UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

 

FORM 8-K

 

CURRENT REPORT

Pursuant to Section 13 or 15(d) of the

Securities Exchange Act of 1934

 

Date of Report (Date of Earliest Event Reported): February 28, 2018

 

ORCHIDS PAPER PRODUCTS COMPANY

(Exact Name of Registrant as Specified in its Charter)

 

Delaware   001-32563   23-2956944
(State or Other Jurisdiction of   (Commission   (IRS Employer
Incorporation)   File Number)   Identification Number)

 

4826 Hunt Street

Pryor, Oklahoma 74361

(Address of Principal Executive Offices)

 

(918) 825-0616

(Registrant’s telephone number, including area code)

 

Check the appropriate box below if the Form 8-K filing is intended to simultaneously satisfy the filing obligation of the registrant under any of the following provisions ( see General Instruction A.2. below):

 

¨ Written communications pursuant to Rule 425 under the Securities Act (17 CFR 230.425)
   
¨ Soliciting material pursuant to Rule 14a-12 under the Exchange Act (17 CFR 240.14a-12)
   
¨ Pre-commencement communications pursuant to Rule 14d-2(b) under the Exchange Act (17 CFR 240.14d-2(b))
   
¨ Pre-commencement communications pursuant to Rule 13e-4(c) under the Exchange Act (17 CFR 240.13e-4(c))

  

Indicate by check mark whether the registrant is an emerging growth company as defined in Rule 405 of the Securities Act of 1933 (§230.405 of this chapter) or Rule 12b-2 of the Securities Exchange Act of 1934 (§240.12b-2 of this chapter).

 

Emerging growth company  ¨

 

If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act.  ¨

 

 

 

 

 

Item 1.01 Entry into a Material Definitive Agreement.

 

On February 28, 2018, Orchids Paper Products Company (the “Company”) entered into Amendment No. 7 (the “Credit Agreement Amendment”) to its Second Amended and Restated Credit Agreement dated June 25, 2015 by and among the Company, U.S. Bank National Association (“U.S. Bank”) and the other lenders party thereto (as amended, the “Credit Agreement”).

 

The Credit Agreement Amendment, among other things, (i) waives any existing Events of Default (as defined in the Credit Agreement) and any Events of Default that would occur as a result of the Company’s breach of an existing financial covenant for the period ending March 31, 2018; (ii) reinstates the Fixed Charge Coverage Ratio (as defined in the Credit Agreement) requirement of 1.2:1 as of June 30, 2018; (iii) changes the Leverage Ratio (as defined in the Credit Agreement) requirement to 5.5:1.0 as of June 30, 2018, and 3.5:1.0 as of September 30, 2018 and for quarter-ends thereafter; (iv) provides that principal payments will be made monthly rather than quarterly; (v) modifies the Borrowing Base (as defined in the Credit Agreement) to provide that the advance rates on eligible accounts receivable and certain items of inventory will increase through June 30, 2018, at which time such rates will revert to the rates in existence prior to the Credit Agreement Amendment; (vi) modifies the pricing schedule applicable to interest rates and the commitment fees under the Credit Agreement to increase such rates and fees by 1.0% when the Leverage Ratio is at the highest level; and (vii) amends certain reporting requirements, including the frequency thereof.

 

The Credit Agreement Amendment also established additional financial covenants, specifically that the Company:

 

· will not permit its EBITDA, measured monthly on a trailing three month basis, for each month end beginning January 31, 2018 through and including August 31, 2018 to be less than, respectively: $4.6 million (January), $4.6 million (February), $4.9 million (March), $5.7 million (April), $6.4 million (May), $7.1 million (June), $8.0 million (July), and $9.0 million (August).
· will not incur Capital Expenditures (as defined in the Credit Agreement), measured monthly on a trailing three month basis, for each month end beginning February 28, 2018 through and including August 31, 2018 to be less than, respectively: $3,152,000 (February), $1,450,000 (March), $1,345,000 (April), $1,089,000 (May), $1,384,000 (June), $1,506,000 (July), and $1,628,000 (August).
· will maintain a book cash balance of not less than $500,000 at all times until March 15, 2018 and $1.30 million at all times from and after March 16, 2018.
· will update a rolling 13-week cash flow forecast every third week, the first such forecast being filed on February 28, 2018, and will not disburse more than 110% of the forecasted disbursements for any weekly period on a cumulative basis within the three-week windows between updates, and will not allow net cash flows to be less than 90% of the net cash flows forecasted for any weekly period on a cumulative basis within the three-week windows.

 

Additionally, the Company previously disclosed its initiative to refinance its existing long-term debt obligations, as well as to explore alternative financing, refinancing, restructuring and capital-raising activities, in order to address its ongoing liquidity needs and to maintain sufficient access to the loan and capital markets on commercially acceptable terms to finance its business. In support of these efforts, the Credit Agreement Amendment requires that the Company (i) by March 15, 2018, retain consultants to assist the Company in formulating a strategic plan to facilitate such activities; and (ii) by June 1, 2018, implement a strategic alternative acceptable to the Company’s lenders to facilitate repayment of the Company’s outstanding debt obligations.

 

Finally, the Credit Agreement Amendment provides that the proceeds of any capital-raising activity conducted by the Company shall first be applied against the Company’s revolving loans under the Credit Agreement up to an aggregate of $10.00 million. In the event that the Company has not raised at least $5.00 million of market equity by March 31, 2018, the Company will pay its lenders a fee of $210,000.

 

A fee of up to $632,000 will be paid to the lenders in connection with the Credit Agreement Amendment.

 

Obligations under the Credit Agreement remain secured by substantially all of the Company’s assets. Also, the Credit Agreement continues to include representations and warranties, and affirmative and negative covenants customary for financings of this type, including, but not limited to, limitations on additional borrowings, additional investments and asset sales.

 

On March 1, 2018, and in conjunction with the Credit Agreement Amendment, the Company also amended the loan agreement (the “NMTC Loan Agreement”) by and among the Company’s wholly owned subsidiaries and certain Community Development Financial Institutions relating to the Company’s participation in the New Market Tax Credits program of the Internal Revenue Code in order to align the NMTC Loan Agreement with the Credit Agreement. The amendment to the NMTC Loan Agreement incorporated the same substantive changes as the Credit Agreement Amendment.

 

The foregoing summaries are not complete and are qualified in their entirety by reference to the full text of the Credit Agreement Amendment attached as Exhibit 10.1 to this Form 8-K.

 

 

 

 

Item 2.02. Results of Operations and Financial Condition.

 

On March 5, 2018, the Company reported its financial results for the quarter and year ended December 31, 2017. A copy of the Company’s press release containing this information is attached as Exhibit 99.1 to this report on Form 8-K and is incorporated herein by reference.

 

The information furnished pursuant to this Item 2.02, including Exhibit 99.1, as it relates to the Registrant’s financial results for the quarter ended September 30, 2017, shall not be deemed “filed” for purposes of Section 18 of the Securities Exchange Act of 1934 (the “Exchange Act”) or otherwise subject to the liabilities under that Section and shall not be deemed to be incorporated by reference into any filing of the Registrant under the Securities Act of 1933 (the “Securities Act”) or the Exchange Act unless the Registrant specifically incorporates the information by reference in such a filing, except as provided in the paragraph below.

 

The items listed below and contained in Exhibit 99.1 to this Form 8-K shall be deemed to be “filed” rather than “furnished” for the purposes of Section 18 of the Exchange Act. Further, these items, and only these items, shall be deemed as incorporated by reference into the filings of the registrant under the Securities Act:

 

· Selected Consolidated Income Statement Data for the quarter and year ended December 31, 2017;
· Selected Consolidated Balance Sheet Data as of December 31, 2017; and
· Reconciliations of Non-GAAP and GAAP Measurements for the quarter and year ended December 31, 2017.

 

Item 2.03. Creation of a Direct Financial Obligation or an Obligation under and Off-Balance Sheet Arrangement of a Registrant.

 

The information provided in Item 1.01 of this Form 8-K is incorporated by reference.

 

Item 5.02. Departure of Directors or Certain Officers; Election of Directors; Appointment of Certain Officers; Compensatory Arrangement for Certain Officers.

 

On March 2, 2018, Rodney D. Gloss, Chief Financial Officer of the Company, advised the Board of Directors of the Company of his intention to resign from the Company effective March 16, 2018. Mr. Gloss will remain with the Company through March 16, 2018 to facilitate an orderly transition of his duties. Mr. Gloss’s decision to leave the Company was not the result of any dispute or disagreements with the Company on any matter relating to the Company’s operations, policies or practices. 

 

Item 8.01. Other Events.

 

As previously announced, the Company plans to hold a teleconference to discuss fourth quarter and year-end results at 10:00 a.m. (ET) on Tuesday, March 6, 2018. All interested parties may participate in the teleconference by calling (888) 346-7791 and requesting the Orchids Paper Products teleconference. Those intending to access the teleconference should dial in fifteen minutes prior to the start. The call may also be accessed live via webcast through the Registrant’s website at  www.orchidspaper.com  under “Investors.” A replay of the teleconference will be available for 30 days on the Company’s website. 

