Exhibit 10.1
Execution Version
FORBEARANCE
AGREEMENT
THIS FORBEARANCE AGREEMENT
(this “ Agreement ”) is entered into as of
March 31, 2009, by and among Panolam Holdings II Co. (“
Holdings ”), Panolam Industries
International, Inc. (“ Company ” and
together with Holdings, the “ Borrower Parties ”
and each a “ Borrower Party ”), the Requisite
Lenders (as defined below) and Credit Suisse, Cayman Islands
Branch, as administrative agent (“ Agent ”), as
parties to the Credit Agreement (defined below). Capitalized
terms used in this Agreement which are not otherwise defined
herein, shall have the meanings given such terms in the Credit
Agreement.
RECITALS:
WHEREAS, Holdings, the Company,
Agent, Requisite Lenders and the other lenders party thereto from
time to time (together with the Requisite Lenders, the “
Lenders ”), among others, are parties to that certain
Credit Agreement dated as of September 30, 2005 (as amended,
amended and restated, extended, supplemented or otherwise modified,
the “ Credit Agreement ”);
WHEREAS, the Events of Default and
Potential Events of Default set forth on Schedule I attached
hereto have occurred and are continuing under the Credit Agreement
(collectively, the “ Existing Events of Default
”);
WHEREAS, the Company has advised
Agent that, in the future, it may not be in compliance with certain
provisions of the Credit Agreement which would give rise to the
events of default set forth on Schedule II attached hereto
(collectively the “ Anticipated Defaults
”);
WHEREAS, as a result of the
occurrence of the Existing Events of Default and pursuant to the
Credit Agreement and other Loan Documents, (i) the Lenders are
under no further obligation to make Loans or other financial
accommodations to the Company under the Credit Agreement and
(ii) the Agent and the Lenders are entitled, among other
things, to enforce their rights and remedies against the Loan
Parties and the Collateral, including, without limitation, the
right to accelerate and immediately demand payment in full of the
Obligations and to foreclose on the Collateral;
WHEREAS, the Company has requested
that the Agent and the Lenders agree and, subject to the terms and
conditions of this Agreement, the Agent and the Requisite Lenders
have agreed, to forbear from exercising those rights and remedies
afforded to them under the Credit Agreement on account of the
Existing Events of Default and the Anticipated Defaults from the
date hereof through the earliest to occur of (i) June 30,
2009; (ii) the date of termination of the Forbearance Period
pursuant to Section 5 hereof; and (iii) the date
on which all of the Obligations have been paid in full and the
Credit Agreement has been terminated (the “ Forbearance
Period ”);
WHEREAS, Section 10.6 of the
Credit Agreement requires the consent of the Requisite Lenders for
this Agreement to become effective.
NOW, THEREFORE, in consideration of
the premises set forth above, the terms and conditions contained
herein, and other good and valuable consideration, the receipt and
sufficiency of which are hereby acknowledged, Holdings, the
Company, the Agent and Requisite Lenders hereby agree as
follows:
1. Incorporation of
Preliminary Statements . The preliminary
statements set forth above are hereby incorporated into this
Agreement as accurate and complete statements of fact in all
material respects. Without limiting the foregoing, the
Borrower Parties hereby acknowledge and agree that (a) the
Existing Events of Default have occurred and are continuing under
the terms of the Credit Agreement, and that none of the Loan
Parties have any disputes, defenses or counterclaims of any kind
with respect thereto; (b) the Lenders are under no obligation
to make Loans or other financial accommodations to the Company
under the Credit Agreement; (c) the Agent, on behalf of the
Lenders has, and shall continue to have, valid, enforceable and
perfected security interests in and liens upon the Collateral
heretofore granted by the Company to the Agent and Lenders pursuant
to the Loan Documents or otherwise granted to or held by the Agent
or the Lenders; (d) absent the effectiveness of this
Agreement, the Agent and Lenders have the right to immediately
enforce their security interest in, and Liens on, the Collateral
and to exercise any and all remedies available to them under the
Credit Agreement, at law and in equity; and (e) the
outstanding Loans and all other Obligations are payable pursuant to
the Credit Agreement, without defense, dispute, offset,
withholding, recoupment, counterclaim or deduction of any kind
(other than as provided in Section 2.7 of the Credit
Agreement).
2. Forbearance
.
(a)
The Borrower
Parties agree and acknowledge that the Existing Events of Default
set forth on Schedule I have occurred and are
continuing.
(b)
The Company has
advised the Agent that the Company will likely not be in compliance
with certain provisions of the Credit Agreement which would give
rise to the Anticipated Defaults set forth on Schedule II
.
