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): April 19, 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 April 19, 2018, Orchids Paper Products Company (the “Company”) entered into Amendment No. 8 (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); (ii) increases the borrowing capacity under the revolving line of credit by adding incremental revolving commitments in the amount of $21,003,846.00; (iii) establishes a debt service reserve for the payment of all accrued and future debt service on the Company’s outstanding obligations under the Credit Agreement and for future fees due to the lenders and agents under the Credit Agreement in the amount of $12,850,000.00; (iv) eliminates future reductions in the advance rates on eligible accounts receivable and certain items of inventory set forth in Amendment No. 7 to the Credit Agreement; (v) 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 revised the financial covenants under the Credit Agreement, specifically that:

 

· the covenants regarding Fixed Charge Coverage, Leverage Ratio and Minimum Consolidated EBITDA (each as defined in the Credit Agreement) are eliminated.
· the Company will maintain a book cash balance of not less than $1,000,000 at all times commencing April 20, 2018 and as of the last day of each week thereafter.
· the Company will provide a cash flow forecast for the period of April 20, 2018 through and including August 31, 2018, and will not permit (i) Advances (as defined in the Credit Agreement) for the first four weekly periods covered by the cash flow forecast to exceed $4 million; (ii) total Net Cash Flow (as defined in the cash flow forecast) for the first four weekly periods covered thereby to be more than 10% on a cumulative basis less than the projected Net Cash Flow as set forth in the cash flow forecast for each such weekly period, with the first four weeks to build up as follows: week one, actual, week two, for the first two weeks actual, week three, for the first three weeks actual and week four, for the first four weeks actual; or (iii) total Net Cash Flow for any remaining week in each rolling four week period covered thereby to be more than 10% less than the projected Net Cash Flow as set forth in the cash flow forecast for each such four week period.
· the Company will provide a weekly report on the Company’s prior weekly sales, by customer and respective tons, together with a comparison to the budgeted sales for each such period.

 

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 engage a chief strategic officer, as well as continue to employ an investment banker, to assist the Company in pursuing strategic alternatives such as a sale, capital raise, refinancing, or other transaction. Also, while the Company intends to continue its efforts to refinance its existing long-term debt obligations, the Credit Agreement Amendment requires that the Company and its investment banker accomplish certain actions related to the Company’s pursuant of strategic alternatives by milestone dates specified in the Credit Agreement Amendment if refinancing has not yet been obtained, including developing marketing materials for the sale of the Company’s business, acquiring letters of intent from potential purchasers in form and substance acceptable to the administrative agent, and negotiating and executing a purchase agreement for the sale of the Company’s equity or assets in an amount sufficient to repay the Company’s obligations to its lenders in full.

 

Pursuant to its obligations under the Credit Agreement Amendment, effective April 18, 2018, the Company engaged Deloitte Transactions and Business Analytics LLP (“DTBA”) to provide services as the Company’s chief strategic officer (the “CSO”) pursuant to the terms of an engagement letter with DTBA. The CSO will report directly to a special committee of the Board of Directors of the Company, and will work collaboratively with management and the Company’s investment banker in (i) coordinating with the Company’s other restructuring professionals, including attorneys and financial advisors, to assist to implement selected restructuring strategies, (ii) assessing the Company’s current business plan and operations to identify potential performance improvement initiatives, (iii) developing and implementing Company’s financial and operational turnaround strategy and associated activities for the special committee’s input and approval, (iv) overseeing the implementation of Company’s special committee-approved financial and operational turnaround strategy, (v) overseeing the management of, and effort to enhance, Company’s liquidity issues, and (vi) actively managing the relationship with Company’s lenders and other creditors.

 

Fees of $1.92 million will be paid to the lenders and administrative agent 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 April 19, 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. A fee of $50,000 will be paid to the lender in connection with the NMTC Loan 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 April 25, 2018, the Company reported its financial results for the quarter ended March 31, 2018. 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 March 31, 2018, 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.

 

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 8.01. Other Events.

 

As previously announced, the Company plans to hold a teleconference to discuss first quarter results at 11:30 a.m. (ET) on Thursday, April 26, 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.

