1
EXHIBIT 4.3
SUBORDINATED LOAN AGREEMENT
This agreement dated as of the 20th day of March, 1998
BETWEEN:
STRIKER PAPER CANADA, INC., a corporation
incorporated pursuant to the laws of the Province of
Ontario,
(hereinafter referred to as the "Borrower")
- and -
FIRST ONTARIO LABOUR SPONSORED INVESTMENT FUND LTD.,
a corporation incorporated pursuant to the laws of
the Province of Ontario,
(hereinafter referred to as the "Lender")
THIS AGREEMENT WITNESSES THAT for valuable consideration the parties agree as
follows:
PART 1.0 - INTERPRETATION
1.1 DEFINITIONS. For the purposes of this Agreement and where the context
does not otherwise require, terms shall have the meanings assigned thereto in
Schedule A annexed hereto.
1.2 AUDITED FINANCIAL STATEMENTS. All references in this Agreement to
audited financial statements of a corporation, including the balance sheet and
related statements of income, retained earnings and changes in financial
position, mean financial statements prepared by the corporation in accordance
with GAAP together with an auditor's opinion that the statements fairly present
the financial position of the corporation and the results of its operations for
the Fiscal Period reported on in accordance with GAAP. All accounting
determinations for purposes of determining compliance with the financial
covenants contained in section 7.2 shall be made in accordance with GAAP as in
effect on the Closing Date and applied on a basis consistent in all material
respects with the Benchmark Financials. If GAAP shall change from the basis
used in preparing the said financial statements, the certificates required to
be delivered pursuant to subsection 7.1(e) attesting to compliance with the
covenants contained herein shall include, at the election of the Borrower or
upon the request of the Lender, calculations setting forth the adjustments
necessary to demonstrate how the Borrower is in compliance with the financial
covenants based upon GAAP in effect on the Closing Date.
1.3 CANADIAN CURRENCY. Unless otherwise specified herein, all amounts and
values referred to in this Agreement shall be calculated in lawful money of
Canada.
1.4 INTEREST ACT. Unless otherwise specified, all annual rates of
interest referred to herein are based on a calendar year of 365 or 366 days, as
the case may be. Where a rate of interest hereunder is calculated on the basis
of a year (the "Deemed Year") which contains fewer days than the actual number
of days in the calendar year of calculation, such rate of interest shall be
expressed as a yearly rate for the purposes of the Interest Act (Canada) by
multiplying such rate of interest by the actual number of days in the calendar
year of calculation and dividing it by the number of days in the Deemed Year.
2
Page 2
1.5 HEADINGS AND TABLE OF CONTENTS. The division of this Agreement into
Parts and sections and the provision of a Table of Contents and the insertion
of headings are for convenience of reference only and shall not affect the
meaning or interpretation of this Agreement.
1.6 REFERENCES. All references to sections, Parts and Schedules are to
sections and Parts of and Schedules to this Agreement. The words "hereto",
"herein", "hereof", "hereunder", "this Agreement" and similar expressions mean
and refer to this Agreement.
1.7 NUMBER AND GENDER. Where the context so requires, words importing the
singular include the plural and vice versa, and words importing gender include
the masculine, feminine and neuter genders.
1.8 MAXIMUM INTEREST RATE.
(a) In the event that any provision of this Agreement would oblige
the Borrower to make any payment of interest or any other
payment which is construed by a court of competent
jurisdiction to be interest in an amount or calculated at a
rate which would be prohibited by law or would result in a
receipt by the Lender of interest at a criminal rate (as such
terms are construed under the Criminal Code (Canada)), then
notwithstanding such provision, such amount or rate shall be
deemed to have been adjusted nunc pro tunc to the maximum
amount or rate of interest, as the case may be, as would not
be so prohibited by law or so result in a receipt by the
Lender of interest at a criminal rate, such adjustment to be
effected, to the extent necessary, as follows:
(i) firstly, by reducing the amount or rate of interest
required to be paid under sections 4.1 and 4.2 of
this Agreement; and
(ii) thereafter, by reducing any fees, commissions,
premiums and other amounts which would constitute
interest for the purposes of section 347 of the
Criminal Code (Canada);
(b) If, notwithstanding the provisions of clause (a) of this
section and after giving effect to all adjustments
contemplated thereby, the Lender shall have received an amount
in excess of the maximum permitted by such clause, then such
excess shall be applied by the Lender to the reduction of the
principal balance of the Outstanding Borrowing in inverse
order of maturity and not to the payment of interest or if
such excessive interest exceeds such principal balance, such
excess shall be refunded to the Borrower; and
(c) Any amount or rate of interest referred to in this section
shall be determined in accordance with generally accepted
actuarial practices and principles as an effective annual rate
of interest over the term of this Agreement on the assumption
that any charges, fees or expenses that fall within the
meaning of "interest" (as defined in the Criminal Code
(Canada)) shall, if they relate to a specific period of time,
be prorated over that period of time and otherwise be prorated
over the terms of this Agreement and, in the event of dispute,
a certificate of a Fellow of the Canadian Institute of
Actuaries appointed by the Lender shall be conclusive for the
purposes of such determination.
1.9 PARAMOUNTCY. In the event of any conflict or inconsistency between
the provisions of this Agreement and the provisions of the Security, the
provisions of this Agreement shall prevail and be paramount.
3
Page 3
1.10 SCHEDULES. The Schedules forming part of this Agreement are as
follows:
Schedule A Defined Terms Schedule A
Schedule A-1 Benchmark Financials Schedule A - section (d)
Schedule B Real Property Description section 6.1(x)
Schedule C Opening Balance Sheet Schedule A - section (ww)
Schedule D Taxes section 6.1(p)
Schedule E Location of Collateral section 6.1(m)
Schedule F Environmental Disclosure section 6.1(y)
Schedule G Appraisals section 5.1(bb)
Schedule H Contingent Obligations section 6.1(z)
Schedule I Legal Opinions section 5.1(w)
Schedule J Intentionally Deleted
Schedule K Intellectual Property section 6.1(q)
Schedule L Material Contracts section 1.1(ss)
Schedule M Description of Equipment section 5.1(bb)
Schedule N Cash Flow Plan Schedule A - section (l)
Schedule O Example of Interest Calculation section 4.1
Schedule P Accounts Payable section 7.1(f)
Schedule Q Litigation section 6.1(g)
PART 2.0 - CREDIT FACILITY
2.1 CREDIT FACILITY. Subject to the provisions of this Agreement, the
Lender agrees to make available to the Borrower a non-revolving term facility
in the maximum principal amount of $1,500,000 available by way of two advances
as follows:
(a) an advance in the amount of $1,250,000 on the Closing Date (the
"First Advance"); and
(b) an advance in the amount of $250,000 on or before October 1,
1998 (the "Second Advance").
2.2 PURPOSES OF CREDIT FACILITY. The Borrower shall use the proceeds of the
First Advance and the Second Advance to finance the restart of the Thorold
Plant and to provide the Borrower with working capital to operate its Business,
including the costs related to the financing.
2.3 EVIDENCE OF INDEBTEDNESS. The Lender shall maintain accounts and
records evidencing the obligations of the Borrower to the Lender hereunder.
The Lender's accounts and records shall constitute prima facie evidence of the
indebtedness of the Borrower to the Lender hereunder in the absence of manifest
error.
2.4 ILLEGALITY. If the introduction of or any change in any Applicable Law
or in the interpretation or application thereof by any court or by any
governmental authority charged with the administration thereof, makes it
unlawful or prohibited for the Lender to make, to fund or to perform any of its
obligations under this Agreement, the Lender may, by sixty days written notice
to the Borrower (unless the provision of the Applicable Law requires earlier
prepayment in which case the notice period shall be such shorter period as
required to comply with the Applicable Law), terminate its obligations under
this Agreement and in such event, the Borrower shall prepay such Borrowings
forthwith (or at the end of such period as the Lender in its discretion
agrees), without notice or penalty, together with all accrued but unpaid
interest and fees as may be applicable to the date of payment.
4
Page 4
PART 3.0 - PRINCIPAL PAYMENTS
3.1 SCHEDULED PRINCIPAL REPAYMENT. Unless the Outstanding Borrowing, or any
part thereof, shall have been required to be paid on an earlier date pursuant
to the terms hereof, the Borrower shall repay the principal portion of the
Outstanding Borrowing in twenty-four (24) consecutive equal monthly instalments
commencing on the last day of the first full month following the first
anniversary date of the Closing Date.
3.2 FIRE AND BUSINESS INTERRUPTION INSURANCE PROCEEDS. Fifty percent (50%)
of the proceeds of the fire and business interruption insurance claims paid to
the Borrower with respect to the January 17, 1997 loss shall be applied to
reduce the principal portion of the Outstanding Borrowing promptly upon their
receipt by the Borrower. Such payment shall be applied in reverse order of
maturity to the scheduled principal repayments contemplated by section 3.1
hereof.
3.3 CATCH-UP PAYMENTS. Should the Borrower for any reason be prohibited
pursuant to the terms of either of the Senior Loan Agreements, from making any
payment of interest or scheduled principal payment to the Lender pursuant to
section 3.1 or the unpaid portion of the structuring fee payable to First
Ontario Management Ltd. pursuant to section 4.3 hereof, or unpaid expenses of
the Lender and its agents pursuant to section 4.4 then the Borrower shall pay
interest on such unpaid amounts at the Interest Rate plus 2% per annum as
provided for in section 4.2 hereof, and all such payments (including principal,
interest and interest on unpaid interest) shall become immediately due and
payable to the extent permitted under the terms of the applicable Senior Loan
Agreement.
3.4 PREPAYMENT. The Borrower shall have the right at any time or from time
to time to prepay without fee or penalty all or any of the Outstanding
Borrowing by providing the Lender with five Business Days' prior written notice
of its intention to prepay. Each such prepayment shall be applied in reverse
order of maturity to the scheduled principal repayments contemplated by section
3.1 hereof.
3.5 PAYMENT MECHANICS. Each payment under this Agreement shall be made for
value at or before 1:00 p.m. (Toronto time) on the day such payment is due,
provided that, if any such day is not a Business Day, such payment shall be
deemed for all purposes of this Agreement to be due on the Business Day
immediately preceding such day (and any such adjustment shall be taken into
account for purposes of the computation of interest and fees payable under this
Agreement). All payments shall be made to the Lender at Credit Union Central
of Ontario, care of the Royal Bank of Canada or such other address and means as
the Lender may from time to time advise the Borrower in writing. Wires should
be sent to the Royal Bank, transit #00002-003 account #247495-5 with payment
instructions stating that the payment is to be directed to the First Ontario
LSI Fund Account Number ▇▇▇▇-▇▇▇-▇▇▇ at Credit Union Central of Ontario.
3.6 NO CREDIT FOR TRUST FUNDS. For greater certainty, payments of any nature
whatsoever made by the Borrower to the Lender which the Lender is required to
pay to any Person by reason of any trust imposed by law or by any Person upon
amounts received by the recipient from the Borrower, shall not be credited
against, or deemed to be payment on account of, all or any portion of the
Outstanding Borrowing. All costs and expenses incurred by the Lender, its
agents, representatives and solicitors in connection with the repayment of such
monies to any Person shall be for the account of the Borrower and payable on
demand. Interest shall accrue on these costs and expenses, until paid, at the
Interest Rate.
5
Page 5
PART 4.0 - INTEREST, FEES AND EXPENSES
4.1 PAYMENT OF INTEREST.
(1) RATE CALCULATION AND PAYMENT. The Borrower shall pay interest
as follows:
(i) on the Outstanding Borrowing from the applicable
Borrowing Date at a rate per annum equal to fifty
percent (50%) of the Interest Rate calculated and
payable monthly in arrears on each Interest Payment
Date both before and after the Maturity Date; and
(ii) on the Outstanding Borrowing from the applicable
Borrowing Date at a rate per annum equal to fifty
percent (50%) of the Interest Rate compounded on each
Interest Payment Date both before and after the
Maturity Date and payable in full on the Maturity
Date.
For purposes of clarification, Schedule O sets out an example of such
calculations.
4.2 INTEREST ON OVERDUE AMOUNTS. Upon a default in the payment of
principal, interest or other amounts due under this Agreement, the Borrower
shall pay interest on such overdue amount both before and after Maturity Date
or judgment at a rate per annum equal to the Interest Rate plus 2% per annum
calculated monthly, computed from the date such amount becomes overdue for so
long as such amount remains overdue. Such interest shall be payable upon
demand by the Lender and shall be compounded on each Interest Payment Date.
4.3 STRUCTURING FEE. The Borrower shall pay to First Ontario Management Ltd.
(acting as agent for the Lender) each of the following:
(a) a non-refundable work fee of $45,000 plus goods and services tax
exigible thereon; and
(b) a commitment fee of $22,500 plus goods and services tax exigible
thereof,
the said work fee and commitment fee are hereinafter collectively referred to
as the structuring fee. Such fee shall be deemed to be earned for the time,
effort and exposure incurred by the Lender in (i) reviewing and establishing
all documentation, financial information, proposal and plans referable to the
Credit Facility, and (ii) establishing satisfactory priority arrangements with
the holders of the Permitted Encumbrances. The structuring fee shall be paid
on the Closing Date if it has not been paid prior to the Closing Date.
4.4 REIMBURSEMENT OF EXPENSES. All statements, reports, certificates,
opinions and other documents or information required to be furnished to the
Lender by the Borrower under this Agreement shall be supplied by the Borrower
without cost to the Lender. The Borrower agrees to pay promptly on demand all
of the reasonable legal fees, documentation costs and other expenses incurred
by the Lender, First Ontario Management Ltd. and ▇▇▇▇▇▇▇ Capital Management
Ltd. in connection with the preparation, negotiation, documentation and
operation of this Agreement, and any other document to be executed and issued
as provided herein, including the enforcement of the rights of the Lender under
this Agreement or the security granted pursuant to the terms of this Agreement,
whether or not any amounts are advanced
6
Page 6
under this Agreement; including, without limitation all due diligence expenses
and consulting fees incurred by the Lender.
PART 5.0 - CONDITIONS PRECEDENT
5.1 FIRST ADVANCE CONDITIONS. The obligation of the Lender to make the
First Advance is subject to the terms and conditions of this Agreement and is
conditional upon satisfactory evidence being given to the Lender and its
counsel as to compliance with the following conditions on the date of such
advance:
(a) REPRESENTATIONS AND WARRANTIES TRUE. The representations and
warranties contained in section 6.1 are and shall continue to be
true and correct in every respect as if made by the Borrower
contemporaneously with any Borrowing.
(b) RESOLUTIONS AND CERTIFICATES. The Lender shall have received,
duly executed and in form and substance satisfactory to it:
(i) a copy of the constating documents and by-laws of the
Borrower and a copy of the resolutions of the board
of directors of the Borrower authorizing the
execution, delivery and performance of this
Agreement, the Security and any other instruments
contemplated hereunder, certified by an appropriate
officer of the Borrower;
(ii) a certificate of incumbency for the Borrower showing
the names, offices and specimen signatures of the
officers who will execute this Agreement, the
Security and any other instruments contemplated
hereunder and thereunder; and
(iii) such additional supporting documents as the Lender or
its counsel may reasonably request.
