUIRED.
WEST OXFORD INDUSTRIES, INC.
By:
----------------------------------------
Matthew D. Pond, Chief Financial Officer
The signature of Striker Industries, Inc. below is for the purpose of
evidencing its understanding of agreement and consent to, the provisions of the
above and foregoing Note which relate to issuance of shares of Common Stock of
Striker Industries, Inc. or its parent corporation upon conversion of, or in
full payment and cancellation of and exchange for, the Note, as more fully
provided in the Note and in Exhibit A thereto.
Striker Industries, Inc.
By:
----------------------------------------
David A. Collins, CEO
<PAGE> 7
CONVERSION NOTICE
Striker Industries, Inc.
One Riverway, Suite 2450
Houston, Texas 77056
The undersigned owner of this Note hereby irrevocably exercises the option to
convert this Note into shares of Common Stock of Striker Industries, Inc. and
directs that the shares issuable and deliverable upon the conversion be issued
in the name of and delivered to the undersigned at the address designated
below.
The Note of the undersigned being converted hereby is enclosed herewith for
surrender, cancellation and delivery to the Maker thereof
--------------------------------------
Name
--------------------------------------
Address
--------------------------------------
--------------------------------------
Social Security or Federal ID#
Dated , 1996
--------------------------------------
Signature of Noteholder
<PAGE> 8
PERSONAL AND CONFIDENTIAL
W. David A. Collins
President and CEO
Striker Industries, Inc.
One Riverway, Suite 2450
Houston, Texas 77056
Dear Mr. Collins:
Based on our discussions and a review of the information provided to us on a
confidential basis, we are aware that Striker Industries, Inc. (the "Company")
is currently engaged in efforts to consummate a merger combination transaction
with one of the oldest names in the roofing industry which has a substantial
market share of the national residential roofing market, a vertically
integrated manufacturing process and annual revenues of approximately $300
million. The existing operations of both the Company and this merger partner
would be folded into a new entity named GSR Industries, Inc..
In order to assist the Company to accomplish such pending merger combination
transaction, the undersigned ("Lender") is prepared to provide and fund at the
Company's direction to its wholly-owned subsidiary, West Oxford Industries,
Inc. (the "Subsidiary"), a bridge loan facility in the amount of $__________
(the "Loan") to be evidenced by that certain Convertible Subordinated
Promissory Note (the Note") of the Subsidiary in the original principal amount
of the Loan to be issued to Lender on the terms more fully described therein
and in that certain Confidential Private Placement Memorandum of the Subsidiary
dated July 15, 1996 and in the Subscription Agreement of Lender with respect
thereto executed and delivered to the Subsidiary of even date herewith.
In consideration of such Loan to the Subsidiary, and as a material inducement
to Lender in connection therewith, the Company hereby agrees with Lender as
follows:
1. If the Note is not converted prior to its maturity date, at the time of
payment of the Note at maturity, or upon prepayment at any time prior to
maturity of all then remaining unpaid principal of the Note, the Company shall
issue and deliver to Lender a number of restricted shares of Common Stock of
the Company (and as used throughout the balance of this letter, the term
"Company" shall include GSR Industries, Inc., the ultimate parent corporation
of Striker Industries, Inc., as appropriate) determined by dividing the then
unpaid principal of the Note by the offering price to the public of a share of
Common Stock of the Company in a public offering of shares of Common Stock of
the Company occurring near-simultaneously with consummation of the merger
combination transaction referred to above. In addition, within 30 days after
the maturity date of the Note, the Company, at its expense and one time only,
will amend, if possible, any existing Registration
EXHIBIT A
<PAGE> 9
Statement on Form S-3, or will file a separate Registration Statement on Form
S-3, with respect to an offering of the shares issued to Lender pursuant to the
preceding sentence and will use its best efforts to cause such Registration
Statement to become effective and to remain effective for such period of time
as is permitted under rules and regulations promulgated be the SEC.
2. In the event that the Note has not been converted and a public offering
of shares of Common Stock of the Company does not take place prior to maturity
of the Note, at the option of the Company, at maturity of the Note, the Company
shall either (i) cause the Note and all accrued interest thereon (less an
amount equal to the aggregate par value of the shares of the Company's Common
Stock hereinafter mentioned to be issued contemporaneously therewith) to be
paid by the Subsidiary and shall issue and deliver to Lender a number of
restricted shares of Common Stock of the Company, $.20 par value per share,
determined by dividing the unpaid principal balance of the Note at maturity by
the mean of the high and low trade prices of a share of Common Stock of the
Company as quoted in the NASDAQ SmallCap market on the maturity date of the
Note, or (ii) the Company shall issue and deliver to Lender, in full payment
and cancellation of and exchange for the Note, a number of restricted shares of
Common Stock of the Company determined by dividing the original principal
amount of the Note by the lesser of 50% of (x) the mean of the high and low
trade prices of a share of Common Stock of the Company as quoted in the NASDAQ
SmallCap market during the 10 trading days immediately following the date of
funding of the Loan, or (y) the mean of the high and low trade prices of a
share of Common Stock of the Company as quoted in the NASDAQ SmallCap market on
the date of filing of the Registration Statement (or amendment thereto)
referred to in the last sentence of this section #2. In the event the mean of
the applicable high and low trade prices of a share of Common Stock of the
Company, determined under the applicable provision of subsection (ii) of the
preceding sentence, exceeds $3 per share, such mean per share amount shall be
reduced to, and shall then be deemed to be, $3 for share calculation purposes
under said subsection (ii) of this section 2. In addition, within 30 days after
the maturity date of the Note, the Company, at its expense and one time only,
will amend, if possible, any existing Registration Statement on Form S-3, or
will file a separate Registration Statement on Form S-3, with respect to an
offering of the shares issued to Lender pursuant to the preceding sentence and
will use its best efforts to cause such Registration Statement to become
effective and to remain effective for such period of time as is permitted under
rules and regulations promulgated by the SEC.
3. In the event the Note is not converted and the Company fails to comply
with either #1 or #2 above, whichever is applicable, Lender shall then be
entitled to receive from the Company, in full payment and cancellation of and
exchange for the Note, a Warrant to purchase twice the number of restricted
shares of the Company to which it is entitled under whichever of #1 or #2 is
applicable hereunder at any time during a period of two years at an exercise
price of $.25 per share. Following exercise of the Warrant by Lender with
respect to all shares of Common Stock underlying the Warrant, the Company will
have the same obligation to amend or file a Registration Statement on Form S-3
with
<PAGE> 10
respect to an offering by Lender of the shares issued to it upon an exercise of
the Warrant as is provided above under #1 and #2.
Please signify your agreement to the foregoing by signing this letter in the
space provided for your signature below and return a fully signed copy hereof
to the undersigned.
Very truly yours,
- ---------------------------
By:
------------------------
(Title)
AGREED:
Striker Industries, Inc.
BY: Date: October 28, 1996
------------------------
David A. Collins, CEO
<PAGE> 1
EXHIBIT 4.16
WEST OXFORD INDUSTRIES, INC.
One Riverway
Suite 2450
Houston, Texas 77056
January 23, 1997
TO ALL NOTEHOLDERS:
The purpose of this letter is to (i) update each Investor regarding the
current status of the merger combination transaction (the "Transaction") of
which you are all aware from prior communications, the debt and equity financing
of which is intended to provide the funds for closing of the Transaction and
for retirement of the Notes, and (ii) accomplish the amendment of paragraph one
of the Notes for the reasons hereinafter stated.
The Registration Statement on Form S-1 referred to in the offering
materials and related materials you have previously received was filed with the
Securities and Exchange Commission on December 26, 1996 and we are presently
awaiting receipt of the Commission's usual review comments, which should be
received shortly. The Underwriter of the proposed offering is BlueStone Capital
Partners, L.P. of New York City. It is also anticipated that a co-lead
underwriter will be designated before the end of the month.
We had initially contemplated that the Transaction would be consummated
during the month of January 1997. However, unanticipated delays prevented the
filing with the SEC until late December 1996, and perhaps at least in part for
this reason, the Underwriter has only recently required that the Registration
Statement contain audited year-end financial statements of each of the parties
to the Transaction. As a result, our latest time table now indicates that,
principally due to the time required to complete these year-end audits,
consummation of the public offering aspect of the Transaction is not
anticipated to occur until on or before April 21, 1997, well beyond the present
maturity date of the Notes, Accordingly, for the foregoing reasons, and in
further consideration of our agreement to (i) prepay on February 28, 1997 to
each Noteholder interest only accrued on his, her or its Note (x) from October
15, 1996 through January 31, 1997 at the present Note rate of 10% per annum,
and (y) from February 1, 1997 through February 28, 1997 at the rate of 13% per
annum; and (ii) increase to 13% per annum the rate of interest payable under
the Notes from February 1, 1997 to maturity, it is requested that the first
paragraph only of the Notes be amended hereby to read hereafter as follows:
"ON OR BEFORE the earlier of (i) May 15, 1997 or (ii) the closing of any
public or private debt or equity financing of Maker or its direct or indirect
parent corporation exceeding $10.5 million, for value received, the
undersigned, WEST OXFORD INDUSTRIES, INC., a Texas corporation ("Maker"),
promises to pay (name of Noteholder)
<PAGE> 2
at the corporate offices of Maker in Houston, Texas, or, at Maker's option, by
Maker's check mailed to the payee herein named at his or its address furnished
in writing to Maker the principal sum of (each Noteholders principal sum)
($______) DOLLARS, together with interest on the principal balance hereof from
time to time remaining unpaid from October 15, 1996 until January 31, 1997 at
the rate of 10% per annum, and from February 1, 1997 until maturity at the rate
of 13% per annum, such interest, unless sooner paid or prepaid, to be paid by
Maker to the payee herein named at maturity contemporaneously with the then
unpaid balance of the principal sum hereof.
..."
Please indicate your understanding of, and consent and agreement to, the
above stated amendment to the Notes and your reaffirmation and confirmation of
your Note, as heretofore and hereby amended, by signing this letter amendment
in the space provided for your signature below and return a signed copy of this
letter, by fax (713-964-7222) or mail, to the undersigned. If we have not
received a signed copy of this letter from you by fax or mail on or before
Friday, January 31, 1997, such shall be deemed as your acceptance of, and
agreement to, the above amendment hereby of your Note.
Very truly yours,
West Oxford Industries, Inc.
By: /s/ MATTHEW D. POND
----------------------------------
Matthew D. Pond, President
and CFO
The above and foregoing is hereby consented to and agreed, and the Note
held by the undersigned is hereby reaffirmed and confirmed, as heretofore and
hereby amended, effective as of January 31, 1997,
----------------------------------
Signature of Noteholder
----------------------------------
(Printed Name)
<PAGE> 1
EXHIBIT 4.17
GUARANTY
THIS GUARANTY is executed as of October 28, 1996, by Striker Industries,
Inc., a Delaware corporation (the "Guarantor"), for the benefit of each holder
(a "Holder") of the Convertible Subordinated Promissory Notes (each a "Note")
issued by West Oxford Industries, Inc. (The 'Borrower").
Guarantor guaranteed to Holder the prompt payment at maturity (by
acceleration or otherwise), and at all times thereafter, of the Guaranteed Debt
(defined below), as follows:
1. "Guaranteed Debt" shall mean the Notes, including all principal and
interest payable thereon. Unless otherwise stated, terms defined in the Note
have the same meanings when used in this Guaranty.
2. If Guarantor becomes liable for any indebtedness owing by Borrower
to Holder, other than under this Guaranty, such liability will not be in any
manner impaired or affected by this Guaranty, and the rights of Holder under
this Guaranty are cumulative of any and all other rights that Holder may ever
have against Guarantor. The exercise by Holder of any right or remedy under
this Guaranty or otherwise will not preclude the concurrent or subsequent
exercise of any other right or remedy.
3. Holder shall notify Guarantor in writing of any Default or Potential
Default prior to exercising any remedies for such Default and Guarantor shall
have the right to cure any such Default or Potential Default within thirty
Business Days after receiving any such notice. If, while a Default exists,
Borrower fads to pay the entire, unpaid balance of the Obligation then due and
payable and Guarantor fails to cure such Default within thirty Business Days
after receiving notice of such Default from Holder, then Guarantor shall, on
demand and without further notice of dishonor and without any notice having
been given to Guarantor previous to such demand of either the acceptance by
Holder of this Guaranty or the creation or incurrence of any Guaranteed Debt,
pay the amount of the Guaranteed Debt then due and payable to Holder, and it
is not for Holder, in order to enforce such payment by Guarantor, first or
contemporaneously to institute suit or exhaust remedies against Borrower or
others liable on such indebtedness to enforce rights against any collateral
securing such indebtedness.
4. This Guaranty benefits Holder and its successors and permitted assigns
and binds Guarantor and its successors and permitted assigns. The rights and
benefits of the Guaranty may not be transferred.
STRIKER INDUSTRIES, INC.
By: /s/ DAVID A. COLLINS
----------------------------------
Name: David A. Collins
--------------------------------
Title: President and CEO
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<PAGE> 1
EXHIBIT 4.18
THIS PROMISSORY NOTE HAS NOT BEEN REGISTERED UNDER THE SECURITIES ACT OF 1933
(THE "ACT"), OR ANY STATE SECURITIES LAWS AND NEITHER THIS NOTE NOR ANY INTEREST
THEREIN MAY BE OFFERED, SOLD., PLEDGED, ASSIGNED OR OTHERWISE TRANSFERRED
UNLESS (1) A REGISTRATION STATEMENT WITH RESPECT THERETO IS EFFECTIVE UNDER THE
ACT AND ANY APPLICABLE STATE SECURITIES LAWS, OR (2) THE COMPANY RECEIVES AN
OPINION OF COUNSEL TO THE HOLDER OF THIS NOTE, WHICH COUNSEL AND OPINION ARE
REASONABLY SATISFACTORY TO THE COMPANY, THAT THIS NOTE MAY BE OFFERED, SOLD,
PLEDGED, ASSIGNED OR TRANSFERRED IN THE MANNER CONTEMPLATED WITHOUT AN
EFFECTIVE REGISTRATION STATEMENT UNDER THE ACT OR APPLICABLE STATE SECURITIES
LAWS.
Striker Industries, Inc.
