<PAGE> 1
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-Q
[x] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES ACT OF 1934
For the Quarterly Period Ended June 30, 1997
OR
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
For the transition period from __________ to __________.
Commission File Number 0-10096
STRIKER INDUSTRIES, INC.
(Exact name of Company as specified in its charter)
DELAWARE 84-0834953
(state or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification Number)
ONE RIVERWAY, SUITE 2450
HOUSTON, TEXAS 77056
(Address of principal executive offices)
(Zip Code)
(713) 622-4092
(Company's telephone number, including area code)
NOT APPLICABLE
(Former name if changed since last report)
Indicate by check mark whether the Company (1) has filed all reports required
to be filed by section 13 or 15(d) of the Securities Exchange Act of 1934
during the preceding 12 months (or for such shorter period that the Company was
required to file such reports), and (2) has been subject to such filing
requirements for the past 90 days. Yes [X] No [ ]
As of August 14, 1997, there were 4,756,188 shares of Common Stock, par value
$0.50 per share, outstanding and no shares of Preferred Stock, par value $0.50
per share, were outstanding.
Page 1 of 27
<PAGE> 2
INDEX TO QUARTERLY REPORT ON FORM 10-Q
<TABLE>
<CAPTION>
PART I. FINANCIAL INFORMATION PAGE NO.
--------
<S> <C> <C>
Item 1. Financial Statements
Consolidated Balance Sheet 3
Consolidated Statements of Operations 4
Consolidated Statements of Cash Flows 5
Notes to Consolidated Financial Statements 6
Item 2. Management's Discussion and Analysis of
Financial Condition and Results of Operations 15
PART II. OTHER INFORMATION
Item 1. Legal Proceedings 23
Item 2. Changes in Securities 23
Item 3. Defaults Upon Senior Securities 24
Item 4. Submission of Matters to a
Vote of Security Holders 25
Item 5. Other Information 25
Item 6. Exhibits and Reports on Form 8-K 26
SIGNATURES 27
</TABLE>
Page 2 of 27
<PAGE> 3
PART I - FINANCIAL INFORMATION
Item 1: Financial Statements
STRIKER INDUSTRIES, INC. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
For the Period Ending
<TABLE>
<CAPTION>
June 30, December 31,
1997 1996
------------ ------------
<S> <C> <C>
Assets
Current assets:
Cash and cash equivalents $ 10,581 292,485
Cash, restricted as to use 360,000 360,000
Accounts receivable:
Trade 126,376 492,533
Other, net of bad debt allowance of 489,671
and 489,671 for June 30, 1997 and
December 31, 1996, respectively 672,047 45,067
Inventories:
Raw materials 26,728 25,221
Finished goods 220,695 210,301
Prepaid expenses and other current assets 227,977 418,958
------------ ------------
Total current assets 1,644,404 1,844,565
Property and equipment, net 15,647,609 15,943,490
Deferred costs and other, net 1,249,562 1,412,411
------------ ------------
Total assets $ 18,541,575 19,200,466
============ ============
Liabilities and Stockholders' Equity
Current liabilities:
Trade accounts payable $ 3,127,853 2,524,519
Accrued liabilities 947,930 932,515
Revolving line of credit 589,814 529,950
Current portion of long term debt 2,621,500 3,463,950
Current obligations under capital leases 21,244 35,962
------------ ------------
Total current liabilities 7,308,341 7,486,896
Long-term liabilities:
Subordinated notes payable 8,967,532 5,300,000
Term loans, net of current portion -- 534,650
Capital lease obligation 15,969 18,750
------------ ------------
Total long-term liabilities 8,983,501 5,853,400
------------ ------------
Stockholders' equity:
Preferred stock, $.20 par value, 5,000,000 shares
authorized, none issued -- --
Common stock, $0.50 par value, 25,000,000 shares authorized,
4,756,188 and 4,756,188 shares issued, respectively 2,184,913 2,184,913
Stock subscriptions receivable (275,000) (275,000)
Additional paid-in capital 14,098,118 14,098,034
Accumulated deficit (13,599,019) (9,988,500)
Foreign currency translation adjustment (84,279) (84,277)
Less treasury stock at cost; 4,800 shares (75,000) (75,000)
------------ ------------
Total stockholders' equity 2,249,733 5,860,170
Commitments and contingencies
------------ ------------
Total liabilities and stockholders' equity $ 18,541,575 19,200,466
============ ============
</TABLE>
See accompanying notes to consolidated financial statements.
Page 3 of 27
<PAGE> 4
STRIKER INDUSTRIES, INC., AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF OPERATIONS
For the quarter and six months ended June 30, 1997 and 1996
<TABLE>
<CAPTION>
Quarter ended June 30, Six Months ended June 30,
---------------------------- ----------------------------
1997 1996 1997 1996
------------ ------------ ------------ ------------
<S> <C> <C> <C> <C>
Revenues $ 725,566 1,669,712 1,495,137 3,062,461
Cost of sales 986,857 1,498,748 2,347,807 2,942,017
------------ ------------ ------------ ------------
Gross margin (261,291) 170,964 (852,670) 120,444
Selling, general and
administrative expenses 819,965 462,851 1,773,589 835,606
------------ ------------ ------------ ------------
Operating loss (1,081,256) (291,887) (2,626,259) (715,162)
------------ ------------ ------------ ------------
Other income (expense):
Interest expense, net (457,753) (147,415) (984,260) (240,600)
Other income -- -- -- --
------------ ------------ ------------ ------------
Loss before income taxes and
extraordinary item (1,539,009) (439,302) (3,610,519) (955,762)
Income taxes -- -- -- --
------------ ------------ ------------ ------------
Net loss before
extraordinary item (1,539,009) (439,302) (3,610,519) (955,762)
------------ ------------ ------------ ------------
Extraordinary item, gain
on extinguishment of debt -- -- -- --
------------ ------------ ------------ ------------
Net income (loss) $ (1,539,009) (439,302) (3,610,519) (955,762)
============ ============ ============ ============
Income (loss) per common share:
Loss before extraordinary item $ (.32) (.09) (.76) (.20)
W Extraordinary item -- -- -- --
------------ ------------ ------------ ------------
Net income (loss) per common share $ (.32) (.09) (.76) (.20)
============ ============ ============ ============
</TABLE>
See accompanying notes to consolidated financial statements.
Page 4 of 27
<PAGE> 5
STRIKER INDUSTRIES, INC., AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
For the six months ended June 30, 1997 and 1996
<TABLE>
<CAPTION>
Six months ended June 30,
----------------------------
1997 1996
------------ ------------
<S> <C> <C>
Cash flows from operating activities:
Net income (loss) $ (3,610,519) (955,762)
Adjustments to reconcile net income (loss) to net cash
used in operating activities:
Depreciation 358,944 243,620
Amortization 580,377 --
Changes in assets and liabilities:
Increase in accounts receivable (260,823) (523,689)
(Increase) decrease in inventories (11,901) 5,175
Decrease in prepaid expenses and other
current assets 190,981 43,487
Increase (decrease) in accounts payable and
accrued liabilities 618,747 (206,230)
------------ ------------
Net cash provided by (used) in
operating activities (2,134,194) (1,393,399)
------------ ------------
Cash flows from investing activities:
Purchases of property and equipment (138,063) (591,618)
Proceeds from disposition of property and equipment 75,000 --
Increase in deferred acquisition costs -- (564,734)
------------ ------------
Net cash used in investing activities (63,063) (1,156,352)
------------ ------------
Cash flows from financing activities:
Proceeds received from issuance of common stock -- 200,000
Proceeds from revolving lines of credit 1,807,562 2,871,175
Repayment of revolving lines of credit (1,747,614) (3,107,884)
Proceeds from fixed asset line of credit -- 517,500
Repayments of fixed asset line of credit (134,100) (171,600)
Repayments of original issue discount notes (1,978,000) --
Principal payments on capital leases (17,499) (25,212)
Proceeds received from issuance of common stock subscribed -- 236,000
Deferred and other costs paid (417,528) (695,229)
Proceeds from subordinated notes payable 4,402,532 2,600,000
------------ ------------
Net cash provided by financing activities 1,915,353 2,424,750
------------ ------------
Net increase (decrease) in cash (281,904) (125,001)
Cash and cash equivalents, beginning of year 292,485 141,557
------------ ------------
Cash and cash equivalents, end of year $ 10,581 16,556
============ ============
</TABLE>
See notes to accompanying consolidated financial statements.
Page 5 of 27
<PAGE> 6
STRIKER INDUSTRIES, INC., AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
1. 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.
Interim Financial Information
The consolidated interim financial statements included herein are unaudited;
however, they include all adjustments of a normal recurring nature which, in
the opinion of management, are necessary to present fairly the consolidated
financial position of the Company at June 30, 1997, the consolidated results of
operations for the quarter and six months ended June 30, 1997 and 1996 and the
cash flows for the six months ended June 30, 1997 and 1996.
Earnings (Loss) Per Common Share
During May, 1997, the Company's shareholders approved a 1-for-2.5 reverse stock
split. For consistency, the number of shares used in computing the earnings
(loss) per share for the quarter and six months ended June 30, 1996 has been
restated as if the reverse stock split had been in effect for all historical
periods.