  

Exhibit   Description
10.1   Amendment No. 8, dated as of April 19, 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 April 25, 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: April 25, 2018 By: /s/ Jeffrey S. Schoen
   

Jeffrey S. Schoen

Chief Executive Officer

     

 

 

 

Exhibit 10.1

 

AMENDMENT No. 8 TO

SECOND AMENDED AND RESTATED CREDIT AGREEMENT

 

THIS AMENDMENT NO. 8 TO SECOND AMENDED AND RESTATED CREDIT AGREEMENT (this “ Agreement ”), dated as of April 19, 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.       The Events of Default set forth on Exhibit A attached hereto have occurred and are continuing under the Credit Agreement (“ Existing Events of Default ”).

 

C.       Borrower has requested that Administrative Agent and Lenders waive the Existing 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 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)                Article I of the Credit Agreement is hereby amended to add the following defined term:

 

“Debt Service Reserve” shall mean the sum of $12,850,000, which amount shall reduce by an amount equal to each Revolving Loan by Lenders to Borrower after April 20, 2018 to pay principal and interest payments and payments of fees due to Administrative Agent and Lenders.”

 

 

 

 

(b)                The dollar figure “$25,000,000” appearing in the definition of “Revolving Commitment” is hereby deleted and the dollar figure “$46,003,846.00” is inserted in substitution therefor.

 

(c)                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, 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), plus (c) 65% of Eligible Parent Roll Inventory, plus (d) 65% of Eligible Finished Goods Inventory, minus (e) the Borrowing Base Adjustments, minus (f) the Debt Service Reserve.

 

(d)                Notwithstanding anything contained in the Credit Agreement to the contrary, Advances shall not be subject to the Borrowing Base, but in no event shall Advances from and after the Effective Date exceed the lesser of the Revolving Commitment or the amount of Total Revolver Draws as set forth in the Cash-Flow Forecast (subject to permitted variances) as set forth in Section 2 (j) of this Agreement.

 

(e)                In addition to the increase provided in the Amendment to No. 7 to Second Amended and Restated Credit Agreement dated as of February 28, 2018 among Borrower, Administrative Agent and Lenders (“ Prior Increase ”), as of the Effective Date 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 Prior Increase which has accrued prior to the Effective Date shall be due and payable on the Effective Date and thereafter all such increases in interest shall be due and payable with each interest payment under the Credit Agreement.

 

(f)                 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 April 20, 2018, a cash-flow forecast, for the period from April 20, 2018 to and including August 31, 2018, 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 chief executive officer (“ CEO ”) that the cash-flow forecast is based on reasonable estimates, information and assumptions and that the CEO 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 ”), it being understood and agreed, upon such approval by Administrative Agent, such Cash-Flow Forecast shall be the Cash-Flow Forecast for purposes of measuring compliance with the covenant set forth in Section 6.21(d) and (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 CEO, until April 30, 2018, and by the CSO thereafter, that such person 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 CEO or CSO, as applicable, that such person has no reason to believe that such reconciliation is incorrect or misleading in any material respect.”

 

  - 2 -  

 

 

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

 

“(a)      [Intentionally Omitted].”

 

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

 

“(b)      [Intentionally Omitted].”

 

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

 

“(c)      [Intentionally Omitted].”

 

(j)                  Sections 6.21(d) and (f) of the Credit Agreement are deleted in their entirety and the following are inserted in substitution therefor:

 

“(d)     Borrower shall maintain a book cash balance of not less than $1,000,000 at all times from and after April 20, 2018, tested weekly, commencing April 20, 2018 and as of the last day of each week thereafter.”

 

“(f)      Borrower shall not permit (i) total Advances for the first four weekly periods covered by the Cash-Flow Forecast to exceed $4,000,000, or (ii) total Net Cash Flow (as defined in the Cash-Flow Forecast) for the first four weekly periods covered thereby to be more than ten percent (10%) on a cumulative basis less than the projected Net Cash Flow as set forth in the Cash-Flow Forecast for each such weekly period, with the first four weeks to build up as follows: week one, actual, week two, for the first two weeks actual, week three, for the first three weeks actual and week four, for the first four weeks actual, or (iii) total Net Cash Flow (as defined in the Cash-Flow Forecast) for any remaining week in each rolling four week period covered by 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 each such four week period.”