Original Issue Discount Promissory Note
$ 1996
New York, New York
FOR VALUE RECEIVED, the undersigned, Striker Industries, Inc., a
Delaware corporation (the "Company"), hereby promises to pay to
with an address of
, or registered assigns (the "Holder"), the principal sum of
$ on or before April 25, 1997 (the "Maturity Date") subject to extension
as hereinafter provided. Provided that (x) neither an Event of Default, (as
defined in Section 6) nor an Event (defined below) shall have occurred and be
continuing, and (y) the Company or any successor is pursuing an Initial Public
Offering (the "GSR IPO") of its securities in connection with the GS Roofing
Transaction, the Company shall have the option to extend the Maturity Date for
a period of three months (the "Extension") by giving written notice thereof to
the Holder at least ten days prior to April 25, 1997 and by satisfying the
following conditions: (i) prepaying interest on the unpaid principal balance
for the term of the Extension, at the rate of 15% per annum; and (ii) issuing
Warrants to purchase an additional 15% of the Shares that may be issued
pursuant to the Holder's Warrants. Notwithstanding the foregoing, the principal
balance of this Note and any interest accrued thereon to the extent not
previously paid shall become immediately due and payable upon the earliest of
(a) the closing of the GSR IPO, (b) the sale by the Company or any of its
Subsidiaries of all or substantially all its assets, (c) the sale by its
stockholders of all or substantially all its stock in the Company, or (d) the
merger or consolidation of the Company or the occurrence of any business
combination involving the Company (each, an "Event").
<PAGE> 2
1. Offering.
This Note was issued by the Company in an offering (the "Offering")
of units (the "Units"), each consisting of (i) an Original Issue Discount
Promissory Note in the principal amount of $105,000 (all such notes issuable
pursuant to the "Offering", the "Notes") and (ii) warrants (the "Warrants") to
purchase 15,000 shares of the Company's common stock, par value $.20 per share
(the "Common Stock").
2. Payments
(a) The Company may, at its option, prepay all or any
part of the principal of this Note, without penalty. Any prepayment shall be
made pro rata with the other Notes in proportion to their respective
outstanding principal balance.
(b) Payments of amounts due under this Note shall be made
by check sent to the Holder's address set forth above or to such other address
as the Holder may designate for such purpose from time to time by written
notice to the Company.
(c) The obligations to make the payments provided for in
this Note are absolute and unconditional and not subject to any defense,
set-off, counterclaim, recision, recoupment or adjustment whatsoever. The
Company hereby expressly waives demand and presentment for payment, notice of
nonpayment, notice of dishonor, protest, notice of protest, bringing of suit
and diligence in taking any action to collect any amount called for hereunder,
and shall be directly and primarily liable for the payment of all sums owing
and to be owing hereon, regardless of and without any notice, diligence, act or
omission with respect to the collection of any amount called for hereunder.
(d) In the event the amount hereof outstanding is not
paid upon the Maturity Date or upon acceleration thereof upon an Event of
Default, said amount shall bear interest at the rate of 18% per annum.
(e) In the event that a court of competent jurisdiction
shall finally determine that the Company shall have paid or agreed to pay
hereunder or under any of the Operative Agreements interest or other charges in
excess of the maximum rate permitted by law, it is the express intent of the
Company and the Holder that all such excess amounts shall, at the option of the
Holder, be held as cash collateral to secure the payment of this Note
(reimbursable to the Company to the extent of any excess after payment to the
Holder of all sums lawfully payable hereunder), and the provisions of this Note
shall be immediately deemed reformed and amounts thereafter collectible
hereunder reduced, without necessity of execution of a new document, so as to
comply with the determination of such court, but so as to permit the recovery
of the fullest amount otherwise provided for in this Note.
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<PAGE> 3
3. Ranking of Note and Security
(a) This Note is one of a series of Notes. The terms and
conditions of all of the Notes shall be identical in all respects. All Notes of
this series rank pari passu. The Company, for itself, its successors and
assigns, covenants and agrees that the payment of all amounts due under this
Note is senior in right of payment to the payment of all existing and future
Junior Debt.
(b) The Company covenants and agrees to cause any future
holder of Junior Debt to execute such subordination agreements, instruments or
waivers as may be reasonably necessary in the opinion of BlueStone Capital
Partners, L.P., a New York limited partnership ("BlueStone") to reflect the
terms set forth herein.
(c) Until the payment in full of all amounts due under
this Note, no payment may be made with respect to the principal of any Junior
Debt, or in respect of any redemption, retirement, purchase or other
acquisition thereof
(d) Upon any payment or distribution of the assets of the
Company to creditors upon dissolution, total or partial liquidation or
reorganization of or similar proceeding relating to the Company, the Holders
will be entitled to receive payment in full before any holder of Junior Debt is
entitled to receive any payment.
(e) The Company's obligations hereunder are guaranteed by
each of the Company's United States Subsidiaries pursuant to a Guaranty in the
form of Exhibit C to the Subscription Agreement. The Company shall use its best
efforts to obtain the consent of the holder of its Senior Debt for each of the
Company's United States Subsidiaries to grant to BlueStone, as agent for the
Holders, a security interest in all of the Subsidiaries' assets pursuant to a
Guaranty and Security Agreement in the form of Exhibit I hereto, and shall
cause such Subsidiaries to enter into such Agreement on or before January 10,
1997.
4. Representations and Warranties.
The Company represents and warrants to the Holder that:
(a) Due Incorporation. The Company: (i) is a corporation
duly organized and validly existing under the laws of the jurisdiction of its
incorporation; (ii) has all requisite corporate power, and has all material
governmental licenses, authorizations, consents and approvals necessary to own
its assets and carry on its business as now being or as proposed to be
conducted; and (iii) is qualified to do business in all jurisdictions in which
the nature of the business conducted by it makes such qualification necessary
and where failure so to qualify would have a material adverse effect on the
financial condition, operations or business of the Company taken as a whole.
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<PAGE> 4
(b) Subsidiaries. The Company owns all of the capital
stock directly or indirectly of each of the entities identified on Schedule
4(b), free and clear of all liens, claims or encumbrances of any kind or
nature. Each Subsidiary (i) is a corporation duly organized and validly
existing under the laws of the jurisdiction of its incorporation; (ii) has all
requisite corporate power, and has all material governmental licenses,
authorizations, consents and approvals necessary to own its assets and carry on
its business as now being or as proposed to be conducted; and (iii) is
qualified to do business in all jurisdictions in which the nature of the
business conducted by it makes such qualification necessary and where failure
so to qualify would have a material adverse effect on the financial condition,
operations or business of the Company taken as a whole. For the purposes of the
representations set forth below, the "Company" shall include each Subsidiary,
where applicable.
(c) Legal Proceedings. There are no legal or arbitral
proceedings or any proceedings by or before any governmental or regulatory
authority or agency, now pending or (to the knowledge of the Company)
threatened against the Company which, if adversely determined, could have a
material adverse effect on the consolidated financial condition, operations or
business of the Company taken as a whole.
(d) No Conflicts. None of the execution and delivery of
this Note and the Operative Agreements, the consummation of the transactions
herein contemplated or the compliance with the terms and provisions hereof will
conflict with or result in a breach of, or require any consent under, the
charter or by-laws of the Company, or any applicable law or regulation, or any
order, writ, injunction or decree of any court or governmental authority or
agency, or any agreement or instrument to which the Company is a party or by
which it is bound or to which it is subject, or constitute a default under any
such agreement or instrument, or result in the creation or imposition of any
Lien upon any of the revenues or assets of the Company pursuant to the terms of
any such agreement or instrument.
(e) Authority. The Company has all necessary corporate
power and authority to execute, deliver and perform its obligations under this
Note and each of the Operative Agreements to which it is a party; the
execution, delivery and performance by the Company of each of the Operative
Agreements to which it is a party have been duly authorized by all necessary
corporate action on its part; and this Note has been duly and validly executed
and delivered by the Company and constitutes, each of the other Operative
Agreements to which the Company is a party when executed and delivered will
constitute, its legal, valid and binding obligation, enforceable in accordance
with its terms.
(f) Consents. No authorizations, approvals or consents
of, and no filings or registrations with, any governmental or regulatory
authority or agency are necessary for the execution, delivery or performance by
the Company of this Note or any Operative Agreement.
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<PAGE> 5
(g) Credit Agreements. The Company is not party to any
credit agreement, loan agreement, indenture, purchase agreement, guarantee or
other arrangement providing for or otherwise relating to any Indebtedness or
any extension of credit (or commitment for any extension of credit) to, or
guarantee by, the Company, other than as set forth in its Form 10-Q filed with
the Securities and Exchange Commission for the quarter ended June 30, 1996.
(h) Permits. The Company has obtained all permits,
licenses and other authorizations which are required under all Environmental
Laws, except to the extent failure to have any such permit, license or
authorization would not have a material adverse effect on the financial
condition, operations, business or prospects of the Company. The Company is in
compliance with the terms and conditions of all such permits, licenses and
authorizations, and are also in compliance with all other limitations,
restrictions, conditions, standards, prohibitions, requirements, obligations,
schedules and timetables contained in any applicable Environmental Law or in
any regulation, code, plan, order, decree, judgment, injunction, notice or
demand letter issued, entered, promulgated or approved thereunder, except to
the extent failure to comply would not have a material adverse effect on the
financial condition, operations, business or prospects of the Company.
(i) G.S. Roofing Transaction. The Company will enter into
an Agreement and Plan of Reorganization, and has entered into an Agreement and
Plan of Merger (the "GS Roofing Agreement") together with an Asset Purchase
Agreement pursuant to which the Company, GS Roofing Products Company, Inc. and
Newgen Holdings Industries, Inc. would enter into a business combination
resulting in GSR Industries, Inc. owning 100% of each of Striker, GS Roofing
and Newgen Holdings (the "GS Roofing Transaction"). The GS Roofing Agreement is
in full force and effect and no party has given notice that it does not intend
to consummate the GS Roofing Transaction.
(j) No Material Changes. etc. Since June 30, 1996, there
has occurred no change in the financial condition or business of the Company as
shown on or reflected in the consolidated balance sheet of the Company as at
June 30, 1996 which would have a materially adverse effect on the Company's
business or financial condition.
(k) Franchises, Patents. Copyrights, etc. The Company
possesses all franchises, patents, copyrights, trademarks, trade names,
licenses and permits ("Rights"), and rights in respect of the foregoing,
adequate for the conduct of its business substantially as now conducted without
known conflict with any rights of others.
(1) No Materially Adverse Contracts. etc. The Company is
not subject to any charter, corporate or other legal restriction, or any
judgment, decree, order, rule or regulation that has or is expected in the
future to have a materially adverse effect on the business or condition of the
Company and its Subsidiary, taken as a whole ("Material Adverse Effect").
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<PAGE> 6
The Company is not a party to any contract or agreement that has or is
expected, in the judgment of the Company's officers, to have any Materially
Adverse Effect.
(m) Tax Status. The Company (i) has made or filed all
Federal and state income and all other tax returns, reports and declarations
required by any jurisdiction to which the Company believes in good faith (and
after consultation with counsel) it is subject, (ii) has paid all taxes and
other governmental assessments and charges shown or determined to be due on
such returns, reports and declarations, except those being contested in good
faith and by appropriate proceedings and (iii) has set aside on its books
provisions reasonably adequate in accordance with generally accepted accounting
principles for the payment of all taxes for periods subsequent to the periods
to which such returns, reports or declarations apply. To the best of the
Company's knowledge, except certain property taxes, payment of which management
of the Company is currently negotiating (the "Disputed Taxes"). There are no
unpaid taxes claimed to be due by the taxing authority of any jurisdiction
which, if not paid, would have a Materially Adverse Effect, and the officers of
the Company know of no basis for any such claim.
(n) No Event of Default. No Event or Event of Default has
occurred and is continuing, either hereunder or under any Operative Agreement.
(o) Absence of Financing Statements, etc. Except as
relates to the Senior Debt, there is no financing statement, security
agreement, chattel mortgage, real estate mortgage or other document filed or
recorded with any filing records, registry or other public office, that
purports to cover, affect or give notice of any present or possible future lien
on, or security interest in, any assets or property of the Company or any
rights relating thereto.
(p) Certain Transactions. Except as disclosed in the SEC
Reports, none of the officers, directors, or employees of the Company is
presently a party to any transaction with the Company (other than for services
as employees, officers and directors), including any contract, agreement or
other arrangement providing for the furnishing of services to or by, providing
for rental of real or personal property to or from, or otherwise requiring
payments to or from any officer, director or such employee or, to the knowledge
of the Company, any Person in which any officer, director, or any such employee
has a substantial interest or is an officer, director, trustee or partner.
(q) SEC Reports. The Company files periodic reports with
the Securities and Exchange Commission and has delivered to Holder its Form
10-K for the year ended December 31, 1995 and its Form 10-Q for the quarters
ended March 31, 1996 and June 30, 1996 (the "SEC Reports"). As of their
respective dates, the SEC Reports (i) complied as to form in all material
respects with the requirements of the Exchange Act, and (ii) did not contain
any untrue statement of a material fact or fail to state a material fact
required to be stated therein or necessary in order to make the statements
therein, in light of the circumstances under which they were made, not
misleading. There have been no material adverse changes in the Company's
financial condition or business since the filing of its latest SEC Report. For
the quarter ended
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<PAGE> 7
September 30, 1996, the Company had revenues of $2,042,873, incurred a pre-tax
loss of $653,826, and incurred Indebtedness of $1,985,000 in the form of
subordinated notes.
(r) Authorized Capital. The authorized capital of the
Company consists of 25,000,000 shares of Common Stock, $.20 par value, and
5,000,000 shares of Preferred Stock. The only shares of capital stock
outstanding are 10,924,564 shares of Common Stock. There are options, warrants
or other rights outstanding permitting the holders thereof to acquire 2,246,945
shares of the Company's Common Stock.
(s) No False or Misleading Statements. No statement made
in the Note, Subscription Agreement or the Operative Agreements contains any
untrue statement of material fact or omits to state any material fact
required to be stated therein or necessary to make the statements made therein
no misleading, in light of the circumstances under which they are made.
5. Covenants.
The Company covenants and agrees with the Holder that, so long as any
amount remains unpaid on the Note, the Company and each Subsidiary, without the
consent of the Holder:
(a) Shall not create, incur, or suffer to exist any
Indebtedness except (i) the Indebtedness represented by the Notes, (ii)
Senior Debt outstanding on the date hereof, (iii) Capital Lease Obligations,
(iv) purchase money Indebtedness, and (v) Junior Indebtedness.
(b) Shall not create, incur or suffer to exist Lien on
its assets, except (i) Liens for taxes not yet due or contested in good faith
with appropriate reserves maintained on the books of the Company, (ii)
carriers', warehousemen's, mechanics', and similar Liens arising in the
ordinary course of business which are not overdue for more than 90 days or are
being contested in good faith, or (iii) easements, rights of way, zoning
restrictions, and similar Liens on real property, which in the aggregate are
not material and do not materially detract from the use of such property and
(iv) Permitted Liens.
(c) Shall not pay any dividend or make any distribution
on, or purchase, redeem, or retire, any shares of its capital stock or any
warrants, options, or other rights to reacquire any such shares.
(d) Shall not change its primary line of business.
