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U.S. SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, DC 20549
FORM 10-K
[X] ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE
ACT OF 1934 [Fee Required] For the fiscal year ended December 31, 1997
[ ] TRANSITION REPORT UNDER SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT
OF 1934 [No Fee Required] For the transition period from ________________
to ________________
Commission file number: 1-0096
STRIKER INDUSTRIES, INC.
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(Exact Name of Registrant as Specified in Its Charter)
Delaware 76-0327658
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(State or Other Jurisdiction of (I.R.S. Employer
Incorporation or Organization) Identification No.)
One Riverway, Suite 2450, Houston, Texas 77056
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(Address of Principal Executive Offices) (Zip Code)
Issuer's telephone number: (713) 622-4092
Securities registered pursuant to Section 12(b) of the Exchange Act:
Name of Each Exchange
Title of Each Class on Which Registered
Common Stock Par Value $ .50 per share Boston Stock Exchange
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Securities registered pursuant to Section 12(g) of the Exchange Act:
Common Stock, Par Value $.50 per share
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(Title of Class)
Indicate by check mark whether the registrant (1) filed all reports required to
be filed by Section 13 or 15(d) of the Exchange Act during the past 12 months
(or for such shorter period that the registrant was required to file such
reports), and (2) has been subject to such filing requirements for the past 90
days. YES X NO
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Indicate by check mark if disclosure of delinquent filers in response to Item
405 of Regulation S-K is not contained herein, and will not be contained, to the
best of registrant's knowledge, in definitive proxy or information statements
incorporated by reference in Part III of this Form 10-K or any amendment to this
Form 10-K. [X]
As of March 31, 1998, the aggregate market value of the voting stock held by
non-affiliates of the registrant (based upon the average of the bid and asked
prices [$13.75] of such stock on said date) was approximately $ 44,153,423. As
of April 11, 1998, the number of shares outstanding of the registrant's only
class of Common Stock was 4,370,922.
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PART I
Item 1. DESCRIPTION OF BUSINESS
GENERAL
Striker Industries, Inc. (hereinafter referred to as Striker or the Company), a
Delaware corporation, is in the business of manufacturing recyclables and pulp
products into a paper-based felt and asphalt saturated felt paper for use in the
roofing industry.
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Management's objective is to expand the Company's current business through
internal growth and acquisitions that provide strategic opportunities to broaden
its product offerings, increase market share and provide profits. Management
believes the roofing industry is attractive for the following reasons:
(a) Size of industry (total industry sales were approximately $18 billion in
1997).
(b) Stable low-tech nature of products.
(c) Consistent industry growth.
(d) Historically non-cyclical demand for products.
(e) Low product liability exposure.
Management believes that asphalt-roofing products are the best low-cost products
to protect a roof system. Additionally, management believes that asphalt roofs
are installed on approximately 80% of the single-family residences in North
America.
PRODUCTS AND COMPETITION
The Company's two manufacturing facilities are currently idled. A shortage of
working capital due to accelerated debt payments resulting from the failure of
the GS Roofing merger transaction forced the Company to idle both plants (see
Note 9 to Notes To Consolidated Financial Statements). Management is committed
to reactivating both plants. It is the goal of Management to have both plants
re-started and operating by year-end 1998.
When operating, the Company is capable of manufacturing two products; dry felt
paper and asphalt-saturated felt for use in the roofing industry. The dry felt
manufactured by the Company is a base homogeneous sheet of porous, soft paper
made from used, recycled old corrugated containers and mixed paper and wood
flour. The Company does not believe that either it or any other roofing felt
manufacturer employs any unique or proprietary process in its dry felt
paper-making manufacturing, especially considering the low grade of paper being
manufactured. The basic operations of the business can generally be divided into
(i) stock preparation, (ii) machine processing of paper, and (iii) finishing
operations. The mixture of pulps, the fibrous materials from which paper is
formed, is received by the Company in the form of old corrugated containers and
various types and grades of sheet paper which come directly from waste
collectors and recyclers. Generally, waste paper is trucked in to the Company's
manufacturing facilities at the Stephens, Arkansas plant and at the Thorold,
Ontario, Canada plant (the Felt Mills, more fully described in Item 2 below) in
bales. The Company's paper making processes utilize several types of mechanical
pulpers and refiners that produce a consistent finish or stock. The stock is
further refined and formed into a sheet which then passes through a drying
process and on to the finishing stage. The Company's pulp-content raw materials
are either recycled from other users or are the byproduct of another industry's
primary product, as is the case with the asphalt the Company would use in its
dry felt paper saturation process (if the Company were saturating). Adequate
supplies of these raw materials depend upon continued recycling efforts in North
America and the health and stability of certain members of the forest products,
lumber and oil and gas refining industries. Raw materials pricing has fluctuated
in recent years as the result of international demand for recycled paper and due
to new cardboard plants coming on line in North America. The Company believes
that the raw materials for its operations may be obtained from any number of
vendors of recycled paper or wood pulp or any number of refineries in its mills'
region and that any of its current principal suppliers could be replaced at any
time to assure the Company's continuing ability to meet pulp-content and asphalt
raw material demands.
Management believes that there are twenty-two other companies in North America
engaged in the production of dry felt. Additionally, Management believes that
there are six other dry felt paper manufacturers who, because they have
saturating operations, sell only their excess production of dry felt as an end
product. The term saturating in the context of the business of the Company means
the process of impregnating felt paper, which is a paper with an open porous
formation, with waterproofing or other preservative liquids, such as asphalt and
tar. Five out of six of these other manufacturers who sell dry felt have greater
manufacturing capacity for manufacturing asphalt saturated felt than the
Company. Dry felt paper is manufactured by the Company in various weights
depending upon production requirements, customer demand and the ability of the
Felt Mills to produce it. The Felt Mills of the Company function best producing
varying grades of heavyweight felt paper, primarily 38lb. weight paper.
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The Company has significantly renovated and upgraded the machinery and related
equipment and plant facilities of the Felt Mills. The Company began constructing
a saturating line to produce asphalt-saturated felt at its Stephens, Arkansas
plant in the fourth quarter of 1992 and completed a second saturating line in
April 1994. Upon reactivating both Mills, the Company may further expand its
business into the manufacture of other rolled roofing products, including
mineral surface rolled roofing material. In its expansion plans, the Company
will be relying upon the continued use of saturated felt products, especially
tar paper as an underlayment to the other primary roofing materials.
During 1994, certain traditional sources of raw materials used by Striker Paper
were unable to meet Striker Paper's requirements at satisfactory price levels.
Accordingly, Striker Paper experienced a dramatic increase in the cost of its
raw materials. In an effort to mitigate its exposure to rising raw material
costs, the Company created a new subsidiary, Striker Services Corporation
(Striker Services). Striker Services was created to obtain one raw material
component, old corrugated containers (OCC), in sufficient quantities at or below
market prices to meet Striker Paper's production requirements. Effective April
1, 1996, the Company sold Striker Services to a third party (see Note 15 to
Notes To Consolidated Financial Statements)
The Company has approximately fifteen competitors in the U.S. market that
manufacture felt paper and saturated felt. Many of these competitors are larger
in size and have access to greater financial resources than the Company and
there can be no assurances that the Company will be able to successfully compete
once the Company resumes operations. Many factors influence the Company's
competitive position with these firms including prices, costs, product quality
and services.
In order to concentrate on maximizing sales of dry felt paper; the Company
temporarily suspended manufacturing asphalt-saturated felt during July 1994. As
part of its effort to achieve profitable operations, the Company anticipates
that it will resume manufacturing asphalt-saturated felt in the future upon
restarting the Stephens Mill. Consequently, the Company has identified projects
necessary for improving the existing saturated paper lines to accommodate the
production of a value-added product, "Striker Lightning Fast Felt", a patented
saturated felt product for which the Company is the sole licensee. As part of
its reactivation strategy, the Company anticipates completing required projects
in conjunction with other improvements to the Stephens Mill so that "Striker
Lightning Fast Felt" may be produced.
The Company has approximately twenty-four competitors in the asphalt-saturated
roofing products market, approximately one third of which are larger than the
Company. These larger competitors typically produce asphalt-saturated felt as a
complement to their primary roofing product, shingles. While it was operating,
the Company had to compete with its felt paper competitors, most of which are
larger in size and have greater financial resources. Management believes it can
become competitive by being a low cost producer or by private labeling its
production. To achieve its strategic goals, the Company will be required to
significantly lower costs, capture a significant market share and develop
favorable access to the primary components necessary for production of
asphalt-saturated felt. Management of the Company believes it can achieve and
maintain lower costs by increasing labor productivity through a combination of
training, experience and improvement in technology of its paper-making and
saturating equipment, including design or redesign of its plants' facilities.
DEPENDENCE ON CUSTOMER BASE
The Company had less than twenty potential customers for its dry felt paper
product, but has a much larger potential customer base for asphalt-saturated
felt product. The Company is subject to demand fluctuations resulting from the
level of residential construction, both new (approximately 20 percent of the
North American roofing market) and reroofing and repairs (approximately 80
percent of the North American roofing market), which is impacted by various
economic factors, including long-term interest rates, available credit for home
improvements, life expectancy of existing roofs and customer confidence.
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In order to mitigate exposure to demand fluctuations, the Company entered into
sales contracts (the Sales Contracts) with three of its major customers during
1995. Under terms of the Sales Contracts, the customers were required to
purchase at least 1,900 tons of dry felt each month, in the aggregate, for a
period of eighteen months at prices based in part upon the mix of raw materials
used in the manufacture of the dry felt and the quoted market price of the raw
materials. During the fourth quarter of 1996, the Sales Contracts terminated.
One of the three contract customers (the Contract Customer) renewed its contract
for an additional period of twelve months with no change in terms. Due to the
suspension of operations at the Stephens Mill, the Company was unable to supply
the contract customer with stipulated amounts of dry felt. The Contract Customer
was able obtain dry felt at market prices without any impairment to its
operations. Therefore, Management does not anticipate any action against the
Company for failure to perform under terms of the contract. Management believes
that there is a sufficient market for its product and that the Company will be
able to sell its total production to existing and potential new customers upon a
resumption of operations.
During the year ended December 31, 1997, the Contract Customer accounted for
approximately 26 percent of revenues. There were no outstanding accounts
receivables at December 31, 1997. During the year ended December 31, 1996, three
customers accounted for 36 percent, 25 percent and 13 percent of revenues. These
same customers accounted for 12 percent, 7 percent and 25 percent of accounts
receivable, respectively, at December 31, 1996.
REGULATORY MATTERS
The Company's operations in the United States and Canada are subject to
extensive regulation by various federal, state/provincial and local
environmental control laws and regulations. These laws impose effluent emission
limitations, waste disposal and other requirements upon the operation of the
Felt Mills in Stephens, Arkansas (Stephens Mill) and Thorold, Canada (Thorold
Mill) and require the Company to obtain, and operate in compliance with the
conditions of, permits and similar authorizations from the appropriate
governmental authorities. The Company has obtained, has applications pending or
is making application for, such permits and authorizations. The Company has
agreed to a Consent Administrative Order (the Order) applicable to its Stephens
Mill, issued pursuant to the authority of the Arkansas Water and Air Pollution
Control Act (Act 472 of 1949, as amended; Ark. Code Ann. P. P. 84-100 et seq.)
and the regulations issued thereunder. This Order requires the Company to file
monthly water discharge monitoring reports, whether or not any water is actually
being discharged. Upon resuming operations, the Company will employ an
environmental engineering firm to test the Stephens Mill's water discharges, if
any, and to file all environmental regulatory reports required of it in a timely
and accurate manner.
Effective July 26, 1995, the Company entered into an agreement with the Sierra
Club (Sierra) and the Arkansas Department of Pollution Control and Ecology
(ADPCE) to settle claims brought by those parties concerning non-toxic
discharges in excess of state water permits for the Stephens Mill. The Company
paid to ADPCE a civil penalty in the amount of $15,000 for excess discharges
beyond permit allowances into Smackover Creek, near the Stephens Mill. In
addition, the Company agreed with ADPCE and Sierra to contribute $55,000 for
environmental projects in the State of Arkansas. The Company has worked with
environmental engineering companies to put in place the plans and equipment
necessary to improve and significantly reduce the non-toxic discharges. The
Company received preliminary approval from the ADPCE and the state health
department to begin construction of a closed loop system. As of March 27, 1996,
the closed loop system's construction was completed. On June 27, 1996, an
inspector from the ADPCE performed an inspection in accordance with the
provisions of the federal Clean Water Act, the Water and Air Pollution Control
Act, and the regulations promulgated thereunder. The inspection revealed that
the Company was in compliance with the terms of its permit. The $15,000 civil
penalty and the $55,000 contribution for environmental projects have been
reflected as other expense in the accompanying consolidated statements of
operations for the year ended December 31, 1995. Management believes that the
Company has remained in compliance of its water discharge permit during 1997.
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In conjunction with the work performed on the closed water loop system, the
Company removed dirt and sludge from the bottom of the filtering ponds at the
Stephens Mill. The dirt and sludge removed from the filtering ponds were placed
on an isolated area of land at the mill. The Company notified the ADPCE and
requested approval for clean-up. The Company received approval from the ADPCE to
re-cover and cap the sludge, without requirement for any digging up or removal
of any thereof. The Company began work on capping the sludge August 2, 1996.
This project was completed on May 15, 1997. The work performed brought the
Company in compliance with provisions of the ADPCE landfill permit.
The Company does not anticipate that compliance with the federal,
state/provincial and local environmental control laws and regulations to which
it is subject will place the Company at a competitive disadvantage since its
competition is subject to the same laws and regulations to a substantially
similar degree. The Company has invested time and approximately $227,000 to
modify facilities and assure compliance with applicable environmental quality
laws through December 31, 1997. Amounts to be spent for environmental law
compliance in future years will depend on the laws and regulations then in
effect, including any new laws enacted and other changes in legal requirements
and in environmental concerns and technological advances. As of December 31,
1997, the Company believes it is in substantial compliance with all
environmental regulatory reporting, operations and permitting requirements
applicable to it.
EMPLOYEES
As of the date of this annual report, the Company has approximately 14
employees, all of whom are full-time employees. When both Mills are reactivated,
the Company will have approximately 120 full-time employees.
Item 2. DESCRIPTION OF PROPERTY
The administrative and finance offices of the Company are located in Houston,
Texas in approximately 5,038 square feet of leased office space at One Riverway,
Suite 2450, Houston, Texas 77056.
The Company's property in the United States consists primarily of approximately
40 acres of land in Ouachita County, Arkansas, just outside the city limits of
Stephens, Arkansas, all improvements thereon and that portion of the personal
property thereon which was acquired in February 1991 by Holdings, which property
and improvements had previously been used as a manufacturing facility of felt, a
truck repair and scales facility and a machine shop (collectively herein
referred to as the Stephens Mill). The Stephens Mill's manufacturing facility is
housed in a main building, approximately 800 feet in length, 100 feet in width
and approximately two stories in height, located on the 40 acre tract of land.
Boilers used in operation of the Stephens Mill are housed in an approximate 500
square foot control room located immediately adjacent to the main building. A
spur of Southern Pacific Railroad serves the Stephens Mill, and trucking docks
are located in the front of the main building. Two warehouse buildings are also
located on the Stephens Mill property which are used for storage of raw
materials and finished goods. Four water-recirculating ponds take up
approximately 10 acres of the Stephens Mill's 40-acre site. These ponds furnish
an essential source of continuous recirculating water required in the felt
producing process of the Company's business.
The Stephens Mill's production equipment and machinery, including a hydrapulper,
presses, screening, filtration and rolling equipment are located in the main
manufacturing building. Some of the production machinery and equipment is 30
years or more old and has undergone significant improvements and modernization
since the Company bought the Stephens Mill in 1991. The Stephens Mill facility
itself is approximately 35 years old. In order to be able to compete in the
market, the Company must gain efficiencies that will allow the Company to
achieve profitability. In order to gain necessary efficiencies, the Company must
make capital improvements and general repairs to the machinery, equipment and
its buildings as part of reactivating the Stephens Mill.
On or about February 25, 1997, the Company's Stephens Mill experienced a severe
storm in connection with tornado activity in the area. 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 of the main buildings. The
Company was not utilizing the area damaged at the time. During April 1997, the
Company settled the damage claim for $75,000.
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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, was 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 was destroyed in the fire. In June 1997, the
Company settled its fire damage claim with the insurance company for
approximately $122,000.
The Company has no formal plans to improve the 40-acre tract of land that is
part of the Stephens Mill property. The Company holds this land, however, for
future expansion of the Stephens Mill manufacturing facility as and when needed.
All of the Company's real property, buildings and improvements constituting a
part of, or located on, its Stephens Mill site and its administrative offices in
Houston, including, without limitation, all machinery, equipment, furniture,
furnishings and fixtures and related personal property located thereon, are
subject to the first mortgage, liens and encumbrances created in favor of Finova
Capital Corporation under the terms and provisions of a Mortgage and Security
Agreement dated April 25, 1995 securing indebtedness of the Company and its
subsidiaries to Finova Capital Corporation. The assets mentioned above are now
also subject to a second lien in favor of BlueStone Capital Partners LP
(BlueStone), as agent for holders of the Company's Original Issue Discount Notes
(the "OID Notes").
On May 23, 1997, the Company temporarily suspended operations at its Stephens
Mill. The Stephens Mill had been experiencing a significant level of unscheduled
downtime and required increased repairs and maintenance to operate.
Additionally, the Company had experienced a shortage of working capital during
the early part of 1997 as a result of unanticipated required repayment
obligations of the Company directly caused by and resulting from the wrongful
repudiation of the Transaction (see Item 3 below).
Management is reviewing capital improvement projects that would allow the
Stephens Mill to operate efficiently and profitably upon reactivation. 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
Management is diligently pursuing the raising of 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.
The felt mill plant facility owned by the Company's Canadian subsidiary, Striker
Paper Canada, Inc., in Thorold, Ontario Province, Canada consists of
approximately 5 acres of land located at 100 Ormond Street South, Thorold,
Ontario, Canada, including four multi-purpose buildings and all of the machinery
necessary to produce dry felt. The plant machinery and equipment includes wood
unloading and storage systems, dust collector and stock preparation systems,
felt machines, steam and heat system (including boilers), warehouse loading
docks, oil storage tanks and testing and pollution equipment (collectively
hereinafter referred to as the Thorold Mill). The Thorold Mill's real property
and all improvements thereon, including buildings, fixtures, furniture,
machinery, equipment, accessories and other goods and chattels are owned by
Striker Paper Canada, Inc. are likewise mortgaged in favor of, and to secure
indebtedness owing by Striker Paper Canada, Inc. to, Laurentian Bank of Canada
(formerly North American Trust Company), its successors and assignees.
On January 16, 1997, the Company experienced a fire at its Thorold Mill. An
electrical short in the main building that houses the paper line caused the
fire. The fire caused extensive damage to a part of the building and the sheet
forming section of the paper line. The final settlement claim indicated total
damage to be approximately $1,500,000 US. The insurance coverage on the plant
and its contents 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 repairs and maintenance that are required prior to the
start-up of the Thorold Mill. Accordingly, the Thorold Mill has remained idle
from the date of the fire to the present. During December 1997 and subsequent to
year-end, repair and maintenance work has been performed along with capital
improvement projects. The Company has focused on long lead-time projects in
anticipation of the closing of a new Canadian financing agreement. As of the
date of this report, the Company anticipates having all the repairs and capital
projects completed and be able to resume full operations on or before May 31,
1998. The Company estimates that the working capital and capital project costs
required for reactivation of the Thorold Mill will be approximately $700,000
Canadian. The Company signed a financing agreement on
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March 20, 1998 aggregating $2,300,000 Canadian to provide the necessary working
capital and capital project financing (see Note 19 to Notes To Consolidated
Financial Statements).
In addition to machinery, equipment and other personal property owned by the
Company and its subsidiaries, the corporations lease additional machinery,
equipment and computer and office equipment located either at the Stephens Mill,
the Thorold Mill, or at the administrative offices of the Company in Houston,
Texas. The majority of the leases from third parties are classified for
accounting purposes as non-cancelable long-term capital leases, with an
aggregate capital lease obligation at December 31, 1997, of $18,569. The Company
also leases certain machinery and equipment from third parties under
non-cancelable long-term operating leases expiring from 1998 through 1999, under
the terms of which total rental expense for the year ended December 31, 1997,
was $143,652.
Management of the company believes that its Stephens Mill property, its Thorold
Mill and related physical properties, as well as personal property and equipment
located at its administrative offices in Houston, Texas, are adequately covered
by insurance.
Item 3. LEGAL PROCEEDINGS
On April 25, 1996, the Company signed an agreement to combine in a merger
transaction (the Transaction) with the indirect parent corporation of one of the
largest privately owned manufacturers of asphalt shingles and built up roofing
(GS Roofing). The closing of the transaction had been extended in writing by
mutual agreement of the parties to April 21, 1997, provided that (i) a
Registration Statement required to raise the equity component of the financing
required for closing was filed with the Securities and Exchange Commission
(which document was filed with the Securities and Exchange Commission December
26, 1996) and (ii) the merger became effective on or before April 21, 1997 or
within incremental five business day periods of time thereafter so long as bona
fide marketing efforts were being conducted by the underwriters with a view to
such Registration Statement becoming effective on or before April 30, 1997.
On or about February 4, 1997, via facsimile transmission the President of GS
Roofing sent a notice to the Company of 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 a suit styled Striker Industries, Inc., David A.
Collins and Matthew D. Pond vs. Newgen Holdings, Inc., Gen Holdings, Inc., GS
Roofing Products Company, Inc., Donald F. Smith and Maredon-I, Ltd. pending at
the date of this Report in the 133rd Judicial District Court of Harris County,
Texas 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 still in the preliminary stages. Pre-trial discovery has commenced
and depositions have begun. The Company is unable at present to express any
opinion regarding the probable outcome of this litigation.
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In connection with the Transaction, the Company received bridge financing from
the underwriter, BlueStone. As is customary with bridge financing, both the
Company and the OID Note 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 GS Roofing, the
Company received a demand notice from BlueStone accelerating the due date of the
OID Notes to April 3, 1997 from April 25, 1997. During May 1997, $1,978,000 was
repaid and the remaining balance of $332,000, by agreement in principle was to
be paid by June 30, 1997. On October 28, 1997, the Company reached an agreement
with BlueStone to repay the outstanding principal balance plus accrued interest
of $30,876 and BlueStone's out of pocket legal expenses relating to the
Transaction of $44,400. The agreement calls for the Company to make eight
scheduled monthly payments beginning in December 1997. As of the date of this
report, the Company has made all payments required by the agreement. The
remaining balance of $380,276 of the OID Notes plus accrued expenses and out of
pocket legal expenses has been classified as current debt at December 31, 1997.
The OID Notes indebtedness is guaranteed by the Company's U.S. subsidiaries and
is 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. It is also secured by a lien and security interest on the assets of the
Company's Canadian subsidiary, either junior in time or subordinated to the
subsidiary's senior lenders in Canada.
Throughout calendar year 1997, the Company and its subsidiaries have worked
diligently to resolve, compromise, settle and/or pay various vendor claims and
legal proceedings filed against them arising in the ordinary course of their
business. At December 31, 1997, five lawsuits seeking recovery of significant
sums were pending, principally against Striker Paper Corporation and Striker
Paper Canada, Inc., the US and Canadian subsidiaries that operate the Stephens
Mill and the Thorold Mill, all of which suits were settled, or are in
substantial discount payment settlement negotiations entered into, subsequent to
year-end and prior to the date of this report. All but one of these proceedings
were settled by execution by the parties of written Settlement Agreements
providing time payment plans with respect to the claims asserted.
In addition, following extensive negotiations and the inability of the Company's
Canadian subsidiary to reach agreement on an employment termination package with
the former manager of the Thorold Mill, suit was filed on or about April 7, 1997
in Ontario Province, Canada by the former Mill manager against Striker paper
Canada, Inc. claiming damages of $142,000 Canadian for alleged wrongful
dismissal and $50,000 Canadian for alleged mental distress. Striker Paper Canada
filed a Statement of Defense and Counterclaim on September 30, 1997. The
Counterclaim seeks damages in the amount of $150,000 Canadian from the plaintiff
for his fraudulent or negligent misrepresentation in failing to disclose
information within his knowledge to Striker Paper Canada during the negotiations
for Striker Paper Canada's purchase of the Thorold Mill. No further action has
been taken in this proceeding as of the date of this report.
Item 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
No matter was submitted during the fourth quarter of fiscal year 1997 to a vote
of security holders of the Company, through solicitation of proxies or
otherwise.
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PART II
Item 5. MARKET FOR REGISTRANT'S COMMON EQUITY AND RELATED STOCKHOLDER MATTERS
Prior to April 1994, the public market for shares of Common Stock of the Company
had been inactive since the beginning of the third quarter of 1991. However,
trading in shares of the Company's Common Stock commenced again in, and
continued to June 9, 1994 in the over-the-counter electronic bulletin board
market. On April 17, 1995, the Company's Common Stock was admitted to trading on
the NASDAQ SmallCap market. The high and low trade prices for the Company's
Common Stock in either the over-the-counter electronic bulletin board or NASDAQ
SmallCap markets for each full quarterly period within the two most recent
fiscal years, or part thereof for which quotes are available, are as follows:
<TABLE>
<CAPTION>
OTC/NASDAQ:
High Low
---- ---
<S> <C> <C>
First quarter 1997 15-7/8 13-3/8
Second quarter 1997 13 12-1/2
Third quarter 1997 12-1/2 9-1/2
Fourth quarter 1997 14-3/8 10
High Low
---- ---
First quarter 1996 15-5/8 14-3/8
Second quarter 1996 17-1/2 14-3/8
Third quarter 1996 17-1/8 15
Fourth quarter 1996 16-7/8 13-3/4
</TABLE>
The above quotations reflect interdealer prices, without retail markup, markdown
or commissions, and may not necessarily represent actual transactions in the
Company's Common Stock.
On June 9, 1994, shares of the Company's Common Stock were admitted to trading
on the Boston Stock Exchange, and the high and low sales prices for the
Company's Common Stock on the Boston Stock Exchange for each full quarterly
period within the two most recent fiscal years, or part thereof for which quotes
are available, are as follows:
<TABLE>
<CAPTION>
Boston Stock Exchange:
High Low
---- ---
<S> <C> <C>
First quarter 1997 15-5/8 13-3/8
Second quarter 1997 13-3/4 13-1/8
Third quarter 1997 12-1/4 12
Fourth quarter 1997 13-1/4 10-7/8
High Low
---- ---
First quarter 1996 15-5/8 13-3/4
Second quarter 1996 15-5/8 14-3/8
Third quarter 1996 17-1/8 15
Fourth quarter 1996 16-1/2 12-3/4
</TABLE>
During May 1997, the Company's shareholders approved a 1-for-2.5 reverse stock
split. For consistency, The above quotations have been restated to reflect the
reverse stock split. The approximate number of record holders of Common Stock of
the Company at March 31, 1998, was 1,949 and the number of round lot
shareholders (beneficial and record) was approximately 337. Shareholders of
record include shares that are held in nominee or street name. The Company did
not pay any cash dividends on shares of its Common Stock during its three most
recent fiscal years.
