Exhibit 10.2


 


PANOLAM INDUSTRIES
INTERNATIONAL, INC.


 


FIRST AMENDMENT TO CREDIT
AGREEMENT AND WAIVER


 


This FIRST  AMENDMENT TO CREDIT AGREEMENT  AND WAIVER (this
“Amendment”) is dated as of February 27,
2006 and entered into by and among Panolam Industries International, Inc.,
a Delaware corporation, as successor by merger to PIH Acquisition Co. (“Company”), Panolam Holdings II Co., a Delaware corporation (“Holdings”), the financial institutions listed on the
signature pages hereof (“Lenders”),
Credit Suisse, Cayman Islands Branch, as administrative agent for Lenders (“Administrative Agent”),
and, solely for purposes of Section 5 hereof, the Credit Support Parties (as
defined in Section 5 hereof) listed on the signature pages hereof,
and is made with reference to that certain Credit Agreement dated as of September 30,
2005 (the “Credit Agreement”), by and among
Company, Holdings, Lenders, Jefferies & Company, Inc., as
syndication agent for Lenders (“Syndication Agent”)
and Administrative Agent.  Capitalized
terms used herein without definition shall have the same meanings herein as set
forth in the Credit Agreement.


 


RECITALS


 


WHEREAS, Company
and Lenders desire to (A) amend the Credit Agreement to (i) increase
the amount by which the aggregate principal amount of the Term Loans may be
increased at Company’s option under subsection 2.1A(iv) by $5,000,000,
(ii) increase the aggregate amount of the Revolving Loan Commitments by
$10,000,000, (iii) amend subsection 1.2B regarding pro forma
adjustments in connection with Permitted Acquisitions, (iv) increase the
maximum Consolidated Leverage Ratio for Fiscal Year 2006 and the first two
Fiscal Quarters of Fiscal Year 2007, and (v) make certain other amendments
as set forth below and (B) waive Company’s non-compliance with the Consolidated
Capital Expenditures covenant for the period ending December 31, 2005;


 


NOW, THEREFORE, in consideration
of the premises and the agreements, provisions and covenants herein contained,
the parties hereto agree as follows:


 


Section 1.              AMENDMENTS
TO THE CREDIT AGREEMENT


 


1.1                               Amendments
to Section 1.2: Accounting Terms; Utilization of GAAP for Purposes of
Calculations Under Agreement


 


A.  Pro
Forma Adjustments. 
Section 1.2B of the Credit Agreement is hereby amended by adding
the following parenthetical immediately before the period at the end thereof:


 


“(or, in the case of pro forma adjustments arising out
of annual operating expense reductions attributable to a Permitted Acquisition,
such longer period as is acceptable to the Administrative Agent)”


 

















 


1.2          Amendments
to Section 2: Amounts and Terms of Commitments and Loans


 


A.  Revolving
Loans.  Subsection 2.1A(ii) of
the Credit Agreement is hereby amended by deleting the reference to “$20,000,000”
contained therein and substituting “$30,000,000” therefor.


 


B.  Increases
of Term Loan Commitments.   Subsection 2.1A(iv) of the Credit
Agreement is hereby amended by deleting the reference to “$75,000,000”
appearing therein and substituting “$80,000,000” therefor.


 


1.3          Amendments
to Section 7: Negative Covenants


 


A.  Maximum
Leverage Ratio. 
Subsection 7.6B of the Credit Agreement is hereby amended by
deleting the table set forth therein in its entirety and substituting the
following therefor:


 


	
  “Period

  	
   

  	
  Maximum Leverage Ratio

  	
   

  
	
   

  	
   

  	
   

  	
   

  
	
  4th Fiscal Quarter of Fiscal Year 2005

  	
   

  	
  6.00:1.00

  	
   

  
	
   

  	
   

  	
   

  	
   

  
	
  1st Fiscal Quarter of Fiscal Year 2006

  	
   

  	
  6.25:1.00

  	
   

  
	
  2nd Fiscal Quarter of Fiscal Year 2006

  	
   

  	
  6.25:1.00

  	
   

  
	
  3rd Fiscal Quarter of Fiscal Year 2006

  	
   

  	
  6.25:1.00

  	
   

  
	
  4th Fiscal Quarter of Fiscal Year 2006

  	
   

  	
  6.25:1.00

  	
   