(c)
The Borrower Parties hereby agree
and acknowledge that (i) Schedule I represents a
complete and accurate list of all Existing Events of Default which
are in existence as of the Effective Date (as hereinafter defined);
and (ii) Schedule II represents a complete and
accurate list of all instances in which the Company may not be in
compliance with the Credit Agreement during the Forbearance
Period.
(d)
Provided that no Forbearance Default
(as defined below) occurs, subject to the terms and conditions of
this Agreement and satisfaction of the conditions precedent to the
effectiveness of this Agreement set forth in Section 3
below, during the Forbearance Period, the Agent and the Lenders
hereby forbear from exercising, on account of the Existing Events
of Default and Anticipated Defaults, those rights and remedies
afforded to them under the Credit Agreement, the other Loan
Documents and applicable law.
3. Conditions of
Effectiveness of this Agreement . This Agreement shall become
effective as of the date hereof (the “ Effective Date
”) when, and only when:
2
(a)
The Agent shall
have received counterparts of this Agreement duly executed and
delivered by the Borrower Parties and the Requisite
Lenders;
(b)
All of the
representations and warranties of the Borrower Parties contained in
this Agreement shall be true and correct on and as of the Effective
Date (unless stated to relate solely to an earlier date, in which
case such representations and warranties shall be true and correct
as of such earlier date);
(c)
The Agent shall
have received, for the account and benefit of the Lenders, a
forbearance fee in cash in the amount of 0.5% of the aggregate
outstanding amount of Loans on the date hereof; and
(d)
The Agent shall
have received payment in full of all fees and expenses due and
payable in accordance with the terms of this Agreement and the
Credit Agreement (including the reasonable and documented legal
fees and expenses of the Agent’s counsel and the fees and
out-of-pocket expenses of its financial advisor, Conway Del Genio
Gries & Co. (“ CDG ”) invoiced at least
one day prior to the anticipated Effective Date of this
Agreement).
4. Representations and
Warranties . To induce the Agent
and the Requisite Lenders to enter into this Agreement, each
Borrower Party represents and warrants to the Agent and the Lenders
(which representations and warranties shall be made on and as of
the Effective Date):
(a)
Each Borrower
Party has the requisite corporate power and authority and the legal
right to execute and deliver this Agreement, and to perform the
transactions contemplated hereby. The execution, delivery and
performance by each Borrower Party of this Agreement, (i) are
within such Borrower Party’s corporate power; (ii) have
been duly authorized by all necessary corporate or other action;
(iii) do not contravene or cause such Borrower Party or any
other Loan Party to be in default under (x) any provision of
the such Borrower Party’s or other Loan Party’s
formation documents or bylaws, (y) any contractual restriction
contained in any indenture, loan or credit agreement, lease,
mortgage, security agreement, bond, note or other agreement or
instrument binding on or affecting such Borrower Party or other
Loan Party or its property, or (z) any law, rule, regulation,
order, license requirement, writ, judgment, award, injunction, or
decree applicable to, binding on or affecting such Borrower Party
or other Loan Party or its property; (iv) will not result in
the creation or imposition of any Lien upon any of the property of
such Borrower Party or other Loan Party or any Subsidiary thereof
other than those in favor of the Agent or any Lender, all pursuant
to the Loan Documents; and (e) do not require the consent or
approval of any Governmental Authority or any other Person, other
than those which have been duly obtained, made or complied with and
which are in full force and effect and except, in each case, to the
extent such contravention, default, Lien or failure to obtain such
approval or consent could not reasonably be expected to result in a
Material Adverse Effect.
(b)
This Agreement
has been duly executed and delivered by each Borrower Party.
Each of this Agreement, the Credit Agreement (as modified herein)
and the Loan Documents (as modified hereby) to which each Borrower
Party is a party is the legal, valid and
3
binding obligation of such
Borrower Party, enforceable against such Borrower Party in
accordance with its terms, subject, as to enforceability, to
(A) any applicable bankruptcy, insolvency, reorganization,
moratorium or other similar laws now or hereafter in effect
relating to or affecting the enforceability of creditors’
rights generally and (B) general equitable principles, whether
applied in a proceeding at law or in equity, and is in full force
and effect.
(c)
No Event of
Default or Potential Event of Default under the Credit Agreement,
other than the Existing Events of Defaults or the Anticipated
Defaults, shall have occurred and be continuing or would result
after giving effect to any of the transactions contemplated on the
date hereof.
(d)
No Forbearance
Default (defined below) has occurred.
