**Exhibit 10.12**

 

GUARANTEE AGREEMENT

 

GUARANTEE AGREEMENT dated as of November 22,2005, among each of the subsidiaries listed on Schedule I hereto (eachsuch subsidiary individually, a “Guarantor” and collectively, the “Guarantors”)of POLYMER GROUP, INC., a Delaware corporation (the “Borrower”), andCITICORP NORTH AMERICA, INC., as Collateral Agent and Administrative Agent (the“Agent”) for the Secured Parties (as defined in the Credit Agreementreferred to below).

 

Reference is made to the Credit Agreementdated as of November 22, 2005 (the “Credit Agreement”), among POLYMERGROUP, INC., a Delaware corporation (the “Borrower”), the guarantorsfrom time to time a party thereto, the financial institutions listed on Schedule 2.01thereto, as such Schedule may from time to time be supplemented and amended(the “Lenders”), CITICORP NORTH AMERICA, INC., as administrative agent(in such capacity, the “Administrative Agent”) for the Lenders, asdocumentation agent (in such capacity, the “Documentation Agent”), as syndicationagent (in such capacity, the “Syndication Agent”), as collateral agentfor the Secured Parties (in such capacity, the “Collateral Agent”), andCITIGROUP GLOBAL MARKETS INC. (“CGMI”), as sole lead arranger and solebookrunner (in such capacity, the “Lead Arranger”). Terms used hereinwithout definition shall have the meanings assigned to such terms in the CreditAgreement.

 

The Lenders have agreed to make Loans to theBorrower, and the Issuing Bank has agreed to issue Letters of Credit for theaccount of the Borrower, pursuant to, and upon the terms and subject to theconditions specified in, the Credit Agreement. Each of the Guarantors is adirect or indirect wholly owned Subsidiary of the Borrower and acknowledgesthat it will derive substantial benefit from the making of the Loans by theLenders, and the issuance of the Letters of Credit by the Issuing Bank. Theobligations of the Lenders to make Loans and of the Issuing Bank to issueLetters of Credit are conditioned on, among other things, the execution anddelivery by the Guarantors of a Guarantee Agreement in the form hereof. Asconsideration therefor and in order to induce the Lenders to make Loans and theIssuing Bank to issue Letters of Credit, the Guarantors are willing to executethis Agreement.

 

Accordingly, the parties hereto agree asfollows:

 

### SECTION 1.           Guarantee.Each Guarantor unconditionally guarantees, jointly with the other Guarantorsand severally, as a primary obligor and not merely as a surety, (a) the due andpunctual payment of the Obligations and (b) the due and punctual performance ofall covenants, agreements, obligations and liabilities of the Loan Partiesunder or pursuant to the Credit Agreement and the other Loan Documents (all themonetary and other obligations referred to in the****precedingclauses (a) and (b) being collectively called the “Guaranteed Obligations”).Each Guarantor further agrees that the Guaranteed Obligations may be extendedor renewed, in whole or in part, without notice to or further assent from it,and that it will remain bound upon its guarantee notwithstanding any extensionor renewal of any Obligation. By execution of this Agreement, each Guarantoragrees to be bound by the terms of the Credit Agreement as a Subsidiary LoanParty as if it were a party to the Credit Agreement.

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### SECTION 2.           GuaranteedObligations Not Waived. To the fullest extent permitted by applicable law,each Guarantor waives presentment to, demand of payment from and protest to theLoan Parties of any of the Guaranteed Obligations, and also waives notice ofacceptance of its guarantee and notice of protest for nonpayment. To thefullest extent permitted by applicable law, the obligations of each Guarantorhereunder shall not be affected by (a) the failure of the Agents or any other SecuredParty to assert any claim or demand or to enforce or exercise any right orremedy against the Loan Parties under the provisions of the Credit Agreement,any other Loan Document or otherwise, (b) any rescission, waiver, amendment ormodification of, or any release from any of the****termsor provisions of, this

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### Agreement, any other Loan Document, anyGuarantee or any other agreement, including with respect to any other Guarantorunder this Agreement, or (c) the failure to perfect any security interest in orlien on, or the release of, any of the security held by or on behalf of theAgents or any other Secured Party.