 

Item 9.01. Financial Statements and Exhibits.

 

See Item 2.02 above for information in the Exhibit deemed “Furnished” or “Filed” as the case may be.

 

Exhibit   Description
10.1   Amendment No. 7, dated as of February 28, 2018, to Second Amended and Restated Credit Agreement, dated as of June 25, 2015, among Orchids and U.S. Bank National Association, as administrative agent.
99.1   Press Release, dated March 5, 2018

 

 

 

 

SIGNATURE

 

Pursuant to the requirements of the Securities Exchange Act of 1934, the Company has duly caused this report to be signed on its behalf by the undersigned hereunto duly authorized.

  

  ORCHIDS PAPER PRODUCTS COMPANY  
       
       
Date: March 5, 2018 By: /s/ Rodney D. Gloss  
   

Rodney D. Gloss

Chief Financial Officer

 
       

 

 

 

Exhibit 10.1

 

AMENDMENT No. 7 TO

SECOND AMENDED AND RESTATED CREDIT AGREEMENT

 

THIS AMENDMENT NO. 7 TO SECOND AMENDED AND RESTATED CREDIT AGREEMENT (this “ Agreement ”), dated as of February 28, 2018, among ORCHIDS PAPER PRODUCTS COMPANY, a Delaware corporation (“ Borrower ”), the Guarantors party hereto, the lenders party hereto (“ Lenders ”) and U.S. BANK NATIONAL ASSOCIATION, as a Lender and as LC Issuer, Swing Line Lender and Administrative Agent for the Lenders (in such capacity, “ Administrative Agent ”).

 

BACKGROUND

 

A.       Borrower, Administrative Agent and Lenders are parties to that certain Second Amended and Restated Credit Agreement dated as of June 25, 2015 (as amended, supplemented and modified from time to time, the “ Credit Agreement ”).

 

B.       Events of Default have occurred and are continuing as a result of Borrower’s breach of Sections 6.21(a) and 6.21(b) of the Credit Agreement for the period ending December 31, 2017 (“ Existing Events of Default ”), and Borrower anticipates that it will be in breach of Sections 6.21(a) and 6.21(b) of the Credit Agreement for the period ending March 31, 2018 (“ Anticipated Events of Default ”).

 

C.       Borrower has requested that Administrative Agent and Lenders waive the Existing Events of Default and Anticipated Events of Default and amend the Credit Agreement as set forth herein.

 

D.       Administrative Agent and Lenders are willing to waive the Existing Events of Default and Anticipated Events of Default and enter into this Agreement upon the terms and conditions set forth below.

 

E.       NOW THEREFORE, in consideration of the matters set forth in the recitals and the covenants and provisions herein set forth, and other valuable consideration, the receipt and sufficiency of which are hereby acknowledged, the parties hereto agree as follows:

 

AGREEMENT

 

Section 1.                 Definitions . Capitalized terms used herein and not otherwise defined herein shall have the meanings ascribed thereto in the Credit Agreement.

 

Section 2.                 Amendments to the Credit Agreement . As of the Effective Date (as defined below), the Credit Agreement is hereby amended as follows:

 

 

 

 

(a)                The definition of “Borrowing Base” in Article I of the Credit Agreement is hereby deleted in its entirety and the following is inserted in substitution therefor:

 

“Borrowing Base” means, as of any date of calculation, an amount, as set forth on the most current Borrowing Base Certificate delivered to the Administrative Agent, equal to the sum of (a) 85% of Eligible Receivables as of such date, with such advance rate reducing to 82% on May 31, 2018 and further reducing to 80% on June 30, 2018, plus (b) 60% of Eligible Raw Materials Inventory (which for the avoidance of doubt shall include supplies up to and including March 1, 2018 and shall thereafter be excluded), with such advance rate reducing to 55% on May 31, 2018 and further reducing to 50% on June 30, 2018, plus (c) 65% of Eligible Parent Roll Inventory, with such advance rate reducing to 62% on May 31, 2018 and further reducing to 60% on June 30, 2018, plus (d) 65% of Eligible Finished Goods Inventory, with such advance rate reducing to 60% on May 31, 2018 and further reducing to 50% on June 30, 2018, minus (e) the Borrowing Base Adjustments. On the date of each such reduction in advance rates, Borrower shall repay any amount by which the Revolving Exposure exceeds the Borrowing Base.

 

(b)                Notwithstanding anything contained in the Credit Agreement to the contrary, (i) Borrower shall not be permitted to request and Swing Line Lender shall have no obligation to extend, Swing Line Loans, (ii) Borrower shall not be permitted to request and Administrative Agent and Lenders shall have no obligation to consider increases in the Revolving Commitments or Draw Loan Commitments, (iii) Borrower shall not be permitted to request and LC Issuer shall have no obligation to issue Letters of Credit, unless Borrower Cash Collateralizes each such Letter of Credit requested, and (iv) Borrower shall provide the reports required by Section 6.1(c) of the Credit Agreement regardless of the amount of outstanding Revolving Exposure and shall provide Borrowing Base Certificates on the 15 th day of each month reflecting the Borrowing Base as of the last day of the prior month and on the last day of each month reflecting the Borrowing Base as of the 15 th day of such month. The Borrowing Base Certificates provided as of the end of each month shall contain the actual amount of Eligible Inventory for the period ended as of the end of the previous month and an estimate of Eligible Inventory amounts for the period covered thereby and the Borrowing Base Certificates provided on the 15 th of each month will contain an estimate of the amount of Eligible Inventory for the period ended as of the end of the previous month. The Borrowing Base Certificates shall continue to report the actual Eligible Accounts for each period covered thereby.

 

(c)                Notwithstanding anything contained in the Credit Agreement to the contrary, (i) each Revolving Loan made after the date of this Agreement shall either be a Base Rate Advance or a Eurocurrency Advance with an Interest Period of one (1) month and (ii) all other outstanding Loans shall, on the last day of the then current Interest Period applicable to each such Loan, be automatically converted into a Base Rate Loan or a Eurocurrency Loan with an Interest Period of one (1) month.

 

(d)                The Applicable Margin and Applicable Fee Rate percentages in the Level IX Status column in the Pricing Schedule for Eurocurrency Rate and Base Rate Advances and the Commitment Fee shall each be increased by one percent (1.0%). Any increase in the interest payments due to Lenders as a result of such increase shall accrue and be due and payable on July 1, 2018.

 

   - 2 -  

 

 

(e)                Sections 2.12(c) and 2.12(d) of the Credit Agreement are hereby deleted in their entirety and the following are inserted in substitution therefor:

 

“(c) Prior to April 1, 2018, Borrower shall repay the Term Loans on a quarterly basis on the first day of each March, June, September and December (or, if such date is not a Business Day, on the immediately preceding Business Day) in the aggregate principal amount of (i) $675,000.00 commencing September 1, 2015 and continuing thereafter to and including June 1, 2016, and (ii) $1,000,000.00 commencing September 1, 2016 and each quarterly date referenced above thereafter. Commencing April 1, 2018, the outstanding principal balance of the Term Loans shall be payable monthly, on the first day of each month, in the amount of $333,333.33 each. To the extent not previously paid, all unpaid Term Loans shall be paid in full by Borrower on the Facility Termination Date.

 

(d)       Prior to April 1, 2018, Borrower shall repay the Draw Loans on a quarterly basis on the first day of each March, June, September and December (or, if such date is not a Business Day, on the immediately preceding Business Day) commencing on September 1, 2017, in the aggregate principal amount equal to: (i) for the payment due on September 1, 2017, 1.5% of the outstanding principal balance of Draw Loans as of August 31, 2017, (ii) for the payment due on December 1, 2017, 1.5% of the outstanding balance of Draw Loans as of November 30, 2017, and (iii) for the payment due on March 1, 2018, 1.5% of the outstanding balance of Draw Loans as of December 31, 2017. Commencing April 1, 2018, the outstanding principal balance of the Draw Loans shall be payable monthly, on the first day of each month, in the amount of $526,523.89. To the extent not previously paid, all unpaid Draw Loans shall be paid in full by Borrower on the Facility Termination Date.”

 

(f)                 Section 6.1(e) of the Credit Agreement is hereby deleted in its entirety and the following is inserted in substitution therefor:

 

“(e) Together with the financial statements required under Sections 6.1(a), (b) and (k), a compliance certificate in substantially the form of Exhibit B signed by its CFO showing the calculations necessary to determine compliance with Section 6.21 of this Agreement and stating that no Default or Event of Default exists, or if any Default or Event of Default exists, stating the nature and status thereof and accompanied by a report and analysis of management of Borrower of the financial results for the period covered thereby.”