(c) APPROVAL. The Lender's Investment Committee and the Lender's
Board of Directors shall have approved the transactions
contemplated hereby.
(d) DELIVERY OF SECURITY. The Lender shall have received the
Security (including any necessary consents or subordinations of
third parties as may be required by the Lender) duly executed by
the issuer thereof and in form and substance satisfactory to the
Lender and its counsel. In particular, the Lender shall be
satisfied that it has a perfected interest in the shares in the
capital of the Borrower pledged by Striker Industries, Inc.
which shall have been duly registered in the name of the Lender
and shall have been delivered to the Lender.
(e) REGISTRATION. The Security has been registered, recorded or
filed in all jurisdictions deemed necessary by the Lender and
its counsel.
(f) EVIDENCE OF OTHER LOANS AND FINANCING COMMITMENTS. The Lender
shall have received evidence to its satisfaction of the
completion of a financing commitment to or in favour of the
Borrower for a $800,000 operating loan committed by a Senior
Operating Lender on terms acceptable to the Lender.
(g) LENDER SATISFIED RE: FINOVA CREDIT FACILITY. The Lender shall
be satisfied with all of the terms and conditions of the Finova
Credit Facility.
7
Page 7
(h) LENDER SATISFIED RE: FORBEARANCE ARRANGEMENT. The Lender shall
be satisfied with all of the terms and conditions of the
forbearance arrangement with Laurentian Bank and the Ontario
Development Corporation.
(i) LENDER SATISFIED RE: RESTRUCTURING ARRANGEMENTS OF BORROWER.
The Lender shall be satisfied with all of the terms and
conditions of the restructuring plan, including all of the terms
and conditions of the arrangements with trade creditors of the
Borrower. The Borrower shall provide the Lender with a sub-
ledger summary of payments of funds to and owing to each
creditor of its Business assumed or otherwise acknowledged by
the Borrower as an obligation of the Borrower with a commentary
summarizing the terms, if any, negotiated with each such
creditor.
(j) LENDER SATISFIED RE: RESTRUCTURING ARRANGEMENTS OF STRIKER
INDUSTRIES, INC. The Lender shall be satisfied with all of the
terms and conditions of the arrangements with trade creditors of
Striker Industries, Inc. The Borrower shall cause Striker
Industries, Inc. to provide the Lender with a sub- ledger
summary of payments of funds to and owing to each of its
creditor assumed or otherwise acknowledged by Striker
Industries, Inc. as an obligation of Striker Industries, Inc.
with a commentary summarizing the terms, if any, negotiated with
each such creditor.
(k) REVIEW OF DOCUMENTS. The Lender's counsel shall have also
completed a satisfactory review of all agreements between or
among the Shareholders of the Borrower including the
Shareholders Agreement.
(l) EVIDENCE OF CONVERSION OF DEBT TO EQUITY INVESTMENT. The Lender
shall have received evidence to its satisfaction of the
completion by Striker Industries, Inc. of additional common
share equity investments in the Borrower in the amount in
Canadian currency equivalent to $3,471,000 in United States
currency upon conversion of its loan or other such amounts
outstanding in the Borrower.
(m) EVIDENCE OF ADDITIONAL EQUITY INVESTMENT. The Lender shall have
received evidence to its satisfaction of the completion by
Striker Industries, Inc. of additional common share equity
investments in the Borrower in the amount of $835,000
immediately before Closing.
(n) EVIDENCE OF FUNDS FOR INVESTMENT. The Lender shall have
received evidence to its satisfaction on or before the Closing
Date that Striker Industries, Inc. has the funds referred to in
paragraph (l) above available to make the equity investment
contemplated thereby.
(o) EVIDENCE OF CONVERSION OF SHAREHOLDER LOANS BY STRIKER
INDUSTRIES, INC. TO NON INTEREST-BEARING DEBT. The Lender shall
have received evidence to its satisfaction that any debt owing
by Striker Industries, Inc. to a shareholder is non-interest
bearing debt.
(p) EVIDENCE OF ADDITIONAL EQUITY INVESTMENT IN STRIKER INDUSTRIES,
INC. The Lender shall have received a letter from international
investors indicating that they will invest new equity in Striker
Industries, Inc. as required by the Cash Flow Plan if other
sources of this equity investment are not found.
(q) LENDER SATISFIED RE: TITLE AND LIENS. The Borrower shall have
provided evidence satisfactory to the Lender that all the its
Property is free and clear of all Liens except for Liens
relating to Permitted Encumbrances.
8
Page 8
(r) EVIDENCE OF COMPLIANCE. The Lender shall have received such
environmental reports and audits as it may require acting
reasonably. The Lender and its counsel shall be satisfied with
the environmental risk associated with the transactions
contemplated herein including, if necessary, with the results of
any environmental audit or investigation conducted.
(s) EFFECTIVE NET WORTH. The Borrower shall have provided the
Lender with evidence satisfactory to the Lender in its sole and
unfettered discretion that the Effective Net Worth of the
Borrower at Closing is no less than $11,500,000.
(t) WORKING CAPITAL. The Borrower shall have provided the Lender
with evidence satisfactory to the Lender in its sole and
unfettered discretion that the Borrower has Working Capital of
no less than $525,647.00 immediately after Closing.
(u) DEBT TO NET WORTH RATIO. The Borrower shall have provided the
Lender with evidence satisfactory to the Lender in its sole and
unfettered discretion that the Borrower's ratio of Debt to
Effective Net Worth is no greater than 0.15 to 1 immediately
after Closing.
(v) INDEBTEDNESS. As at the Closing Date, except for the Borrowing
hereunder and Indebtedness permitted hereunder, the Borrower
shall have no other Indebtedness.
(w) LEGAL OPINIONS. The Lender shall have received from counsel to
the Borrower legal opinions in connection with this Agreement
and the Security on terms satisfactory to the Lender, acting
reasonably, including opinions to the effect that this Agreement
and the Security are valid, legally binding and enforceable and
that the shares of the Borrower issued and held by the Lender
are validly issued. In addition, the Lender shall have received
from United States counsel to the Borrower legal opinions in
connection with the Security given by Striker Industries, Inc.,
on terms satisfactory to the Lender, acting reasonably,
including that such Security are valid, legally binding and
enforceable and in connection with the United States securities
law relating to the Security given by Striker Industries, Inc..
Both said opinions shall be substantially in the form of the
draft opinions attached as Schedule I to this Agreement.
(x) NO DEFAULT. No Default or Event of Default has occurred and is
continuing. The Borrower has not received any notice (written
or otherwise), and is not otherwise aware, of any event or
circumstances, whether existing or pending, which would cause
any Default or Event of Default to occur with the lapse of time.
(y) DUE DILIGENCE. The Lender shall have completed and be satisfied
in its sole discretion with its review of the results of its due
diligence inquiries, including, without limitation, its review
of the Opening Balance Sheet, which said balance sheet shall
reflect:
(i) no outstanding operating loan;
(ii) common equity of not less than $12,500,000.00;
(iii) trade payables of not more than $1,412,160.00; and
(iv) no inter-corporate receivables or payables.
(z) INTER-LENDER AGREEMENTS. Lender shall be satisfied with all of
the terms and conditions of the terms of the loans and financing
commitments provided to the Borrower by the Senior
9
Page 9
Lenders and the Senior Lenders shall have executed an
Inter-Lender Agreement on terms satisfactory to the Lender.
(aa) SENIOR FINANCING DOCUMENTS. The Lender shall have received
copies of all financing and supporting documentation to be
delivered in connection with the Senior Loan Agreements and the
Lender shall be satisfied with the terms and conditions thereof.
(bb) MATERIAL ADVERSE CHANGE. No Material Adverse Change has
occurred and no event shall have occurred since June 30, 1997
which, in the sole discretion of the Lender, has had or could
reasonably be expected to have a Material Adverse Effect,
including without limitation, litigation or claims threatened
against the Borrower.
(cc) FEES AND DISBURSEMENTS. The Lender shall have received payment
in full of all fees and out of pocket expenses payable to the
Lender and its agents which have become due, including, without
limitation, the structuring fee described in section 4.3 and
payment of all disbursements and out of pocket expenses of the
Lender, First Ontario Management Ltd., and ▇▇▇▇▇▇▇ Capital
Management Inc..
(dd) INSURANCE. The Lender shall have received a certificate of
insurance in respect of all policies maintained by the Borrower
which shall name the Lender as additional insured, mortgagee or
loss payee as specified by the Lender.
(ee) LENDER SATISFIED RE: INSURANCE COVERAGE. The Lender shall be
satisfied with the insurance coverage of the Borrower's Business
and Property on terms satisfactory to the Lender in its sole and
unfettered discretion.
(ff) MATERIAL CONTRACTS. The Lender or its counsel shall have
reviewed copies of all documents including without limitation
all contracts, permits, licenses and leases material to the
Business of the Borrower as determined by the Lender acting
reasonably.
(gg) REOPENING OF THOROLD PLANT. The Lender shall be satisfied in
its sole discretion, acting reasonably, with the Borrower's
plans to reopen and commence production of saleable product at
the Thorold Plant within 12 weeks following Closing.
(hh) REOPENING OF STEPHEN'S PLANT. The Lender shall be satisfied in
its sole discretion, acting reasonably, with Striker Industries,
Inc.'s plans to implement the reopening of the Stephen's Plant.
(ii) SHAREHOLDERS AGREEMENT AND SUBSCRIPTION AGREEMENT. The Lender
shall have received the Shareholders Agreement and Subscription
Agreement duly executed by all parties thereto and the Lender
shall be satisfied that the Shareholders Agreement and the
Subscription Agreement are, respectively, in effect and is
valid, binding and enforceable as against all parties thereto.
(jj) COMPLIANCE WITH LAWS AND MATERIAL CONTRACTS. The Business and
operations of the Borrower comply in all material respects with
all Applicable Laws and with the terms of all Material Contracts
to which the Borrower is a party including, without limitation,
contracts relating to Permitted Encumbrances and other
Indebtedness permitted hereunder.
(kk) CONSENTS, APPROVALS. The Borrower and the Lender shall have
received all necessary consents, approvals, exemptions and
authorizations required to complete all the
10
Page 10
transactions contemplated herein, including without limitation
the approval of the Lender's Board of Directors.
(ll) ADVANCE OF SENIOR INDEBTEDNESS. All conditions precedent to the
advances under senior credit facilities being provided by each
of the Senior Lenders pursuant to the applicable Senior Loan
Agreement have been satisfied.
(mm) EQUITY. The Lender shall have received pursuant to the
Subscription Agreement that number of the common shares of the
capital stock of the Borrower equal to 25% of all the fully
participating equity of the Borrower (calculated on a fully
diluted basis).
(nn) KEY PERSON INSURANCE. The Lender shall have received evidence
satisfactory to it that the key person life insurance on the
life of Mr. ▇▇▇▇▇ ▇▇▇▇▇▇▇ in the sum of $1,000,000 is in place
and in good standing assigned in favour of the Lender.
(oo) PAYROLL DEDUCTION PLAN. The Borrower shall have implemented a
payroll deduction plan satisfactory to the Lender for the
purchase of shares in the capital of the Lender pursuant to
which the Borrower will match employee contributions to a
maximum of $1,500 per employee per year.
(pp) CONFIRMATION RE: ACCOUNT FOR ADVANCES. Confirmation that
vouchered receipts have been delivered by each of ▇▇▇▇▇ ▇▇▇▇▇▇▇
and ▇▇▇▇▇▇▇ ▇▇▇▇ for the advances made to them for expenses.
5.2 SECOND ADVANCE CONDITIONS. The obligation of the Lender to make the
Second Advance is subject to the terms and conditions of this Agreement and is
conditional upon satisfactory evidence being given to the Lender and its
counsel as to compliance with the following conditions on the date of such
advance:
(a) upon satisfactory evidence being given to the Lender and its
counsel as to compliance with each of the conditions set out in
section 5.1 hereof on the date of the advance of monies pursuant
to the Second Advance;
(b) in each calendar month for the three month period ending on
October 1, 1998:
(i) the Borrower shall have produced and sold on average
at least 2,040 tons of dry felt products;
(ii) the average EBITDA per month of the Borrower shall
have not been less than US$105,000 ; and
(iii) the average revenue per month of the Borrower shall
have not been less than US$482,000;
(c) the Stephen's Plant shall have been operating for three
consecutive months and shall have produced average revenue per
month of not less than $500,000 in each of those three months
ending prior to October 1, 1998; and
(d) the Borrower shall have achieved each of the financial covenants
set forth in section 7.2 hereof throughout the said three month
period then ended.
11
Page 11
5.3 WAIVER. The terms and conditions stated in this Part 5.0 are inserted
for the sole benefit of the Lender and may be waived by it in whole or in part
and with or without terms or conditions in respect of the Borrowing or either
of the First Advance or the Second Advance.
PART 6.0 - REPRESENTATIONS AND WARRANTIES
6.1 REPRESENTATION AND WARRANTIES. The Borrower represents and warrants to
the Lender that:
(a) DUE INCORPORATION. The Borrower is duly incorporated, organized
and validly subsisting under the laws of Ontario. The Borrower
has all necessary corporate power and authority to own its
properties and assets and to carry on its Business as now
conducted and is or will be duly licensed or registered or
otherwise qualified in all jurisdictions wherein the nature of
its assets or the Business transacted by it makes such
licensing, registration or qualification necessary, except where
failure to do so would not give rise to any material legal
impediment to the use of assets in the Business or the ability
of the Borrower to carry on the Business or perform its
obligations hereunder.
(b) POWER. The Borrower has full power and capacity to enter into,
deliver and perform its obligations under this Agreement, the
Security and all other instruments contemplated hereunder.
(c) DUE AUTHORIZATION AND NO CONFLICT. The execution, delivery and
performance by the Borrower of this Agreement, the Security, and
all other instruments contemplated hereunder and the
consummation of the transactions contemplated hereby and thereby
(i) have been duly authorized by all necessary corporate
action,
(ii) do not and will not conflict with, result in any
breach or violation of, or constitute a default under
the constating documents or by-laws of, or any
Applicable Laws, determination or award presently in
effect and applicable to the Borrower, or of any
commitment, agreement or any other instrument to
which the Borrower is now a party or is otherwise
bound, with the exception of the Senior Loan
Agreements and Permitted Encumbrances,
(iii) do not (except for the Security) result in or require
the creation of any Security Interest upon or with
respect to any of the properties or assets of the
Borrower, and
(iv) do not require the consent or approval (other than
those consents or approvals already obtained and
copies of which have been delivered to the Lender)
of, or registration or filing with, any other party
(including shareholders of the Borrower) or any
governmental body, agency or authority.
