Exhibit 10.12


 


	
  

  	
   

  	
  

  



 


 


September 30, 2005


 


 


Panolam
Holdings Co.

20 Progress Drive

Shelton, CT 06484


 


Re:          Advisory Services
Agreement


 


Ladies and Gentlemen:


 


This letter serves to confirm the retention of Genstar Capital LLC (“Genstar”) and The Sterling Group, L.P. (“Sterling”, and together with Genstar, the “Advisors”)  by Panolam
Holdings Co. (the “Company” or “you”) to provide management, consulting and financial
services to the Company as follows:


 


1.             The Company has
retained the Advisors, and the Advisors hereby agree to accept such retention,
to provide to the Company, when and if called upon, certain management,
business strategy, consulting and financial services of the type customarily
performed by the Advisors, including assisting the Company in analyzing,
structuring, negotiating and effecting Transactions (as defined below).


 


2.             You agree to pay
the Advisors the following:


 


(a)           In
consideration of services provided by the Advisors in connection with the
merger of PIH Acquisition Co. (“Merger Sub”)
with and into Panolam Industries Holdings, Inc. (“Panolam”)
pursuant to that certain Agreement and Plan of Merger, dated as of July 16,
2005 (the “Merger Agreement”), by and among
Panolam, GS Holdings Co., Merger Sub and TC Group, L.L.C. and the related financing
transactions, the Company shall pay to the Advisors a fee of $7,000,000 in cash
concurrently with the consummation of the purchase contemplated by the Merger
Agreement (the “Closing Fee”) and reimburse all of
the Advisors expenses incurred by and on behalf of the Advisors in connection
with the Merger Agreement and the transactions contemplated thereby.


 


(b)           In
consideration for the services provided by the Advisors hereunder, the Company
shall pay to the Advisors an annual management fee of $1,500,000 (the “Consulting Fee”). The Consulting Fee shall be payable in
equal quarterly installments in arrears on the last day of each calendar
quarter (i.e., the last day of March, June, September and December of each such
year). Such quarterly payments shall be (i) subject to withholding as required
by applicable law and (ii) prorated for partial periods based on the actual
number of days during such calendar quarter that the Advisors are retained
hereunder.


 

















 


(c)           In
addition to the Advisors’ fees for advisory services, the Advisors will
separately bill their expenses as incurred. Generally, these expenses include
travel costs, document production costs, the reasonable fees and disbursements
of the Advisors’ legal counsel, tax, financial and other advisors, and other
expenses of this type. The Company agrees to reimburse the Advisors, upon
request made from time to time, for such expenses.


 


(d)           In
the event a Transaction (as defined below) is consummated, the Company agrees
to pay the Advisors an advisory fee equal to 2.0% of the Aggregate
Consideration (as defined below) in connection with the Transaction (the “Advisory Fee”). The Advisory Fee will be fully earned on the
date of closing of the Transaction and shall be payable by the Company to the
Advisors in cash on the date of closing. Notwithstanding the prior sentence,
should the Company be unable to pay the Advisory Fee at the closing of such
Transaction due to restrictions or covenants placed upon the Company or its
subsidiaries under any agreements governing its indebtedness, such payments
shall accrue and be payable to the Advisors at such time as such restrictions
or covenants are no longer in effect.


 


(e)           For
purposes of this agreement, a “Transaction”
shall mean (i) the consummation of any transaction involving the direct or
indirect acquisition by the Company or any of its direct or indirect
subsidiaries (whether in one or a series of transactions) of all or a
substantial amount of the assets or the capital stock, voting securities or
equity interests of another entity, as well as any merger, recapitalization,
restructuring or liquidation of another entity by its current owners, a third
party or any combination thereof, or any other form of disposition which
results in the effective sale, in whole or in part, of the business or
operations of the entity to the Company or any of its direct or indirect
subsidiaries (a transaction described in this clause (i), an “Acquisition”), or (ii) the consummation of any transaction
involving the direct or indirect disposition by the Company or any of its
direct or indirect subsidiaries (whether in one or a series of transactions) of
all or a substantial amount of its assets, capital stock, voting securities or
equity interests, as well as any merger, recapitalization, restructuring or
liquidation of the Company or any of its direct or indirect subsidiaries by
their current owners, a third party or any combination thereof, or any other
form of disposition which results in the effective sale, in whole or in part,
of the business or operations of the Company or any of its direct or indirect
subsidiaries to another entity (a transaction described in this clause (ii), a
“Disposition”). For the avoidance of
doubt, a Transaction shall not include any transaction directly related to the
Merger Agreement.