 

   - 3 -  

 

 

(g)                Section 6.1(j) of the Credit Agreement is hereby deleted in its entirety and the following is inserted in substitution therefor:

 

“(j) (i) On the Effective Date, a rolling 13-week cash-flow forecast, for the immediately succeeding 13-week period, in form and substance acceptable to Administrative Agent, which shall (A) detail all sources and uses of cash, (B) be accompanied by a certification of the CFO that the cash-flow forecast is based on reasonable estimates, information and assumptions and that the CFO has no reason to believe that such cash-flow forecast is incorrect or misleading in any respect and (C) shall be approved by Administrative Agent in writing (“ Cash-Flow Forecast ”), (ii) on or before March 24, 2018 and on or before the third Business Day of each third week thereafter, an updated Cash-Flow Forecast, which in each case shall be acceptable to and approved in writing by Administrative Agent, it being understood and agreed, upon such approval by Administrative Agent, each updated Cash-Flow Forecast shall be the Cash-Flow Forecast for purposes of measuring compliance with the covenant set forth in Section 6.21(f) of this Agreement, (iii) on or before the third Business Day of each week, (A) a line-by-line reconciliation of (1) the amounts of budgeted expenditures and receipts for the immediately preceding week as set forth in the Cash-Flow Forecast most recently delivered to and approved by Administrative Agent for such week and (2) the actual expenditures and receipts for such week (together with an explanation, in reasonable detail, of any material differences between the budgeted and actual amounts) and (B) a certification by the CFO that the CFO has no reason to believe that such reconciliation is incorrect or misleading in any material respect, and (iv) on or before the second Business Day of each week, a report on the prior weekly sales, by customer and respective tons, together with a comparison to budgeted sales for such period and a certification by the CFO that the CFO has no reason to believe that such reconciliation is incorrect or misleading in any material respect.”

 

(h)                Section 6.1(k) of the Credit Agreement is hereby deleted in its entirety and the following is inserted in substitution therefor:

 

“(k) Within 30 days after the last day of each calendar month, for itself and its Subsidiaries, consolidated unaudited balance sheets as at the close of each such period and consolidated profit and loss and reconciliation of surplus statements (including sufficient detail for independent calculation of the financial covenants set forth in Section 6.21), and a statement of cash flows for the period from the beginning of such fiscal year to the end of such month, all certified by its CFO.”

 

   - 4 -  

 

 

(i)                  Section 6.21(a) of the Credit Agreement is hereby deleted in its entirety and the following is inserted in substitution therefor:

 

“(a) Fixed Charge Coverage Ratio . Commencing with the fiscal quarter ending on June 30, 2018, the Borrower will not permit the ratio, determined as of the end of each of its fiscal quarters for the then most-recently ended four (4) fiscal quarters, of (i) Consolidated EBITDA plus Consolidated Rentals plus an amount equal to the net cash proceeds received by Borrower from the issuance of its equity interests during the period commencing on April 1, 2017 and ending on September 30, 2017, plus such other adjustments approved by Required Lenders, minus Maintenance Capital Expenditures minus Restricted Payments minus cash taxes minus , the Cash Flow Reserve, to (ii) Consolidated Interest Expense, plus Consolidated Rentals, plus Consolidated Principal Payments over the four (4) fiscal quarters then ending, all calculated for the Borrower and its Subsidiaries on a consolidated basis, to be less than 1.20 to 1.00.”

 

(j)                  Section 6.21(b) of the Credit Agreement is hereby deleted in its entirety and the following is inserted in substitution therefor:

 

“(b) Leverage Ratio . Commencing with the month ending June 30, 2018, the Borrower will not permit the ratio, determined as of the end of each of its fiscal quarters commencing with the fiscal quarter ending on June 30, 2018, of (i) Consolidated Funded Indebtedness to (ii) Consolidated EBITDA for the then most-recently ended four (4) fiscal quarters to be greater than the ratio indicated for each determination date specified below:

 

Determination Dates Ratio
On June 30, 2018 5.50:1.00
On September 30, 2018 and on the last day of each calendar quarter thereafter 3.50:1.00

 

(k)                Section 6.21(c) of the Credit Agreement is hereby deleted in its entirety and the following is inserted in substitution therefor:

 

“(c) Minimum Consolidated EBITDA . Borrower shall not permit Consolidated EBITDA determined as of the last day of each month for the then most-recently ended three month period to be less than (i) $4,600,000 as of January 31, 2018, (ii) $4,600,000 as of February 28, 2018, (iii) $4,900,000 as of March 31, 2018, (iv) 5,700,000 as of April 30, 2018, (v) $6,400,000 as of May 31, 2018, (vi) $7,100,0000 as of June 30, 2018, (vii) $8,000,000 as of July 31, 2018, and (viii) $9,000,000 as of August 31, 2018.”

 

   - 5 -  

 

 

(l)                  Section 6.21 of the Credit Agreement is amended by adding the following as subsections 6.21(d), (e) and (f) thereto:

 

“(d) Borrower shall maintain a book cash balance of not less than $500,000 at all times until March 15, 2018 and $1,300,000 at all times from and after March 16, 2018, tested weekly, commencing March 2, 2018 and as of the last day of each week thereafter.

 

(e)       Borrower shall not incur Capital Expenditures, measured monthly, on a trailing three month basis, to be more than (i) $3,152,000 as of February 28, 2018, (ii) $1,450,000 as of March 31, 2018, (iii) $1,345,000 as of April 30, 2018, (iv) $1,089,000 as of May 31, 2018, (v) $1,384,000 as of June 30, 2018, (vi) $1,506,000 as of July 31, 2018 and (vii) $1,628,000 as of August 31, 2018.

 

(f)       Borrower shall not permit total disbursements for the weekly period covered by the Cash-Flow Forecast to exceed the projected cash disbursements as set forth in the Cash-Flow Forecast for such period by more than ten percent (10%) on a cumulative basis, or permit total Net Cash Flow (as defined in the Cash-Flow Forecast) to be more than ten percent (10%) less than the projected Net Cash Flow as set forth in the Cash-Flow Forecast for such weekly period.”

 

(m)              Schedule I to the Form of Compliance Certificate attached to the Credit Agreement as Exhibit B is hereby deleted and Schedule I attached to this Agreement is inserted in place thereof.

 

(n)                Borrower shall at all times continue to engage its current financial consultant and/or such other consultants acceptable to Administrative Agent.

 

(o)                By not later than March 15, 2018, Borrower shall retain consultants and/or advisors reasonably acceptable to Administrative Agent to assist Borrower in formulating a strategic plan together with viable alternatives available to Borrower to facilitate the repayment of the outstanding Obligations in full. By not later than March 9, 2018, Borrower and its consultants shall provide Administrative Agent with a revised 2018 financial plan. By not later than May 1, 2018, Borrower and its consultants and/or advisors shall provide Administrative Agent with an updated 2019 through 2021 financial plan, together with their analysis of strategic alternatives available to Borrower to facilitate the repayment of the outstanding Obligations in full. Upon consultation with and approval by Administrative Agent, Borrower shall, by not later than June 1, 2018, have initiated such strategic alternative acceptable to Administrative Agent and Required Lenders.

 

(p)                Borrower shall make its consultants and/or advisors (i) directly accessible to Administrative Agent and its consultants, and Borrower’s consultants and/or advisors shall be authorized to respond directly to reasonable information requests of Administrative Agent and its consultants, (ii) available to meet with Administrative Agent and Lenders at any time, upon request by Administrative Agent and (iii) provide Administrative Agent and Lenders with any reports prepared by such consultants and/or advisors.

 

   - 6 -  

 

 

(q)                Notwithstanding anything contained in the Credit Agreement to the contrary, any proceeds from the issuance of equity interests of Borrower on and after the Effective Date shall, to the extent of the first $10,000,000 of such proceeds, be applied as a prepayment of the Revolving Loans and, to the extent in excess of $10,000,000, as a prepayment of the principal installments of the Term Loans in the inverse order of their maturity.

 

(r)                 In the event that Borrower fails to raise market equity proceeds of at least $5,000,000 by not later than March 31, 2018, Borrower shall, on April 1, 2018, pay Administrative Agent a fee for the pro rata benefit of Lenders, in the amount of $210,000.

 

Section 3.                 Representations and Warranties . To induce Administrative Agent and Lenders to execute this Agreement, Borrower hereby represents and warrants to Administrative Agent and Lenders as follows:

 

(a)                Authorization; No Conflict. Borrower is duly authorized to execute and deliver this Agreement. The execution, delivery and performance by Borrowers of this Agreement, do not and will not (a) require any consent or approval of any governmental agency or authority (other than any consent or approval which has been obtained and is in full force and effect), (b) conflict with (i) any provision of applicable law, (ii) the charter, by-laws or other organizational documents of Borrower or (iii) any agreement, indenture, instrument or other document, or any judgment, order or decree, which is binding upon Borrower or any of its properties or (c) require, or result in, the creation or imposition of any Lien on any asset of Borrower or any other Loan Party (other than Liens in favor of Administrative Agent created pursuant to the Loan Documents).

 

(b)                Binding Effect . This Agreement constitutes the legal, valid and binding obligation of Borrower enforceable against Borrower in accordance with its terms, subject to bankruptcy, insolvency and similar laws affecting the enforceability of creditors’ rights generally and to general principles of equity (whether enforcement is sought by proceeding in equity or at law).