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### SECTION 3.           Guaranteeof Payment. Each Guarantor further agrees that its guarantee constitutes aguarantee of payment when due and not of collection, and waives any right torequire that any resort be had by the Agents or any other Secured Party to anyof the security held for payment of the Guaranteed Obligations or to anybalance of any deposit account or credit on the books of the Agents or anyother Secured Party in favor of the Borrower or any other Person.

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### SECTION 4.           NoDischarge or Diminishment of Guarantee. The obligations of each Guarantorhereunder shall not be subject to any reduction, limitation, impairment or terminationfor any reason (other than the indefeasible payment in full in cash of theGuaranteed Obligations), including any claim of waiver, release, surrender,alteration or compromise of any of the Guaranteed Obligations, and shall not besubject to any defense or setoff, counterclaim, recoupment or terminationwhatsoever by reason of the invalidity, illegality or unenforceability of theGuaranteed Obligations or otherwise. Without limiting the generality of theforegoing, the obligations of each Guarantor hereunder shall not be dischargedor impaired or otherwise affected by the failure of the Agents or any otherSecured Party to assert any claim or demand or to enforce any remedy under theCredit Agreement, any other Loan Document or any other agreement, by any waiveror modification of any provision of any thereof, by any default, failure ordelay, willful or otherwise, in the performance of the Guaranteed Obligations,or by any other act or omission that may or might in any manner or to anyextent vary the risk of any Guarantor or that would otherwise operate as adischarge of each Guarantor as a matter of law or equity (other than thepayment in full in cash or Cash Equivalents of all the Guaranteed Obligations).

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### SECTION 5.           Defensesof Borrower Waived. To the fullest extent permitted by applicable law, eachof the Guarantors waives any defense based on or arising out of any defense ofany Loan Party or the unenforceability of the Guaranteed Obligations or anypart thereof from any cause, or the cessation from any cause of the liabilityof any Loan Party, other than the final payment in full in cash or CashEquivalents of the Guaranteed Obligations. The Agents and the other SecuredParties may, at their election, foreclose on any security held by one or moreof them by one or more judicial or nonjudicial sales, accept an assignment ofany such security in lieu of foreclosure, compromise or adjust any part of theGuaranteed Obligations, make any other accommodation with any Loan Party or anyother guarantor or exercise any other right or remedy available to them againstany Loan Party or any other guarantor, without affecting or impairing in anyway the liability of any Guarantor hereunder except to the extent theGuaranteed Obligations have been fully and finally paid in cash or CashEquivalents. Pursuant to applicable law, each of the Guarantors waives anydefense arising out of any such election even though such election operates,pursuant to applicable law, to impair or to extinguish any right of reimbursementor subrogation or other right or remedy of such Guarantor against any LoanParty or any other Guarantor or guarantor, as the case may be, or any security.

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### SECTION 6.           Agreementto Pay; Subordination. In furtherance of the foregoing and not inlimitation of any other right that the Agents or any other Secured Party has atlaw or in equity against any Guarantor by virtue hereof, upon the failure ofany Loan Party to pay any Obligation when and as the same shall become due,whether at maturity, by acceleration, after notice of prepayment or otherwise,promptly upon notice from the Agent each Guarantor hereby promises to and willforthwith pay, or cause to be paid, to the Agents or such other Secured Partyas designated thereby in cash or Cash Equivalents the amount of such unpaidGuaranteed Obligations. Upon payment by any Guarantor of any sums to the Agentsor any Secured Party as provided above, all rights of such Guarantor againstany Loan Party