9
<PAGE> 11
Item 6. SELECTED FINANCIAL DATA
The following table sets forth selected financial information derived from the
audited consolidated financial statements of the Company, and should be read in
conjunction with the Company's consolidated financial statements and notes
thereto (Item 8 herein) and Management's Discussion and Analysis of Financial
Condition and Results of Operations (Item 7 herein):
<TABLE>
<CAPTION>
December 31,
--------------------------------------------------------------------------
1997 1996 1995 1994 1993
---- ---- ---- ---- ----
Operations:
<S> <C> <C> <C> <C> <C>
Revenues $ 1,574,958 $ 7,342,748 $ 7,983,577 $ 7,977,888 $ 5,933,079
Loss
from operations (5,807,676) (5,588,979) (1,032,403) (1,631,368) (2,424,981)
Diluted earnings (loss)
Per share ($ 1.75) ($ 1.48) ($0.33) $ 0.10 ($ 1.08)
Current assets 495,442 1,844,565 1,740,645 1,349,473 1,568,265
Current liabilities 4,333,352 7,486,896 3,919,753 1,319,812 3,037,036
Working capital (deficit) (3,837,910) (5,642,331) (2,179,108) 29,661 (1,468,771)
Total assets 14,557,056 19,200,466 18,322,444 6,837,929 5,862,446
Long-Term Obligations
and Equity:
Long-term obligations:
Long-term debt 11,428,415 5,834,650 2,388,230 1,252,641 2,000,000
Other long-term
obligations 10,919 18,750 68,717 100,600 137,062
Total long-term
obligations 11,439,334 5,853,400 2,456,947 1,353,241 2,137,062
Stockholders'
Equity/(Deficit) $ (1,215,630) $ 5,860,170 $ 11,945,744 $ 4,164,876 $ 688,348
</TABLE>
10
<PAGE> 12
Item 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS
This discussion should be read in conjunction with the financial statements of
the Company included elsewhere in this Form 10-K:
<TABLE>
<CAPTION>
Results of Operations
- ---------------------
Years Ended December 31,
-----------------------------------
1997 1996 1995
---- ---- ----
<S> <C> <C> <C>
Revenue $ 1,574,958 $ 7,342,748 $ 7,983,577
Cost of Sales 3,224,236 6,942,994 7,023,242
--------- --------- ---------
Gross Margin (1,649,278) 399,754 960,335
Selling, general and
administrative 3,367,392 5,597,098 1,992,738
Loss on asset impairment 791,006 391,635
------- ------- ---------
Operating loss (5,807,676) (5,588,979) (1,032,403)
Interest expense, net (1,986,125) (840,510) (311,004)
Other income/expense 150,000 33,773
--------- --------- ---------
Net loss $ (7,643,801) $ (6,429,489) $ (1,309,634)
========= ========= =========
</TABLE>
COMPARISON OF YEARS ENDED DECEMBER 31, 1997, 1996 AND 1995
Sales for the year ended December 31, 1997 were $1,574,958, compared to sales of
$7,342,748 for the year ended December 31, 1996. The decrease in sales is
primarily the result of idled facilities at both Mills. The Stephens Mill only
operated for approximately four months in 1997. The Thorold Mill was idle for
the entire year.
Sales for the year ended December 31, 1996 were $7,342,748, compared to sales of
$7,983,577 for the year ended December 31, 1995. The decrease in sales is
primarily due to a decrease in the average realized sales price of dry felt and
a decrease in the volume of the Stephens Mill of approximately 1,400 tons that
was partially offset by the increase in dry felt sold by the Thorold Mill.
Gross margin decreased to a negative $1,649,278 for the year ended December 31,
1997 from a gross margin of $399,754 for the year ended December 31, 1996. The
decrease in gross margin is primarily due to the lack of operations from idled
facilities and unabsorbed fixed production costs. These costs were incurred
during the four months of operation at the Stephens Mill and during the period
both Mills were idled.
Gross margin decreased to $399,754 for the year ended December 31, 1996 from a
gross margin of $960,335 for the year ended December 31, 1995. The decrease in
gross margin is primarily due to an increase in utility usage and rates, lower
realized sales prices for dry felt and the fact that no pulp hedge gain was
realized in the 1996 period (see Note 12 to the consolidated financial
statements). In addition, the Company incurred significant operating expenses
associated with the ongoing refurbishment and July start-up of the Thorold Mill.
11
<PAGE> 13
Selling, general and administrative expenses decreased by $2,229,706 to
$3,367,392 for the year ended December 31, 1997, from $5,597,098 for the year
ended December 31, 1996. This decrease was due to (i) a significant decrease in
the professional fees in 1997 from those incurred in 1996 relating to the failed
Transaction and (ii) a reduction in office expenses and reduced salary and
related expenses due to the reduced operations in 1997.
Selling, general and administrative expenses increased by $3,604,360 to
$5,597,098 for the year ended December 31, 1996, from $1,992,738 for the year
ended December 31, 1995. This increase was due to (i) the write-off of
approximately $1,770,000 of deferred acquisition costs as a result of GS
Roofing's repudiation of the planned merger with Striker (ii) an increase in
office expenses (iii) an increase in executive compensation and (iv) severance
costs associated with a staff reduction made in anticipation of consolidating
the administrative office of Striker with that of GS Roofing.
The loss on asset impairment increased to $791,006 for the year ended December
31, 1997 from $391,635 for the year ended December 31, 1996. This increase was
primarily due to the further write down of the Company's idle saturating
equipment and a write down of long-lived spare parts.
The loss on asset impairment increased to $391,635 for the year ended December
31, 1996 from $0 for the year ended December 31, 1995. The writedown of assets,
pursuant to SFAS 121, relates to the idle saturating line at the Stephen Mill.
Interest expense, net, increased to $1,986,125 for the year ended December 31,
1997, from $840,510 for the year ended December 31, 1996. This increase is due
to an increase in discounted subordinated debt borrowings during 1997, the
amortization of the related deferred financing costs, and the net effects of
approximately $870,000 of deferred finance costs written-off and the forgiveness
of $560,000 of accrued interest payable related to the Subordinated notes
exchanged for Zero Coupon Notes.
Interest expense, net, increased to $840,510 for the year ended December 31,
1996, from $311,004 for the year ended December 31, 1995. This increase is due
to the increase in secured borrowings and subordinated debt borrowings during
1996 and the amortization of the related deferred financing costs.
Because the Company has been in a loss position for financial and income tax
reporting purposes, no current or deferred income tax benefits have been
provided due to the uncertainty of realization of net operating loss
carryforwards.
CASH FLOWS - COMPARISON OF YEARS ENDED DECEMBER 31, 1997, 1996 AND 1995
Cash flows used by operating activities decreased to $3,249,808 for the year
ended December 31, 1997 from cash flows used by operating activities of
$4,438,655 for the year ended December 31, 1996. The decrease is primarily due
to cash provided by the reduced investment in current assets in the 1997 period.
Cash flows used by operating activities increased to $4,438,655 for the year
ended December 31, 1996 from cash flow provided by operating activities of
$861,832 for the year ended December 31, 1995. The increase in cash flow used by
operating activities primarily resulted from increased losses in the 1996
period.
Cash flows provided by investing activities increased to $425,027 for the year
ended December 31, 1997 from cash flows used by investing activities of $610,515
for the year ended December 31, 1996. The increase was primarily due to a
significant reduction in net capital spending and the maturity of certificates
of deposit held in Canada in the 1997 period.
Cash flows used in investing activities decreased to $610,515 for the year ended
December 31, 1996 from $4,658,474 for the year ended December 31, 1995. The
decrease was primarily due to a significant decrease in expenditures for
property and equipment in the 1996 period.
Cash flows provided by financing activities decreased to $2,684,237 for the year
ended December 31, 1997 from $5,200,098 for the year ended December 31, 1996.
The decrease is primarily due to less new debt placed and the repayment of the
BlueStone OID notes in the 1997 period.
Cash flows provided by financing activities increased to $5,200,098 for the year
ended December 31, 1996 from $3,919,460 for the year ended December 31, 1995.
The increase is primarily due to bridge financing borrowings related to the GSR
transaction in the 1996 period.
12
<PAGE> 14
LIQUIDITY AND CAPITAL RESOURCES
For the year ended December 31, 1997, the Company had an operating loss and
continues to experience short-term liquidity concerns. Throughout 1997, the
Company implemented several strategies to survive in the wake of the failed
Transaction and the suspended operations at its Thorold and Stephens Mills.
o For the year ended December 31, 1997, the Company has raised over $5,000,000
of subordinated debt to fund working capital needs and retire a substantial
portion of the OID Notes.
o The Company exchanged subordinated notes payable for newly issued Zero
Coupon notes payable at a lower stated rate of interest. This exchange
allowed the Company to extend the maturity date from 1998 to 2005 on
approximately $10,000,000 of subordinated debt and reduce the interest rate
due thereon, from 10.25% to 2.25%. In December 1997, the Company issued an
additional $1,000,000 of Zero Coupon notes payable maturing December 31,
2005, with principal and interest due upon maturity.
o The Company converted the West Oxford Subordinated Notes into warrants to
purchase common stock.
o The Company was able to negotiate an amended financing agreement with its
Canadian lender. This agreement limits the ability of the lender to enforce
its rights for technical default items, specifically ratio and financial
covenants, under its existing financing and security agreements with Striker
Canada until August 1, 1998 (see Note 6 to Notes To Consolidated Financial
Statements).
o The Company negotiated a forbearance agreement with its Stephens lender (the
Forbearance Agreement). This agreement calls for the Company to make equal
monthly payments of principal and interest for a period of approximately
three years. The Stephens lender agreed to forbear as long as payments are
made and the other conditions of the Forbearance Agreement are complied with
(see Note 6 to Notes To Consolidated Financial Statements).
o The Company's Canadian subsidiary accepted a Financing Proposal from a
Canadian lender for a $1,500,000 Canadian credit facility to finance the
restart of the Thorold Mill and for general working capital requirements. On
January 30, 1998, the Company's Canadian subsidiary accepted a credit
facility proposal from a Canadian Credit Union for an $800,000 Canadian line
of credit to fund working capital requirements pending collection of
accounts receivable in connection with the start-up of the Thorold Mill.
Effective March 20, 1998, these financings were closed and the Canadian
subsidiary received a first tranche funding of $1,250,000 Canadian pursuant
to the signings of the financing agreements with the Canadian lenders on
April 14, 1998 (see Note 19 to Notes To Consolidated Financial Statements).
There can be no assurances that the ultimate resolution of the above items,
either individually or in the aggregate will be adequate to ensure the existence
of the Company as a going concern.
The Company experienced a decrease in current liabilities for the year ended
December 31, 1997 from the year ended December 31, 1996. Although the Company
has experienced a decrease in current liabilities, the Company has a working
capital deficit of $3,837,910 at December 31, 1997 compared to a working capital
deficit of $5,642,331 at December 31, 1996. The decrease in current liabilities
is primarily due to a reclass of short-term debt to long-term debt coupled with
a substantial reduction in both lines of credit partially offset by an increase
in accounts payable.
On January 16, 1997, the Company experienced a fire at its Thorold Mill. An
electrical short in the main building that houses the paper line caused the
fire. 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 rebuilding the damaged plant building and
replacement of the damaged equipment. The repairs and rebuilding of the plant
and its equipment were completed on or about May 30, 1997. As of the date of
this Report, the Company anticipates having additional repairs and capital
projects completed and resuming full operation on or about May 31, 1998.
13
<PAGE> 15
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 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 begin operations and improve efficiencies needed for
profitable operation. However, for the Company to benefit fully from any
improvements made to the plants, the Company must operate the plants at capacity
(for the full production levels, typically 11.5 months per year). Management is
committed to seek and obtain the necessary financing to resume operations, but
not to resume operations in any 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 affect 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 to pay for the costs
of the Transaction. 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
substantial amounts of cash used for acquisition activities and the intention to
pay all of the payables at closing, accounts payable were aged beyond their
terms. Due to the significant resources devoted to the Transaction and
subsequent wrongful repudiation of the Transaction, the Company's ability to
repay debt, pay past-due accounts payable, finance needed capital projects and
continue operations has been gravely impaired.
The factors listed above have led to the ongoing working capital deficit. Upon a
resumption of operations, the Company must closely monitor operations and
continue to identify and implement capital projects that will improve
efficiencies and lower costs. However, there can be no assurance that such cost
reductions will allow the Company to achieve profitability.
In February, March and April 1997, the Company issued $643,000 in aggregate
principal amount of 10.25% Subordinated Notes Payable to international
investors. The notes called for a maturity date of December 31, 1998 with
interest payable quarterly. The proceeds were used for working capital needs.
These notes were exchanged for Zero Coupon Notes.
In April, May and June 1997, a wholly owned subsidiary of the Company issued
$3,025,000 in aggregate amount of 10.25% Subordinated Notes Payable (the "STDF
Notes") to international investors. The terms of the STDF Notes call for
maturity on December 31, 1998 with interest payable quarterly. Approximately
$2,000,000 of the proceeds was used to pay down a substantial portion of the OID
Note Notes. The remaining proceeds were used for working capital needs and to
pay $210,000 of the $310,000 in breakup fees as a result of the repudiation of
the Transaction. The STDF Notes were exchanged for Zero Coupon Notes.
In August, September and October 1997, the Company issued an additional $734,500
in aggregate principal amount of 10.25% Subordinated Notes Payable to
international investors. The Notes call for a maturity date of December 31,
1998, with interest payable quarterly. The proceeds of the Notes were used for
working capital needs. These notes were exchanged for Zero Coupon Notes.
In the fourth quarter 1997, the Company exchanged an aggregate $9,747,500 of
10.25% subordinated notes due 1998 for Zero Coupon Notes due 2005. Accrued
interest aggregating $559,825 was forgiven upon the exchange.
In December 1997, the Company issued approximately $1,000,000 of Zero Coupon
Notes (the "Zero Notes") to international investors. The Zero Notes mature on
December 31, 2005 and have a stated interest rate of 2.25%, with principal and
accrued interest due on the maturity date.
Management is currently pursuing various strategies in order to provide needed
liquidity and provide financing for capital projects. Management believes that
negotiations regarding obtaining new debt and/or equity financing are vital to
continuing operations. Subsequent to year-end, the Company successfully
completed an aggregate $2,300,000 Canadian term loan and revolving line of
credit facility with new Canadian lenders. Management believes that this new
loan will provide the ability for the Company to complete necessary capital
improvement projects and provide working capital for the start up. Additionally,
Management is in discussion with various financing groups including government
sponsored programs and lenders for financing for the Stephens Mill.
14
<PAGE> 16
Management believes that the Company can achieve profitability through
operational changes, improvements and acquisitions. 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 after it has completed the start up at both Mills.
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 does not believe its existing funds and its existing financial
arrangements will adequately fund the cash needs of the start-up of both Mills
and the Company's operations during the next year. To meet working capital
requirements and expand its business, the Company will need to borrow additional
amounts, obtain an additional third-party credit facility and/or restructure its
existing debt. The Company currently has two existing credit lines, one
consisting of a revolving line of credit and a term loan collateralized by
receivables, inventories, and fixed assets and one consisting of a term loan
collateralized by receivables, inventories, and fixed assets. At December 31,
1997, there were no amounts available under the line of credit. The Company is
pursuing additional financing arrangements that might include private or public
sales of equity or debt securities. However, there can be no assurances that the
Company will be able to obtain any additional debt or equity financing.
Management believes that 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 strategies will be achieved or that
the Company will be able to exist as a going concern.
INFLATION AND SEASONALITY
Inflation in the United States has not had a material effect on the Company in
recent years. Revenues and earnings may vary from quarter to quarter, depending
on weather conditions and other factors. The Company's operating results for any
particular quarter may not be indicative of the results for any future quarter
or any year.
YEAR 2000 CONDITION
Many computer software systems, as well as certain hardware and equipment
containing date sensitive data were structured to utilize a two-digit field,
meaning that they may not be able to properly recognize dates in the year 2000.
This could result in significant system and equipment failures. While the
Company does not believe that its main computer is year 2000 complaint, it does
not believe that any necessary changes will have a material impact on the
Company. The Company utilizes several new personal computers for many of its
tasks that are year 2000 complaint. Additionally, the Company does not believe
that its future operations will be adversely impaired by its vendors' or
customers' efforts to become year 2000 compliant.
Item 8. FINANCIAL STATEMENTS
Reference is made to the consolidated financial statements, the report thereon,
the notes thereto commencing on page F-1 of this Form 10-K, which consolidated
financial statements, report and notes are incorporated herein by reference.
Item 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND
FINANCIAL DISCLOSURE
There were no changes in or disagreements with the Company's independent
accountants during the Company's three most recent fiscal years.
15
<PAGE> 17
PART III
Item 10. DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT
The following is a listing of, and certain information with respect to, all
Directors and executive officers of the Registrant as of the date of this Annual
Report:
<TABLE>
<CAPTION>
EXECUTIVE
DIRECTOR OFFICER
NAME POSITIONS HELD AGE SINCE SINCE
<S> <C> <C> <C> <C>
David A. Collins............ Chairman of the Board 45 1993 1993
President and Chief Executive
Officer
Director
William B. Locander......... Director 53 1993
Matthew D. Pond............. Chief Financial Officer 34 1993 1993
Secretary and Treasurer
Director
Thomas H. Clarke............ Director 61 1998
</TABLE>
DAVID A. COLLINS has served as President and Chief Executive Officer of the
Company (formerly "Striker Petroleum Corporation") from January 1993 to the
present. He has also served as an officer (Chief Executive Officer, May 1992)
and/or director of Striker Holdings, Inc. and its wholly-owned subsidiary,
Striker Paper Corporation, January 1991 to the present, Striker Paper Canada,
Inc., December 30, 1994 to the present, West Oxford Industries, Inc., February
15, 1996 to the present and STDF Corp., April 5, 1997 to the present. Mr.
Collins also served as President, principal and managing director of Serfin
Securities, Inc. (formerly "OBSA International, Inc."), a broker-dealer
subsidiary of Grupo Financero Serfin, S.A. de S.V., the Mexican holding company
of Operadora de Bolsa, S.A., de C.V., a publicly-traded Mexican broker-dealer,
January 1988 to June 1992.
WILLIAM B. LOCANDER has been Chairman and Frank Harvey Professor of Marketing
and Quality in the Department of Marketing of the University of South Florida
from 1992 to the present and has served as Distinguished Professor of Marketing
and Phillips Consumer Electronics Faculty Scholar in the Department of Marketing
and Transportation at the University of Tennessee, Knoxville, from 1983 to 1992.
Dr. Locander has served as a member of the Board of Examiners for the Malcolm
Baldridge National Quality Award, 1991 and 1992; Chairman of the American
Marketing Association Strategic Planning Committee, 1989 to 1990; and President
of the American Marketing Association, 1988 to 1989.
MATTHEW D. POND has served as the Chief Financial Officer, Secretary and
Treasurer of the Company from December 1993 to the present. Mr. Pond served only
as Chief Financial Officer of the Company from September to December 1993. Mr.
Pond has also served as a director and officer of Striker Holdings, Inc. and its
wholly-owned subsidiary Striker Paper Corporation, December 1993 to the present,
and as an officer of Striker Paper Canada, Inc., December 30, 1994 to the
present, West Oxford Industries, Inc., February 15, 1996 to the present and STDF
Corp., April 5, 1997 to the present. Mr. Pond was a certified public accountant
with Arthur Andersen & Co. in its Dallas and Houston, Texas offices from
September 1986 through August 1993.
THOMAS H. CLARKE was elected a Director of the Company effective February 19,
1998. He is a recently retired roofing industry executive. Mr. Clarke was
employed by Globe Building Materials, Inc. from January 1986 until his
retirement in December 1995 and served as President of that company from 1989 to
the time of his retirement. From approximately 1989 until December 1995, Mr.
Clarke also served as a director and member of the Executive Committee of the
Asphalt Roofing Manufacturing Association.
16
<PAGE> 18
Section 16(a) of the Securities Exchange Act of 1934, as amended, requires the
Company's officers and Directors, and persons who own more than 10% of a
registered class of the Company's equity securities, to file reports of
ownership and changes of ownership with the Securities and Exchange Commission.
Officers, Directors and greater than 10% stockholders are required to furnish
the Company with copies of all Section 16(a) reports they file. Based solely on
its review of the forms received by it, the Company believes that during the
year ended December 31, 1997 all filing requirements applicable to the Company's
officers, Directors and greater than 10% stockholders were met.
Item 11. EXECUTIVE COMPENSATION
Summary of Compensation. The following table provides certain summary
information concerning compensation paid or accrued during the fiscal years
ended December 31, 1997, 1996, and 1995 to the Company's Chief Executive Officer
and Chief Financial Officer:
<TABLE>
<CAPTION>
LONG-TERM
ANNUAL COMPENSATION COMPENSATION AWARDS
------------------------------------------------------- ---------------------------------
RESTRICTED
OTHER ANNUAL STOCK
NAME AND POSITION YEAR SALARY BONUS COMPENSATION AWARDS OPTIONS
<S> <C> <C> <C> <C> <C> <C>
David A. Collins........ 1997 $225,000 $188,000 -0- -0- -0-
President and Chief 1996 $419,000 $ 31,000 -0- -0- -0-
Executive Officer 1995 $139,583 -0- -0- -0- -0-
Matthew D. Pond........ 1997 $135,000 $215,000 -0- -0- -0-
Chief Financial 1996 $240,000 -0- -0- -0- -0-
Officer 1995 $ 64,583 -0- -0- -0- -0-
</TABLE>
Option Grants. No options were granted to the Chief Executive Officer or the
Chief Financial Officer during the fiscal years ended December 31, 1997, 1996
and 1995.
Aggregated Option Exercises and Fiscal Year-End Option Values. The following
table provides information with respect to options exercised during the fiscal
year ended December 31, 1997 by the officers of the Company listed in the
preceding table and the fiscal year-end value of unexercised options held by
such officers:
<TABLE>
<CAPTION>
NUMBER OF VALUE OF UNEXERCISED
UNEXERCISED OPTIONS IN-THE-MONEY OPTIONS
AT AT
DECEMBER 31, 1997 (1) DECEMBER 31, 1997 (2)
--------------------- --------------------
SHARES
ACQUIRED
ON VALUE NOT NOT
NAME EXERCISE REALIZED EXERCISABLE EXERCISABLE EXERCISABLE EXERCISABLE
-------- -------- ----------- ----------- ----------- -----------
<S> <C> <C> <C> <C> <C> <C>
David A. Collins 0 $0 300,000 0 $3,375,000 $0
Matthew D. Pond 0 $0 230,000 72,000 $2,587,500 $810,000
</TABLE>
- -----------------------------------
(1) Adjusted to reflect the 1-for-2.5 reverse stock split on June 26, 1997.
(2) Calculated by multiplying the number of shares underlying outstanding
in-the-money options by the difference between the fair market value of the
Common Stock on December 31, 1997 ($13.75 per share), calculated with reference
to the closing price of the Company's Common Stock on the NASDAQ Small Cap
Market on that date, and the exercise price, which is $2.50 per share, adjusted
for the June 26, 1997 reverse stock split. Options are in-the-money if the fair
market value of the underlying Common Stock exceeds the exercise price of the
option shares.
17
<PAGE> 19
Compensation of Directors. Directors do not receive compensation for service on
the Board of Directors; however, employee-Directors are eligible to participate
and do participate in the Company's Stock Plan as stated above.
Employment Agreements. The Company has not entered into employment agreements
with its above named Executive Officers.
Board of Directors Interlocks and Insider Participation. Messrs. Collins,
Locander and Pond served on the Board of Directors in 1997. Messrs. Collins and
Pond also serve as executive officers of the Company and as directors and
officers of its various subsidiary corporations.
Board of Directors Compensation Report. The Company has developed and
implemented compensation policies, plans and programs that consist of the
following elements: base compensation, cash bonuses and stock benefit plans.
Executive base compensation for senior executives (including the Chief Executive
Officer and Chief Financial Officer), is intended to be competitive with that
paid in comparably situated industries and to provide a reasonable degree of
financial security and flexibility to those individuals whom the Board of
Directors regards as performing the duties associated with the various senior
executive positions. In furtherance of this objective, the Board of Directors
periodically, though not necessarily annually, reviews the salary levels of
comparable companies to provide a reasonable basis for comparison. Although the
Board of Directors does not attempt to specifically tie executive base pay to
that offered by any particular sampling of companies, the review provides a
useful gauge in administering the Company's base compensation policy. In
general, however, the Board of Directors considers the credentials, length of
service, experience, and consistent performance of each individual senior
executive when setting compensation levels.
The Revenue Reconciliation Act of 1993 restricts the ability of a publicly-held
corporation to deduct compensation in excess of $1,000,000 paid to its Chief
Executive Officer and the four most highly compensated officers. Based on its
current compensation structure, the Company does not anticipate that any of its
officers will reach the $1,000,000 threshold.
The Company's Stock Plan is intended to provide key employees, including the
Chief Executive Officer and the named executive officers of the Company and its
subsidiaries, with a continuing proprietary interest in the Company, with a view
to increasing the interest in the Company's welfare of those personnel who share
the primary responsibility for the management and growth of the Company.
Moreover, the Stock Plan provides a significant non-cash form of compensation,
which is intended to benefit the Company by enabling it to continue to attract
and to retain qualified personnel.
The bonuses posted on the executive compensation schedule above represent
advances made, for anticipated expenses and various other costs, originally
posted as an employee receivable, that have been forgiven and/or fully reserved
by the Company at year end for the years ended December 31, 1997 and 1996.
18
<PAGE> 20
Item 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT
Based upon information contained in (i) the Shareholder List of the Company as
of March 31, 1998 prepared by the Company's Transfer Agent, American Securities
Transfer and Trust, Inc., and (ii) securities deemed outstanding pursuant to
Rule 13d-3 (d) (1) of the Exchange Act at the date of this Annual Report, the
following table sets forth certain information regarding the beneficial
ownership of the Company's Common Stock by each person known to the Company to
be the owner of more than five percent of the outstanding shares of its Common
Stock, and by each executive officer named in the Summary Compensation Table
(see "Executive Compensation") and by all Directors and executive officers of
the Company as a group:
<TABLE>
<CAPTION>
(1) (2) (3) (4)
Title of Name and Address of Amount and Nature of Percent of
Class Beneficial Owner Beneficial Ownership Class
----- ---------------- -------------------- -----
<S> <C> <C> <C>
Common David A. Collins 911,448; Direct (1) 18.6%
One Riverway, Suite 2450
Houston, Texas 77056
Common Northern Globe Building Materials, Inc. 538,316; Direct 10.9%
22 Sydenham Street, P O Box 966
Brantford, Ontario
Canada N3T 5S1
Common All named executive officers and 1,151,448; Direct (2) 23.5%
Directors as a group (2 persons)
</TABLE>
(1) Includes 300,000 shares that may be acquired upon the exercise of vested
options
(2) Includes 530,000 shares that may be acquired upon the exercise of
vested options
Item 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
During 1995, certain international investors reimbursed the Company $132,000 for
salaries paid to certain of the Company's executive employees to compensate the
Company for time of the employees spent on special projects for the investors
which were not related to the Company. There were no salaries reimbursed for
1996 or 1997.
19
<PAGE> 21
PART IV
Item 14. EXHIBITS, FINANCIAL STATEMENT SCHEDULES AND REPORTS ON FORM 8-K
(a) List of Financial Statements:
See: "Index to Financial Statements" set forth on Page F-1 of this Form
10-K."
(b) Reports on Form 8-K:
None.
(c) Exhibits.
2.1 Stock Purchase Agreement dated as of December 3, 1992, between
Collins Acquisition Group, Inc., and Hallwood Energy Partners
L.P., Hallwood Consolidated Resources Corporation and Hallwood
Oil and Gas, Inc., and Amendment to Stock Purchase Agreement
dated January 13, 1993, between the same parties (filed as
Exhibit 2.1 to the Company's Annual Report on Form 10-KSB for
the period ended December 31, 1993, hereinafter referred to as
the "1993 Form 10-KSB," and hereby incorporated by reference).
2.2 Plan of Reorganization and Agreement dated April 23, 1993,
between the Company and Striker Industries, Inc. (now Striker
Holdings, Inc.), with the Agreement and Plan of Merger of even
date therewith attached as Annex A thereto (filed as Exhibit
2.2 to the Company's 1993 Form 10-KSB, and incorporated herein
by reference).
2.3 Asset Purchase Agreement dated as of March 10, 1995, between
Northern Globe Building Materials, Inc., and the Company
(filed as Exhibit 2.3 to the Company's 1994 Form 10-KSB, and
incorporated herein by reference).
2.4 Plan and Agreement of Merger among Striker Industries, Inc.,
GSR Industries, Inc., Striker Acquisition No. 3, Inc., Newgen
Holding, Inc., Donald F. Smith, Edward T. Nesselroade, et al
dated as of November 29, 1996 filed as Exhibit 2.4 to the
Company's 1996 Form 10-K, and incorporated herein by
reference).
3.1 Certificate of Incorporation of the Company and all Amendments
thereto (filed as Exhibit 3.1 to the Company's 1993 Form
10-KSB, and incorporated herein by reference).
3.2 By-laws of the Company (filed as Exhibit 3.2 to the Company's
1993 Form 10-KSB, and incorporated herein by reference).
3.3 Certificate of Amendment to the Company's Certificate of
Incorporation effecting a 1-for-2.5 reverse stock split of the
issued Common Stock of the Company, filed in the office of the
Secretary of State of Delaware on June 26, 1997.
4.1 Pages 1, 2 and 3 of the Certificate of Amendment to the
Company's Certificate of Incorporation filed in the office of
the Secretary of State of Delaware on September 27, 1993
(included as part of Exhibit 3.1 above and filed as Exhibit
4.1 to the Company's 1993 Form 10-KSB, and incorporated herein
by reference).