 

  - 3 -  

 

 

(k)                By not later than April 20, 2018, Borrower shall retain a CSO reasonably acceptable to Administrative Agent, the terms of whose engagement shall be reasonably acceptable to Administrative Agent, including reporting directly to Borrower’s board of directors. Borrower shall at all times continue to employ an investment banker acceptable to Agent (“ Investment Banker ”) to assist Borrower in the sale of Borrower’s business. By not later than April 30, 2018, Borrower and its Investment Banker shall provide Administrative Agent with marketing materials for the sale of Borrower’s business. By not later than June 15, 2018, Borrower and its Investment Banker shall provide Administrative Agent with one or more proposed letters of intent received from potential purchasers, in form and substance acceptable to Administrative Agent, providing for the purchase of the equity or assets of Borrower in an amount sufficient to repay the outstanding Obligations of Borrower in full. By not later than June 30, 2018, Borrower shall provide Administrative Agent a fully executed letter of intent, in form and substance acceptable to Administrative Agent. By not later than July 31, 2018, Borrower shall provide Administrative Agent with a signed purchase agreement in form and content acceptable to Administrative Agent for the purchase of the equity or assets of Borrower in an amount sufficient to repay the outstanding Obligations in full. By not later than August 31, 2018, Borrower shall have closed on the sale of its equity or assets and repaid the Obligations in full.

 

(l)                  Borrower shall make its CSO and Investment Banker (i) reasonably and 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 reasonable request by Administrative Agent and (iii) provide Administrative Agent and Lenders with any reports prepared by such CSO and/or Investment Banker.

 

(m)              The Revolving Commitment Column to Schedule I to the Credit Agreement is hereby amended to read as follows:

 

  - 4 -  

 

 

 

Lender Revolving Commitment
U.S. BANK NATIONAL ASSOCIATION $18,863,296.17
JPMORGAN CHASE BANK, N.A. $14,245,718.46
SUNTRUST BANK $9,456,209.68
FIRST TENNESSEE BANK $3,438,621.69
TOTAL COMMITMENTS $46,003,846.00

 

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).

 

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

 

  - 5 -  

 

 

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) 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 . 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 (i) the Agent Fee (as defined below), (ii) the Amendment Commitment Fee (as defined below) for the pro rata benefit of Lenders, and (iii) all reasonable out-of-pocket costs and expenses of Administrative Agent (including legal fees, auditor fees, and consultant fees).

 

Section 5.                 Fees . In consideration for Administrative Agent and Lenders entering into this Agreement, Borrower agrees to pay (i) to Administrative Agent, for the pro rata benefit of Lenders executing this Agreement, an amendment fee in the amount of $170,000 (the “ Amendment Commitment Fee ”), which shall be non-refundable and fully earned on the Effective Date of this Agreement, (ii) for the pro data benefit of Lenders executing this Agreement a fully-earned, non-refundable amendment fee in the amount of $1,700,000 (the “ Amendment Fee ”), and (iii) for Agent’s account, a fully-earned, non-refundable agent fee in the amount of $50,000 (the “ Agent Fee ”). The Amendment Fee shall be paid on the earlier of (i) August 31, 2018, (ii) a sale of all or substantially all of the assets, or (iii) the occurrence of a Default or Event of Default. Any consulting or financing fees due to any Investment Banker with respect to this Agreement that exceeds $250,000 shall not be paid prior to the payment in full of all Obligations owed to Administrative Agent and Lenders under the Credit Agreement.

 

Section 6.                 Waiver . As of the Effective Date, Administrative Agent and Lenders waive the Existing 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, 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, 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.

 

  - 6 -  

 

 

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, 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.

 

  - 7 -  

 

 

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 Agreement and the other Loan Documents executed in connection with this Agreement and any other instruments and agreements executed by the Borrower or any Guarantor in connection with the Loan Documents or this Agreement, 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 Agreement is and will remain in effect in all respects as a complete and general release as to all matters released in this Agreement, 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]

 

  - 8 -  

 

 

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: /s/ Jeffrey Schoen
  Name: Jeffrey Schoen
  Title: President & CEO
     
     
  GUARANTORS :
     
  ORCHIDS MEXICO (DE) HOLDINGS, LLC
     
  By: /s/ Jeffrey Schoen
  Name: Jeffrey Schoen
  Title: President & CEO
     
     
  ORCHIDS MEXICO (DE) MEMBER, LLC
     
  By: /s/ Jeffrey Schoen
  Name: Jeffrey Schoen
  Title: President & CEO
     
     
 

ORCHID PAPER PRODUCTS COMPAY

OF SOUTH CAROLINA

     
  By: /s/ Jeffrey Schoen
  Name: Jeffrey Schoen
  Title: President & CEO
     
     
  OPP ACQUISITION MEXICO, S. de. R.L.de C.V.
     