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 4,756,188 and 4,756,188 for the three and six months ended June 30, 1997,
respectively, and 4,746,188 and 4,686,188 for the three and six months ended
June 30, 1996, respectively. Primary and fully diluted earnings per share are
the same for each of these years.
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.
Page 6 of 27
<PAGE> 7
2. PROPERTY AND EQUIPMENT, NET:
The Company's property and equipment consisted of the following:
<TABLE>
<CAPTION>
June 30, December 31,
Useful Life 1997 1996
----------- ----------- -----------
<S> <C> <C> <C>
Machinery, equipment and vehicles 5 - 12 years $16,100,268 $15,993,022
Buildings 25 years 747,409 807,229
Computer and office equipment 5 years 737,956 728,092
Land improvements 5 years 266,533 260,760
Machinery, equipment and vehicles
under capital leases 2 - 5 years 139,266 139,266
Spare parts 274,472 274,472
Land 150,000 150,000
----------- -----------
18,415,904 18,352,841
Less- Accumulated depreciation
and amortization (2,768,295) (2,409,351)
----------- -----------
$15,647,609 $15,943,490
=========== ===========
</TABLE>
3. DEFERRED COSTS AND OTHER, NET:
The Company's deferred costs and other, net, consisted of the following:
<TABLE>
<CAPTION>
June 30, December 31,
1997 1996
---------- -----------
<S> <C> <C>
Deferred financing costs, net $1,143,594 $1,344,297
Deposits 88,151 47,751
Patents 25,029 25,029
Less- Accumulated amortization - patents (7,212) (4,666)
Organization costs 78,025 78,025
Less- Accumulated amortization - organizational costs (78,025) (78,025)
---------- ----------
$1,249,562 $1,412,411
========== ==========
</TABLE>
Page 7 of 27
<PAGE> 8
4. DEBT:
The Company's debt consisted of the following at:
<TABLE>
<CAPTION>
June 30, December 31,
1997 1996
----------- -----------
<S> <C> <C>
Subordinated notes payable, 10.25% due 12/31/98 $ 8,967,532 $ 5,300,000
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 798,000 798,000
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 332,000 1,575,000
Stephens:
Term loan, prime (8.25%) +3.5%, due 5/31/98 593,750 652,850
Revolving line of credit, prime + 3.5% 224,939 164,148
Canadian Facility:
Term loan, prime (6.5%) +2.5%, due 4/01/01 897,750 972,750
Revolving line of credit, prime +2.5% 364,874 365,802
Capitalized lease obligations bearing interest at
rates from 10% to 18% maturing between 1996 and
2000, secured by underlying machinery, vehicles
and computer equipment. 37,213 54,712
----------- -----------
12,216,058 9,883,262
Less-Current maturities and revolving lines of credit (3,232,557) (4,029,862)
----------- -----------
$ 8,983,501 $ 5,853,400
=========== ===========
</TABLE>
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%.
As of the date of this report, the Company is in default for non-payment of
July, 1997 principal and interest on the Stephens Facility. The Company has not
received any notice from the Stephens Facility lender. Management does not
anticipate any notice or action from the lender. Consequently, the entire
Stephens Facility has been classified as current debt for the period ended
June 30, 1997.
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, 1996 and June
30, 1997, Striker Canada was not in
Page 8 of 27
<PAGE> 9
compliance with certain covenants of the Canadian Facility, subsequently, the
Company had reclassified the entire Canadian Facility as current debt for the
year ended December 31, 1996 and the period ended June 30, 1997. On August 11,
1997, the Company signed a Forbearance agreement with the Canadian lender to
waive demand rights, subject to certain provisions, for a period of three years
beginning August 1, 1997. As part of the Forbearance agreement, Striker Canada
has agreed to prepay, on or before August 29, 1997, principal and interest
through February, 1998.
On February 16, 1996, a wholly-owned subsidiary of the Company issued
$1,300,000 in aggregate principal amount 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, a wholly-owned subsidiary of 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.
On July 10, 1996, a wholly-owned subsidiary of the Company issued $1,500,000 in
aggregate principal amount of 10.25 % Subordinated Notes (the "1996 C Notes") to
nine international investors. 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.
A wholly-owned subsidiary of the Company issued $798,000 in aggregate principal
amount of Subordinated Notes (the "1996 D Notes") dated October 28, 1996 to
several investors. Management is presently in communication with the 1996 D
noteholders regarding implementation of the issuance to them, in full payment,
cancellation and exchange for the 1996 D Notes, of Warrants to purchase shares
of Common Stock of the Company, in accordance with the provisions of the letter
agreement between the Company and each noteholder attached as Exhibit A to each
of the 1996 D Notes.
In December, 1996 and January, 1997, the Company issued $2,310,000 in aggregate
principal amount of Original Issue Discount Notes (the "1996 E Notes") to
twenty-one investors. The maturity date of the 1996 E Notes by agreed extension
was 5/19/97. As a result of the repudiation of the Transaction (see Note 5 to
the Notes to Consolidated Financial Statements), the 1996 E Notes were in
default. However, on May 16, 1997, $1,978,000 was repaid and the remaining
balance thereof, by agreement in principle, was to be paid by June 30, 1997. The
Company was unable to make any payments to reduce or retire the remaining
balance as of the date of this report. The Company is in default of the terms of
the 1996 E Notes. In addition, in conjunction with other financing needs, the
Company is attempting to raise funds to retire the balance remaining due on the
Page 9 of 27
<PAGE> 10
1996 E Notes. The proceeds of the 1996 E Notes were used for Transaction costs
and/or working capital needs.
In February, March and April, 1997, the Company issued $643,000 in aggregate
principal amount of 10.25 % Subordinated Notes (the "1997 A Notes") to two
international investors. The 1997 A Notes mature on December 31, 1998 and
interest is payable thereon quarterly. The proceeds of the 1997 A Notes were
used for working capital needs.
In April and May, 1997, a wholly-owned subsidiary of the Company issued
$2,550,000 in aggregate amount of 10.25% Subordinated Promissory Notes (the
"1997 B Notes") to ten international investors. The 1997 B Notes mature on
December 31, 1997 and interest is payable thereon quarterly. The principal use
of the proceeds of the 1997 B Notes was to pay down the 1996 E Notes.
In June, 1997, a wholly-owned subsidiary of the Company issued $475,000 in
aggregate amount of 10.25% Subordinated Promissory Notes (the "1997 C Notes")
to three international investors. The 1997 C Notes mature on December 31, 1998
and interest is payable thereon quarterly. The proceeds of the 1997 C Notes was
for working capital needs.
At June 30, 1997, there were no amounts available under the lines of credit.
Interest paid for the three and six months ended June 30, 1997 was $65,319 and
$115,914, respectively, and interest paid for the three and six months ended
June 30, 1996, was $74,887 and $171,021, respectively.
5. COMMITMENTS AND CONTINGENCIES:
Contingencies
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 Products Company, Inc.). 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.
Page 10 of 27
<PAGE> 11
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 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 of pre-trial
discovery. 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 Capital Partners, L.P. (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. During the quarter ended March 31, 1997, 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 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. On May 16,
1997, the Company paid $1,978,000 of the total owed under the terms of the 1996
E Notes. Management had negotiated an extension in principle to extend the due
date to pay the balance of this indebtedness to June 30, 1997. The Company was
unable to make any further payments to reduce or retire the remaining balance as
of the date of this report. The Company is in default of the terms of the 1996 E
Notes. The Company is attempting to raise funds for various needs including
the retirement of the balance of the 1996 E Notes.
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 Arkansas
Department of Pollution Control and Environment ("ADPCE) and requested approval
for clean-up. The Company received approval form 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 physical work
is complete. The Company's environmental consultants are completing the
paperwork necessary for the ADPCE to review and approve. The Company
anticipates that this project will be complete in all regards by November 15,
1997. The work being performed will bring the Company in compliance with
provisions of the ADPCE landfill permit.
Page 11 of 27
<PAGE> 12
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. One of the three contract customers renewed its contract
for an additional period of twelve months with no change in terms.
Toward the end of the second quarter of 1997, the Company suspended operations
at the Stephens Mill due to a shortage of cash stemming from repayment of
approximately $2,000,000 of the 1996 E Notes (see Note 4 to the Notes to
Consolidated Financial Statements). This shortage of cash prevented the
implementation of needed repairs and maintenance to the Mill's machinery and
equipment. As a result of this suspension of operations, the Company was unable
to supply its contract customer any product. Management understands that the
contract customer has been able to procure supplies from alternative sources at
market prices. Consequently, Management does not believe that any legal
consequences will result from its inability to comply with the contract.
Upon a resumption of operations, Management believes that there will be a
sufficient market for its product and that the Company will be able to sell its
total production to existing and potential new customers.
6. SUSPENSION OF OPERATIONS AT STEPHENS MILL:
Toward the end of the second quarter, the Company suspended operations at its
Stephens Mill. The Stephens Mill had been experiencing a significant level of
downtime and required continually increasing repairs and maintenance to
operate. Additionally, the Company experienced a shortage of working capital
during the quarter as a result of unanticipated required repayment of
obligations of the Company directly caused by and resulting from the wrongful
repudiation of the Transaction by Don Smith and GS Roofing (See Item 5 above).