(e) Except with respect to the transactions referred to
in Section 4(i), shall not (i) enter into any merger or consolidation, (ii)
liquidate, wind up its affairs or dissolve, or (iii) except in the ordinary
course of business, convey, sell, lease, transfer or otherwise dispose of, or
purchase or acquire, any business, assets, capital stock or other property.
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<PAGE> 8
(f) Shall not, directly or indirectly, enter into any
transaction with or for the benefit of an affiliate (other than the reasonable
compensation) for services as an officer, director or employee.
(g) Shall not in any manner increase the compensation of
its existing officers and directors from the levels in effect on the date of
issuance of this Note.
(h) Shall deliver to the Holder:
(i) within five days after filing with the
Securities and Exchange Commission, copies of the Company's Form 10-K and Form
10-Q.
(ii) promptly after the Company shall obtain
knowledge of such, written notice of all legal or arbitral proceedings, and of
all proceedings by or before any governmental regulatory authority or agency,
and each material development in respect of such legal or other proceedings,
affecting the Company, except proceedings which, if adversely determined, would
not have a material adverse effect on the Company; and
(iii) promptly after the Company shall obtain
knowledge of the occurrence of any Event of Default (as hereinafter defined) or
any event which with notice or lapse of time or both would become an Event of
Default (an Event of Default or such other thing being a "Default"), a notice
specifying that such notice, is a "Notice of Default" and describing such
Default in reasonable detail, and, in such Notice of Default or as soon
thereafter as practicable, a description of the action of the Company has taken
or proposes to take with respect thereto.
(i) shall maintain its chief executive office in the
location currently maintained, or at such other place as the Company shall
designate upon written notice to BlueStone, where notices, presentations and
demands to or upon the Company in respect to this Note or any of the Operative
Agreements to which the Company is a party may be given or made.
(j) shall (i) keep true and accurate records and books of
account in which proper entries will be made in accordance with generally
accepted accounting principles and (ii) maintain adequate accounts and reserves
for all taxes (including income taxes), depreciation, depletion, obsolescence
and amortization of its properties, contingencies, and other reserves, in each
case in accordance with generally accepted accounting principles.
(k) shall do or cause to be done all things necessary to
preserve and keep in full force and effect its corporate existence, rights and
franchises. It will (i) cause all of its properties used or useful in the
conduct of its business to be maintained and kept in good condition, repair and
working order and supplied with all necessary equipment, (ii) cause to be
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<PAGE> 9
made all necessary repairs, renewals, replacements, betterments and
improvements thereof, all as in the judgement of the Company may be necessary
so that the business carried on in connection therewith may be properly and
advantageously conducted at all times, and (iii) continue to engage primarily
in the businesses now conducted by it and in related businesses.
(l) shall maintain with financially sound and reputable
insurers insurance with respect to its properties and business against such
casualties and contingencies as shall be in accordance with the general
practices of businesses engaged in similar activities in similar geographic
areas and in amounts, containing such terms, in such forms and for such periods
as may be reasonable and prudent.
(m) shall duly pay and discharge, or cause to be paid and
discharged, before the same shall become overdue, all taxes, assessments and
other governmental charges imposed on it and its real properties, sales and
activities, or any part thereof, or upon the income or profits therefrom, as
well as all claims for labor, materials, or supplies that if unpaid might by
law become a lien or charge upon any of its property other than the Disputed
Taxes, provided, however, the Holders acknowledge that there are currently
outstanding and past due property taxes payable to certain local authorities.
(n) shall permit BlueStone to visit and inspect any of
the properties of the Company to examine the books of account of the Company
(and to make copies thereof and extracts therefrom), and to discuss the
affairs, finances and accounts of the Company with, and to be advised as to the
same by, its and their officers, at all such reasonable times and intervals as
BlueStone may reasonably request.
(o) shall comply in all material respects with (i) the
applicable laws and regulations wherever its business is conducted, including
all Environmental Laws and ERISA, (ii) the provisions of its charter documents
and by-laws, (iii) all agreements and instruments by which it or any of its
properties may be bound and (iv) all applicable decrees, orders and judgements.
(p) shall cooperate with the Holder and BlueStone and
execute such further instruments and documents as the Holder or BlueStone shall
reasonably request to carry out to their satisfaction the transactions
contemplated by this Note.
(q) shall take all action on its behalf to fulfill its
obligations under the GS Roofing Agreement.
(r) shall file, no later than December 15, 1996, a
Registration Statement with the Securities and Exchange Commission registering
securities to be offered to the public to raise at least $33,000,000 in equity
in connection with the GS Roofing Transaction.
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<PAGE> 10
(s) shall apply 50% of the net proceeds in excess of
$3,000,000 in the aggregate received by the Company or any Subsidiary from the
sale of (i) future Indebtedness incurred by the Company or any Subsidiary or
(ii) equity in the Company or any Subsidiary, to prepay the Notes in whole or
in part.
(t) shall use the proceeds of the Offering exclusively
for operations of its Canadian facility, costs associated with the GS Roofing
Transaction and general working capital purposes.
6. Events of Default.
The occurrence of any of the following events shall constitute an
event of default (an "Event of Default):
(a) A default in the payment of any amount under any
Note, when and as the same shall become due and payable.
(b) A default in the performance, or a breach of any of
the covenants of the Company contained in Sections 3 and 5 of this Note, or in
any Operative Agreement, and confinuance of such default or breach for a period
of 30 days after receipt of notice from the Holder as to such breach or after
the Company had or should have had knowledge of such breach.
(c) A default or event of default which remains uncured
following any applicable cure period shall have occurred with respect to any
Senior Debt or Junior Debt.
(d) Any representation, warranty or certification made by
the Company pursuant to this Note or in any Operative Agreement shall prove to
have been false or misleading as of the date made or thereafter in any material
respect.
(e) A final judgment or judgments for the payment of
money in excess of $150,000 in the aggregate shall be rendered by one or more
courts, administrative or arbitral tribunals or other bodies having
jurisdiction against the Company or any Subsidiary and the same shall not be
discharged (or provision shall not be made for such discharge), or a stay of
execution thereof shall not be procured, within 60 days from the date of entry
thereof and the Company or such Subsidiary shall not, within such 60-day
period, or such longer period during which execution of the same shall have
been stayed, appeal therefrom and cause the execution thereof to be stayed
during such appeal.
(f) The entry of a decree or order by a court having
jurisdiction adjudging the Company or any Subsidiary bankrupt or insolvent, or
approving a petition seeking reorganization, arrangement, adjustment or
composition of or in respect of the Company or any Subsidiary, under federal
bankruptcy law, as now or hereafter constituted, or any other applicable
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<PAGE> 11
federal or state bankruptcy, insolvency or other similar law, and the
continuance of any such decree or order unstayed and in effect for a period of
60 days; or the commencement by the Company or any Subsidiary of a voluntary
case under federal bankruptcy law, as now or hereafter constituted, or any
other applicable federal or state bankruptcy, insolvency, or other similar law,
or the consent by it to the institution of bankruptcy or insolvency proceedings
against it, or the filing by it of a petition or answer or consent seeking
reorganization or relief under federal bankruptcy law or any other applicable
federal or state law, or the consent by it to the filing of such petition or to
the appointment of a receiver, liquidator, assignee, trustee, sequestrator or
similar official of the Company or any Subsidiary or of any substantial part of
its property, or the making by it of an assignment for the benefit of
creditors, or the admission by it in writing of its inability to pay its debts
generally as they become due, or the taking of corporate action by the Company
or any Subsidiary in furtherance of any such action.
(g) Thirty days after any party to the GS Roofing
Agreement shall have given notice that it is terminating the GS Roofing
Agreement or otherwise gives notice that it intends not to consummate the GS
Roofing Transaction.
(h) Thirty days after BlueStone determines, in good
faith, that the Company is no longer pursuing the GSR IPO.
(i) If David Collins shall cease serving as President of
the Company or if a majority of the Company's board of directors no longer
consists of individuals currently serving on the board.
(j) If BlueStone has not received the Subsidiary Guaranty
and Security Agreement on or before January 10, 1997.
7. Remedies Upon Default.
(a) Upon the occurrence of an Event of Default referred
to in Section 6(a), (f), (g), or (i), the Holder, this Note shall become and be
due and payable immediately, without presentation, demand, protest or other
formalities of any kind, all of which are expressly waived by the Company. Upon
the occurrence of an Event of Default other than one referred to in Sections
6(a), (f), (g), or (i), BlueStone or the Holders of not less than 50% in
principal amount of then outstanding Notes (excluding any Notes held by or for
the account of the Company or any affiliate of the Company) may declare, by
written notice to the Company, all amounts due under the Notes to be due and
payable immediately, and upon such declaration the same shall become due and
payable immediately, without presentation, demand, protest or other formalities
of any kind, all of which are expressly waived by the Company.
(b) The Holder may institute such actions or proceedings
in law or equity as it shall deem expedient for the protection of its rights
and may prosecute and enforce its claims against all assets of the Company, and
in connection with any such action or proceeding
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<PAGE> 12
shall be entitled to receive from the Company payment of the principal amount
of this Note plus accrued interest to the date of payment plus reasonable
expenses of collection, including, without limitation, attorneys' fees and
expenses.
(c) In addition to the remedies sef forth above, if the
Company fails to pay any amount due on the Maturity Date (as extended) or upon
acceleration thereof, BlueStone shall have the right, while any sum amount
remains outstanding, to designate such number of persons to the Company's board
of directors as shall then constitute a majority of such Board, and the Company
shall take all action necessary to appoint those persons to the Company's board
of directors.
8. Transfer
(a) Any Notes issued upon the transfer of this Note shall
be numbered and shall be registered in a Note Register as they are issued. The
Company shall be entitled to treat the registered holder of any Note on the
Note Register as the owner in fact thereof for all purposes and shall not be
bound to recognize any equitable or other claim to or interest in such Note on
the part of any other person, and shall not be liable for any registration of
transfer of Notes which are registered or to be registered in the name of a
fiduciary or the nominee of a fiduciary unless made with the actual knowledge
that a fiduciary or nominee is committing a breach of trust in requesting such
registration or transfer, or with the knowledge of such facts that its
participation therein amounts to bad faith. Subject to the provisions of
Section 8(b), this Note shall be transferable only on the books of the Company
upon delivery thereof duly endorsed by the Holder or by his duly authorized
attorney or representative, or accompanied by proper evidence of succession,
assignment, or authority to transfer. In all cases of transfer by an attorney,
executor, administrator, guardian, or other legal representative, duly
authenticated evidence of his or its authority shall be produced. Upon any
registration of transfer, the Company shall deliver a new Note or Notes to the
person entitled thereto. This Note may be exchanged, at the option of the
Holder thereof, for another Note, or other Notes of different denominations, of
like tenor and representing in the aggregate a like principal amount, upon
surrender to the Company or to its duly authorized agent. Notwithstanding the
foregoing, the Company shall have no obligation to cause Notes to be
transferred on its books to any person if, in the opinion of counsel to the
Company, such transfer does not comply with the provisions of the Act and the
rules and regulations thereunder.
(b) The Holder acknowledges that he has been advised by
the Company that this Note has not been registered under the Act, that the Note
is being or has been issued on the basis of the statutory exemption provided by
Section 4(2) of the Act or Regulation D promulgated thereunder, or both,
relating to transactions by an issuer not involving any public offering, and
that the Company's reliance thereon is based in part upon the representations
made by the original Holder in the original Holder's Subscription Agreement
executed and delivered in accordance with the terms of the Offering. The Holder
acknowledges that he has been informed by the Company of, or is otherwise
familiar with, the nature of the limitations imposed by the
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<PAGE> 13
Act and the rules and regulations thereunder on the transfer of securities. In
particular, the Holder agrees that no sale, assignment or transfer of the Note
or conversion shares shall be valid or effective, and the Company shall not be
required to give any effect to any such sale, assignment or transfer, unless
(i) the sale, assignment or transfer of the Note is registered under the Act,
it being understood that the Note is not currently registered for sale and that
the Company has no obligation or intention to so register the Note, or (ii) the
Note is sold, assigned or transferred in accordance with all the requirements
and limitations of Rule 144 under the Act, it being understood that Rule 144 is
not available at the time of the original issuance of this Note for the sale of
the Note and that there can be no assurance that Rule 144 sales will be
available at any subsequent time, or (iii) such sale, assignment, or transfer
is otherwise exempt from registration under the Act.
9. Definitions. (a) As used herein, the following terms shall
have the following meanings.
"Business Day" means any day which is not a Saturday or Sunday, or a
day on which banking institutions are authorized or obliged to close in the
City of New York.
"Capital Lease Obligations" shall mean, as to any Person, the
obligations of such Person to pay rent or other amounts under a lease of (or
other agreement conveying the right to use) real or personal property which
obligations are required to be classified and accounted for as a capital lease
on a balance sheet of such Person under GAAP (including Statement of Financial
Accounting Standards No.13 of the Financial Accounting Standards Board) and,
for purposes of this Note, the amount of such obligations shall be the
capitalized amount thereof, determined in accordance with GAAP (including such
Statement No.13).
"Code" shall mean the Internal Revenue Code of 1986, as amended from
time to time.
"Environmental Laws" shall mean any and all federal, state, local and
foreign statutes, laws, regulations, ordinances, rules, judgments, orders,
decrees, permits, concessions, grants, franchises, licenses, agreements or
other governmental restrictions relating to the environment or to emissions,
discharges, releases or threatened releases of pollutants, contaminants,
chemicals, or industrial, toxic or hazardous substances or wastes into the
environment including, without limitation, ambient air, surface water, ground
water, or land, or otherwise relating to the manufacture, processing,
distribution, use, treatment, storage, disposal, transport, or handling of
pollutants, contaminants, chemicals, or industrial, toxic or hazardous
substances or wastes.
"ERISA" shall mean the Employee Retirement Income Security Act of 1974,
as amended from time to time.
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<PAGE> 14
"GAAP" means generally accepted accounting principles applied on a
basis consistent with past practice.
"Guarantee" means a guarantee, an endorsement, a contingent agreement
to purchase or to furnish funds for the payment or maintenance of, or otherwise
to be or become contingently liable under or with respect to, the Indebtedness,
other obligations, net worth, working capital or earnings of any Person, or a
guarantee of the payment of dividends or other distributions upon the stock of
any corporation, or an agreement to purchase, sell or lease (as lessee or
lessor) property, products, materials, supplies or services primarily for the
purpose of enabling a debtor to make payment of his, her or its obligations or
an agreement to assure a creditor against loss, and including without
limitation, causing a bank to open a letter of credit for the benefit of
another Person, but excluding endorsements for collection or deposit in the
ordinary course of business. The terms "Guarantee" and "Guaranteed" used as a
verb shall have a correlative meaning.