  By: /s/ Jeffrey Schoen
  Name: Jeffrey Schoen
  Title: President & CEO
     

 

 

 

     
  ADMINISTRATIVE AGENT :
     
 

U.S. BANK NATIONAL ASSOCIATION , as

a Lender, LC Issuer, Swing Line Lender and

Administrative Agent

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

 

 

 

 

 

Exhibit A

 

Events of Default have occurred and are continuing under the Credit Agreement arising from Borrower’s breach of Section 7.2 of the Credit Agreement due to the failure of Borrower to make payments of principal on the Loans due on April 1, 2018, failure to make payments of interest on the Loans due on April 1, 2018 and the failure to timely pay fees due under the Credit Agreement, including fees due under Section 2(r) of Amendment No. 7 to the Second Amended and Restated Credit Agreement dated as of February 28, 2018 as a result of the failure of Borrower to timely raise additional equity.

 

 

 

 

 

 

 

Exhibit 99.1
 

Orchids Paper Products Company Announces First Quarter 2018 Results

BRENTWOOD, Tenn., April 25, 2018 /PRNewswire/ -- Orchids Paper Products Company (NYSE American: TIS), a national supplier of high-quality consumer tissue products, today reported results for the quarter ended March 31, 2018. The following table provides selected financial results for first quarter 2018 compared to first quarter 2017 and fourth quarter 2017.



1Q 2018


1Q 2017


4Q 2017



(Dollars in thousands, except per share data)



(unaudited)

Net sales:







Converted product

$  43,660


$   32,898


$    40,504


Parent rolls

4,588


2,456


3,011


Total net sales

$  48,248


$   35,354


$    43,515








Gross profit

$    2,873


$     1,969


$      2,503

Net (loss) income

$  (2,294)


$      (860)


$      8,876

Diluted net (loss) income per share

$    (0.21)


$     (0.08)


$        0.85

EBITDA

$    3,468


$     2,741


$      3,657

Adjusted EBITDA

$    5,306


$     3,123


$      5,573








Other Selected Financial Data:







Gross profit margin

6.0%


5.6%


5.8%


EBITDA margin

7.2%


7.8%


8.4%


Adjusted EBITDA margin

11.0%


8.8%


12.8%

Jeff Schoen, President and Chief Executive Officer, stated, "Orchids continues to ramp production volume at its new Barnwell, SC facility, which drove sequential revenue growth of 10.9% in the first quarter of 2018. We expect sales at this facility to continue to increase in coming quarters as a result of continued ramp of ultra-premium retail and parent roll business. The mill is successfully producing ultra-premium quality paper and we are selling excess parent rolls."

"On April 17, 2018, we appointed Mindy Bartel as our new chief financial officer. Ms. Bartel has a strong manufacturing background, with over 25 years of experience in manufacturing and technology service industries. Ms. Bartel's solid background in manufacturing, finance and operations will be a significant asset to Orchids as we continue to execute on our long-term strategic objectives."

"In March 2018, we engaged Guggenheim Securities LLS as a financial advisor to, among other things, explore strategic and financial alternatives for the Company, including to explore possibilities for the Company to repay its existing credit facilities."

First Quarter Results

Revenue
The company reported net sales of $48.2 million in the first quarter of 2018, up 36.5% compared to the year-ago period. Converted product sales were $43.6 million, a year over year increase of 32.7%, and parent roll sales were $4.6 million, up 86.8% over the first quarter of 2017. The increase in converted product sales was a result of the company ramping new customer volume at the Barnwell facility. Parent roll growth was driven by an increase in the volume of excess parent rolls sold from Barnwell.