 

(c)                Continuation of Representations and Warranties . After giving effect to this Agreement, each of the representations and warranties of Borrower in the Credit Agreement and the other Loan Documents are true and correct in all material respects with the same effect as though made on and as of the date hereof (except to the extent such representations and warranties expressly relate to a specific earlier date, in which case such representations and warranties shall be true and correct in material respects as of such earlier date).

 

   - 7 -  

 

 

(d)                No Event of Default . After giving effect to this Agreement, no Event of Default exists.

 

Section 4.                 Conditions Precedent . This Agreement shall be effective as of the date first set forth above, subject to the satisfaction of the following conditions precedent (the date of such satisfaction being the “ Effective Date ”):

 

4.1               Execution and Delivery . Borrower, Administrative Agent and Lenders shall have executed and delivered this Agreement.

 

4.2               No Events of Default . No Event of Default under the Credit Agreement (other than the Existing Events of Default and Anticipated Events of Default) shall have occurred and be continuing or will result from the consummation of the transactions contemplated by this Agreement.

 

4.3               Representations and Warranties . The representations and warranties set forth in Section 3 hereof are true and correct.

 

4.4               Organizational Documents . The Administrative Agent shall have received such customary documents and certificates as Administrative Agent may reasonably request relating to the organization, existence and good standing of Borrower and the authorization of the transactions contemplated by this Agreement.

 

4.5               Cash-Flow Forecast . Administrative Agent shall have received the initial Cash-Flow Forecast.

 

4.6               Payment of Fees and Attorney Costs . Borrower shall have paid to Administrative Agent for the pro rata benefit of Lenders, the portion of the Amendment Fee (as defined below) in the amount of $210,000 due upon the execution of this Agreement and all reasonable out-of-pocket costs and expenses of Administrative Agent (including legal fees, auditor fees, and consultant fees).

 

Section 5.                 Amendment Fee . In consideration for Administrative Agent and Lenders entering into this Agreement, Borrower agrees to pay to Administrative Agent, for the pro rata benefit of Lenders executing this Agreement, an amendment fee in the amount of $632,000 (“ Amendment Fee ”), which shall be non-refundable and fully earned on the Effective Date of this Agreement. A portion of the Amendment Fee in the amount of $210,000 shall be paid on the Effective Date of this Agreement as set forth in Section 4.6 above and the balance of the Amendment Fee shall be paid on the earlier of June 30, 2018, or the occurrence of a Default or Event of Default. In the event Borrower (i) refinances the Obligations and prepays the Obligations in full by June 30, 2018 or (ii) sells assets or equity interests which generates cash proceeds of not less than $50,000,000, and permanently prepays the Obligations with the proceeds thereof by June 30, 2018, $211,000 of the Amendment Fee owed on June 30, 2018 shall be waived.

 

Section 6.                 Waiver . As of the Effective Date, Administrative Agent and Lenders waive the Existing Events of Default and Anticipated Events of Default. The waiver contained herein does not apply to any other Default or Event of Default, other than the Existing Events of Default and Anticipated Events of Default, which may now or hereafter exist under the Credit Agreement or the other Loan Documents. No consent or waiver, express or implied, by Administrative Agent and Lenders to or for any breach of or deviation from any covenant, condition, or duty by Borrower or any Guarantor, including the waiver of the Existing Events of Default and Anticipated Events of Default, shall be deemed a consent or waiver to or of any other breach of the same or any other covenant, condition, or duty set forth in the Credit Agreement or the other Loan Documents. Administrative Agent’s and Lenders’ waiver contained herein does not constitute a course of dealing nor does it constitute a course of conduct.

 

   - 8 -  

 

 

Section 7.                 Miscellaneous .

 

7.1               Effect of Agreement . The execution, delivery and effectiveness of this Agreement shall not operate as a waiver of any right, power or remedy of Administrative Agent or Lenders under the Credit Agreement or any other Loan Document, or constitute a waiver of any provision of the Credit Agreement or any other Loan Document, except as specifically set forth herein, and Borrower and each Guarantor hereby fully confirms, affirms and ratifies each Loan Document to which it is a party. Except as specifically modified hereby, the Credit Agreement and the other Loan Documents remain in full force and effect.

 

7.2               Counterparts . This Agreement may be executed in any number of counterparts and by the different parties on separate counterparts, and each such counterpart shall be deemed to be an original, but all such counterparts shall together constitute but one and the same instrument. Delivery of the executed counterpart of this Agreement by telecopy or electronic mail shall be as effective as delivery of a manually executed counterpart to this Agreement.

 

7.3               Costs and Expenses . Borrower shall pay all invoices of Administrative Agent’s auditors and financial consultants and any legal counsel of Agent within five days of written request.

 

7.4               Severability . The illegality or unenforceability of any provision of this Agreement or any instrument or agreement required hereunder shall not in any way affect or impair the legality or enforceability of the remaining provisions of this Agreement or any instrument or agreement required hereunder.

 

7.5               Captions . Section captions used in this Agreement are for convenience only, and shall not affect the construction of this Agreement.

 

7.6               Entire Agreement . This Agreement embodies the entire agreement and understanding among the parties hereto and supersedes all prior or contemporaneous agreements and understandings of such Persons, verbal or written, relating to the subject matter hereof.

 

7.7               References . Any reference to the Credit Agreement contained in any notice, request, certificate, or other document executed concurrently with or after the execution and delivery of this Agreement shall be deemed to include this Agreement unless the context shall otherwise require. Reference in any of this Agreement, the Credit Agreement or any other Loan Document to the Credit Agreement shall be a reference to the Credit Agreement as amended hereby and as further amended, modified, restated, supplemented or extended from time to time.

 

   - 9 -  

 

 

7.8               Waiver of Claims and Defenses . By execution of this Agreement, Borrower and each Guarantor acknowledges and confirms that it does not have any offsets, defenses or claims arising out of or relating to this Agreement, the Credit Agreement or the other Loan Documents against Administrative Agent, any Lender, or any of their subsidiaries, affiliates, officers, directors, employees, agents, attorneys, predecessors, successors or assigns whether asserted or unasserted. The Borrower and Guarantors, for and on behalf of themselves and their legal representatives, successors and assigns, do waive, release, relinquish and forever discharge the Administrative Agent and each Lender, its parents, subsidiaries, and affiliates, its and their respective past, present and future directors, officers, managers, agents, employees, insurers, attorneys, representatives and all of their respective heirs, successors and assigns (collectively, the “ Released Parties ”), of and from any and all manner of action or causes of action, suits, claims, demands, judgments, damages, levies and executions of whatsoever kind, nature or description arising on or before the date hereof, including, without limitation, any claims, losses, costs or damages, including compensatory and punitive damages, in each case whether known or unknown, asserted or unasserted, liquidated or unliquidated, fixed or contingent, direct or indirect, which the Borrower or the Guarantors, or their legal representatives, successors or assigns, ever had or now have or may claim to have against any of the Released Parties, with respect to any matter whatsoever, including, without limitation, the Loan Documents, the administration of the Loan Documents, the negotiations relating to this Amendment and the other Loan Documents executed in connection with this Amendment and any other instruments and agreements executed by the Borrower or any Guarantor in connection with the Loan Documents or this Amendment, arising on or before the date hereof (collectively, “ Claims ”).  The Borrower and each Guarantor acknowledges that they are aware that they may discover facts different from or in addition to those they now know or believe to be true with respect to the Claims, and agree that the release contained in this Amendment is and will remain in effect in all respects as a complete and general release as to all matters released in this Amendment, notwithstanding any such different or additional facts.  The Borrower and each Guarantor agrees not to sue any Released Party or in any way assist any other person or entity in suing a Released Party with respect to any claim released in this Section. Borrower and each Guarantor acknowledges and agrees that Administrative Agent and the Lenders have fully and timely performed all of their respective obligations and duties in compliance with the Loan Documents and applicable law, and has acted reasonably, in good faith, and appropriately under the circumstances.

 

7.9               Governing Law . THIS AGREEMENT SHALL BE A CONTRACT MADE UNDER AND GOVERNED BY THE INTERNAL LAWS OF THE STATE OF OKLAHOMA APPLICABLE TO CONTRACTS MADE AND TO BE PERFORMED ENTIRELY WITHIN SUCH STATE, WITHOUT REGARD TO CONFLICT OF LAWS PRINCIPLES.

 

 

 

[signature page follows]

 

 

   - 10 -  

 

 

IN WITNESS WHEREOF, the parties hereto have caused this Agreement to be duly executed and delivered by their duly authorized officers as of the date first set forth above.