"Indebtedness" means, as to any Person: (a) indebtedness created,
issued or incurred by such Person for borrowed money (whether by loan or the
issuance and sale of debt securities); (b) obligations of such Person to pay
the deferred purchase or acquisition price of property or services, other than
trade accounts payable (other than for borrowed money) arising, and accrued
expenses incurred, in the ordinary course of business; (c) Indebtedness of
others secured by a Lien on the property of such Person, whether or not the
respective Indebtedness so secured has been assumed by such Person; (d)
obligations of such Person in respect of letters of credit or similar
instruments issued or accepted by banks and other financial institutions for
the account of such Person; and (e) Capital Lease Obligations of such Person;
and (f) Indebtedness of others Guaranteed by such Person.
"Junior Debt" means all existing and future Indebtedness of the
Company, other than the Indebtedness represented by the Notes and the Senior
Debt.
"Lien" means, with respect to any asset, mortgage, lien, pledge,
charge, security interest or encumbrance of any kind in respect of such asset.
For purposes of this Agreement, the Company shall be deemed to own subject to a
Lien any asset which it has acquired or holds subject to the interest of a
vendor or lessor under any conditional sale agreement, capital lease or other
title retention agreement relating to such asset.
"Operative Agreements" means the Subscription Agreement, the Warrant,
the Pledge Agreement, the Collateral Assignment of Rights, the Collateral
Assignment of License Rights, and all other documents and instruments
contemplated hereby necessary to effect the transaction contemplated hereby.
"Permitted Liens" means Liens securing the Company's obligations to
holders of the Senior Debt.
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<PAGE> 15
"Person" shall mean any individual, corporation, company, voluntary
association, partnership, joint venture, trust, unincorporated organization or
government (or any agency, instrumentality or political subdivision thereof).
"Senior Debt" means all obligations of the Company and its
Subsidiaries to Finova Capital Corporation and the Company's current lenders
who have security interest in the Company's Canadian assets.
(b) Any accounting terms used in this Agreement, unless otherwise
specifically provided, shall have the meanings customarily given them in
accordance with GAAP, and all financial computations, statements and reports
hereunder, unless otherwise specifically provided, shall be in accordance with
GAAP. An "audited" financial statement means one with an independent auditor's
report of audit thereon containing no qualification or exception.
(c) Unless the context of this Note requires otherwise (a)
references in this Note to sections, paragraphs and clauses of, or schedules
and exhibits to, are references to sections, paragraphs and clauses of, and
schedules and exhibits to, this Note; (b) words in the singular include the
plural and in the plural include the singular; (c) the word "or" connotes both
the disjunctive and conjunctive of the terms affected, unless otherwise
expressly stated; (d) the terms "hereof," "herein," "hereby" and derivative or
similar words refer to this entire Note; (e) the terms "include," "includes,"
"including" and derivative or similar words shall be deemed to include the
phrase "without limitation"; (f) the phrase "ordinary course of business" and
"ordinary course of business consistent with past practice" refer to the
business and practice of the Company; (g) in the context of measuring periods
of time, "from" means "beginning on and including" and "to" means "ending on
but excluding; and (h) words of any gender including each other gender.
Whenever this Agreement refers to a number of days, such number shall refer to
calendar days unless Business Days are specified.
10. Miscellaneous.
(a) Any notice or other communication required or
permitted to be given hereunder shall be in writing and shall be mailed by
certified mail, return receipt requested, or by Federal Express, Express Mail
or similar overnight delivery or courier service or delivered ( in person or by
telecopy, telex or similar telecommunications equipment) against receipt to the
party to whom it is to be given (i) if to the Company, at its address at One
Riverway, Suite 2450, Houston, Texas 77056, Attention: President, (ii) if to
the Holder at its address set forth on the first page hereof, with a copy to
BlueStone Capital Partners, L.P., 575 Fifth Avenue, New York, New York 10017,
Attention: Joseph Lucchese or (iii) in either case, to such other address as
the party shall have furnished in writing in accordance with the provisions of
this Section 10(a). Notice to the estate of any party shall be sufficient if
addressed to the party as provided in this Section 10(a). Any notice or other
communication given by certified mail shall be deemed given at the time of
certification thereof, except for a notice changing a party's address which
shall be
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<PAGE> 16
deemed given at the time of receipt thereof. Any notice given by other means
permitted by this Section 10(a) shall be deemed given at the time of receipt
thereof
(b) Upon receipt of evidence satisfactory to the Company
of the loss, theft, destruction or mutilation of this Note (and upon surrender
of this Note if mutilated), the Company shall execute and deliver to the Holder
a new Note of like date, tenor and denomination.
(c) No course of dealing and no delay or omission on the
part of the Holder in exercising any right or remedy shall operate as a waiver
thereof or otherwise prejudice the Holder's rights, powers or remedies. No
right, power or remedy conferred by this Note upon the Holder shall be
exclusive of any other right, power or remedy referred to herein or now or
hereafter available at law, in equity, by statute or otherwise and all such
remedies may be exercised singly or concurrently.
(d) This Note may be amended only by a written instrument
executed by the Company and the Holder hereof. Any amendment shall be endorsed
upon this Note, and all future Holders shall be bound thereby.
(e) This Note has been negotiated and consummated in the
State of New York and shall be governed by and construed in accordance with the
laws of the State of New York, without giving effect to principles governing
conflicts of law.
(f) The Company irrevocably consents to the jurisdiction
of the courts of the State of New York and of any federal court located in such
State in connection with any action or proceeding arising out of or relating to
this Note, any document or instrument delivered pursuant to, in connection with
or simultaneously with this Note, or a breach of this Note or any such document
or instrument. In any such action or proceeding, the Company waives personal
service of any summons, complaint or other process and agrees that service
thereof may be made in accordance with Section 10(a). Within 30 days after such
service, or such other time as may be mutually agreed upon in writing by the
attorneys for the parties to such action or proceeding, the Company shall
appear or answer such summons, complaint, or other process. Should the Company
so served fail to appear or answer within such 30-day period or such extended
period, as the case may be, the Company shall be deemed in default and judgment
may be entered against the Company for the amount as demanded in any summons,
complaint or other process so served.
(g) The Company shall pay all costs incurred by the
Holder or Agent to collect any amounts due hereunder.
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<PAGE> 17
IN WITNESS WHEREOF, the Company has caused this Note to be executed
and dated the day and year first above written.
STRIKER INDUSTRIES, INC.
By: /s/ DAVID A. COLLINS
-------------------------
David A. Collins,
Chief Executive Officer
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<PAGE> 1
EXHIBIT 4.19
Striker Industries, Inc.
Warrant Certificate
THE SECURITIES REPRESENTED BY THIS CERTIFICATE HAVE BEEN ACQUIRED FOR INVESTMENT
PURPOSES ONLY. NEITHER THIS WARRANT NOR THE COMMON SHARES ISSUABLE UPON EXERCISE
OF THIS WARRANT HAVE BEEN REGISTERED OR QUALIFIED UNDER THE SECURITIES ACT OF
1933, AS AMENDED (THE "ACT"), OR THE SECURITIES LAWS OF ANY STATE AND MAY NOT BE
OFFERED FOR SALE, SOLD OR OTHERWISE TRANSFERRED, DIRECTLY OR INDIRECTLY, OR
DELIVERED, UNLESS REGISTERED OR QUALIFIED UNDER THE ACT AND OTHER APPLICABLE
LAWS OF ANY SUCH STATE UNLESS THE COMPANY SHALL HAVE RECEIVED AN OPINION OF
COUNSEL SATISFACTORY TO IT OR OTHER EVIDENCE SATISFACTORY TO IT THAT AN
EXEMPTION FROM SUCH REGISTRATION OR QUALIFICATION IS AVAILABLE.
Date:
Warrant No. Warrants
This certifies that, FOR VALUE RECEIVED, (the "Holder"), whose
address is ,is the owner of the number
of Warrants (the "Initial Warrants") set forth above, each of which entitles the
registered Holder hereof, subject to the terms and conditions contained herein,
to purchase one fully paid and nonassessable share of common stock, $.20 par
value per share (the "Common Stock"), of Striker Industries, Inc., a Delaware
corporation (the "Company"), upon the presentation and surrender of this Warrant
Certificate at any time during the Exercise Term (hereinafter defined), and upon
payment therefor, by cash or by certified check payable to the Company, of the
Exercise Price (hereinafter defined), subject to modification and adjustment as
set forth herein.
This Warrant is one of a series of Warrants issued in connection with a
private offering (the "Offering") by the Company of Units, each Unit consisting
of (i) an original issue discount promissory note in the principal amount of
$105,000 (each, a "Note"), and (ii) warrants to purchase 15,000 shares (the
"Shares") of Common Stock, which warrants, pursuant to Section 7.6 hereof,
shall be automatically converted into Warrants to purchase 10,000 shares of
GSR Industries, Inc. upon consummation of the GS Roofing Transaction and the
GSR IPO (as defined in Section 7.6).
1. Exercise Term. The Holder may exercise this Warrant, in whole or part, for
a period (the "Exercise Term") commencing on the date hereof and ending on the
fifth anniversary hereof (the "Fifth Anniversary").
Warrant - 1
<PAGE> 2
2. Exercise Price. (a) Upon exercise of the Warrants granted hereby, as well
as any Additional Warrants (hereinafter defined), the Holder may purchase
Shares at a price per share (the "Exercise Price") equal to $3.00 per share.
(b) In the event the Market Price (hereinafter defined) for the
Common Stock on the day immediately prior to the expiration of the Lockup
Period is less than the IPO Price, the Exercise Price shall be reset to a price
equal to $2 less than such Market Price. For the purposes hereof, "Market
Price" shall mean the closing price per share of such Common Stock for the
trading day immediately prior to such date. The closing price for each day
shall be the last quoted price or, if not so quoted, the average of the last
bid and asked prices in the over-the-counter market, as reported by the
National Association of Securities Dealers, Inc. Automated Quotation System
("NASDAQ") or such other system then in use, or if on any such date the Common
Stock is not quoted by any such organization, the average of the closing bid
and asked prices as furnished by a professional market maker making a market in
the Common Stock selected by the Board of Directors of the Company.
3. Additional Warrants. In the event that the Company elects to extend the
Maturity Date under the Holder's Notes for a three month period, the Company
will deliver to the Holder additional Warrants (the "Additional Warrants") to
purchase an additional number of shares equal to 15% of the Shares that may
then be issued pursuant to this Warrant.
4. Exercise of Warrants. Upon surrender of this Warrant Certificate with the
annexed Form of Election to Purchase duly executed and payment at the Company's
principal offices of the appropriate Exercise Price, the Company shall issue
certificates for the Shares so purchased to the Holder. The Holder may exercise
the purchase rights represented by this Warrant Certificate in whole or in
part, but not as to fractional Shares. If the Holder exercises this Warrant in
part, the Company shall cancel this Warrant Certificate upon its surrender, and
shall execute and deliver a new Warrant Certificate of like tenor for the
balance of the Shares purchasable hereunder.
5. Issuance of Certificates. The Company shall issue certificates for
Shares issuable upon the exercise of this Warrant promptly upon such exercise.
Such certificates shall bear the following legend until counsel to the Company
determines that the legend is not required:
THE COMMON SHARES REPRESENTED BY THIS CERTIFICATE HAVE BEEN
ACQUIRED FOR INVESTMENT PURPOSES ONLY AND HAVE NOT BEEN
REGISTERED OR QUALIFIED UNDER THE SECURITIES LAWS OF THE UNITED STATES
SECURITIES ACT OF 1933, AS AMENDED (THE "ACT"), OR THE SECURITIES LAWS
OF ANY STATE AND MAY NOT BE OFFERED FOR SALE, SOLD OR OTHERWISE
TRANSFERRED, DIRECTLY OR INDIRECTLY, OR DELIVERED, UNLESS REGISTERED OR
QUALIFIED UNDER THE ACT AND OTHER APPLICABLE LAWS OF ANY SUCH STATE
UNLESS THE COMPANY SHALL HAVE RECEIVED AN OPINION OF COUNSEL
SATISFACTORY TO IT OR
Warrant - 2
<PAGE> 3
OTHER EVIDENCE SATISFACTORY TO IT THAT AN EXEMPTION FROM SUCH
REGISTRATION OR QUALIFICATION IS AVAILABLE.
If the number of Warrants represented hereby or the Exercise Price is adjusted
under Section 7, the Holder may surrender this Warrant Certificate to the
Company for cancellation. Upon such cancellation, the Company shall issue a new
Warrant Certificate reflecting the appropriate adjustment. Until such new
Warrant Certificate is issued, this Warrant Certificate shall be deemed to
reflect the appropriate adjustments.
6. Covenants, Acknowledgments and Representations and Warranties of
Holder. By its or his acceptance of this Warrant and certificates of Shares (if
not registered), the Holder covenants, acknowledges, represents and warrants as
follows:
(a) the Warrants are being acquired for its or his own account for
investment and not with a view to the distribution thereof;
(b) it or he has been advised by the Company that neither this
Warrant nor the Shares issuable upon its exercise have been registered under
the Act;
(c) this Warrant is being, or has been, issued and the Shares may be
issued on the basis of the statutory exemption provided by Sec. 4(2) of the Act
or Regulation D promulgated thereunder, or both, relating to transactions by an
issuer not involving any public offering;
(d) the Company's reliance on the foregoing is based in part upon
the representations, warranties and agreements made by it or him in the
Subscription Agreement, which representations, warranties and agreements,
including agreement regarding restrictions on any sale, assignment or transfer
of this Warrant and/or the Shares, are hereby incorporated herein by reference
as fully and with like effect as if set forth verbatim in this Section 6 of
this Warrant.
7. Adjustments.
7.1 Subdivision and Combination. In case the Company shall at any time
subdivide or combine the outstanding shares of Common Stock, the Exercise Price
shall forthwith be proportionately decreased in the case of subdivision or
increased in the case of combination.
7.2 Reclassification, Consolidation, Merger, etc. In case of any
reclassification or change of the outstanding shares of Common Stock (other
than a change in par value to no par value, or from no par value to par value,
or as a result of a subdivision or combination), or in the case of any
consolidation of the Company with, or merger of the Company into, another
corporation (other than a consolidation or merger in which the Company is the
surviving corporation and which does not result in any reclassification or
change of the outstanding shares of Common Stock, except a change as a result
of a subdivision or combination of such shares or
Warrant - 3
<PAGE> 4
a change in par value, as aforesaid), or in the case of a sale or conveyance to
another corporation of the property of the Company as an entirety, the Holder
shall thereafter have the right to purchase the kind and number of shares of
stock and other securities and property receivable upon such reclassification,
change, consolidation, merger, sale or conveyance as if the Holder was the
owner of the Shares of Common Stock underlying this Warrant and any Additional
Warrants, immediately prior to any such events at a price equal to the product
of (x) the number of Shares issuable upon exercise of this Warrant and any
Additional Warrants and (y) the Exercise Price in effect immediately prior to
the record date for such reclassification, change, consolidation, merger, sale
or conveyance as if the Holder had exercised the Warrant(s).