Gross Profit
Gross profit in the first quarter of 2018 was $2.9 million, an increase from $2.0 million in the first quarter of 2017, or growth of 46%. Gross profit margins increased from 5.6% in the first quarter of 2017 to 6.0% in the first quarter of 2018. The improvement in gross profit margins reflects the favorable impact of the increased sales volume combined with higher average selling prices, primarily due to changes in the mix of products sold. However, gross profit margins remained under pressure from challenging, industry-wide conditions, as input costs, including fiber and freight costs, continued to rise.

Operating Loss
Orchids had a first quarter operating loss of $1.0 million in 2018 and a loss of $0.9 million in the first quarter of 2017. The increase in the operating loss was driven by SG&A increasing to $3.6 million in the first quarter of 2018, up $1.0 million from $2.6 million in the year-ago period. SG&A increased due to professional and consulting fees associated with our previously announced initiatives to review strategic alternatives and our debt refinancing efforts.

Income Tax
The company reported a tax benefit of $1.9 million in the first quarter of 2018 and a tax benefit of $.4 million in the year ago period.

Net Loss
Net loss in the first quarter of 2018 was $2.3 million and diluted loss per share was ($0.21). Net loss and diluted loss per share in the first quarter of 2017 were $0.9 million and ($0.08), respectively.

Liquidity


1Q 2018


1Q 2017


4Q 2017

Cash Flow Provided by (Used in):






Operating cash flow net of changes in working capital

$     (293)


$     7,376


$     1,044

Changes in working capital

(2,246)


(3,763)


4,106

Operating activities  

$  (2,539)


$     3,613


$     5,150

Investing activities 

$  (1,145)


$ (18,027)


$   (5,084)

Financing activities

$    2,788


$   11,465


$     1,672







Cash, including restricted cash, beginning

$    3,826


$   10,026


$     2,088

Cash, including restricted cash, ending

$    2,930


$     7,077


$     3,826

Cash (used in) provided by operations was ($2.5) million in the first quarter of 2018, $5.2 million in the fourth quarter of 2017, and $3.6 million in the first quarter of 2017. Changes in working capital (used) provided operating cash flows of ($2.2) million in the first quarter of 2018, $4.1 million in the fourth quarter of 2017, and ($3.8) million in the first quarter of 2017.

Conference Call/Webcast
The Company will hold a teleconference to discuss its first quarter results at 11:30 a.m. (ET) on Thursday, April 26, 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 excluding changes in working capital, (4) Changes in working capital, (5) Adjusted net (loss) income and (6) Adjusted net (loss) income per diluted share.

EBITDA, Adjusted EBITDA, Operating Cash Flow less changes in working capital, Changes in working capital, and Adjusted net (loss) income and Adjusted net (loss) 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 (loss) 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 (loss) income and Adjusted net (loss) 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, consulting and professional fees, 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 (loss) income and Adjusted net (loss) 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, 2017, as filed with the Securities and Exchange Commission on March 16, 2018.

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.

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

Orchids Paper Products Company and Subsidiaries

Selected Income Statement Data

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








1Q 2018


1Q 2017


4Q 2017

Converted product net sales

$      43,660


$      32,898


$      40,504

Parent roll net sales

4,588


2,456


3,011

Total net sales

48,248


35,354


43,515

Cost of sales less depreciation

41,302


30,161


36,826

Depreciation in cost of sales

4,073


3,224


4,186

Total cost of sales

45,375


33,385


41,012

Gross profit

2,873


1,969


2,503

Selling, general & administrative expenses

3,633


2,619


2,778

Intangibles amortization

233


233


232

Operating loss

(993)


(883)


(507)

Interest expense

3,389


517


3,075

Other (income) expense, net

(155)


(167)


254

Loss before income taxes

(4,227)


(1,233)


(3,836)

Benefits from income taxes

(1,933)


(373)


(12,712)

Net (loss) income

$      (2,294)


$         (860)


$        8,876







Average number of shares outstanding, basic

10,670,348


10,301,308


10,496,113

Average number of shares outstanding, diluted

10,670,348


10,301,308


10,502,148







Net (loss) income per share:






     Basic

$        (0.21)


$        (0.08)


$          0.85

     Diluted

$        (0.21)


$        (0.08)