(d) VALID AND ENFORCEABLE OBLIGATIONS. This Agreement, the Security
and all other instruments contemplated hereunder are, or when
executed and delivered to the Lender will be, legal, valid and
binding obligations of the Borrower, enforceable in accordance
with their respective terms.
(e) TITLE TO ASSETS. The Borrower has a good and marketable title
to all its Property, free from any mortgage, charge, hypothec,
pledge, assignment, lien, security interest or other
12
Page 12
encumbrance other than the Permitted Encumbrances.
(f) VALIDITY AND PRIORITY OF SECURITY. The Security constitutes
assignments, floating charges or security interests, as
applicable, on the undertaking and property and assets of the
Borrower purported to be assigned, mortgaged, charged or
subjected to a security interest thereby and ranks in priority
to any other Security Interests upon such undertaking and
property and assets other than Permitted Encumbrances.
(g) NO ACTIONS. Except as disclosed in Schedule Q hereto, there are
no actions, suits, proceedings, inquiries or investigations
existing, pending or threatened, affecting the Borrower in any
court or before or by any federal, provincial or municipal or
other governmental department, commission, board, tribunal,
bureau or agency, Canadian or foreign, which is reasonably
likely to materially and adversely affect the financial
condition, property, assets, operations or Business of the
Borrower, the ability of the Borrower to repay the Outstanding
Borrowing or which is reasonably likely to materially and
adversely affect the ability of the Borrower to perform any of
its obligations under this Agreement, the Security or any other
instrument contemplated hereunder, or the validity or
enforceability of this Agreement or the Security.
(h) FINANCIAL INFORMATION. The financial statements of the Borrower
furnished to the Lender under this Agreement or which were
furnished to the Lender to induce it to enter into this
Agreement present fairly the financial condition of the Borrower
as at the dates thereof. Since the preparation of the Benchmark
Financials, no Material Adverse Change has occurred in respect
of the financial position of the Borrower. All such financial
statements and all other information, certificates, schedules,
reports and other papers and data furnished to the Lender are
accurate, complete and correct in all material respects, and all
financial forecasts have been prepared in good faith based upon
the facts and circumstances known to the Borrower at the time
they were provided to the Lender and are based upon reasonable
assumptions. No event has occurred or subsequent information
has become available to the Borrower since the said financial
forecasts were provided to the Lender which would give rise to a
Material Adverse Change in the said forecasts.
(i) NO DEFAULTS OR EVENTS OF DEFAULT. No event has occurred and is
continuing, and no circumstance exists which has not been waived
which constitutes a Default or Event of Default hereunder or a
default or event of default in respect of any material
commitment, agreement or any other instrument to which the
Borrower is now a party or is otherwise bound, entitling any
other party thereto to accelerate the maturity of amounts of
principal owing thereunder, or which would give rise to a
Material Adverse Change upon the financial condition, property,
assets, operations or Business of the Borrower.
(j) COMPLIANCE WITH LAW. The Borrower is not in violation of any
terms of its constating documents or by- laws or of any law,
regulation, rule, order, judgment, writ, injunction, decree,
determination or award presently in effect and applicable to it,
the violation of which would give rise to a Material Adverse
Change.
13
Page 13
(k) CAPITAL. The Borrower is authorized to issue an unlimited
number of common shares, and will have issued 15,027,649 by
Closing as fully paid and non-assessable common shares, which
are beneficially owned by and registered in the names of the
following:
Lender 3,756,912
Striker Holdings (Canada) Inc. 11,270,737
(l) NON-DILUTION. Except as contemplated by the Subscription
Agreement, no Person now has any agreement, option or right
capable of becoming an agreement or option for the pledge,
purchase, subscription or issuance from the Borrower of any
shares of the Borrower, issued or unissued, and no other shares
in the capital of the Borrower will be issued without the prior
written consent of the Lender.
(m) LOCATION OF ASSETS. Except for inventory from time to time in
the possession of freight forwarders acting on behalf of the
Borrower in the ordinary course, all property and assets of the
Borrower are located at the Borrower's principal place of
business in Thorold, Ontario as described in Schedule E annexed
hereto..
(n) SUBSIDIARIES. The Borrower does not own any shares or voting
securities of any Person and has no Subsidiaries.
(o) PARTNERSHIP. The Borrower is not in partnership with any Person
nor is it a participant in any joint venture.
(p) TAXES. The Borrower has filed all foreign, provincial and local
tax returns which are required to be filed and has paid all
Taxes due pursuant to such returns or pursuant to any assessment
received by the Borrower except such Taxes, if any, as are being
contested in good faith and as to which adequate reserves have
been provided. The Borrower is not in arrears in the payment of
any amount to any governmental body or agency including, without
limitation, amounts owing or to be remitted with respect to
employee withholdings for income tax or Canada Pension Plan,
goods and services tax or provincial sales taxes. The charges,
accruals and reserves on the books of the Borrower in respect of
any taxes or other governmental charges are adequate except as
described in Schedule D attached hereto.
(q) INTELLECTUAL PROPERTY. The Borrower owns or has the right to
use all patents, trademarks, trade names, copyrights, licenses
and rights with respect thereto necessary for the conduct in all
material respects of its Business as now conducted and as
presently proposed to be conducted, without any known conflict
with the rights of others, and in each case free from any lien
other than Permitted Encumbrances. Schedule K attached hereto
sets out details of all registered and common law trademarks,
trade names and copyright property employed in the Business and
all registered patents and patent applications owned by the
Business or licensed by the Corporation in the operation of the
Business.
(r) SOLVENCY. The Borrower is solvent, is able to pay its debts as
they become due and has capital sufficient to carry on its
Business, now owns property having a value both at fair
valuation and at present fair saleable value greater than the
amount required to pay its debts, and will not be rendered
insolvent by the execution and delivery of this Agreement or the
Senior Loan Agreements or by the completion of the transactions
contemplated hereunder or thereunder.
14
Page 14
(s) MARGIN SECURITIES. The Borrower does not own any margin
securities, and none of the proceeds of the borrowings hereunder
shall be used for the purpose of purchasing or carrying any
margin securities or for the purpose of reducing or retiring any
Indebtedness which was originally incurred to purchase any
margin securities.
(t) EMPLOYEE RELATIONS. Other than as disclosed in writing to the
Lender, there are no controversies pending or threatened between
the Borrower and any of its employees, other than employee
grievances arising in the ordinary course of business which are
not, in the aggregate, material to the continued financial
success and well-being of the Borrower, and the Borrower is in
compliance in all material respects with all federal and
provincial laws respecting employment and employment terms,
conditions and practices, except where the failure to so comply
would not give rise to a Material Adverse Change.
(u) DISCLOSURE OF MATERIAL CONTRACTS. The Borrower has provided
copies of all Material Contracts to which it is a party or by
which it is bound to the Lender or its agents.
(v) ENVIRONMENTAL AUDIT REPORTS. The Borrower has provided the
Lender with all environmental audit reports and site assessment
reports in its possession, including without limitation the
following reports:
o Golder Associates Ltd., 1990. Soil and Groundwater
Conditions, Domtar Construction Materials Roofing and
Insulation Plant, Thorold, Ontario. Report to Domtar Inc.
March 1990.
o Environmental & Safety Designs, Incorporated, EnSafe, 1991.
Final Phase I Pre-Conveyance Environmental Compliance
Survey, Domtar Construction Materials, Roofing and
Insulation Division, Domtar Inc., Canada.
o Jacobs Engineering Group Inc., 1995. Final Phase I
Environmental Site Assessment Report, Roofing Felt Plant,
▇▇▇ ▇▇▇▇▇▇ ▇▇▇▇▇▇ ▇▇▇▇▇, ▇▇▇▇▇▇▇, ▇▇▇▇▇▇▇ (Jacobs Project
No. 13-J684-01). Report to Striker Industries, Inc. June
30, 1995.
o Jacobs Engineering Group Inc., 1995. Final Phase I
Environmental Site Assessment Report Addendum, Striker
Roofing Felt Facility, Thorold, Ontario. Addendums to June
30, 1995. Report to Striker Industries, Inc., August 4,
1995.
The Borrower is in compliance with all Environmental Laws and no
event has arisen since the completion of the following latest
report of ▇▇▇▇▇▇ Engineering Group Inc., 1995. Final Phase I
Environmental Site Assessment Report Addendum, Striker Roofing
Felt Facility, Thorold, Ontario. Addendums to June 30, 1995.
Report to Striker Industries, Inc., August 4, 1995, which would
make the said report inaccurate or incomplete.
(w) FRENCH FORM OF NAME. The Borrower's full corporate name is
Striker Paper Canada, Inc. and the Borrower has no French form
of name.
(x) REAL PROPERTY. Schedule B to this Agreement contains a complete
and accurate description of the Real Property and of the
Borrower's interest in the Real Property. The buildings on the
Real Property are entirely within the limits of the Real
Property. Except as disclosed in this Agreement, the occupation
and uses to which the Real Property has been put and the
construction of all buildings and structures thereon are in
material compliance with all applicable statutes, by-laws,
ordinances, regulations, covenants, restrictions or
15
Page 15
official plans (including, without limitation, applicable zoning
by-laws, building codes, regulations and ordinances). Without
limiting the generality of the foregoing, there are no
outstanding work orders issued in relation to the Real Property
from any governmental authority (other than work orders of which
the Borrower has notified the Lender and with respect to which
the Borrower is actively and diligently pursuing compliance),
nor are any matters under discussion between the Borrower or the
Borrower's predecessors in title and any governmental authority
relating to work orders with respect to the Real Property.
Except as disclosed in this Agreement, no part of the Real
Property encroaches upon any lands adjoining the Real Property
and there are no encroachments over or upon the Real Property.
There is adequate rights of ingress and egress for the operation
of the Borrower's Business. The Real Property and all
appurtenances thereto and all systems and fixtures therein or
relating thereto (including all plumbing, electrical, drainage
systems) are in a good state of repair and maintenance,
reasonable wear and tear excepted, and are adequate for the
operation of the Borrower's Business. The Borrower is not aware
of any pending legislative change affecting the Real Property or
any condemnation or expropriation of any part thereof. No part
of the Real Property is subject to any watershed, greenbelt or
flood plain control or other restrictions of any conservation or
other governmental authority. The Borrower has not received any
notice, written or otherwise, of any Liens under the
Construction Lien Act (Ontario) against the Real Property. No
construction work is ongoing at the Real Property on the date of
this Agreement and no construction work has taken place at the
Real Property within the last 365 days.
(y) ENVIRONMENTAL COMPLIANCE. Except as set forth in Schedule F
attached to this Agreement,
(i) all facilities and property (including underlying
ground water) owned or leased by the Borrower have
been, and continue to be, owned, leased or used in
compliance with all Requirements of Environmental
Law;
(ii) to the best of the Borrower's knowledge there have
been no past, and there are no pending or threatened:
A. claims, complaints notices or requests for
information received by the Borrower with
respect to any alleged violation of any
Requirements of Environmental Law concerning
the Property; or
B. complaints, notices or inquiries to the
Borrower regarding potential liability under
any Requirements of Environmental Law
concerning the Property;
(iii) there have been no Releases of Hazardous Materials
at, on or under any property now or previously owned,
leased or used by the Borrower, that, singly or in
the aggregate, have resulted in or may be expected to
result in a Material Adverse Change and there is not
now and has not been any storage tanks located
beneath the surface of any such property;
(iv) except as described in Schedule F hereof, the
Borrower has been issued and is in compliance with
all material permits, certificates, approvals,
licenses and other authorizations under any
Requirements of Environmental Law to carry on its
Business;
16
Page 16
(v) there are no conditions that, directly or indirectly,
relate to environmental matters and any property
owned, leased or used by the Borrower, (whether on,
above or below the lands or any structures, buildings
or facilities, now or formerly owned, operated or
used by the Borrower, or by adjoining properties or
businesses) including, without limitation, being
located within an environmentally sensitive area as
determined by any governmental authority, the
condition of the soil or ground water in the area,
the use of urea formaldehyde foam insulation, friable
asbestos fireproofing or insulation, PCBs or
radioactive substances that, singly or in the
aggregate have resulted in, or may be expected to
result in, a Material Adverse Change; and
(vi) the Borrower is maintaining and to the best of its
knowledge its predecessors in title have maintained
an appropriate environmental management system and
compliance programs, policies and procedures to
manage its Business and ensure compliance with the
Requirements of Environmental Law and the proper
understanding and management of all environmental and
occupational health and safety matters.
(z) CONTINGENT FINANCIAL OBLIGATIONS. All Contingent Financial
Obligations are described in Schedule H to this Agreement,
including a description of all agreements, documents or
instruments under which those Contingent Financial Obligations
arise or are evidenced. The Borrower has not received notice of
and is not otherwise aware of any event or circumstance, whether
existing or pending, which would cause any Contingent Financial
Obligation to become payable or liquidated.
(aa) PENSION AND BENEFIT PLANS. The Borrower is current with respect
to all of its contributions to all pension, retirement, profit
sharing and benefit plans for its employees, there are no claims
existing, pending or threatened against the Borrower by any
employee or regulatory authority with respect to any of those
plans and there are no deficiencies with respect to any of those
plans on a solvency or going concern basis.
(bb) APPRAISED VALUE OF EQUIPMENT. Schedule G sets out true copies
of all appraisals in the Borrower's possession or control which
are less than two years old of the value of the equipment
described in Schedule M, which appraisals shall establish a
value satisfactory to the Lender.
(cc) APPRAISED VALUE OF LAND. Schedule G sets out true copies of
all available appraisals in the possession or control of the
Borrower of the land and buildings of the Borrower which are
less than two years old.
(dd) "LSVCC QUALIFICATIONS" The Borrower:
(i) is a taxable Canadian corporation within the meaning
of the Income Tax Act (Canada);
(ii) carries on no business other than the Business;
(iii) not less than 90% of the fair market value of the
property of the Borrower is attributable to property
used by the Corporation in the Business;
(iv) the Borrower and all corporations related to it have
fewer than 501 full time employees and the ordinary
place of employment for 50% or more of such full time
employees is located in the Province of Ontario and
the wages and salaries payable to the
17
Page 17
employees whose ordinary place of employment is
located in the Province of Ontario constitutes 50% or
more of the total payroll expense of the Borrower;
(v) the carrying value of the assets of the Borrower and
all corporations related to it (determined in
accordance with generally accepted accounting
principles) does not exceed $50,000,000; and
(vi) except as contemplated by the Shareholders Agreement
and the Subscription Agreement, there are no
outstanding options or agreements by the Borrower to
issue securities in the capital of the Borrower and
no understandings capable of becoming such
agreements.