These circumstances led to a significant reduction in dry felt produced and
available for sale. The reduction in dry felt produced (and sold), coupled with
unabsorbed production costs, made profitable operations unachievable under the
circumstances. In order to minimize the cash drain and accomplish the needed
repairs and maintenance to the Stephens Mill machinery and equipment,
Management made the decision to suspend operations.
Page 12 of 27
<PAGE> 13
In conjunction with suspending operations at the Stephens Mill, Management is
intently reviewing capital improvement projects that would allow the Stephens
Mill to regain efficiencies and operate profitably. It is Management's present
intention to resume operations at the Stephens Mill in due course, however,
resumption of operations is subject to the Company raising the funds necessary
to complete the capital improvements and repairs and maintenance that will
enable the Stephens Mill to operate efficiently and profitably. While it is
Management's intention to endeavor to raise the necessary capital to accomplish
its objective, there can be no assurances that it will be successful and that
the Stephens Mill will be able to resume operations.
7. CASUALTY LOSSES AT MILLS:
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 final settlement claim
indicated total damage to be approximately $1,500,000. The insurance coverage on
the plant and its contents of $5,000,000 proved to be more than adequate to
cover all the costs of rebuilding and replacing all fire damage to the plant and
equipment. The fire damaged repairs were completed on or about May 30, 1997. The
Company has identified additional routine repairs and maintenance that will be
necessary prior to start-up. As of the date of this report, the Company
anticipates having all the repairs completed and the ability to resume full
operations on or about December 31, 1997. The ability of the Company to resume
operations will be dependent upon its obtaining of sufficient cash availability
for start-up costs, aged payable payments and working capital. In addition,
Management will evaluate the market and industry seasonality prior to start-up.
Management has estimated that the start-up of the Thorold Mill will require
approximately $1,000,000 to $1,500,000 to complete capital projects and to
provide working capital. The Company is pursuing several financing options in
order to raise the cash necessary to begin operations.
On or about February 25, 1997, the Company's Stephens Mill experienced a severe
storm in connection with tornado activity in the region. The Stephens Mill did
not suffer any damage from tornadoes; however, the heavy rains associated with
the storm damaged the roof covering a section of one the main buildings. The
area damaged was not being utilized by the Company at the time. The area is
currently partitioned and no activity is allowed in or about the area. During
April, 1997, the Company settled the damage claim for $75,000.
Page 13 of 27
<PAGE> 14
On or about May 14, 1997, a fire occurred in a finished goods warehouse at the
Stephens Mill. The building, which is isolated and separate from the main Mill
building and its contents were completely destroyed. At the time of the fire,
there were no finished goods stored in the warehouse, however, a quantity of
raw materials stored in the warehouse were destroyed in the fire. In June,
1997, the Company settled its fire damage claim with the insurance company for
approximately $122,000. In connection with consideration of any rebuilding of
the warehouse, Management is evaluating several structural configuration
changes in the building which would maximize operational efficiencies.
Rebuilding of the finished goods warehouse would be a part of the capital
improvement projects mentioned above.
8. SUBSEQUENT EVENTS:
On July 21, 1997, a Complaint styled Paper Trading International, Inc. vs.
Striker Industries, Inc. and Striker Paper Corporation, No. 97-1113, was filed
in the United States District Court, Western District of Arkansas, El Dorado
Division asserting a cause of action on sworn account against the defendants
seeking recovery of approximately $406,000 for goods and merchandise sold,
pre-judgment and post-judgment interest, reasonable attorneys' fees and costs.
The Company contends that Striker Industries, Inc. is an improper party
defendant in this suit and intends to file such pleadings as may be necessary to
effect its dismissal and severance therefrom.
During July, 1997, Striker Canada settled its Thorold Mill fire damage claim
with the insurance company, which is being applied to payment of the costs of
repairing and rebuilding the Thorold Mill. In addition, Management obtained an
advance of $150,000 against its ultimate business interruption insurance
claim resulting from the Thorold Mill fire. Management anticipates that the
business interruption insurance claim will be finalized once the Thorold Mill
is restarted and operations have resumed.
In response to a default notice and payment demand received from its Canadian
lender on or about July 23, 1997, on August 11, 1997, Striker Canada signed a
negotiated Forbearance Agreement with its Canadian lender. Striker Canada
agreed to pay all outstanding principal and interest immediately and to prepay
six months of principal and interest by August 29, 1997. In exchange for the
payments, the Canadian lender has agreed to forbear until September 1, 2000
from taking any further action to enforce its rights under its existing
financing and security agreements with Striker Canada. Subject only to
Striker Canada's compliance with the provisions of the Forbearance Agreement.
Management believes the requirements of the Forbearance Agreement are those
customarily in agreements of this nature and that they will be complied with
by Striker Canada. The decision to seek a Forbearance agreement was made in
order to attract alternative sources of financing.
Page 14 of 27
<PAGE> 15
Item 2. 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-Q:
Liquidity and Capital Resources
Although the Company has continued to experience operating losses and liquidity
concerns, the Company has been able to make significant progress to survive in
the wake of the failed Transaction.
For the six months ended June 30, 1997, the Company has been able to raise
approximately $3,700,000 of subordinated debt to fund working capital needs and
retire a substantial portion of the 1997 E Notes.
The Company has been proactive with its vendors and has maintained
communication. The Company has been able to negotiate with various vendors
extended payment plans for approximately $400,000 of accounts payable.
The Company has reached an agreement in principle to extend the maturity date
from 1998 to 2005 on approximately $9,000,000 of subordinated debt and reduce
the required interest due thereon.
The Company is working with the 1996 D Noteholders to convert their notes into
equity (Warrants to purchase common stock).
On August 11, 1997, the Company was able to negotiate a forbearance agreement
with its Canadian lender. This agreement limits the ability of the lender to
enforce its rights under its existing financing and security agreements with
Striker Canada (see Note 8 to the Notes to Consolidated Financial Statements).
The Company has identified a potential financial partner in Canada.
These items in and of themselves do not resolve the liquidity issues, however,
they demonstrate the commitment of Management and its ability to survive under
difficult circumstances.
For the three and six months ended June 30, 1997, the Company had an operating
loss and has continued to experience short term liquidity concerns. At June 30,
1997, the Company has a working capital deficit of $5,663,937.
On June 2, 1997, the Company suspended operations at its Stephens Mill. The
Stephens Mill had experienced a significant level of downtime and required
continually increasing repairs and maintenance to operate. This led to a
significant reduction in dry felt produced and available for sale. The
reduction in dry felt produced (and sold) coupled with unabsorbed production
costs made profitable operations unachievable under the circumstances. In order
to stop the cash drain and to preserve the current working condition of the
machinery and equipment, Management made the decision to suspend operations.
Page 15 of 27
<PAGE> 16
As of the date of this report, both of the Company's plants are idled. The fire
related repairs and rebuilding are complete at the Thorold Mill, however, there
are still four to five capital projects that need to be completed prior to
start-up. Management has also identified several capital projects that are
necessary at the Stephens Mill to improve efficiencies needed for profitable
operation. The Company is vigorously pursuing various sources of financing for
each plant. Management is committed to seek and obtain the necessary financing
to resume operations at both plants, but not to resume operations in either
instance until the financing for each plant is in place and the capital projects
have been completed.
There have been several events from the prior year that continue to effect the
Company. During 1996 and early 1997, the Company devoted substantial amounts of
cash to acquisition activities for the Transaction. The Company raised over
$3,000,000 in subordinated debt during 1996 and early 1997 (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 of the Transaction by Donald F. Smith and GS Roofing, et al, the
Company's ability to repay debt, pay past-due accounts payable, finance needed
capital projects and continue operations has been gravely impaired.
During late 1995 and throughout 1996, the Company made extensive capital
improvements to both plants. The Thorold Mill, after having been idled for two
years by its previous owners, needed extensive capital improvements, additions,
and repairs. These necessary capital improvements, additions and repairs were
partially financed as the Company's financing and cash resources were limited.
Consequently, the balance of the project was financed by increasing current
liabilities. In addition, there was no production and, consequently, no cash
flow generated. Upon restarting the Thorold Mill in July, 1996, several repairs
were necessary to the paper line in order to operate. These unfunded costs
resulted in an increase of accounts payable and accrued liabilities.
Page 16 of 27
<PAGE> 17
The Company made several capital improvement projects to the Stephens Mill in
1996 which have continued into 1997. The improvements and additions made were
necessary to meet regulatory requirements, however, there was no beneficial
increase to production. These improvements were only partially financed by
debt, the remainder was funded using trade credit.
Management believes that the operations of the Company will be greatly enhanced
once the remaining capital projects are completed at the Thorold and Stephens
Mills. The identified 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 maintain the machinery and
equipment improved and continue to identify and complete capital projects that
will allow the plants to operate at lower costs.
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 maturity date of the 1996 E Notes by agreed extension was
May 19, 1997. The proceeds of the 1996 E Notes were used for Transaction costs
and/or working capital needs. On May 16, 1997, the Company paid $1,978,000 to
BlueStone, the agent for the 1996 E noteholders in partial repayment and
retirement of the 1996 E Notes.