 

BORROWER:  
       
  ORCHIDS PAPER PRODUCTS COMPANY  
       
  By: Rod Gloss  
  Name: /s/ Rod Gloss  
  Title: CFO    
       
       
  GUARANTORS:  
       
  ORCHIDS MEXICO (DE) HOLDINGS, LLC  
       
  By: Rod Gloss  
  Name: /s/ Rod Gloss  
  Title: CFO  
       
       
  ORCHIDS MEXICO (DE) MEMBER, LLC  
       
  By: Rod Gloss  
  Name: /s/ Rod Gloss  
  Title: CFO  
   
  ORCHID PAPER PRODUCTS COMPANY OF SOUTH CAROLINA
       
  By: Rod Gloss  
  Name: /s/ Rod Gloss  
  Title: CFO  
       
  OPP ACQUISITION MEXICO, S. de. R.L.de C.V.
       
  By: Rod Gloss  
  Name: /s/ Rod Gloss  
  Title: CFO  

 

 

 

  

  ADMINISTRATIVE AGENT:  
       
 

U.S. BANK NATIONAL ASSOCIATION , as

a Lender, LC Issuer, Swing Line Lender and Administrative Agent

 
       
  By: Mike Warren  
  Name: /s/ Mike Warren  
  Title: SR V.P.  
       
       
  LENDERS:  
       
     
  JPMORGAN CHASE BANK, N.A., as a Lender  
       
  By: R. Alan Green  
  Name: /s/ R. Alan Green  
  Title: Authorized Signer  
       
       
  SUNTRUST BANK, as a Lender  
       
  By: Samuel M. Ballesteras  
  Name: /s/ Samuel M. Ballesteras  
  Title: Senior Vice President  
       
       
  FIRST TENNESSEE BANK, as a Lender  
       
  By: Jim Hennigan  
  Name: /s/ Jim Hennigan  
  Title: Senior Vice President  

  

 

 

 

SCHEDULE I TO COMPLIANCE CERTIFICATE

 

Compliance as of [________________], 20[_____] with
Provisions of Section 6.21 of
the Agreement

 

(a) Fixed Charge Coverage Ratio (determined as of the end of each fiscal quarter for the then most-recently ended four (4) fiscal quarters)

 

i.   Consolidated EBITDA $
ii.   Consolidated Rentals $
iii.   Net cash proceeds received from the issuance of its equity interest during the period commencing on April 1, 2017 and ending on September 30, 2017 $
iv.   Such other adjustments as approved by Required Lenders $
v.   Maintenance Capital Expenditures $
vi.   Restricted Payments $
vii.   Cash taxes $
viii.   Cash Flow Reserve
ix.   Line i, plus ii, iii and iv, minus lines v, vi, vii, and viii $
x.   Consolidated Interest Expense $
xi.   Consolidated Rentals $
xii.   Consolidated Principal Payments over the four (4) fiscal quarters then ending $
xiii.   Line x, plus xi and xii $
xiv.   Line ix divided by Line xiii  
Required Ratio 1.20  to 1.00
Compliance Yes ¨        No ¨

 

( b) Leverage Ratio (determined as of the end of each fiscal quarter for the then most-recently ended four (4) fiscal quarters)

 

i.   Consolidated Funded Indebtedness $
ii.   Consolidated EBITDA $
iii.   Line i. divided by line ii.  
Required Ratio ______ to 1.00
Compliance Yes ¨        No ¨

 

 

 

 

(c) Minimum EBITDA (determined as of the last day of each month for the then most-recently ended three month period)

 

Consolidated EBITDA $
Required Consolidated EBITDA $
Compliance Yes ¨        No ¨

 

(d) Book Cash Balance (determined as of the last day of each month)

 

Book Cash Balance $
Required Book Cash Balance $
Compliance Yes ¨        No ¨

 

(e ) Capital Expenditures (determined as of the last day of each month for the most recently ended three month period)

 

Capital Expenditures $
Maximum Permitted Capital Expenditures $
Compliance Yes ¨        No ¨

 

(f) Cash-Flow Forecast Compliance (measured weekly on a cumulative basis)

 

Actual Cash Expenditures $
Budget Cash Expenditures $
Compliance (after application of variance) Yes ¨        No ¨

 

Actual Net Cash Flow $
Budget Net Cash Flow $
Compliance (after application of variance) Yes ¨        No ¨

 

 

Exhibit 99.1
 

Orchids Paper Products Company Announces Fourth Quarter And Full Year 2017 Results

BRENTWOOD, Tenn., March 5, 2018 /PRNewswire/ -- Orchids Paper Products Company (NYSE American: TIS), a national supplier of high-quality consumer tissue products, today reported results for the quarter and year ended December 31, 2017. The following table provides selected financial results for fourth quarter 2017 compared to fourth quarter 2016 and third quarter 2017, and the full year 2017 compared to the full year 2016.








Twelve Months Ended December 31,





4Q 2017

4Q 2016

3Q 2017


2017


2016





(Dollars in thousands, except per share data) (unaudited)

Net sales:










Converted product


$ 40,504

$  35,226

$   42,007


$ 150,106


$ 158,102


Parent rolls


3,011

2,483

3,165


12,378


6,392


Total net sales


$ 43,515

$  37,709

$   45,172


$ 162,484


$ 164,494












Gross profit


$   2,503

$    5,680

$     2,740


$     8,726


$   30,149

Net income


$   8,876

$    2,621

$        705


$     6,674


$   12,811

Diluted net income per share


$     0.85

$      0.25

$       0.07


$       0.64


$       1.24

EBITDA


$   3,658

$    5,983

$     2,873


$   10,829


$   31,835

Adjusted EBITDA


$   5,573

$    6,260

$     3,917


$   15,072


$   33,419












Other Selected Financial Data:









Gross profit margin


5.8%

15.1%

6.1%


5.4%


18.3%


EBITDA margin


8.4%

15.9%

6.4%


6.7%


19.4%


Adjusted EBITDA margin


12.8%

16.6%

8.7%


9.3%


20.3%

Jeff Schoen, President and Chief Executive Officer, stated, "In the fourth quarter of 2017, Orchids successfully completed its five-year capital expansion plan with the full commercialization and start-up of the new Barnwell facility. The completion of Barnwell expands our geographical footprint with access to the east coast and increases our exposure to the ultra-premium tissue market, which currently is experiencing tight capacity in a growing product segment. As volume at Barnwell ramps, we expect sales growth to continue to accelerate and margins to expand, driven by operating leverage. As a result of completing of our capital expansion plan, we expect to see a significant decrease in capital expenditures in 2018. The goal in 2018 is to "harvest" the capital investments we have made over the past four years to maximize cash flow, reduce debt, and improve earnings."

"The fourth quarter of 2017 was the first quarter since 2014 that we generated positive free cash-flow (cash flow from operations less capital expenditures), driven by strong operating cash flow, up approximately 60% over the prior quarter, and lower capital expenditures, which declined over 40% from the third quarter. We expect to see continued improvement in free cash-flow, throughout 2018 as the ramp in orders from our new customers improve earnings and as capital expenditures continue to decline. For 2018, we expect capital expenditures to decrease to approximately $5 million. In addition to positive free cash-flow, our adjusted EBITDA in the fourth quarter increased 42% sequentially to $5.6 million."

"Our lenders continue to support us as our Barnwell facility ramps, providing us covenant waivers for the fourth quarter of 2017 as well as the first quarter of 2018. They have also increased the advance rates under our line of credit to provide financial flexibility for working capital needs as we ramp our new orders"

Fourth Quarter 2017 Relative to Third Quarter 2017

Net sales of $43.5 million in the fourth quarter decreased $1.7 million, or 3.7%, from the third quarter driven by seasonality factors. Converted product sales declined $1.5 million; a decline of $1.9 million due to volume, offset by higher average-selling prices having a positive impact of $0.4 million. Parent roll sales decreased $0.2 million, as the effect of lower sales volume outpaced an increase in the average selling price compared to third quarter 2017. Average selling prices were, to a degree, positively impacted in the fourth quarter by the inclusion of Orchids' new ultra-premium products manufactured at Barnwell.

Cost of goods sold, net of depreciation, in the fourth quarter declined by $2.5 million to 84.6% of net sales, down from 87.0% in the third quarter, representing our second consecutive decline as a percentage of sales. Total cost of sales increased to 94.2% of revenue in the fourth quarter, up from 93.9% in the third quarter. Total depreciation increased to 9.6% of net sales in the fourth quarter from 6.9% of net sales in the third quarter as a result of the addition of the Barnwell facility.

Selling, general and administrative expenses declined $0.3 million, or 8.2%, to $2.8 million in the fourth quarter, reflecting decreases in charitable contributions, legal and professional fees and tax penalties, net of an increase in administrative and sales personnel costs compared to the third quarter of 2017.

Interest expense was $3.1 million in the fourth quarter of 2017 compared to $0.8 million in the third quarter of 2017, as capitalization of interest expense attributable to financing for the construction of the Company's Barnwell facilities ended in the fourth quarter with the completion of the project. Capitalized interest was $0.1 million in the fourth quarter of 2017 compared to $1.6 million in the third quarter of 2017. Additionally, the increase in interest expense in the fourth quarter reflected higher interest rates.

