November 19, 2020 – The Court hearing the Gorham Paper and Tissue cases issued an order (i) approving bidding procedures for the sale of substantially all of the Debtors assets, (ii) granting bidder protections to Stalking Horse Bidder Gorham Acquisition, LLC (the “Stalking Horse Bidder”) and (iii) approving an auction/sale timetable culminating in an auction on December 15th and a sale hearing on December 18th [Docket No. 112]. The APA, which memorializes the terms of the $8.75mn cash (plus up to $1.5mn DIP credit) opening bid, is attached to the Debtors' bidding procedures motion [Docket No. 53] as Exhibit A.

The Stalking Horse Bidder is an acquisition vehicle formed by Behrens Investment Group which has also agreed to provide the Debtors with $1.5mn of debtor-in-possession ("DIP") financing ($500k of which has already been authorized by an interim DIP order and the balance is to be considered at a December 2nd hearing).

The Debtors' motion states, “The Debtors have determined that, due to cash flow concerns and the monetization process established under the global settlement agreement entered into in the Zohar Funds’ chapter 11 cases, pursing a sale of the Assets pursuant to § 363 of the Bankruptcy Code is the best method for maximizing the value of those Assets for the benefit of creditors. The Debtors, together with their advisors and, in particular, their financial advisor and investment banker, B. Riley Securities (‘B. Riley’), expended significant efforts in the months prior to the Petition Date marketing the Assets. This marketing process included significant mailings and calls to targeted, industry specific, potential buyers that the Debtors and their advisors believed might be interested in discussing a potential purchase of the Assets. Prior to the Petition Date, the Debtors and/or B. Riley: (a) contacted 211 potential bidders; (b) sent form non-disclosure agreements to 137 parties; and (c) executed Acceptable Confidentiality Agreements (as defined in the Stalking Horse Agreement) (the ‘NDAs’) with 71 prospective buyers of the Assets. After receiving indications of interest from several potential buyers that signed NDAs, the Debtors engaged in advanced discussions regarding a potential sale transaction for some or all of the Debtors’ Assets with not less than eight (8) potential buyers over the four (4) months leading up to the Petition Date. The culmination of that process was the execution of the Stalking Horse Agreement.

The Debtors and B. Riley understand that there may be multiple entities, in addition to the Stalking Horse, interested in participating in the Auction with respect to the Assets within the group of parties signing NDAs prior to the Petition Date. Pursuant to the terms of the Stalking Horse Agreement, the Debtors and B. Riley have continued, and will continue, to market the Assets to likely potential buyers through and until entry of the Bid Procedures Order. Further, upon entry of the Bid Procedures Order, the Debtors and B. Riley may and will continue discussions with any party that executed an NDA prior to entry of the Bid Procedures Order, with the goal of having such parties participate in the Auction. The Debtors and B. Riley believe that given the significant prepetition marketing effort, the number of parties that already have executed NDAs, and the fact that B. Riley already has marketed the Assets to the most likely bidders for Assets of the type the Debtors are selling, the prepetition and post-petition marketing process leading up the Auction will be robust and adequate to achieve the greatest possible level of interest and consideration for the Assets in the Chapter 11 Cases.”

Key Terms of Stalking Horse Agreement

• Seller: Gorham Paper
• Purchaser: Gorham Acquisition, LLC
• Purchase Price / Consideration: 

1. $8,750,000.00 in cash payable by means of a completed federal funds wire transfer to an account or accounts designated by Sellers in writing not later than three (3) Business Days prior to the Closing Date, less the Deposit of $1,000,000.00 (a portion of which shall be funded upon approval of the Bid Procedures), which for the avoidance of doubt, constitutes a component of and shall be credited against the Purchase Price on the Closing Date.;
2. a credit bid pursuant to § 363(k) of the Bankruptcy Code of all the DIP Financing Obligations (as defined in the DIP Credit Agreement) held by Purchaser, which may include any DIP Financing Obligations assigned to, and assumed by, the Purchaser by the DIP Lender, if a party other than the Purchaser holds DIP Financing Obligations at any relevant time, which credit bid, for the avoidance of doubt, shall be credited against the Purchase Price on the Closing Date; and
3. the assumption by Purchaser of the Assumed Liabilities, which shall include the indebtedness owed by White Mountain to the Bank of New Hampshire.