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### arising as a result thereof by way of rightof subrogation, contribution, reimbursement, indemnity or otherwise shall inall respects be subordinate and junior in right of payment to the prior paymentin full in cash or Cash Equivalents of all the Guaranteed Obligations. Inaddition, any indebtedness of any Loan Party now or hereafter held by anyGuarantor is hereby subordinated in right of payment to the prior payment infull in cash or Cash Equivalents of the Guaranteed Obligations. If any amountshall erroneously be paid to any Guarantor on account of (i)  such subrogation, contribution,reimbursement, indemnity or similar right or (ii) any such indebtedness of anyLoan Party, such amount shall be held for the benefit of the Secured Partiesand shall forthwith be paid to the Agents to be credited against the payment ofthe Guaranteed Obligations, whether matured or unmatured, in accordance withthe terms of the Loan Documents.

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### SECTION 7.           Information.Each of the Guarantors assumes all responsibility for being and keeping itselfinformed of each other Loan Party’s financial condition and assets, and of allother circumstances bearing upon the risk of nonpayment of the GuaranteedObligations and the nature, scope and extent of the risks that such Guarantorsand incurs hereunder, and agrees that none of the Agents or the other SecuredParties will have any duty to advise any of the Guarantors of information knownto it or any of them regarding such circumstances or risks.

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### SECTION 8.           Representationsand Warranties. Each of the Guarantors represents and warrants as to itselfthat all representations and warranties relating to it contained in the CreditAgreement are true and correct.

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### SECTION 9.           Termination.(a)  The Guarantees made hereunder (i)shall terminate when all the Guaranteed Obligations (other than contingentindemnification provisions not then claimed or due) have been paid in full incash or Cash Equivalents and the Lenders have no further commitment to lendunder the Credit Agreement or to issue or participate in Letters of Credit andthe LC Exposure has been reduced to zero and (ii) shall continue to be effectiveor be reinstated, as the case may be, if at any time any payment in respectthereof, of any Obligation is rescinded or must otherwise be restored by anySecured Party or any Guarantor upon the bankruptcy or reorganization of theBorrower, any Guarantor or otherwise. In connection with the foregoing, theAgents shall execute and deliver to such Guarantor or Guarantor’s designee, atsuch Guarantor’s expense, any documents or instruments which such Guarantorshall reasonably request from time to time in writing to evidence suchtermination and release.

 

#### (b)           Ifthe Equity Interests of a Guarantor are sold, transferred or otherwise disposedof to a Person that is not an Affiliate pursuant to a transaction permitted bySection 6.05 of the Credit Agreement that results in such Guarantor ceasing tobe a Subsidiary, or upon the effectiveness of any written consent pursuant toSection 9.08 of the Credit Agreement to the release of the guarantee granted bysuch Guarantor hereby, such Guarantor shall be released from its obligationsunder this Agreement without further action. In connection with such release,the Agents shall execute and deliver to such Guarantor, at such Guarantor’sexpense, all documents that such Guarantor shall reasonably request to evidencesuch termination or release. Any execution and delivery of documents pursuantto this Section 9(b) shall be without recourse to or warranty by the Agents.

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### SECTION 10.         BindingEffect; Several Agreement; Successors and Assigns. (a)  This Agreement shall become effective as toany Guarantor when a counterpart hereof executed on behalf of such Guarantorshall have been delivered to the Agents and a counterpart hereof (including afacsimile copy) shall have been executed on behalf of the Agents, andthereafter shall be binding upon such Guarantor and the Agents and theirrespective permitted

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### successors and assigns, and shall inure tothe benefit of such Guarantor, the Agents and the other Secured Parties andtheir respective permitted successors and assigns, except that no Guarantorshall have the right to assign or transfer its rights or obligations hereunderor any interest herein (and any such attempted assignment or transfer shall bevoid) except as expressly permitted by each of the other Loan Documents.

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#### (b)           UnderOregon law, most agreements, promises and commitments made after October 3,1989, concerning loans and other credit extensions which are not for personal,family or household purposes or secured solely by the borrower’s residence mustbe in writing, express consideration and be signed to be enforceable.