7.3 Subscription Rights for Shares of Common Stock or Other Securities. If
the Company or an affiliate of the Company shall at any time after the date
hereof and prior to the exercise of this Warrant and any Additional Warrants,
issue without consideration payable by the Company's shareholders any rights to
subscribe for shares of Common Stock or any other securities of the Company or
of such affiliate to all the shareholders of the Company, the Holder shall be
entitled, in addition to the Shares of Common Stock or other securities
receivable upon the exercise of this Warrant and any Additional Warrants, to
receive such rights upon exercise of this Warrant.
7.4 Adjustment in Number of Shares. Upon each adjustment of the Exercise
Price pursuant to the provisions of this Section 7, the number of Shares
issuable upon the exercise of this Warrant and any Additional Warrants, shall
be adjusted to the nearest full share by multiplying a number equal to the
Exercise Price in effect immediately prior to such adjustment by the number of
Shares issuable upon exercise of this Warrant and any Additional Warrants,
immediately prior to such adjustment and dividing the product so obtained by
the adjusted Exercise Price.
7.5 Consideration: Expenses, etc. For the purposes hereof, the
consideration received by the Company in any transaction shall be deemed to be
the gross amount received therefor, before deducting underwriters' discounts,
legal fees, finders fees and other costs and expenses incurred in connection
with such issuance or sale determined as of the date not later than 45 days
after the date of the close of the offering with respect to such issuance or
sale.
7.6 Conversion of Warrants upon Consummation to the GS Roofing Transaction.
The Company shall be or is a party to an Agreement and Plan of Reorganization,
an Agreement and Plan of Merger (the "Merger Agreement") and an Asset Purchase
Agreement pursuant to which a newly formed Delaware corporation, GSR
Industries, Inc. or such other entity as the parties to the Merger Agreement
may designate ("GSR"), will acquire (the "GS Roofing Transaction") all of the
(i) capital stock of the Company, (ii) capital stock of Newgen Holding, Inc.,
the entity that owns 100% of the capital stock of GS Roofing Products Company,
Inc., a New York corporation and (iii) assets and business of Woodland
Industries, Inc., a Georgia corporation, and concurrently therewith consummates
an initial public offering of approximately
Warrant - 4
<PAGE> 5
37% of its Common Stock (the "GSR IPO"). Upon consummation of the GSR IPO, each
Holder's Warrants will be automatically converted, at the rate of two GSR
Warrants (hereafter defined) for each three Warrants, into warrants to purchase
(the "GSR Warrants") one share of GSR's Common Stock ("GSR Shares") at an
exercise price (the "GSR Exercise Price") equal to $2.00 per share less than
the price at which GSR Shares were sold to the public in the GSR IPO. In no
event, shall Holder receive a number of GSR Warrants equal to less than
two-thirds the number of Initial Warrants and Additional Warrants issued to
Holder. From and after such conversion, the GSR Warrants shall become subject
to the adjustments set forth in Sections 7.1 - 7.5 hereof.
8. Registration Rights.
8.1 Registration Under the Securities Act of 1933. The Warrants and the
Shares have not been registered for purposes of public distribution under the
Act.
8.2 Registrable Securities. As used herein the term "Registrable Security"
means the Shares of the Company, GSR or any successor, issuable upon exercise
of the Warrants or the GSR Warrants; provided, however, that with respect to
any particular Registrable Security, such security shall cease to be a
Registrable Security when, as of the date of determination, (i) it has been
effectively registered under the Act and disposed of pursuant thereto, (ii)
registration under the Act is no longer required for the immediate public
distribution of such security or (iii) it has ceased to be outstanding. In the
event of any merger, reorganization, consolidation, recapitalization or other
change in corporate structure affecting the Common Stock, such adjustment shall
be made in the definition of "Registrable Security" as is appropriate in order
to prevent any dilution or enlargement of the rights granted pursuant to this
Section 8.
8.3 Automatic Registration. The Company (which for the purposes of
Sections 8.3 - 8.6 hereof shall include GSR or any successor to the Company or
GSR) hereby agrees that it will include the Registrable Securities in a
Registration Statement (the "IPO Registration Statement") relating to the
Company's IPO or the GSR IPO, at its sole cost and expense, and shall keep such
registration statement effective in order to permit a public offering and sale
of the Registrable Securities during a period of two years from the effective
date of such registration statement; provided that the Company shall not be
required to maintain such effectiveness after the earlier of the date that all
of the Registrable Securities are sold pursuant to the registration statement.
Notwithstanding the foregoing, as a condition to inclusion of the Holder's
Registrable Securities in the IPO Registration Statement, the Holder shall
enter into an agreement with the underwriters of such IPO agreeing not to sell
the Registrable Securities for a period of six months after completion of the
IPO (the "Lockup Period").
8.4 Piggyback Registration. If the Company proposes to prepare and file
one or more registration statements or post-effective amendments thereto
covering equity or debt securities of the Company, or any such securities of
the Company held by its shareholders (in any such case, other than in
connection with a merger, acquisition or pursuant to Form S-8 or successor
form),
Warrant - 5
<PAGE> 6
(for purposes of this Section 8, collectively, a "Registration Statement"), it
will give written notice of its intention to do so by registered mail
("Notice,,), at least 30 business days prior to the filing of each such
Registration Statement, to the Holder. Upon the written request of the Holder,
made within 20 business days after receipt of the Notice, that the Company
include any of the Holders Registrable Securities in the proposed Registration
Statement, the Company shall, use its best efforts to effect the registration
under the Act of the Registrable Securities which it has been so requested to
register ("Piggyback Registration"), at the Company's sole cost and expense and
at no cost or expense to the Holder, except for underwriting commissions and
discounts, if any, payable by the Holder.
8.5 Demand Registration. If the Company does not register the Registrable
Securities and maintain the IPO Registration Statement in accordance with
Section 8.3 or if the GSR IPO does not occur within eight months from the date
hereof, upon notice of Holders representing a majority of the Warrants, at any
time after the IPO, the Holder shall have the right (which right is in addition
to the registration rights provided for under Sections 8.3 and 8.4 hereof),
exercisable by written notice to the Company (the "Demand Registration
Request"), to have the Company prepare and file with the Securities and
Exchange Commission (the "Commission"), on one occasion, at the sole expense of
the Company, a Registration Statement and such other documents, including a
prospectus, as may be necessary (in the opinion of both counsel for the Company
and counsel for the Holder), in order to comply with the provisions of the Act,
so as to permit a public offering and sale of the Registrable Securities by the
Holder, for 24 consecutive months; provided, however, that if subsequent to a
Demand Registration Request and prior to the filing of a Registration Statement
pursuant to such request, the Company enters into a letter of intent with an
underwriter to publicly offer the Company's securities on a "firm commitment"
basis and a registration statement is filed within sixty (60) days following
the Demand Registration Request, then Section 8.4 shall be applicable to the
registration of the Registrable Securities; and provided, further, that this
Section 8.5 shall remain in effect with respect to a subsequent Demand
Registration Request.
8.6 Miscellaneous Registration Provisions. The Company and the Holder
agree as follows:
(a) In connection with any registration under Section 8.5, the
Company shall file the Registration Statement as expeditiously as possible, but
in no event later than sixty (60) days following receipt of a Demand
Registration Request, shall use its best efforts to have any such Registration
Statements declared effective at the earliest possible time, and shall furnish
the Holder with such number of prospectuses as shall reasonably be requested.
(b) The Company shall pay all costs, fees and expenses in connection
with all Registration Statements filed pursuant to Sections 8.3, 8.4 and 8.5(a)
hereof including, without limitation, the Company's legal and accounting fees,
printing expenses, and blue sky fees and expenses, except for underwriting
commissions and discounts, if any, payable by the Holder.
Warrant - 6
<PAGE> 7
(c) The Company will take all necessary action which may be required in
qualifying or registering the Registrable Securities included in a Registration
Statement for offering and sale under the securities or blue sky laws of such
states as are requested by the Holder, except that the Company shall not, for
any such purpose, be required to qualify to do business as a foreign
corporation in any jurisdiction wherein it is not so qualified or to file
therein any general consent to service of process.
(d) The Company will indemnify and hold harmless the Holder and any
underwriter (as defined in the Act) for such the Holder and each person, if
any, who controls the Holder or underwriter within the meaning of the Act
against any losses, claims, damages or liabilities (or actions in respect
thereof), joint or several, to which the Holder or underwriter or such
controlling person may become subject, under the Act or otherwise, insofar as
such losses, claims, damages or liabilities (or actions in respect thereof) are
caused by any untrue statement or alleged untrue statement of any material fact
contained, on the effective date thereof, in any Registration Statement under
which the securities were registered under the Act, any prospectus contained
therein, or any amendment or supplement thereto, or arise out of or are based
upon the omission or alleged 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, underwriter and each such
controlling person for any legal or other expenses reasonably incurred by the
Holder, underwriter or such controlling person in connection with investigating
or defending any such loss, claim, damage, liability or action; provided,
however, that the Company will not be liable in any such case to the extent
that any such loss, damage, expense or liability arises out of or is based upon
an untrue statement, alleged untrue statement, omission or alleged omission so
made in conformity with written information furnished by the Holder or
underwriter specifically for inclusion in the Registration Statement.
(e) The Holder will indemnify and hold harmless the Company, each of its
directors, each of its officers who have signed the Registration Statement, and
each person, if any, who controls the Company, within the meaning of the Act,
against any losses, claims, damages or liabilities to which the Company, or any
such director, officer or controlling person may become subject under the Act
or otherwise, insofar as such losses, claims, damages or liabilities (or
actions in respect thereof) are caused by any untrue or alleged untrue
statement of any material fact contained in said Registration Statement, said
prospectus, or amendment or amendments or supplement thereto, or arise out of
or are based upon the omission or the alleged omission to state therein a
material fact required to be stated therein or necessary to make the statements
therein not misleading; and will reimburse any legal or other expenses,
reasonably incurred by the Company or any such director, officer or controlling
person in connection with investigating or defending any such loss, claim,
damage, liability or action; in each case to the extent, but only to the
extent, that such untrue statement or alleged untrue statement or omission or
alleged omission was so made in reliance upon and in conformity with written
information furnished by the Holder specifically for inclusion in the
Registration Statement.
Warrant - 7
<PAGE> 8
(f) Promptly after receipt by an indemnified party pursuant hereto of
notice of any claim to which indemnity would apply or the commencement of any
action, such indemnified party will, if a claim thereof is made against the
indemnifying party pursuant hereto, notify the indemnifying party of the
commencement thereof; but the omission so to notify the indemnifying party will
not relieve it from any liability which it may have to any indemnified party
otherwise than hereunder. In case such action is brought against any
indemnified party, and it notified the indemnifying party of the commencement
thereof, the indemnifying party will be entitled to participate in, and, to the
extent that it may wish, jointly with any other indemnifying party similarly
notified, to assume the defense thereof, with counsel satisfactory to such
indemnified party.
(g) Nothing contained in this Agreement shall be construed as requiring
the Holder to exercise its Warrants prior to the initial filing of any
Registration Statement or the effectiveness thereof.
(h) The Holder agrees to use its reasonable best efforts to cooperate with
the Company in connection with any registration effected pursuant to this
Section 8 and any listing on a national securities exchange (including NASDAQ),
including furnishing the Company with such information concerning the Holder
and executing and delivering such documents as may be required by applicable
securities laws or any national securities exchange.
(i) In connection with any registration pursuant to Sections 8.3 and 8.4,
if securities are proposed to be offered for sale pursuant to a Registration
Statement by other security holders of the Company and the total number of
securities to be offered by the Holder and such other selling security holders
is required to be reduced pursuant to a written opinion from the Company's
managing underwriter, if any, for such offering, to the effect that the
inclusion of all or a portion of the Registrable Securities requested to be
registered, when added to the securities being registered by the Company or the
selling shareholders, will exceed the maximum amount of the Company's
securities which can be marketed (i) at a price reasonably related to their
fair market value, or (ii) without otherwise materially adversely affecting the
entire offering, then the aggregate number of Registrable Securities to be
offered by the Holder shall equal the number which bears the same ratio to the
maximum number of securities that the underwriter believes may be included for
all the selling security holders (including the Holder) as the original number
of Registrable Securities proposed to be sold by the Holder bears to the total
original number of securities proposed to be offered by the Holder and the
other selling security holders.
(j) Notwithstanding the foregoing, the Company shall not be obligated to
effect any such registration, qualification or compliance, pursuant to Section
8.5: (1) if the Company shall furnish to the Holders a certificate signed by the
President of the Company stating that in the good faith judgment of the Board
of Directors of the Company, it would be seriously detrimental to the Company
and its stockholders for such registration to be effected at such time in which
event the Company shall have the right to defer the filing of the registration
Warrant - 8
<PAGE> 9
statement for a period of not more than 90 days after receipt of the request of
the Holder or Holders under Section 8.5; provided, however, that the Company
shall not utilize this right more than once in any twelve month period; (2) if
the Company has already effected one registration for the Holders pursuant to
Section 8.5; (3) if SEC rules and regulations require the Company to conduct a
special audit (not including an audit covering the end of the Company's fiscal
year) in order to effect such registration or (4) in any particular
jurisdiction in which the Company would be required to qualify to do business
or to execute a general consent to service of process in effecting such
registration, qualification or compliance.
9. Exchange and Replacement of Warrant Certificates. This Warrant Certificate
and any Additional Warrant Certificates exchangeable without expense, upon the
surrender thereof by the Holder at the principal executive office of the
Company, for a new Warrant Certificate of like tenor and date representing in
the aggregate the right to purchase the same number of Shares in such
denominations as shall be designated by the Holder at the time of such
surrender. Upon receipt by the Company of evidence reasonably satisfactory to
it of the loss, theft, destruction or mutilation of any Warrant Certificate,
and, in case of loss, theft or destruction, of indemnity or security reasonably
satisfactory to it, and reimbursement to the Company of all reasonable expenses
incidental thereto, and upon surrender and cancellation of the Warrants, if
mutilated, the Company will make and deliver a new Warrant Certificate of like
tenor, in lieu thereof. The Holder shall pay all transfer taxes payable in
connection with any transfer of a Warrant.
10. Elimination of Fractional Interests. The Company shall not be required to
issue certificates representing fractions of shares of Common Stock and shall
not be required to issue scrip or pay cash in lieu of fractional interest, it
being the intent of the parties that all fractional interests shall be
eliminated by rounding any fraction up to the nearest whole number of shares of
Common Stock.