  
	
   

  	
   

  	
   

  	
   

  
	
  1st Fiscal Quarter of Fiscal Year 2007

  	
   

  	
  5.75:1.00

  	
   

  
	
  2nd Fiscal Quarter of Fiscal Year 2007

  	
   

  	
  5.75:1.00

  	
   

  
	
  3rd Fiscal Quarter of Fiscal Year 2007

  	
   

  	
  5.50:1.00

  	
   

  
	
  4th Fiscal Quarter of Fiscal Year 2007

  	
   

  	
  5.50:1.00

  	
   

  
	
   

  	
   

  	
   

  	
   

  
	
  1st Fiscal Quarter of Fiscal Year 2008

  	
   

  	
  5.00:1.00

  	
   

  
	
  2nd Fiscal Quarter of Fiscal Year 2008

  	
   

  	
  5.00:1.00

  	
   

  
	
  3rd Fiscal Quarter of Fiscal Year 2008

  	
   

  	
  5.00:1.00

  	
   

  
	
  4th Fiscal Quarter of Fiscal Year 2008

  	
   

  	
  5.00:1.00

  	
   

  
	
   

  	
   

  	
   

  	
   

  
	
  1st Fiscal Quarter of Fiscal Year 2009

  	
   

  	
  4.50:1.00

  	
   

  
	
  2nd Fiscal Quarter of Fiscal Year 2009

  	
   

  	
  4.50:1.00

  	
   

  
	
  3rd Fiscal Quarter of Fiscal Year 2009

  	
   

  	
  4.50:1.00

  	
   

  
	
  4th Fiscal Quarter of Fiscal Year 2009

  	
   

  	
  4.50:1.00

  	
   

  
	
   

  	
   

  	
   

  	
   

  
	
  1st Fiscal Quarter of Fiscal Year 2010
  and each Fiscal Quarter thereafter

  	
   

  	
  4.00:1.00”

  	
   

  



 

















 


Section 2.              WAIVER


 


The undersigned Lenders, constituting Requisite
Lenders under the Credit Agreement, hereby waive compliance with the provisions
of subsection 7.8 of the Credit Agreement to the extent, and only to the
extent, that Consolidated Capital Expenditures made during Fiscal Year 2005
exceeded the Maximum Consolidated Capital Expenditures Amount for such Fiscal
Year set forth in subsection 7.8 of the Credit Agreement; provided
that the aggregate amount of Consolidated Capital Expenditures made by Company
and its Subsidiaries during Fiscal Year 2005 shall not have exceeded $9,500,000.


 


Without
limiting the generality of the provisions of subsection 10.6 of the Credit
Agreement, the waiver set forth herein shall be limited precisely as written
and relates solely to the noncompliance by Company with the provisions of subsection 7.8
of the Credit Agreement with respect to Fiscal Year 2005 in the manner and to
the extent described above, and nothing in this Section 2 shall be deemed
to (a) constitute a waiver of compliance by Company with respect to (i) any
such subsection of the Credit Agreement in any other instance or (ii) any
other term, provision or condition of the Credit Agreement or any other
instrument or agreement referred to therein or (b) prejudice any right or
remedy that Administrative Agent or any Lender may now have (except to the
extent such right or remedy was based upon existing defaults that will not
exist after giving effect to this Amendment) or may have in the future under or
in connection with the Credit Agreement or any other instrument or agreement
referred to therein.  Except as expressly
set forth in this Amendment, the terms, provisions and conditions of the Credit
Agreement and the other Loan Documents shall remain in full force and effect and
in all other respects are hereby ratified and confirmed.


 


Section 3.              CONDITIONS
TO EFFECTIVENESS


 


3.1          Conditions
to Effectiveness of Sections 1 and 2.


 


Section 1 (other than Section 1.2A) and Section 2
of this Amendment shall become effective only upon the satisfaction of all of
the following conditions precedent (the date of satisfaction of such conditions
being referred to herein as the “First Amendment Effective
Date”):


 


A.  On
or before the First Amendment Effective Date, Company shall deliver to Administrative
Agent copies of this Amendment, executed by Company and each Credit Support
Party.


 


B.  On
or before the First Amendment Effective Date, Administrative Agent and
Requisite Lenders shall have executed copies of this Amendment.