5. Forbearance
Defaults : The following events
shall constitute “ Forbearance Defaults ”):
(a)
the payment by the Company or any
other Person, on behalf of the Company, of any amounts to any
holder of those certain 10 ¾% Senior Subordinated Notes due
2013 (the “ Subordinated Notes ”), with respect
to such Subordinated Notes, including, but not limited to, that
certain interest payment due April 1, 2009 (with the exception
of any fee payable in connection with an Approved Agreement (as
defined in Section 6(l) below) with the holders
of the Subordinated Notes. For the avoidance of doubt, the
foregoing provision shall not prohibit payments otherwise permitted
to one legal counsel or one financial advisor to the holders of the
Subordinated Notes engaged in connection with an Approved
Agreement.
(b)
(i) the receipt by the Company
or any Loan Party of a written notice of acceleration related to
the Subordinated Notes, which becomes effective in accordance with
Section 6.02 of the Senior Subordinated Note Indenture and
which has not been rescinded or withdrawn or in respect of which
there is not a forbearance or similar agreement, in each case,
effective in accordance with the Senior Subordinated Note
Indenture, or (ii) the institution of proceedings or exercise
of any other remedies by any holder of the Subordinated Notes, with
respect to such Subordinated Notes, which has not been dismissed or
withdrawn or in respect of which there is not a forbearance or
similar agreement within ten (10) days of such institution or
exercise; or
(c)
any Borrower Party shall fail to
observe or perform any other term, covenant, obligation or
agreement binding on it contained in this Agreement, or any other
agreement, instrument, or document executed in connection with this
Agreement; or
(d)
the occurrence of an Event of
Default under the Credit Agreement or any of the other Loan
Documents, other than an Existing Event of Default or an
Anticipated Default; or
(e)
any instrument, document, report,
schedule, agreement, written representation or warranty made or
delivered to the Agent or any Lender by any Borrower Party or Loan
Party after the date of this Agreement, taken as a whole, shall be
false or misleading in any material respect when made, or deemed
made, or delivered.
4
Upon the occurrence of any
Forbearance Default, the Agent, upon the written request or with
the written consent of the Requisite Lenders, may by written notice
to the Company immediately terminate the Forbearance Period,
declare all of the Obligations immediately due and payable and/or
exercise any of the other rights and remedies afforded to them
under the Credit Agreement, the other Loan Documents or applicable
law; provided , however , that upon the occurrence of
any Event of Default described in Section 8.6 or
Section 8.7 of the Credit Agreement, the Forbearance Period
shall automatically terminate, the Commitments shall automatically
be terminated and all Obligations shall automatically become
immediately due and payable, without notice, presentment, demand,
protest or other requirements of any kind, all of which are hereby
expressly waived by the Loan Parties. Upon the termination or
expiration of the Forbearance Period, or if for any other reason
this Agreement is no longer effective, if at such time the
aggregate outstanding amount of the Obligations has not been paid
in full, the Agent and the Lenders shall be entitled to exercise
all of their rights and remedies under the Credit Agreement, the
other Loan Documents and applicable law, including, without
limitation, the right to declare all of the Obligations to be
immediately due and payable and to enforce their Liens on, and
security interests in, the Collateral. The occurrence of any
Forbearance Default shall constitute an Event of Default under the
Credit Agreement and the other Loan Documents.
6. Forbearance Period
Covenants . In
order to induce the Requisite Lenders to enter into this Agreement
and forbear during the Forbearance Period from exercising the Agent
and Lenders’ rights and remedies with respect to the Existing
Events of Default and the Anticipated Defaults, the Company
covenants as follows:
(a)
On or before March 31, 2009,
the Company shall deliver to the Agent, for the account and benefit
of the Lenders, the scheduled interest payment in the amount of
$830,335.73 due and payable on such date.
(b)
The Company acknowledges and agrees
that commencing on April 1, 2009, all Loans shall become and
remain during the Forbearance Period, Base Rate Loans and shall
thereafter bear interest payable (at a rate determined in
accordance with Section 2.2A of the Credit Agreement) in
arrears on the last Business Day of each month during the
Forbearance Period. For purposes of clarity, interest payable
pursuant to Section 2.2E of the Credit Agreement will not
accrue on the Loans or other Obligations during the Forbearance
Period.
(c)
The Company shall ensure that onsite
access to the Company will be provided to CDG on or before
April 2, 2009.
(d)
On April 16, 2009, and on the
fourth Business Day of each week thereafter during the Forbearance
Period, the Company shall deliver to Agent for distribution to the
Lenders a rolling thirteen (13) week cash flow forecast of the
Company and its Subsidiaries.
(e)
On or before April 30, 2009,
the Company shall hold a meeting with all of the Lenders desiring
to participate and their advisors to provide an update on the
status (financial and otherwise) of the Company and the other Loan
Parties.