11. Reservation of Securities. The Company shall at all times authorize, allot,
reserve and keep available out of its authorized shares of Common Stock, solely
for the purpose of issuance upon the exercise of the Warrants, such number of
shares of Common Stock as shall be issuable upon the exercise thereof. The
Company covenants and agrees that, upon exercise of this Warrant and any
Additional Warrants and payment of the Exercise Price therefor, all Shares of
Common Stock issuable upon such exercise shall be duly and validly allotted and
issued as fully paid and non-assessable shares and not subject to the
preemptive rights of any shareholder and free and clear of all liens, claims
and encumbrances of any nature whatsoever.
12. No Rights Until Exercise. The Holder of any Warrant shall not have solely
on account of such status, any rights of a stockholder of the Company, either
at law or in equity, or to any notice of meetings of stockholders or of any
other proceedings of the Company, except as provided in this Warrant.
13. Governing Law: Jurisdiction. (a) This Warrant has been negotiated and
consummated in the State of New York and shall be construed in accordance with
the laws of the State of New
Warrant - 9
<PAGE> 10
York applicable to contracts made and performed within such State, without
regard to principles governing conflicts of law.
(b) The Company irrevocably consents to the jurisdiction of the courts of
the State of New York and of any federal court located in such State in
connection with any action or proceeding arising out of or relating to this
Warrant any document or instrument delivered pursuant to, in connection with or
simultaneously with this Warrant, or a breach of this Warrant or any such
document or instrument. In any such action or proceeding, the Company waives
personal service of any summons, complaint or other process and agrees that
service thereof may be made in accordance with Section 6(e) of the Subscription
Agreement. Within 30 days after such service, or such other time as may be
mutually agreed upon in writing by the Attorneys for the parties to such action
or proceeding, the Company shall appear to answer such summons, complaint or
other process. Should the Company so served fail to appear or answer within
such 30-day period or such extended period, as the case may be, the Company
shall be deemed in default and judgment may be entered against the Company for
the amount as demanded in any summons, complaint or other process so served.
14. Successors and Assigns. In the event that the GS Roofing Transaction
occurs, each and every obligation hereunder to be performed by the Company
shall, without further action, become binding on GSR or any successor or assign
of the Company or GSR.
IN WITNESS WHEREOF, the Company has caused this Warrant Certificate to be
duly executed, manually or in facsimile, by two of its officers thereunto duly
authorized and a facsimile of its corporate seal to be imprinted hereon.
STRIKER INDUSTRIES, INC.
Date: ,1996 By: /s/ DAVID A. COLLINS
-------- ------------------------
President
Warrant - 10
<PAGE> 11
(FORM OF ELECTION TO PURCHASE]
The undersigned hereby elects to exercise the right, represented by the
attached Warrant Certificate, to purchase Shares and herewith tenders in
payment for such number of Shares cash or a certified check payable to the
order of the Company in the amount of $ , all in accordance with the terms
hereof. The undersigned requests that a certificate for such Shares be
registered in the name(s) of , and delivered to .
Payment of any required transfer tax accompanies this election.
Dated: Signature:
------------------------
Warrant - 11
<PAGE> 1
EXHIBIT 4.20
SECURITY AGREEMENT
SECURITY AGREEMENT, dated as of January 21, 1997, between Striker
Industries, Inc., a corporation duly organized and validly existing under the
laws of the State of Delaware, with an address at One River Way, Suite 2450,
Houston, TX 77056 (the "Company"), each of the Subsidiaries of the Company
identified under the caption "Subsidiary Guarantors" on the signature pages
hereof (each, a "Subsidiary Guarantor") with an address of One Riverway, Suite
2450, Houston, TX 77056; and BlueStone Capital Partners, L.P., a New York
limited partnership, with an address at 575 Fifth Avenue, Now York, New York
10017 (the "Agent"), as agent for the holders (the "Holders") of the Company's
Original Issue Discount Promissory Notes issued, or to be issued, in the
Offering (the "Notes": terms used and not otherwise defined herein have the
meanings ascribed to them in the Notes);
WHEREAS, the Holders have each extended credit or will extend credit to
the Company represented by separate Notes of identical priority which were (or
are to be) executed by the Company in favor of each Holder pursuant to an
offering (the "Offering") of units (the "Units") of the Company each consisting
of Notes in the face amount of $105,000 and warrants to purchase 15,000 shares
of the Company's common stock, $.20 par value per share;
WHEREAS, the Subsidiary Guarantors have jointly and severally guaranteed
the Company's obligations under the Notes to the Holders pursuant to a Guarantee
Agreement dated December 20, 1996;
WHEREAS, the Holders have entered into Subscription Agreements in
connection with the Offering, pursuant to which, among other things, they have
appointed the Agent to act as agent under this Security Agreement for the
benefit of all Holders to secure the obligations of the Company to the Holders
under their respective Notes;
WHEREAS, the Company is required to deliver this Security Agreement under
the Notes and Subscription Agreements;
NOW, THEREFORE, the parties hereby agree as follows:
1. Grant of a Security Interest.
(a) To secure the prompt payment, observance and performance in full
of each and every Guaranteed Obligation (as defined in the Guarantee Agreement),
each Subsidiary Guarantor hereby grants to the Agent a continuing security
interest in, and lien upon, the Collateral (as defined in Section 2) which shall
terminate on full payment of all amounts owed under the Notes.
(b) The Company and Agent acknowledge and agree that the lien created
hereby shall be subordinate to the lien in favor of Finova Capital Corporation
("Finova") under
<PAGE> 2
that certain Security Agreement dated April 25, 1995 between Finova and the
Company and certain of the Subsidiary Guarantors, and that the security
interest granted hereby is intended to be a second security interest junior in
priority to that of Finova. (The lien in favor of Finova is sometimes referred
to as the "Permitted Liens.")
2. Collateral.
(a) The collateral covered by this Agreement (the "Collateral")
consists of all property (tangible or intangible) of every kind and nature,
wherever located and whether now owned or hereafter owned or acquired any
Subsidiary Guarantor, whether or not affixed to realty, and all Proceeds and
Products thereof in any form, in all parts, accessories, attachments, special
tools, additions, replacements, substitutions and accessions thereto or
therefor, and in all increases or profits received therefor.
(b) Any and all Collateral described or referred to in this Agreement
which is hereafter acquired shall, and without any further conveyance,
assignment or act on the part of the Company, any Subsidiary Guarantor, or the
Secured Party, become and be subject to the security interests created hereby
as fully and completely as though specifically described herein.
3. Representations and Warranties. The Company and each Subsidiary
Guarantor, jointly and severally, represents and warrants, that:
(a) The Company or a Subsidiary Guarantor owns the Collateral free
and clear of any Lien except for Permitted Liens.
(b) The Company and each Subsidiary Guarantor has all necessary
corporate power and authority and has taken all corporate action necessary to
execute, deliver and perform this Agreement and Operative Documents to which it
is a party and to encumber and grant a security interest in the Collateral.
(c) There is no effective financing statement or other instrument
similar in effect covering all or any part of the Collateral on file in any
recording office except as may have been filed in favor of holders of Permitted
Liens.
(d) This Agreement creates a valid security interest of the Agent
in the Collateral securing payment of the Obligations. Upon the filing of
the financing statements and the other instruments similar in effect, the Agent
will have a valid and perfected lien on and security interest in the Collateral
senior to all Liens other than the Permitted Liens.
(e) No consent, authorization, approval or other action by, and no
notice to or filing with, any governmental authority, regulatory body, lessor,
franchisor or other person or entity is required for the grant by the Company
and any Subsidiary Guarantor of the security interest granted hereby or for the
execution, delivery or performance of this Agreement by the
2
<PAGE> 3
Company or Subsidiary Guarantor, or for the perfection or exercise by the Agent
of its rights and remedies hereunder, except filings of financing documents.
(f) Neither the Company nor any Subsidiary Guarantor transacts any
part of its business under any trade names, division names, assumed names
or other name, except for its name set forth in the preamble hereto; the
Company's and each Subsidiary's Guarantor's principal business address and
chief executive office is as set forth in the preamble; and, with respect to
the Collateral owned by any Subsidiary Guarantor, the records concerning the
Collateral are kept at the Company's facility in Stephens, Arkansas.
(g) Each Account, General Intangible and Chattel Paper constituting
Collateral is genuine and enforceable in accordance with its terms against the
party obligated to pay it (the "Account Company"), and, to the best knowledge of
Company and the Subsidiary Guarantors, no Account Company has any defense,
setoff, claim or counterclaim against Company or any Subsidiary Guarantor which
can be asserted against the Agent, whether in any proceeding to enforce the
Collateral or otherwise.
(h) Each Instrument and each Document constituting Collateral is
genuine and in all respects what it purports to be.
4. Company's and Subsidiary Guarantors' Covenants. The Company and each
of the Subsidiary Guarantors agrees and covenants that:
(a) The Collateral will be used solely for business purposes of the
Company and will remain in the possession or under the control of the Company
(sale or replacement in the ordinary course excepted) and will not be used for
any unlawful purpose. The Collateral will not be misused, abused, wasted or
allowed to deteriorate (ordinary wear and tear excepted). The Company will keep
the Collateral, as appropriate and applicable, in good condition and repair
(ordinary wear and tear excepted), and will clean, shelter, and otherwise deal
with the Collateral in all such ways as are considered good practice by owners
of like property.
(b) The Company and each Subsidiary Guarantor has executed and will
promptly file with the appropriate governmental authorities, or deliver to the
Agent for filing, UCC-1 Financing Statements with respect to the Collateral.
The Company and each Subsidiary Guarantor shall, at no cost to the Agent,
execute, acknowledge and deliver all such other documents and instruments as
the Agent reasonably deems necessary to create, perfect and continue the
security interest in the Collateral contemplated hereby. The Company and each
Subsidiary Guarantor will pay all costs of title searches and filing of
financing statements, assignments or other documents in all public offices
reasonably requested by the Agent, and will not, without the prior written
consent of the Agent, file or authorize or permit to be filed in any public
office any financing statement, assignment or other document naming the Company
or each Subsidiary Guarantor as Debtor and not naming the Agent, as agent for
the Holders, as secured party, except for continuations of any Permitted Lien.
3
<PAGE> 4
(c) Each of the Company and each Subsidiary Guarantor will defend the
Collateral will defend the Collateral against the claims and demands of all
other parties, will keep the Collateral free from all security interests or
other encumbrances other than Permitted Liens; and will not sell, transfer,
lease, assign, deliver or otherwise dispose of any Collateral or any interest
therein without the prior written consent of the Agent, except that the Company
and the Subsidiary Guarantor may sell or lease Inventory in the ordinary course
of the Company's business and as otherwise permitted under the Subscription
Agreement.
(d) The Company will, at the Agent's request, will, or will cause the
appropriate Subsidiary Guarantor to, mark any and all books and records to
indicate the security interest created hereby.
(e) The Company and each Subsidiary Guarantor will notify the Agent
promptly in writing of any change in the location of the Collateral, change in
business address or any change in the address at which records concerning the
Collateral are kept and any change in the Company's name, identity or corporate
or other structure.
(f) The Company and each Subsidiary Guarantor will prevent the
Collateral or any part thereof from being or becoming an accession to other
goods not covered by this Agreement.
(g) The Company and each Subsidiary Guarantor will maintain
insurance with responsible insurance companies (and with deductibles)
satisfactory to Agent covering the inventory and Equipment of the Company or
such Subsidiary Guarantor, in such amounts as is usually carried by companies
engaged in similar businesses and in any event not less than the Agent may from
time to time reasonably require, and deliver to the Agent copies of such
insurance policies (and all renewals thereof) together with lender's loss
payable endorsements naming Agent as a secured party executed by the
insurer(s), such policies to provide that coverage may not be modified or
terminated without prior notice to Agent.
(h) The Company and each Subsidiary Guarantor, jointly and severally,
shall pay all reasonable expenses, including reasonable attorneys' fees and
costs, incurred by the Agent in the preservation, realization, enforcement or
exercise of any of the Agent's rights under this Agreement.
5. Events of Default. The occurrence of any of the following shall
constitute an "Event of Default" under this Agreement:
(i) A default in the performance, or a breach of any of the
covenants of the Company or any Subsidiary Guarantor contained in this
Agreement, or of the Company in any Operative Agreement, and continuance of
such default or breach for a period of 30 days after receipt of notice from the
Holder as to such breach or after the Company had or should have had knowledge
of such breach.
4
<PAGE> 5
(ii) Any representation, warranty or certification made by the
Company or any Subsidiary Guarantor pursuant to this Agreement shall prove to
have been false or misleading as of the date made or thereafter in any material
respect.
6. Remedies on Default. Upon the occurrence of an Event of Default, the
Agent, for the benefit of the Holders, shall have all rights, privileges,
powers and remedies provided an Agent under the UCC and any other applicable
law and such additional rights, privileges, powers and remedies as are set
forth herein and in the Subscription Agreement, Note and the other Operative
Agreements. Without limiting the foregoing, upon the existence or occurrence of
any Acceleration:
(a) The Agent may require the Company or any Subsidiary Guarantors to
assemble the Collateral and make it available to the Agent at a place or places
designated by the Agent, and the Agent may use and operate the Collateral. At
any time following the occurrence of an Acceleration and during the
continuation thereof, the Agent shall have full power, in its own name or that
of Company or a Subsidiary Guarantor, as the case may be, to collect, endorse,
compromise, settle, sell or otherwise deal with any or all the Collateral or
Proceeds thereof in a commercially reasonable manner.
(b) The Agent, in a commercially reasonable manner, may sell, lease
or otherwise dispose of and deliver any or all Collateral at public or private
sale, for cash, upon credit or otherwise, at such prices and upon such terms as
the Agent deems advisable in its sole discretion. Any requirement of reasonable
notice shall be met if such notice is mailed postage prepaid to the Agent at
its address set forth herein at least ten days before the time of sale or other
disposition. The Agent may be the purchaser at any such sale, if it is public,
and in such event the Agent shall have all rights of a good faith, bona fide
purchaser for value from an Agent after a default. The proceeds of any sale may
be applied (in whatever order and manner the Agent elects in its sole
discretion) to all costs and expenses of sale, including payment of the
Obligations, and any remaining proceeds shall be applied in accordance with
Article 9, Part 5, of the UCC. Each of the Company and the Subsidiary
Guarantors shall remain liable to the Agent for any deficiency.
(c) Without in any way requiring notice to be given in the
following time and manner, each of the Company and the Subsidiary
Guarantors agrees that any notice by the Agent of sale, disposition or other
intended action hereunder or in connection herewith, whether required by the
UCC or otherwise, shall constitute reasonable notice to the Company or such
Subsidiary Guarantor, as the case may be, if such notice is mailed by regular
or certified mail postage prepaid, at least ten days prior to such action, to
Company's or such Subsidiary Guarantor's address specified in Annex, or to any
other address which the Company or any Subsidiary Guarantor has specified in
writing to the Agent as the address to which notices hereunder shall be given
to the Company or such Subsidiary Guarantor.