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#### (c)           ThisAgreement shall be construed as a separate agreement with respect to eachGuarantor and may be amended, modified, supplemented, waived or released withrespect to any Guarantor without the approval of any other Guarantor andwithout affecting the obligations of any other Guarantor hereunder.

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#### (d)           Wheneverin this Agreement any of the parties hereto is referred to, such referenceshall be deemed to include the successors and assigns of such party; and allcovenants, promises and agreements by or on behalf of any Guarantor or theAgents that are contained in this Agreement shall bind and inure to the benefitof their respective successors and assigns.

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### SECTION 11.         Waivers;Amendment. (a)  No failure or delayof the Agents in exercising any power or right hereunder shall operate as awaiver thereof, nor shall any single or partial exercise of any such right orpower, or any abandonment or discontinuance of steps to enforce such a right orpower, preclude any other or further exercise thereof or the exercise of anyother right or power. The rights and remedies of the Agents hereunder and ofthe other Secured Parties under the other Loan Documents are cumulative and arenot exclusive of any rights or remedies that they would otherwise have. Nowaiver of any provisions of this Agreement or any other Loan Document orconsent to any departure by any Guarantor therefrom shall in any event beeffective unless the same shall be permitted by paragraph (b) below, and thensuch waiver or consent shall be effective only in the specific instance and forthe purpose for which given. No notice to or demand on any Guarantor in anycase shall entitle such Guarantor or any other Guarantor to any other orfurther notice or demand in similar or other circumstances.

 

#### (b)           Neitherthis Agreement nor any provision hereof may be waived, amended or modifiedexcept pursuant to an agreement or agreements in writing entered into among theBorrower, the Agents and the Guarantors with respect to which such waiver,amendment or modification is to apply.

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### **SECTION 12.       GoverningLaw. THIS AGREEMENT SHALL BE CONSTRUED IN ACCORDANCE WITH AND GOVERNED BYTHE LAWS OF THE STATE OF NEW YORK.**

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### SECTION 13.         Notices.All communications and notices hereunder shall (except as otherwise expresslypermitted herein) be in writing and given as provided in Section 9.01 of theCredit Agreement. All communications and notices hereunder to any Guarantorshall be given to it at its address or telecopy number set forth on ScheduleI, with a copy to Borrower.

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### SECTION 14.         Survivalof Agreement; Severability. (a)  Allcovenants, agreements, representations and warranties made by any Guarantorherein and in the certificates or other instruments prepared or delivered inconnection with or pursuant to this Agreement or any other Loan Document shallbe considered to have been relied upon by the Agents and the other SecuredParties and shall survive the making by the Lenders of the Loans and theLenders’ issuance of and participations in Letters of Credit, regardless of anyinvestigation made by the Secured Parties or on their behalf, and shallcontinue in full force and effect until this Agreement shall terminate.

 

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#### (b)           Inthe event any one or more of the provisions contained in this Agreement shouldbe held invalid, illegal or unenforceable in any respect, the validity,legality and enforceability of the remaining provisions contained herein shallnot in any way be affected or impaired thereby (it being understood that theinvalidity of a particular provision in a particular jurisdiction shall not inand of itself affect the validity of such provision in any other jurisdiction).The parties shall endeavor in good faith negotiations to replace the invalid,illegal or unenforceable provisions with valid provisions the economic effectof which comes as close as possible to that of the invalid, illegal orunenforceable provisions.

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### SECTION 15.         Counterparts.This Agreement may be executed in two or more counterparts, each of which shallconstitute an original but all of which when taken together shall constitute asingle contract (subject to Section 10) and shall become effective as providedin Section 10. Delivery of an executed signature page to this Agreement byfacsimile transmission shall be effective as delivery of a manually executedcounterpart hereof. It is understood and agreed among the parties that thisAgreement shall create separate guarantees in favor of each of the Term Lendersand the Revolving Lenders, and that any determination by any court withjurisdiction that the guarantee in favor of either group of Lenders is invalidfor any reason shall not in and of itself invalidate the guarantee with respectto any other beneficiary hereunder.