4.2 Security Agreement between the Company's wholly owned
subsidiary, Striker Paper Corporation, and Finova Capital
Corporation dated April 25, 1995 covering a revolving credit
facility (filed as Exhibit 4.2 to the Company's 1995 Form
10-K, and incorporated herein by reference).
20
<PAGE> 22
4.3 Warrant of the Company issued in February and March 1995 to
purchase, in the aggregate, up to 400,000 shares of the
Company's Common Stock (filed as Exhibit 10.8 to the Company's
1994 Form 10-KSB, and incorporated herein by reference).
4.4 Subordinated Note of the Company maturing December 31, 2005
($2,577,000 in aggregate principal amount) issued December 29,
1997, referred to in the Company's 1997 Form 10-K as Zero
Coupon Notes.
4.5 Subordinated Promissory Note of the Company's wholly-owned
subsidiary, West Oxford Industries, Inc., maturing December
31, 2005 ($4,100,000 in aggregate principal amount) issued
December 26, 1997, referred to in the Company's Form 10-K as
Zero Coupon Notes.
4.6 Credit facilities' commitment letter agreement dated May 16,
1995 between North American Trust Company of Hamilton,
Ontario, Canada and the Company's wholly-owned Canadian
subsidiary, Striker Paper Canada, Inc. (filed as Exhibit 4.6
to the Company's 1995 Form 10-K, and incorporated herein by
reference).
4.7 $2,000,000 Canadian dollar amount Debenture of Striker Paper
Canada, Inc. in favor of North American Trust Company, dated
July 13, 1995 (filed as Exhibit 4.7 to the Company's 1995 Form
10-K and incorporated herein by reference).
4.8 General Security Agreement dated July 13, 1995 between Striker
Paper Canada, Inc. and North American Trust Company (filed as
Exhibit 4.8 to the Company's 1995 Form 10-K and incorporated
herein by reference).
4.9 Financial Assistance Agreement dated May 16, 1995 between
Ontario Development Corporation, Striker Paper Canada, Inc.
and Striker Industries, Inc. (filed as Exhibit 4.9 to the
Company's 1995 Form 10-K, and incorporated herein by
reference).
4.10 Warrant of the Company to purchase up to 60,000 shares of the
Company's Common Stock issued to Ontario Development
Corporation, dated September 8, 1995 (filed as Exhibit 4.10 to
the Company's 1995 Form 10-K, and incorporated herein by
reference).
4.11 Mortgage and Security Agreement between the Company's indirect
Wholly-owned Subsidiary, Striker Holdings, Inc., and Finova
Capital Corporation dated as of April 25, 1995 securing
payment of all Obligations owing by the Company and any of its
subsidiary corporations to Finova Capital Corporation (filed
as Exhibit 4.11 to the Company's 1996 Form 10-K, and
incorporated herein by reference).
4.12 Promissory Note of the Company's Wholly owned Subsidiary, STDF
Corp., maturing December 31, 2005 ($4,925,000 in aggregate
principal amount) issued September through December, 1997,
referred to in the Company's 1997 Form 10-K as Zero Coupon
Notes.
4.13 Guaranty of the Company of covering all Subordinated Notes of
its wholly owned subsidiary, STDF Corp., referred to in
Exhibit 4.12.
4.14 Guaranty of the Company covering all Promissory Notes of its
wholly owned subsidiary, West Oxford Industries, Inc.,
referred to in Exhibit 4.5.
4.15 10% Convertible Subordinated Note of the Company's
wholly-owned Subsidiary, West Oxford Industries, Inc., dated
October 28, 1996 ($798,000 in aggregate principal amount),
with Exhibit A thereto (filed as Exhibit 4.15 to the Company's
1996 Form 10-K, and incorporated herein by reference).
21
<PAGE> 23
4.16 Letter agreement dated January 23, 1997 amending the first
paragraph only of all 10% Convertible Subordinated Notes dated
October 28, 1996 referred to in Exhibit 4.15 (filed as Exhibit
4.16 to the Company's 1996 Form 10-K, and incorporated herein
by reference).
4.17 Guaranty of the Company covering all 10% Convertible
Subordinated Notes dated October 28, 1996, of its Wholly-owned
subsidiary, West Oxford Industries, Inc., referred to in
Exhibit 4.15 (filed as Exhibit 4.17 to the Company's 1996 Form
10-K, and incorporated herein by reference).
4.18 Original Issue Discount Promissory Note of the Company
($2,310,000 in original principal amount) issued by the
Company on November 26, 1996 and on January 21, 1997 (filed as
Exhibit 4.18 to the Company's 1996 Form 10-K, and incorporated
herein by reference).
4.19 Warrant of the Company issued on November 26, December 2 and
December 18 and on January 21, 1997 to holders of the
Company's Original Issue Discount Notes covering the right to
purchase, in the aggregate, up to 330,000 shares (now 132,000
shares, adjusted for the 1-for-2.5 reverse stock split on June
26, 1997, referred to in Exhibit 3.3) of the Company's Common
Stock (filed as Exhibit 4.19 to the Company's 1996 Form 10-K,
and incorporated herein by reference).
4.20 Security Agreement dated as of January 21, 1997 between the
Company's Wholly-owned subsidiaries, West Oxford Industries,
Inc., Striker Holdings, Inc. and Striker Paper Corporation,
and BlueStone Capital Partners, LP, Agent for the holders of
the Original Issue Discount Promissory Notes of the Company
referred to in Exhibit 4.18 (filed as Exhibit 4.20 to the
Company's 1996 Form 10-K, and incorporated herein by
reference).
4.21 Mortgage Agreement dated as of January 21, 1997 between the
Company's Wholly-owned Subsidiary, Striker Holdings, Inc., and
BlueStone Capital Partners, LP, Agent for the holders of the
Company's Original Issue Discount Promissory Notes referred to
in Exhibit 4.18, second subordinate and junior in priority to
the Mortgage and Security Agreement in favor of Finova Capital
Corporation referred to in Exhibit 4.11, securing payment of
the Company's Original Issue Discount Notes referred to in
Exhibit 4.18 (filed as Exhibit 4.21 to the Company's 1996 Form
10-K, and incorporated herein by reference).
4.22 Forbearance Agreement dated August 11, 1997 between Laurentian
Bank of Canada and the Company's wholly owned subsidiary,
Striker Paper Canada, Inc.
4.23 Forbearance Agreement dated October 20, 1997 between Finova
Capital Corporation, The Company, Striker Paper Corporation
and Striker Holdings, Inc, direct or indirect wholly owned
subsidiaries of the Company.
4.24 Letter agreement of Forbearance and subordination dated
December 11, 1997 between BlueStone Capital Partners, L.P. and
the Company.
10.1 Financing Proposal dated October 20, 1997 between First
Ontario Fund and the Company's Canadian subsidiary, Striker
Paper Canada, Inc.
10.2 Credit Facility commitment letter dated December 23, 1997
between Credit Union Central of Ontario Limited, So-Use Credit
Union Limited and the Company's Canadian subsidiary, Striker
Paper Canada, Inc.
10.3 Lease Agreement dated February 8, 1994, between Coventry Fund
I Ltd. and the Company, covering the Company's leased
administrative and finance offices in Houston, Texas (filed as
Exhibit 10.4 to the Company's 1993 Form 10-KSB, and
incorporated herein by reference).
10.4 1994 Amended and Restated Incentive Stock Plan of the Company
(filed as Exhibit 10.9 to the Company's 1994 Form 10-KSB, and
incorporated herein by reference).
22
<PAGE> 24
21.1 The following is a list of all subsidiaries of the Company and
the respective state or province of incorporation of each
subsidiary. The Company owns directly, of record and
beneficially, all of the voting stock of Striker Holdings,
Inc., Striker Paper Canada, Inc., Striker Services Canada,
Inc., West Oxford Industries, Inc. and STDF Corp. Striker
Holdings, Inc., in turn, owns directly, of record and
beneficially, all of the voting stock of Striker Paper
Corporation. Each subsidiary conducts its business under its
corporate name designated below:
<TABLE>
<CAPTION>
Name State (Province) of Incorporation
---- ---------------------------------
<S> <C>
Striker Holdings, Inc. Texas
Striker Paper Corporation Arkansas
Striker Paper Canada, Inc. Province of Ontario, Canada
Striker Holdings (Canada) Inc. Province of Ontario, Canada
West Oxford Industries, Inc. Texas
STDF Corp. Texas
</TABLE>
27 Financial Data
23
<PAGE> 25
SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) of the Securities Exchange
Act of 1934, the Company has duly caused this report to be signed on its behalf
by the undersigned, thereunto duly authorized.
STRIKER INDUSTRIES, INC.
by: /s/ DAVID A. COLLINS
------------------------------------
David A. Collins, President and
Chief Executive Officer
DATE: April 15, 1998
In accordance with the requirements of the Securities Exchange Act of 1934, this
report has been signed below by the following persons on behalf of the Company
and in the capacities and on the date indicated:
<TABLE>
<CAPTION>
Signature Title Date
<S> <C> <C>
/s/ DAVID A. COLLINS April 15, 1998
----------------------------
David A. Collins Director, President and
Chief Executive Officer
/s/ MATTHEW D. POND April 15, 1998
-----------------------------
Matthew D. Pond Director, Chief Financial
Officer
</TABLE>
24
<PAGE> 26
ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA
INDEX TO FINANCIAL STATEMENTS
<TABLE>
<CAPTION>
Page
----
CONSOLIDATED FINANCIAL STATEMENTS OF
STRIKER INDUSTRIES, INC.
<S> <C>
Independent Auditors' Report F-2
Consolidated Balance Sheets - December 31, 1997 and December 31, 1996 F-3
Consolidated Statements of Operations -
Years ended December 31, 1997, 1996 and 1995 F-4
Consolidated Statements of Stockholders' Equity (Deficit) -
Years ended December 31, 1997, 1996, and 1995 F-5
Consolidated Statements of Cash Flows -
Years ended December 31, 1997, 1996, and 1995 F-6
Notes to Consolidated Financial Statements F-8
</TABLE>
F-1
<PAGE> 27
INDEPENDENT AUDITORS' REPORT
To the Board of Directors and Stockholders
Striker Industries, Inc.:
We have audited the accompanying consolidated balance sheets of Striker
Industries, Inc. (a Delaware corporation), and subsidiaries as of December 31,
1997 and 1996, and the related consolidated statements of operations, changes in
stockholders' equity (deficit) and cash flows for each of the years in the
three-year period ended December 31, 1997. These financial statements are the
responsibility of the Company's management. Our responsibility is to express an
opinion on these financial statements based on our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audits to obtain
reasonable assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audits provide a reasonable basis for our opinion.
In our opinion, the financial statements referred to above present fairly, in
all material respects, the financial position of Striker Industries, Inc., and
subsidiaries as of December 31, 1997 and 1996, and the results of their
operations and their cash flows for each of the years in the three-year period
ended December 31, 1997, in conformity with generally accepted accounting
principles.
The accompanying consolidated financial statements have been prepared assuming
that the Company will continue as a going concern. As discussed in Note 1 to the
consolidated financial statements, the Company has suffered recurring losses
from operations and has a net capital deficiency that raise substantial doubt
about its ability to continue as a going concern. Management's plans in regard
to these matters are also described in Note 1. The consolidated financial
statements do not include any adjustments that might result from the outcome of
this uncertainty.
KPMG Peat Marwick LLP
Houston, Texas
April 15, 1998
F-2
<PAGE> 28
STRIKER INDUSTRIES, INC. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
December 31, 1997 and 1996
<TABLE>
<CAPTION>
Assets 1997 1996
------ ---- ----
<S> <C> <C>
Current assets:
Cash and cash equivalents $ 151,941 292,485
Cash, restricted as to use -- 360,000
Accounts receivable:
Trade -- 492,533
Employee 180,000 --
Other, net of bad debt allowance of 489,671
and 489,671 for December 31, 1997 and 1996,
respectively 4,006 45,067
Inventories:
Raw materials 1,365 25,221
Finished goods -- 210,301
Prepaid expenses and other current assets 158,130 418,958
------------ ------------
Total current assets 495,442 1,844,565
Property and equipment, net 13,988,832 15,943,490
Deferred costs and other, net 72,782 1,412,411
------------ ------------
Total assets $ 14,557,056 19,200,466
============ ============
Liabilities and Stockholders' Equity (Deficit)
Current liabilities:
Revolving line of credit $ 23,148 529,950
Current portion of long term debt 723,476 3,463,950
Current obligations under capital leases 7,650 35,962
Trade accounts payable 2,875,965 2,524,519
Accrued liabilities 703,113 932,515
------------ ------------
Total current liabilities 4,333,352 7,486,896
Long-term liabilities:
Zero coupon notes payable 10,507,965 --
Subordinated notes payable -- 5,300,000
Term loans, net of current portion 920,450 534,650
Capital lease obligation 10,919 18,750
------------ ------------
Total long-term liabilities 11,439,334 5,853,400
------------ ------------
Stockholders' equity(deficit):
Preferred stock, $.20 par value, 5,000,000 shares
authorized, none issued -- --
Common stock, $0.50 par value, 25,000,000 shares
authorized, 4,370,922 shares issued
and outstanding 2,187,862 2,187,862
Stock subscriptions receivable (275,000) (275,000)
Additional paid-in capital 14,938,085 14,095,085
Accumulated deficit (17,632,301) (9,988,500)
Foreign currency translation adjustment (359,276) (84,277)
Less treasury stock at cost; 4,800 shares (75,000) (75,000)
------------ ------------
Total stockholders' equity (deficit) (1,215,630) 5,860,170
Commitments and contingencies
------------ ------------
Total liabilities and stockholders' equity (deficit) $ 14,557,056 19,200,466
============ ============
</TABLE>
See accompanying notes to consolidated financial statements.
F-3
<PAGE> 29
STRIKER INDUSTRIES, INC., AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF OPERATIONS
For the years ended December 31, 1997, 1996 and 1995
<TABLE>
<CAPTION>
Year ended December 31,
----------------------------------------------
1997 1996 1995
---- ---- ----
<S> <C> <C> <C>
Revenues $ 1,574,958 $ 7,342,748 $ 7,983,577
Cost of sales 3,224,236 6,942,994 7,023,242
----------- ----------- -----------
Gross margin (1,649,278) 399,754 960,335
Selling, general and administrative expenses, net
of salary reimbursements of $0,
$0 and $132,000, respectively 3,367,392 5,597,098 1,992,738
Loss on asset impairment 791,006 391,635 --
----------- ----------- -----------
Operating loss (5,807,676) (5,588,979) (1,032,403)
----------- ----------- -----------
Other income (expense):
Interest expense, net (1,986,125) (840,510) (311,004)
Other income/(expense) 150,000 -- 33,773
----------- ----------- -----------
Loss before income taxes (7,643,801) (6,429,489) (1,309,634)
Income taxes -- -- --
----------- ----------- -----------
Net loss $(7,643,801) 6,429,489 1,309,634
=========== =========== ===========
Basic and diluted net loss per common share $ (1.75) (1.48) (.33)
=========== =========== ===========
</TABLE>
See accompanying notes to consolidated financial statements.
F-4
<PAGE> 30
STRIKER INDUSTRIES, INC., AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CHANGES IN STOCKHOLDERS' EQUITY(DEFICIT)
For the years ended December 31, 1997, 1996 and 1995
<TABLE>
<CAPTION>
Common stock Stock Additional
---------------------------- subscriptions paid-in Accumulated
Shares Amount receivable capital deficit
------ ------ ---------- ------- -------
<S> <C> <C> <C> <C> <C>
Balances, December 31, 1994 $ 3,480,739 $ 1,740,370 $ (450,000) $ 5,123,883 $ (2,249,377)
Warrants issued -- -- -- 950,000 --
Warrants exercised 226,667 113,334 -- 1,020,002 --
Common stock issued for Thorold
Canada plan acquisition 538,316 269,158 -- 7,038,523 --
Fees on warrants issued and exercised -- -- -- (233,238) --
Write-off of stock subscriptions receivable -- -- 214,000 (214,000) --
Foreign currency translation -- -- -- -- --
Net loss -- -- -- -- (1,309,634)
------------ ------------ ----------- ------------ ------------
Balances, December 31, 1995 4,245,722 2,122,862 (236,000) 13,685,170 (3,559,011)
Common stock issued 20,000 10,000 -- 189,915 --
Employee stock subscriptions issued 110,000 55,000 (275,000) 220,000 --
Payments received for stock-
subscribed payments -- -- 236,000 -- --
Treasury stock issued (4,800) -- -- -- --
Foreign currency translation -- -- -- -- --
Net loss -- -- -- -- (6,429,489)
------------ ------------ ----------- ------------ ------------
Balances, December 31, 1996 4,370,922 2,187,862 (275,000) 14,095,085 (9,988,500)
Capital contribution -- -- -- 45,000 --
Subordinated notes converted into warrants -- -- -- 798,000 --
Foreign currency translation -- -- -- -- --
Net loss -- -- -- -- (7,643,801)
------------ ------------ ----------- ----------- ------------
Balances, December 31, 1997 $ 4,370,922 $ 2,187,862 $ (275,000) $14,938,085 $(17,632,301)
============ ============ =========== =========== ============
<CAPTION>
Treasury Accumulated Total
stock foreign currency stockholders'
at cost adjustment equity(deficit)
------- ---------- --------------
<S> <C> <C> <C>
Balances, December 31, 1994 $ -- $ -- $ 4,164,876
Warrants issued -- -- 950,000
Warrants exercised -- -- 1,133,336
Common stock issued for Thorold
Canada plan acquisition -- -- 7,307,681
Fees on warrants issued and exercised -- -- (233,238)
Write-off of stock subscriptions receivable -- -- --
Foreign currency translation -- (67,277) (67,277)
Net loss -- -- (1,309,634)
------------ ----------- ----------
Balances, December 31, 1995 -- (67,277) 11,945,744
Common stock issued -- -- 199,915
Employee stock subscriptions issued -- -- --
Payments received for stock-
subscribed payments -- -- 236,000
Treasury stock issued (75,000) -- (75,000)
Foreign currency translation -- (17,000) (17,000)
Net loss -- -- (6,429,489)
------------ ---------- ----------
Balances, December 31, 1996 (75,000) (84,277) 5,860,170
Capital contribution -- -- 45,000
Subordinated notes converted into warrants -- -- 798,000
Foreign currency translation -- (274,999) (274,999)
Net loss -- -- (7,643,801)
------------ ---------- ----------
Balances, December 31, 1997 $ (75,000) (359,276) $(1,215,630)
============ ========== ===========
</TABLE>
See accompanying notes to consolidated financial statements.
F-5
<PAGE> 31
STRIKER INDUSTRIES, INC., AND SUBSIDIARIES
Consolidated Statements of Cash Flows
For the years ended December 31, 1997, 1996 and 1995
<TABLE>
<CAPTION>
Year ended December 31,
-----------------------------------------
1997 1996 1995
---- ---- ----
Cash flows from operating activities:
<S> <C> <C> <C>
Net loss $(7,643,801) (6,429,489) (1,309,634)
Adjustments to reconcile net loss to net cash
used in operating activities:
Depreciation 877,417 804,085 749,139
Amortization 863,302 192,820 40,750
Loss on asset impairment 791,006 391,635 --
Gain on equipment casualty (117,821) -- --
Write-off of deferred finance costs 870,158 -- --
Forgiveness of accrued interest payable (559,825) -- --
Expenses financed through note agreement 75,276 -- --
Reimbursement for executive salaries -- -- (132,000)
Changes in assets and liabilities:
(Increase) decrease in accounts receivable 353,594 18,873 (15,113)
(Increase) decrease in inventories 234,157 (63,540) 175,067
Increase in prepaid expenses and other current assets 260,829 (156,201) (68,308)
Increase (decrease) in accounts payable and
accrued liabilities 745,900 803,162 1,421,931
----------- ----------- -----------
Net cash provided by (used) in operating activities (3,249,808) (4,438,655) 861,832
----------- ----------- -----------
Cash flows from investing activities:
Purchases of property and equipment (131,973) (1,414,286) (3,981,769)
Increase in deferred acquisition costs -- -- (316,705)
Proceeds from property and equipment casualty losses 197,000 -- --
Proceeds from sales of property and equipment -- 803,771 --
Proceeds from certificate of deposit maturity 360,000 -- --
Restricted cash -- -- (360,000)
----------- ----------- -----------
Net cash provided by (used) in investing activities 425,027 (610,515) (4,658,474)
----------- ----------- -----------
Cash flows from financing activities:
Proceeds from private placements of common stock -- 200,000 --
Warrants issued -- -- 950,000
Warrants exercised -- -- 1,133,336
Warrant fees paid -- -- (233,238)
Proceeds from issuance of convertible subordinated notes -- 798,000 --
Proceeds from issuance of original issue discount notes 633,000 1,575,000 --
Repayment of original issue discount notes (2,005,000) -- --
Proceeds from revolving lines of credit 1,774,324 6,615,017 6,572,536
Repayment of revolving lines of credit (2,281,127) (6,960,975) (5,701,045)
Proceeds from fixed asset line of credit -- 517,500 1,608,000
Repayments of fixed asset line of credit (361,950) (418,200) (77,283)
Principal payments on capital leases (36,144) (65,906) (28,947)
Proceeds received from issuance of common stock subscribed -- 236,000 --
Repayment of obligation for purchase of treasury stock -- (75,000) --
Deferred and other costs paid (291,831) (1,321,338) (383,258)
Proceeds from subordinated notes payable 4,402,500 4,100,000 1,200,000
Proceeds from capital contribution 45,000 -- --
Proceeds from issuance of zero coupon notes payable 805,465 -- --
Repayment of affiliate notes payable -- -- (1,120,641)
----------- ----------- -----------
Net cash provided by financing activities 2,684,237 5,200,098 3,919,460
----------- ----------- -----------
Net increase (decrease) in cash (140,544) 150,928 122,818
Cash and cash equivalents, beginning of year 292,485 141,557 18,739
----------- ----------- -----------
Cash and cash equivalents, end of year $ 151,941 292,485 141,557
=========== =========== ===========
</TABLE>
See accompanying notes to consolidated financial statements.
F-6
<PAGE> 32
STRIKER INDUSTRIES, INC., AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
For the years ended December 31, 1997, 1996 and 1995
<TABLE>
<CAPTION>
Year ended December 31,
------------------------------
1997 1996 1995
---- ---- ----
<S> <C> <C> <C>
Supplemental schedule of noncash investing and financing activities:
Exchange of 10.25% subordinated notes for 2.25% Zero Coupon notes $9,747,500 -- --
Conversion of a subordinated note to warrants 798,000 -- --
Issuance of common stock in consideration of acquisition of Thorold Mill -- -- 7,307,681
Reimbursement of executive salaries from an affiliate in
the form of forgiveness of notes payable -- -- 132,000
Gain on pulp hedge contract with an affiliate in the form of
forgiveness of notes payable $ -- -- 467,772
========== ====== =========
</TABLE>
See notes to accompanying consolidated financial statements
F-7
<PAGE> 33
STRIKER INDUSTRIES, INC., AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
DECEMBER 31, 1997 and 1996
1. ORGANIZATION AND OPERATIONS:
Description of Business
Striker Industries, Inc. (Striker or the Company), a Delaware corporation, is
in the business of manufacturing recyclables and pulp products into a
paper-based felt and asphalt saturated felt paper for use in the roofing
industry.
During May 1997, the Company's shareholders approved a 1-for-2.5 reverse stock
split. For consistency, all reported share amounts have been restated to reflect
the reverse stock split.
F-8
<PAGE> 34
Financial Condition and Basis of Preparation
During April 1996, the Company signed an agreement to combine in a merger
transaction (the Transaction) with the indirect parent corporation of GS
Roofing Products Company, Inc. (GS Roofing). A Registration Statement
required to raise the equity component of the financing required for closing
was filed with the Securities and Exchange Commission on December 26, 1996.
The Transaction was anticipated to close on or before April 30, 1997. On or
about February 4, 1997, the President of GS Roofing sent a notice to the
Company of GS Roofing's repudiation of the Transaction. Consequently, due in
part to the significant resources allocated to the Transaction and the
acceleration of debt payments, the ability of the Company to continue has
been impaired.
The consolidated financial statements have been prepared assuming that the
Company will continue as a going concern. The Company has suffered recurring
losses from operations and has a net capital deficiency that raise substantial
doubt about its ability to continue as a going concern. The consolidated
financial statements do not include any adjustments that might result from the
outcome of this uncertainty. Throughout 1997, the Company implemented several
strategies to survive in the wake of the failed Transaction and the suspension
of operations at its Thorold and Stephens Mills (discussed in further
detail below).
o For the year ended December 31, 1997, the Company has raised over
$5,000,000 of subordinated debt to fund working capital needs and
retire a substantial portion of the OID Note (see Note 6 to Notes
To Consolidated Financial Statements).
o The Company exchanged subordinated notes payable for newly issued Zero
Coupon notes payable at a lower stated rate of interest. This exchange
allowed the Company to extend the maturity date from 1998 to 2005 on
approximately $10,000,000 of subordinated debt and reduce the interest
rate due thereon, from 10.25% to 2.25%. In December 1997, the Company
issued an additional $1,000,000 of Zero Coupon notes payable maturing
December 31, 2005, with principal and interest due upon maturity (see
Note 6 to Notes To Consolidated Financial Statements).
o The Company converted the West Oxford Subordinated Notes into warrants
to purchase common stock (see Note 6 to Notes To Consolidated Financial
Statements).
o The Company was able to negotiate an amended financing agreement with
its Canadian lender. This agreement limits the ability of the lender to
enforce its rights for technical default items, specifically ratio and
financial covenants, under its existing financing and security
agreements with Striker Canada until August 1, 1998 (see Note 6 to
Notes To Consolidated Financial Statements).
o The Company negotiated a forbearance agreement with its Stephens lender
(the Forbearance Agreement). This agreement calls for the Company to
make equal monthly payments of principal and interest for a period of
approximately three years. The Stephens lender agreed to forbear as
long as payments are made and the other conditions of the Forbearance
Agreement are complied with (see Note 6 to Notes To Consolidated
Financial Statements).
o The Company's Canadian subsidiary accepted a Financing Proposal from a
Canadian lender for a $1,500,000 Canadian credit facility to finance
the restart of the Thorold Mill and for general working capital
requirements. On January 30, 1998, the Company's Canadian subsidiary
accepted a credit facility proposal from a Canadian Credit Union for an
$800,000 Canadian line of credit to fund working capital requirements
pending collection of accounts receivable in connection with the
start-up of the Thorold Mill. Effective March 20, 1998, these
financings were closed and the Canadian subsidiary received a first
tranche funding of $1,250,000 Canadian pursuant to the signings of the
financing agreements with the Canadian lenders on April 14, 1998 (see
Note 19 to Notes To Consolidated Financial Statements).
There can be no assurances that the ultimate resolution of the above items,
either individually or in the aggregate will be adequate to ensure the existence
of the Company as a going concern.
The Company experienced a decrease in current liabilities for the year ended
December 31, 1997 from the year ended December 31, 1996. Although the Company
has experienced a decrease in current liabilities, the Company has a working
capital deficit of $3,837,910 at December 31, 1997 compared to a working capital
deficit of $5,642,331 at December 31, 1996. The decrease in current liabilities
is primarily due to a reclass of short-term debt to long-term debt coupled with
a substantial reduction in both lines of credit partially offset by an increase
in accounts payable.
On January 16, 1997, the Company experienced a fire at its Thorold Mill. An
electrical short in the main building that houses the paper line caused the
fire. 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 rebuilding the damaged plant building and
replacement of the damaged equipment. The repairs and rebuilding of the plant
and its equipment were completed on or about May 30, 1997.
F-9
<PAGE> 35
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 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 begin operations and improve efficiencies needed for
profitable operation. However, for the Company to benefit fully from any
improvements made to the plants, the Company must operate the plants at capacity
(for the full production levels, typically 11.5 months per year). Management is
committed to seek and obtain the necessary financing to resume operations, but
not to resume operations in any 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 affect 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 to pay for the costs
of the Transaction. 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
substantial amounts of cash used for acquisition activities and the intention to
pay all of the payables at closing, accounts payable were aged beyond their
terms. Due to the significant resources devoted to the Transaction and
subsequent wrongful repudiation of the Transaction, the Company's ability to
repay debt, pay past-due accounts payable, finance needed capital projects and
continue operations has been gravely impaired.