In February, March and April, 1997, the Company issued $643,000 in aggregate
principal amount of 10.25 % Subordinated Notes (the "1997 A Notes") to two
international investors. The 1997 A Notes mature on December 31, 1998 and
interest is payable quarterly beginning July 1, 1997. The proceeds of the 1997 A
Notes were used for working capital needs.
Page 17 of 27
<PAGE> 18
In April and May, 1997, a wholly-owned subsidiary of the Company issued
$2,550,000 in aggregate amount of 10.25% Subordinated Promissory Notes (the
"1997 B Notes") to ten international investors. The 1997 B Notes mature on
December 31, 1997 and interest is payable thereon quarterly. The principal use
of the proceeds of the 1997 B Notes was to pay down the 1996 E Notes.
In June, 1997, a wholly-owned subsidiary of the Company issued $475,000 in
aggregate amount of 10.25% Subordinated Promissory Notes (the "1997 C Notes")
to three international investors. The 1997 C Notes mature on December 31, 1998
and interest is payable thereon quarterly. The proceeds of the 1997 C Notes was
for working capital needs.
Management believes cash generated by operations of both Mills, once the
identified capital improvement projects are complete, will adequately fund the
cash needs of the Company's operations. 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
Mills, penetration of existing and new markets at a profitable margin and
volume levels and cash liquidity.
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 convert the debt into equity (Warrants
to purchase common stock). As the Company has been able to retire a substantial
amount of the 1996 E Notes, Management believes that it has eliminated the
threat of foreclosure. Management is currently in discussions with BlueStone to
provide interim bridge financing and to continue to work with the Company in its
acquisition strategy including the saturating plant in Georgia and other
potential plants. In addition, Management is in discussions with affiliated
subordinated debt holders to extend the maturity date of the debt from 1998 to
2005 and and reduce the required amount of interest payable thereon which, if
achieved, the conversion of outstanding affiliated debt would result in
significant savings of cash interest payments and interest expense.
Page 18 of 27
<PAGE> 19
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
potential plant acquisitions, capital improvement projects and short-term
working capital. If the Company is successful in acquiring a saturated felt
plant located in Georgia, 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
greater 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.
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.
If the Company is successful in acquiring a saturating plant located in Georgia,
management believes that it would provide several benefits to the Company. The
Company's existing dry felt mills can supply the total quantity needed for
saturation operations. This will provide the saturating plant a less expensive
source of dry felt. The Company believes that this potential acquisition would
make the Company one of the more vertically integrated companies in the roofing
industry. The Company believes that if this acquisition can be made, it would
allow cost savings and the ability to allocate certain administrative costs
thereby reducing the existing mills cost structure. In addition, the Georgia
saturating plant is strategically located for the Southeast region. Due to the
level of storm activity and hurricanes in recent history, there are several
proposals before legislative bodies that will require enhanced building code
requirements. This is ideal for the Company's value added product, Lighting Fast
Felt.
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.
Page 19 of 27
<PAGE> 20
Results of Operations
<TABLE>
<CAPTION>
Three Months Ended Six Months Ended
June 30, June 30,
1997 1996 1997 1996
------------ ------------ ------------ ------------
<S> <C> <C> <C> <C>
Revenue $ 725,566 $ 1,669,712 $ 1,495,137 $ 3,062,461
Cost of Sales 986,857 1,498,748 2,347,807 2,942,017
------------ ------------ ------------ ------------
Gross Margin (261,291) 170,964 (852,670) 120,444
Selling, general and
administrative 819,965 462,851 1,773,589 835,606
------------ ------------ ------------ ------------
Operating loss (1,081,256) (291,887) (2,626,259) (715,162)
Interest expense, net (457,753) (147,415) (984,260) (240,600)
------------ ------------ ------------ ------------
Net loss before
income taxes $ (1,539,009) $ (439,302) $ (3,610,519) $ (955,762)
============ ============ ============ ============
</TABLE>
COMPARISON OF QUARTERS ENDED JUNE 30, 1997 AND 1996
Sales for the quarter ended June 30, 1997 were $725,566, a decrease of $944,146
from sales of $1,669,712 for the quarter ended June 30, 1996. The decrease in
sales is primarily due to a decrease in the number of units (tons) sold of dry
felt. The decrease in the number of tons sold is primarily due to downtime
experienced at the Stephens Mill during the quarter ended June 30, 1997.
Gross margin decreased to a negative $261,291 (36.0 percent of total sales for
the quarter ended June 30, 1997) from a gross margin of $170,964 (10.2 per cent
of total sales for the quarter ended June 30, 1996). The decrease in gross
margin is primarily due to the decrease in sales, unabsorbed production
overhead and increased repairs and maintenance due to the downtime during the
quarter ended June 30, 1997.
Selling, general and administrative expenses increased by $357,114 to $819,965
for the quarter ended June 30, 1997, from $462,851 for the quarter ended June
30, 1996. This increase was primarily due to an increase in legal, professional
and other fees associated with the Transaction.
Page 20 of 27
<PAGE> 21
Interest expense, net, increased to $457,753 for the quarter ended June 30,
1997, from $147,415 for the quarter ended June 30, 1996. This increase is due
to the interest associated with the additional subordinated notes payable and
the amortization of deferred financing costs (amortized as interest expense).
COMPARISON OF SIX MONTHS ENDED JUNE 30, 1997 AND 1996
Sales for the six months ended June 30, 1997 were $1,495,137, a decrease of
$1,567,324 from sales of $3,062,461 for the six months ended June 30, 1996. The
decrease in sales is primarily due to a decrease in the number of units (tons)
sold of dry felt. The decrease in the number of tons sold is primarily due to
significant downtime experienced at the Stephens Mill during 1997.
Gross margin decreased to a negative $852,670 (57.0 percent of total sales for
the six months ended June 30, 1997) from a gross margin of $120,444 (3.9 per
cent of total sales for the six months ended June 30, 1996). The decrease in
gross margin is primarily due to the decrease in sales, unabsorbed production
overhead and increased repairs and maintenance due to the downtime during 1997.
Selling, general and administrative expenses increased by $937,983 to
$1,773,589 for the six months ended June 30, 1997, from $835,606 for the six
months ended June 30, 1996. This increase is primarily due to an increase in
legal, professional and other fees expensed as a result of the repudiation of
the Transaction by Donald F. Smith and GS Roofing, et al. These costs were
capitalized in connection with the Transaction as deferred acquisition costs
(See Note 5 to the Consolidated Financial Statements).
Interest expense, net, increased to $984,260 for the six months ended June 30,
1997, from $240,600 for the six months ended June 30, 1996. This increase is
due to the interest associated with the additional subordinated notes payable
and the amortization of deferred financing costs (amortized as interest
expense).
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.
CASH FLOWS - COMPARISON OF SIX MONTHS ENDED JUNE 30, 1997 AND JUNE 30, 1996
Cash flows used by operating activities increased to $2,134,194 for the six
months ended June 30, 1997 from $1,393,399 for the six months ended June 30,
1996. This increase is primarily due to a significant increase in operating
losses partially offset by an increase in accounts payable and accrued
liabilities.
Page 21 of 27
<PAGE> 22
Cash flows used by investing activities decreased to $63,063 for the six months
ended June 30, 1997 from cash flows used in investing activities of $1,156,352
for the six months ended June 30, 1996. This decrease is primarily due to a
reduction in purchases of property and equipment and a reduction in deferred
acquisition costs.
Cash flows provided by financing activities decreased to $1,915,353 for the six
months ended June 30, 1997 from $2,424,750 for the six months ended June 30,
1997. This decrease is primarily due to the repayment of the 1996 E Notes.
Page 22 of 27
<PAGE> 23
PART II - OTHER INFORMATION
Item 1. Legal Proceedings.
During the quarter ended June 30, 1997, production of documents by subpoena by
parties to the litigation resulting from the wrongful repudiation of the
Transaction (see Item 1 of Part II of the Company's Quarterly Report on Form
10-Q for the quarterly period ended March 31, 1997 as filed with the Securities
and Exchange Commission) occurred, and preliminary pre-trial discovery in the
litigation continued.
The Company and its subsidiaries are not parties to any legal proceedings
commenced during the quarter ended June 30, 1997, other than claims and
disputes arising in the normal course of the conduct of the Company's business,
none of which are material and substantially all of which management is
endeavoring to settle and resolve in due course by agreement.
See Note 8 to Notes to the Company's Consolidated Financial Statements
filed with this Quarterly Report with respect to a Complaint filed subsequent
to June 30, 1997 by Paper Trading International, Inc. against the Company and
its indirect wholly-owned subsidiary, Striker Paper Corporation, now pending in
the United States District Court, Western Division of Arkansas, El Dorado
Division.
Item 2. Changes in Securities.
Effective June 26, 1997, by amendment of its Certificate of Incorporation
approved by stockholders of the Company at the Annual Meeting of Stockholders
held in Houston, Texas on June 2, 1997 (see Item 4 below) a 1-for-2.5 reverse
stock split of issued Common Stock of the Company (including treasury shares and
shares reserved for issuance to holder of then outstanding options and warrants)
was effected, which amendment increased the par value of the Company's Common
Stock from $0.20 to $0.50 per share simultaneously with the reverse split. All
fractional shares, no matter how small, were rounded up to the nearest whole
share and no stockholder received less than one share as a result of the reverse
split. The reverse split did not affect any stockholder's proportionate equity
interest in the Company, subject to the provision for the elimination of
fractional shares and rounding up to the nearest whole share in every instance.