(ee) ELIGIBLE USE OF FUNDS. The proceeds of the loan advance
contemplated by this Agreement shall not be used to fund any of
the following purposes:
(i) relending;
(ii) investment in land except land that is incidental and
ancillary to the Business of the Borrower;
(iii) reinvestment outside of Canada;
(iv) the purchasing or acquiring of the securities of any
person;
(v) the payment of dividends
(vi) a return of capital to the shareholders of the
Borrower; or
(vii) to carry on a business through a permanent
establishment or branch operation outside of Canada.
6.2 SURVIVAL OF REPRESENTATIONS AND WARRANTIES. The representations and
warranties contained in this Part 6.0 shall survive the execution and delivery
of this Agreement and the making of Borrowings hereunder, regardless of any
investigation or examination made by the Lender or its counsel and the Lender
shall be deemed to have relied upon each of such representations and warranties
in making available each Borrowing hereunder.
PART 7.0 - COVENANTS
7.1 POSITIVE COVENANTS. From the date hereof and until the Outstanding
Borrowing is repaid in full, the Borrower will observe and perform, or will
cause the observance and performance of each of the following covenants, unless
compliance therewith shall have been waived in writing by the Lender:
(a) EXISTENCE. The Borrower will do or cause to be done all such
things as are necessary to maintain its corporate existence in
good standing, to ensure that it has at all times the right and
is duly qualified to conduct its Business and to obtain and
maintain all rights, privileges and franchises necessary for the
conduct of its Business.
18
Page 18
(b) CONDUCT OF BUSINESS. The Borrower will maintain, operate and
use its properties and assets, and will carry on and conduct its
Business in a proper and efficient manner so as to preserve and
protect such properties and assets and Business and the profits
thereof.
(c) PAYMENT OF PRINCIPAL, INTEREST AND EXPENSES. The Borrower will
duly and punctually pay or cause to be paid to the Lender the
Outstanding Borrowing at the times and places and in the manner
provided for herein.
(d) PAYMENT OF TAXES AND CLAIMS. The Borrower will pay and
discharge promptly when due all Taxes, assessments and other
governmental charges or levies imposed upon it or upon its
properties or assets or upon any part thereof, as well as all
claims of any kind (including claims for labour, materials and
supplies) which, if unpaid, would by law become a Lien or charge
upon any such properties or assets; but the Borrower shall not
be required to pay any such Tax, assessment, charge or levy or
claim if the amount, applicability or validity thereof shall
currently be contested in good faith by appropriate proceedings
and if the Borrower shall have set aside on its books a reserve
to the extent required by GAAP in an amount which is reasonably
adequate with respect thereto.
(e) BORROWER REPORTING REQUIREMENTS. The Borrower shall deliver to
First Ontario Management Ltd., or such other party as the Lender
may otherwise from time to time direct:
(i) within 90 days of the Fiscal Year end of the
Borrower, one copy of its annual financial statements
which shall be prepared on a consolidated basis by
the auditor of the Borrower, including the balance
sheet and statements of income, retained earnings and
changes in financial position, together with a
detailed unqualified report of the auditors of the
Borrower and all supporting notes and schedules (the
"Annual Financials");
(ii) within 90 days of the Fiscal Year end of the
Borrower, a certificate signed by the President or
Chief Financial Officer of the Borrower to the effect
that the Annual Financials present fairly the
financial position of the Borrower at the date
thereof and have been prepared in accordance with
GAAP;
(iii) within 30 days prior to the end of each Fiscal Year
an annual business plan and forecast for the next two
Fiscal Years consisting of:
A. monthly detailed pro forma balance sheets, income
statements and statements of changes in financial
position for the Borrower (all prepared in accordance
with GAAP) together with such explanations, notes and
supporting information which are required to explain
and supplement the information so provided and key
assumptions (particularly relating to revenues, gross
margins, costs and working capital);
B. a written bullet point commentary by the President or
the Chief Financial Officer of the Borrower
describing any changes in any Fiscal Year's budget
compared to the most recent previously submitted plan
and forecast for such Fiscal Years;
C. a capital expenditure plan indicating the nature and
amount of capital expenditures proposed to be
incurred in such Fiscal Years; and
19
Page 19
D. a sales forecast by month for the following Fiscal
Year setting out anticipated revenue and by customer
with prior year comparatives and a brief note
explaining each line of the said forecast; and
(f) within 20 days after the end of each month a monthly financial
report consisting of:
A. monthly and year-to-date financial statements on a
consolidated basis in a form consistent with the
business plan and as normally prepared by management
for its own use which shall contain a comparison of
budget to the actual results of both the current and
prior year, a calculation of all the financial
covenants provided for in section 7.2 hereof, and a
calculation as at the end of each month of the number
of days of receivables, days of inventory on an
aggregate basis and days of payables reflected in
each monthly statement;
B. a report of aged accounts receivable by customer;
C. for each of the first 6 months following Closing, a
report on accounts payable to monitor performance
under the payout agreements in Schedule P hereto;
D. a written bullet point commentary signed by the
President or the Chief Financial Officer of the
Borrower on the material variances in actual results
to date from budgeted results anticipated and on the
outlook for the Business of the Borrower for the
balance of the Fiscal Year in comparison to the
budget for that Fiscal Year;
E. a certificate signed by the either the President or
the Chief Financial Officer of the Borrower stating
that:
(1) the amounts of vacation pay, wages, source
deductions and taxes required to be remitted
by the Borrower and those said amounts not yet
due have been or will be so remitted in a
timely fashion and are in good standing since
the date of the last such certificate;
(2) the property and Business operations and
activities of the Borrower are to the best
knowledge of such officers in compliance in
all material respects with all Environmental
Laws and Environmental Orders or describing in
reasonable detail any such non-compliance; and
(3) that the Borrower is not in breach of any of
the covenants or representations and
warranties contained herein, or if such is not
the case, providing detailed particulars of
all such breaches, together in either case
with reasonably detailed evidence of
compliance with all financial covenants
contained herein;
F. for each of the first 5 Fiscal Quarters (or such
longer period as First Ontario Management Ltd. may
request), a summary of payments made to each creditor
of its Business referred to in clause 7.1(F)C in the
month then ended;
(i) coincident with their delivery to the applicable Senior
Lenders, a copy of all reports and notices given or
delivered to either of the Senior Lenders to the extent that
they are not duplicative of the information provided for in
the section 7.1(e);
20
Page 20
(ii) within 10 days of the respective filing with the
appropriate governmental authority, the most current
10Q and 10K securities filings relating to Striker
Industries, Inc. together with any attachments
thereto; and
(iii) upon each request, such further information
concerning the financial position and Business
operations as the Lender may from time to time
request.
All forecasts and projections contemplated in the financial
reports and summaries described above shall be prepared by
management of the Borrower based on the best available
information and shall be applied on the basis of an analysis
which shall be consistently applied.
(g) SII MONTHLY REPORTING. If the current ratio of Striker
Industries, Inc. is less than 1 to 1 at any time during a given
month, the Borrower shall cause Striker Industries, Inc. to
provide within 20 days after the end of the particular month a
monthly financial report consisting of:
A. monthly and year-to-date financial statements on a
consolidated basis in the form normally prepared by
management for its own use which shall contain a
comparison of budget to the actual results of both
the current and prior year;
B. a report of aged accounts receivable by customer;
C. for each of the first 12 months following Closing, a
report on accounts payable to monitor performance
under the payout agreements in Schedule P hereto;
D. a written bullet point commentary signed by the
President or the Chief Financial Officer of the
Borrower on the material variances in actual results
to date from budgeted results anticipated and on the
outlook for the business of Striker Industries, Inc.
for the balance of the Fiscal Year in comparison to
the budget for that Fiscal Year; and
E. for each of the first 5 Fiscal Quarters (or such
longer period as First Ontario Management Ltd. may
request), a report providing a summary of compliance
or non-compliance by Striker Industries, Inc. with
all agreements with creditors of Striker Industries,
Inc. which have agreed to defer or postpone their
right to receive payments.
(h) INSURANCE. The Borrower shall insure and keep insured its
Business, properties and assets, placed with such insurers and
with such coverage (including without limitation business
interruption insurance and all existing coverages now in place)
and against such loss or damage to the full insurable value of
such properties and assets without co-insurance as the Lender
shall reasonably require or, in the absence of such requirement,
to the extent insured against by comparable corporations engaged
in comparable businesses. Upon request by the Lender, the
Borrower shall promptly supply the Lender with copies of all
insurance policies; losses under all such insurance policies
affecting assets charged by the Security shall be payable to the
Lender as loss payee as its interest may appear and each such
policy shall provide for a minimum of 45 days notice to the
Lender of cancellation or lapse; the Borrower shall pay or cause
to be paid all premiums necessary to maintain any such insurance
policies in good standing as such premiums become due and
payable.
21
Page 21
(i) BOOKS AND RECORDS. The Borrower shall at all times maintain
proper records and books of account and therein make true and
correct entries of all dealings and transactions relating to its
Business, shall keep such books, records and accounts relating
to accounts receivable, accounts payable and payroll expenses at
the principal place of business of the Borrower at the Thorold
Facility and all other books, records and accounts shall be
maintained at the principal offices of SII in Houston, Texas
(and shall not maintain any duplicate of such books, records and
accounts elsewhere except for electronic back-ups required for
data recovery) and, if requested by the Lender, will make the
same available for inspection by the Lender or any agent of the
Lender at all times during normal business hours.
(j) ACCESS. The Borrower will permit the Lender through its
officers or employees or through any consultants or agents
retained by it, upon request, to have access at any time and
from time to time, during normal business hours, unless
extraordinary circumstances shall otherwise require, to any of
the Borrower's premises and to any records, information or data
in its possession so as to enable the Lender to ascertain the
state of the Borrower's financial condition or operations, and
will permit the Lender to make copies of and abstracts from such
records, information or data and will upon request of the Lender
deliver to the Lender copies of such records, information or
data.
(k) NOTICE OF ADVERSE CHANGE. The Borrower shall give to the Lender
prompt written notice of any Material Adverse Change in the
condition of its Business, financial or other, or of any
material loss, destruction or damage to its properties and
assets.
(l) NOTICE OF DEFAULT IN THIS AGREEMENT OR SENIOR LOAN AGREEMENTS.
The Borrower shall give to the Lender prompt written notice of:
(i) any Default or Event of Default hereunder; and
(ii) any event of default arising pursuant to either of
the Senior Loan Agreements.
(m) NOTICE OF LITIGATION. The Borrower will give to the Lender
prompt written notice of any action, suit, litigation, or other
proceeding in addition to those actions and proceedings
disclosed herein which is commenced or threatened against it and
which involves a claim or potential claim in excess of $25,000
or an aggregate of claims or potential claims in excess of
$100,000.
(n) REGISTRATION OF SECURITY. The Borrower will provide the Lender
with such assistance and do such things as the Lender may from
time to time request so that the Security and any other
instruments of conveyance or assignment effected pursuant to
this Agreement or otherwise will be and remain registered,
recorded or filed from time to time in such manner and in such
places as may in the opinion of the Lender be necessary or
advisable in perfecting the Security Interests constituted
thereby.
(o) IMPLEMENT PLANS RE REOPENING OF THOROLD PLANT. The Borrower
shall promptly implement and complete its plan to reopen its
Thorold Plant within 12 weeks following the Closing. The
Borrower shall provide the Lender with progress reports every
two weeks on this project and advise the Lender in writing of
the completion of the work.
(p) AFTER ACQUIRED PROPERTY AND FURTHER ASSURANCES. The Borrower
shall notify the Lender in writing in advance of any proposed
acquisition by the Borrower of any material property or asset
including a full description of such property or asset, and the
Borrower shall from time
22
Page 22
to time execute and deliver to the Lender, in form satisfactory
to the Lender and its counsel, all such further deeds or other
instruments of conveyance, assignment, transfer, mortgage,
pledge, charge or security interest in connection with all
property or assets acquired by the Borrower after the date of
this Agreement, including any insurance thereon.
(q) NON-DILUTION. Except as contemplated by the Subscription
Agreement, the Borrower shall not enter into or grant any
agreement, option or right capable of becoming an agreement or
option for the pledge, purchase, subscription or issuance from
the Borrower of any shares of the Borrower, issued or unissued,
and no other shares in the capital of the Borrower will be
issued without the prior written consent of the Lender.
(r) ENVIRONMENTAL MATTERS. The Borrower shall,
(i) use and operate all of its facilities and properties
in compliance with all Requirements of Environmental
Law, keep all permits, approvals, certificates,
licenses and other authorizations relating to
environmental matters in effect and remain in
compliance therewith, and handle all Hazardous
Materials in compliance with all applicable
Requirements of Environmental Law;
(ii) immediately notify the Lender of any event or
occurrence that will, or is likely to give rise to a
report, inquiry or investigation and provide copies
upon receipt of all written claims, complaints,
investigations, notices or inquiries relating to the
condition of the Borrower's facilities and properties
or compliance with Requirements of Environmental Law,
and shall proceed diligently to resolve any such
claims, complaints, investigations, notices or
inquiries relating to compliance with Requirements of
Environmental Law in a manner which in the judgment
of the Lender is appropriate in the circumstances and
not adverse to the interests of the Lender under this
Agreement;
(iii) immediately notify the Lender of any proposed
business activity to be conducted by the Borrower
that involves the use or handling of Hazardous
Materials or which increases the potential
environmental liability of the Borrower in any
manner;
(iv) immediately notify the Lender of any proposed change
in the use or occupation of any real property
occupied by the Borrower before the change occurs or
of any proposal of the Borrower to acquire or become
a tenant in any real property;
(v) immediately notify the Lender of any release of any
Hazardous Material or of any other environmental
incident affecting the Borrower or any of its
properties or assets that has resulted or may result
in a Material Adverse Change;
(vi) provide such information and certifications which the
Lender may reasonably request from time to time to
evidence compliance by the Borrower of all its
obligations under this Agreement and the Security
Documents;
(vii) undertake, at the Borrower's expense, such
environmental audits or studies on any property
owned, leased or used by the Borrower or the
operations of its Business as the Lender may
reasonably request;
(viii) provide, at the Borrower's expense, all third party
consents, authorizations and directions that are
required to permit any inspection or review of any
property owned, leased or used by the Borrower and
the activities carried out thereon and the Borrower
23
Page 23
hereby consents to the release to the Lender, or its
representatives, of information relating to the same
and compliance by the Borrower and others having an
interest in the same with all Requirements of
Environmental Law; and
(ix) maintain an appropriate environmental management
system and compliance programs, policies and
procedures to manage its Business and ensure
compliance with the Requirements of Environmental Law
and the proper understanding and management of all
environmental and occupational health and safety
matters.
(s) PAYROLL DEDUCTION PLAN. To facilitate the purchase of shares
in the capital of the Lender by the employees of the shall
implement a payroll deduction plan satisfactory to the Lender
pursuant to which the Borrower will match employee contributions
to a maximum of $1,500 per employee per year.