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### SECTION 16.         Rulesof Interpretation; Headings. (a)  Therules of interpretation specified in Section 1.03 of the Credit Agreement shallbe applicable to this Agreement.

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#### (b)           Sectionheadings used herein are for the purpose of reference only, are not part ofthis Agreement and are not to affect the construction of, or to be taken intoconsideration in interpreting this Agreement.

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### SECTION 17.         Jurisdiction;Consent to Service of Process. (a) Each party hereto hereby irrevocably and unconditionally submits, foritself and its property, to the nonexclusive jurisdiction of any New York Statecourt or Federal court of the United States of America sitting in New YorkCity, and any appellate court from any thereof, in any action or proceedingarising out of or relating to this Agreement or the other Loan Documents, orfor recognition or enforcement of any judgment, and each of the parties heretohereby irrevocably and unconditionally agrees that all claims in respect of anysuch action or proceeding may be heard and determined in such New York Statecourt or, to the extent permitted by law, in such Federal court. Each of theparties hereto agrees that a final judgment in any such action or proceedingshall be conclusive and may be enforced in other jurisdictions by suit on thejudgment or in any other manner provided by law. Nothing in this Agreementshall affect any right that the Agents or any other Secured Party may otherwisehave to bring any action or proceeding relating to this Agreement or the otherLoan Documents against any Guarantor or its properties in the courts of anyjurisdiction.

 

#### (b)           Eachparty hereto hereby irrevocably and unconditionally waives, to the fullestextent it may legally and effectively do so, any objection which it may now orhereafter have to the laying of venue of any suit, action or proceeding arisingout of or relating to this Agreement or the other Loan Documents in any NewYork State or Federal court referred to in paragraph (c) of this Section. Eachof the parties hereto hereby irrevocably waives, to the fullest extentpermitted by law, the defense of an inconvenient forum to the maintenance ofsuch action or proceeding in any such court.

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#### (c)           Eachparty to this Agreement irrevocably consents to service of process in themanner provided for notices in Section 13. Nothing in this Agreement willaffect the right of any party to this Agreement to serve process in any othermanner permitted by law.

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### **SECTION 18.       WAIVEROF JURY TRIAL. EACH PARTY HERETO HEREBY WAIVES, TO THE FULLEST EXTENTPERMITTED BY APPLICABLE LAW, ANY RIGHT IT MAY HAVE TO A TRIAL BY JURY INRESPECT OF ANY LITIGATION DIRECTLY OR INDIRECTLY ARISING OUT OF, UNDER OR INCONNECTION WITH THIS AGREEMENT OR ANY OF THE OTHER LOAN DOCUMENTS. EACH PARTYHERETO (A) CERTIFIES THAT NO REPRESENTATIVE, AGENT OR ATTORNEY OF ANY OTHERPARTY HAS REPRESENTED, EXPRESSLY OR OTHERWISE, THAT SUCH OTHER PARTY WOULD NOT,IN THE EVENT OF LITIGATION, SEEK TO ENFORCE THE FOREGOING WAIVER AND (B)ACKNOWLEDGES THAT IT AND THE OTHER PARTIES HERETO HAVE BEEN INDUCED TO ENTERINTO THIS AGREEMENT AND THE OTHER LOAN DOCUMENTS, AS APPLICABLE, BY, AMONGOTHER THINGS, THE MUTUAL WAIVERS AND CERTIFICATIONS IN THIS SECTION 18.**