Each outstanding share of the Company's Common Stock after the reverse split is
entitled to one vote at each meeting of stockholders, as was the case prior to
the reverse split.
Page 23 of 27
<PAGE> 24
Item 3. Defaults Upon Senior Securities.
In connection with the Transaction referred to in Item 1 of this PART II
above, 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. Subsequently, the Company negotiated an
extension of time to May 19, 1997 within which to remedy the default and repay
the 1996 E Notes. On May 16, 1997, the Company repaid $1,978,000 of the total
$2,310,000 of the 1996 E Notes. The Company is currently in default under terms
of the 1996 E Notes. The Company does not anticipate any legal action at present
with respect to the 1996 E Notes due to the substantial amount of the debt
retired on May 16, 1997. In addition, in conjunction with other financing needs,
the Company is attempting to raise funds to retire the balance remaining due on
the 1996 E Notes.
See Note 8 to Notes to the Company's Consolidated Financial Statements
filed with this Quarterly Report with respect to receipt by the Company's
Canadian subsidiary, Striker Paper Canada, Inc., of a default notice and
payment demand from its Canadian lender and its resulting negotiation and
execution of a Forbearance Agreement with the lender on the terms and
conditions stated in Note 8.
Page 24 of 27
<PAGE> 25
Item 4. Submission of Matters to a Vote of Security Holders.
An Annual Meeting of Stockholders of the Company was held in Houston,
Texas on Monday, June 2, 1997 at 10:00 a.m. to elect or re-elect three
directors of the Company, consider and act upon a proposal to amend the
Certificate of Incorporation of the Company to increase the par value of the
issued (but not the authorized and unissued) Common Stock of the Company from
$0.20 per share to $0.50 simultaneously with a 1-for-2.5 reverse stock split of
the Company's Common Stock, including treasury shares and shares reserved for
issuance to holders of options and warrants of the Company outstanding on the
effective date of the amendment, and to ratify appointment by the Board of
Directors of KPMG Peat Marwick, LLP, as auditors of the Company for the ensuing
year. The meeting was held pursuant to proxies solicited on behalf of the
Company pursuant to Regulation 14 A under the Securities Exchange Act of 1934,
there was no solicitation in opposition to Management's nominees as listed in
the Proxy Statement, and all three of such nominees were elected at the
meeting. the following table sets forth the number of votes cast for, against
or withheld with respect to each matter voted upon at the meeting, including a
separate tabulation with respect to each nominee for office:
1. Election of Directors:
<TABLE>
<CAPTION>
For Against Withheld
--- ------- --------
<S> <C> <C> <C>
David A. Collins 6,102,518 0 67
Matthew D. Pond 6,102,519 0 66
William B. Locander 6,102,519 0 66
</TABLE>
2. Proposal to amend Certificate of Incorporation to effect a 1-for-2.5 reverse
stock split:
<TABLE>
<CAPTION>
For Against Withheld
--- ------- --------
<S> <C> <C>
6,102,435 132 18
</TABLE>
3. Ratification of appointment of auditors:
<TABLE>
<CAPTION>
For Against Withheld
--- ------- --------
<S> <C> <C>
6,102,549 30 6
</TABLE>
Item 5. Other Information.
(1) In April, 1997, the Company issued $93,000 in principal amount of
10.25% Subordinated Promissory Notes (the "1997 A Notes") to an international
investor. The 1997 A Notes mature on December 31, 1998 and interest is payable
thereon quarterly. The proceeds of the 1997 A Notes were used for working
capital needs.
(2) In April and May, 1997, a wholly-owned subsidiary of the Company
issued $2,550,000 in aggregate principal amount of 10.25% Subordinated
Promissory Notes (the "1997 B Notes") to ten international investors. The 1997
B Notes mature on December 31, 1998 and interest is payable thereon quarterly.
The proceeds were used principally to pay down the 1996 E Notes.
Page 25 of 27
<PAGE> 26
(3) In June, 1997, a wholly-owned subsidiary of the Company issued
$475,000 in aggregate amount of 10.25% Subordinated Promissory Notes (the "1997
C Notes") to four international investors. The 1997 C Notes mature on December
31, 1998 and interest is payable thereon quarterly. The principal use of the
proceeds of the 1997 C Notes was for working capital needs.
Item 6. Exhibits and Reports on Form 8-K
(a) Exhibits:
<TABLE>
<S> <C>
3.1 Copy of the Company's Certificate of Amendment to its
Certificate of Incorporation filed by the Secretary of State of
Delaware on June 26, 1997, effecting a 1-for-2.5 share reverse
stock split of Common Stock of the Company.
4.1 Copy of the Company's 1997 A Notes ($93,000 in aggregate
principal amount) issued in April, 1997 (filed as Exhibit 4.3 to
the Company's Form 10-Q for the quarter ended March 31, 1997,
and incorporated herein by reference).
4.2 Copy of the Company's 1997 B Notes ($2,550,000 in aggregate
principal amount) issued in April and May, 1997.
4.3 Copy of the Company's 1997 C Notes ($475,000 in aggregate
principal amount) issued in June, 1997.
10.1 Copy of the August 11, 1997 Forbearance Agreement between
Striker Paper Canada, Inc., Striker Industries, Inc., Laurentian
Bank of Canada and Ontario Development Corporation.
27 Financial Data Schedule
</TABLE>
(b) Reports on Form 8-K:
A current report on Form 8-K dated June 16, 1997, reporting the vote of
stockholders at the Company's Annual Meeting on June 2, 1997 in favor of
amendment of the Company's Certificate of Incorporation to increase the par
value per share of issued common stock of the Company (including treasury
shares and shares reserved for issuance on the effective date of the amendment
to holders of then outstanding options and Warrants of the Company) was filed
by the Company during the quarter ended June 30, 1997.
Page 26 of 27
<PAGE> 27
SIGNATURES:
Pursuant to the requirements of the Securities Exchange Act of 1934, as
amended, the Company has duly caused this report to be signed on its behalf by
the undersigned, hereunto duly authorized.
STRIKER INDUSTRIES, INC.
DATE: August 19, 1997 BY: /s/ DAVID A. COLLINS
------------------------------
David A. Collins
Chief Executive Officer
DATE: August 19, 1997 BY: /s/ MATTHEW D. POND
------------------------------
Matthew D. Pond
Chief Financial Officer
Page 27 of 27
<PAGE> 28
INDEX TO EXHIBITS
<TABLE>
<CAPTION>
EXHIBIT
NUMBER DESCRIPTION
------- -----------
<S> <C>
3.1 Copy of the Company's Certificate of Amendment to its
Certificate of Incorporation filed by the Secretary of State of
Delaware on June 26, 1997, effecting a 1-for-2.5 share reverse
stock split of Common Stock of the Company.
4.1 Copy of the Company's 1997 A Notes ($93,000 in aggregate
principal amount) issued in April, 1997 (filed as Exhibit 4.3 to
the Company's Form 10-Q for the quarter ended March 31, 1997,
and incorporated herein by reference).
4.2 Copy of the Company's 1997 B Notes ($2,550,000 in aggregate
principal amount) issued in April and May, 1997.
4.3 Copy of the Company's 1997 C Notes ($475,000 in aggregate
principal amount) issued in June, 1997.
10.1 Copy of the August 11, 1997 Forbearance Agreement between
Striker Paper Canada, Inc., Striker Industries, Inc., Laurentian
Bank of Canada and Ontario Development Corporation.
27 Financial Data Schedule
</TABLE>
<PAGE> 1
EXHIBIT 3.1
CERTIFICATE OF AMENDMENT
TO THE CERTIFICATE OF INCORPORATION OF
STRIKER INDUSTRIES, INC.
Striker Industries, Inc., a corporation organized and existing under and
by virtue of the General Corporation Law of the state of Delaware (the
"Corporation"), DOES HEREBY CERTIFY:
FIRST: That at a meeting of the Board of Directors of the Corporation, a
resolution was adopted setting forth a proposed amendment to ARTICLE V of the
Certificate of Incorporation of the Corporation, declaring said amendment to be
advisable and calling a meeting of the stockholders of the Corporation for
consideration thereof. The proposed amendment increases the par value of the
Common Stock of the Corporation from $0.20 per share to $0.50 per share
simultaneously with a 1-for-2.5 reverse stock split of the issued (but not the
authorized and unissued) Common Stock of the Corporation, including shares of
Common Stock of the Corporation held by it as treasury shares and shares
reserved for issuance to holders of options and Warrants of the Corporation
outstanding on the date of filing of said amendment with the Secretary of State
of Delaware, which amendment alters or changes ARTICLE V of the Certificate of
Incorporation of the Corporation so that, as amended, ARTICLE V shall hereafter
be and read as follows:
"ARTICLE V
The total number of shares of all classes of capital stock which this
Corporation shall have authority to issue is 30,000,000 shares, which shall be
divided into two classes as follows:
5,000,000 shares of Preferred Stock with a par value of $0.20 per share,
and
25,000,000 shares of Common Stock with a par value of $0.50 per share.