5
(f)
Within thirty (30) days after the
end of each month (commencing with the month ended April 30,
2009), the Company shall deliver to Agent (for further posting to
all of the Lenders on “Intralinks”) an unaudited,
consolidated balance sheet, income statement and year-to-date
statement of cash flows, together with Company management’s
discussion and analysis of the financial condition and results of
operations of the Company, each for the fiscal month most recently
ended. Within three (3) Business Days after the delivery
of the financial statements and management’s discussion and
analysis described above, the Company shall schedule a telephone
conference for a discussion thereof with Agent and those Lenders
desiring to participate in such call.
(g)
On or before May 15, 2009, the
Company shall deliver to the Agent (for further posting to all of
the Lenders on “Intralinks”) a preliminary business
plan regarding the Company and the other Loan Parties approved by
the board of directors of the Company.
(h)
On or before June 1, 2009, the
Company shall deliver to the Agent (for further posting to all of
the Lenders on “Intralinks”) a preliminary financial
restructuring proposal regarding the Company and the other Loan
Parties approved by the board of directors of the
Company.
(i)
On or before June 30, 2009, the
Company shall deliver to the Agent for the account and benefit of
the Lenders the Consolidated Excess Cash Flow payment for Fiscal
Year 2008 as calculated in accordance with
Section 2.4B(iii)(e) of the Credit Agreement.
(j)
The Company shall pay, promptly
after the receipt of the applicable invoice, all professional fees
incurred in connection with this Agreement, including legal fees
and financial advisory service fees, in each case, in accordance
with Section 10.2 of the Credit Agreement.
(k)
During the Forbearance Period, no
payments shall be made to Genstar Capital LLC or Sterling (or their
successors and assigns) payable under the Management
Agreement.
(l)
Without the reasonable approval of
the Requisite Lenders, the Company shall not shall not amend or
otherwise change the terms of any Subordinated Indebtedness
(including, but not limited to, the Subordinated Notes), including
any forbearance by the holders of such Subordinated Indebtedness
from exercising their default-related rights and remedies against
the Company and the other Loan Parties (any such approved
amendment, change or forbearance, an “ Approved
Agreement ”).
(m)
Notwithstanding any provision to the
contrary in the Credit Agreement, during the Forbearance Period,
the Company shall not, and shall not permit any of its Subsidiaries
to:
(i)
directly or indirectly, make any
Investment in any Person, except Investments made under the Credit
Agreement pursuant to:
6
A. Section 7.3(i);
B. Section 7.3(ii)(a) and (b);
C. Section 7.3(iii)(a); provided ,
however , that any such Investments made during the
Forbearance Period shall not exceed $200,000.00 in the
aggregate;
D. Section 7.3(iv);
E. Section 7.3(v), only to the extent such
Restricted Junior Payments and Asset Sales are permitted under this
Agreement;
F. Section 7.3(vii);
G. Section 7.3(viii), only to the extent such
Restricted Junior Payment is permitted under this
Agreement;
H. Section 7.3(ix);
I.
Section 7.3(x);
J. Section 7.3(xiii), only to the extent
permitted under this Agreement;
K. Section 7.3(xiv);
L. Section 7.3(xvi); provided ,
however , that during the Forbearance Period, the amount
referred to in Section 7.3(xvi) of the Credit Agreement shall
be $1,000,000.00;
M. Section 7.3(xvii), only to the extent such
Asset Sale is permitted under this Agreement; and
N. Section 7.3(xviii), only to the extent
permitted under this Agreement.
(ii)
directly or indirectly, declare,
order, pay, make or set apart any sum for any Restricted Junior
Payment except:
A. that each Subsidiary may make Restricted Junior
Payments to Company and to any other Subsidiary in the ordinary
course of business and consistent with past practice;
and
7
B. Restricted Junior Payments permitted under the
Credit Agreement pursuant to:
1.
Section 7.5(v)(c),
(d) (with regard to out-of-pocket costs and expenses under
Section 7.9(ii) only), (e), and (f); and
2.
Section 7.5(vii), only to the
extent such transactions are permitted under this
Agreement.
(iii)
enter into any transaction of merger
or consolidation, or liquidate, wind-up or dissolve itself (or
suffer any liquidation or dissolution); or
(iv)
make any Asset Sale (whether by
sale, merger, recapitalization, restructuring, consolidation or
otherwise) except:
A. Asset Sales made in the ordinary course of
business;
B. sales of assets to the extent that the aggregate
value of such assets is equal to $1,000,000 or less;
provided , however , that the consideratio