The factors listed above have led to the ongoing working capital deficit. Upon a
resumption of operations, the Company must closely monitor operations and
continue to identify and implement capital projects that will improve
efficiencies and lower costs. However, there can be no assurance that such cost
reductions will allow the Company to achieve profitability.
Management is currently pursuing various strategies in order to provide needed
liquidity and provide financing for capital projects. Management believes that
negotiations regarding obtaining new debt and/or equity financing are vital to
continuing operations. Subsequent to year-end, the Company successfully
completed an aggregate $2,300,000 Canadian term loan and revolving line of
credit facility with new Canadian lenders. Management believes that this new
loan will provide the ability for the Company to complete necessary capital
improvement projects and provide working capital for the Thorold Mill start up.
Additionally, Management is in discussion with various financing groups
including government sponsored programs and lenders for financing for the
Stephens Mill.
F-10
<PAGE> 36
Management believes that the Company can achieve profitability through
operational changes, improvements and acquisitions. 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 after it has completed the start up at both Mills.
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 does not believe its existing funds and its existing financial
arrangements will adequately fund the cash needs of the start-up of both Mills
and the Company's operations during the next year. To meet working capital
requirements and expand its business, the Company will need to borrow additional
amounts, obtain an additional third-party credit facility and/or restructure its
existing debt. The Company currently has two existing credit lines, one
consisting of a revolving line of credit and a term loan collateralized by
receivables, inventories, and fixed assets and one consisting of a term loan
collateralized by receivables, inventories and fixed assets. At December 31,
1997, there were no amounts available under the line of credit. The Company is
pursuing additional financing arrangements that might include private or public
sales of equity or debt securities. However, there can be no assurances that the
Company will be able to obtain any additional debt or equity financing.
Management believes that 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 strategies will be achieved or that
the Company will be able to exist as a going concern.
2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES:
Basis of Presentation
Certain reclassifications have been made to the 1996 and 1995 consolidated
financial statements to conform to the 1997 presentation.
Principles of Consolidation
The accompanying consolidated financial statements include the accounts of
Striker and its wholly owned subsidiaries. All material intercompany accounts
and transactions have been eliminated.
Inventories
Inventories are stated at the lower of cost or market using the average cost
method. The finished goods inventories include materials, direct labor and plant
overhead.
Restricted Cash
At December 31, 1996, cash restricted as to use of $360,000, represents
short-term certificates of deposit pledged to the Company's Canadian Lender. On
or about December 5, 1997, pursuant to a forbearance agreement between Striker
Canada and its Canadian lender, the short-term certificates of deposit matured,
were cashed and the proceeds used to retire the balance on the revolving line of
credit.
F-11
<PAGE> 37
Property and Equipment
Property and equipment are recorded at cost. Expenditures for major renewals and
betterments, which extend the original estimated economic useful lives of the
applicable assets, are capitalized. Expenditures for normal repairs and
maintenance are charged to expense as incurred.
Effective January 1, 1996, the Company adopted Statement of Financial Accounting
Standards No. 121 "Accounting for the Impairment of Long-Lived Assets and for
Long-Lived Assets to be Disposed of "("SFAS 121"). This statement requires that
long-lived assets and certain identifiable intangibles to be held and used by an
entity be reviewed for impairment whenever events or changes indicate the
carrying amount of an asset may not be recoverable.
Recoverability of assets to be held and used is measured by a comparison of the
carrying amount of an asset to future net cash flows expected to be generated by
the asset. If such assets are considered to be impaired, the impairment to be
recognized is measured by the amount by which the carrying amount of the assets
exceeds the fair value of the assets. Assets to be disposed of are reported at
the lower of the carrying amount or fair value less costs to sell. As a result
of adopting this statement, the Company recorded an asset impairment of $391,635
in 1996. For the year ended December 31, 1997, the Company recorded an asset
impairment of $791,006. Both impairments related primarily to idle saturating
equipment located at the Stephens Mill.
Depreciation
The Company uses the units-of-production method of depreciation for
substantially all machinery and equipment. The units-of-production method
provides for depreciation charges proportionate to the level of production
activity thereby recognizing that depreciation of the Company's machinery is
related to physical wear of the equipment and represents a method common to that
used by many in the pulp and paper industry. Idle machinery and equipment is
depreciated at twenty-five percent of depreciation calculated using the
straight-line method for the periods in which the machinery and equipment is
idle.
Deferred Costs and Other, Net
Deferred costs and other, net, include organization costs and deferred
acquisition and financing costs in 1997 and 1996. The organization costs were
amortized over a five-year period on a straight-line basis. As of the years
ended December 31, 1996 and 1997, the Company's organization costs have been
fully amortized. Where applicable deferred acquisition costs are added to the
cost of the assets acquired after the acquisition is completed. Deferred
financing costs are being amortized over the life of the related respective
financing obtained.
Income Taxes
The Company uses the asset and liability method of accounting for income taxes.
Under this method, deferred tax assets and liabilities are determined based on
differences between financial reporting and tax bases of assets and liabilities
and are measured using the enacted tax rate and laws that will be in effect when
the differences are expected to reverse. The effect on deferred tax assets and
liabilities of a change in tax rates is recongized in income in the period that
includes the enactment date.
Revenue Recognition
The Company generally recognizes revenue when products are shipped or when the
customer has accepted the product.
F-12
<PAGE> 38
Earnings (Loss) Per Common Share
In 1997, the Company adopted the provisions of SFAS No. 128, "Earnings Per
Share." SFAS No. 128 established standards for computing and presenting income
(loss) per common share. It replaces primary and fully diluted income (loss) per
common share with basic and diluted income (loss) per common share. Basic income
(loss) per common share excludes dilution and is computed by dividing income
(loss) available to common stockholders by the weighted average number of common
shares outstanding for the period. Diluted income (loss) per common share
reflects the potential dilution that could occur if securities or other
contracts to issue common stock were exercised or converted into common stock or
resulted in the issuance of common stock. When dilutive, stock options and
warrants are used in the computation of diluted earnings (loss) per common share
as share equivalents using the treasury stock method.
The number of weighted average shares outstanding used in computing the earnings
(loss) per share was 4,370,922 in 1997, 4,335,202 in 1996 and 3,952,950 in 1995.
Basic and diluted earnings (loss) per share are the same for each of these
years. In calculating diluted earnings (loss) per share for the years ended
December 31, 1997, 1996 and 1995, options to purchase 620,000, 620,000 and
1,030,0000 shares of common stock, respectively at exercise prices ranging from
$2.50 to $14.38 per share, and warrants to purchase 344,827, 26,667 and 26,667
shares of common stock, respectively at exercise prices ranging from $5.00 to
$7.50 per share were outstanding during the respective years but were not
included in the computation of diluted earnings (loss) per common share due to
their antidilutive effect.
Stock Based Compensation
In October 1995, the Financial Accounting Standards Board issued Statement of
Financial Accounting Standards No. 123, "Accounting for Stock-Based
Compensation" (SFAS 123). SFAS 123 allows a company to adopt a new fair value
based method of accounting for its stock based compensation plans, or to
continue to follow the intrinsic method of accounting prescribed by Accounting
Principles Board (APB) Opinion No. 25 "Accounting for Stock to Employees."
The Company has elected to continue to follow APB Opinion No.25 and provide the
pro forma disclosures as required by SFAS 123.
Translation of Foreign Currency Financial Statements
Assets and liabilities of the foreign subsidiary have been translated into
United States dollars at the applicable rates of exchange in effect at the end
of the period reported. Revenues and expenses have been translated at the
applicable weighted average rates of exchange in effect during the period
reported. Translation adjustments are reflected as a separate component of
stockholders' equity. Any transaction gains and losses are included in the
determination of net income (loss).
F-13
<PAGE> 39
Use of Estimates
The preparation of financial statements in conformity with generally accepted
accounting principles requires management to make estimates and assumptions that
affect the reported amounts of assets and liabilities and disclosure of
contingent assets and liabilities at the date of the financial statements and
the reported amounts of revenues and expenses during the reporting period.
Actual results could differ from the estimates.
Cash Flow Information
For purposes of reporting cash flows, cash and cash equivalents include cash and
short-term investments which mature within three months of their date of
purchase.
3. PROPERTY AND EQUIPMENT, NET:
The Company's property and equipment consisted of the following:
<TABLE>
<CAPTION>
December 31, December 31,
Useful Life 1997 1996
----------- ---- ----
<S> <C> <C> <C>
Machinery, equipment and vehicles 5 - 12 years $ 15,079,760 $ 15,993,022
Buildings 25 years 717,857 807,229
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 78,504 139,266
Spare Parts - 208,984 274,472
Land - 150,000 150,000
------------ ------------
17,239,594 18,352,841
Less- Accumulated depreciation
and amortization (3,250,761) (2,409,351)
------------ ------------
$ 13,988,833 $ 15,943,490
============ ============
</TABLE>
4. DEFERRED COSTS AND OTHER, NET:
The Company's deferred costs and other, net, consisted of the following:
<TABLE>
<CAPTION>
December 31, December 31,
1997 1996
---- ----
<S> <C> <C>
Deferred financing costs $ 41,970 $ 1,344,297
Deferred acquisition costs - -
Deposits 15,540 47,751
Patents 25,029 25,029
Less- Accumulated amortization (9,757) (4,666)
Organization costs 78,025 78,025
Less- Accumulated amortization (78,025) (78,025)
-------- -----------
$ 72,782 $ 1,412,411
======== ===========
</TABLE>
F-14
<PAGE> 40
5. INCOME TAXES:
The Company did not recognize a provision for income taxes for the year ended
December 31, 1997. The Company had tax-basis operating loss carryforwards of
approximately $19,395,000 at December 31, 1997, which expire from 2007 through
2012.
Federal income taxes provided were different from the amount computed by
applying the statutory U.S. federal income tax rate (34 percent) for the
following reasons:
<TABLE>
<CAPTION>
Years ended
December 31
-----------
1997 1996 1995
---- ---- ----
<S> <C> <C> <C>
Tax provision (benefit) at statutory rates $ (2,599,000) $(2,186,000) $ (445,275)
(Increase) decrease resulting from-
deferred tax asset valuation allowance 2,661,000 2,266,000 442,275
Miscellaneous (62,000) (80,000) 3,000
----------- ------------ ----------
$ -- $ -- $ --
=========== =========== ==========
</TABLE>
The tax effect of temporary differences and tax attributes representing deferred
tax liabilities and assets are as follows at December 31:
<TABLE>
<CAPTION>
Deferred Benefit (Provision)
for the Year Ended
---------------------------------------------------------
December 31, December 31, December 31,
1997 1996 1995
---- ---- ----
<S> <C> <C> <C>
Current deferred income tax assets-
Current capital lease obligation $ - $ - $ 18,000
Accruals 20,000 21,000 39,000
Inventory
-- (2,000) 2,000
Valuation allowances (20,000) (19,000) (49,000)
----------- ---------- ----------
Total current deferred income tax assets, net $ -- $ -- $ 10,000
=========== ========== ==========
Noncurrent deferred income tax assets
(liabilities)-
Net operating loss carryforwards $ 6,594,000 $ 3,997,000 $1,514,000
Property and equipment (641,000) (706,000) (502,000)
Assets under capital lease -- -- (72,000)
Noncurrent capital lease obligations -- -- 45,000
Valuation allowances (5,953,000) (3,291,000) (995,000)
----------- ----------- ----------
Total noncurrent deferred income tax
liabilities, net $ -- $ -- $ (10,000)
=========== =========== ==========
</TABLE>
F-15
<PAGE> 41
6. DEBT:
The Company's debt consisted of the following at:
<TABLE>
<CAPTION>
December 31, December 31,
1997 1996
---- ----
<S> <C> <C>
Zero Coupon Notes, 2.25% due 12/31/05 $ 10,702,500 $ --
Unamortized Discount on Zero Coupon Notes (194,535) --
Subordinated Notes, 10.25% due 12/31/98 -- 5,300,000
West Oxford Subordinated Notes payable @ 13% interest -- 798,000
Original Issue Discount Notes 380,276 1,575,000
Stephens:
Term loan, prime (8.5%) + 3.5%, due 5/31/01 534,650 652,850
Revolving line of credit, prime + 3.5% 23,148 164,148
Canadian Facility:
Term loan, prime (6.0%) + 2.5% due 4/01/01 729,000 972,750
Revolving line of credit, prime + 2.5% -- 365,802
Capitalized lease obligations bearing interest at
rates from 10% to 18% maturing between 1998
and 2000, secured by underlying machinery,
vehicles and computer equipment. 18,569 54,712
------------- ------------
12,193,608 9,883,262
Less- Current maturities (754,274) (4,029,862)
------------- ------------
$ 11,439,334 $ 5,853,400
============= ============
</TABLE>
CREDIT FACILITIES:
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%.
During September 1997, the Company received a default notice and demand for
payment from its Stephens Facility lender ("the Stephens lender"). The Stephens
lender issued the default notice for non-payment of outstanding interest on the
term loan and the revolver in addition to technical defaults, primarily the
suspension of operations at the Stephens Mill. The Company negotiated and signed
a Forbearance Agreement with the Stephens lender. As a condition of the
Forbearance Agreement, the Company paid all then outstanding principal and
interest and continues to make monthly payments in settlement of the debt.
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, 1997, there were no amounts available under this financing
agreement.
F-16
<PAGE> 42
At December 31, 1996, Striker Canada was not in 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. On August 11, 1997, the Company signed a Forbearance Agreement with the
Canadian lender to waive demand rights for technical default items, namely ratio
and financial covenants, for a period of three years beginning August 1, 1997.
Under the original terms of the Forbearance Agreement, Striker Canada paid
principal and interest in advance through January 31, 1998. On March 10, 1998,
the Company entered into an amended financing agreement with the Canadian lender
that required Striker Canada to prepay principal and interest through July 31,
1998. The conditions of the Forbearance Agreement were extended to July 31, 1998
as part of the new financing agreement (See Note 19 to Notes To Consolidated
Financial Statements).
SUBORDINATED DEBT:
Striker Industries, Inc. Notes:
In December 1996 and January 1997, the Company issued $2,310,000 in aggregate
principal amount of Original Issue Discount Notes (the "OID Notes"). The OID
Notes mature at the earlier of (i) 4/25/97, or (ii) closing of any public or
private debt or equity financing exceeding $10.5 million. The proceeds of the
OID Notes were used for working capital needs.
In connection with the Transaction, the Company received bridge financing from
the underwriter, BlueStone. As is customary with bridge financing, both the
Company and the OID Note noteholders contemplated payment of the bridge notes
out of the debt and equity financing of the Transaction. Following repudiation
of the Transaction by GS Roofing, the Company received a demand notice from
BlueStone accelerating the due date of the OID Notes to April 3, 1997 from April
25, 1997. During May 1997, $1,978,000 was repaid and the remaining balance of
$332,000, by agreement in principle was to be paid by June 30, 1997. On October
28, 1997, the Company reached an agreement with BlueStone to repay the
outstanding principal balance along with accrued interest of $30,876 and
BlueStone's out of pocket legal expenses relating to the Transaction of $44,400.
The agreement calls for the Company to make monthly payments for an eight-month
period beginning in December 1997. As of the date of this report, the Company
has made all payments as required by the agreement. The remaining balance of
$380,276 of the OID Notes has been classified as current debt at December 31,
1997. The OID 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 OID Notes are also guaranteed by each of the Company's
U.S. subsidiaries. It is also secured by a lien and security interest on the
assets of the Company's Canadian subsidiary, either junior in time or
subordinated to the subsidiary's senior lenders in Canada.
On March 2, 1995, the Company issued $1,200,000 of 10.25% Subordinated Notes
(the SII Notes) to international investors. The SII Notes mature on December 31,
1998, and interest is payable quarterly. The proceeds of the SII Notes were used
to pay down the affiliate notes payable.
In February, March and April 1997, the Company issued $643,000 in aggregate
principal amount of 10.25% Subordinated Notes (new "SII Notes") to international
investors. The SII Notes mature on December 31, 1998 with interest payable
quarterly. The proceeds of the Notes were used for working capital needs.
In August, September and October 1997, the Company issued $734,500 in aggregate
principal amount of 10.25% Subordinated Notes (new "SII Notes") to international
investors. The SII Notes mature on December 31, 1998 with interest payable
quarterly. The proceeds of the Notes were used for working capital needs.
On or about December 14, 1997, the Company completed the exchange of $2,577,500
of SII Notes for $2,577,500 in Zero Coupon Notes. The Zero Coupon Notes carry a
minimum interest rate of 2.25% with a maximum interest rate of 10.25% solely
dependent upon the discretion of the Board of Directors. Principal and interest
are due upon maturity of the notes.
F-17
<PAGE> 43
West Oxford Industries, Inc. Notes:
During 1996, a wholly owned subsidiary of the Company issued $798,000 in
aggregate principal amount of Subordinated Notes (the "West Oxford Subordinated
Notes") to several investors. The West Oxford Subordinated Notes mature at the
earlier of (i) 5/15/97, or (ii) closing of any public or private debt or equity
financing exceeding $10.5 million. The proceeds of the West Oxford Subordinated
Notes were used for working capital needs.
On August 1, 1997, the Company sent the West Oxford Subordinated Note
noteholders a written offer giving the noteholders a choice of either (i) 1,333
post-split restricted shares of the Company's Common Stock for each $10,000 or
part thereof of debt provided, or (ii) a Warrant to purchase 2,667 post-split
restricted shares of the Company's Common Stock for each $10,000 or part thereof
of debt provided, in payment in full and in cancellation and exchange in either
instance for the Notes held by the Subordinated noteholders. This offer is
consistent with alternatives contained in the letter agreement attached as
Exhibit A to the original Notes. Although no common stock or warrants have yet
been issued, the Company has reflected the West Oxford Subordinated Notes as
converted into warrants for the year ended December 31, 1997.
In February, June and July 1996, a wholly owned subsidiary of the Company issued
$4,100,000 in aggregate principal amount of 10.25% Subordinated Notes (the West
Oxford Notes) to international investors. The West Oxford Notes mature on
December 31, 1998 and interest is payable quarterly. The proceeds of the West
Oxford Notes were used for working capital needs.
On or about December 14, 1997, the Company completed the exchange of $4,100,000
of West Oxford Notes for $4,100,000 in Zero Coupon Notes. The Zero Coupon Notes
carry a minimum interest rate of 2.25% with a maximum interest rate of 10.25%
solely dependent upon the discretion of the Board of Directors. Principal and
interest are due upon maturity of the notes.
STDF Corp. Notes:
In March, April and June 1997, a wholly owned subsidiary of the Company issued
$3,025,000 in aggregate amount of 10.25% Subordinated Promissory Notes (the
"STDF Notes") to international investors. The terms of the STDF Notes call for
maturity on December 31, 1998 with interest payable quarterly. Approximately
$2,000,000 of the proceeds of the STDF Notes was used to pay down the OID Note
Notes. The remaining proceeds were used for working capital needs and to pay
$210,000 of the $310,000 in breakup fees as a result of the repudiation of the
Transaction (see Note 9 to Notes To Consolidated Financial Statements).
On September 26, 1997, the Company completed the exchange of a subsidiary's
$3,025,000 subordinated notes payable (the STDF Notes) for $3,025,000 in Zero
Coupon Notes. The Zero Coupon Notes carry a minimum interest rate of 2.25% with
a maximum interest rate of 10.25% solely dependent upon the discretion of the
Board of Directors. Principal and interest are due upon maturity of the notes.
In December 1997, the Company completed the issuance of a subsidiary's
$1,000,000 in Zero Coupon Notes. The Zero Coupon Notes carry a minimum interest
rate of 2.25% with a maximum interest rate of 10.25% solely dependent upon the
discretion of the Board of Directors. Principal and interest are due upon
maturity of the notes.
In connection with the subordinated noteholders exchange for Zero Coupon Notes,
the noteholders forgave approximately $560,000 of accrued interest payable. The
Company has recorded the forgiveness of the accrued interest payable as a
reduction of interest expense on the December 31, 1997 Consolidated Statement of
Operations. In addition, the Company wrote-off approximately $870,000 of
deferred finance costs related to the exchanged subordinated notes which was
recorded as interest expense for the year ended December 31, 1997.
Aggregate maturities for subordinated notes payables, current and long-term debt
and capital leases obligations for each of the five years subsequent to December
31, 1997 were approximately:
<TABLE>
Amount
<S> <C>
1998 $754,274
1999 351,252
2000 346,067
2001 172,200
2002 61,850
Thereafter 10,507,965
----------
12,193,608
==========
</TABLE>
Interest paid for the years ended December 31, 1997, 1996 and 1995, was
$210,532, $628,113 and $322,915, respectively.
F-18
<PAGE> 44
7. LEASES:
The Company leases certain machinery, equipment and vehicles and certain
computer and office equipment under noncancelable long-term capital leases.
Future minimum lease payments under all noncancelable long-term capital leases
as of December 31, 1997 are as follows:
<TABLE>
<S> <C>
1998 $ 7,650
1999 8,052
2000 2,867
2001 --
2002 --
Minimum lease payments 18,569
Less-Current portion 7,650
--------
Capital lease obligations, long-term $ 10,919
========
</TABLE>
The Company also leases certain office space under noncancelable long-term
operating leases. Future minimum lease payments under all noncancelable
long-term operating leases as of December 31, 1997 are as follows:
<TABLE>
<S> <C>
1998 $ 67,892
1999 16,973
2000 --
2001 --
Thereafter --
</TABLE>
Total rental expense pursuant to noncancelable long-term operating leases was
approximately $65,160, $60,348 and $57,142 for the years ended December 31,
1997, 1996 and 1995, respectively.
8. STOCKHOLDERS' EQUITY:
During July, August and October 1997, investors made capital contributions to
the Company totaling $45,000.
During May 1997, the Company's shareholders approved a 1-for-2.5 reverse stock
split. For consistency, the number of shares presented through-out this document
have been restated as if the reverse stock split had been in effect for all
historical periods.
During the fourth quarter of 1996 and the first quarter of 1997, the Company
issued Warrants to purchase an aggregate of 132,000 shares of Common Stock of
the Company to holders of the Original Issue Discount Notes, contemporaneously
with the issuance to them of the Notes and as a part of the unit(s) of Original
Issued Discount note and Warrant subscribed for and purchased by them, at an
Exercise Price of $7.50 per share over a term of five years from date of
issuance.
During July 1996, the Company advanced an employee approximately $80,000 for a
stock purchase. During December 1996, the Company accepted 4,800 shares of its
common stock as partial payment of the employee's receivable balance in the
amount $75,000. The common stock purchased is reflected as Treasury stock on the
consolidated financial statements at cost.
On or about April 15, 1996, David A. Collins and Matthew D. Pond exercised a
combined total of 110,000 options at $2.50 per share, pursuant to their
respective non-qualified stock option agreements. The shares were issued in
exchange for two separate promissory notes aggregating $275,000, secured by the
pledge by each maker of a part of all of the shares acquired.
During the quarter ended March 31, 1995, the Company authorized the issuance of
400,000 Warrants to purchase one share each of Common Stock of the Company at a
Warrant Price of $3.75 per warrant and an Exercise Price of $5.00 per share
escalating to $6.63 per share over the term of the Warrant which expired on
February 28, 1997. During the quarter ended March 31, 1995, $850,000 was
received by the Company upon issuance of 226,667
F-19
<PAGE> 45
Warrants to six international investors, four of which are stockholders. During
the quarter ended June 30, 1995, an additional $100,000 was received upon
issuance of 26,667 Warrants.
During the quarter ended June 30, 1995, 226,667 Warrants were exercised at the
exercise price of $5.00 per share. The Company received $1,133,336 for 226,667
shares of Common Stock of the Company. As of December 31, 1996 and 1995, 26,667
warrants remained outstanding. These warrants expired in February 1997.
The Company paid $71,000 upon the issuance and $160,000 upon the exercise, in
commissions to an affiliate of the Company in connection with the placement and
exercise of the Warrants during the six months ended June 30, 1995. The Company
reflected the commissions paid as a reduction of Additional Paid in Capital.
The Company has 5,000,000 authorized shares of preferred stock, none of which
has been issued or is outstanding.
9. 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). The closing of the transaction had been extended in writing by
mutual agreement of the parties to April 21, 1997, provided that (i) a
Registration Statement required to raise the equity component of the financing
required for closing was filed with the Securities and Exchange Commission
(which document was filed with the Securities and Exchange Commission December
26, 1996) and (ii) the merger became effective on or before April 21, 1997 or
within incremental five business day periods of time thereafter so long as bona
fide marketing efforts were being conducted by the underwriters with a view to
such Registration Statement becoming effective on or before April 30, 1997.
On or about February 4, 1997, via facsimile transmission the President of GS
Roofing sent a notice to the Company of 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 a suit styled Striker Industries, Inc., David A.
Collins and Matthew D. Pond vs. Newgen Holdings, Inc., Gen Holdings, Inc., GS
Roofing Products Company, Inc., Donald F. Smith and Maredon-I, Ltd. pending at
the date of this Report in the 133rd Judicial District Court of Harris County,
Texas 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 still in the preliminary stages. Pre-trial discovery has commenced
and depositions have begun. The Company is unable at present to express any
opinion regarding the probable outcome of this litigation.
F-20
<PAGE> 46
Throughout calendar year 1997, the Company and its subsidiaries have worked
diligently to resolve, compromise, settle and/or pay various vendor claims and
legal proceedings filed against them arising in the ordinary course of their
business. At December 31, 1997, five lawsuits seeking recovery of significant
sums were pending, principally against Striker Paper Corporation and Striker
Paper Canada, Inc., the US and Canadian subsidiaries that operate the Stephens
Mill and the Thorold Mill, all of which suits were settled, or are in
substantial discount payment settlement negotiations entered into, subsequent to
year-end and prior to the date of this report. All but one of these proceedings
were settled by execution by the parties of written Settlement Agreements
providing time payment plans with respect to the claims asserted.
In addition, following extensive negotiations and the inability of the Company's
Canadian subsidiary to reach agreement on an employment termination package with
the former manager of the Thorold Mill, suit was filed on or about April 7, 1997
in Ontario Province, Canada by the former Mill manager against Striker paper
Canada, Inc. claiming damages of $142,000 Canadian for alleged wrongful
dismissal and $50,000 Canadian for alleged mental distress. Striker Paper Canada
filed a Statement of Defense and Counterclaim on September 30, 1997. The
Counterclaim seeks damages in the amount of $150,000 Canadian from the plaintiff
for his fraudulent or negligent misrepresentation in failing to disclose
information within his knowledge to Striker Paper Canada during the negotiations
for Striker Paper Canada's purchase of the Thorold Mill. No further action has
been taken in this proceeding as of the date of this report.
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. Due to the
suspension of operations at the Stephens Mill, the Company was unable to supply
the contract customer with stipulated amounts of dry felt. The contract customer
was able to obtain dry felt at market prices without any impairment to its
operations. Therefore, Management does not anticipate any action against the
Company for failure to perform under terms of the contract.
During 1995, the Company entered into an agreement with the Sierra Club (Sierra)
and the Arkansas Department of Pollution Control and Ecology (ADPCE) to settle
claims brought by those parties concerning non-toxic discharges in excess of
state water permits for the Stephens, Arkansas mill. The Company paid to ADPCE a
civil penalty in the amount of $15,000 for excess discharges beyond permit
allowances into Smackover Creek, near the Stephens, Arkansas mill. In addition,
the Company agreed with ADPCE and Sierra to contribute $55,000 to environmental
projects in the state of Arkansas. The contribution was paid in full during
1995. The Company has been working with environmental engineering companies to
put in place the plans and equipment necessary to improve and ultimately
eliminate the non-toxic discharges. The Company had received preliminary
approval from the ADPCE and the state health department to begin construction of
a closed loop system. As of March 27, 1996, the closed loop system's
construction was completed. The $15,000 civil penalty and the $55,000
contribution for environmental projects have been recorded as other expense in
the accompanying consolidated statements of operations for the year ended
December 31, 1995. Management believes that the Company has remained in
compliance of its permit during 1997.
F-21
<PAGE> 47
10. CONCENTRATION OF CREDIT RISK AND
SIGNIFICANT CUSTOMER TRANSACTIONS:
During the year ended December 31, 1997, the three top customers accounted for
46 percent, 26 percent and 23 percent of revenues. There were no outstanding
accounts receivable at December 31, 1997. During the year ended December 31,
1996, three customers accounted for 36 percent, 25 percent and 13 percent of
revenues. These same customers accounted for 12 percent, 7 percent and 17
percent of accounts receivable, respectively, at December 31, 1996.