At such time as the Certificate of Amendment to the Certificate of
Incorporation of this Corporation providing for 5,000,000 shares of Preferred
Stock of this Corporation with a par value of $0.20 per share and 25,000,000
shares of Common Stock of this Corporation with a par value of $0.50 per share
is filed with the Secretary of State of Delaware (the date of such filing being
hereinafter called the "Effective Date"), the issued (but not the authorized
and unissued) shares of Common Stock of the Corporation, including shares of
Common Stock of the Corporation held by it as treasury shares on the Effective
Date, and including shares of the Corporation's Common Stock reserved for
issuance on the Effective Date to holders of then outstanding options and
Warrants of the Corporation, will be changed and split on the basis of 1 share
with a par value of $0.50 per share for each 2.5 shares with a par value of
$0.20 per share. No fractional shares will
<PAGE> 2
be issued and all fractional shares will be rounded up to the nearest whole
share. On the Effective Date, all shares of Common Stock of the Corporation of
the par value of $0.20 per share issued and outstanding or held in the treasury
of the Corporation (but not authorized and unissued shares) or then reserved
for issuance to holders of then outstanding options and Warrants of the
Corporation, shall at such time, without any action on the part of the holders
thereof, be reclassified, changed and converted into a number of shares of
Common Stock of the Corporation of the par value of $0.50 per share equal to
2/5 of the aggregate number of shares of Common Stock of the Corporation of the
par value of $0.20 per share outstanding or held in the treasury or reserved
for issuance to holders of options and Warrants of the Corporation immediately
prior to the Effective Date, without increasing or decreasing the amount of
stated capital or surplus of the Corporation. As promptly as practicable after
the effective date of the reclassification and change in the shares of the
Common Stock of the Corporation in accordance with the foregoing, notice shall
be given to all stockholders of record of the Corporation on the Effective Date
to surrender their certificate or certificates of shares of Common Stock of the
Corporation to the Corporation's Transfer Agent for cancellation and reissuance
in accordance with the terms of the provisions of amended ARTICLE V as set
forth in the Certificate of Amendment. On the Effective Date, no shares of
Preferred Stock of the Corporation will have been issued or be outstanding.
The Common Stock or Preferred Stock may be issued by the Corporation from
time to time for such consideration and upon such terms as may be fixed from
time to time by the Board of Directors and as may be permitted by law, without
action by any stockholders.
Each share of Common Stock shall be equal to every other share of Common
Stock in every respect. The shares of Common Stock shall entitle the holders
thereof to one vote for each share upon all matters upon which stockholders
have the right to vote.
The Preferred Stock shall be classified, divided and issued in series.
Each series of Preferred Stock may be issued as determined from time to time by
the Board of Directors and stated in the resolution or resolutions providing
for the issuance of such stock adopted by the Board of Directors pursuant to
the authority vested in it. Each series is to be appropriately designated prior
to the issue of any shares thereof by some distinguishable letter, number or
title. All shares of Preferred Stock shall be of equal rank and have the same
powers, preferences and rights, and shall be subject to the same
qualifications, limitations and restrictions, without distinction between the
shares of different series thereof, except in regard to the following
particulars, which may be different in different series:
1. The rate of dividend.
2. The price at and the terms and conditions on which shares may be redeemed.
3. The amount payable upon shares in the event of voluntary or involuntary
liquidation
4. Sinking fund provisions for the redemption or purchase of shares.
<PAGE> 3
5. The terms and conditions on which shares may be converted if the shares of
any series are issued with the privilege of conversion.
6. Voting rights, if any.
The Board of Directors may, from time to time, increase the number of
shares of any series of Preferred Stock already created by providing that any
unissued shares of Preferred Stock shall constitute part of such series, or may
decrease (but not below the number of shares thereof then outstanding) the
number of shares of any series of any Preferred Stock already created providing
that any unissued shares previously assigned to such series shall no longer
constitute a part thereof. The Board of Directors is hereby empowered to
classify or reclassify any unissued Preferred Stock by fixing or altering the
terms thereof in respect to the above mentioned particulars and by assigning
the same to an existing or newly-created series from time to time before the
issuance of such stock.
Dividends shall be payable upon the Preferred Stock or Common Stock at the
discretion of the Board of Directors of the Corporation at such time and in
such amounts as it deems advisable, subject, however, to the provisions of
applicable law."
SECOND: That thereafter, pursuant to resolutions of its Board of
Directors, an Annual Meeting of the stockholders of the Corporation was duly
called and held, upon notice in accordance with Sec.222 of the General
Corporation Law of the state of Delaware, at which meeting the necessary number
of shares required by statute were voted in favor of the foregoing amendment.
THIRD: That said amendment was duly adopted in accordance with the
provisions of Sec. 242 of the General Corporation Law of the state of Delaware.
IN WITNESS WHEREOF, Striker Industries, Inc. has caused this Certificate
of Amendment to be executed in its corporate name by its President and attested
by its Secretary, both duly authorized, on the 25th day of June, 1997.
ATTEST: STRIKER INDUSTRIES, INC.
By: /s/ Matthew D. Pond By: /s/ David A. Collins
-------------------------- ---------------------------
Matthew D. Pond, Secretary David A. Collins, President
<PAGE> 1
EXHIBIT 4.2
ATTACHMENT B
STDF CORP.
10.25% SUBORDINATED PROMISSORY NOTE
NO. _______
$XXX,XXX HOUSTON, TEXAS APRIL _, 1997
FOR VALUE RECEIVED, the undersigned, STDF Corp., a Texas corporation ("Maker"),
promises to pay to the order of ______________________ ("Holder"), the
principal amount of $XXX,XXX, 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 of 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 on the signature page to the Subscription Agreement between
Maker and Holder of even date herewith, 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 shall be 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, October, January and April 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 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 the Maker to all parties other than the Holder
of this Note and the other 10.25% Subordinated Promissory Notes of even
date herewith due December 31, 1998 issued by Maker.
Page 1
<PAGE> 2
ATTACHMENT B
5. EVENTS OF DEFAULT: The term "Default", as used in this Note, 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 Default from Holder.
6. REMEDIES OF HOLDER. Upon the occurrence of a Default under the terms of
this Note, Holder shall have the following rights:
a. ACCELERATION: Holder may, at his 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 the other rights and remedies
available at law or in 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 COMTEMPLATED 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
legal counsel, and that it knowingly and voluntarily waives 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. REQUIREMENTS FOR 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 this Note,
(iii) Holder is not a ten percent (10%) shareholder of Maker as
defined by the Internal Revenue code of 1986, as amended,
Section 871(h)(3),
(iv) a United States Internal Revenue Service Form W-8 shall be
executed by or on behalf of Holder, and
Page 2
<PAGE> 3
ATTACHMENT B
(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 8.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 to this Note to a transferee on the
books of the Maker. A Transfer Statement submitted to the Maker
by any transferee who is a United States person shall have
paragraph B thereof deleted and a 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 re-certify the information set forth in
subsection 8.a. above to Maker annually or as more frequently
requested by Maker.
e. Each subsequent Holder / transferee shall complete, execute and
deliver to Maker, a Transfer Statement, in the form attached to
this Note as Exhibit A, without change or alteration, except as
provided or permitted in Section 8.b. of this Note.
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 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 all subsequent holders and transferees of this Note, and (b)
"Maker" means "Maker" as defined in the preamble to this Note and its
successors and assigns.
10. APPLICABLE LAW. This Note 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.
Page 3
<PAGE> 4
ATTACHMENT B
THE SECURITY REPRESENTED BY THIS NOTE HAS NOT BEEN REGISTERED UNDER THE
SECURITIES ACT OF 1933, AS AMENDED, (THE "ACT"), OR ANY OTHER APPLICABLE
SECURITIES LAW. THE SECURITIES REPRESENTED BY THIS NOTE MAY BE TRANSFERRED
PURSUANT TO AN EFFECTIVE REGISTRATION STATEMENT UNDER, OR IN A TRANSACTION
EXEMPT FROM REGISTRATION UNDER, THE ACT AND IN ACCORDANCE WITH ANY OTHER
APPLICABLE SECURITIES LAWS.
STDF CORP.
A Texas Corporation
By:
------------------------------------
Name: Matthew D. Pond
Title: Chief Financial Officer
Page 4
<PAGE> 5
ATTACHMENT B
EXHIBIT A
TRANSFER STATEMENT
A. The undersigned Holder ("Holder") hereby transfers and assigns to
_______________ ("Transferee") all of Holder's right, title and interest
in and to that one certain 10.25% Subordinated Promissory Note No._____
dated April __, 1997 (the "Note"), executed by STDF Corp. ("Maker") and
payable to the order of Holder in the original principal amount of
$_________.
B. Transferee hereby certifies, warrants and covenants to and with 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 in 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
the 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 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.
C. Transferee hereby further certifies, warrants and covenants to and with
Holder and Maker that:
(i) the Transferee has been furnished with and read carefully
the Confidential Private Placement Memorandum dated April
1, 1997 (the "Memorandum"), including the Attachments
thereto, pursuant to which this Note was acquired by the
initial Holder hereof and understands the terms of the
offering of the Notes;
Page 5
<PAGE> 6
ATTACHMENT B
(ii) the Transferee affirms hereby directly to Maker as its,
his or her own representations and warranties each of the
representations and warranties of a subscriber to a Note
contained in Section 3. of the Subscription Agreement
included as an Attachment to the Memorandum; and
(iii) the Transferee is an "accredited investor" as that term is
defined in Rule 501 (a) of Regulation D promulgated under
the Act.