(d) After an Acceleration, the Agent may demand, collect and sue on
any of
5
<PAGE> 6
the Accounts, Chattel Paper, Instruments and General Intangibles (in the name
of the Company, a Subsidiary Guarantor, or the Agent, at the Agent's option);
may enforce, compromise, settle or discharge such Collateral without
discharging the Obligations or any part thereof; and may endorse the name of
the Company or any Subsidiary Guarantor on any and all checks commercial paper,
and any other Instruments pertaining to or constituting Collateral.
(e) The Company or the appropriate Subsidiary Guarantor, as the case
may be, will deliver to the Agent, upon demand, all Documents and all Chattel
Paper (duly indorsed to the Agent) constituting, representing or relating to
the Collateral or any part thereof, and any schedules, invoices, shipping
documents, delivery receipts, purchase orders, contracts or other documents
representing or relating to the Collateral or any part thereof.
7. Payments After an Event of Default. All payments received and amounts
realized by the Secured Party pursuant to Section 6, including all such payments
and amounts received after the entire unpaid principal and interest amount of
the Notes has been declared due and payable, as well as all payments or amounts
then held or thereafter received by the Agent as part of the Collateral while an
Event of Default shall be continuing, shall be promptly applied and distributed
by the Agent in the following order of priority:
(a) first, to the payment of all reasonable costs and expenses,
including legal expenses and reasonable attorneys' fees, incurred or made
hereunder by the Agent, or by any other Holder, including any such costs and
expenses of foreclosure or suit, if any, and of any sale or the exercise of any
other remedy under Section 6, and of all taxes, assessments or liens superior to
the lien granted under this Agreement, except any taxes, assessments or other
superior lien subject to which any said sale under Section 6 may have been made;
and
(b) second, to the payment to each Holder of the amount then owing or
unpaid on such Holder's Note, and in case the payment received and amounts
realized by the Agent shall be insufficient to pay in full the whole amount so
due, owing or unpaid upon all the Notes, then ratably, in the proportion that
the unpaid principal amount of each Note bears to the aggregate unpaid
principal amount of all Notes, and in the proportion that the amount of
interest accrued under each Note bears to the aggregate amount of interest
accrued under all the Notes, with application on each Note to be made first to
the unpaid interest thereon, and second, to the unpaid principal thereof, such
application to be made upon presentation of the Notes and the notation thereon
of the payment, if partially paid, or the surrender and cancellation thereof,
if fully paid; and
(c) third, to the payment of the balance or surplus, if any, to the
Company, its successors and assigns, or to whomsoever may be lawfully entitled
to receive the same.
8. Power of Attorney. Each of the Company and the Subsidiary Guarantors
hereby appoints the Agent the attorney-in-fact of Company or such Subsidiary
Guarantor, as the case may be, to (i) prepare, sign and file or record, for
Company in Company's name, or a
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<PAGE> 7
Subsidiary Guarantor is such Subsidiary Guarantor's name, any financing
statement and to take any other action reasonably deemed by the Agent necessary
or desirable to perfect and continue the security interest of the Agent
hereunder, and to perform any obligations of Company or any Subsidiary
Guarantor hereunder, at Company's expense, but without obligation to do so; and
(ii) after an Acceleration to take any and all actions necessary or appropriate
to collect, compromise, settle, sell or otherwise deal with any or all of the
Collateral or proceeds thereof and to obtain, adjust, settle and cancel any
policies of insurance referred to herein or in the Subscription Agreement. Such
power of attorney is coupled with an interest and is irrevocable so long as
any of the Obligations remains outstanding.
9. Agent's Right to Cure Reimbursement. If the Company or any Subsidiary
Guarantor should fail to do any act as herein provided, the Agent may make or
do the same, but shall have no obligation to do so, with reasonable notice to
Company or such Subsidiary Guarantor, and without releasing the Company or any
Subsidiary Guarantor from any obligation hereof, make or do the same in such
manner and to such extent as the Agent may deem necessary to protect the
Collateral, including without limitation, the defense of any action purporting
to affect the Collateral or the rights or powers of the Agent hereunder, at the
Company's expense. The Company shall reimburse the Agent for expenses
reasonably incurred under this Section 9.
10. Miscellaneous.
(a) Successors and Assigns. This Agreement, together with the
covenants and warranties contained in it, shall inure to the benefit of the
Agent, the Holders (subject to the agency of the Agent) and their respective
permitted successors, assigns, heirs and personal representatives, and shall be
binding upon each of the Company and the Subsidiary Guarantors, and the
successors and assigns of each.
(b) Notice. Any notice or other communication required or permitted
to be given hereunder shall be in writing and shall be mailed by certified
mail, return receipt requested, or by Federal Express, Express Mail or similar
overnight delivery or courier service or delivered against receipt to the party
to whom it is to be given at the address of such party and in the manner set
forth in the Subscription Agreement, except that notices to the Subsidiary
Guarantor shall be given at the address set forth in above.
(c) Termination. This Agreement shall terminate on the satisfaction
in full of all the Obligations for the payment of money under the Notes and, on
such termination, the Agent shall release to the Company and the Subsidiary
Guarantors the security interest granted in the Collateral hereunder; provided,
however, that if, after receipt of any payment of all or any part of the
Obligations, however, the Agent is for any reason compelled to surrender such
payment to any person or entity, because such payment is determined to be void
or voidable as a preference, an impermissible setoff, or a diversion of trust
funds, or for any other reason relating to the status of the Company or any
Subsidiary Guarantor, this Agreement shall continue in full force
notwithstanding any contrary action which may have been taken by the Agent in
reliance upon
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<PAGE> 8
such payment, and any such contrary action so taken shall be without prejudice
to the Agent's rights under this Agreement and shall be deemed to have been
conditioned upon such payment having become final and irrevocable.
(d) Severability. If any provision of this Agreement is invalid,
illegal, or unenforceable, the balance of this Agreement shall remain in
effect, and if any provision is inapplicable to any person or circumstance, it
shall nevertheless remain applicable to all other persons and circumstances.
(e) Headings. The headings in this Agreement are solely for
convenience of reference and shall be given no effect in the construction or
interpretation of this Agreement.
(f) Counterparts. This Agreement may be executed in any number of
counterparts, each of which shall be deemed an original, but all of which
together shall constitute one and the same instrument.
(g) Governing. This Agreement shall be governed by and construed in
accordance with the laws of the State of New York, without regard to its
principles of conflicts of law.
(h) Waiver. No course of dealing and no delay or omission on the
part of the Agent in exercising any right or remedy shall operate as a waiver
thereof or otherwise prejudice the Agent's rights, powers or remedies. No
right, power or remedy conferred by this Agreement upon the Agent shall be
exclusive of any other right, power or remedy referred to herein or now or
hereafter available at law, in equity, by statute or otherwise, and all such
remedies may be exercised singly or concurrently.
(i) Standard of Care. In the absence of willful misconduct taken or
omitted in bad faith gross negligence or other action which, by clear and
convincing evidence, greatly departs from commercially reasonable conduct,
neither the Agent nor any attorney-in-fact pursuant to this Agreement or any
other Operative Agreement shall be liable to the Company, any Subsidiary
Guarantor, or any other person for any act or omission, any mistake of fact or
any error of judgment in exercising any right or remedy granted herein.
8
<PAGE> 9
IN WITNESS WHEREOF, the parties have executed this Guarantee and Security
Agreement on the date set forth above.
STRIKER INDUSTRIES, INC.
By: /s/ DAVID A. COLLINS
------------------------------
Name: David A. Collins
Title: CEO
SUBSIDIARY GUARANTORS
WEST OXFORD INDUSTRIES, INC.
By: /s/ MATTHEW D. POND
------------------------------
Name: Matthew D. Pond
Title: President
STRIKER HOLDINGS, INC.
By: /s/ DAVID A. COLLINS
------------------------------
Name: David A. Collins
Title: CEO
STRIKER PAPER CORPORATION
By: /s/ DAVID A. COLLINS
------------------------------
Name: David A. Collins
Title: CEO
BLUESTONE CAPITAL PARTNERS, LP
By: BlueStone Capital
Management, Inc.,
general partner
By:
-------------------------
Kerry J. Dukes
President
<PAGE> 1
EXHIBIT 4.21
MORTGAGE AGREEMENT
MORTGAGE AGREEMENT, dated as of January 21, 1997, between Striker
Holdings, Inc., a corporation duly organized and validly existing under the
laws of the State of Texas, with an address at One Riverway, Suite 2450,
Houston, TX 77056 (the "Company"), and BlueStone Capital Partners, L.P., a New
York limited partnership, with an address at 575 Fifth Avenue, New York, New
York 10017, Agent (the "Mortgagee"), as agent for the holders (the "Holders")
of the Original Issue Discount Promissory Notes (the "Notes") issued by Striker
Industries, Inc. ("Striker") and guaranteed by the Company. Terms used not
otherwise defined herein shall have the meanings ascribed to them in the Notes.
WHEREAS, the Company has guaranteed all of Striker's obligations (the
"Obligations") under the Notes issued by Striker to the Holders;
WHEREAS, it is an event of default under the Notes if the Company does
not grant this mortgage to Mortgagee; and
WHEREAS, Finova Capital Corporation ("Finova") has recorded a mortgage
and security Agreement dated as of April 25, 1995 with respect to the
Collateral (hereinafter defined),
NOW, THEREFORE, THIS MORTGAGE WITNESSETH that the, Company, in
consideration of the premises and of the sum of Ten Dollars ($10.00) received
by the Company from the Mortgagee and other good and valuable consideration,
receipt whereof is hereby acknowledged, and in order to secure the payment of
the Obligations, the Company does hereby warrant, mortgage, pledge, assign,
bargain, hypothecate, convey, grant, transfer, and set over unto the Mortgagee
and its successors and assigns, all of its estate, right, title and interest in
and to all and singular the following described properties, rights, interest
and privileges and all of the Company's estate, right, title and interest
therein, thereto and thereunder, if any (all of which properties hereby
mortgaged, assigned, pledged are hereinafter collectively referred to as the
"Collateral"):
GRANTING CLAUSES
1. REAL PROPERTY
The parcels of land in Ouachita County, State of Arkansas described in
Annex A attached hereto and made a part hereof, together with the entire
interest of the Company in and to all buildings, structures, improvements and
appurtenances now standing, or at any time hereafter construed or placed, upon
such land, including all right, title and interest of the Company, if any, in
and to all building material, building equipment and fixtures of every kind and
nature
<PAGE> 2
whatsoever on said land or in any building, structure or improvement now or
hereafter standing on said land which are classified as fixtures under
applicable law and which are, used in connection with the operation, maintenance
or protection of said buildings, structures and improvements as such (including,
without limitation, all air conditioning, ventilating, plumbing, heating,
lighting and electrical systems and apparatus, all communications equipment and
intercom systems and apparatus, all sprinkler equipment and apparatus and all
elevators and escalators) and the reversion or reversions, remainder or
remainders, in and to said land, and together with the entire interest of the
Company in and to all and singular the tenements, hereditaments, easements,
rights of way, rights, privileges and appurtenances to said land, belonging or
in anywise appertaining thereto, including, without limitation, the entire
right, title and interest of the Company in, to and under any streets, ways,
alleys, gores or strips of land adjoining said land, and all claims or demands
whatsoever of the Company either in law or in equity, in possession or
expectancy, of, in and to said land, it being the intention of the parties
hereto that, so far as may be permitted by law, all property of the character
hereinabove described, which is now owned or is hereafter acquired by the
Company and is affixed or attached or annexed to said land, shall be and remain
or become and constitute a portion of said land and the, security covered by and
subject to the Lien of this Mortgage, together with all accessions, parts and
appurtenances appertaining or attached thereto and all substitutions, renewals
or replacements of and additions, improvements, accessions and accumulations to
any and all thereof, and together with all rents and the present and continuing
right to make claim for, collect, receive and receipt for any and all of such
rents (all of which properties are hereinafter referred to as the "Real
Property").
II. TRADE PROPERTY
All materials, furniture, furnishings, machinery, goods, fixtures,
equipment to be erected or located on the Real Property and including, but not
limited to, all heating, plumbing, lighting, water heating, cooking, laundry,
refrigerating, incinerating, communications, ventilating and air conditioning
equipment, disposals, dishwashers, recreational, lawn maintenance equipment,
sprinkler systems, fire extinguishing apparatus and equipment, water tanks,
engines, machines, boilers, dynamos, stokers, elevators, motors, cabinets,
shades, blinds, partitions, window screens, screen doors, storm windows,
awnings, drapes, rugs, and other floor coverings, furniture, furnishings,
radios and television sets and wiring and antennae therefor, and all fixtures,
accessions and appurtenances thereto, and all renewals or replacements of or
substitutions for any of the foregoing, together with all other goods,
equipment, furnishings, fixtures, machinery and furniture owned by the Company
now or hereafter attached or affixed to or used in and about the building or
buildings now erected or hereafter to be erected on the Real Property, or
otherwise located on the Real Property and all fixtures, accessions and
appurtenances thereto, and all renewals or replacements of or substitutions for
any of the, foregoing (all of which properties are hereinafter referred to as
"Trade Property").
2
<PAGE> 3
III. CONDEMNATION AWARDS AND PAYMENTS
All judgments, awards of damages, settlements and other compensation
heretofore or hereafter made resulting from condemnation proceedings or the
taking of the Real Property or any part thereof or any improvements now or at
any time hereafter located thereon or any easement or other appurtenances
thereto under the power of eminent domain, or any similar power or right
(including any award from the United States Government at any time after the
allowance of the claim therefor, the ascertainment of the amount thereof and
the issuance of the warrant for the payment thereof whether permanent or
temporary, or for any damage (whether caused by such taking or otherwise) to
said Real Property or any part thereof or the improvements thereon or any part
thereof, or to any rights appurtenant thereto, including severance and
consequential damage, and any award for change of grade of streets
(collectively, "Condemnation Awards").
IV. PROCEEDS
All proceeds of the conversion, voluntary or involuntary, of any of the
foregoing into cash or other liquidated claims, including, without litigation,
all proceeds and payments of insurance, related to the Collateral.
SUBJECT, in all respects, to the Permitted Liens.
TO HAVE AND TO HOLD the Collateral unto the Mortgagee and its successors
and assigns forever for the purpose of securing payment of the Obligations when
due. It is understood and agreed that this Mortgage is to secure all sums due
or to become due in respect to the Obligations guaranteed by the Company. THIS
CONVEYANCE SHALL ALSO STAND AS SECURITY FOR ALL FUTURE ADVANCES AND ANY
ADDITIONAL INDEBTEDNESS OF STRIKER OR THE COMPANY TO MORTGAGEE, WHETHER IT BE
INCURRED FOR ANY BUSINESS OR NON-BUSINESS PURPOSE THAT WAS RELATED, WHOLLY
UNRELATED, SIMILAR OR DISSIMILAR TO THE PURPOSE OF THE ORIGINAL OBLIGATIONS
AND/OR THE GUARANTEE THEREOF BY THE COMPANY.