Historically, the Company's customers have been distributors and wholesalers of
roofing materials used in the residential construction industry. As a result,
the Company is subject to demand fluctuations resulting from the level of
residential construction and repair work that is impacted by various economic
factors.
11. RELATED-PARTY TRANSACTIONS:
In connection with the issuance of the STDF Notes, the Company paid $250,000 of
commissions to an individual who is also a noteholder of the Company.
During 1995, affiliates of an officer/stockholder of the Company and
international investors reimbursed the Company $132,000 for salaries paid to
certain executive employees. These payments were made to compensate the Company
for the time that the employees spent working on special projects for the
affiliates that were not related to the Company. The Company has treated these
amounts as reimbursement of salary expense for the year ended December 31, 1995.
There was no reimbursement of salary expense for the years ended December 31,
1996 and 1997.
12. PULP HEDGE CONTRACT:
During 1994, certain traditional sources of raw materials used by Striker Paper
were unable to meet Striker Paper's requirements at satisfactory price levels.
Accordingly, Striker Paper experienced a dramatic increase in the cost of its
raw materials. In an effort to mitigate its exposure to rising raw material
costs, the Company created a new subsidiary, Striker Services Corporation
(Striker Services). Striker Services was created to obtain one raw material
component, old corrugated containers (OCC), in sufficient quantities at or below
market prices to meet Striker Paper's production requirements. Effective April
1, 1996, the Company sold Striker Services to a third party (see Note 15 to
Notes To Consolidated Financial Statements)
As a result of continued concern about rising raw material costs and the
uncertainty of the success of the OCC gathering operations of Striker Services
Corporation, the Company entered into a pulp hedge contract (the Hedge)
effective July 1, 1994 with an international investor which was also a
stockholder and a noteholder, to effectively hedge against rising raw material
prices. The terms of the Hedge provided for a term of six months and for a fixed
notional amount that would be an approximation of Striker Paper's pulp needs for
production in Stephens, Arkansas. The Hedge provided that the amount of net gain
or loss, as applicable, would be equivalent to the difference between the
designated strike price, as set forth in the Hedge contract, and the Company's
imputed cost. The Hedge provided that SSC's imputed cost would be the lessor of:
(i) SSC's cash cost (as defined) or (ii) 95 percent of the market price for OCC
as quoted in industry publications. The Company canceled the Hedge effective
July 1, 1995. No activity was recorded for the remainder of the year ended
December 31, 1995. A gain of $467,772 from the Hedge has been recorded as
reductions of cost of goods sold for the year ended December 31, 1995.
13. ASSET PURCHASE OF THOROLD MILL:
On May 5, 1995, the asset purchase transaction of the land, building and
equipment of Northern Globe Building Materials, Inc.'s idled dry felt mill in
Thorold, Ontario, Canada (the "Thorold Mill") pursuant to the Asset Purchase
Agreement between Northern Globe Building Materials, Inc. (Northern), dated
March 10, 1995 was consummated. The purchase price of the assets purchased was
538,316 shares of common stock of the Company and $250,000 cash. The assets
purchased were recorded at the sum of the estimated market value of the shares
of Common Stock issued ($13.75 per share), cash paid and acquisition costs
incurred in connection with the purchase. The physical properties and assets
purchased were recorded at the total consideration paid of $8,667,642.
F-22
<PAGE> 48
The physical properties and assets purchased had formerly been used to
manufacture dry felt paper, but had not been in operation and had been idled and
wholly inactive for more than two years by its previous owners preceding their
purchase by the Company.
Pro forma information assuming the acquisition had been completed at January 1,
1995 is not meaningful since the Thorold plant had been idled for the two years
prior to the Company's acquisition.
14. CASUALTY LOSSES AT MILLS:
On January 16, 1997, the Company experienced a fire at its Thorold Mill. An
electrical short in the main building that houses the paper line caused the
fire. The fire caused extensive damage to a part of the building and the sheet
forming section of the paper line. The final settlement claim indicated total
damage to be approximately $1,500,000. The insurance coverage on the plant and
its contents 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 repairs and maintenance that will be necessary prior to
start-up. From the date of the fire to the present, the Thorold Mill has
remained idled. During December 1997 and subsequent to year end, there has been
repair and maintenance work performed along with capital improvement projects.
The Company has focused on long lead-time projects in anticipation of the
closing of the financing agreement (see Note 19 to Notes To Consolidated
Financial Statements). The Company has estimated that the start-up of the
Thorold Mill will require approximately $1,000,000 to complete the capital
projects and provide working capital. The Company signed a financing agreement
with a new group of Canadian lenders for an aggregate $2,300,000 Canadian loan
for capital projects and working capital on March 20, 1998.
On or about February 25, 1997, the Company's Stephens Mill experienced a severe
storm in connection with tornado activity in the area. 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 of the main buildings. The
Company was not utilizing the area damaged at the time. During April 1997, the
Company settled the damage claim for $75,000.
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, was 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 was destroyed in the fire. In June 1997, the
Company settled its fire damage claim with the insurance company for
approximately $122,000.
15. SALE OF SUBSIDIARY:
Effective April 1, 1996, the Company sold 100% of the outstanding shares of its
subsidiary, SSC, for consideration equal to the adjusted net book value of SSC
after giving affect to the capitalization of the intercompany account payable
owing to the Company by SSC. During December 1996, the Company received payment
in full of the note receivable.
During the months subsequent to the effective date of the sale of SSC's
outstanding shares, the Company made several advances of cash and non-cash items
to SSC. The Company recorded these advances as a current receivable. Due to the
uncertainty surrounding the former subsidiary's ability to operate and generate
sufficient cash flow, the Company has made an allowance for the entire balance
of the advances made which total $489,670.70.
F-23
<PAGE> 49
Subsequent to December 31, 1997, the Company entered into a Settlement and
Mutual Release Agreement with SSC and related parties all outstanding claims of
the Company against all released parties in consideration of the payment and
transfer to the Company of approximately $63,000 of cash, a Balemaster Auto-Tie
Baler and a tract of land in Houston, Harris County, Texas containing
approximately 1.3 acres of land.
16. DISCLOSURES ABOUT FAIR VALUE OF FINANCIAL INSTRUMENTS:
The following methods and assumptions were used to estimate the fair value of
each class of financial instruments.
Cash and Short-Term Financial Instruments
The carrying amount approximates fair value due to the short maturity
of these instruments.
Long-Term Debt
The fair value of the Zero Coupon Notes, which carry a 2.25% annual
interest rate, has been estimated by the Company to be $6,822,000 using a
present value method of calculation. The carrying value of all other long-term
debt approximates its fair value, as interest rates associated with this debt
are either variable or based on prevailing market rates for the Company.
17. INFORMATION ABOUT THE COMPANY'S OPERATIONS IN DIFFERENT GEOGRAPHIC AREAS
FOR THE YEAR ENDED DECEMBER 31,:
<TABLE>
<CAPTION>
1997 1996
------------------------------------------ ------------------------------------------
United United
States Canada Total States Canada Total
------ ------ ----- ------ ------ -----
<S> <C> <C> <C> <C> <C> <C>
Sales to unaffiliated
customers $ 1,554,346 $ 20,612 $ 1,574,958 $ 5,930,339 $ 1,412,409 $ 7,342,748
=========== =========== ============ =========== =========== ============
Gross margin (753,298) (895,980) (1,649,278) 844,632 (444,878) 399,754
=========== =========== ============ =========== =========== ============
Selling, general and
administrative expenses (2,761,807) (605,585) (3,367,392) (5,387,660) (209,438) (5,597,098)
Loss on asset impairment (791,006) -- (791,006) (391,635) -- (391,635)
Other income (expense) (1,894,244) 58,119 (1,836,125) (730,542) (109,968) (840,510)
----------- ----------- ------------ ----------- ----------- ------------
Net loss (6,200,355) (1,443,446) (7,643,801) (5,665,205) (764,284) (6,429,489)
=========== =========== ============ =========== =========== ============
Identifiable assets $ 4,943,950 $ 9,613,106 $ 14,557,056 $10,992,606 $ 8,207,860 $ 19,200,466
=========== =========== ============ =========== =========== ============
</TABLE>
Operations in 1995 were primarily in the United States.
F-24
<PAGE> 50
18. ACCOUNTING FOR STOCK-BASED COMPENSATION:
Effective January 1, 1994, the Company created the 1994 Stock Option Plan (the
Plan) which provides for the grant of stock options for up to 1,600,000 shares
of common stock to the officers and employees of the Company and its
subsidiaries. The board of directors, which administers the Plan, has authority
to determine the individuals to whom, and the time at which, options shall be
granted, as well as the number of shares to be covered by each grant. Effective
March 15, 1995, 60,000 options were granted to two employees at an exercise
price equivalent to the fair value of the common stock at such date of $14.38
per share. Such options vest at varying rates per year and expire on December
31, 2013, if not previously exercised. At December 31, 1997, options covering
470,000 shares were vested. During 1996, 110,000 options granted under the Plan
had been exercised. During 1997, no options granted under the Plan had been
exercised.
Set forth below is certain information regarding such issuances, exercises and
cancellations of options in each of the indicated fiscal years:
<TABLE>
<CAPTION>
Weighted
Average Exercise
Shares Price
------ -----
<S> <C> <C>
Balance at December 31, 1994 970,000 $ 3.20
Granted 60,000 14.38
Exercised - -
Cancelled - -
--------- ---------
Balance at December 31, 1995 1,030,000 3.85
Granted - -
Exercised (110,000) 2.50
Cancelled (300,000) 4.75
--------- ---------
Balance at December 31, 1996 620,000 3.65
Granted - -
Exercised - -
Cancelled (30,000) 2.50
--------- ---------
Balance at December 31, 1997 590,000 3.60
========= =========
</TABLE>
The 590,000 options outstanding as of December 31, 1997 had exercise prices
ranging between $2.50 and $14.38 and a weighted average exercise price of $3.60.
The Company has elected to continue to follow APB Opinion No. 25; however, if
the Company adopted SFAS 123, the Company's net loss and earnings per share for
the years ended December 31, 1997 and 1996 would have been as follows:
<TABLE>
<CAPTION>
1997 1996
---- ----
As Reported Proforma As Reported Proforma
<S> <C> <C> <C> <C>
Net loss (7,643,801) (7,729,581) (6,429,489) (6,519,937)
Net loss per share (1.75) (1.77) (1.48) (1.50)
</TABLE>
The fair value of each option was determined using the Black-Scholes option
valuation model. The key input variables used in valuing the options were as
follows: average risk-free interest rate based on 5-year Treasury bonds, stock
price volatility of 50% and estimated option term pricing of five years. The
effects of applying SFAS 123 as calculated above may not be representative of
the effects on reported net income (loss) for future years.
F-25
<PAGE> 51
19. SUBSEQUENT EVENTS (UNAUDITED):
During January, February and March 1998, the Company has issued an additional
$2,000,000 of Zero Coupon notes payable. These notes are identical to the
exchanged notes and new Zero Coupon Notes issued during 1997. The notes call for
a minimum rate of interest of 2.25%, with principal and interest due at
maturity, which is December 31, 2005. The proceeds of the notes have been used
for working capital needs and equity infusion into the Canadian subsidiary.
The Company's Canadian subsidiary accepted a Financing Proposal from a Canadian
lender for a $1,500,000 Canadian credit facility to finance the restart of the
Thorold Mill and for general working capital requirements. On January 30, 1998,
the Company's Canadian subsidiary accepted a credit facility proposal from a
Canadian Credit Union for an $800,000 Canadian line of credit to fund working
capital requirements pending collection of accounts receivable in connection
with the start-up of the Thorold Mill. Effective March 20, 1998, these
financings were closed and the Canadian subsidiary received a first tranche
funding of $1,250,000 Canadian pursuant to the signings of the financing
agreements with the Canadian lenders on April 14, 1998.
F-26
<PAGE> 52
EXHIBIT INDEX
2.1 Stock Purchase Agreement dated as of December 3, 1992, between
Collins Acquisition Group, Inc., and Hallwood Energy Partners
L.P., Hallwood Consolidated Resources Corporation and Hallwood
Oil and Gas, Inc., and Amendment to Stock Purchase Agreement
dated January 13, 1993, between the same parties (filed as
Exhibit 2.1 to the Company's Annual Report on Form 10-KSB for
the period ended December 31, 1993, hereinafter referred to as
the "1993 Form 10-KSB," and hereby incorporated by reference).
2.2 Plan of Reorganization and Agreement dated April 23, 1993,
between the Company and Striker Industries, Inc. (now Striker
Holdings, Inc.), with the Agreement and Plan of Merger of even
date therewith attached as Annex A thereto (filed as Exhibit
2.2 to the Company's 1993 Form 10-KSB, and incorporated herein
by reference).
2.3 Asset Purchase Agreement dated as of March 10, 1995, between
Northern Globe Building Materials, Inc., and the Company
(filed as Exhibit 2.3 to the Company's 1994 Form 10-KSB, and
incorporated herein by reference).
2.4 Plan and Agreement of Merger among Striker Industries, Inc.,
GSR Industries, Inc., Striker Acquisition No. 3, Inc., Newgen
Holding, Inc., Donald F. Smith, Edward T. Nesselroade, et al
dated as of November 29, 1996 filed as Exhibit 2.4 to the
Company's 1996 Form 10-K, and incorporated herein by
reference).
3.1 Certificate of Incorporation of the Company and all Amendments
thereto (filed as Exhibit 3.1 to the Company's 1993 Form
10-KSB, and incorporated herein by reference).
3.2 By-laws of the Company (filed as Exhibit 3.2 to the Company's
1993 Form 10-KSB, and incorporated herein by reference).
3.3 Certificate of Amendment to the Company's Certificate of
Incorporation effecting a 1-for-2.5 reverse stock split of the
issued Common Stock of the Company, filed in the office of the
Secretary of State of Delaware on June 26, 1997.
4.1 Pages 1, 2 and 3 of the Certificate of Amendment to the
Company's Certificate of Incorporation filed in the office of
the Secretary of State of Delaware on September 27, 1993
(included as part of Exhibit 3.1 above and filed as Exhibit
4.1 to the Company's 1993 Form 10-KSB, and incorporated herein
by reference).
4.2 Security Agreement between the Company's wholly owned
subsidiary, Striker Paper Corporation, and Finova Capital
Corporation dated April 25, 1995 covering a revolving credit
facility (filed as Exhibit 4.2 to the Company's 1995 Form
10-K, and incorporated herein by reference).
20
<PAGE> 53
4.3 Warrant of the Company issued in February and March 1995 to
purchase, in the aggregate, up to 400,000 shares of the
Company's Common Stock (filed as Exhibit 10.8 to the Company's
1994 Form 10-KSB, and incorporated herein by reference).
4.4 Subordinated Note of the Company maturing December 31, 2005
($2,577,000 in aggregate principal amount) issued December 29,
1997, referred to in the Company's 1997 Form 10-K as Zero
Coupon Notes.
4.5 Subordinated Promissory Note of the Company's wholly-owned
subsidiary, West Oxford Industries, Inc., maturing December
31, 2005 ($4,100,000 in aggregate principal amount) issued
December 26, 1997, referred to in the Company's Form 10-K as
Zero Coupon Notes.
4.6 Credit facilities' commitment letter agreement dated May 16,
1995 between North American Trust Company of Hamilton,
Ontario, Canada and the Company's wholly-owned Canadian
subsidiary, Striker Paper Canada, Inc. (filed as Exhibit 4.6
to the Company's 1995 Form 10-K, and incorporated herein by
reference).
4.7 $2,000,000 Canadian dollar amount Debenture of Striker Paper
Canada, Inc. in favor of North American Trust Company, dated
July 13, 1995 (filed as Exhibit 4.7 to the Company's 1995 Form
10-K and incorporated herein by reference).
4.8 General Security Agreement dated July 13, 1995 between Striker
Paper Canada, Inc. and North American Trust Company (filed as
Exhibit 4.8 to the Company's 1995 Form 10-K and incorporated
herein by reference).
4.9 Financial Assistance Agreement dated May 16, 1995 between
Ontario Development Corporation, Striker Paper Canada, Inc.
and Striker Industries, Inc. (filed as Exhibit 4.9 to the
Company's 1995 Form 10-K, and incorporated herein by
reference).
4.10 Warrant of the Company to purchase up to 60,000 shares of the
Company's Common Stock issued to Ontario Development
Corporation, dated September 8, 1995 (filed as Exhibit 4.10 to
the Company's 1995 Form 10-K, and incorporated herein by
reference).
4.11 Mortgage and Security Agreement between the Company's indirect
Wholly-owned Subsidiary, Striker Holdings, Inc., and Finova
Capital Corporation dated as of April 25, 1995 securing
payment of all Obligations owing by the Company and any of its
subsidiary corporations to Finova Capital Corporation (filed
as Exhibit 4.11 to the Company's 1996 Form 10-K, and
incorporated herein by reference).
4.12 Promissory Note of the Company's Wholly owned Subsidiary, STDF
Corp., maturing December 31, 2005 ($4,925,000 in aggregate
principal amount) issued September through December, 1997,
referred to in the Company's 1997 Form 10-K as Zero Coupon
Notes.
4.13 Guaranty of the Company of covering all Subordinated Notes of
its wholly owned subsidiary, STDF Corp., referred to in
Exhibit 4.12.
4.14 Guaranty of the Company covering all Promissory Notes of its
wholly owned subsidiary, West Oxford Industries, Inc.,
referred to in Exhibit 4.5.
4.15 10% Convertible Subordinated Note of the Company's
wholly-owned Subsidiary, West Oxford Industries, Inc., dated
October 28, 1996 ($798,000 in aggregate principal amount),
with Exhibit A thereto (filed as Exhibit 4.15 to the Company's
1996 Form 10-K, and incorporated herein by reference).
21
<PAGE> 54
4.16 Letter agreement dated January 23, 1997 amending the first
paragraph only of all 10% Convertible Subordinated Notes dated
October 28, 1996 referred to in Exhibit 4.15 (filed as Exhibit
4.16 to the Company's 1996 Form 10-K, and incorporated herein
by reference).
4.17 Guaranty of the Company covering all 10% Convertible
Subordinated Notes dated October 28, 1996, of its Wholly-owned
subsidiary, West Oxford Industries, Inc., referred to in
Exhibit 4.15 (filed as Exhibit 4.17 to the Company's 1996 Form
10-K, and incorporated herein by reference).
4.18 Original Issue Discount Promissory Note of the Company
($2,310,000 in original principal amount) issued by the
Company on November 26, 1996 and on January 21, 1997 (filed as
Exhibit 4.18 to the Company's 1996 Form 10-K, and incorporated
herein by reference).
4.19 Warrant of the Company issued on November 26, December 2 and
December 18 and on January 21, 1997 to holders of the
Company's Original Issue Discount Notes covering the right to
purchase, in the aggregate, up to 330,000 shares (now 132,000
shares, adjusted for the 1-for-2.5 reverse stock split on June
26, 1997, referred to in Exhibit 3.3) of the Company's Common
Stock (filed as Exhibit 4.19 to the Company's 1996 Form 10-K,
and incorporated herein by reference).
4.20 Security Agreement dated as of January 21, 1997 between the
Company's Wholly-owned subsidiaries, West Oxford Industries,
Inc., Striker Holdings, Inc. and Striker Paper Corporation,
and BlueStone Capital Partners, LP, Agent for the holders of
the Original Issue Discount Promissory Notes of the Company
referred to in Exhibit 4.18 (filed as Exhibit 4.20 to the
Company's 1996 Form 10-K, and incorporated herein by
reference).
4.21 Mortgage Agreement dated as of January 21, 1997 between the
Company's Wholly-owned Subsidiary, Striker Holdings, Inc., and
BlueStone Capital Partners, LP, Agent for the holders of the
Company's Original Issue Discount Promissory Notes referred to
in Exhibit 4.18, second subordinate and junior in priority to
the Mortgage and Security Agreement in favor of Finova Capital
Corporation referred to in Exhibit 4.11, securing payment of
the Company's Original Issue Discount Notes referred to in
Exhibit 4.18 (filed as Exhibit 4.21 to the Company's 1996 Form
10-K, and incorporated herein by reference).
4.22 Forbearance Agreement dated August 11, 1997 between Laurentian
Bank of Canada and the Company's wholly owned subsidiary,
Striker Paper Canada, Inc.
4.23 Forbearance Agreement dated October 20, 1997 between Finova
Capital Corporation, The Company, Striker Paper Corporation
and Striker Holdings, Inc, direct or indirect wholly owned
subsidiaries of the Company.
4.24 Letter agreement of Forbearance and subordination dated
December 11, 1997 between BlueStone Capital Partners, L.P. and
the Company.
10.1 Financing Proposal dated October 20, 1997 between First
Ontario Fund and the Company's Canadian subsidiary, Striker
Paper Canada, Inc.
10.2 Credit Facility commitment letter dated December 23, 1997
between Credit Union Central of Ontario Limited, So-Use Credit
Union Limited and the Company's Canadian subsidiary, Striker
Paper Canada, Inc.
10.3 Lease Agreement dated February 8, 1994, between Coventry Fund
I Ltd. and the Company, covering the Company's leased
administrative and finance offices in Houston, Texas (filed as
Exhibit 10.4 to the Company's 1993 Form 10-KSB, and
incorporated herein by reference).
10.4 1994 Amended and Restated Incentive Stock Plan of the Company
(filed as Exhibit 10.9 to the Company's 1994 Form 10-KSB, and
incorporated herein by reference).
22
<PAGE> 55
21.1 The following is a list of all subsidiaries of the Company and
the respective state or province of incorporation of each
subsidiary. The Company owns directly, of record and
beneficially, all of the voting stock of Striker Holdings,
Inc., Striker Paper Canada, Inc., Striker Services Canada,
Inc., West Oxford Industries, Inc. and STDF Corp. Striker
Holdings, Inc., in turn, owns directly, of record and
beneficially, all of the voting stock of Striker Paper
Corporation. Each subsidiary conducts its business under its
corporate name designated below:
<TABLE>
<CAPTION>
Name State (Province) of Incorporation
---- ---------------------------------
<S> <C>
Striker Holdings, Inc. Texas
Striker Paper Corporation Arkansas
Striker Paper Canada, Inc. Province of Ontario, Canada
Striker Holdings (Canada) Inc. Province of Ontario, Canada
West Oxford Industries, Inc. Texas
STDF Corp. Texas
</TABLE>
27 Financial Data
23
<PAGE> 1
EXHIBIT 3.3
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 this _____ day of June, 1997.
STRIKER INDUSTRIES, INC.
ATTEST:
By:
---------------------------
- -------------------------- David A. Collins, President
Matthew D. Pond, Secretary
<PAGE> 1
STRIKER INDUSTRIES, INC.
10.25% SUBORDINATED PROMISSORY NOTE DUE 2005
NO. XXXXX
$25,000.00 HOUSTON, TEXAS _________ ___ , 1997
CUSIP NO. 863316 AA 3
FOR VALUE RECEIVED, the undersigned, STRIKER INDUSTRIES, INC., a
Delaware corporation ("Maker"), promises to pay to the order of:
("Holder"), or registered assigns, the principal amount of TWENTY-FIVE THOUSAND
AND NO/100THS DOLLARS ($25,000.00), 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
Holder set forth above, or as subsequently provided in writing by Holder to
Maker.
This Note is one of a duly authorized issue of up to $5,000,000
principal amount of Notes of Maker, designated as its 10.25% Subordinated
Promissory Notes due 2005, which shall be issued in principal denominations of
$25,000 or less.
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, 2005 (the "Maturity Date"). Interest on the outstanding principal
balance of this Note shall be due and payable 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 the sum of (a) two and one quarter percent (2.25%) per annum and (b)
such additional percentage rate as shall be determined by Maker in its sole
discretion from time to time not to exceed eight percent (8.00%) per annum.
Interest 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. In the event and during the continuance of a default under an
Obligation, no payment of principal or interest shall be made on this Note by
Maker until such default shall have been remedied or waived or 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 (i) any indebtedness,
liability, or obligations of Maker (a) for borrowed money, (b) evidenced by a
note, debenture, or similar instrument (including a purchase money obligation)
given in connection with the acquisition of any property or assets (other than
inventory or similar property acquired in the ordinary course of business),
including securities, (c) for the payment of money relating to a capitalized
lease obligation, (d) in respect of letters of credit, bank guarantees or
bankers' acceptances (including reimbursement obligations with respect to the
foregoing), (e) under interest rate or currency swap and similar agreements and
arrangements, (f) in respect of the balance of deferred and unpaid purchase
price of any property or assets; (ii) any liability of others described in the
preceding clause (i) which Maker has guaranteed or which is otherwise its legal
liability; and (iii) any and all deferrals, renewals, extensions or refundings
of, or amendments, modifications or supplements to, any liability of the types
referred to in clauses (i) and (ii) above, other than Obligations under this
Note to Holder and to the other holders of 10.25% Subordinated Promissory Notes
of even date herewith due December 31, 2005 issued by Maker.
5. EVENTS OF DEFAULT. The term "Default", as used in this Note, shall
mean failure by Maker to pay all or any portion of the amounts due under this
Note when due and continuation of such failure for 30 days after Maker receives
written notice of such failure from Holder.
<PAGE> 2
6. REMEDIES OF HOLDER. Upon the occurrence of a Default under the
terms of this Note, Holder shall have the following rights:
(a) Holder may, at its option, and upon giving notices required by
applicable law, declare the entire principal balance of this Note and the
accrued but unpaid interest thereon, immediately due and payable.
(b) Holder shall have all the other rights and remedies available
to Holder at law or in equity.
7. 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 (a "U.S. Person"), (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) Holder is
not a citizen, resident or organized in a country which the Secretary of the
Treasury of the United States has determined provides inadequate exchange of
information under Code Section 871(h)(5), (v) a United States Internal Revenue
Service Form W-8 shall be executed by or on behalf of Holder, and (vi) Holder
promises to notify Maker in writing within 30 days of occurrence if its country
of citizenship, residence or organization is found to be, or changes to, the
United States or a country described in clause (iv) of this Section 7(a).
(b) Each subsequent Holder who is not a U. S. Person will be
required to certify to Maker the information set out in subsection 7(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 Maker. A Transfer Statement submitted to the Maker
by any transferee who is a U. S. 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 U. S. Person shall
promptly provide to Maker a United States Internal Revenue Service Form W-9.
(d) Each Holder shall re-certify in writing the information set
forth in subsection 7(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 7(b) of this Note.
(f) This Note may be sold, transferred, assigned, conveyed, or
otherwise disposed of by Holder; however, since this Note has not been
registered under the Securities Act of 1933, as amended (the "Act"), or any
other applicable securities laws, this Note may not be offered or sold in the
United States or to U.S. Persons unless this Note is registered under the Act
or an exemption from the registration requirements of the Act is available.
8. 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 its successors and assigns.
9. INDENTURE
(a) Indenture. Upon written request by Maker delivered to Holder,
Holder shall enter into an indenture or indentures for the purpose of publicly
registering this Note, adding any provisions to, or changing in any manner any
of the provisions of, this Note or of modifying in any manner the rights of
Maker under this Note; provided, however, that without the written consent of
Holder, no change shall be made in the stated maturity of the principal of, or
accrued interest on, this Note, the principal amount hereof , the rate of
interest payable hereon, the method of calculation of interest hereon, the coin
or currency in which this Note is payable, the right to institute suit for the
enforcement of payment hereof, or the subordination provisions hereof in a
manner adverse to Holder.
(b) Conformity with Trust Indenture Act. Any indenture executed
pursuant to this Section 9 shall conform to the requirements of the Trust
Indenture Act of 1939, as amended. If Maker shall so determine, new securities
modified so as to conform, in the opinion of the trustee and Maker, to any such
indenture may be prepared and executed by Maker and authenticated and delivered
by the trustee in exchange for the Note.
10. APPLICABLE LAW. This Note shall be governed by and construed in
accordance with the internal laws of the State of Texas and the laws of the
United States applicable to transactions within such State.
IN WITNESS WHEREOF, Maker has caused this Note to be executed as of
the date first above written.
STRIKER INDUSTRIES, INC.,
a Delaware corporation
By:___________________________
Name: Matthew D. Pond
Title: Chief Financial Officer
2
<PAGE> 3
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 ________________, ____________ (the "Note"), issued by Striker
Industries, Inc. ("Maker") and payable to the order of Holder in the original
principal amount of $__________.00, subject to the terms and conditions of the
Note.