TRANSFEREE: HOLDER / TRANSFEROR:
By: By:
----------------------------- --------------------------------
Name: Name:
--------------------------- ------------------------------
Title: Title:
-------------------------- -----------------------------
Date: Date:
--------------------------- -----------------------------
Address of Transferee:
- --------------------------------
- --------------------------------
- --------------------------------
- --------------------------------
STDF CORP.:
By:
-----------------------------
Name:
---------------------------
Title:
--------------------------
Date:
---------------------------
Page 6
<PAGE> 1
EXHIBIT 4.3
ATTACHMENT B
STDF CORP.
10.25% SUBORDINATED PROMISSORY NOTE
NO. _______
$XXX,XXX HOUSTON, TEXAS JUNE _, 1997
FOR VALUE RECEIVED, the undersigned, STDF Corp., a Texas corporation ("Maker"),
promises to pay to the order of ______________________ ("Holder"), the
principal amount of $XXX,XXX, 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 of 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 on the signature page to the Subscription Agreement between
Maker and Holder of even date herewith, 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 shall be 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, October, January and April 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 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 the Maker to all parties other than the Holder of this
Note and the other 10.25% Subordinated Promissory Notes of even date
herewith due December 31, 1998 issued by Maker.
Page 1
<PAGE> 2
ATTACHMENT B
5. EVENTS OF DEFAULT: The term "Default", as used in this Note, 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 Default from Holder.
6. REMEDIES OF HOLDER. Upon the occurrence of a Default under the terms of
this Note, Holder shall have the following rights:
a. ACCELERATION: Holder may, at his 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 the other rights and remedies
available at law or in 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
COMTEMPLATED 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 legal counsel, and
that it knowingly and voluntarily waives 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. REQUIREMENTS FOR 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 this Note,
(iii) Holder is not a ten percent (10%) shareholder of Maker
as defined by the Internal Revenue code of 1986, as
amended, Section 871(h)(3),
(iv) a United States Internal Revenue Service Form W-8
shall be executed by or on behalf of Holder, and
Page 2
<PAGE> 3
ATTACHMENT B
(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 8.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 to this Note to a transferee on the
books of the Maker. A Transfer Statement submitted to the Maker
by any transferee who is a United States person shall have
paragraph B thereof deleted and a 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 re-certify the information set forth in
subsection 8.a. above to Maker annually or as more frequently
requested by Maker.
e. Each subsequent Holder / transferee shall complete, execute and
deliver to Maker, a Transfer Statement, in the form attached to
this Note as Exhibit A, without change or alteration, except as
provided or permitted in Section 8.b. of this Note.
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 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 all subsequent holders
and transferees of this Note, and (b) "Maker" means "Maker" as defined in
the preamble to this Note and its successors and assigns.
10. APPLICABLE LAW. This Note 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.
Page 3
<PAGE> 4
ATTACHMENT B
THE SECURITY REPRESENTED BY THIS NOTE HAS NOT BEEN REGISTERED UNDER THE
SECURITIES ACT OF 1933, AS AMENDED, (THE "ACT"), OR ANY OTHER APPLICABLE
SECURITIES LAW. THE SECURITIES REPRESENTED BY THIS NOTE MAY BE TRANSFERRED
PURSUANT TO AN EFFECTIVE REGISTRATION STATEMENT UNDER, OR IN A TRANSACTION
EXEMPT FROM REGISTRATION UNDER, THE ACT AND IN ACCORDANCE WITH ANY OTHER
APPLICABLE SECURITIES LAWS.
STDF CORP.
A Texas Corporation
By:
------------------------------------
Name: Matthew D. Pond
Title: Chief Financial Officer
Page 4
<PAGE> 5
ATTACHMENT B
EXHIBIT A
TRANSFER STATEMENT
A. The undersigned Holder ("Holder") hereby transfers and assigns to
_______________ ("Transferee") all of Holder's right, title and interest
in and to that one certain 10.25% Subordinated Promissory Note No._____
dated June _, 1997 (the "Note"), executed by STDF Corp. ("Maker") and
payable to the order of Holder in the original principal amount
of $_________.
B. Transferee hereby certifies, warrants and covenants to and with 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 in 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
the 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 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.
C. Transferee hereby further certifies, warrants and covenants to and with
Holder and Maker that:
(i) the Transferee has been furnished with and read carefully
the Confidential Private Placement Memorandum dated April
1, 1997 (the "Memorandum"), including the Attachments
thereto, pursuant to which this Note was acquired by the
initial Holder hereof and understands the terms of the
offering of the Notes;
Page 5
<PAGE> 6
ATTACHMENT B
(ii) the Transferee affirms hereby directly to Maker as its, his
or her own representations and warranties each of the
representations and warranties of a subscriber to a Note
contained in Section 3. of the Subscription Agreement
included as an Attachment to the Memorandum ; and
(iii) the Transferee is an "accredited investor" as that term is
defined in Rule 501 (a) of Regulation D promulgated under
the Act.
TRANSFEREE: HOLDER / TRANSFEROR:
By: By:
----------------------------- --------------------------------
Name: Name:
--------------------------- ------------------------------
Title: Title:
-------------------------- -----------------------------
Date: Date:
--------------------------- -----------------------------
Address of Transferee:
- --------------------------------
- --------------------------------
- --------------------------------
- --------------------------------
STDF CORP.:
By:
-----------------------------
Name:
---------------------------
Title:
--------------------------
Date:
---------------------------
Page 6
<PAGE> 1
EXHIBIT 10.1
FORBEARANCE AGREEMENT
THIS AGREEMENT made the 11th day of August, 1997.
BETWEEN:
LAURENTIAN BANK OF CANADA
HEREINAFTER CALLED THE SECURED PARTY OR THE BANK
-AND-
STRIKER PAPER CANADA, INC.
HEREINAFTER CALLED THE CUSTOMER
WHEREAS the Customer is indebted to the Secured Party in the amounts
acknowledged below;
AND WHEREAS the Secured Party has demanded payment and delivered a Notice of
Intention pursuant to the Bankruptcy and Insolvency Act;
AND WHEREAS the Secured Party has agreed with the Customer to forbear in the
enforcement of its demands and in the realization of its security in accordance
with the conditions & understandings herein contained;
NOW THEREFORE in consideration of the mutual acknowledgements covenants and
agreements herein contained, the parties do agree as follows;
THE DEBT
1. The Customer acknowledges and agrees that it owed the sum of
$1,722.646.48, as of July 15, 1997, made up as follows;
(I) STRIKER PAPER CANADA, INC.
TERM LOAN 1:
Balance owing as at July 15, 1997 is:
<PAGE> 2
-2 -
Principal: $400,000.04
Interest to July 15, 1997 $ 8,406.33
-----------
Total Owing ..............$408,406.37
===========
(per diem interest rate $ )
<PAGE> 3
-3-
(ii) STRIKER PAPER CANADA, INC.
TERM LOAN 2:
Balance owing as at July 15, 1997 IS:
Principal: $799,999.96
Interest to July 15, 1997 $ 12,149.12
-----------
Total owing ..................$812,149.08
-----------
(per diem interest rate $116.58)
(iii) Striker Canada, Inc.
LINE OF CREDIT:
Balance owing as at July 15, 1997 is:
Principal: $500,606.48
Interest to July 15, 1997 $ 1,484.55
-----------
Total Owing...................$ 50,091.03
-----------
(per diem INTEREST RATE $100.32)
2. The Customer acknowledges that costs and interest continue to accrue at
the respective per diem rates and interest rates indicated for each of
the said Loans, and in accordance with the Customers loan and banking
arrangements with the Secured Party.
3. The Customer agrees to pay the Secured Party's legal fees and
disbursements associated with this Forbearance Agreement and all matters
arising therefrom including any default hereunder, on a solicitor and
client basis. The Customer also agrees to pay the Secured Party's
consulting fees to date and in the future. All of these shall be added
to and become part of the Debt, and shall be secured by the Security.
4. All of the liabilities, obligations and indebtedness referred to herein
or created by this agreement, and any obligations arising after the date
of this agreement, (including but not limited to interest), are
sometimes collectively referred to herein as the "Debt" or
"Indebtedness".
