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EXHIBIT 4.2
AMENDMENT TO
SUBORDINATED LOAN AGREEMENT
This amending agreement dated as of the 18th day of August, 1998
BETWEEN:
STRIKER PAPER CANADA, INC., a corporation incorporated
pursuant to the laws of the Province of Ontario,
(hereinafter referred to as the "Borrower")
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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")
CONTEXT OF THIS AGREEMENT
A. The Borrower and the Lender entered into a certain subordinated loan
agreement dated as of the 20th day of March, 1998 (the "Subordinated Loan
Agreement").
B. The Borrower and the Lender have agreed to amend the Subordinated Loan
Agreement to recapitalize and increase the liquidity of the Borrower, as more
particularly described in paragraphs C to G below, upon certain conditions being
met.
C. The Lender has agreed to waive the second advance conditions described in
paragraphs (b) and (c) of section 5.2 of the Subordinated Loan Agreement and
advance $200,000 of the second advance upon certain conditions.
D. The Lender has agreed to waive the second advance conditions described in
paragraphs (b) and (c) of section 5.2 of the Subordinated Loan Agreement and
advance the remaining $50,000 of the second advance on August 24, 1998 upon
certain conditions.
E. The Lender has agreed to increase the credit facility to $1.65 million by
providing a third advance of $150,000 on which the Borrower may draw subject to
certain conditions.
F. The parties have agreed to amend the financial covenants described in
paragraphs (a), (b) and (c) of section 7.2 of the Subordinated Loan Agreement.
G. The parties have agreed to amend the scheduled principal repayment
described in section 3.1.
NOW THEREFORE THIS AGREEMENT WITNESSES THAT, in consideration of the premises,
covenants and agreements herein contained, the parties have mutually agreed upon
certain amendments and revisions to certain terms and conditions contained in
the Subordinated Loan Agreement and wish to record their said agreements herein.
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PART 1.0 - INTERPRETATION
1.1 DEFINITIONS. Except as specifically provided herein to the contrary, all
terms set out herein in initial upper case letters shall have the meanings
ascribed to such terms in the Subordinated Loan Agreement.
1.2 ALL OTHER TERMS REMAIN UNAMENDED. Except as specifically amended herein,
all other terms, conditions and provisions of the Subordinated Loan Agreement
remain in full force and effect and unamended.
1.3 INCORPORATION BY REFERENCE. To the extent possible, the provisions of this
agreement shall be interpreted by incorporation into the Subordinated Loan
Agreement as if recited therein, mutatis mutandis, and any reference to the
Subordinated Loan Agreement herein shall be a reference to the Subordinated Loan
Agreement as revised and amended by the terms hereof.
PART 2.0 - SPECIFIC AMENDMENTS
2.1 CREDIT FACILITY. Section 2.1 of the Subordinated Loan Agreement is hereby
deleted in its entirety and substituted with the following:
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 $1,650,000 available by way of advances as
follows:
(a) an advance in the amount of $1,250,000 on the Closing Date
(the "First Advance");
(b) an advance in the amount of $200,000 upon satisfaction of
the conditions set out in section 5.2 of the Subordinated
Loan Agreement (the "Second Advance");
(c) an advance in the amount of $50,000 on August 24, 1998 upon
satisfaction of the conditions set out in section 5.2 of
the Subordinated Loan Agreement (the "Third Advance");
(d) an advance in the amount of $75,000 on August 24, 1998 upon
satisfaction of the conditions set out in section 5.2 of
the Subordinated Loan Agreement (the "Fourth Advance"); and
(e) an advance in the amount of $75,000 on September 14, 1998
upon satisfaction of the conditions set out in section 5.2
of the Subordinated Loan Agreement (the "Fifth Advance").
2.2 SCHEDULED PRINCIPAL REPAYMENT. Section 3.1 of the Subordinated Loan
Agreement is hereby deleted in its entirety and substituted with the following:
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 installments commencing on September 30, 1999.