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 address shown below for the Transferee is its principal
office (or permanent residence in the case of an individual);
(iv) the Transferee is not a ten percent (10%) shareholder of Maker as
defined by the Internal Revenue code of 1986 (as amended, the "Code") Section
871(h)(3);
(v) a United States Internal Revenue Service Form W-8 executed by or
on behalf of the Transferee is attached hereto; and
(vi) the Transferee promises to notify Maker within 30 days of
occurrence if its country of citizenship, residence, or organization is found
to be, or changes to, the United States.
TRANSFEREE: HOLDER/TRANSFEROR:
By____________________________ By___________________________
Name:_________________________ Name:________________________
Title:________________________ Title:_______________________
Date:_________________________ Date:________________________
Address of Transferee:
______________________________
______________________________
______________________________
<PAGE> 1
WEST OXFORD INDUSTRIES, INC.
10.25% SUBORDINATED PROMISSORY NOTE DUE 2005
NO. 10FIELD(NUMBER)
$25,000.00 HOUSTON, TEXAS DECEMBER 26, 1997
CUSIP NO. 955055 AA 6
FOR VALUE RECEIVED, the undersigned, WEST OXFORD INDUSTRIES, INC., a
Texas corporation ("Maker"), promises to pay to the order of:
OPPENHEIMER & CO., INC.
("Holder"), or registered assigns, the principal amount of TWENTY-FIVE THOUSAND
AND NO/100THS DOLLARS ($25,000.00), 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
Holder set forth above, or as subsequently provided in writing by Holder to
Maker.
This Note is one of a duly authorized issue of up to $5,000,000
principal amount of Notes of Maker, designated as its 10.25% Subordinated
Promissory Notes due 2005, which shall be issued in principal denominations of
$25,000 or less.
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, 2005 (the "Maturity Date"). Interest on the outstanding principal
balance of this Note shall be due and payable 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 the sum of (a) two and one quarter percent (2.25%) per annum and (b)
such additional percentage rate as shall be determined by Maker in its sole
discretion from time to time not to exceed eight percent (8.00%) per annum.
Interest 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. In the event and during the continuance of a default under an
Obligation, no payment of principal or interest shall be made on this Note by
Maker until such default shall have been remedied or waived or 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 (i) any indebtedness,
liability, or obligations of Maker (a) for borrowed money, (b) evidenced by a
note, debenture, or similar instrument (including a purchase money obligation)
given in connection with the acquisition of any property or assets (other than
inventory or similar property acquired in the ordinary course of business),
including securities, (c) for the payment of money relating to a capitalized
lease obligation, (d) in respect of letters of credit, bank guarantees or
bankers' acceptances (including reimbursement obligations with respect to the
foregoing), (e) under interest rate or currency swap and similar agreements and
arrangements, (f) in respect of the balance of deferred and unpaid purchase
price of any property or assets; (ii) any liability of others described in the
preceding clause (i) which Maker has guaranteed or which is otherwise its legal
liability; and (iii) any and all deferrals, renewals, extensions or refundings
of, or amendments, modifications or supplements to, any liability of the types
referred to in clauses (i) and (ii) above, other than Obligations under this
Note to Holder and to the other holders of 10.25% Subordinated Promissory Notes
of even date herewith due December 31, 2005 issued by Maker.
5. EVENTS OF DEFAULT. The term "Default", as used in this Note, shall
mean failure by Maker to pay all or any portion of the amounts due under this
Note when due and continuation of such failure for 30 days after Maker receives
written notice of such failure from Holder.
<PAGE> 2
6. REMEDIES OF HOLDER. Upon the occurrence of a Default under the
terms of this Note, Holder shall have the following rights:
(a) Holder may, at its option, and upon giving notices required by
applicable law, declare the entire principal balance of this Note and the
accrued but unpaid interest thereon, immediately due and payable.
(b) Holder shall have all the other rights and remedies available
to Holder at law or in equity.
7. 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 (a "U.S. Person"), (ii) Holder is the beneficial owner of this Note,
(iii) Holder is not a ten percent (10%) shareholder of Maker or of Striker
Industries, Inc., a Delaware corporation and the parent corporation of Maker,
as defined by the Internal Revenue Code of 1986, as amended, Section 871(h)(3),
(iv) Holder is not a citizen, resident or organized in a country which the
Secretary of the Treasury of the United States has determined provides
inadequate exchange of information under Code Section 871(h)(5), (v) a United
States Internal Revenue Service Form W-8 shall be executed by or on behalf of
Holder, and (vi) Holder promises to notify Maker in writing within 30 days of
occurrence if its country of citizenship, residence or organization is found to
be, or changes to, the United States or a country described in clause (iv) of
this Section 7(a).
(b) Each subsequent Holder who is not a U. S. Person will be
required to certify to Maker the information set out in subsection 7(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 Maker. A Transfer Statement submitted to the Maker
by any transferee who is a U. S. 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 U. S. Person shall
promptly provide to Maker a United States Internal Revenue Service Form W-9.
(d) Each Holder shall re-certify in writing the information set
forth in subsection 7(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 7(b) of this Note.
(f) This Note may be sold, transferred, assigned, conveyed, or
otherwise disposed of by Holder; however, since this Note has not been
registered under the Securities Act of 1933, as amended (the "Act"), or any
other applicable securities laws, this Note may not be offered or sold in the
United States or to U.S. Persons unless this Note is registered under the Act
or an exemption from the registration requirements of the Act is available
8. 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 its successors and assigns.
9. INDENTURE
(a) Indenture. Upon written request by Maker delivered to Holder,
Holder shall enter into an indenture or indentures for the purpose of publicly
registering this Note, adding any provisions to, or changing in any manner any
of the provisions of, this Note or of modifying in any manner the rights of
Maker under this Note; provided, however, that without the written consent of
Holder, no change shall be made in the stated maturity of the principal of, or
accrued interest on, this Note, the principal amount hereof, the rate of
interest payable hereon, the method of calculation of interest hereon, the coin
or currency in which this Note is payable, the right to institute suit for the
enforcement of payment hereof, or the subordination provisions hereof in a
manner adverse to Holder.
(b) Conformity with Trust Indenture Act. Any indenture executed
pursuant to this Section 9 shall conform to the requirements of the Trust
Indenture Act of 1939, as amended. If Maker shall so determine, new securities
modified so as to conform, in the opinion of the trustee and Maker, to any such
indenture may be prepared and executed by Maker and authenticated and delivered
by the trustee in exchange for this Note.
10. APPLICABLE LAW. This Note shall be governed by and construed in
accordance with the internal laws of the State of Texas and the laws of the
United States applicable to transactions within such State.
IN WITNESS WHEREOF, Maker has caused this Note to be executed as of
the date first above written.
WEST OXFORD INDUSTRIES, INC.
a Texas corporation
By:___________________________
Name: Matthew D. Pond
Title: Chief Financial Officer
2
<PAGE> 3
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 ________________, ____________ (the "Note"), issued by West Oxford
Industries, Inc. ("Maker") and payable to the order of Holder in the original
principal amount of $__________.00, subject to the terms and conditions of the
Note.
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 address shown below for the Transferee is its principal
office (or permanent residence in the case of an individual);
(iv) the Transferee is not a ten percent (10%) shareholder of Maker
or of Striker Industries, Inc., a Delaware corporation and the parent
corporation of Maker, as defined by the Internal Revenue code of 1986 (as
amended, the "Code") Section 871(h)(3);
(v) a United States Internal Revenue Service Form W-8 executed by or
on behalf of the Transferee is attached hereto; and
(vi) the Transferee promises to notify Maker within 30 days of
occurrence if its country of citizenship, residence, or organization is found
to be, or changes to, the United States.
TRANSFEREE: HOLDER/TRANSFEROR:
By___________________________ By________________________
Name:________________________ Name:_____________________
Title:_______________________ Title:____________________
Date:________________________ Date:_____________________
Address of Transferee:
______________________________
______________________________
______________________________
<PAGE> 1
STDF CORP.
10.25% SUBORDINATED PROMISSORY NOTE DUE 2005
NO. FIELD(NUMBER)
$25,000.00 HOUSTON, TEXAS FEBRUARY 24, 1998
CUSIP NO. 78476F AA 5
FOR VALUE RECEIVED, the undersigned, STDF CORP., a Texas corporation
("Maker"), promises to pay to the order of:
OPPENHEIMER & CO., INC.
("Holder"), or registered assigns, the principal amount of TWENTY-FIVE THOUSAND
AND NO/100THS DOLLARS ($25,000.00), 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
Holder set forth above, or as subsequently provided in writing by Holder to
Maker.
This Note is one of a duly authorized issue of up to $6,000,000
principal amount of Notes of Maker, designated as its 10.25% Subordinated
Promissory Notes due 2005, which shall be issued in principal denominations of
$25,000 or less.
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, 2005 (the "Maturity Date"). Interest on the outstanding principal
balance of this Note shall be due and payable 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 the sum of (a) two and one quarter percent (2.25%) per annum and (b)
such additional percentage rate as shall be determined by Maker in its sole
discretion from time to time not to exceed eight percent (8.00%) per annum.
Interest 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. In the event and during the continuance of a default under an
Obligation, no payment of principal or interest shall be made on this Note by
Maker until such default shall have been remedied or waived or 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 (i) any indebtedness,
liability, or obligations of Maker (a) for borrowed money, (b) evidenced by a
note, debenture, or similar instrument (including a purchase money obligation)
given in connection with the acquisition of any property or assets (other than
inventory or similar property acquired in the ordinary course of business),
including securities, (c) for the payment of money relating to a capitalized
lease obligation, (d) in respect of letters of credit, bank guarantees or
bankers' acceptances (including reimbursement obligations with respect to the
foregoing), (e) under interest rate or currency swap and similar agreements and
arrangements, (f) in respect of the balance of deferred and unpaid purchase
price of any property or assets; (ii) any liability of others described in the
preceding clause (i) which Maker has guaranteed or which is otherwise its legal
liability; and (iii) any and all deferrals, renewals, extensions or refundings
of, or amendments, modifications or supplements to, any liability of the types
referred to in clauses (i) and (ii) above, other than Obligations under this
Note to Holder and to the other holders of 10.25% Subordinated Promissory Notes
of even date herewith due December 31, 2005 issued by Maker.
5. EVENTS OF DEFAULT. The term "Default", as used in this Note, shall
mean failure by Maker to pay all or any portion of the amounts due under this
Note when due and continuation of such failure for 30 days after Maker receives
written notice of such failure from Holder.
6. REMEDIES OF HOLDER. Upon the occurrence of a Default under the terms of
this Note, Holder shall have the following rights:
<PAGE> 2
(a) Holder may, at its option, and upon giving notices required by
applicable law, declare the entire principal balance of this Note and the
accrued but unpaid interest thereon, immediately due and payable.
(b) Holder shall have all the other rights and remedies available
to Holder at law or in equity.
7. 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 (a "U.S. Person"), (ii) Holder is the beneficial owner of this Note,
(iii) Holder is not a ten percent (10%) shareholder of Maker or of Striker
Industries, Inc., a Delaware corporation and the parent corporation of Maker,
as defined by the Internal Revenue Code of 1986, as amended, Section 871(h)(3),
(iv) Holder is not a citizen, resident or organized in a country which the
Secretary of the Treasury of the United States has determined provides
inadequate exchange of information under Code Section 871(h)(5), (v) a United
States Internal Revenue Service Form W-8 shall be executed by or on behalf of
Holder, and (vi) Holder promises to notify Maker in writing within 30 days of
occurrence if its country of citizenship, residence or organization is found to
be, or changes to, the United States or a country described in clause (iv) of
this Section 7(a).
(b) Each subsequent Holder who is not a U. S. Person will be
required to certify to Maker the information set out in subsection 7(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 Maker. A Transfer Statement submitted to the Maker
by any transferee who is a U. S. Person shall have paragraph B thereof deleted
and a United States Internal Revenue Service Form W-8 attached.
(c) Any subsequent Holder who is or becomes a U. S. Person shall
promptly provide to Maker a United States Internal Revenue Service Form W-8.
(d) Each Holder shall re-certify in writing the information set
forth in subsection 7(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 7(b) of this Note.
(f) This Note may be sold, transferred, assigned, conveyed, or
otherwise disposed of by Holder; provided that (i) at least 24 hours prior
written notice of such sale, transfer, assignment, conveyance, or other
disposition is given by Holder to Maker and (ii) since this Note has not been
registered under the Securities Act of 1933, as amended (the "Act"), or any
other applicable securities laws, this Note may not be offered or sold in the
United States or to U.S. Persons unless this Note is registered under the Act
or an exemption from the registration requirements of the Act is available and
Maker shall have been furnished an opinion of counsel that such registration is
not required.
8. 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 its successors and assigns.
9. INDENTURE
(a) Indenture. Upon written request by Maker delivered to Holder,
Holder shall enter into an indenture or indentures for the purpose of publicly
registering this Note, adding any provisions to, or changing in any manner any
of the provisions of, this Note or of modifying in any manner the rights of
Maker under this Note; provided, however, that without the written consent of
Holder, no change shall be made in the stated maturity of the principal of, or
accrued interest on, this Note, the principal amount hereof, the rate of
interest payable hereon, the method of calculation of interest hereon, the coin
or currency in which this Note is payable, the right to institute suit for the
enforcement of payment hereof, or the subordination provisions hereof in a
manner adverse to Holder.
(b) Conformity with Trust Indenture Act. Any indenture executed
pursuant to this Section 9 shall conform to the requirements of the Trust
Indenture Act of 1939, as amended. If Maker shall so determine, new securities
modified so as to conform, in the opinion of the trustee and Maker, to any such
indenture may be prepared and executed by Maker and authenticated and delivered
by the trustee in exchange for this Note.
10. APPLICABLE LAW. This Note shall be governed by and construed in
accordance with the internal laws of the State of Texas and the laws of the
United States applicable to transactions within such State.
IN WITNESS WHEREOF, Maker has caused this Note to be executed as of
the date first above written.
STDF CORP.,
a Texas corporation
By:___________________________
Matthew D. Pond
Chief Financial Officer
2
<PAGE> 3
2
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 ________________, ____________ (the "Note"), issued by
STDF Corp. ("Maker") and payable to the order of Holder in the original
principal amount of $__________.00, subject to the terms and conditions of the
Note.
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 address shown below for the Transferee is its principal
office (or permanent residence in the case of an individual);
(iv) the Transferee is not a ten percent (10%) shareholder of Maker
or of Striker Industries, Inc., a Delaware corporation and the parent
corporation of Maker, as defined by the Internal Revenue code of 1986 (as
amended, the "Code") Section 871(h)(3);
(v) a United States Internal Revenue Service Form W-8 executed by or
on behalf of the Transferee is attached hereto; and
(vi) the Transferee promises to notify Maker within 30 days of
occurrence if its country of citizenship, residence, or organization is found
to be, or changes to, the United States.
TRANSFEREE: HOLDER/TRANSFEROR:
By______________________________ By___________________________
Name:___________________________ Name:________________________
Title:__________________________ Title:_______________________
Date:___________________________ Date:________________________
Address of Transferee:
________________________________
________________________________
________________________________
3
<PAGE> 1
EXHIBIT 4.13
GUARANTY
THIS GUARANTY executed as of __________, 1997 (this "Guaranty"), by
Striker Industries, Inc., a Delaware corporation (the "Guarantor"), for the
benefit of each holder (a "Holder") of the 10.25% Subordinated Promissory Notes
due 2005 (each a "Note") issued by STDF Corp., a Texas corporation (the
"Issuer"), on the date hereof.
The Guarantor absolutely and unconditionally guarantees to each Holder
the prompt payment at maturity (by acceleration or otherwise), and at all times
thereafter, of the Guaranteed Debt (defined below), as follows:
1. "Guaranteed Debt" shall mean, with respect to each Holder, such
Holder's Note or notes, including all principal and interest
payable thereon (including without limitation, such additional
interest which the Issuer in its sole discretion determines to
be payable under Section 2(b) of each such Note). Unless
otherwise stated, terms defined in each Note have the same
meanings when used in this Guaranty.
2. If the Guarantor becomes liable for any indebtedness owing by
the issuer to a Holder, other than under this Guaranty, such
liability will not be in any manner impaired of affected by this
Guaranty, and the rights of such Holder under this Guaranty are
cumulative of any and all other rights of such Holder may ever
have against Guarantor. The exercise by such Holder of any right
or remedy under this Guaranty of otherwise will not preclude the
concurrent of subsequent exercise of any other right or remedy.
3. The Guarantor shall have no liability or obligation under this
guaranty with respect to any note, until the Holder of such
Note, prior to exercising any remedies under the Note, shall
notify the guarantor in writing of any Default and the Guarantor
shall have the right to cure any such Default within thirty
business days after receiving such notice (the "Cure Period").
If, while a Default exists under a Note, the Issuer fails to pay
the entire unpaid balance of the principal of, and/or the
interest on, such Note which is then due and payable and the
Guarantor fails to cure such Default within the Cure Period,
then the Guarantor shall, on demand and without further notice
of dishonor and without any notice having been given to the
Guarantor previous to such demand of either the acceptance by
the affected Holder of this guaranty or the creation of
incurrence of any Guaranteed Debt, pay the amount of the
guaranteed Debt then due and payable to such Holder, and it is
not necessary for such Holder, in order to enforce such payment
by the Guarantor, first or contemporaneously to institute suit
or exhaust remedies against the Issuer or others liable on such
indebtedness or to enforce rights against any collateral
securing such indebtedness.
4. This Guaranty benefits each Holder and its successors and
permitted assigns and binds Guarantor and its successors and
assigns; otherwise the rights and benefits of this Guaranty may
not be transferred.
STRIKER INDUSTRIES, INC.
By: /s/Matthew D. Pond
---------------------------
Name: Matthew D. Pond
Title: Chief Financial Officer
<PAGE> 1
EXHIBIT 4.14
GUARANTY
THIS GUARANTY executed as of December 26, 1997 (this "Guaranty"), by
Striker Industries, Inc., a Delaware corporation (the "Guarantor"), for the
benefit of each holder (a "Holder") of the 10.25% Subordinated Promissory Notes
due 2005 (each a "Note") issued by STDF Corp., a Texas corporation (the
"Issuer"), on the date hereof.
The Guarantor absolutely and unconditionally guarantees to each Holder
the prompt payment at maturity (by acceleration or otherwise), and at all times
thereafter, of the Guaranteed Debt (defined below), as follows:
1. "Guaranteed Debt" shall mean, with respect to each Holder, such
Holder's Note or notes, including all principal and interest payable thereon
(including without limitation, such additional interest which the Issuer in its
sole discretion determines to be payable under Section 2(b) of each such Note).
Unless otherwise stated, terms defined in each Note have the same meanings when
used in this Guaranty.
2. If the Guarantor becomes liable for any indebtedness owing by the
issuer to a Holder, other than under this Guaranty, such liability will not be
in any manner impaired of affected by this Guaranty, and the rights of such
Holder under this Guaranty are cumulative of any and all other rights of such
Holder may ever have against Guarantor. The exercise by such Holder of any right
or remedy under this Guaranty of otherwise will not preclude the concurrent of
subsequent exercise of any other right or remedy.
3. The Guarantor shall have no liability or obligation under this
guaranty with respect to any note, until the Holder of such Note, prior to
exercising any remedies under the Note, shall notify the guarantor in writing of
any Default and the Guarantor shall have the right to cure any such Default
within thirty business days after receiving such notice (the "Cure Period"). If,
while a Default exists under a Note, the Issuer fails to pay the entire unpaid
balance of the principal of, and/or the interest on, such Note which is then due
and payable and the Guarantor fails to cure such Default within the Cure Period,
then the Guarantor shall, on demand and without further notice of dishonor and
without any notice having been given to the Guarantor previous to such demand of
either the acceptance by the affected Holder of this guaranty or the creation of
incurrence of any Guaranteed Debt, pay the amount of the guaranteed Debt then
due and payable to such Holder, and it is not necessary for such Holder, in
order to enforce such payment by the Guarantor, first or contemporaneously to
institute suit or exhaust remedies against the Issuer or others liable on such
indebtedness or to enforce rights against any collateral securing such
indebtedness.
4. This Guaranty benefits each Holder and its successors and permitted
assigns and binds Guarantor and its successors and assigns; otherwise the rights
and benefits of this Guaranty may not be transferred.
STRIKER INDUSTRIES, INC.
By: /s/ MATTHEW D. POND
---------------------------
Matthew D. Pond
Chief Financial Officer
<PAGE> 1
EXHIBIT 4.22
FORBEARANCE AGREEMENT
THIS AGREEMENT made the 11th day of August, 1997.
B E T W E E N:
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.
<TABLE>
<CAPTION>
TERM LOAN 1:
Balance owing as at July 15, 1997 is:
<S> <C>
Principal: $400,000.04
Interest to July 15, 1997 $ 8,406.33
-----------
Total Owing.......................... $408,406.37
-----------
(per diem interest rate $80.90)
</TABLE>
<PAGE> 2
-2-
(ii) STRIKER PAPER CANADA, INC.
<TABLE>
<CAPTION>
TERM LOAN 2:
Balance owing as at July 15, 1997 is:
<S> <C>
Principal: $799,999.96
Interest to July 15, 1997 $ 12,149.12
-----------
Total Owing................... $812,149.08
-----------
(per diem interest rate $116.58)
</TABLE>
(iii) STRIKER PAPER CANADA, INC.
<TABLE>
<CAPTION>
LINE OF CREDIT:
Balance owing as at July 15, 1997 is:
<S> <C>
Principal: $500,606.48
Interest to July 15,1 997 $ 1,484.55
-----------
Total Owing................... $502,091.03
-----------
(per diem interest rate $100.32)
</TABLE>
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> 3
-3-
THE SECURITY
5. The Secured Party=s Security, sometimes collectively referred to
herein as the ASecurity@ 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 950621 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> 4
-4-
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> 5
-5-
(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> 6
-6-
(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> 7
-7-
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> 8
-8-
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:
) --------------------------------
)
) Per:
) --------------------------------
)
)
) Ontario Development Corporation
)
)
) Per:
--------------------------------
<PAGE> 1
EXHIBIT 4.23
FORBEARANCE AGREEMENT
THIS AGREEMENT, dated as of the 20th day of October, 1997, by and
among FINOVA CAPITAL CORPORATION, having a place of business located at 111
West 40th Street, New York, New York 10018 ("FINOVA"), STRIKER PAPER
CORPORATION, STRIKER INDUSTRIES, INC. and STRIKER HOLDINGS, INC., having a
principal place of business at One Riverway, Suite 2450, Houston, Texas 77056,
David A. Collins and Catherine Collins, residing at 11302 Memorial Drive,
Houston, Texas 77024, and Matthew D. Pond and Nancy Kornegay, residing at 3926
Purdue Street, Houston, Texas 77005.
WHEREAS, STRIKER PAPER CORPORATION, STRIKER INDUSTRIES, INC. and
STRIKER HOLDINGS, INC. (collectively, "Striker") and FINOVA entered into
certain Security Agreements, dated April 25, 1995 (collectively, the "Security
Agreement"); and
WHEREAS, pursuant to the Security Agreement, FINOVA agreed to provide
Striker with certain financing; and
WHEREAS, Striker remains obligated to FINOVA for the monies borrowed
under the Security Agreement and otherwise; and
WHEREAS, Striker executed and delivered to FINOVA certain guarantees,
each of which guaranteed to FINOVA the obligations of Striker, and
WHEREAS, pursuant to written guarantees dated April 25, 1995
(collectively, the "Guaranty"), Striker guaranteed to FINOVA all obligations
owing to FINOVA under the Security Agreement and otherwise; and
WHEREAS, pursuant to written guarantees dated April 25, 1995
(collectively, the "Personal Guaranty"), David A. Collins, Catherine Collins,
Matthew D. Pond and Nancy Kornegay (collectively, the "Guarantors") the
Guarantors guaranteed to FINOVA all obligations owing to FINOVA under the
Security Agreement and otherwise; and
WHEREAS, FINOVA continued to grant advances, loans and extensions of
credit to or for the benefit of Striker; and
WHEREAS, certain defaults exist under the Security Agreement; and
WHEREAS, as of July 31, 1997, Striker was obligated to FINOVA in the
amount of $621,914.83 together with interest thereon from July 1, 1997 at the
interest rate set forth in the Security Agreement plus FINOVA's costs and
expenses, including but not limited to legal fees, costs and disbursements and
any and all additional advances made by FINOVA to protect its collateral
(collectively, "Obligations") which Obligations are guaranteed by Striker and
the Guarantors; and
<PAGE> 2
WHEREAS, on or about September 5, 1997, FINOVA sent written demand
letter to Striker and the Guarantors via certified mail, return receipt
requested (each a "Demand Letter") which Demand Letters requested that Striker
and the Guarantors pay $621,914.83 plus interest and legal fees from the date
of demand to FINOVA on account of the Guaranty, Personal Guaranty and Security
Agreement; and
WHEREAS, Striker and the Guarantors have requested that FINOVA forbear
in commencing any action against Striker under or pursuant to the Guaranty,
Personal Guaranty and the Security Agreement for the obligations owing to
FINOVA under the Security Agreement and FINOVA is willing to forbear pursuant
to the terms and conditions contained in this Agreement; and
NOW, THEREFORE, for good and valuable consideration, the receipt and
sufficiency of which are hereby acknowledged the parties agree as follows:
1. All of the above recitals are hereby incorporated by reference
and made a part of this Agreement.
2. Striker shall pay in good funds to FINOVA as follows: (a) on
or before October 22, 1997, the amount of $62,000.00; (b) on or before November
1, 1997, the amount of $15,800.00; and (c) continuing on the first day of each
month thereafter the amount of $15,800.00 until all obligations including
interest and costs are paid in full to FINOVA (each such payment, hereinafter
referred to as a "Installment").
3. Each Installment shall be deposited by FINOVA and credited
against the obligations of Striker under the Security Agreement.
4. Striker and the Guarantors hereby acknowledge that they are
indebted to FINOVA under the Security Agreement, the Personal Guaranty and the
Guaranty.
5. The Forbearance Period shall mean the period from the date of
this Agreement until the "Termination Date", which Termination Date shall be
the earlier of: (a) receipt of payment in full by FINOVA; or (b) immediately
upon an Event of Default under this Agreement (as such term is hereafter
defined).
6. FINOVA agrees during the Forbearance Period to forbear in
commencing any action upon the Guaranty, the Personal Guaranty and the Security
Agreement for the obligations owing to FINOVA under the Security Agreement
provided an Event of Default under this Agreement has not occurred (as such
term is hereafter defined).
7. An Event of Default under this Agreement shall mean the
following: (a) the failure of Striker or any of the Guarantors to observe, or
timely comply with, or perform
2
<PAGE> 3
any covenant or term contained in this Agreement; (b) the failure of Striker or
any of the Guarantors to pay FINOVA any sum when due under this Agreement; (c)
the occurrence of a material adverse change subsequent to the date of this
Agreement with respect to Striker's or any Guarantors' finances or property,
it being specifically understood and agreed that FINOVA may make such
determination in its sole and absolute discretion; (d) any financial
statements, affidavits of financial condition or other financial information
delivered or provided by Striker or any of the Guarantors in connection with
this Agreement is or shall be false or misleading in any material respect; (e)
any warranty or representation made or deemed made by Striker or the Guarantors
in this Agreement is or shall be untrue in any material respect; (f) if at any
time FINOVA shall, in FINOVA's sole and absolute discretion, consider the
obligations insecure or any part of the collateral unsafe, insecure or
insufficient and Striker or the Guarantors (or other person or entity acting on
Striker's behalf) shall not on FINOVA's demand furnish other collateral or
make payment on account, satisfactory to FINOVA in its sole and absolute
discretion; and (g) Striker or any of the Guarantors: (I) files a petition with
any bankruptcy court of competent jurisdiction; or (ii) admits in writing its
inability to pay its debts as they mature.
8. This Agreement shall be construed under and in accordance with
the laws of the State of New York.
9. This Agreement represents the entire Agreement between FINOVA,
Striker and Guarantors, all such other agreements (except the Guaranty, the
Personal Guaranty, the Security Agreement and any other guaranty or security
agreement) being merged with this Agreement and the Guaranty, the Personal
Guaranty, the Security Agreement and any other guaranty or security agreement
remaining in full force and effect notwithstanding FINOVA's willingness to
forbear in commencing any action for obligations owing to FINOVA under the
Security Agreement pursuant to the terms and conditions contained in this
Agreement.