Orchids recognized a tax benefit of $12.7 million in the fourth quarter of 2017, which included the estimated impact of the new tax laws upon future tax years. Deferred tax assets and liabilities are measured based on applicable enacted tax rates and provisions of enacted tax laws. Accordingly, all deferred tax assets and liabilities as of December 31, 2017 were restated at a 21% federal tax rate. Since Orchids has a net deferred tax liability, this resulted in a net tax benefit of approximately $11 million. Additionally, net pre-tax losses for the 2017 period contributed to the tax benefit. Orchids recognized a benefit from tax credits of $2.0 million in the third quarter of 2017, which reflected the Company's year-to-date pre-tax net loss position and the Company's recognition of tax credits.

As a result of the foregoing factors, Orchids recognized net income of $8.9 million, or $0.85 per diluted share, in the fourth quarter of 2017 compared to net income of $0.7 million, or $0.07 per diluted share, in the third quarter of 2017. As mentioned above, net income includes a net one-time benefit of approximately $11 million from the change in federal tax rates.

Also as a result of the foregoing factors, principally the lower level of fixed cost in cost of sales, Adjusted EBITDA improved $1.7 million to $5.6 million in the fourth quarter of 2017.

Fourth Quarter 2017 Relative to Fourth Quarter 2016

Net sales in the fourth quarter were $43.5 million, up $5.8 million, or 15.4% compared to the year-ago period. Converted product sales were $40.5 million, up $5.3 million, reflecting higher volumes from the rollout of the previously announced new private-label business. Average selling price per converted ton was unchanged from the prior-year period. Parent roll sales, including new ultra-premium parent rolls, increased $0.5 million to $3 million, primarily due to an increase in the average selling price compared to fourth quarter 2016.

Cost of goods sold, less depreciation, in the fourth quarter was $36.8 million, or 84.6% of net sales compared to 76.8% in the fourth quarter of 2016. The increase in cost of goods sold relative to sales was primarily driven by increased costs associated with Barnwell's fixed labor, fixed overhead, and start-up costs. Overall cost of sales, inclusive of depreciation, in the fourth quarter represented 94.2% of net sales compared to 84.9% in the fourth quarter of 2016. Total depreciation increased to 9.6% of net sales in the fourth quarter from 8.2% of net sales in the fourth quarter of 2016 as a result of the addition of the Barnwell facility. Other material prices and costs increased by approximately $2.0 million, inclusive of the mix impact of adding ultra-premium products. Freight increased by approximately $0.9 million primarily due to Orchids' bearing the cost of freight for most of its new business.

Selling, general and administrative expenses of $2.8 million in the fourth quarter of 2017 increased $0.3 million, or 12.8%, compared to the same period in the prior year, reflecting higher administrative and sales personnel costs, changes in allowances for potential bad debt, increased legal and professional fees, and charitable contributions of excess inventory, net of the favorable impact of a decrease in tax penalties.

Interest expense increased $2.6 million to $3.1 million in the fourth quarter of 2017 compared to the same period in the prior year. Capitalization of interest expense attributable to financing for the construction of the Company's Barnwell facilities ended with the completion of the project. Capitalized interest was $0.1 million in the fourth quarter of 2017 compared to $0.5 million for the same period in 2016. Additionally, the increase in interest expense reflected higher debt balances and higher interest rates, as the Company's interest rate is largely variable and dependent upon its financial leverage. The Company's weighted average interest rate was 7.3% at the end of the fourth quarter of 2017.

Orchids recognized a tax benefit of $12.7 million in the fourth quarter of 2017, which reflected both the impact of the newly enacted tax laws and the decline in pre-tax earnings. This compares to a tax benefit of $0.4 million in the fourth quarter of 2016, which reflected the Company's recognition of tax credits.

As a result of the foregoing factors, Orchids recognized net income of $8.9 million, or $0.85 per diluted share, in the fourth quarter of 2017 compared to net income of $2.6 million, or $0.25 per diluted share, in the fourth quarter of 2016. As previously discussed, net income includes a net one-time benefit of approximately $11 million from the change in federal tax rates. Excluding this tax benefit and certain other non-core items identified in the attached Reconciliations of Non-GAAP and GAAP Measurements, fourth quarter 2017 adjusted net loss was $1.1 million, or a net loss of $0.11 per diluted share, compared to fourth quarter 2016 adjusted net earnings of $3.0 million, or $0.29 per diluted share.

Principally as a result of the increases in cost of sales already mentioned, many of which were related to the addition of fixed infrastructure costs at the Barnwell facility prior to selling-out the capacity; Adjusted EBITDA declined $0.7 million to $5.6 million in the fourth quarter of 2017.

Twelve-Month Period Ended December 31, 2017 Relative to Same Period in 2016

Net sales for the year ended December 31, 2017, decreased $2.0 million, or 1.2%, compared to the year ended December 31, 2016. Converted product sales decreased $8.0 million during 2017, with $5.6 million of the decrease attributable to a decline in the average selling price and $2.4 million due to lower sales volume. Parent roll sales increased $6.0 million in 2017, driven by a $6.3 million increase in volume, partially offset by a $0.3 million decrease in average selling prices. The increase in volume principally resulted from both the use of production-capacity not needed for converted products and the ramp-up of capacity at the new mill in Barnwell, South Carolina.

Cost of sales in 2017 were $153.8 million, an increase of $19.4 million during 2017, or 14.5% over the prior year. As a percentage of net sales, 2017 cost of sales were 94.6% versus 81.7% in 2016. The addition of the Barnwell facility and its related expenses prior to selling-out the Company's capacity was the principal reason for the difference in the relative percentages. Barnwell's fixed labor and overhead costs, excluding depreciation, increased approximately $8.8 million in the year ended December 31, 2017, and depreciation expense, also related to the addition of the Barnwell plant, increased $2.0 million. Cost of sales included approximately $3.5 million of start-up costs for Barnwell. The volume of parent rolls sold drove an increase in costs of sales of over $5.2 million. Decreases in material costs, resulting from decreased costs per unit, were largely offset by the cost impact of higher-cost materials required to make ultra-premium products. The decrease in tons of converted product sold caused the cost of materials to decline by approximately $1.3 million. Freight increased by approximately $1.0 million due to shifts in the mix of shipments for which Orchids is responsible for the distribution costs. Pryor's overhead and labor costs, excluding depreciation, decreased approximately $0.5 million year over year. The net change in cost per ton attributable to Mexicali year over year was not material.

Selling, general and administrative expenses of $11.7 million in 2017 increased $1.5 million, or 14.3%, reflecting increased legal and professional fees, charitable contributions of excess inventory, higher administrative and sales personnel costs, changes in allowances for potential bad debt, and increased rent expense, net of the favorable impact of a decrease in tax penalties compared to 2016.

Interest expense increased $3.3 million to $5.0 million, reflecting higher debt balances incurred in conjunction with the construction of the Barnwell, South Carolina facility and higher interest rates. Capitalized interest was $3.6 million in 2017 compared to $1.7 million in 2016.

Orchids recognized a tax benefit of $15.5 million in 2017 compared to tax expense of $4.4 million in 2016, reflecting both the impact of the newly enacted tax laws and the decline in pre-tax earnings.

Net income in 2017 was $6.7 million or $0.64 per diluted share compared to net income of $12.8 million, or $1.24 per diluted share in 2016. Adjusted net loss for 2017 was $1.8 million, or a net loss of $0.18 per diluted share, compared to 2016 adjusted net earnings of $14.9 million, or $1.44 per diluted share.

Also as a result of the foregoing factors, principally the increased fixed cost structure principally related to the addition of Barnwell prior to selling-out the Company's capacity, Adjusted EBITDA declined $18.3 million to $15.1 million in 2017.

Liquidity








Twelve Months Ended December 31,





4Q 2017

4Q 2016

3Q 2017


2017


2016





(Dollars in thousands) (unaudited)

Cash Flow Provided by (Used in):







    Operating cash flow net of changes in working capital


$   1,044

$    6,803

$   2,309


$     6,939


$   34,068

    Changes in working capital


4,106

765

924


6,507


(6,241)

 Operating activities  


$   5,150

$     7,568

$   3,233


$   13,446


$   27,827

 Investing activities 


$ (5,078)

$ (14,255)

$ (7,417)


$ (47,864)


$ (77,679)

 Financing activities


$   1,672

$     6,876

$   4,936


$   29,491


$   54,241












Cash balance, beginning


$   2,079

$    8,561

$   1,327


$     8,750


$     4,361

Cash balance, ending


$   3,823

$    8,750

$   2,079


$     3,823


$     8,750

At December 31, 2017, debt, before unamortized deferred debt issuance costs, was $179.8 million. Orchid's debt was primarily due to financing the construction of the Company's integrated converting facility in Barnwell, South Carolina at a cost of approximately $165 million. The Barnwell converting plant was completed in 2016 and the mill and recycled-fiber processing plant were completed in the second half of 2017.