<PAGE> 4
-4-
THE SECURITY
5. The Secured Party's Security, sometimes collectively referred to herein
as the "Security" includes, without limitation;
i. General Security Agreement given by Striker Paper Canada,
Inc., in favour of Laurentian Bank of Canada, being duly registered
under the provisions of the Personal Property Security Act on June 21,
1995 as number 950621 0854 1295 0294, which was assigned to Laurentian
Bank of Canada on April 11, 1996, by Financing Change Statement
registered under the provisions of the Personal Property Security Act as
number 960411 1536 0043 1439.
ii. Specific Security Agreement given by Striker Paper Canada,
Inc., in favour of Laurentian Bank of Canada, being duly registered
under the provisions of the Personal Property Security Act on June 21,
1995 as number 950621 0852 1295 0293, which was assigned to Laurentian
Bank of Canada on April 11, 1996, by Financing Change Statement
registered under the provisions of the Personal Property Security Act
as number 960411 1536 0043 1438.
iii. Debenture given by Striker Paper Canada, Inc., in favour of
Laurentian Bank of Canada, being duly registered in the Land Registry
Office for the Registry Division of Niagara South (No. 59) as
instrument number 691946 and registered under the provisions of the
Personal Property Security Act on June 21, 1995 as number 95O621 0857
1295 0295, which was assigned to Laurentian Bank of Canada on April
11, 1996, by Financing Change Statement registered under the
provisions of the Personal Property Security Act as number 960411 1536
0043 1440.
iv. Guarantee from Striker industries, Inc., dated July 13, 1995.
v. Hypothecation of Specific Securities from Striker industries,
Inc., dated July 13, 1995.
vi. Hypothecation OF Specific Securities from Striker Paper Canada,
Inc., dated July 13, 1995.
vii. Guarantee from Ontario Development Corporation, dated August 17,
1995.
<PAGE> 5
-5-
viii. Any other security for the Debt now held or hereafter taken by
the Secured Party.
STATUS, INCLUDING INCIDENCES OF DEFAULT
6. Demand for payment of the Loans from the Customer were made by the
Secured Party in writing dated on July 15, 1997, the receipt of which is
hereby acknowledged by the Customer.
7 . Notice of Intention to Enforce Security pursuant to s. 244(1) of the
Bankruptcy and Insolvency Act dated July 25, 1997, was sent by the
Secured Party, the receipt of which is hereby acknowledged by the
Customer.
8. All of the Indebtedness referred to in the demands remain outstanding
and unsatisfied.
ACKNOWLEDGEMENTS AND AGREEMENTS
9. The Customer acknowledges and agrees, and THE Bank concurs with the
Customer;
(a) that all of the Security and an Offer to Finance, dated May
16, 1995 (accepted by the Company on May 23, 1995) is valid and
subsisting and binding in accordance with the terms contained
therein;
(b) that the within recitals are true and correct;
10. The Customer agrees to do the following, (on an ongoing basis where
appropriate to the context);
(a) to pay the sum of $124,000.00 by August 11, 1997, to be
applied on account of arrears of payments on the Loans,
(b) to pay the sum of $176,000.00 by August 29, 1997 as a
prepayment of the regular monthly payments, up to the payments
due on February 1, 1998.
(c) to co-operate fully with anyone engaged by the Secured Party
to inspect its assets and property and/or to provide
valuations and/or appraisals of the properties;
<PAGE> 6
-6-
(d) not to sell, mortgage or otherwise dispose of any substantial
asset by any single transaction or series of without notifying
and obtaining approval from the Secured Party.
(e) to make all of the payments to the City Of Thorold on account
of property taxes, in accordance with a Memorandum of
Agreement dated May 16, 1997, and to forthwith provide
evidence to the Secured Party after each of the payments.
11. Default by the Customer in this agreement is defined as;
(a) any breach by the Customer of any Of the terms of this
agreement, or
(b) breach of the terms, or default, of any of the Security, or
(c) any act of bankruptcy, within the meaning of the Bankruptcy
and Insolvency Act, or
(d) entry of a final judgment against the Customer by any other
creditor or claimant for an amount exceeding $25,000.00, or a
number of such judgments exceeding in the aggregate
$100,000.00 (provided also that the Customer covenant and
agree to notify the Bank forthwith should they be served with
any legal process indicating commencement of proceedings), or
(e) the commencement of any sale proceedings or realizations on
account of the Customer default in any mortgage or security
affecting the lands or assets covered by the Security.
12. The Customer warrants, and the Bank concurs with Customer, that it is
aware of only the following breaches of the security and its loan and
banking agreements with the Bank, save and except as follows;
(a) non-payment of scheduled loan installments,
(b) non receipt of financial statements
(c) non-payment OF taxes,
<PAGE> 7
-7-
(d) failing to maintain Working Capital, Current Ratio, Tangible
Net Worth, Interest Coverage and Cash Flow as required by the
Offer to Finance from the Bank dated May 16, 1995.
13. The Secured Party agrees to forbear until September 1, 2000 from
taking any further action to enforce its demands or the Security, on
condition that the Customer;
(a) resumes regular monthly payments on the loan accounts from and
after March 1, 1998.
(b) is not in default as defined in this Agreement, the Security
or the Offer to Finance, due to an event occurring subsequent
to the date hereof,
(c) provides current unaudited monthly financial statements by
September 15, 1997 and thereafter continues to provide current
financial statements and financial information as required by
its present agreements and arrangements with the Bank or as
may be required by the Bank form time to time,
(d) honours all of the other conditions and requirements of its
arrangements with the Bank, to be performed subsequent to the
date hereof, excepting only those which have been specifically
waived by this agreement and excepting the breaches mentioned
in paragraph #12(d), with respect to which the Bank by this
agreement waives strict compliance.
14. The Customer agrees that if it is default, then the Secured Party may
immediately proceed to enforce the Security and exercise any other
remedies the Secured Party may have by agreement or in law.
<PAGE> 8
-8-
15. The Customer further covenant and agree that:
(a) upon written request from the Secured Party, to provide all
such documentation and information as may be reasonably
necessary to permit the secured Party to evaluate the
Customers position or to enforce this Forbearance Agreement
and the Security;
(b) to execute all such further documentation as may be necessary
to evidence and give effect to the terms of this Forbearance
Agreement.
16. The customer acknowledges and agrees that this Forbearance Agreement
and the terms and provisions contained herein, shall in no way affect
any of the Customer's continuing obligations to the Secured Party
which may have arisen from any other loans not specifically referred
to herein.
17. This Agreement shall enure to the benefit of and be binding upon the
heirs, executors, administrators, committees, curators, successors,
assigns, receivers, trustees in bankruptcy, liquidators and any other
legal representatives of the parties hereto. Any reference to a
person herein shall include their heirs, executors and administrators.
18. The parties hereto agree that the execution and delivery of the within
Agreement and delivery of all notices and communications hereunder,
may be made by facsimile machine, addressed to the parties hereto at
the address specified herein.
19. Words importing the singular number only include the plural and vice
versa and words importing gender shall include all genders and words
importing person including individuals, partnerships, corporations,
trusts, unincorporated associations, joint ventures, government
agencies and other entities.
20. If any provision of this Agreement or portion thereof, or the
application thereof to any person or circumstances shall, to any
extent, be invalid or unenforceable, the remainder of this Agreement
<PAGE> 9
-9-
or the application of such provision or portion thereof to any other
persons or circumstances shall not be affected thereby and each
provision OF this Agreement shall be valid and enforceable to the
fullest extent permitted by law.
21. This Forbearance Agreement constitutes the entire agreement between
the parties relating to the Bank's forbearance and contains all of the
representations, undertakings and agreements of the respective
parties. There are no other verbal representations, undertakings or
agreements regarding the forbearance except as contained herein. No
modification or alteration of the Agreement shall be binding unless
executed in writing by the parties hereto.
22. Ontario Development Corporation has joined in this agreement to
evidence its consent to the arrangements and to acknowledge that this
Forbearance Agreement will not affect its guarantee of the Customer's
Debt to the Bank, nor otherwise affect its commitments to any of the
Parties.
23. This Agreement shall be governed by and construed in accordance with
the laws of the Province of Ontario.
IN WITNESS WHEREOF the parties hereto have duly executed and delivered
this Agreement on the day and year first above written.
SIGNED, SEALED AND DELIVERED ) Striker Canada, Inc.
)
in the presence of ) per:_________________________
)
)
) Striker Industries, Inc.
)
)
) per:_________________________
)
) I HAVE AUTHORITY TO BIND THE CORPORATION.
)
) Laurentian Bank of Canada
)
) Per:__________________________
<PAGE> 10
-10-
)
) Per:__________________________
)
)
)
) Ontario Development Corporation
)
)
)
) Per:___________________________
<TABLE> <S> <C>
<ARTICLE> 5
<CIK> 0000352944
<NAME> STRIKER INDUSTRIES, INC.
<S> <C>
<PERIOD-TYPE> 3-MOS
<FISCAL-YEAR-END> DEC-31-1997
<PERIOD-END> JUN-30-1997
<CASH> 370,581
<SECURITIES> 0
<RECEIVABLES> 1,288,094
<ALLOWANCES> (489,671)
<INVENTORY> 247,424
<CURRENT-ASSETS> 1,644,404
<PP&E> 18,415,904
<DEPRECIATION> 2,768,295
<TOTAL-ASSETS> 18,541,575
<CURRENT-LIABILITIES> 7,308,341
<BONDS> 0
0
0
<COMMON> 2,184,913
<OTHER-SE> 64,820
<TOTAL-LIABILITY-AND-EQUITY> 18,541,575
<SALES> 725,566
<TOTAL-REVENUES> 725,566
<CGS> 986,857
<TOTAL-COSTS> 1,806,822
<OTHER-EXPENSES> 0
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 457,753
<INCOME-PRETAX> (1,539,009)
<INCOME-TAX> 0
<INCOME-CONTINUING> 0
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> (1,539,009)
<EPS-PRIMARY> (0.32)
<EPS-DILUTED> (0.32)
</TABLE>