 

















 


3.2          Conditions
to Effectiveness of Section 1.2A - Revolving Loans.


 


Section 1.2A of this Amendment shall become
effective only upon the satisfaction of all of the following conditions
precedent (the date of satisfaction of such conditions being referred to herein
as the “Revolving Loan Increase Effective Date”):


 


A.  On
or before the Revolving Loan Increase Effective Date, Company shall deliver to
Administrative Agent copies of this Amendment, executed by Company and each
Credit Support Party.


 


B.  On
or before the Revolving Loan Increase Effective Date, Administrative Agent and
Requisite Lenders shall have executed copies of this Amendment.


 


C.  On
or before the Revolving Loan Increase Effective Date, new or existing Revolving
Lenders shall have made, and Administrative Agent and Company shall have
accepted, additional Revolving Loan Commitments in an aggregate amount of
$10,000,000.


 


3.3          Deemed
Assignments; Adjustment of Pro Rata Shares.


 


A.  On
the Revolving Loan Increase Effective Date, the Revolving Loan Commitments, Pro
Rata Shares and outstanding Revolving Loans of each existing Revolving Lender
will be adjusted to give effect to the increase in the Revolving Loan
Commitments and the addition of one or more Lenders making new Revolving Loan
Commitments.  Each Revolving Lender
acknowledges that on the Revolving Loan Increase Effective Date, (i) each
existing Revolving Lender that is not increasing its Pro Rata Share of the
Revolving Loan Commitments will be deemed to have assigned an appropriate
portion of its Revolving Loan Commitments and outstanding Revolving Loans to
Administrative Agent and (ii) immediately thereafter, Administrative Agent
will be deemed to have assigned to each new Revolving Lender and existing
Revolving Lender that is increasing its Pro Rata Share of the Revolving Loan
Commitments its new or increased portion of the outstanding Revolving Loans and
the Revolving Loan Commitments. 
Administrative Agent will notify each Revolving Lender of its Pro Rata
Share of the Revolving Loans and Revolving Loan Commitments, as so
adjusted.  On or before the Revolving
Loan Increase Effective Date, each new Revolving Lender and each Revolving
Lender increasing its Pro Rata Share of the outstanding Revolving Loans in
connection with this Amendment shall deliver funds representing the amount of
its increase to Administrative Agent, for distribution to each Revolving Lender
whose Pro Rata Share decreased as a result of this Amendment.  To the extent that any such adjustment of Pro
Rata Shares results in losses or expenses to any Lender as a result of the
prepayment of any Eurodollar Rate Loan on a date other than the scheduled last
day of the applicable Interest Period, Company acknowledges that it shall be
responsible for such losses or expenses pursuant to subsection 2.6D of the
Credit Agreement.


 

















 


Section 4.              COMPANY’S
AND HOLDINGS’ REPRESENTATIONS AND WARRANTIES


 


In order to induce Lenders to enter into this
Amendment and to amend the Credit Agreement in the manner provided herein,
Company and Holdings represent and warrant to each Lender the following:


 


A.  Corporate
Power and Authority. 
Company and Holdings have all requisite corporate power and authority to
enter into this Amendment and to carry out the transactions contemplated by,
and perform their obligations under, the Credit Agreement as amended by this
Amendment (the “Amended Agreement”).


 


B.  Authorization
of Agreements.  The
execution and delivery of this Amendment and the performance of the Amended
Agreement have been duly authorized by all necessary corporate action on the
part of Company and Holdings.


 


C.  No
Conflict.  The
execution and delivery by Company and Holdings of this Amendment do not and
will not (i) violate any provision of any law or any governmental rule or
regulation applicable to Company or any other Loan Party, the Organizational
Documents of Company or any other Loan Party or any order, judgment or decree
of any court or other agency of government binding on Company or any other Loan
Party, (ii) conflict with, result in a breach of or constitute (with due
notice or lapse of time or both) a default under any Contractual Obligation of
Company or any other Loan Party, (iii) result in or require the creation
or imposition of any Lien upon any of the properties or assets of Company or
any other Loan Party (other than Liens created under any of the Loan Documents
in favor of Administrative Agent on behalf of Lenders), or (iv) require
any approval of stockholders or any approval or consent of any Person under any
Contractual Obligation of Company or any other Loan Party, except for such
approvals or consents which will be obtained on or before each of the First
Amendment Effective Date and the Revolving Loan Increase Effective Date and
except, in each case, to the extent such violation, conflict, Lien or failure
to obtain such approval or consent could not reasonably be expected to have a
Material Adverse Effect.


