<PAGE>   1
                                                                     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")

                                     - 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")


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.



<PAGE>   2


                                      -2-

                            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.


<PAGE>   3

                                       -3-


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;


<PAGE>   4
                                      -4-


             (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;

<PAGE>   5

                                      -5-


                     (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 



<PAGE>   6

                                      -6-

                     (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:                                           
                                    ------------------------------------     
                                    Name: Matthew Pond                   
                                    Title: CFO                           
                                                                             
                                                                             
                               FIRST ONTARIO LABOUR SPONSORED                
                               INVESTMENT FUND LTD.                          
                                                                             
                                                                             
                               By:                                           
                                    ------------------------------------     
                                    Name: Ken Delaney                    
                                    Title: President