7.2 FINANCIAL COVENANTS. The Borrower shall maintain and keep in full force
and effect each of the financial covenants set forth below. The calculations
and determination of each such financial covenant, and all accounting terms
contained therein, shall be calculated and construed in accordance with GAAP:
(a) WORKING CAPITAL RATIO. The Borrower shall at all times after
Closing maintain a Working Capital Ratio of not less than 1 to 1
provided that for the period commencing on Closing to and
including June, 1998, the Working Capital Ratio may be as low
as, but no lower than, 0.40 to 1 and for the period from July,
1998 to December, 1998, the Working Capital Ratio may be as low
as, but no lower than, 0.75 to 1.
(b) WORKING CAPITAL. The Borrower shall at all times after
November, 1998 maintain Working Capital of not less than
$200,000.
(c) EFFECTIVE NET WORTH. The Borrower shall at all times after
March, 1998 maintain an Effective Net Worth of not less than
$11,500,000.
(d) DEBT TO EFFECTIVE NET WORTH. The Borrower shall at all times
after March, 1998 maintain a ratio of Debt to Effective Net
Worth of not more than 0.50 to 1.
(e) DEBT SERVICE COVERAGE. Borrower shall at all times after
Closing to and including January, 1999 maintain Debt Service
Coverage of no less than 2, provided that for the period
commencing July, 1998 to and including August, 1998, the Debt
Service Coverage may be as low as, but no lower than, 1 and the
Borrower shall at all time after February, 1999 maintain Debt
Service Coverage of no less than 1.25.
7.3 NEGATIVE COVENANTS. From the date hereof and until the Outstanding
Borrowing is paid in full, the Borrower shall adhere to the following covenants
unless waived in writing by the Lender:
(a) NOT TO AMALGAMATE, ETC. The Borrower shall not enter into any
transaction or series of related transactions (whether by way of
amalgamation, merger, winding-up, consolidation, reorganization,
reconstruction, continuance, transfer, sale, lease or otherwise)
whereby all or substantially all of its undertaking, properties,
rights or assets would become the property of any other Person
or, in the case of amalgamation or continuance, of the
continuing corporation resulting therefrom.
24
Page 24
(b) NEGATIVE PLEDGE. The Borrower shall not create, assume, incur
or suffer to exist any Security Interest in or upon any of their
respective undertakings, properties, rights or assets except
for:
(i) Permitted Encumbrances; and
(ii) Security Interests in respect of which the Lender has
given its prior written consent as to existence and
ranking.
(c) NO GUARANTEES. The Borrower shall not be or become liable,
directly or indirectly, contingently or otherwise, for any
obligation of any other Person by Guarantee other than as
permitted hereunder.
(d) RESTRICTIONS ON SUBSIDIARIES, INVESTMENTS AND LOANS. The
Borrower shall not, directly or indirectly, acquire or form any
Subsidiary or make any loan to or investment in, or purchase or
otherwise acquire or hold any shares or securities of, any other
Person except as contemplated herein. The Borrower shall not
become a partner in any partnership or a participant in any
joint venture.
(e) RELOCATION OF ASSETS. The Borrower shall not locate or permit
to be situated any of its property or assets in any jurisdiction
other than as set out in section 6.1(m) without having first (i)
obtained the prior consent of the Lender in writing and (ii)
taken such action as is necessary to perfect a Security Interest
in favour of the Lender in such property or assets; (iii) if a
leasehold premises, obtained a form of non-disturbance agreement
satisfactory to the Lender, and (iv) delivered such opinions of
counsel with respect thereto as the Lender may reasonably
require, all at the Borrower's expense.
(f) PAYMENTS TO SHAREHOLDERS. The Borrower shall not declare or
make any payment to any shareholder other than the Lender and
other than management fees to Striker Industries, Inc. without
the prior written consent of the Lender.
(g) MANAGEMENT FEES. The Borrower shall not make any payment to any
Person other than the Lender in respect of management fees
without the prior written consent of the Lender except as
contemplated by the Shareholders Agreement.
(h) CAPITAL EXPENDITURES. The Borrower shall not, during any Fiscal
Year, make Capital Expenditures in excess of the Permitted
Capital Expenditures.
(i) DISPOSITION OF ASSETS. The Borrower shall not sell, assign,
transfer, lease (as lessor) or otherwise dispose to any Person,
including any non-arm's length Persons (within the meaning of
the Income Tax Act (Canada)) of any of its properties or assets
other than inventory in the ordinary course of business.
(j) INVENTORY AND BONA FIDE. All sales of inventory by the
Borrower to Striker Industries, Inc. or any other affiliated
corporation shall be priced at market prices applicable to
transactions between parties dealing at arm's length. At the
request of the Lender, and in any event, no less than every six
month period, the Borrower shall hire a consultant, satisfactory
to the Lender, to confirm compliance with this principle.
(k) CHANGE OF BUSINESS. The Borrower shall not change the nature of
its Business or discontinue any of its material business.
25
Page 25
(l) NO AMENDMENT TO SENIOR LOAN AGREEMENTS. The Borrower shall not
amend its organizational documents or change its Fiscal Year end
or agree to any amendment or refinancing of the terms,
conditions and provisions of either of the Senior Loan
Agreements as such exist on the Closing Date.
(m) NO REDUCTION IN INSURANCE COVERAGE. The Borrower shall not
reduce the extent or scope of its insurance coverage without the
prior written consent of the Lender.
PART 8.0 - SECURITY
8.1 OBLIGATION TO PROVIDE. As security for the repayment of the Outstanding
Borrowing, and the discharge and performance of all obligations of the Borrower
to the Lender hereunder, the Borrower shall issue or cause to be issued in
favour of the Lender the security contemplated under this Part 8.0.
8.2 SECURITY. The Borrower shall execute and deliver to or shall cause to
be executed and delivered to the Lender in form and substance satisfactory to
the Lender the following documents:
(a) a general security agreement creating a floating charge on all
the undertaking, property and assets of the Borrower including,
without limitation, all licenses and leases in registerable form
(as appropriate);
(b) the Inter-Lender Agreement;
(c) an assignment of insurance policies and proceeds thereof issued
to the Borrower covering its Business or Property;
(d) an assignment of key person life insurance on the life of ▇▇▇▇▇
▇▇▇▇▇▇▇ in the amount of $1,000,000 (such assignment to be
acknowledged by the insurer and to be excluded from the security
of either of the Senior Lenders);
(e) a guarantee from Striker Industries, Inc. in respect of the
obligations of the Borrower pursuant to this Agreement and the
Shareholders Agreement;
(f) guarantees from Striker Holdings (Canada) Inc., in respect of
the obligations of the Borrower pursuant to this Agreement and
the Shareholders Agreement such guarantees to be secured by a
pledge to the Lender of the shares of the Borrower held by
Striker Holdings (Canada) Inc.; and
(g) all such other security agreements which the Lender may
reasonably require.
8.3 FURTHER ASSURANCES. The Borrower from time to time shall deliver to the
Lender duly executed documents in form and substance satisfactory to the Lender
and its counsel as may be reasonably requested by the Lender for the purpose of
giving effect to this Agreement or the Security or for the purpose of
establishing compliance with the representations, warranties and conditions of
this Agreement.
26
Page 26
PART 9.0 - EVENTS OF DEFAULT
9.1 EVENTS OF DEFAULT. Notwithstanding anything to the contrary herein,
the Outstanding Borrowing shall, at the option of the Lender, become
immediately due and payable to the Lender and the Security shall, at the option
of the Lender, become immediately enforceable upon the occurrence of any of the
following events:
(a) FAILURE TO PAY PRINCIPAL OR INTEREST - if the Borrower fails to
make payment within 3 Business Days of the day on which any
principal amount or interest payable hereunder is due;
(b) FAILURE TO PAY OTHER AMOUNTS - if the Borrower fails to make
payment when due of any amount payable hereunder other than
principal or interest and if such payment is not made within 5
Business Days of the day on which such payment is due;
(c) FALSE REPRESENTATIONS, ETC. - if any representation, warranty,
certificate, statement or report made or given herein or
otherwise in connection with this Agreement or any advance of
the Credit Facility is false or erroneous in any material
respect;
(d) CROSS-DEFAULT - if: the Borrower defaults in the payment, when
due, of any Indebtedness to any Person in an amount of $25,000
or more or to any Person or Persons in an aggregate amount of
$100,000, and such default has not been waived by such
Person(s); or such Indebtedness is validly accelerated or
otherwise becomes due and payable prior to the stated maturity
thereof;
(e) CROSS DEFAULT TO THE SENIOR LOAN AGREEMENT - if the Borrower is
in default of any obligation which has not been waived by either
of the Senior Lenders under the applicable Senior Loan Agreement
and either of the Senior Lenders shall have validly accelerated
the obligations of the Borrower pursuant to the applicable
Senior Loan Agreement;
(f) CROSS DEFAULT TO SHAREHOLDERS AGREEMENT OR SUBSCRIPTION
AGREEMENT - if the Borrower, SII or Striker Holdings (Canada)
Inc. is in default of any obligation to the Lender pursuant to
the Subscription Agreement, the Share Call Agreement or the
Shareholders Agreement;
(g) DEFAULT IN OTHER COVENANTS - if, other than in respect of any
covenant to pay, there is any default or failure in the
observance or performance of any other act hereby required to be
done or any other covenant or condition hereby required to be
observed or performed, and the default or failure continues for
5 Business Days after notice by the Lender to the Borrower
specifying such default or failure;
(h) DEFAULT IN MATERIAL FINANCING AGREEMENT - if there is any
default or failure in the observance or performance of any other
act required to be done, or any other covenant or condition
required to be observed or performed, in any material financing
agreement, or other agreement contemplated thereby, pursuant to
which a Person has taken steps to enforce its security against
Striker Industries, Inc. in connection with an amount in contest
of $25,000 or more;
(i) INSURANCE LAPSE - if any insurance on the properties or assets
of the Borrower lapses and such coverage shall not be reinstated
within 15 Business Days of such lapse;
27
Page 27
(j) INSOLVENCY - if the Borrower is unable to pay its debts as such
debts become due, or is, or is adjudged or declared to be, or
admits to being, bankrupt or insolvent;
(k) VOLUNTARY PROCEEDINGS - if the Borrower makes a general
assignment for the benefit of creditors; or any proceeding or
filing is instituted or made by the Borrower seeking relief on
its behalf as debtor, or to adjudicate it a bankrupt or
insolvent, or seeking liquidation, winding-up, reorganization,
arrangement, adjustment or composition of it or its debts under
any similar law relating to bankruptcy, insolvency,
reorganization or relief of debtors, or seeking appointment of a
receiver, trustee, custodian or other similar official for it or
for any substantial part of its properties or assets; or the
Borrower takes any corporate action to authorize any of the
actions set forth in this section 9.1(k);
(l) INVOLUNTARY PROCEEDINGS - if any notice of intention is filed or
any proceeding or filing is instituted or made against the
Borrower in any jurisdiction seeking to have an order for relief
entered against it as debtor or to adjudicate it a bankrupt or
insolvent, or seeking liquidation, winding-up, reorganization,
arrangement, adjustment or composition of it or its debts under
any law relating to bankruptcy, insolvency, reorganization or
relief of debtors, or seeking appointment of a receiver,
trustee, custodian or other similar official for it or for any
substantial part of its properties or assets or seeking
possession, foreclosure or retention, or sale or other
disposition of, or other proceedings to enforce security over,
all or a substantial part of the assets of the Borrower unless
the same is being contested actively and diligently in good
faith by appropriate and timely proceedings and is dismissed,
vacated or stayed within 30 days of institution thereof;
(m) RECEIVER, ETC. - if a receiver, liquidator, trustee,
sequestrator or other officer with like powers is appointed with
respect to, or an encumbrancer takes possession of, or
forecloses or retains, or sells or otherwise disposes of, or
otherwise proceeds to enforce security over any of the
properties or assets of the Borrower or gives notice of its
intention to do so;
(n) EXECUTION, DISTRESS - if any writ, attachment, execution,
sequestration, extent, distress or any other similar process
becomes enforceable against the Borrower or if a distress or any
analogous process is levied against any of the properties or
assets of the Borrower having a value in any particular instance
of $25,000 or more, and in the aggregate of all such properties
and assets so effected, having a value of $100,000 or more,
except where the same is being contested actively and diligently
in good faith by appropriate and timely proceedings;
(o) SUSPENSION OF BUSINESS - if the Borrower suspends or ceases, or
gives notice to the Lender (or any agent or counsel thereof),
any other creditors or any employees of its intention to suspend
or cease, its Business other than in connection with a annual
scheduled shutdown for equipment maintenance or inventory
adjustment not exceeding six weeks in any calendar year;
(p) SALE - if the Borrower sells or otherwise disposes of, or gives
notice to the Lender (or any agent or counsel thereof), any
other creditors or any employees of its intention to sell or
otherwise dispose of, all or a substantial part of its
undertaking and property and assets whether in one transaction
or a series of related transactions;
(q) IMPAIRMENT OF SECURITY - if in the sole and unfettered opinion
of the Lender and its counsel any Security may be or becomes
impaired, invalid, unperfected or unenforceable unless
28
Page 28
such impairment, invalidity, unperfection or unenforceability
was solely caused by or was the result of an omission by the
Lender;
(r) MATERIAL CHANGE - if there is a Material Adverse Change in the
Business or affairs of the Borrower;
(s) LITIGATION - if the Borrower fails, within 30 days of the
commencement of same, to contest actively and diligently in good
faith by appropriate and timely proceedings any action, suit,
litigation or other proceeding commenced against it with the
result that the Borrower is exposed to a liability of $25,000 or
more; and
(t) DEATH OF KEY PERSON - if Mr. ▇▇▇▇▇ ▇▇▇▇▇▇▇ should become
deceased.
9.2 APPLICATION OF ASSIGNED LIFE INSURANCE POLICY. In the event of an Event
of Default pursuant to paragraph 9.1(t) hereof, all proceeds of the insurance
policy on the life of Mr. ▇▇▇▇▇ ▇▇▇▇▇▇▇ shall be applied to the obligations of
the Borrower pursuant this Agreement.
9.3 LENDER MAY WAIVE. The Lender may at any time waive any Default or Event
of Default which may have occurred, provided that no such waiver shall extend
to or be taken in any manner whatsoever to affect any subsequent Default or
Event of Default or the rights or remedies resulting therefrom. No such waiver
shall be effective unless given by the Lender in writing.
9.4 ACCELERATION. If any Event of Default shall occur,
(a) the whole or any part of the principal amount of the Outstanding
Borrowing and all accrued and unpaid interest thereon, and
(b) all other payments due under this Agreement,
shall, at the option of the Lender, become immediately due and payable with
interest thereon, at the rate or rates determined as provided in this
Agreement, to the date of actual payment thereof, all without additional notice
presentment, protest, demand, notice of dishonour or any other demand or notice
whatsoever, all of such are hereby expressly waived by the Borrower. In such
event the Security shall become immediately enforceable and the Lender may, in
its discretion, exercise any right or recourse and/or proceed by any action,
suit, remedy or proceeding against the Borrower authorized or permitted by law
for the recovery of all the obligations and proceed to exercise any and all
rights under this Agreement and under the Security, and no such remedy for the
enforcement of the rights of the Lender shall be exclusive of or dependent on
any other remedy but any one or more of such remedies may from time to time be
exercised independently or in combination.