 


D.  Governmental
Consents.  The
execution and delivery by Company and Holdings and the performance by Company and
Holdings of the Amended Agreement do not and will not require any Governmental
Authorization.


 


E.  Binding
Obligation.  This
Amendment has been duly executed and delivered by Company and Holdings and this
Amendment and the Amended Agreement are the legally valid and binding obligations
of Company and Holdings, enforceable against Company and Holdings in accordance
with their respective terms, except as may be limited by bankruptcy,
insolvency, reorganization, receivership, moratorium or similar laws relating
to or limiting creditors’ rights generally or by equitable principles relating
to enforceability.


 


F.  Incorporation
of Representations and Warranties From Credit Agreement.  The representations and warranties contained
in Section 5 of the Credit


 

















 


Agreement are and will be
true, correct and complete in all material respects on and as of each of the First
Amendment Effective Date and the Revolving Loan Increase Effective Date to the
same extent as though made on and as of each such date, except to the extent
such representations and warranties specifically relate to an earlier date, in
which case they were true, correct and complete in all material respects on and
as of such earlier date.


 


G.  Absence
of Default.  No event
has occurred and is continuing or will result from the consummation of the
transactions contemplated by this Amendment that would constitute an Event of
Default or a Potential Event of Default, except as shall be waived hereby.


 


Section 5.              ACKNOWLEDGEMENT
AND CONSENT


 


Holdings, each Guarantor (as defined in the
Guaranties) and each Grantor (as defined in the Security Agreement) (such
Guarantors and Grantors together with Holdings, the “Credit
Support Parties”) each hereby acknowledges and agrees that the
Guaranties and Collateral Documents (each, a “Credit
Support Document”) to which it is a party or otherwise bound shall
continue in full force and effect and that all of its obligations thereunder
shall be valid and enforceable and shall not be impaired or limited by the
execution or effectiveness of this Amendment. 
Each Credit Support Party represents and warrants that all
representations and warranties contained in the Amended Agreement and the
Credit Support Documents to which it is a party or otherwise bound are true,
correct and complete in all material respects on and as of the First Amendment
Effective Date and the Revolving Loan Increase Effective Date to the same
extent as though made on and as of that date, except to the extent such
representations and warranties specifically relate to an earlier date, in which
case they were true, correct and complete in all material respects on and as of
such earlier date.


 


Each Credit Support Party acknowledges and agrees that
(i) notwithstanding the conditions to effectiveness set forth in this
Amendment, such Credit Support Party is not required by the terms of the Credit
Agreement or any other Loan Document to consent to the amendments to the Credit
Agreement effected pursuant to this Amendment and (ii) nothing in the
Credit Agreement, this Amendment or any other Loan Document shall be deemed to
require the consent of such Credit Support Party to any future amendments to
the Credit Agreement.


 


Section 6.              MISCELLANEOUS


 


A.  Reference
to and Effect on the Credit Agreement and the Other Loan Documents.


 


(i)            On
and after each of the First Amendment Effective Date and the Revolving Loan
Increase Effective Date, each reference in the Credit Agreement to “this
Agreement”, “hereunder”, “hereof”, “herein” or words of like import referring
to the Credit Agreement, and each reference in the other Loan Documents to the “Credit


 

















 


Agreement”, “thereunder”, “thereof” or words of like
import referring to the Credit Agreement shall mean and be a reference to the Credit
Agreement, as amended hereby as of such date.


 


(ii)           Except
as specifically amended by this Amendment, the Credit Agreement and the other
Loan Documents shall remain in full force and effect and are hereby ratified
and confirmed.


 


(iii)          The
execution, delivery and performance of this Amendment shall not, except as
expressly provided herein, constitute a waiver of any provision of, or operate
as a waiver of any right, power or remedy of Administrative Agent or any Lender
under, the Credit Agreement or any of the other Loan Documents.


 


B.  Fees and
Expenses.  Company
acknowledges that all costs, fees and expenses as described in subsection 10.2
of the Credit Agreement incurred by Administrative Agent and its counsel with
respect to this Amendment and the documents and transactions contemplated
hereby shall be for the account of Company.