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2.3 SUBSEQUENT ADVANCE CONDITIONS. Section 5.2 of the Subordinated Loan
Agreement is hereby deleted in its entirety and substituted with the following:
SUBSEQUENT ADVANCE CONDITIONS. The obligation of the Lender to make any of
the Second Advance, the Third Advance, the Fourth Advance and the Fifth
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 the
advance of monies pursuant to the Second Advance, the Third Advance, the
Fourth Advance or the Fifth Advance, as applicable (with the exception of
any condition which is only required to be satisfied after the date of the
particular advance of monies):
(a) in addition to the equity investment described in paragraph
(m) of section 5.1 of the Subordinated Loan Agreement, the
Lender shall have received evidence to its satisfaction of
the completion by Striker Holdings (Canada) Inc. of
additional common share equity investments in the Borrower
in the amounts of $200,000, $250,000, $442,000 and $642,000
as of the date of the advance of monies pursuant to the
Second Advance, the Third Advance, the Fourth Advance or
the Fifth Advance, respectively; for greater certainty, the
amounts of the additional common share equity investments
are cumulative;
(b) the Borrower shall have achieved each of the financial
covenants set forth in section 7.2 hereof throughout the
said three month period ended on the date of the particular
advance of monies;
(c) the Lender shall have received a binding commitment from
Striker Holdings (Canada) Inc. and from Striker Industries,
Inc., to invest an aggregate amount of $642,000 on or prior
to September 14, 1998 as additional equity in the Borrower
in addition to the equity investment described in paragraph
(m) of section 5.1 of this Agreement, which commitment
remains in effect;
(d) Striker Holdings (Canada) Inc. shall have been be issued no
more than 1 common share in the Borrower upon each of the
dates of a subscription payment or payments described in
paragraph (a) above;
(e) the Lender shall have been be issued, for a nominal amount,
1 common share in the Borrower upon each of the dates of a
subscription payment or payments described in paragraph (a)
above;
(f) the Lender shall hold that number of the common shares of
the capital stock of the Borrower equal to at least 25% of
all the fully participating equity of the Borrower
(calculated on a fully diluted basis);
(g) the Borrower shall have delivered to the Lender a revised
first year business plan satisfactory to the Lender,
including monthly cash flow statements, balance sheets and
income statements;
(h) the Board of Directors of the Borrower shall be fully
constituted in accordance with the Shareholders Agreement
and the first Board Meeting shall have taken place;
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(i) on or prior to August 24, 1998, the Lender shall have
received from the Borrower evidence to its satisfaction
that the Senior Term Lender and the Senior Operating Lender
have adjusted financial ratio tests in their Senior Term
Loan Agreement and Senior Operating Loan Agreement
respectively to reflect the revised business plan described
in paragraph (g) above;
(j) the Lender shall have received such certificates or other
instruments of the Borrower or of the officers of the
Borrower as the Lender's counsel may reasonably think
necessary in order to establish that the terms, covenants
and conditions contained in this Agreement have been
performed or complied with by the Borrower at or prior to
the time of the particular advance of monies;
(k) the Lender shall have received, duly executed and in form
and substance satisfactory to it:
(i) a copy of the resolutions of the board of directors
of the Borrower authorizing the execution, delivery
and performance of this Agreement and any other
instruments contemplated hereunder, certified by an
appropriate officer of the Borrower; and
(ii) such additional supporting documents as the Lender
or its counsel may reasonably request;
(l) no Default or Event of Default has occurred and is
continuing and 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; and
(m) upon satisfactory evidence being given to the Lender and
its counsel as to compliance with each of the other
conditions set out in this Agreement, and all amendments
hereto, including compliance with each of the conditions
set out in section 5.1 hereof on the date of the particular
advance of monies.