At December 31, 2017, the Company was not in compliance with certain financial covenants under its Second Amended and Restated Credit Agreement (the "Credit Agreement") or its Loan Agreement for New Markets Tax Credit financing (the "NMTC Loan Agreement"), and obtained a waiver from its lenders. On February 28, 2018, the Company entered into Amendment No. 7 to the Credit Agreement and on March 1, 2018 the Company entered into Amendment No. 4 to the NMTC Loan Agreement, each of which, in addition to providing waivers for covenant defaults until the measurement date of June 30, 2018, provide for a minimum EBITDA covenant, amend the pricing schedule, and amend certain reporting requirements. Including the amendments incorporated into these waivers, the Company's credit facilities have been amended for each of the last five quarters. The financial covenant requirements remaining in effect at this time are as follows: fixed charge coverage ratios of 1.2 to 1.0 at December 31, 2017 and quarter-ends thereafter, leverage ratios of 4.5 at December 31, 2017, 3.5 at March 31, 2018, 5.5 at June 30, 2018, and 3.5 at quarter-ends thereafter; minimum EBITDA for the most recent three-month period of $5.0 million at December 31, 2017, $4.6 million at January 31, 2018, and February 28, 2018, and at increasing levels as of the last day of each month thereafter.

The Company sought to refinance its existing long-term debt in 2017, but did not procure an alternative acceptable to all parties involved. The Company intends to continue to seek to refinance its existing long-term debt obligations as required by its existing lender and as earnings and cash flow improve and more opportunities become available. The Company may also need to seek another amendment of its Credit Agreement with its existing lenders. If the Company is unable to obtain another suitable amendment and/or a refinancing is not completed, the bank syndicate could declare a default. There can be no assurance that the Company's lenders will agree to further waivers or amendments to the existing debt covenants. While management intends to amend or refinance the debt, there can be no assurance that the Company will be able to obtain additional financing on terms that are satisfactory to it or at all. As of December 31, 2017, the borrowings under the Credit Agreement and the term loan otherwise due in 2022 were classified as current on the balance sheet due to these uncertainties regarding the Company's ability to meet the existing debt covenants over the next twelve-month period. The Company's cash requirements have historically been satisfied through a combination of cash flows from operations, equity financings and debt financings. This trend is expected to continue.

Fourth quarter 2017 relative to fourth quarter 2016 : Operating cash flows, excluding changes in working capital, decreased $5.8 million, reflecting a decrease in pre-tax cash earnings. Changes in working capital provided $4.1 million of operating cash flows in the fourth quarter of 2017, principally due to decreases in accounts receivable and income taxes receivable, partially offset by pay-downs of accounts payable. This compares to $0.8 million of cash provided by changes in working capital in the fourth quarter of 2016, principally from decreases in accounts receivable, inventory and prepaid expenses, largely offset by pay-downs of accounts payable and a decrease in income taxes receivable. Increased borrowings in both periods were used to finance investments in the Barnwell facility. The Company realized $3.2 million in net proceeds from the issuance of 241,257 shares of its common stock under an "at the market" (ATM) stock offering program in the fourth quarter of 2017, which is included in Financing activities. Such shares were issued at a weighted average price of $13.63, and the Company incurred $0.2 million in sales agent commissions and other stock issuance costs in connection with such issuance. The net proceeds were used for general corporate purposes. The Company paid dividends of $3.6 million in the fourth quarter of 2016, which are included in Financing activities.

Fourth quarter 2017 relative to third quarter 2017 : Operating cash flows, excluding changes in working capital, decreased $1.3 million, between consecutive quarters, reflecting a decrease in pre-tax cash earnings. Changes in working capital provided $3.2 million of operating cash flows in the fourth quarter of 2017.

Twelve months ended December 31, 2017 relative to the same period in 2016 : Operating cash flows excluding changes in working capital decreased $27.1 million year over year, reflecting a decrease in pre-tax cash earnings. Working capital changes provided $6.5 million of operating cash flows in 2017 as a decrease in income tax receivables and an increase in accounts payable exceeded the effect of increases in accounts receivable and inventory. In 2016 working capital changes used $6.2 million of operating cash flows as increases in inventory and income tax receivables and a decrease in accrued liabilities more than offset decreases in accounts receivable and other assets. Increased borrowings in both periods were used to finance investments in the Barnwell facility, while $1.3 million and $10.7 million of restricted cash set aside for the Barnwell project was used and applied against capital spending in 2017 and 2016, respectively.

The Company realized $5.2 million in net proceeds from the issuance of 359,957 shares of its common stock under an ATM stock offering program in 2017, which is included in Financing activities. Such shares were issued at a weighted average price of $14.71, and the Company incurred $0.5 million in sales agent commissions and other stock issuance costs in connection with such issuance. The net proceeds were used for general corporate purposes. As of December 31, 2017, $34.7 million of common stock remained available for issuance under the ATM program. The Company paid dividends of $3.6 million and $14.4 million in 2017 and 2016, respectively, which are included in Financing activities.

Chief Financial Officer Transition

On March 2, 2018, Rodney D. Gloss, Chief Financial Officer of Orchids, advised the Board of Directors of the Company of his intention to resign, effective March 16, 2018. Mr. Gloss will remain with the Company through March 16, 2018 to facilitate an orderly transition of his duties. Mr. Gloss's decision to leave the Company was not the result of any dispute or disagreements with the Company on any matter relating to the Company's operations, policies or practices.

Conference Call/Webcast

The Company will hold a teleconference to discuss its fourth quarter results at 10:00 a.m. (ET) on Tuesday, March 6, 2018. All interested parties may participate in the teleconference by calling 888-346-7791 and requesting the Orchids Paper Products teleconference. A question and answer session will be part of the teleconference's agenda. Those intending to access the teleconference should dial in fifteen minutes prior to the start. The call may also be accessed live via webcast through the Company's website at www.orchidspaper.com under "Investors." A replay of the teleconference will be available for 30 days on the Company's website.

Non-GAAP Financial Measures

This press release contains non-GAAP financial measures. A non-GAAP financial measure is a numerical measure of a company's financial performance that excludes or includes amounts so as to be different than the most directly comparable measure calculated and presented in accordance with Generally Accepted Accounting Principles ("GAAP") in the United States in the statement of income, balance sheet or statement of cash flows of a company. The non-GAAP financial measures used within this press release are: (1) EBITDA, (2) Adjusted EBITDA, (3) Operating Cash Flow, less changes in working capital, (4) Changes in working capital, and (5) Adjusted net income and Adjusted net income per diluted share.

EBITDA, Adjusted EBITDA, Operating Cash Flow less changes in working capital, Changes in working capital, and Adjusted net income and Adjusted net income per diluted share are not measurements of financial performance under GAAP and should not be considered as an alternative to net income, operating income, diluted net income per share or any other performance measure derived in accordance with GAAP, or as an alternative to cash flow from operating activities or a measure of the Company's liquidity. EBITDA represents net income before net interest expense, income tax expense, depreciation and amortization. Adjusted represents EBITDA before specified items. Changes in working capital is the subtotal of changes in operating assets and liabilities shown on the Consolidated Statements of Cash Flows. Operating Cash Flow less changes in working capital is Net Cash provided by operating activities less Changes in working capital. Adjusted net income and Adjusted net income per diluted share exclude the impact of certain items that management does not believe are indicative of the Company's core operating performance. Management believes EBITDA and Adjusted EBITDA facilitate operating performance comparisons between periods and between companies by eliminating potential differences caused by variations in capital structures (affecting relative interest expense), tax positions (such as the impact on periods or companies of changes in effective tax rates or net operating losses), the age and book depreciation of facilities and equipment (affecting relative depreciation expense), sporadic expenses (including start-up costs, foreign exchange adjustments, failed refinancing costs, and relocation), and non-cash compensation (affecting stock-based compensation expense). These measures are also commonly used in the industry and are used by the Company's lenders in monitoring adherence to covenants. Management believes that Changes in working capital provides an indication of the cash invested in or provided by changes in operating assets and liabilities and therefore may indicate trends in operating performance and may call out a significant source or use of cash during any period. Operating Cash Flow less changes in working capital is believed to provide an estimate of the cash generated from all operating activities, prior to investments in or liquidations of operating assets and liabilities and therefore may indicate trends in operating performance and may call out significant changes in the generation of cash through operating activities. Management provides Adjusted net income and Adjusted net income per diluted share because it believes these measures assist investors and analysts in comparing the Company's performance across reporting periods on a consistent basis by excluding items that the company does not believe are indicative of its core operating performance.

Forward-Looking Statements

This release contains forward-looking statements that involve certain contingencies and uncertainties. The Company intends these forward-looking statements to be covered by the safe harbor provision for forward-looking statements contained in the Private Securities Litigation Reform Act of 1995. These statements relate to future events or future financial performance, and involve known and unknown risks, uncertainties and other factors that may cause its actual results, levels of activity, performance or achievements to be materially different from any future results, levels of activity, performance or achievements expressed or implied by such forward-looking statements. In some cases, forward-looking statements can be identified by terminology such as "may," "should," "could," "expects," "plans," "intends," "anticipates," "believes," "estimates," "predicts," "potential," "will" or "continue" or the negative of such terms or other comparable terminology. Such forward-looking statements include, without limitation, the Company's beliefs, expectations, focus and/or plans about future events, including those regarding any potential refinancing, and the terms, conditions, timing and costs of any such refinancing. Although the Company believes that the expectations reflected in the forward-looking statements are reasonable, it cannot guarantee future results, levels of activity, performance or achievements. These statements are only predictions.