 


C.  Headings.  Section and subsection headings in
this Amendment are included herein for convenience of reference only and shall
not constitute a part of this Amendment for any other purpose or be given any
substantive effect.


 


D.  Applicable
Law.  THIS AMENDMENT AND THE RIGHTS AND
OBLIGATIONS OF THE PARTIES HEREUNDER SHALL BE GOVERNED BY, AND SHALL BE
CONSTRUED AND ENFORCED IN ACCORDANCE WITH, THE INTERNAL LAWS OF THE STATE OF
NEW YORK (INCLUDING WITHOUT LIMITATION SECTION 5-1401 OF THE GENERAL
OBLIGATIONS LAW OF THE STATE OF NEW YORK), WITHOUT REGARD TO CONFLICTS OF LAWS
PRINCIPLES THAT WOULD REQUIRE APPLICATION OF ANOTHER LAW.


 


E.  Counterparts;
Effectiveness.  This
Amendment may be executed in any number of counterparts and by different parties
hereto in separate counterparts, each of which when so executed and delivered
shall be deemed an original, but all such counterparts together shall
constitute but one and the same instrument; signature pages may be
detached from multiple separate counterparts and attached to a single
counterpart so that all signature pages are physically attached to the
same document.  This Amendment (other
than (i) the provisions of Sections 1 and 2 hereof, the effectiveness of
which is governed by Section 3 hereof, and (ii) the provisions of Section 5
hereof, which shall become effective upon execution of a counterpart hereof by
each of the Credit Support Parties) shall become effective upon the execution
of a counterpart hereof by Company, Holdings and the Requisite Lenders and
receipt by Company and Administrative Agent of written or telephonic
notification of such execution and authorization of delivery thereof.


 


[Remainder of page intentionally left blank]


 

















 


IN WITNESS WHEREOF, the parties
hereto have caused this Amendment to be duly executed and delivered by their
respective officers thereunto duly authorized as of the date first written
above.


 


	
   

  	
  PANOLAM INDUSTRIES

  
	
   

  	
  INTERNATIONAL, INC.

  
	
   

  	
   

  
	
   

  	
   

  
	
   

  	
  /s/ Robert J. Muller,
  Jr.

  	
   

  
	
   

  	
  Name:

  	
  Robert J. Muller

  	
   

  
	
   

  	
  Title:

  	
  Chairman, President
  & CEO

  	
   

  
	
   

  	
   

  
	
   

  	
   

  
	
   

  	
  PANOLAM HOLDINGS II CO.

  
	
   

  	
   

  
	
   

  	
   

  
	
   

  	
  /s/ Robert J. Muller,
  Jr.

  	
   

  
	
   

  	
  Name:

  	
  Robert J. Muller

  	
   

  
	
   

  	
  Title:

  	
  Chairman, President
  & CEO

  	
   

  
	
   

  	
   

  
	
   

  	
   

  
	
   

  	
  For purposes of
  Section 5 only, as a

  
	
   

  	
  Credit Support Party:

  
	
   

  	
   

  
	
   

  	
  PANOLAM INDUSTRIES,
  INC.

  
	
   

  	
  PIONEER PLASTICS
  CORPORATION

  
	
   

  	
   

  
	
   

  	
   

  
	
   

  	
  /s/ Robert J. Muller,
  Jr.

  	
   

  
	
   

  	
  Name:

  	
  Robert J. Muller

  	
   

  
	
   

  	
  Title:

  	
  Chairman, President
  & CEO

  	
   

  
						



 

















 


	
   

  	
  CREDIT SUISSE, Cayman
  Islands

  
	
   

  	
  Branch, individually as
  a Lender

  
	
   

  	
  and as Administrative
  Agent

  
	
   

  	
   

  
	
   

  	
   

  
	
   

  	
  /s/ William O’Daly

  	
   

  
	
   

  	
  Name:

  	
  William O’Daly

  	
   

  
	
   

  	
  Title:

  	
  Director

  	
   

  
	
   

  	
   

  
	
   

  	
   

  
	
   

  	
  /s/ Rianka Mohan

  	
   

  
	
   

  	
  Name:

  	
  Rianka Mohan

  	
   

  
	
   

  	
  Title:

  	
  Associate