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### SECTION 19.         Rightof Setoff. If an Event of Default or Event of Termination shall haveoccurred and be continuing, each Secured Party is hereby authorized at any timeand from time to time, to the fullest extent permitted by law, to set off andapply any and all deposits (general or special, time or demand, provisional orfinal) at any time held and other indebtedness at any time owing by suchSecured Party to or for the credit or the account any Guarantor against any ofand all the obligations of such Guarantor now or hereafter existing under thisAgreement and other Loan Documents held by such Secured Party, irrespective ofwhether or not such Secured Party shall have made any demand under thisAgreement or such other Loan Document and although such obligations may beunmatured. In connection with exercising its rights pursuant to the previoussentence, a Secured Party may at any time use any of the such Guarantor’scredit balances with the Secured Party to purchase at the Secured Party’sapplicable spot rate of exchange any other currency or currencies which theSecured Party considers necessary to reduce or discharge any amount due by thesuch Guarantor to the Secured Party, and may apply that currency or thosecurrencies in or towards payment of those amounts. The rights of each SecuredParty under this Section are in addition to other rights and remedies (includingother rights of setoff) which such Secured Party may have. Each Secured Partyagrees promptly to notify such Guarantor and the Agents after making any suchsetoff.

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[SignaturePage Follows]

 

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IN WITNESS WHEREOF, the parties hereto haveduly executed this Agreement as of the day and year first above written.

 
|   | BONLAM (S.C.), INC.                     |
|--------|-----------------------------------------|
|   | CHICOPEE, INC.                          |
|   | DOMINION TEXTILE (USA) INC.             |
|   | FABPRO ORIENTED POLYMERS, INC.          |
|   | FABRENE CORP.                           |
|   | FABRENE GROUP L.L.C.                    |
|   | FIBERGOL CORPORATION                    |
|   | FIBERTECH GROUP, INC.                   |
|   | FNA ACQUISITION, INC.                   |
|   | FNA POLYMER CORP.                       |
|   | LORETEX CORPORATION                     |
|   | PGI EUROPE, INC.                        |
|   | PGI POLYMER, INC.                       |
|   | PNA CORP.                               |
|   | POLY-BOND INC.                          |
|   | POLYIONIX SEPARATION TECHNOLOGIES, INC. |
|   | PRISTINE BRANDS CORPORATION             |
|   | TECHNETICS GROUP, INC.                  |
|   |                                    |
|   |                                    |
|   | By:                                     |   |   |
|   |                                    | Name: |   |
|   |                                    | Title: |   |

 

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|   | CITICORP  NORTH AMERICA, INC., as |
|--------|-----------------------------------|
|   | Administrative  Agent             |
|   |                              |
|   | By:                               |   |   |
|   |                              | Name: |
|   |                              | Title: |

 

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Schedule I totheGuarantee Agreement

 

Guarantors

 
| **Name**                                | ** ** | ** ** |
|-----------------------------------------|------------|------------|
|                                    |       |       |
| Bonlam (S.C.), Inc.                     |       |       |
| Chicopee, Inc.                          |       |       |
| Dominion Textile (USA) Inc.             |       |       |
| FabPro Oriented Polymers, Inc.          |       |       |
| Fabrene Corp.                           |       |       |
| Fabrene Group L.L.C.                    |       |       |
| FiberGol Corporation                    |       |       |
| FiberTech Group, Inc.                   |       |       |
| FNA Acquisition, Inc.                   |       |       |
| FNA Polymer Corp.                       |       |       |
| Loretex Corporation                     |       |       |
| PGI Europe, Inc.                        |       |       |
| PGI Polymer, Inc.                       |       |       |
| PNA Corp.                               |       |       |
| Poly-Bond Inc.                          |       |       |
| PolyIonix Separation Technologies, Inc. |       |       |
| Pristine Brands Corporation             |       |       |
| Technetics Group, Inc.                  |       |       |

 
| **Address/telecopy number for each Guarantor** | ** ** | ** ** |
|--------------------------------------------------------------------|------------|------------|
|                                                               |       |       |
| c/o Polymer Group, Inc.                                            |       |       |
| 4055 Faber Place, Suite 201                                        |       |       |
| North Charleston, South Carolina 29405                             |       |       |
| attention: Willis C. Moore III                                     |       |       |
| (telecopy: 843-329-0415)                                           |       |       |

 

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