Factors that could materially affect the Company's actual results, levels of activity, performance or achievements include, without limitation, those detailed under the caption "Risk Factors" in the Company's Annual Report on Form 10-K for the year ended December 31, 2016, as filed with the Securities and Exchange Commission on March 15, 2017 and the Company's Quarterly Report on Form 10-Q for the quarter ended September 30, 2017, as filed with the Securities and Exchange Commission on November 9, 2017.

The Company's actual results may be materially different from what it expects. The Company does not undertake any duty to update these forward-looking statements after the date hereof, even though the Company's situation may change in the future. All of the forward-looking statements herein are qualified by these cautionary statements.

About Orchids Paper Products Company

Orchids Paper Products Company is a customer-focused, national supplier of high quality consumer tissue products primarily serving the at home private label consumer market. The Company produces a full line of tissue products, including paper towels, bathroom tissue and paper napkins, to serve the value through ultra-premium quality market segments from its operations in northeast Oklahoma, Barnwell, South Carolina and Mexicali, Mexico. The Company provides these products primarily to retail chains throughout the United States. For more information on the Company and its products, visit the Company's website at http://www.orchidspaper.com.

Orchids Paper Products Company and Subsidiaries

Selected Income Statement Data

(Dollars in thousands, except per share data)













Twelve Months Ended December 31,


4Q 2017

4Q 2016

3Q 2017


2017


2016


(unaudited)


(unaudited)



Converted product net sales

$      40,504

$      35,226

$      42,007


$    150,106


$    158,102

Parent roll net sales

3,011

2,483

3,165


12,378


6,392

Total net sales

43,515

37,709

45,172


162,484


164,494

Cost of sales less depreciation

36,826

28,952

39,315


140,014


122,629

Depreciation in cost of sales

4,186

3,077

3,117


13,744


11,716

Total cost of sales

41,012

32,029

42,432


153,758


134,345

Gross profit

2,503

5,680

2,740


8,726


30,149

Selling, general & administrative expenses

2,777

2,461

3,026


11,711


10,244

Intangible amortization

232

233

233


931


1,219

Operating income (loss)

(506)

2,986

(519)


(3,916)


18,686

Interest expense

3,076

491

827


4,980


1,678

Other (income) expense, net

254

313

(42)


(70)


(214)

Income (loss) before income taxes

(3,836)

2,182

(1,304)


(8,826)


17,222

(Benefits from) provision for income taxes

(12,712)

(439)

(2,009)


(15,500)


4,411

Net income

$        8,876

$        2,621

$           705


$        6,674


$      12,811









Average number of shares outstanding, basic

10,496,113

10,296,891

10,429,091


10,399,074


10,286,373

Average number of shares outstanding, diluted

10,502,148

10,343,587

10,429,091


10,414,871


10,349,274









Net income per share:








     Basic

$          0.85

$          0.25

$          0.07


$          0.64


$          1.25

     Diluted

$          0.85

$          0.25

$          0.07


$          0.64


$          1.24









Cash dividends paid

$                -

$        3,603

$                -


$        3,607


$      14,400

Cash dividends per share

$                -

$          0.35

$                -


$          0.35


$          1.40

Orchids Paper Products Company and Subsidiaries

Selected Balance Sheet Data

(Dollars in thousands)








 Dec. 31, 2017 


 Dec. 31, 2016 



(unaudited)



Cash


$               3,823


$               8,750

Accounts receivable, net


11,825


8,954

Inventory, net


20,563


18,414

Other current assets


3,182


11,019

Property plant and equipment


370,761


320,442

Accumulated depreciation


(85,003)


(71,258)

Net property plant and equipment


285,758


249,184

Intangibles and goodwill, net


21,139


22,071

Other long-term assets


245


1,488

Total assets


$           346,535


$           319,880






Accounts payable, inclusive of amounts due to related parties


$             15,458


$             10,869

Other current liabilities


3,519


2,545

Current portion of long-term debt


168,903


6,728

Deferred income taxes


11,595


27,334

Long-term liabilities


5,273


139,159

Total stockholders' equity


141,787


133,245

Total liabilities and stockholders' equity


$           346,535


$           319,880






Debt, current and long term


$           168,936


$           140,717

Orchids Paper Products Company and Subsidiaries

Reconciliations of Non-GAAP and GAAP Measurements









Three Months Ended December 31,


Twelve Months Ended December 31,


2017

2016


2017


2016


(Dollars in thousands) (unaudited)

Net income

$        8,876

$        2,621


$        6,674


$      12,811

Federal tax rate change

(11,037)

-


(11,037)


-

Adjustments, after tax (1) :







Barnwell start-up costs

696

-


1,699


50

Foreign exchange (gain) loss

(4)

298


(26)


298

Relocation costs

42

(65)


(20)


409

Stock compensation expense

22

(28)


200


421

Failed debt refinancing costs

184

-


197


-

Severance from reduction in force

-

-


29


-

Amortization of intangible assets

114

173


456


907

Adjusted net (loss) income (2)

$      (1,107)

$        2,999


$      (1,828)


$      14,896








Net income per diluted share

$          0.85

$          0.25


$          0.64


$          1.24

Adjusted net (loss) income per diluted share (2)

$        (0.11)

$          0.29


$        (0.18)


$          1.44

Weighted average diluted shares

10,496,113

10,343,587


10,399,074


10,349,274








(1) Tax effect was calculated using the estimated annual effective tax rate for the period presented.

(2) Adjusted net income and adjusted net income per diluted share exclude the impact of the listed items that we do not believe are indicative of our core operating performance.

Orchids Paper Products Company and Subsidiaries

Reconciliations of Non-GAAP and GAAP Measurements (continued)













Twelve Months Ended December 31,


4Q 2017

4Q 2016

3Q 2017


2017


2016


(Dollars in thousands) (unaudited)

EBITDA Reconciliation:








Net income

$     8,876

$   2,621

$      705


$   6,674


$ 12,811

      Plus: Interest expense

3,076

491

827


4,980


1,678

      Plus: Income tax (benefit) expense

(12,712)

(439)

(2,009)


(15,500)


4,411

      Plus: Depreciation

4,186

3,077

3,117


13,744


11,716

      Plus: Intangible amortization

232

233

233


931


1,219

Earnings Before Interest, Income Tax and Depreciation and Amortization (EBITDA)

$     3,658

$   5,983

$   2,873


$ 10,829


$ 31,835









Adjusted EBITDA Reconciliation:








EBITDA

$     3,658

$   5,983

$   2,873


$ 10,829


$ 31,835

    Plus: Barnwell start-up costs

1,420

-

975


3,467


67

    Plus: Foreign exchange (gain) loss

(9)

401

1


(53)


401

    Plus: Relocation costs

85

(87)

(50)


(41)


550

    Plus: Stock compensation expense

44

(37)

99


409


566

    Plus: Failed debt refinancing costs

375

-

19


402


-

    Plus: Severance from reduction in force

-

-

-


59


-

Adjusted EBITDA

$     5,573

$   6,260

$   3,917


$ 15,072


$ 33,419









Separation of Operating Cash Flow measures:








Cash Flows From Operating Activities








Net income  

$     8,876

$   2,621

$      705


$   6,674


$ 12,811

Adjustments to reconcile net income to net cash provided by operating activities:








Depreciation and amortization

4,569

3,364

3,523


15,219


13,229

Provision for doubtful accounts

323

(125)

-


323


(125)

Deferred income taxes

(12,769)

946

(2,070)


(15,739)


7,570

Stock compensation expense

45

(38)

99


410


566

Loss on disposal of property, plant and equipment

-

35

52


52


17

Subtotal, "Operating cash flow less changes in working capital"

$     1,044

$   6,803

$   2,309


$   6,939


$ 34,068

Changes in cash due to changes in operating assets and liabilities:








  Accounts receivable 

3,822

4,055

(2,508)


(3,745)


2,514

  Inventories

321

2,035

52


(2,149)


(4,913)

  Income taxes receivable

2,886

(5,735)

-


8,236


(3,107)

  Prepaid expenses 

265

2,964

(903)


(32)


211

  Other assets

(496)

747

883


153


2,237

  Accounts payable

(2,225)

(2,816)

3,373


3,911


(973)

  Accrued liabilities 

(467)

(485)

27


133


(2,210)

Subtotal, "Changes in working capital"

$     4,106

$      765

$      924


$   6,507


$ (6,241)

Net cash provided by operating activities

$     5,150

$   7,568

$   3,233


$ 13,446


$ 27,827



CONTACT: Investor Relations Contact: Water's Edge Investor Relations Consulting Group, Louie Toma, 774-291-6000, louie.toma@watersedgeir.com