9.5 TERMINATION OF LENDERS' OBLIGATIONS. The occurrence of an Event of
Default terminates any right of the Borrower to obtain any further credit from
the Lender pursuant to this Agreement and relieves the Lender of any obligation
to provide any further credit under this Agreement.
9.6 MONITOR. Upon the occurrence of an Event of Default, and until such
Event of Default is cured, the Lender shall have the right to require the
Borrower to appoint ▇▇▇▇▇▇▇ Capital Management Inc. or such other financial
adviser as the Lender may specify, as monitor to provide on-going reports to
the Lender on the financial condition and prospects of the Borrower. The
reasonable expenses of such monitor shall be paid by the Borrower.
29
Page 29
9.7 REMEDIES ARE CUMULATIVE. For greater certainty, the rights and remedies
of the Lender under this Agreement are cumulative and are in addition to and
not in substitution for any rights or remedies provided by law; and any single
or partial exercise by the Lender of any right or remedy for a Default or Event
of Default or breach of any term, covenant, condition or agreement herein
contained shall not be deemed to be a waiver of or to alter, affect or
prejudice any other right or remedy to which the Lender may be lawfully
entitled for the same default or breach, and any waiver by the Lender of the
strict observance, performance or compliance with any term, covenant, condition
or agreement herein contained and any indulgence granted by the Lender shall be
deemed not to be a waiver of that or any subsequent default.
9.8 CASH COLLATERAL ACCOUNTS. Upon the occurrence of an Event of Default
and in addition to any other rights or remedies of the Lender hereunder, the
Lender as and by way of collateral security shall be entitled to deposit and
retain in an account to be maintained by the Lender (with interest) amounts
which are received by the Lender from the Borrower hereunder or as proceeds of
realization of any Security to the extent such amounts may be required to
satisfy any contingent or unmatured obligations or liabilities of the Borrower
to the Lender hereunder.
9.9 INTEREST RATE ADJUSTMENT. If the Lender receives cash proceeds from a
realization on its Security and the Lender is otherwise entitled to receive and
retain the same, but instead establishes a cash collateral account as
contemplated by section 9.8 hereof and the principal monies in that cash
collateral account are subsequently applied in payment of obligations of the
Borrower (the "Subsequently Applied Amount"), then, notwithstanding any other
term hereof, the obligation of the Borrower to pay interest on the Subsequently
Applied Amount shall be limited to the interest actually accruing in the cash
collateral account for the period commencing 45 days following the deposit of
the said sum to the cash collateral account until such sum is subsequently
applied in payment of the obligations of the Borrower.
PART 10.0 - ENVIRONMENTAL MATTERS
10.1 REPRESENTATIONS AND WARRANTIES. The Borrower hereby represents and
warrants as follows, except as disclosed in Schedule F attached hereto:
(a) The Borrower's business has been operated in compliance in all
material respects with all applicable Environmental Laws and
with all permits, licenses and authorizations issued pursuant to
Environmental Laws.
(b) There are no claims, investigations, litigation, administrative
proceedings, whether pending or to the best of the Borrower's
knowledge, threatened relating to any Contaminants, Releases or
other forms of pollution or alleged violation of applicable
Environmental Laws (collectively Environmental Matters) that may
reasonably be expected to have a give rise to a Material Adverse
Change upon the Borrower. The Borrower has not assumed any
material liability of any other Person for response, removal,
remediation, investigation, clean up, compliance or required
capital expenditures in connection with any matter arising prior
to the date hereof.
10.2 ENVIRONMENTAL COVENANTS. The Borrower covenants with the Lender as
follows:
(a) COMPLIANCE. The Borrower shall comply in all respects with the
requirements of any Environmental Law applicable to it.
30
Page 30
(b) NOTIFICATION. The Borrower shall promptly forward to the Lender
copies of all material orders, notices, permits, applications or
other communications and reports in connection with any
Environmental Law affecting or relating to the Property or the
operations and activities of the Borrower.
10.3 INDEMNITY. The Borrower shall at all times indemnify and hold the
Lender harmless against and from any and all claims, suits, actions, debts,
damages, costs, losses, obligations, judgments, charges, and expenses, of any
nature whatsoever suffered or incurred by the Lender, whether upon realization
of the Security, or as lender to the Borrower, or as successor to or assignee
of any right or interest of the Borrower, or as a result of any order,
investigation or action by any governmental or regulatory authority relating to
the Borrower or its Business or Property or as privileged or hypothecary
creditor or mortgagee in possession of Property or as successor or
successor-in-interest to the Borrower as a result of any taking of possession
of all or any of the Property or by any other means relating to the Borrower,
under or on account of any breach of Environmental Law, with respect to:
(a) the Release of a Contaminant, the threat of the Release of any
Contaminant, or the presence of any Contaminant affecting any
Property, whether or not the same originates or emanates from
such Property, including any loss of value of the Property as a
result of any of the foregoing,
(b) the Release of a Contaminant owned by, or under the charge,
management or control of the Borrower, or any predecessor or
assignor of the Borrower,
(c) any costs incurred by any federal, provincial, state, municipal,
local or other governmental or regulatory authority or any other
person or damages from injury to, destruction of, or loss of
natural resources in relation to, the Property or elsewhere,
including reasonable costs of assessing such injury, destruction
or loss incurred under any Environmental Laws,
(d) liability for personal injury or property damage arising by
reason of any civil law offenses or quasi-offenses or under any
statutory or common law tort or similar theory, including,
without limitation, damages assessed for the maintenance of a
public or private nuisance or for the carrying on of a dangerous
activity at, near, or with respect to the Property or elsewhere,
and/or
(e) any other environmental matter affecting the Property or the
operations and activities of the Borrower within the
jurisdiction of any federal, provincial, municipal, state or
local environmental agency.
The obligations of the Borrower under this section 10.3 shall arise upon the
discovery of the presence or Release of any Contaminant, whether or not any
federal, provincial, municipal, state or local environmental agency has taken
or threatened any action in connection with the presence of any Contaminant.
10.4 SCOPE OF INDEMNITY. The Borrower acknowledges that the Lender has
agreed to make the Borrowings available in reliance upon its representations,
warranties, and covenants in this Part. For this reason, it is the intention
of the Borrower and the Lender that the provisions of this Part shall supersede
any other provisions in this Agreement, or the Security which in any way limit
the liability of the Borrower and the Borrower shall be liable for any
obligations arising under or in connection with this Part even if the amount of
the liability incurred exceeds the Outstanding Borrowing. The obligations of
the Borrower arising under this Part are absolute and unconditional and shall
not be affected by any act, omission or circumstance whatsoever, except in
respect of negligence or wilful misconduct by the Lender. The
31
Page 31
obligations of the Borrower arising under this Part shall survive the repayment
of the Outstanding Borrowing and shall survive the transfer of any or all
right, title and interest in and to any Property by the Borrower to any person.
10.5 CONSULTANTS, ETC. The Lender may employ lawyers, engineers, scientists,
or consultants of the Lender's choice at the expense of the Borrower. Any
engineer, scientist, or consultant so engaged by the Lender may upon notice to
the Borrower enter onto the premises of the Borrower for the purpose of any
inquiry and may make any necessary excavation or bore holes and take samples of
any material or substance, and record or copy any information by any method.
The Lender shall ensure that any such Person employed by or acting on behalf of
the Lender shall conduct itself and any inquiry or other activity on or in
respect of any Property in a manner which does not disrupt the Business of the
Borrower or which results in a breach of any Environmental Law. The Borrower
hereby consents to any inquiries by the Lender or any lawyers, engineers,
scientists, or consultants engaged on its behalf under any freedom of access or
freedom of information legislation and agrees to execute such further consents
or documents as may be necessary to give effect to this section 10.5. The
Lender shall not disclose to any Person any of the information obtained as a
result of the foregoing without the prior written consent of the Borrower
unless disclosure is required by law, in which case the Lender shall notify the
Borrower and provide the Borrower with a reasonable opportunity to oppose the
disclosure of such information.
10.6 FEES AND EXPENSES. If the Lender retains the services of any lawyer,
engineer, scientist, or consultant in connection with the subject of this Part,
the Borrower shall pay the out-of-pocket costs and fees thereby incurred if
retained and applicable to such party as a result of any breach of
Environmental Law or in connection with any inquiry or investigation by a
federal, provincial, municipal, state or local government or agency in
connection with Environmental Law or if the services performed are reasonably
necessary for the performance of the functions of the Lender under this
Agreement or for the preservation or protection of the Security.
10.7 INTEREST. If the Lender incurs any obligations, costs or expenses under
this Part or in respect of any Environmental Activity covered by this Part, the
Borrower shall pay the same to the Lender on demand in respect of such party's
obligations, and if such payment is not received within ten days, such amount
will be treated as a Borrowing and the Borrower will pay interest thereon at
the Interest Rate, which shall accrue from the date of expiry of such ten-day
period to the date of payment.
10.8 ENVIRONMENTAL COMPLIANCE. If the Borrower provides the Lender with any
notification required under section 6.1(y) or 10.2 hereof or if the Lender
otherwise receives any environmental information, the Lender in its sole
discretion, may determine that an adverse change in the environmental condition
of the Borrower has occurred, which decision shall constitute, in the absence
of manifest error, conclusive evidence of the adverse change. Following such
determination, the Lender may provide to the Borrower directions or
instructions as to the remedial action to be undertaken by the Borrower with
respect to such adverse change, and the Borrower shall comply with any such
direction or instruction diligently and at its own expense. Notwithstanding
the issuance of any such direction or instruction, the Borrower shall remain
solely responsible for compliance with all Requirements of Environmental Law
with respect to its assets, properties and Businesses and the Lender shall not,
and shall not be deemed to, assume or be charged with any liability or
obligation with respect to such compliance.
PART 11.0 - GENERAL
11.1 NOTICES. Any notice, request or other communication hereunder to any of
the parties hereto shall be in writing and be well and sufficiently given if
delivered personally or sent by prepaid registered mail to its address or by
telecopier to the number and to the attention of the person set forth below:
32
Page 32
(a) In the case of the Borrower:
Striker Paper Canada, Inc.
▇▇▇ ▇▇▇▇▇▇ ▇▇▇▇▇▇ ▇▇▇▇▇
▇.▇. ▇▇▇ ▇▇
▇▇▇▇▇▇▇, ▇▇▇▇▇▇▇
▇▇▇ ▇▇▇
Attention: ▇▇▇▇▇ ▇. ▇▇▇▇▇▇▇
Telecopier No.: (▇▇▇) ▇▇▇-▇▇▇▇
With a copy to:
▇▇▇▇▇▇ ▇. ▇▇▇▇ and to Will ▇▇▇▇▇▇▇
▇▇▇▇ ▇▇▇▇▇▇▇▇
BCE Place
▇▇▇▇ -▇▇▇ ▇▇▇ ▇▇▇▇▇▇
▇▇▇▇▇▇▇, ▇▇▇▇▇▇▇
▇▇▇ ▇▇▇
Telecopier No.: (▇▇▇) ▇▇▇-▇▇▇▇
(b) In the case of the Lender:
First Ontario Labour Sponsored Labour Fund Ltd.
c/o First Ontario Management Ltd.
▇▇▇ ▇▇▇▇▇▇▇▇ ▇▇▇▇▇▇ ▇▇▇▇
▇▇▇▇▇ ▇▇▇
▇▇▇▇▇▇▇, ▇▇▇▇▇▇▇
▇▇▇ ▇▇▇
Attention: ▇▇. ▇▇▇ ▇▇▇▇▇▇▇, President
Telecopier No.: (▇▇▇) ▇▇▇-▇▇▇▇
With a copy to:
Gowling, Strathy & ▇▇▇▇▇▇▇▇▇
Suite 4900, P.O. Box ▇▇▇
▇▇▇▇▇▇▇▇ ▇▇▇▇▇ ▇▇▇▇
▇▇▇▇▇▇▇, ▇▇▇▇▇▇▇
▇▇▇ ▇▇▇
Attention: R. ▇▇▇▇▇▇▇ ▇▇▇▇▇▇▇▇
Telecopier No.: (▇▇▇) ▇▇▇-▇▇▇▇
33
Page 33
Any such notice shall be deemed to be given and received, if delivered, when
delivered, and if mailed, on the third Business Day following the date on which
it was mailed, unless an interruption of postal services occurs or is
continuing on or within the three Business Days after the date of mailing in
which case the notice shall be deemed to have been received on the third
Business Day after postal service resumes and if sent by telecopier on the next
Business Day after the day on which the telecopy is sent. Either party may by
notice to the other, given as aforesaid, designate a changed address or
telecopier number.
11.2 PERFORMANCE OF COVENANTS BY THE LENDER. If any of the covenants or
obligations contained herein shall not be performed by the Borrower, the Lender
may perform such covenant or obligation and, if in so doing the Lender spends
money or incurs liability, the amount of money so spent or liability incurred
shall be added to the principal of Outstanding Borrowing.
11.3 INDEMNITY. In addition to any other indemnity provided for herein, the
Borrower hereby indemnifies the Lender on demand against any loss (other than
loss of profit), expense or liability which the Lender may sustain or incur as
a consequence of the action or inaction of the Borrower in connection with:
(a) any default in payment of the principal amount of any Borrowing
or any part thereof or interest accrued thereon, as and when due
and payable;
(b) any failure to fulfill on or before any Borrowing Date the
conditions precedent to any Borrowing as provided for in this
Agreement, if as a result of such failure such Borrowing is not
made on such date;
(c) the occurrence of any Event of Default; or
(d) any misrepresentation made by the Borrower herein or in any
instrument in writing delivered to the Lender in connection with
this Agreement,
excluding only any loss arising as a result of the Lender's negligence.
11.4 PUBLICITY. The Lender shall be entitled to publicity in connection with
the transactions contemplated in this Agreement. Such publicity will be
reviewed with the Borrower and approved by the Borrower prior to its
publication. Subject to the obligations and constraints of the Borrower as a
public company, the Borrower will not unreasonably withhold its approval to
such publication.
11.5 NO SET-OFF OR COUNTERCLAIM. The obligation of the Borrower to make
payments hereunder shall be absolute and unconditional and shall not be
affected by any circumstance, including, without limitation, any set-off,
compensation, counterclaim, recoupment, defence or other right which the
Borrower may have against the Lender.
11.6 SEVERABILITY. Any provision of this Agreement which is prohibited or
unenforceable in any jurisdiction shall not invalidate the remaining provisions
hereof and any such prohibition or unenforceability in any jurisdiction shall
not invalidate or render unenforceable such provision in any other
jurisdiction.
11.7 TIME OF ESSENCE. Time shall, in all respects, be of the essence of this
Agreement.