$          0.85







Cash dividends paid

$                -


$                -


$                -

Cash dividends per share

$                -


$          0.35


$                -

Orchids Paper Products Company and Subsidiaries

Selected Balance Sheet Data

(Dollars in thousands)






 Mar. 31, 2018 


 Dec. 31, 2017 


(unaudited)



Cash

$                2,776


$               3,823

Accounts receivable, net

14,193


11,825

Inventory, net

19,929


20,563

Other current assets

3,280


3,182

Property plant and equipment

371,657


370,761

Accumulated depreciation

(89,076)


(85,003)

Net property plant and equipment

282,581


285,758

Intangibles and goodwill, net

20,906


21,139

Other long-term assets

173


245

Total assets

$            343,838


$           346,535





Accounts payable, inclusive of amounts due to related parties

$              15,207


$             15,458

Other current liabilities

2,323


3,519

Current portion of long-term debt

172,158


168,903

Deferred income taxes

9,340


11,595

Long-term liabilities

5,290


5,273

Total stockholders' equity

139,520


141,787

Total liabilities and stockholders' equity

$            343,838


$           346,535





Debt, current and long term

$            172,190


$           168,936

Orchids Paper Products Company and Subsidiaries

Reconciliations of Non-GAAP and GAAP Measurements 

(Dollars in thousands) (unaudited)






1Q 2018


1Q 2017


4Q 2017

Net (loss) income

$        (2,294)


$           (860)


$          8,876

Federal tax rate change

-


-


(11,037)

Adjustments, after tax (1) :






Barnwell start-up costs

434


153


696

Foreign exchange (gain) loss

3


(11)


(4)

Relocation costs

9


(3)


42

Stock compensation expense

25


48


22

Failed debt refinancing costs

193


-


184

Consulting and other professional fees

334


-


-

Amortization of intangible assets

126


114


114

Adjusted net loss (2)

$        (1,170)


$           (559)


$         (1,107)







Net (loss) income per diluted share

$          (0.21)


$          (0.08)


$             0.85

Adjusted net loss per diluted share (2)

$          (0.11)


$          (0.05)


$           (0.11)

Weighted average diluted shares

10,670,348


10,301,308


10,502,148



(1)

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

(2)

Adjusted net loss and adjusted net loss 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)

(Dollars in thousands) (unaudited)






1Q 2018


1Q 2017


4Q 2017

EBITDA Reconciliation:






Net (loss) income

$  (2,294)


$     (860)


$   8,876

      Plus: Interest expense

3,389


517


3,075

      Plus: Income tax benefit

(1,933)


(373)


(12,712)

      Plus: Depreciation

4,073


3,224


4,186

      Plus: Intangible amortization

233


233


232

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

$   3,468


$   2,741


$   3,657







Adjusted EBITDA Reconciliation:






EBITDA

$   3,468


$   2,741


$   3,657

    Plus: Barnwell start-up costs

800


312


1,420

    Plus: Foreign exchange (gain) loss

5


(22)


(8)

    Plus: Relocation costs

16


(6)


85

    Plus: Stock compensation expense

46


98


44

    Plus: Failed debt refinancing costs

355


-


375

    Plus: Consulting and other professional fees

616


-


-

Adjusted EBITDA

$   5,306


$   3,123


$   5,573







Operating Cash Flow Reconciliation:






Cash Flows From Operating Activities






Net (loss) income  

$  (2,294)


$     (860)


$   8,876

Adjustments to reconcile net (loss) income to net cash (used in) provided by operating activities:






Depreciation and amortization

4,483


3,550


4,569

Provision for doubtful accounts

(273)


20


323

Deferred income taxes

(2,255)


4,568


(12,769)

Stock compensation expense

46


98


45

  Operating cash flow excluding changes in working capital

(293)


7,376


1,044

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






  Accounts receivable 

(2,841)


(2,412)


3,822

  Inventories

634


152


321

  Income taxes receivable

41


(3,105)


2,886

  Prepaid expenses 

374


266


265

  Other assets

456


(54)


(495)

  Accounts payable

(2)


1,629


(2,748)

  Accrued liabilities 

(908)


(239)


55

    Changes in working capital

(2,246)


(3,763)


4,106

Net cash (used in) provided by operating activities

$  (2,539)


$   3,613


$   5,150