10. No executory agreement and no course of dealing between
Striker, the Guarantors and FINOVA shall be effective to change or modify this
Agreement in whole or in part; nor shall any change, modification or waiver of
any rights or powers of FINOVA be valid or effective unless in writing or
signed by an authorized officer of FINOVA. Notwithstanding anything to the
contrary contained herein, FINOVA does not agree to change, modify, waive, or
forbear in exercising any of its rights or powers with respect to any
corporation, shareholder or individual not a party to this Agreement.
3
<PAGE> 4
IN WITNESS WHEREOF, the undersigned hereby agree to the terms and
conditions set forth hereinabove.
FINOVA CAPITAL CORPORATION
By: /s/ PHILIP COTUMACCIO
----------------------------------
Philip Cotumaccio,
Vice President
STRIKER PAPER CORPORATION
By: /s/ MATTHEW D. POND
----------------------------------
Matthew D. Pond
Title: Chief Financial Officer
-------------------------------
By: /s/ DAVID A. COLLINS
----------------------------------
David A. Collins
Title: Chief Executive Officer
------------------------------
STRIKER INDUSTRIES, INC.
By: /s/ DAVID A. COLLINS
----------------------------------
David A. Collins
Title: Chief Executive Officer
------------------------------
By: /s/ MATTHEW D. POND
----------------------------------
Matthew D. Pond
Title: Chief Financial Officer
-------------------------------
STRIKER HOLDINGS, INC.
By: /s/ MATTHEW D. POND
----------------------------------
Matthew D. Pond
Title: Chief Financial Officer
-------------------------------
By: /s/ DAVID A. COLLINS
----------------------------------
David A. Collins
Title: Chief Executive Officer
------------------------------
4
<PAGE> 5
/s/ DAVID A. COLLINS
----------------------------------
David A. Collins, Guarantor
/s/ CATHERINE COLLINS
----------------------------------
Catherine Collins, Guarantor
/s/ MATTHEW D. POND
----------------------------------
Matthew D. Pond, Guarantor
/s/ NANCY KORNEGAY
----------------------------------
Nancy Kornegay, Guarantor
STATE OF NEW YORK )
)ss.:
COUNTY OF NEW YORK )
On the ___ day of October, 1997 before me personally came Philip
Cotumaccio, to me known, who, being by me duly sworn, did depose and say that
he is the Vice President of FINOVA CAPITAL CORPORATION, the corporation
described in and which executed the foregoing instruments and that he signed
his name hereto by order of the board of directors of said corporation.
----------------------------------
Notary Public
STATE OF TEXAS )
)ss.:
COUNTY OF HARRIS )
On the 2Oth day of October, 1997, before me personally came Matthew D.
Pond, to me known, who being by me duly sworn, did depose and say that he
resides at 3926 Purdue, that he is the CFO of Striker Paper Corporation,
Striker Industries, Inc. And Striker Holdings, Inc., the corporation described
in and which executed the foregoing instruments and that he signed his name
thereto by order of the board of directors of said corporation.
/s/ DARIA DYKES
----------------------------------
Notary Public
[SEAL]
5
<PAGE> 6
STATE OF TEXAS )
)ss.:
COUNTY OF HARRIS )
On the 21th day of October, 1997, before me personally came David A.
Collins, to me known, who being by me duly sworn, did depose and say that he
resides at Houston Tx, that he is the C.E.O of Striker Paper Corporation,
Striker Industries, Inc. And Striker Holdings, Inc., the corporation described
in and which executed the foregoing instruments and that he signed his name
thereto by order of the board of directors of said corporation.
/s/ PENELOPE DILLINGHAM
---------------------------------------
Notary Public
[SEAL]
STATE OF TEXAS )
)ss.:
COUNTY OF HARRIS )
On the 21th day of October, 1997, before me personally appeared David
A. Collins, to me known, and known to me to be the individual described in and
who executed the foregoing instrument and he duly acknowledged to me that he
executed the same.
/s/ PENELOPE DILLINGHAM
---------------------------------------
Notary Public
[SEAL]
STATE OF TEXAS )
)ss.:
COUNTY OF HARRIS )
On the 21th day of October, 1997, before me personally appeared
Catherine Collins, to me known, and known to me to be the individual described
in and who executed the foregoing instrument and he duly acknowledged to me
that he executed the same.
/s/ PENELOPE DILLINGHAM
---------------------------------------
Notary Public
[SEAL]
6
<PAGE> 7
STATE OF TEXAS )
)ss.:
COUNTY OF HARRIS )
On the 20th day of October, 1997, before me personally appeared
Matthew D. Pond, to me known, and known to me to be the individual described in
and who executed the foregoing instrument and he duly acknowledged to me that
he executed the same.
/s/ DARIA DYKES
----------------------------------------
Notary Public
[SEAL]
STATE OF TEXAS )
)ss.:
COUNTY OF HARRIS )
On the 20th day of October, 1997, before me personally appeared Nancy
Kornegay, to me known, and known to me to be the individual described in and
who executed the foregoing instrument and he duly acknowledged to me that he
executed the same.
/s/ DARIA DYKES
----------------------------------------
Notary Public
[SEAL]
7
<PAGE> 1
EXHIBIT 4.24
[GREENBERGER & FORMAN ATTORNEYS AT LAW LETTERHEAD]
December 11, 1997
David Collins
Striker Industries, Inc.
One Riverway, Suite 2450
Houston, Texas 77056
Re. Bridge Notes
Dear David:
I write on behalf of BlueStone Capital Partners, L.P. ("BlueStones") who
is agent under the various Original Issue Discount Secured Promissory Notes (the
"Notes") issued by Striker Industries, Inc. ("Striker") in the aggregate
remaining face amount of $332,000. Default interest at the rate of 18% per annum
has been accruing since April 25, 1997, resulting in $362,876 being due as of
October 28, 1997. In addition, Striker owes BlueStone $30,000 for legal fees and
expenses incurred by Baker & Botts in connection with the initial public
offering, and $12,000 incurred by Greenberger & Forman and $2,400 by Canadian
counsel in connection with the private placement and the Notes following closing
of the Private Placement.
BlueStone is willing to refrain from taking any action to collect (i)
the remaining amounts due under the Notes, or (ii) the amounts due to BlueStone
for legal fees and expenses, provided Striker agrees to make, and makes, monthly
payments in the amounts, and on the dates, set forth on the Schedule attached
hereto. In addition, in accordance with the Warrants issued in the Private
Placement, Striker shall promptly take all action necessary to register all the
Shares underlying such Warrants on Form S-3 as soon as legally possible.
BlueStone additionally agrees to expressly subordinate its security
interest as Agent for holders of the Notes in the assets of Striker Paper
Canada, Inc. ("Striker Canada") to all security interests, liens and floating
charges of First Ontario Fund, Toronto, Canada ("FOF") in and on all such
assets, both real and personal, (the "Property"), of Striker Canada securing
payment of indebtedness owing by Striker Canada to FOF. BlueStone further agrees
to execute and deliver promptly to FOF upon request for purposes of notice and
recordation a written instrument of subordination in form and content reasonably
satisfactory to each party providing
<PAGE> 2
David A. Collins
December 11, 1997
Page 2
for such subordination and setting forth the aforesaid respective rights and
priorities of the parties in and to the Property until all indebtedness owing by
Striker Canada to FOF has been fully paid.
In the event Striker raises in excess of $3,000,000 in any 30 day period
of offering of its debt or equity, Striker shall pay immediately to BlueStone
any amounts due hereunder as set forth above.
Provided Striker agrees to the foregoing and timely complies with the
obligations set forth above, BlueStone, as Agent, will waive Striker's default
under the Notes.
If Striker agrees to the foregoing, please signify its acceptance by
signing below and returning a copy of this letter to me.
Very truly yours,
/s/ ROBERT W. FORMAN
---------------------------
Robert W. Forman
AGREED AND ACCEPTED:
STRIKER INDUSTRIES, INC.
By: /s/ DAVID A. COLLINS
----------------------------------
David A. Collins, President
cc: Mark Behrman
<PAGE> 3
STRIKER INDUSTRIES, INC.
Bridge Notes
Balance due at April 25, 1997 332,000
Interest from April 25 to October 28, 1997 @ 18%
(186,360 x 18%) x $332,000 30,876
-------
Balance due at October 28, 1997 362,876
=======
Outstanding Legal Fees 44,400
=======
Amortization Schedule
<TABLE>
<CAPTION>
Pmt # Date Opening Balance Payment Interest Principal Closing Balance
- ----- --------- --------------- --------- -------- --------- ---------------
<S> <C> <C> <C> <C> <C> <C>
1 17-Dec-97 362,876.00 24,000.00 5,443.14 18,556.86 334,319.14
2 17-Jan-98 344,319.14 24,000.00 5,164.79 18,835.21 325.483.93
3 17-Feb-98 325,483.93 24,000.00 4,882.26 19,117.74 306,366.19
4 17-Mar-98 306,366.19 24,000.00 4,595.49 19,404.51 286,961.68
5 17-Apr-98 286,961.68 74,450.71 4,304.43 70,146.28 216,815.39
6 17-May-98 216,815.39 74,450.71 3,252.23 71,198.48 145,616.91
7 17-Jun-98 145,616.91 74,450.71 2,184.25 72,266.46 73,350.46
8 17-Jul-98 73,350.45 74,450.71 1,100.26 73,350.45 (0.00)
</TABLE>
<TABLE>
<CAPTION>
Pmt # Date Opening Balance Payment Closing Balance
- ----- --------- --------------- --------- ---------------
<S> <C> <C> <C> <C>
1 17-Dec-97 44,400.00 3,000.00 41,400.00
2 17-Jan-98 41,400.00 3,000.00 38,400.00
3 17-Feb-98 38,400.00 3,000.00 35,400.00
4 17-Mar-98 35,400.00 3,000.00 32,400.00
5 17-Apr-98 32,400.00 8,100.00 24,300.00
6 17-May-98 24,300.00 8,100.00 16,200.00
7 17-Jun-98 16,200.00 8,100.00 8,100.00
8 17-Jul-98 8,100.00 8,100.00 0.00
</TABLE>
Total Payments Due
<TABLE>
<CAPTION>
Pmt # Date Payment
- ----- --------- ---------
<S> <C> <C>
1 17-Dec-97 $27,000.00
2 17-Jan-98 $27,000.00
3 17-Feb-98 $27,000.00
4 17-Mar-98 $27,000.00
5 17-Apr-98 $82,550.71
6 17-May-98 $82,550.71
7 17-Jun-98 $82,550.71
8 17-Jul-98 $82,550.71
</TABLE>
<PAGE> 1
EXHIBIT 10.1
[FIRST ONTARIO FUND LETTERHEAD]
October 20, 1997
Mr. Matthew D. Pond
Chief Financial Officer
Striker Industries, Inc.
One Riverway, Suite 2450
Houston, Texas 77056
FINANCING PROPOSAL: STRIKER PAPER CANADA, INC.
Dear Matt:
We are pleased to provide you with this term sheet which outlines the principal
terms and conditions of an indicative, conditional financing proposal from
First Ontario. Please note that all figures in this letter are in Canadian
dollars except as indicated otherwise. This term sheet reflects our discussion
regarding earlier correspondence and, we believe, addresses the needs of both
parties.
Accordingly, subject to our due diligence and further consideration, we are
pleased to outline what we currently see as the principal terms for a financing
from First Ontario:
ISSUER: Striker Paper Canada, Inc. ("the "Issuer" and the "Company")
INVESTOR/
NOTEHOLDER: First Ontario Fund ("First Ontario")
ISSUE: Canadian $1,500,000 convertible subordinated loan to be drawn in
two tranches, with equity participation as set out below.
Tranche 1, $1,150,000, will be made available on closing.
...continued
<PAGE> 2
Mr. Matthew W. Pond 2
Striker Industries, Inc.
20/10/97
Tranche 2, $350,000 will be made available the later of April 1,
1998 or on such date that the Drawdown Conditions outlined below
are satisfied.
PURPOSE: To finance the restart of the Company's Thorold plant, and for
general working capital requirements, including the costs related
to the financing. Sources and users will be approximately as
follows:
<TABLE>
<CAPTION>
Tranche 1
Sources Uses
<S> <C> <C> <C>
First Ontario $1,150,000 Capex $ 730,000
New Equity 835,000 Vendors 475,900
Vendor Concessions 95,900 Working Cap 575,000
Fees & Exp 300,000
------------------------------------ ----------------------------
Total Sources $2,080,900 Total Uses $2,080,900
Tranche 2
Sources Uses
First Ontario $ 350,000 Vendors $ 350,000
------------------------------------ ----------------------------
Total Sources $ 350,000 Total Uses $ 350,000
</TABLE>
TERM: 36 months.
INTEREST: 20% per annum, compounded monthly, and payable as follows.
Interest on the outstanding balance is payable monthly in
arrears at a rate of 10% per annum. The balance of the interest
will accrue and be payable in full at maturity.
REPAYMENT: The combined principal amount of Tranches 1 and 2 will be
repayable in equal monthly payments beginning at the end of the
thirteenth month after closing.
The Company will use half of the proceeds from its fire and
business interruption insurance claims (or any settlement related
thereto) to reduce the principal amount outstanding on the First
Ontario
...continued
<PAGE> 3
Mr. Matthew W. Pond 3
Striker Industries, Inc.
20/10/97
subordinated debt; the balance of the funds will be used
for working capital in the Company.
PREPAYMENT: Prepayment of the subordinated loan is allowed at any time
without penalty.
SECURITY: The transaction will include the following security:
a) a floating charge on all of the Company's assets ranking
only behind the Company's senior lenders;
b) a guarantee from Striker Industries, Inc. ("Striker
Industries" or "SII"), which will be a general
obligation of Striker Industries for the full amount of
the Issue;
c) the above guarantee will be secured by a pledge and
first perfected security interest in the shares of the
Issuer which are owned by Striker Industries (the
"Striker Shares"), such shares shall not be offered as
security to anyone else and will be lodged with First
Ontario;
d) Striker will covenant not to transfer material assets
among related companies without the prior written
consent of First Ontario (the parties will define
material prior to closing), which consent will be
provided as long as the ability of Striker to fulfill
its obligations as they become due is not impaired;
e) the personal guarantee of Mr. David Collins, or a
transition period commitment acceptable to First Ontario
and its counsel;
f) key man life insurance of $1 million on Mr. David
Collins;
g) assignment of insurance on the Issuer's property; and
h) a call on the Striker Shares at nominal cost which
becomes effective if First Ontario accelerates its loan,
calls the Striker guarantee and enforces its security
over the Striker Shares and for any reason, is not able
to obtain ownership and physical possession of those
shares within 30 days.
EQUITY
PARTICIPATION: As additional consideration for providing the subordinated
loan, First Ontario will receive at closing 25% of the
fully diluted common shares ("shares") of the Issuer at
nominal cost. These shares will be subject to a shareholder
agreement which reflects the terms of this discussion
paper, including the liquidity provisions contained in
Appendix A.
...continued
<PAGE> 4
Mr. Matthew W. Pond 4
Striker Industries, Inc.
20/10/97
PUT OPTION: First Ontario may put the shares back to the Issuer at the
Put Option Price at any time following the occurrence of any
of the following events:
a) at maturity;
b) upon full repayment of the subordinated loan;
c) upon sale of the Company;
d) upon the sale of or change in control of the Parent; and
e) upon an event of default under the shareholder agreement
or subordinated loan agreement.
REPURCHASE
PRICE: The Put Option Price will be the higher of (A) $1.0
million; and (B) the product of First Ontario's equity
interest and the greater of the following amounts:
a) 3.0 times EBITDA for the 12-month period prior to the
repurchase, less interest bearing debt and other
financing senior to the common equity;
b) 3.0 times the average annual EBITDA for the 2 years prior
to the repurchase, less interest bearing debt and other
financing senior to the common equity;
c) 0.64 times the average annual revenue for the 12 months
period prior to the repurchase, less interest bearing
debt and other financing senior to the common equity; and
d) the value of the Issuer's shares based on the price at
which the business is sold in an arm's length
transaction.
For purposes of calculating the Put Option Price, EBITDA and
interest bearing debt will be adjusted (normalized) as
follows:
i) EBITDA will be increased to reflect the amount by which
the management fee paid to Striker Industries exceeds
US$20,000 in any month; and
ii) interest bearing debt will be decreased to reflect the
amount by which the management fee paid to Striker
Industries exceeds US$20,000 in any month.
EQUITY EXCHANGE
PROVISION: At any time, at its option, First Ontario may exchange its
equity in Striker Paper Canada into common voting shares of
Striker Industries. For purpose of this exchange; (i) First
Ontario's equity in the Issuer will
...continued
<PAGE> 5
Mr. Matthew W. Pond 5
Striker Industries, Inc.
20/10/97
be valued at the Put Option Price; and (ii) First Ontario
will be issued voting common equity in Striker Industries of
equivalent value based on a price per share of 66% of the
average price quoted for Striker Industries shares during
the 20 trading days preceding First Ontario's notice to
exchange.
SUBORDINATED
LOAN CONVERSION
PROVISION: Upon an event of default under the shareholder agreement or
subordinated loan agreement, should First Ontario demand
under the Striker Industries guarantee, and should Striker
Industries fail to honour the guarantee within 10 business
day, at its option, First Ontario may convert the principal
portion of the subordinated loan and all accrued but unpaid
interest into common voting shares of Striker Industries.
For the purpose of this conversion, First Ontario will be
issued voting common equity in Striker Industries of
equivalent value based on a price of 66% of the average
price quoted for Striker Industries shares during the 20
trading days preceding First Ontario's notice to convert.
EXCHANGE
DEFERRAL: In the event that Striker Industries pursues an equity
offering. First Ontario will defer its exchange option for
a period of 12 months from the closing date of the
offering, or other such period as a majority of
shareholders approve. Striker Industries will use its best
efforts to ensure that any shares which have been or may be
issued under the Exchange and Conversion provisions will be
qualified via the prospectus so that they can be freely
traded, and will use its best efforts to sell some of those
shares, subject to First Ontario's approval, as part of any
such transaction.
BOARD
REPRESENTATION: The Issuer shall have a Board of Directors of not less than
five persons, including three who are independent of
management. The Board shall meet monthly until such time as
the Company is operating at 85% capacity for at least three
months; subsequently, Board meetings shall occur not less
frequently than quarterly. First Ontario shall have the
right to appoint at least one voting director on a Board of
this size, and/or participate in all meetings as observer.
Upon the occurrence of any of the events described in (e)
of the Shareholders Agreement paragraph below, First
Ontario will be permitted to elect its own representatives
to the Company's Board.
...continued
<PAGE> 6
Mr. Matthew W. Pond 6
Striker Industries, Inc.
20/10/97
First Ontario shall also have the right to elect one voting
director to Striker Industries and/or participate in all
Board meetings as an observer.
FEES: On accepting this term sheet, the issuer shall pay First
Ontario Management a non-refundable work fee of $45,000
plus GST. Upon delivery of a commitment letter from the
First Ontario substantially in accordance with the terms
contained in this letter, First Ontario will have earned an
additional commitment fee of $22,500 plus GST which shall
be due at the earlier of closing or an invoicing from First
Ontario.
As this transaction is both a start-up and in many ways, a
restructuring, it is anticipated that post closing, First
Ontario will need to make a significant resource commitment
to monitor and manage the investment. In particular, First
Ontario will make regular plant visits, attend monthly
board meetings, perform analysis, and play a role in the
financial management of the Company. Accordingly, the
Company will pay First Ontario a monitoring fee of $3,000
per month plus GST until such time as the Thorold plant is
running and on budget for three consecutive months. After
Thorold meets the above criteria, the Company will continue
to pay a monitoring fee of $1,000 per month until such time
as the Stephen's plant is running and on budget for 3
consecutive months.
EXPENSES: The Company agrees to pay or cause to be paid all
reasonable and customary out of pocket expenses of First
Ontario and their advisors in completing the transaction,
including but not limited to: legal fees, and the costs of
third party assistance in completing financial due
diligence. In this regard the Company will provide First
Ontario Management Ltd. with a retainer deposit of $20,000
upon signing of this letter, most of which will be paid on
account to such independent accounting firm which First
Ontario retains to assist with the financial due diligence.
SHAREHOLDER
AGREEMENT: The Issuer and First Ontario shall enter into a unanimous
shareholder agreement satisfactory to First Ontario and its
counsel which shall include but not be limited to the
following:
a) liquidity provisions as outlined in this discussion
paper and Appendix A including right of first refusal,
tag along rights, drag along rights, and anti-dilution
provisions;
b) covenants to protect First Ontario's minority rights;
c) reporting requirements to be determined but to include
(i) monthly financials, financial analysis to be agreed
upon, and discussion by the
...continued
<PAGE> 7
Mr. Matthew W. Pond 7
Striker Industries, Inc.
20/10/97
CFO of performance vs. budget, and (ii) annual audited
financial statements;
d) submission of a revised business plan annually;
e) covenants to include:
o no distributions or payments to related parties other
than agreed to in advance by First Ontario
o no acquisitions, sale of assets or other transactions
out of the normal course of business without approval
of First Ontario
o no dividends, repurchase or redemption of shares other
than agreed to in advance without approval of First
Ontario
o all inter-company sales to be disclosed monthly and
inter-company payables to be paid within 35 days
o no change of auditors
o First Ontario' approval of the Company's annual
business plan
o compliance with Labour Sponsored Investment Fund
legislation, particularly as it relates to
use-of-proceeds
o cross default to subordinated loan or senior loan
agreements
o upon the occurrence of a Major Default, provisions to
allow First Ontario to appoint a sales agent and sell
the assets or shares of the Company on behalf of all
the shareholders of the Company; and
f) other covenants and provisions normal for a transaction
of this type.
OTHER
DOCUMENTATION: The parties shall enter into loan, security and transfer
pricing documentation in form and substance satisfactory to
First Ontario and its counsel.
The subordinated loan agreement shall include
representations and warranties, covenants, events of default
and monitoring and access rights customary for a transaction
of this type. Covenants will include:
a) financial tests to be determined including tests on
working capital, debt service and leverage;
b) restrictions to be determined on capital expenditures,
further funded debt, dividends, and shareholder
redemptions;
c) monthly management fees to Striker Industries shall not
exceed US $20,000 per month, except as detailed below,
and are subject to the following:
i) Prior to Striker Industries being paid a management
fee at any time, working capital at the end of the
prior month must exceed US$ 130,000. Working capital
is defined as: cash + accounts receivable + inventory
- accounts payable - accrued
...continued
<PAGE> 8
Mr. Matthew W. Pond 8
Striker Industries, Inc.
20/10/97
liabilities - short term bank debt (includes Finova or
other such lines of credit).
ii) In addition, until January 1999, the following
thresholds must be met prior to Striker Industries
being paid any management fee:
o monthly EBITDA must exceed US $105,000
o between EBITDA of US $105,000 and US $160,000
per month the management fee shall be paid
pro-rata, with US $160,000 equal to 100% of the
management fee, and US $105,000 equal to 0%.
o management fees not paid to Striker during this
period shall accrue and be paid to Striker on a
basis to be determined.
iii) Management fees to Striker Industries subsequent
to repayment of the subordinated debenture may
exceed US $20,000 per month after January 1999 if
all other conditions in this section are met and
if the Company has a cash balance of $1,000,000
Canadian in a designated and restricted account,
the proceeds of which can only be used to pay
First Ontario's put.
d) prohibition on management fees in any month in which
First Ontario fails to receive any payment which is due
(including interest or principal);
e) collection of all inter-company receivables from Striker
Industries within 35 days;
f) standard environmental provisions; and
g) other standard provisions.
The subordinated loan will be secured by a floating charge
over all of the Issuer's assets.
The Company and Striker Industries shall enter into an
agreement satisfactory to First Ontario to assure that the
gross margin received by the Company for sales to or
through Striker Industries shall not be less than the gross
margin from sales to third parties at arms length. At First
Ontario's request (and in any event, not less than
semi-annually), the Company shall hire a consultant
satisfactory to First Ontario to confirm average selling
prices and margins by sales channel for the production from
the Thorold facility.
...continued
<PAGE> 9
Mr. Matthew W. Pond 9
Striker Industries, Inc.
20/10/97
MAJOR DEFAULTS
& REMEDIES: Upon the occurrence of one or more of the following events:
o the failure of the Issuer to honor First Ontario's put;
o the occurrence of certain material events at the Parent
level, such events to include a change in control,
failing to raise the additional capital contemplated in
the forecasts, bankruptcy, or the failure of Striker
Industries to commence and maintain operations at its
Stephen's facility by October 1, 1998; and
o an event of default under the shareholder agreement or
the Company's subordinated loan agreement.
(each referred to as a "Major Default"), First Ontario at
its sole discretion will be permitted to:
a) appoint all five directors;
b) terminate and/or replace any officer or employee of the
Company;
c) arrange and/or provide new financing for the Company; and
d) appoint a sales agent and sell the shares or assets of
the Company.
CURE PERIOD: Appropriate cure periods for defaults and breaches of
covenants will be determined as is customary in
transactions of this type. For greater clarity, cure
periods will be specified for each specific breach and
default.
CONDITIONS
PRECEDENT: Conditions precedent to the closing of the transaction and
funding of Tranche 1 will include the following:
a) satisfaction with all due diligence;
b) an opening balance sheet for the Company which is
materially the same as that contained in Appendix B;
c) approval of First Ontario's Investment Committee and
Board of Directors;
d) satisfactory documentation including an interlender
agreement with the senior leaders if required;
e) injection of $835,000 of new equity by Striker
Industries coincidental with the first tranche of
investment by First Ontario;
f) evidence satisfactory to First Ontario within 4 weeks of
the signing of this letter, but not later than closing,
that Striker Industries has the funds referred to in (e)
above;
g) conversion of intercompany loans of approximately
US$3.471 million (the level currently projected by
Striker Industries as the outstanding inter-company loan
balance on October 31, 1997) into common equity;
...continued
<PAGE> 10
Mr. Matthew W. Pond 10
Striker Industries, Inc.
20/10/97
h) Striker Industries shall provide evidence confirming
additional equity investments in Striker Industries per
its projections by an agreed upon date;
i) the Company completes its negotiation of a forbearance
arrangement with Laurentian Bank and such arrangements is
acceptable to First Ontario;
j) satisfaction with all aspects of the restructuring plan
including arrangements/terms with trade creditors which
will permit the Company to maintain normal levels of
trade credit through-out 1998 and early into 1999;
k) satisfaction with Striker Industries' plans to star up
both Thorold and Stephen's plants following a detailed
review of engineering plans, arrangements with third
party contractors, and spending plans over the first 12
months of operations;
l) recapitalization of Striker Industries consistent with
the business plan including conversion of existing
shareholder debt to zero coupon notes;
m) the amount, terms, and conditions for Striker's
Industries senior credit facilities to be satisfactory
to First Ontario;
n) the amount, terms, and conditions of the Company's senior
financing arrangements (particularly including the
Finova revolving loan) to be satisfactory to First
Ontario, to be sufficient for the Company's
requirements, and consistent with the projections
provided to First Ontario;
o) completion of (i) a third party review of the Company's
insurance arrangements; and (ii) changes to the Company's
insurance policy satisfactory to First Ontario which will
ensure satisfactory coverage by the time of closing;
p) appraisals on the land, building, and equipment at the
Thorold facility which reflects values satisfactory to
First Ontario.
q) environmental risk assessment satisfactory to First
Ontario including, but not necessarily limited to, an
updated Phase I report; and
r) First Ontario's review of contracts, purchase orders, or
other evidence satisfactory to First Ontario supporting
projected sales volumes and prices.
DRAWDOWN
CONDITIONS: The Company will be permitted to draw down Tranche 2 of the
financing after April 1, 1998 subject to certain additional
conditions precedent, including the following:
a) the Company's achievement of average monthly performance
for the three most recent consecutive months of:
o Production of 2,040 tons per month
...continued
<PAGE> 11
Mr. Matthew W. Pond 11
Striker Industries, Inc.
20/10/97
o Minimum EBITDA of US$105,000 per month
o Minimum revenue of US$482,000 per month
b) the startup of the Stephen's facility or evidence
satisfactory to First Ontario that the Stephen's
facility startup will occur by October 1, 1998, and
c) compliance with various financial tests (to be
determined) which are to be based on the financial and
operating projections for the Company and Striker
Industries.
PAYROLL DEDUCTION
PLAN: The Company shall implement a First Ontario payroll
deduction plan and will match employee contributions to
First Ontario, up to a maximum of $1,500 per employee per
year. In conjunction thereto, the Company will co-operate
fully with secondees selling First Ontario, and provide
them full access to the employees.
PUBLICITY: Upon closing, First Ontario shall be permitted reasonable
publicity with respect to this transaction. Such publicity
will be reviewed with the Company prior to its release.