11.8 ASSIGNMENT. The Borrower may not assign this Agreement or any part
hereof without the prior written consent of the Lender. The Lender shall be
entitled to assign this Agreement.
34
Page 34
11.9 ENTIRE AGREEMENT. This Agreement, together with any security or other
instrument contemplated hereby, constitutes the entire agreement between the
parties with respect to the matters covered hereby and supersedes any other
prior agreements or representations.
11.10 AMENDMENTS. No amendment, modification or waiver of any provision of
this Agreement or consent by the Lender to any departure from any provision of
this Agreement is in any way effective unless it is in writing and signed by
the Borrower (in respect of an amendment or modification), and the Lender, in
which event the amendment, modification, waiver or consent is effective only in
the specific instance and for the specific purpose for which it is given.
11.11 LAW GOVERNING. This Agreement shall be governed by and construed in
accordance with the laws of the Province of Ontario and the laws of Canada
applicable therein and shall be treated in all respects as an Ontario contract
and the parties hereby submit and attorn to the non-exclusive jurisdiction of
the courts of the Province of Ontario.
11.12 CONFLICT. In the event that there is any conflict between the
provisions contained in this Agreement and the provisions contained in any
document delivered pursuant hereto or in connection herewith including, without
limitation, the Security, the provisions of this Agreement shall have priority
over and shall override the provisions contained in the other document.
11.13 LOAN PARTICIPATION. The Lender reserves the right to sell, assign or
transfer or grant a participation in the Credit Facility, in whole or in part,
to one or more Persons (the "Participants"), without notice to, or the consent
of the Borrower. For the purpose of selling, assigning, transferring or
granting a participation, a Lender may disclose, on a confidential basis, to a
potential Participant such information concerning the Borrower as the Lender
considers appropriate. The Borrower agrees to execute and deliver such further
documentation and take such further action as the Lender considers necessary or
advisable to give effect to such sale, assignment, transfer or grant of
participation. In the case of sale, assignment, transfer or granting of a
participation, the Participant shall have, to the extent of such sale,
assignment, transfer or grant of participation, the same rights and obligations
as it would have if it were the Lender on the Closing Date and as such had
executed this Agreement and the Security and any other instrument contemplated
hereunder as required.
35
Page 35
11.14 SUCCESSORS AND ASSIGNS. This Agreement shall be binding upon and enure
to the benefit of the parties and their respective successors and assigns.
IN WITNESS WHEREOF the parties have executed this Agreement as of the day and
year first above written.
STRIKER PAPER CANADA, INC.
c/s
By:
--------------------------------
Name: ▇▇▇▇▇▇▇ ▇▇▇▇
Title: CFO
FIRST ONTARIO LABOUR SPONSORED
INVESTMENT FUND LTD.
By:
--------------------------------
Name: ▇▇▇ ▇▇▇▇▇▇▇
Title: President
May 18, 1998
36
SCHEDULE A
DEFINED TERMS
(a) "AFFILIATES" shall have the meaning ascribed to that term in
the Business Corporations Act (Ontario).
(b) "AGREEMENT" means this agreement and the schedules hereto and
any amendments or supplements to this agreement or the
schedules at any time and from time to time.
(c) "APPLICABLE LAW" means, at any time, with respect to any
Person, property, transaction or event, all applicable laws,
statutes, regulations, treaties, judgments and decrees and
(whether or not having the force of law) all applicable
official directives, rules, consents, approvals, by-laws,
permits, authorizations, guidelines, orders and policies of
any governmental or regulatory body or Persons having
authority over any of the parties hereto.
(d) "BENCHMARK FINANCIALS" means the financial statements of the
Borrower and the notes thereto which are attached as Schedule
A-1 hereto.
(e) "BORROWING" means all advances made pursuant to this Agreement
pursuant to the First Advance and the Second Advance;
(f) "BORROWING DATE" means a Business Day on which a Borrowing is
made.
(g) "BUSINESS" means the business of the Borrower of manufacturing
and selling dry felt products.
(h) "BUSINESS DAY" means a day on which banks are open for
business in Toronto, Ontario other than a Saturday, Sunday or
such other day as banks in Toronto, Ontario are authorized or
required to be closed for business.
(i) "CAPITAL" means, at any particular time, the total of Debt and
Equity.
(j) "CAPITAL EXPENDITURES" means expenditures by the Borrower
which would be classified as capital in nature according to
GAAP.
(k) "CAPITALIZED LEASE OBLIGATIONS" means monetary obligations
under agreements for the lease or rental of real or personal
property that in accordance with GAAP are required to be
capitalized.
37
Page 2
(l) "CASH FLOW PLAN" means the cash flow plans attached as
Schedule N to this Agreement.
(m) "CLOSING" means the date of the advance of the First Advance
by the Lender to the Borrower under the Credit Facility.
(n) "CLOSING DATE" means March 20, 1998.
(o) "CONTAMINANT" includes, but is not limited to, any pollutant,
dangerous, toxic or hazardous substance, waste of any
description whatsoever, hazardous materials or contaminants
including any of the foregoing as defined in any Environmental
Law.
(p) "CONTINGENT FINANCIAL OBLIGATION" means, at any time and
without duplication, any obligation of the Borrower
guaranteeing, indemnifying or securing or in effect
guaranteeing, indemnifying or securing, whether directly or
indirectly, any indebtedness, liability or obligation,
absolute or contingent, of any other Person, as determined in
accordance with GAAP.
(q) "CREDIT FACILITY" means the credit facility made available
under Part 2.0.
(r) "CURRENT ASSETS" and "CURRENT LIABILITIES" mean, at any
particular time, the aggregate of the amount of the entries
which would, in accordance with GAAP, be classified upon the
balance sheet of the Borrower as at such time as current
assets and current liabilities, respectively, of the Borrower,
provided that, notwithstanding any other provision hereof,
current assets shall not include advances of any kind by the
Borrower to Related Parties or any indebtedness of any kind
owed to the Borrower by Related Parties or any Intangible
Assets and that, further, current liabilities shall not
include either loans by Shareholders or the long-term portion
of loans by other Persons and which loans have been postponed
and subordinated to the indebtedness of the Borrower to the
Senior Lender pursuant to the Inter-Lender Agreement.
(s) "DEBT" means, at any particular time, the aggregate amount of
all Current Liabilities and all long-term debt (both the
current and non-current portions) of the Borrower as such
amounts would be classified on the balance sheet of the
Borrower in accordance with GAAP at such time, provide that,
notwithstanding any other provision hereof, "Debt" shall not
include either loans by Shareholders (other than the Lender)
or the long-term portion of loans by other Persons and which
loans have been postponed and subordinated to the indebtedness
of the Borrower to the Senior Lender pursuant to the
Inter-Lender Agreement.
38
Page 3
(t) "DEBT SERVICE COVERAGE" means, for any particular Fiscal
Period, the number determined by subtracting the amount of
Capital Expenditures and the amount of dividends paid by the
Borrower for such Fiscal Period from the EBITDA for such
Fiscal Period and then dividing the resulting number by the
number obtained by performing the following calculation with
respect to such Fiscal Period:
Total Principal + Interest Expenses + Lease Payments
(u) "DEFAULT" means any of the events described in section 9.1
regardless of whether any requirement in connection with such
event for the giving of notice, the lapse of time, or the
happening of any further condition, event or act has been
satisfied or met.
(v) "EBITDA" means, in respect of any particular Fiscal Period,
the aggregate of each of the following:
(i) the Net Income;
(ii) Interest Expenses;
(iii) income tax expenses, including deferred income taxes;
(iv) depreciation and amortization expenses and other
non-cash expenses; and
(v) Lease Payments.
all as determined at the end of the said Fiscal Period by the
auditors of the Borrower in accordance with GAAP.
(w) "EFFECTIVE NET WORTH" means, at any particular time, the
aggregate of each of the following, all calculated in
accordance with GAAP:
(i) Equity; and
(ii) loans by Shareholders (other than the Lender) and the
long-term portion of loans by other Persons which
loans have been postponed and subordinated to the
indebtedness of the Borrower to the Senior Lender;
less the aggregate of:
39
Page 4
(iii) any indebtedness owed to the Borrower, on either a
secured or unsecured basis, by Related Parties;
(iv) any amounts invested by the Borrower by way of
equity, in Related Parties; and
(v) any Intangible Assets.
(x) "ENVIRONMENTAL ACTIVITY" means any past, present or future
activity, event or circumstance in respect of a Contaminant,
including, without limitation, its storage, use, holding,
collection, purchase, accumulation, assessment, generation,
manufacture, construction, processing, treatment,
stabilization, disposition, handling or transportation or its
Release into the natural environment including the movement
through or in the air, soil, subsoil, surface water or
groundwater.
(y) "ENVIRONMENTAL LAWS" means any and all federal, provincial,
municipal, local and foreign statutes, laws, regulations,
ordinances, rules, judgments, orders, decrees, permits,
licences, agreements or other governmental restrictions having
the force of law relating to the environment, occupational
health and safety, health protection or any Environmental
Activity.
(z) "EVENT OF DEFAULT" means any of the events described in
section 9.1, provided that any requirement in connection with
such event for the giving of notice, the lapse of time or the
happening of any further condition, event or act has been
satisfied or met.
(aa) "EQUITY" means, at any particular time, the amount which
would, in accordance with GAAP, be classified upon the balance
sheet of the Borrower as at such time as shareholders' equity,
including preferred equity.
(bb) "FINOVA CREDIT FACILITY" means the credit facility granted by
Finova Capital Corporation to, inter alia, Striker Industries,
Inc. and any other transactions contemplated thereby.
(cc) "FIRST ADVANCE" shall have the meaning ascribed to that term
in subsection 2.1(a) hereof.
(dd) "FISCAL PERIOD" means a Fiscal Year or any period of one, two
or three Fiscal Quarters.
40
Page 5
(ee) "FISCAL QUARTER" means any of the fiscal quarters of the
Borrower ending on the last day of March, June, September and
December in each year.
(ff) "FISCAL YEAR" of an entity means the 12 month period ending on
the fiscal-year end of that entity and in the case of the
Borrower the 12 month period ending on December 31 of each
year.
(gg) "GAAP" means generally accepted accounting principles which
are in effect in Canada from time to time applied in a
consistent manner from period to period.
(hh) "GUARANTEE" means, with respect to a Person, any absolute or
contingent liability of that Person under any guarantee,
agreement, endorsement (other than for collection or deposit
in the ordinary course of business), discount with recourse or
other obligation to pay, purchase, repurchase or otherwise be
or become liable or obligated upon or in respect of any
Indebtedness of any other Person and including any absolute or
contingent obligations to:
(i) advance or supply funds for the payment or purchase
of any Indebtedness of any other Person,
(ii) purchase, sell or lease (as lessee or lessor) any
property, assets, goods, services, materials or
supplies primarily for the purpose of enabling any
other Person to make payment of Indebtedness or to
assure the holder thereof against loss, or
(iii) indemnify or hold harmless any other Person from or
against any losses, liabilities or damages, in
circumstances intended to enable such other Person to
incur or pay any Indebtedness or to comply with any
agreement relating thereto or otherwise to assure or
protect creditors against loss in respect of such
Indebtedness.
(ii) "HAZARDOUS MATERIALS" means any substance or material that is
prohibited, controlled or otherwise regulated by any
governmental authority pursuant to the Requirements of
Environmental Law, including, without limitation, any
contaminant, pollutant, dangerous substance, toxic substance,
designated substance, controlled product, hazardous waste,
subject waste, hazardous material, dangerous good or
petroleum, its derivatives, by-products or other hydrocarbons,
asbestos, polychlorinated biphenyls (PCBs) or PCB contaminated
fluids or equipment, explosives, or radioactive substances,
all as defined in or pursuant to the Requirements of
Environmental Law.
41
Page 6
(jj) "INDEBTEDNESS" of a Person means, without duplication,
(i) all debts, liabilities and obligations, contingent
and other, including principal, interest, charges and
fees, which in accordance with GAAP would be
classified upon the Person's balance sheet as
liabilities including, without limitation, all
Capitalized Lease Obligations,
(ii) all obligations secured by any Security Interest,
including principal, interest, charges and fees,
existing on property owned or acquired by the Person
subject to such Security Interest whether or not the
Person has assumed or otherwise become liable for the
payment of such obligations, and
(iii) all obligations and liabilities incurred pursuant to
Guarantees issued by the Person.
(kk) "INTANGIBLE ASSETS" means at any particular time the
intangible and intellectual property assets of the Borrower
(not including accounts receivable) as defined by the Lender
in accordance with its policies and practices.
(ll) "INTER-LENDER AGREEMENT" means a certain agreement dated as of
March 20, 1998 made between, inter alia, the Lender and the
Senior Lenders in form and substance satisfactory to the
Lender.
(mm) "INTEREST EXPENSES" means, for any particular Fiscal Period,
the amount which would, in accordance with GAAP, be classified
on the income statement of the Borrower for such period as
gross interest expense.
(nn) "INTEREST PAYMENT DATE" means the last Business Day of each
calendar month.
(oo) "INTEREST RATE" means twenty percent (20%) per annum.
(pp) "LEASE PAYMENTS" means, for any particular period, the amount
which would, in accordance with GAAP, be classified on the
income statement of the Borrower for such period as operating
or non-capital lease payment expenses.
(qq) "LIEN" means any deed of trust, mortgage, charge, hypothec,
assignment, pledge, lien or other security interest or
encumbrance of
42
Page 7
whatever kind or nature, including without limitation,
vendor's privilege or supplier's right of reclamation,
regardless of form and whether consensual or arising by law
(statutory or otherwise) that secures the payment of any
indebtedness or liability or the observance or performance of
any obligation, and including any agreement to give any of the
foregoing.
(rr) "MATERIAL ADVERSE CHANGE" or "MATERIAL ADVERSE EFFECT" means,
with respect to any event, act, condition or occurrence of
whatever nature (including any adverse determination in any
litigation, arbitration or governmental investigation or
proceeding), whether singly or in conjunction with any other
event or events, act or acts, condition or conditions,
occurrence or occurrences, whether or not related, a material
adverse change in, or a material adverse effect upon, any of
the Business, property, assets, operations, conditions
(financial or otherwise) or prospects of the Borrower as
determined in the good faith exercise of the Lender's
judgment.
(ss) "MATERIAL CONTRACTS" means the material contracts and
agreements to which the Borrower is a party in connection with
the Business of the Borrower, including all leases,
conditional sales agreements, licenses, supply agreements and
sales agreements, excluding those which have a remaining term
of less than three months or under which the annual
obligations or benefits of the Borrower are less than $50,000
exclude those which have a remaining term of less than three
months or under which the annual obligations or benefits of
the Borrower are less than $50,000. All of which are
described in Schedule L to this Agreement. as the same may be
amended, modified, supplemented or replaced from time to time.
(tt) "MATURITY DATE" means March 31, 2001.