PROVIDED NEVERTHELESS, and these presents are upon the express
condition that if all Obligations are paid in full, the estate, right and
interest of the Mortgagee in the property hereby conveyed and granted a
perfected security interest in shall cease and this Mortgage shall become null
and void, but otherwise to remain in full force and effect.
It is agreed and understood by the parties hereto that:
1. The Company for itself and all who may claim through or
under it waives to the extent permitted by law any and all right to have the
property and estates comprising the Collateral or any other property of the
Company constituting security for the Obligations.
3
<PAGE> 4
marshalled upon any foreclosure of the Lien hereof, or to have the Collateral
hereunder and the property covered by any other mortgage or deed of trust
securing the Obligations marshalled upon any foreclosure of any of said
mortgages or deeds of trust, and agrees that any court having jurisdiction to
foreclosure such Lien may order the Collateral sold as an entirety.
2. Upon the occurrence and during the continuance of any Event
of Default hereunder the Mortgagee has, among other things, the right to
foreclose on the Collateral and dispose of the same. The Mortgagee's deed (if
permitted by law) or Sheriff's deed or other instrument of conveyance, transfer
or release (which, if permitted by law, may be executed by the Mortgagee in its
own name or as attorney-in-fact for the Company and the Mortgagee is hereby
irrevocably appointed attorney-in-fact for the Company to, in the event that an
Event of Default shall have occurred and be continuing, so execute such deed or
other instruments of conveyance, transfer or release) shall be effective to
convey and transfer to the grantee an indefeasible title to the property
covered thereby, discharged of all rights of redemption (to the extent
permitted by law) by the Company or any person claiming under it, and to bar
forever all claims by the Company or the Mortgagee to the property covered
thereby and no grantee from the Mortgagee or Sheriff shall be under any duty to
inquire as to the authority of the Mortgagee or Sheriff to execute the same, or
to see to the application of the purchase money.
3. The Company and Mortgagee acknowledge and agree that the
Lien created hereby shall be subordinate to the lien in favor of Finova and
that this mortgage is intended to be a second mortgage junior in priority to
that of Finova which lien is sometimes referred to herein as the "Permitted
Liens".
SECTION 1. DEFAULTS AND REMEDIES THEREFOR.
Section 1.1 Events of Default. The Company acknowledges and agrees,
without limitation, that each and all of the terms and provisions of the Notes
and of each other instrument guaranteeing or securing payment thereof,
including, without limitation, the Guarantee and Security Agreement, have been
and are incorporated into this Mortgage by reference to the same extent as
though fully set out herein and that the term Event of Default wherever used in
this Mortgage shall include an Event of Default as defined in any such
document.
Section 1.2. Remedies. When any Event of Default has occurred and is
continuing, the Mortgagee may exercise any one or more or all, and in any
order, or the remedies now or hereafter set forth in any of the documents
referred to in Section 1.1 hereof, it being understood, however, that none of
such remedies is intended to be exclusive of any other remedy or remedies, but
each and all thereof are cumulative and shall be in addition to every other
remedy now or hereafter available to Mortgagee at law or in equity or by
statute.
Section 1.3. Waiver of Extension, Appraisement and Stay Laws. The
Company covenants that, upon the occurrence and the continuance of an Event of
Default and to the extent that such rights may then be lawfully waived, it will
not at any time thereafter insist upon or
4
<PAGE> 5
plead, or in any manner whatever claim or take any benefit or advantage of, any
stay or extension law both statutory and common law, now or at any time
hereafter in force, or claim, take or insist upon any benefit or advantage of or
from any law both statutory and common law, now or hereafter, in force
providing for the valuation or appraisement of the Collateral or any part
thereof prior to any sale or sales thereof to be made pursuant to any provision
herein contained, or to the decree, judgement or order of any court of competent
jurisdiction or, after confirmation of any such sale or sales claim or exercise
any right under common law or any statute now or hereafter made, or enacted by
any state or otherwise to redeem the property so sold or any part thereof, and
hereby expressly waives for itself and on behalf of each and every person who
may claim under it, all benefit and advantage to any such law or laws both
statutory and common law, which would otherwise be available to any such Person
in connection with the enforcement of any of the Mortgagee's remedies hereunder;
and covenants that it will not in connection with any such enforcement
proceedings invoke or utilize any such law or laws or otherwise hinder, delay or
impede the execution of any power herein granted and delegated to the Mortgagee
but will suffer and permit the execution of every such power as though no such
law or laws had been made, enacted or existed. The foregoing waivers as well as
the waivers hereinafter set forth in this Section 1.3 shall particularly include
but not be limited to all of the Company's rights of appraisement and redemption
under the Act of the General Assembly of the State of Arkansas approved May 8,
1899, and all the rights under the Act of the General Assembly of the State of
Arkansas entitled "An Act to Regulate the Foreclosure of Mortgages", approved
February 9, 1933.
The Company hereby waives any and all rights of redemption from sale
under any order or decree of foreclosure pursuant to rights herein granted, on
behalf of the Company, and each and every Person acquiring any interest in, or
title, to the Collateral described herein subsequent to the date of this
Mortgage, and on behalf of all other Persons to the extent permitted by
applicable law.
Any sale, whether under any power of sale hereby given or by virtue of
judicial proceedings, shall operate to divest all right, title, interest, claim
and demand whatsoever, either a law or in equity, of the Company in and to the
property sold and shall be perpetual bar, both at law and in equity, against
the Company, its successors and assigns, and against any and all Persons
claiming the property sold or any part thereof under, by or through the
Company, its successors or assigns.
Section 1.4 Effect of Discontinuance of Proceedings. In case the
Mortgagee shall have proceeded to enforce any right under the Mortgage by
foreclosure, sale, entry or otherwise, and such proceedings shall have been
discontinued through written notice to the Company by the Mortgagee or shall
have been determined adversely, then and in every such case the Company and the
Mortgagee shall be restored to its position and rights hereunder as they existed
immediately prior to the commencement of such proceedings with respect to the
property subject to the Lien and security interest of this Mortgage.
5
<PAGE> 6
Section 1.5 Delay of Omission Not a Waiver. No delay, failure, or
omission of the Mortgagee to exercise any right or power arising from any Event
of Default on the part of the Company shall exhaust or impair any such right or
power or prevent its exercise during the continuance of such Event of Default.
No waiver by the Mortgagee of any such Event of Default, whether such waiver be
full or partial, shall extend to or be taken to affect any subsequent Event of
Default or to impair the rights resulting therefrom, except as may be otherwise
provided herein. No right, power or remedy hereunder, is intended to be
exclusive of any other right, power or remedy but each and every right, power or
remedy shall be cumulative and in addition to any and every other right, power
or remedy given hereunder or otherwise existing. Nor shall the giving, taking or
enforcement of any other or additional security, collateral or guaranty for the
payment of the indebtedness secured under this Mortgage operate to prejudice,
waive or affect the security of this Mortgage, or any rights, powers or remedies
hereunder; nor shall the Mortgagee be required to first look to, enforce or
exhaust such other or additional security, collateral or guaranties.
Section 1.6 Costs and Expenses of Foreclosure. In any suit to foreclose
the Lien created hereby, there shall be allowed and included as additional
Obligations in the decree for sale the expenditures and expenses which may be
paid or incurred by or on behalf of the Mortgagee for reasonable attorney's
fees, reasonable appraiser's fees, outlays for documentary and expert evidence,
stenographic charges, publication costs and costs (which may be estimated as the
items to be expended after the entry of the decree) of procuring all such
abstracts of title, title searches and examination, guarantee policies, and
similar data and assurances with respect to title as the Mortgagee may deem to
be reasonably necessary either to prosecute any foreclosure action or to
evidence to the bidder at any sale pursuant thereto the true condition of the
title to or the value of the Collateral.
SECTION 2. MISCELLANEOUS:
Section 2.1. Successors and Assigns. Whenever any of the parties hereto
is referred to, such reference shall be deemed to include the, successors and
assigns of such party; and all the covenants, promises and agreements in this
Mortgage contained by or on behalf of the Company, or by or on behalf of the
Mortgagee, shall bind and inure to the benefit of the respective successors and
assigns of such parties whether so expressed or not.
Section 2.2. Severability. The unenforceability or invalidity of any
provision of provisions of this Mortgage shall not render any other provision
or provisions herein contained unenforceable or invalid.
Section 2.3. Addresses for Notices and Demands. All communications
provided for herein shall be in writing and shall be deemed to have been given
(unless otherwise required by the specific provisions hereof in respect of any
matter) when delivered personally or when deposited in the United States mail,
registered or certified, postage prepaid, or mailed prepaid overnight air
courier, addressed as follows:
6
<PAGE> 7
If to the Company: STRIKER HOLDINGS, INC.
One Riverway, Suite 2450
Houston, Texas 77056
Attn: David A. Collins, President
If to the Mortgagee: BLUESTONE CAPITAL PARTNERS, L.P., Agent
575 Fifth Avenue
New York, NY 10017
Attn: President
with a copy to: Robert W. Forman, Esq.
Greenberger & Forman
1370 Avenue of the Americas
New York, NY 10019
or as to either party at such other address as such party may designate by
notice duly given in accordance with this Section to the other party.
Section 2.4. Headings and Table of Contents. The headings of the
Sections of this Mortgage are inserted for purposes of convenience only and
shall not be construed to affect the meaning or construction of any of the
provisions hereof.
Section 2.5. Release of Mortgage. This Mortgage shall be a continuing
agreement in every respect and shall remain in full force and effect until all
of the Obligations shall have been fully paid and satisfied. Upon the
termination of this Mortgage, the Mortgagees shall, at the expense of the
Company, promptly release all of its Lien and security interests hereunder.
Section 2.6. Counterparts. This Mortgage may be executed, edged and
delivered in any number of counterparts, each of such counterparts constituting
an original but altogether only one Mortgage.
Section 2.7. Successor Mortgagee. The Mortgagee may, at any time, by
instrument in writing, appoint a successor or successors to, or discharge and
appoint a new Mortgagee in the place of, any Mortgagee named herein or acting
hereunder, which instrument, executed and acknowledged by the Mortgagees and
recorded in the office of the County Recorder of the county wherein the
Collateral is situated, with a copy of such recorded instruments delivered to
the Company, shall be conclusive proof of the proper substitution of such
successor or successors or new Mortgagee, who shall have all the estate,
powers, duties, rights, rights and privileges of the predecessor Mortgagee.
Section 2.8. Governing Law. This Mortgage shall be governed by and
construed and interpreted in accordance with the laws of the State of New York
except to the extent the real and personal property laws of the State of
Arkansas, including laws relating to the creation,
7
<PAGE> 8
perfection and enforcement of liens on real and personal property located in
Arkansas, shall necessarily apply to the enforcement of the security covered by
this Mortgage.
Section 2.9. Time. Time shall be of the essence of this Mortgage.
Section 2.10. No Oral Change. This Mortgage may only be modified or
amended by an agreement in writing signed by the Company and Mortgagee, and may
only be released, discharged, or satisfied of record by an agreement in writing
signed by Mortgagee.
IN WITNESS WHEREOF, the Company has caused this Mortgage to be executed
in its behalf by its President and attested by its Secretary as of the day and
year first above written.
STRIKER HOLDINGS, INC.
By: /s/ DAVID A. COLLINS
-----------------------------------
David A. Collins
President and CEO
ATTEST:
By: /s/ MATTHEW D. PARR
----------------------------------
Printed Name: Matthew D. Parr
Its Secretary
8
<PAGE> 9
ACKNOWLEDGMENT
STATE OF TEXAS )
)ss.
COUNTY OF HARRIS )
I, Laurie C. Drennan, a Notary Public in and for the County and State
aforesaid, do hereby certify that David A. Collin personally known to me to be
the same person whose name as president & CEO of STRIKER HOLDINGS, INC., a
Texas corporation, is subscribed to the foregoing instrument, appeared before
me this day in person and acknowledged that he, being thereunto duly
authorized, signed and sealed with the seal of said Corporation, and delivered
the said instrument as the free and voluntary act of said Corporation and as
his own free and voluntary act, for the uses and purposes therein set forth.
Given under by hand and notarial seal this 21st day of January, 1997.
/s/ LAURIE C. DRENNAN
- ----------------------------------- ---------------------------------
[STATE OF TEXAS NOTARY PUBLIC SEAL] Notary Public
LAURIE C. DRENNAN
NOTARY PUBLIC, STATE OF TEXAS County of Residence:
MY COMMISSION EXPIRES
SEPT. 13, 1998 Harris County
- ----------------------------------- --------------------------------
My Commission Expires:
- -------------------------------------
9
<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 April 15, 1997 relating to the consolidated balance sheets Striker
Industries, Inc. and subsidiaries as of December 31, 1996 and 1995, and the
related consolidated statements of operations, stockholder's equity and cash
flows for the years then ended, which report appears in the December 31, 1996,
annual report on Form 10-K of Striker Industries, Inc.
Our report dated April 15, 1997, contains an explanatory paragraph that
states that the Company has suffered recurring losses from operations and is in
technical default of certain financial covenants in connection with its
Canadian bank facility which raise substantial doubt about its ability to
continue as a going concern. The consolidated financial statements and
financial statement schedules do not include any adjustments that might result
from the outcome of that uncertainty.
Houston, Texas
April 15, 1997
<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.
Houston, Texas
April 15, 1997
<TABLE> <S> <C>
<ARTICLE> 5
<S> <C>
<PERIOD-TYPE> 12-MOS
<FISCAL-YEAR-END> DEC-31-1996
<PERIOD-END> DEC-31-1996
<CASH> 652,485
<SECURITIES> 0
<RECEIVABLES> 1,027,271
<ALLOWANCES> (489,671)
<INVENTORY> 235,522
<CURRENT-ASSETS> 1,844,565
<PP&E> 18,352,841
<DEPRECIATION> 2,409,351
<TOTAL-ASSETS> 19,200,466
<CURRENT-LIABILITIES> 7,486,896
<BONDS> 0
0
0
<COMMON> 2,184,913
<OTHER-SE> 3,675,257
<TOTAL-LIABILITY-AND-EQUITY> 19,200,466
<SALES> 7,342,748
<TOTAL-REVENUES> 7,342,748
<CGS> 7,344,629
<TOTAL-COSTS> 12,931,727
<OTHER-EXPENSES> 0
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 840,510
<INCOME-PRETAX> (6,429,489)
<INCOME-TAX> 0
<INCOME-CONTINUING> 0
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> (6,429,489)
<EPS-PRIMARY> (0.59)
<EPS-DILUTED> (0.59)
</TABLE>