2.4 BORROWER REPORTING REQUIREMENTS. The following paragraph is added to
section 7.1 and inserted after paragraph (f):
(f.1) The Borrower shall deliver to First Ontario Management
Ltd., or such other party as the Lender may otherwise from time to
time direct:
(i) a weekly cash report consisting of changes in
financial position and a weekly detailed pro forma
sources and uses of cash for each of the following
six weeks (all prepared in accordance with GAAP)
within 7 days after the end of each week for the
period from August 3, 1998 until the later of
September 30, 1998 and the date on which the
Borrower has produced 400 tons of commercial grade
product per week for three consecutive weeks;
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(ii) a certificate signed by either the President or the
Chief Financial Officer of the Borrower stating
that:
A. the amounts of vacation pay, wages, source
deductions and taxes required to be remitted by
the Borrower (including payroll-related
deductions and contributions for income tax,
employer health tax, CPP, workers compensation
and employment insurance) 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;
B. 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;
C. 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 the Occupational Health
and Safety Act (Ontario), the Pay Equity Act
(Ontario), the Labour Relations Act (Ontario)
and the Employment Standards Act (Ontario);
D. no action against the Borrower has been taken by
any trade creditors (except as disclosed in
writing to the Lender); and
E. The Directors and Officers Insurance required
under the terms of the Shareholders Agreement is
in place and the premium payments for such
insurance are current,
such certificate to be delivered either: (1) within
7 days after the end of each week for the period
from August 3, 1998 until the later of September 30,
1998 and the date on which the Borrower has produced
400 tons of commercial grade product per week for
three consecutive weeks; and (2) immediately prior
to each Board Meeting (but not less than quarterly)
for the period thereafter.
2.5 FINANCIAL COVENANTS. Each of paragraphs (a), (b) and (c) of section 7.2 of
the Subordinated Loan Agreement are hereby deleted in its entirety and
substituted with the following:
(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 December 31, 1998, the Working
Capital Ratio may be as low as, but no lower than, 0.40 to
1 and for the period from January 1, 1999 to June 30, 1999,
the Working Capital Ratio may be as low as, but no lower
than, 0.75 to 1. For purposes of this paragraph 2.5(a),
Working Capital shall mean, at any particular time, the
ratio of Current Assets to Current Liabilities
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(excluding the amortized amount of the subordinated debt
held by the Lender).
(b) WORKING CAPITAL. The Borrower shall at all times after May
31, 1999 maintain Working Capital of not less than
$200,000. For purposes of this paragraph 2.5(b), Working
Capital shall mean, at any particular time, the amount by
which the aggregate of Current Assets exceed the amount of
Current Liabilities (excluding the amortized amount of the
subordinated debt held by the Lender).
(c) EFFECTIVE NET WORTH. The Borrower shall at all times
maintain an Effective Net Worth of not less than
$9,500,000.
2.6 GENERAL AMENDMENT TO REFERENCE TO FIRST ADVANCE AND/OR SECOND ADVANCE. The
reference in section 2.2 and in the definition of Borrowing in Schedule A of the
Subordinated Loan Agreement to "the First Advance and the Second Advance" is
amended to "the First Advance, the Second Advance, the Third Advance, the Fourth
Advance and the Fifth Advance" and the reference in section 5.3 of the
Subordinated Loan Agreement to "either of the First Advance or the Second
Advance" is amended to "any of the First Advance, the Second Advance, the Third
Advance, the Fourth Advance or the Fifth Advance".
PART 3.0 - ARTICLE THREE - GENERAL MATTERS
3.1 APPROVAL. This amending agreement is conditional upon the approval of the
Lender's Investment Committee and the Lender's Board of Directors of the
transactions contemplated hereby.
3.2 REIMBURSEMENT OF EXPENSES. The Borrower agrees to pay promptly on demand
all legal fees and expenses incurred by the Lender in connection with the
preparation, negotiation, documentation and operation of this amending
agreement.
3.3 GOVERNING LAW. This amending agreement shall be construed in accordance
with and governed by the laws of the Province of Ontario.
3.4 SUCCESSORS AND ASSIGNS. This amending agreement shall enure to the benefit
of and be binding upon the respective successors and assigns of the parties
hereto.
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:
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Name: Xxxxxxx Xxxx
Title: CFO
FIRST ONTARIO LABOUR SPONSORED
INVESTMENT FUND LTD.
By:
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Name: Xxx Xxxxxxx
Title: President