(uu) "NET INCOME" means, for any particular Fiscal Period, the
amount which would be classified on the income statement of
the Borrower for such period as net income in accordance with
GAAP.
(vv) "OUTSTANDING BORROWING" means the aggregate of (i) the
outstanding principal amount of each Borrowing, (ii) all
unpaid interest and fees thereon as herein provided, and (iii)
all other fees, charges and expenses required to be paid by
the Borrower to the Lender hereunder or pursuant to any
written agreements now or hereafter entered into between the
Borrower and the Lender.
43
Page 8
(ww) "OPENING BALANCE SHEET" means the pro forma balance sheet for
the Borrower prepared by the management of the Borrower as at
the Closing Date which is attached as Schedule C hereto.
(xx) "PERMITTED CAPITAL EXPENDITURES" means Capital Expenditures of
the Borrower in the amount which is contemplated by the Cash
Flow Plan attached as Schedule N hereto.
(yy) "PERMITTED ENCUMBRANCES" means any one or more of the
following with respect to the property, assets and undertaking
of the Borrower:
(i) Liens for taxes, assessments or government charges or
levies not at the time due and delinquent or the
validity of which are being contested in good faith
by proper legal proceedings and as to which reserves
are being maintained in accordance with GAAP so long
as forfeiture of any part of the property or assets
of the Borrower will not result from the failure to
pay such taxes, assessments or governmental charges
or levies during the period of such contest;
(ii) the Lien of any judgment rendered or claim filed
against the Borrower which is being contested in good
faith by proper legal proceedings and as to which
reserves are being maintained in accordance with GAAP
so long as forfeiture of any part of the property or
assets of the Borrower will not result from the
failure to satisfy such judgment or claim during the
period of such contest;
(iii) undetermined or inchoate Liens and charges incidental
to current operations which have not at such time
been filed pursuant to law or which relate to
obligations not due or delinquent;
(iv) restrictions, easements, rights-of-way, servitudes or
other similar rights in land granted to or reserved
by other Persons which in the aggregate do not
materially impair the usefulness, in the operation of
the Business of the Borrower, of the property subject
to such restrictions, easements, rights-of-way
servitudes or other similar rights in land granted to
or reserved by other Persons;
(v) the right reserved to or vested in any municipality
or governmental or other public authority by the
terms of any lease, licence, franchise, grant or
permit acquired by the Borrower or by any statutory
provision, to terminate any such lease, licence,
franchise,
44
Page 9
grant or permit, or to require annual or other
payments as a condition to the continuance thereof;
(vi) the encumbrance resulting from the deposit of cash or
securities in connection with contracts, tenders or
expropriation proceedings, or to secure workers'
compensation, surety or appeal bonds, costs of
litigation when required by law and public and
statutory obligations;
(vii) security given to a public utility or any
municipality or governmental or other public
authority when required by such utility or other
authority in connection with the operations of the
Borrower, all in the ordinary course of business;
(viii) the reservations, limitation, provisos and
conditions, if any, expressed in any original grants
from the Crown or in comparable grants, if any, in
jurisdictions other than Canada;
(ix) title defects or irregularities which are of a minor
nature and in the aggregate will not materially
impair the use of the property for the purpose for
which it is held;
(x) any validly perfected Lien created, assumed or
arising by operation of law after the date of this
Agreement, to provide or secure the whole or any part
of the consideration of the acquisition of property,
whether by lease or by conditional sales contract,
where:
A. the principal amount secured does not exceed
the cost to the Borrower of such property,
B. the Borrower's obligation to repay is
secured only by the property so acquired by
the Borrower,
C. the property is not being acquired as a
replacement or substitution for the property
or assets which are charged under the
Security, and
D. the aggregate amount secured by the Liens
described in this paragraph (x) created,
assumed or arising during any Fiscal Year of
the Borrower shall not exceed the annual
amount determined in the discretion of the
Lender, which annual amount shall not exceed
75% of the actual capital expenditures for
the period;
45
Page 10
(xi) security given to the Senior Lenders pursuant to the
respective Senior Loan Agreements and any liens
created in favour of Bluestone Capital Partners, L.P.
and the Ontario Development Corporation; and
(xii) any other Lien on property or properties of the
Borrower that is hereafter specifically authorized in
writing by the Lender.
(zz) "PERSON" includes an individual, a partnership, a joint
venture, a trust, an unincorporated organization, a company, a
corporation, an association, a government or any department or
agency thereof and any other incorporated or unincorporated
entity.
(aaa) "PROPERTY" means any moveable or immoveable or personal or
real property owned, leased, occupied or under the charge,
management or control of the Borrower.
(bbb) "PURCHASE MONEY OBLIGATIONS" means the outstanding balance of
the purchase price of an asset, title to which has been
acquired or will be acquired upon payment of such purchase
price.
(ccc) "REAL PROPERTY" means the real properties which are owned or
occupied by the Borrower and situated at the locations which
are identified in Schedule B to this Agreement as the
locations of freehold and leasehold properties.
(ddd) "RELATED PARTIES" means Persons who are Affiliates of the
Borrower or Subsidiaries of the Borrower or who are otherwise
related to the Borrower within the meaning of the Bankruptcy
and Insolvency Act (Canada).
(eee) "RELEASE" includes discharge, spray, inject, inoculate,
abandon, deposit, spill, leak, seep, pour, emit, empty, throw,
dump, place, escape, ▇▇▇▇▇, disperse, migrate and exhaust, and
when used as a noun (as applicable) has a similar meaning.
(fff) "REQUIREMENTS OF ENVIRONMENTAL LAW" means all requirements of
the common law or of statutes, regulations, by-laws,
ordinances, treaties, judgments and decrees, and (whether or
not they have the force of law) rules, policies, guidelines,
orders approvals, notices, permits, decisions, directives,
directions and the like, of any federal, territorial,
provincial, regional, municipal or local, judicial, regulatory
or administrative agency, board or governmental authority
relating to environmental or occupational health and safety
matters and any property owned, leased or used by the
46
Page 11
Borrower and its activities carried out thereon (whether in
the past, present or the future) including, but not limited
to, all such requirements relating to: (i) the protection,
preservation or remediation of the natural environment (the
air, land, surface water or groundwater); (ii) the generation,
handling, treatment, storage, transportation or disposal of or
other dealing with solid, gaseous or liquid waste; and (iii)
Hazardous Materials.
(ggg) "SECURITY" means the security and agreements described in Part
8.0 and any additional security issued from time to time by
any Person in support of the liabilities and obligations
hereunder.
(hhh) "SECURITY INTEREST" includes a mortgage, charge, floating
charge, pledge, hypothec, assignment, lien, interest claim,
encumbrance, conditional sale agreement or other title
retention agreement, subordination trust or other security
interest or arrangement of any kind or character intended to
create a security interest in substance regardless of whether
the Person creating the interest retains an equity of
redemption, and any agreement to provide or enter into at any
time or on the happening of any event such a security interest
or arrangement.
(iii) "SENIOR LENDER" means the Senior Operating Lender or the
Senior Term Lender and "Senior Lenders" means the Senior
Operating Lender and the Senior Term Lender collectively.
(jjj) "SENIOR LOAN AGREEMENT" means the Senior Operating Loan
Agreement or the Senior Term Loan Agreement and "Senior Loan
Agreements" means the Senior Operating Loan Agreement and the
Senior Term Loan Agreement collectively.
(kkk) "SENIOR OPERATING LENDER" means SO-USE (CUCO) as the lender
pursuant to the Senior Operating Loan Agreement, or such other
lender which from time to time provides working capital credit
facilities to which the Lender is subordinated.
(lll) "SENIOR OPERATING LOAN AGREEMENT" means that certain loan
agreement entered into as of December [*], 1997 between the
Borrower and the Senior Operating Lender as lender providing
for up to $800,000 in operating credit facilities.
(mmm) "SENIOR TERM LENDER" means Laurentian Bank of Canada as the
lender pursuant to the Senior Term Loan Agreement, or such
other lender which
47
Page 12
from time to time provides term credit facilities to which the
Lender is subordinated.
(nnn) "SENIOR TERM LOAN AGREEMENT" means that certain loan agreement
entered into as of July 13, 1995 between the Borrower and the
Senior Term Lender as lender providing for up to $2,000,000 in
term credit facilities, including forbearance agreement dated
August 11, 1997 among the Borrower, the Senior Term Lender,
Striker Industries, Inc. and Ontario Development Corporation,
as amended by a letter dated September 11, 1997, and the
credit agreement dated March 10, 1998 among the Borrower, the
Senior Term Lender, Striker Industries, Inc. and Ontario
Development Corporation.
(ooo) "SHAREHOLDERS" means any Person (other than the Lender) who
directly or indirectly is the legal or beneficial owner of any
share in the capital stock of the Borrower.
(ppp) "SHAREHOLDERS AGREEMENT" means the shareholders agreement
among the Lender, the Borrower and the Shareholders entered
into as at March 20, 1998 as the same may be amended from time
to time.
(qqq) "SUBSCRIPTION AGREEMENT" means a certain share subscription
agreement entered into as at March 20, 1998 between the
Borrower and the Lender.
(rrr) "STEPHEN'S PLANT" means any of those manufacturing assets
located at Striker Drive, ▇▇▇▇▇▇▇▇, Arkansas, ▇▇▇, ▇▇▇▇▇.
(sss) "SUBSIDIARY" means a body corporate which is a subsidiary of
another body corporate within the meaning of that term as used
in the Business Corporations Act (Ontario) as amended from
time to time and "SUBSIDIARIES" means more than one
Subsidiary.
(ttt) "TAX" and "TAXES" include all present and future taxes,
levies, imposts, stamp taxes, duties, charges to tax, fees,
deductions, withholdings and any restrictions or conditions
resulting in a charge to tax and all penalties, interest and
other payments on or in respect thereof.
(uuu) "THOROLD PLANT" means any of those manufacturing assets
located at ▇▇▇ ▇▇▇▇▇▇ ▇▇▇▇▇▇ ▇▇▇▇▇, ▇▇▇▇▇▇▇, ▇▇▇▇▇▇▇.
(vvv) "TOTAL PRINCIPAL" means the current portion of the principal
of the long term debt of the Borrower determined in accordance
with GAAP.
48
Page 13
(www) "WORKING CAPITAL" means, at any time, the amount by which the
aggregate of Current Assets exceed the amount of Current
Liabilities.
(xxx) "WORKING CAPITAL RATIO" means, at any particular time, the
ratio of Current Assets to Current Liabilities at such time.
(yyy) "WRITTEN" and "IN WRITING" shall include printing, typewriting
or any electronic means of communication capable of being
visibly reproduced at the point of reception including telex,
telegraph or telecopy.
49
SCHEDULE A-1
BENCHMARK FINANCIALS
50
SCHEDULE B
REAL PROPERTY DESCRIPTION
FIRSTLY:
Part of Park ▇▇▇ ▇ ▇▇▇ ▇▇▇▇ ▇▇ ▇▇▇▇ ▇▇▇ ▇▇, ▇▇▇▇ 898, Part of Township ▇▇▇ ▇▇,
▇▇▇▇▇▇▇▇ ▇▇ ▇▇▇▇▇▇▇, ▇▇▇▇▇ ▇▇ ▇▇▇▇▇▇▇ ▇▇▇▇▇▇ Plan 898, as closed by By-laws
2455 and 1140 (1988), City of Thorold, Regional Municipality of Niagara,
designated as Part 3, Plan 59R-7526. Subject to an easement in favour of the
Corporation of the City of Thorold over those parts of said Park Lot 5 and that
part of said Township Lot 29, designated as Part 17, Plan 59R-1681, as set out
in Instrument No. 303771.
SECONDLY:
Those parts of ▇▇▇▇▇▇▇ Street as closed by By-Laws 2455 and 1140 (1988)
designated as Parts 1 and 2, Plan 59R-7526. Subject to an easement in favour
of Thorold Hydro Electric Commission over that part of ▇▇▇▇▇▇▇ Street, Plan
898, as closed by By-Laws 2455 and 1140 (1988), designed as Part 2, Plan
59R-7526, as more particularly set out in Instrument No. 556427. Subject to an
easement in favour of the Corporation of the City of Thorold over those parts
of ▇▇▇▇▇▇▇ Street as closed by By-laws 2455 and 1140 (1988), designated as
Parts 2, 5 and 7, Plan 59R-6276 as more particularly described in Instrument
No. 585965.
THIRDLY:
Part of Park ▇▇▇ ▇ ▇▇▇ ▇▇▇▇ ▇▇ ▇▇▇▇ ▇▇▇ ▇▇, ▇▇▇▇ ▇▇▇, ▇▇▇▇ of Thorold, Regional
Municipality of Niagara, designated as Part 1, Plan 59R-7527.
51
SCHEDULE C
OPENING BALANCE SHEET
52
SCHEDULE D
TAXES INADEQUACIES
NONE
53
SCHEDULE E
LOCATION OF COLLATERAL
Striker Paper Canada, Inc.
▇▇▇ ▇▇▇▇▇▇ ▇▇▇▇▇▇ ▇▇▇▇▇
▇.▇. ▇▇▇ ▇▇
▇▇▇▇▇▇▇, ▇▇▇▇▇▇▇
▇▇▇ ▇▇▇
54
SCHEDULE F
EXCEPTIONS TO ENVIRONMENTAL COMPLIANCE
NONE EXCEPT:
1. Honeycomb Dryer [exception to be described]
2. Exceptions disclosed in the following report: ▇▇▇▇▇▇ Engineering
Group Inc., 1995. Final Phase I Environmental Site Assessment Report,
Roofing Felt Plant, ▇▇▇ ▇▇▇▇▇▇ ▇▇▇▇▇▇ ▇▇▇▇▇, ▇▇▇▇▇▇▇, ▇▇▇▇▇▇▇ (▇▇▇▇▇▇
Project No. 13-J684-01). Report to Striker Industries, Inc. June 30,
1995.
LICENSES AND PERMITS
No licenses are required to operate the Borrower's Business other than
Municipal occupancy permit, business license, and a Certificate of Approval
(Air).
55
SCHEDULE G
APPRAISALS
56
SCHEDULE H
LIST OF CONTINGENT OBLIGATIONS
NONE EXCEPT AS DISCLOSED IN SCHEDULE Q
57
SCHEDULE I
LEGAL OPINIONS
58
SCHEDULE J
INTENTIONALLY DELETED
59
SCHEDULE K
LIST OF INTELLECTUAL PROPERTY
NONE
60
SCHEDULE L
SUMMARY OF MATERIAL CONTRACTS
NONE
61
SCHEDULE M
DESCRIPTION OF EQUIPMENT
62
SCHEDULE N
CASH FLOW PLAN
63
SCHEDULE O
EXAMPLE OF INTEREST CALCULATION
64
SCHEDULE P
ACCOUNTS PAYABLE PAYOUT ARRANGEMENTS
65
SCHEDULE Q
LITIGATION