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Item 1.01
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Entry into a Material Definitive Agreement.
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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:
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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).
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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).
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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.
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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.
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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.