GOVERNING
LAW: This letter, and all other documentation relating to the
transaction shall be governed by the laws of the Province
of Ontario.
ABSENCE OF ENFORCEABLE
AGREEMENT:
Except for the terms and provisions of this section and the
sections above headed Fees, Expenses, and Publicity, this
document is not an enforceable agreement between us, but
is merely a statement of intent which sets forth the
general basis upon which we intend to proceed. Except with
respect to this section, and those sections listed above,
no contract will arise as to the subject matter hereof
unless and until a Commitment Letter is negotiated,
approved, executed and delivered by the parties.
....continued
<PAGE> 12
Mr. Matthew W. Pond 12
Striker Industries, Inc.
20/10/97
We would be pleased to discuss any questions you may have on this proposal and
encourage you to call either the undersigned or Tom Copeland at any time. We
look forward to hearing from you and look forward to working with you to
complete this transaction. To indicate your acceptance of this proposal, please
sign and return a copy of this letter to First Ontario by 12:00 noon on
Thursday, October 23, 1997.
/s/ KENNETH DELANEY /s/ MATTHEW D. POND
- ------------------- --------------------
Kenneth Delaney Matthew D. Pond, CFO
First Ontario Fund Striker Paper Canada, Inc.
<PAGE> 13
APPENDIX A
STRIKER PAPER CANADA TERM SHEET
TYPE OF SHARES: The shares are to be identical in every respect to all other
common stock of the Company, including but not limited to
the right to receive any dividend or any other distributions
in cash, evidences of indebtedness, property, or securities
of any nature.
PREEMPTIVE RIGHTS: The holder of the shares shall have the right of first
refusal to purchase all future securities to be offered by
the Issuer pro-rata at a price at least as favorable as
the price paid by the purchaser of such securities.
TAG ALONG RIGHTS: The holder of the shares will have the right to participate
in any sale of common stock, on a proportionate basis, by a
common stockholder to an arm's length party, such
participation to be pro-rata with the common stockholder.
The price to be paid for each share shall be the highest of
(i) the price paid to the other common shareholders, and
(ii) the Sale Value.
DRAG ALONG RIGHTS: First Ontario shall be obligated to sell all its shares in
the event of the sale of all of the common shares of the
Issuer to a third party provided that the Issuer's
subordinated loan has been repaid concurrent with or before
the closing of the drag along. The price to be paid for each
share shall be the highest of the (i) the price paid to the
other common shareholder, and (ii) the Sale Value.
SALE VALUE: The Sale Value will be the value of the Company's common
equity calculated on a per share basis as the greater of (A)
$1,000,000; and (B) the product of First Ontario's equity
interest and the greater of:
a) 4.0 times EBITDA for the 12-month period prior to the
repurchase, less interest bearing debt and other
financing senior to the common equity;
b) 4.0 times the average annual EBITDA for the 2 years prior
to the repurchase, less interest bearing debt and other
financing senior to the common equity;
c) the value of the Issuer's shares based on the price at
which the business in sold in an arm's length
transaction; and
d) $1,000,000.
<PAGE> 14
ANTI-DILUTION
RIGHTS: The shareholder agreement will provide protection to First
Ontario from dilution to preserve First Ontario's
anticipated equity value in absolute terms. In particular,
First Ontario's consent will be required to complete any
transaction which may cause dilution, including:
o adjustments to the number of shares for stock splits
and combinations
o stock dividends, stock distributions, or the sale of
additional stock
o mergers, consolidations, reorganizations, etc.
<PAGE> 1
EXHIBIT 10.2
[CREDIT UNION CENTRAL OF ONTARIO LETTERHEAD]
December 23, 1997
Striker Paper Canada, Inc.
c/o Striker Industries, Inc.
Suite 2450
One Riverway
Houston, Texas
77056
Attention: Matthew Pond
Dear Mr. Pond:
Re: Credit Facility
We are pleased to advise that the Lenders' Credit Committees have approved the
following credit facilities, subject to the satisfaction of the conditions and
security documentation outlined below:
1. LOAN DETAILS
(A) BORROWER(S): Striker Paper Canada, Inc.
(B) LENDERS: Credit Union Central of Ontario Limited ("CUCO") and
So-Use Credit Union Limited ("SUCU")
collectively referred to as the "Lenders"
(C) CREDIT FACILITIES: The Lenders agree to provide the Borrower the
following credit facilities up to the aggregate
amounts not exceeding the limits stipulated:
<TABLE>
<CAPTION>
Facility Amount
-------- ------
<S> <C> <C>
Facility 1. Standby letter of Guarantee $500,000
Facility 2. Operating Loan 300,000
--------
TOTAL: $800,000
</TABLE>
(hereinafter referred to as the "Credit Facilities")
<PAGE> 2
PAGE 2
(D) PURPOSE: The Credit Facilities are to fund working capital
requirements pending the collection of accounts receivables.
(E) DRAW DOWN: Upon satisfactory completion of the security documentation
required pursuant to Section 2 of this commitment letter
and compliance with the conditions precedent to funding
provided for in Section 3 of this commitment letter.
(F) REPAYMENT: Revolve as funds permit but payable on demand. Interest
payable monthly in arrears.
(G) PREPAYMENT: The Credit Facilities are open for repayment in whole or in
part at any time without notice or bonus.
(H) TERM: Subject to annual review and renewal.
(I) ASSIGNMENT &
PARTICIPATIONS: The Lenders, by virtue of a Participation and Servicing
Agreement, will participate in funding the Credit
Facilities as outlined below:
<TABLE>
<CAPTION>
<S> <C>
Credit Union Central of Ontario Limited $500,000 62.5%
So-Use Credit Union Limited 300,000 37.5%
-------- -----
TOTAL CREDIT FACILITIES $800,000 100.0%
</TABLE>
(J) INTEREST RATE: All monies outstanding under the Credit Facilities shall
bear interest at Prime plus 1.75%.
"Prime" shall mean the annual rate of interest which CUCO
establishes as the reference rate of interest to determine
interest rates it will charge at such time for demand loans
in Canadian dollars and which it refers to as its special
rate of interest, such rate to be adjusted automatically
and without the necessity of any notice to the Borrower(s)
upon each change to such rate.
(K) FEES: All costs and expenses in connection with the matters
contemplated by this commitment letter are to be paid by
the Borrower, whether or not funds are advanced, the
Security Documents are completed or the commitment is
cancelled, including without limitation the following:
a. Processing fee of $5,000
b. Commitment fee of $8,000
c. Administration fee of $350 per month
<PAGE> 3
PAGE 3
d. The Borrower shall pay all reasonable legal fees and
disbursements in respect of the Credit Facilities, the
preparation and issue of the Security Documents, the
enforcement and preservation of the Lender's rights and
remedies, and all reasonable costs related to the
appraisals, insurance consultation, credit reporting
and responding to demands of any government or any
agency or department thereof, whether or not the
documentation is completed or any funds are advanced
under the Credit Facilities.
(L) SALE/TRANSFER: The Borrower shall not sell, transfer or encumber the real
property without the Lenders' prior written consent. If the
Borrower does so, then at the Lenders' Option, the Borrower
will immediately pay to the Lenders all outstanding
indebtedness under this commitment letter.
(M) ALTERATIONS: The Borrower agrees not to make any material changes,
additions or alterations to the real property with the
exception of those capital improvements to be completed
with funds received from First Ontario Labour Sponsored
Investment Fund Inc., without the Lenders' prior written
consent.
(N) INSPECTIONS: The Borrower will permit the Lenders and persons
authorized by the Lenders at all reasonable times to
inspect the real property.
2. SECURITY
The present and future indebtedness and liability of the Borrower to the
Lenders shall be secured by the following security (the "Security Documents"),
evidenced by documents in form satisfactory to the Lenders and their legal
counsel and registered or recorded as required by the Lenders, to be provided
prior to any advances or avail being made under the Credit Facilities:
CREDIT FACILITIES 1 AND 2
(A) General Security Agreement representing a first floating charge over
book debts and inventory and a third fixed charge (subject to the first
charge by Laurentian Bank of Canada/Ontario Development Corporation and
the second charge by First Ontario Labour Sponsored Investment Fund Inc.)
on plant, fixtures and equipment.
(B) Third mortgage (the "Third Mortgage") by the Borrower in favour of the
Lenders in the amount of $800,000 against the real property municipally
known as 100 Ormond Street, Thorold, Ontario (the "Real Property").
(C) Subordination and postponement of shareholders' advances from Striker
Industries, Inc. in
<PAGE> 4
PAGE 4
the amount of $4,184,816 (we understand that the loan will be converted to
share capital).
(D) Assignment of $100,000 term deposit (may be released once the Borrower
achieves a current ratio of at least 1.25:1 and a quick ratio of 1.0:1 and
the account is in good standing).
(E) Assignment of adequate business, public liability and fire insurance
acknowledging the Lenders at first loss payees, except on plant and
equipment, where Lenders are to be recorded as third loss payees.
(F) Supporting Sheriff and Tax Certificates together with satisfactory legal
opinion confirming validity of the Third Mortgage.
(G) Loan Participation and Servicing Agreement between the Lenders outlining:
(1) the drawdown rights governing the standby letter of guarantee; and
(2) SUCU's obligations relating to monitoring and due diligence.
(H) Any other documentation necessary in the opinion of the Lenders and their
legal counsel, to complete this transaction.
3. CONDITIONS PRECEDENT TO FUNDING
Those customarily found in the Lenders' Security Documents and any additional
conditions appropriate in the context of the proposed transaction, and in any
event, to include without limitation:
(A) The Borrower has a good and marketable title to the real property, subject
only to the Permitted Encumbrances (as hereinafter defined).
(B) The Lenders having received all the Security Documents provided for in this
commitment letter duly authorized, executed and delivered and registered or
recorded whenever required by law.
(C) The Borrower to provide an up-to-date land survey of the real property
being charged.
(D) The Borrower to provide a Phase I environmental assessment report of the
real property satisfactory to the Lenders.
(E) The Borrower to provide satisfactory evidence that a continuation agreement
is in place with the Laurentian Bank of Canada and that satisfactory
financing schedules have been consummated with trade and other non-bank
creditors.
(F) The Borrower to provide copies of the accepted commitment letters from
First Ontario
<PAGE> 5
PAGE 5
Labour Sponsored Investment Fund Inc. and the Laurentian Bank of Canada.
The term loan with First Ontario Labour Sponsored Investment Fund Inc. must
be drawn down prior to any funds being made available under the Credit
Facilities.
(G) The Borrower to provide confirmation that realty taxes are paid and
current.
(H) The Borrower to establish and maintain membership with SUCU in good
standing at all times while any portion of this facility remains
outstanding or committed. Receivables transfers/deposits to be fully swept
on agreed upon intervals.
(I) There shall not exist any judgement, order, injunction or other restraint
prohibiting or imposing materially adverse conditions upon the
consummation of the transaction.
(J) There shall not have occurred since the date hereof any material adverse
change in, or development likely to have a material adverse effect on the
condition (financial or otherwise) operation, business, properties,
prospects or capitalization of the Borrower.
(K) All documentation for the financing shall be satisfactory to the Lenders
and their legal counsel(s), approval not to be unreasonably withheld.
4. GENERAL CONDITIONS/COVENANTS
Until all debts and liabilities under the Credit Facilities have been
discharged in full and the commitment to provide the Credit Facilities has been
withdrawn by the Lenders, the following conditions will apply in respect of the
Credit Facilities:
(A) The Borrower covenants to perform and observe all terms, conditions,
representations and covenants contained in any of the agreements referred
to in this commitment letter, as such agreements may be amended from time
to time.
(B) The Borrower to provide the Lenders within ninety (90) days of the fiscal
year end date, minimum review level year end financial statements on a
consolidated (where applicable) and individual non-consolidated basis for
the Borrower.
(C) The Borrower to provide the Lenders within forty five (45) days of the
quarter end date, internally prepared financial statements on a
consolidated (where applicable) and individual non-consolidated basis for
the Borrower.
(D) The Borrower covenants to provide annual confirmation that all taxes have
been paid, on the real estate charged, within ninety (90) days of the
calendar year end.
(E) Borrowings under the Credit Facilities are to be covered by 66.7% of
acceptable under 60 day accounts receivable (net of employee, offsets and
inter-company accounts) and limited to 20%
<PAGE> 6
PAGE 6
per individual account exposure plus 33% (to a maximum allocation of
$50,000) of the paper and cardboard portion of raw material inventory.
(F) The minimum ratio of current assets to current liabilities is to be
maintained at 1:1 at all times. The Borrower shall be granted a six month
phase-in period for this condition.
(G) The ratio of debt (including deferred taxes) to tangible net worth is to be
maintained at 0.50:1 at all times. Tangible net worth is defined as the sum
of share capital, earned and contributed surplus and postponed funds less:
a) amounts due from officers/affiliates, b) investments in affiliates, and
c) intangible assets as defined by the Lenders.
(H) The Borrower to provide SUCU with monthly reports providing information or
inventory, accounts receivable, accounts payable and specific payables
within 10 days of each month end. SUCU to provide CUCO with a
summarized report outlining loan position(s) and margin support, as per
conditions of credit by the 15th day of each month end.
5. SPECIAL CONDITIONS
(A) The obligation of the Lenders to make advances or availment under the
Credit Facilities is subject to the prior condition that the Lenders
complete a Loan Participation and Servicing Agreement between themselves in
a form and substance acceptable to each of the Lenders.
(B) The obligation of the Lenders to make advances or availment under the
Credit Facilities is subject to the prior condition that the Lenders
complete a standby letter of guarantee between themselves in a form and
substance acceptable to each of the Lenders.
(C) The Borrower undertakes not to incur any additional debt without the prior
written consent of the Lender.
(D) The Borrower undertakes not to pay any dividends or allow any capital
withdrawals from the corporation without the prior written consent of the
Lenders.
6. PERMITTED ENCUMBRANCES
The title to the real property shall be subject only to the first and second
charges by Laurentian Bank of Canada/Ontario Development Corporation and First
Ontario Labour Sponsored Investment Fund Inc. respectively, real property
estate taxes not yet due and payable, utility easements and other similar rights
which, in the Lenders' opinion, will not, in the aggregate materially and
adversely impair the marketability of the real property or the use of the real
property for the purpose for which it is held and minor irregularities and
defects in the title approved by the Lenders (the "Permitted Encumbrances").
<PAGE> 7
PAGE 7
7. EVENTS OF DEFAULT
The obligations of the Borrower hereunder shall become immediately payable if
any one or more of the following events of default shall have occurred for any
reason whatsoever:
(A) if default shall be made in the due and punctual payment of the Lenders of
any principal or any payment of interest therein and such default shall
have continued for a period of four (4) days after a notice of such
default from the Lenders; or
(B) if any representation, warranty or statement of fact of the Borrower
customarily found in the Lenders' Security Documents and annexed as
Schedule 1 and any additional representations and warranties appropriate
in the context of the proposed transaction, shall prove to have been
untrue or incorrect in any material respect on the date of which it was
made and such default shall have continued for a period of seven (7) days
after notice of such default from the Lenders; or
(C) if the Borrower shall default in the performance or observance of any
covenant in this commitment letter or in any other agreement, instrument
or document delivered by the Borrower pursuant hereto or in connection
herewith and such default shall have continued for a period of seven (7)
days after notice from the Lenders; or
(D) if the Borrower shall:
(1) admit its inability to pay its debts generally as they become due or
not pay its debts generally as they become due;
(2) file an assignment or a petition in bankruptcy, as the case may be,
or a petition to take advantage of any insolvency statutes;
(3) make an assignment for the benefit of or make a proposal to its
creditors;
(4) consent to the appointment of a receiver of the whole or any
substantial part of its assets; and
(5) have been adjudged by a court having jurisdiction, a bankrupt or
insolvent, or a decree or order of a court having jurisdiction shall
have been entered for the appointment of a receiver or liquidator or
trustee or assignee in bankruptcy and such decree or order shall
remain in force undischarged or unstayed for a period of fifteen (15)
days.
(E) if any adverse change occurs in the environmental condition of any of the
real property, equipment or business activities of the Borrower or any
Guarantor of the Borrower.
<PAGE> 8
PAGE 8
8. REMEDIES
After an event of default has occurred as provided for above, the Security
Documents shall become immediately enforceable and the Lenders shall have the
rights, powers and remedies set forth in the Security Documents. The Lenders
shall have, in addition to the rights, powers and remedies given them by this
commitment letter or any other agreement, instrument or document delivered by
the Borrower pursuant hereto or in connection herewith and the security, all
those rights, powers and remedies allowed by applicable laws.
The Lenders are authorized (but not obligated), at any time without notice, to
apply the credit balance (whether or not then due) to which the Borrower is
then beneficially entitled on any amount in or towards the satisfaction of the
obligation and liabilities of the Borrower due to the Lenders under this
commitment letter or the loan agreements.
9. ENVIRONMENTAL
The Borrower agrees as follows:
(A) to observe and conform to all laws and requirements of any federal,
provincial, or any other governmental authority relating to the
environment and the operation of the business activities of the Borrower;
(B) to allow the Lenders access at all times to the business premises of the
Borrower to monitor and inspect all real property and business activities
and to conduct, in the Lenders sole discretion, environmental remedial
actions at the expense of the Borrower;
(C) to pay all the expenses of any environmental investigations or assessments
that may be required by the Lenders from time to time;
(D) to notify the Lenders from time to time of any business activity conducted
by the Borrower which involves the use or handling of hazardous materials
or wastes or which increases the environmental liability of the Borrower
in any material manner;
(E) to notify the Lenders of any proposed change in the use or occupation of
the real property of the Borrower prior to any change occurring; and
(F) to provide the Lenders with immediate written notice of any environmental
problem and any hazardous materials or substances which have an adverse
effect on the real property, equipment, or business activities of the
borrower and with any other environmental information requested by the
Lenders from time to time.
If the Borrower notifies the Lenders of any specified activity or change or
provides the Lenders with any information pursuant to subsections (D), (E), or
(F) noted above, or if the Lenders receive any
<PAGE> 9
PAGE 9
environmental information from other sources, the Lenders, in their sole
discretion, may decide that an adverse change in the environmental condition of
the Borrower has occurred which decision will constitute, in the absence of
manifest error, conclusive evidence of the adverse change. Following this
decision being made by the Lenders, the Lenders shall notify the Borrower of
the Lenders' decision concerning the adverse change.
If the Lenders decide or are required to incur expenses in compliance or to
verify the Borrower's compliance with applicable environment or other
regulations, the Borrower shall indemnify the Lenders in respect of such
expenses, which will constitute further advances by the Lenders to the
Borrower under this commitment letter.
10. NO MERGER
It is understood and agreed that the execution and delivery of the Security
Documents shall in no way merge or extinguish this commitment letter or the
terms or conditions hereof which shall continue in full force and effect while
any or all of the Security Documents remain outstanding. In the event of any
inconsistency or conflict between any provision or provisions of this
commitment letter and the provision or provisions of the Security Documentation
or any other documentation, such provision or provisions of the Security
Documentation shall prevail.
11. NON-ASSIGNMENT
This commitment letter is not assignable without the Lenders' prior written
consent which can be unreasonably withheld.
12. WAIVER
Any waiver by the Lenders of any default by the borrower or any omission on the
Lenders' part in respect of any default by the Borrower shall not extend to or
be taken in any manner whatever to affect any subsequent default by the
Borrower or the rights resulting therefrom. The Lenders may waive any condition
precedent to funding but the waiver shall not prejudice any subsequent
enforcement of the condition.
13. CREDIT REPORTING
The Borrower and each Guarantor consents to the Lenders obtaining from any
credit reporting agency of from any person each information as the Lenders may
require at any time, and consents to the disclosure at any time of any
information concerning the Borrower and any Guarantor to any credit grantor
with whom the Borrower and any Guarantor has financial relations or to any
direct report agency.
<PAGE> 10
PAGE 10
14. TIME OF ESSENCE
In all respects time shall be and remain of the essence.
15. COUNTERPARTS
This commitment letter may be executed in separate counterparts, each of which
when so executed and delivered shall be an original, but all such counterparts
shall together constitute one and the same instrument.
16. EXPIRY
This commitment letter will expire on March 31, 1998 and after that date the
Lenders are not obligated to advance funds under this commitment letter.
17. GOVERNING LAWS
This commitment letter shall be governed by and construct in accordance with
the laws of the Province of Ontario.
If the Borrower wishes to proceed with this commitment, please indicate your
acceptance by signing in the designated area and return the original commitment
letter to the attention of the undersigned on or before January 30, 1998,
otherwise this offer shall expire and be of no further force or effect.
This letter is delivered to you with the understanding that neither it nor its
substance shall be disclosed except to members of the Board of Directors,
Advisors, Employees, Counsel and Accountants of the Borrower who are involved
in consideration of this matter or as may be compelled to be disclosed in a
judicial or administrative proceeding or as otherwise required by law.
Yours truly,
CREDIT UNION CENTRAL OF ONTARIO
LIMITED
Per: [ILLEGIBLE]
------------------------------------------
Name: J.M. (Jim) [Illegible]
Title: President, Financial [Illegible]
Per: [ILLEGIBLE]
------------------------------------------
Name:
Title:
I/we have the authority to bind the Corporation.
<PAGE> 11
PAGE 11
SO-USE CREDIT UNION LIMITED
Per: /s/ SWETLANA SIGNAROWSKI
-------------------------------
Name: Swetlana Signarowski
Title: Chief Executive Officer
Per: /s/ MICHAEL SHIPOWICK
-------------------------------
Name: Michael Shipowick
Title: V.P.
I/we have the authority to bind the
Corporation.
We hereby accept this commitment letter as at the 30 day of January, 1998.
STRIKER PAPER CANADA, INC.
Per: /s/ MATT PEAD
-------------------------------
Name: Matt Pead
Title: CFO
Per:
-------------------------------
Name:
Title:
I/we have the authority to bind the
Corporation.
<PAGE> 12
PAGE 12
SCHEDULE I
REPRESENTATIONS AND WARRANTIES
The Borrower represents and warrants, acknowledging that the Lenders have
relied on each such representation and warranty in entering into this
commitment letter, that:
(1) ORGANIZATION AND QUALIFICATION. The Borrower and its subsidiaries are
a corporation duly incorporated or amalgamated and organized, validly
existing and in good standing under their jurisdiction of
incorporation and each is duly qualified to carry on their business
under the laws applicable to them in each jurisdiction where they
carry on business. No authorization, consent, approval, license or
exemption under any law applicable to foreign corporations is required
by the Borrower to enter into and perform its obligations under the
loan or Security Documents.
(2) CORPORATE POWER. The Borrower and its subsidiaries have full corporate
right, power and authority to enter into and perform their obligations
under each of the loan documents to which they are or will be party
and have full corporate power and authority to own and operate their
properties and to carry on their business as now conducted and as
presently proposed to be conducted.
(3) CONFLICT WITH OTHER INSTRUMENTS. Neither the execution and delivery by
the Borrower or any of its subsidiaries of any of the Security
Documents nor the performance by the Borrower or any of its
subsidiaries of their obligations thereunder, nor compliance with the
terms, conditions and provisions thereof will:
(a) conflict with or result in a breach of any of the terms,
conditions or provisions:
(i) the charter documents or by-laws of the Borrower or any of
its subsidiaries,
(ii) any law, rule or regulation having the force of law,
(iii) any contractual restriction binding on or affecting the
Borrower or any of its subsidiaries or their properties,
or
(iv) any judgement, injunction, determination or award which is
binding on the Borrower or any of its subsidiaries; or
(b) result in, or require or permit:
<PAGE> 13
PAGE 13
(i) the imposition of any security interest in or with respect to
the properties now owned or hereafter acquired by the Borrower
or any of its subsidiaries, or
(ii) the acceleration of the maturity of any debt of the Borrower or
any of its subsidiaries, under any contractual provision binding
on or affecting the Borrower or any of its subsidiaries,
(iii) any third party to terminate or acquire rights under any
contract.
(4) AUTHORIZATION, GOVERNMENTAL APPROVALS, ETC. The execution and delivery
of each of the Security Documents by the Borrower or any of its
subsidiaries and the performance by each of the Borrower and its
subsidiaries which are a party hereto or thereto of their obligations
hereunder and thereunder have been duly authorized by all necessary
corporate action and no authorization, consent, approval, licence or
exemption under any applicable law, rule or regulation having the force of
law, and no registration, qualification, designation, declaration or
filing with any official body, is or was necessary therefor or to perfect
the same, except as are in full force and effect, unamended, at the date
hereof.
(5) EXECUTION AND BINDING OBLIGATION. The commitment letter has been duly
executed and delivered by the Borrower, and the commitment letter
constitutes, and the other Security Documents when duly executed by the
Borrower and its subsidiaries which are party hereto pursuant to and in
accordance with this commitment letter and delivered for value will
constitute, legal, valid and binding obligations of each of the Borrower
or any of its subsidiaries enforceable against them in accordance with
their respective terms, subject only to:
(a) the effect of any applicable bankruptcy (other than fraudulent
preference provisions) insolvency, reorganization, moratorium or
similar laws affecting the enforceability of creditors' rights
generally;
(b) the discretion that a court of competent jurisdiction may exercise in
granting of equitable remedies; and
(c) any legal limitation on the effectiveness of terms exculpating a
party from a liability or duty otherwise owed by them to another
party.
(6) NO DEFAULT. Neither the Borrower nor any of its subsidiaries are in
violation of their charter documents or by-laws.
(7) NO VIOLATION OF AGREEMENTS. None of the Borrower or any of its
subsidiaries are in default under any indenture, mortgage, deed of trust,
agreement or other instrument to which they are a party or by which they
or any of their property may be bound.
<PAGE> 14
PAGE 14
(8) OWNERSHIP OF PROPERTY. Each of the Borrower and its subsidiaries own their
property and assets with a good and marketable title thereto, free and
clear of all liens, mortgages, charges, security interests, adverse
claims and other encumbrances except for Permitted Encumbrances.
(9) CONSENTS. No consent, approval, order, authorization or designation of any
governmental authority is required in connection with the execution,
delivery and performance by the Borrower or any of its subsidiaries of
this commitment letter or any of the Security Documents.
(10) ENVIRONMENT.
(a) None of the Borrower or any of its subsidiaries have any knowledge of
any claim, received any notice of any claim, nor has any proceeding
been instituted raising any claim, against the Borrower or the real
property, alleging any damage to the environment or violation of any
other federal, provincial or municipal laws, by-laws, regulations,
directives and/or guidelines relating in any way to the protection of
the environment (collectively, the "Environmental Laws");
(b) None of the Borrower or any of its subsidiaries have knowledge of any
facts which would give rise to any claim, public or private, of
violation of the Environmental Laws by the Borrower or any of its
subsidiaries, or violation of the Environmental Laws or damage to the
environment emanating from, occurring on or in any way related to the
real property or their use;
(c) That the real property has not been insulated with Urea Formaldehyde
Foam Insulation, and no asbestos, PCBs or other toxic or dangerous
substances have been used in the construction of the real property
and the real property has never been used for the storage or disposal
of any hazardous wastes, industrial wastes, PCBs or other dangerous or
regulated materials and has nor been used as a dump site; and
(d) The Borrower conducts its business and maintains its assets in
compliance with all applicable Environmental Laws and no enforcement
in action in respect of the Borrower's business or assets is
threatened or pending.
(11) TRADEMARKS, PATENTS, ETC. The Borrower and each of it subsidiaries possess
all the trademarks, trade names, copyrights, patents, licenses, or rights
in any thereof, adequate for the conduct of their respective businesses as
now conducted and presently proposed to be conducted, without material
conflict with the rights or claimed rights of others.
(12) PERMITS, ETC. The Borrower and each of its subsidiaries possess all
material licenses, approvals and consents of federal, provincial, state
and municipal governments and regulatory authorities as required to
conduct properly their respective businesses except to
<PAGE> 15
PAGE 15
the extent that the failure to obtain any such rights, licenses,
approvals or consents would not have a material adverse effect on the
business or condition, financial or otherwise, of the Borrower or any
such Subsidiary, as the case may be.
The Borrower shall indemnify and save harmless the Lenders from and against all
liabilities, claims, damages, losses and expenses including professional and
consultants' fees incurred or suffered by the Lenders arising in any manner
whatsoever out of the breach of any warranty or the inaccuracy of any
representation of the Borrower contained in or referred to in this commitment
letter.
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<NAME> STRIKER INDUSTRIES, INC.
<S> <C>
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<PERIOD-END> DEC-31-1997
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2,187,862
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