• Bidder Protections:
  • Break-Up/Topping: As set forth in the Stalking Horse Agreement and the Bid Procedures Order, the Debtors have agreed to pay, subject to this Court’s approval, a break-up fee of $300,000.00 payable to the Stalking Horse Bidder in the event that the Stalking Horse Bidder is not selected as the Successful Bidder in accordance with the terms of the Bid Procedures (the “Break-Up Fee”) and this Court authorizes the Debtors to enter into a purchase agreement documenting the same with a different Qualified Bidder.
  • Fees and Expense Reimbursement: As set forth in the Stalking Horse Agreement and the Bid Procedures Order, the Debtors have agreed to pay, subject to this Court’s approval, expense reimbursement to the Stalking Horse Bidder if the Stalking Horse Bidder is not the Successful Bidder of up to $100,000.00, which amount is limited to legal fees and hard costs incurred after execution of Stalking Horse Agreement, provided, however, that if the hearing before the Bankruptcy Court regarding DIP Financing is contested, the expense reimbursement shall increase from $100,000.00 to $125,000.00 (the “Expense Reimbursement”).
  • Minimum Overbid Protections: Subject to this Court’s approval, and as a condition of the Stalking Horse Bidder entering into the Stalking Horse Agreement, no offer for any of the Stalking Horse Assets shall be accepted by the Debtors unless the proposed purchase price equals or exceeds the Purchase Price for the Stalking Horse Assets by the sum of (the “Minimum Overbid”): (i) the Break-Up Fee ($300,000.00); plus (ii) the Expense Reimbursement (up to $100,000.00); plus (iii) $75,000.00, provided, however, that if the Expense Reimbursement is increased to $125,000.00, the Minimum Overbid shall increase to up the same amount (collectively, the “Overbid Protections”) (as set forth in the Stalking Horse Agreement).
• Milestones (these derived from the DIP agreement): The Borrowers shall comply with the following Sale Milestones stated in Section 6.14 of the DIP Facility Agreement:
  1. No later than two (2) Business Days after the Petition Date, the Borrowers shall file a motion in form and substance acceptable to the Lender establishing the Bid Procedures (the “Bid Procedures Motion”) and seeking to approve that certain Asset Purchase Agreement dated November [__], 2020 between the Borrowers and the Lender (the “Asset Purchase Agreement”) and the bid protections contemplated therein (it being understood that such motion may be combined with the Bid Procedures Motion).
  2. The Borrowers shall engage in best efforts to obtain entry of an order no later than sixteen (16) days after the Petition Date, in form and substance satisfactory to the Lender, approving the Bid Procedures Motion.
  3. By no later than two (2) Business Days prior to the Sale Order Date (as defined below) (the “Auction Date”), the Borrowers shall conduct an auction of the Borrowers’ assets to the extent more than one (1) Qualifying Bid shall have been received.
  4. By no later than December 18, 2020 (the “Sale Order Date”), the Borrowers shall cause the Bankruptcy Court to have entered an order, in form and substance satisfactory to the Lender, approving the sale pursuant to the terms of the Asset Purchase Agreement.
  5. By no later than December 31, 2020, the Borrowers shall close the Court approved sale under the Asset Purchase Agreement.

Key Dates:

• Sale Objection Deadline: December 9, 2020
• Bid Deadline: December 11, 2020
• Deadline for the Debtors to file and serve the Supplemental Assumption Notice (if any): December 12, 2020
• Auction: December 15, 2020
• Deadline for the Debtors to file notice of Successful Bidder with the Court: December 16, 2020
• Sale Hearing: December 18, 2020

About the Debtors

According to the Debtors: “Gorham Paper and Tissue started in May of 2011 when funds managed by Patriarch Partners purchased the former Fraser Papers facility. The legacy of Gorham is extensive, dating back to 1852 when the operation opened as a saw mill. Over the years, numerous companies owned the operation, building a foundation of process, innovation and papermaking expertise. 

The Arnold Declaration adds: "The Debtors manufacture towel and tissue parent rolls for “at-home” and “away-from-home” (i.e., commercial or industrial) markets.

For the at-home market, the Debtors manufacture parent rolls for the production of bath, facial tissue, towels, napkins, and other paper products. For the away-from-home market, the Debtors manufacture parent rolls for the production of industrial towels and wipes, hard wound towels, and multi-fold towels. For at- home, bath and tissue products, production is run through the “TM06” dry crepe tissue machine, which was purchased in 2012 by WMT and has an annual capacity of 36,000 tons/year. Production for away-from-home products is run through the “PM09” towel machine owned by GPT.

The Debtors’ site, which encompasses over 60 acres along the Androscoggin River in Gorham, Coos County, New Hampshire, also includes pipelines, warehousing space, multiple boilers, and a waste treatment center. Overall, the mill facility can support more than 150,000 tons of product per year. The Debtors experienced total net sales in FY2019 of $31,900,000.00 in the at-home market and $23,401,800.00 in the away-from-home market.

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