 


For purposes of this agreement, “Aggregate Consideration” shall mean (i) in connection with
an Acquisition, the total fair market value (at the time of closing) of all
consideration (including cash, securities, property, all debt remaining on the
acquired entity’s financial statements immediately prior to closing and other
indebtedness and obligations assumed by the Company or any of its direct or
indirect subsidiaries, as applicable, and any other form of consideration) paid
or payable, or otherwise to be distributed, directly or indirectly in
connection with the Transaction and (ii) in connection with a Disposition, the
total fair market value (at the time of closing) of all consideration
(including cash, securities, property, all debt remaining on the Company’s or
any of its 


 


2

















 


direct or indirect subsidiaries’ financial statements, as applicable,
immediately prior to closing and other indebtedness and obligations assumed by
the purchaser and any other form of consideration) paid or payable, or
otherwise to be distributed, directly or indirectly in connection with the
Transaction.


 


3.             Any amounts payable
to the Advisors under this agreement shall be paid in the manner set forth in
writing in any Payment Instruction Letter signed by each of the Advisors.


 


4.             The terms of this
agreement are effective beginning as of the date first set forth above. This
agreement shall continue in effect from year to year unless amended or terminated
by the mutual consent of the parties hereto. Each of the Advisors services
hereunder may also be terminated with or without cause by such Advisor at any
time and without liability or continuing obligation to you or the Advisors,
except for any compensation earned and expenses incurred by the Advisors to the
date of termination and provided that Attachment A (and any other
provisions that by their nature continue to have effect following any such
termination) will remain operative regardless of any such termination.


 


5.             The Company agrees
to indemnify the Advisors and certain other Indemnified Persons (as defined
therein) as provided on Attachment A, which forms an integral part of
this agreement.


 


6.             Any advice or
opinions provided by the Advisors may not be disclosed or referred to publicly
or to any third party (other than the Company’s legal, tax, financial or other
advisors), except in accordance with their prior written consent.


 


7.             The Advisors shall
act as independent contractors, with duties solely to the Company. The
provisions hereof shall inure to the benefit of and shall be binding upon the
parties hereto and their respective successors and assigns. Nothing in this
agreement, expressed or implied, is intended to confer on any person other than
the parties hereto or their respective successors and assigns, and, to the
extent expressly set forth herein, the Indemnified Persons, any rights or
remedies under or by reason of this agreement. Without limiting the generality
of the foregoing, the parties acknowledge that nothing in this agreement,
expressed or implied, is intended to confer on any present or future holders of
any securities of the Company or its subsidiaries or affiliates, or any present
or future creditor of the Company or its subsidiaries or affiliates, any rights
or remedies under or by reason of this agreement or any performance hereunder.


 


8.             This agreement
shall be governed by and construed in accordance with the laws of New York,
without regard to principles of conflicts of law.


 


9.             If any term or
provision of this agreement or the application thereof shall, in any
jurisdiction and to any extent, be invalid and unenforceable, such term or
provision shall be ineffective, as to such jurisdiction, solely to the extent
of such invalidity or unenforceability without rendering invalid or
unenforceable any remaining terms or provisions hereof or affecting the
validity or enforceability of such term or provision in any other jurisdiction.
To the extent permitted by applicable law, the parties hereto waive any
provision of law that renders any term or provision of this agreement invalid
or unenforceable in any respect.


 


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10.           THE PARTIES HERETO
WAIVE ALL RIGHT TO TRIAL BY JURY IN ANY ACTION, PROCEEDING OR COUNTERCLAIM
(WHETHER BASED UPON CONTRACT, TORT OR OTHERWISE) RELATED TO OR ARISING OUT OF
THE ADVISORS RETENTION PURSUANT TO, OR THE ADVISORS PERFORMANCE OF THE SERVICES
CONTEMPLATED BY, THIS AGREEMENT.


 


11.           This agreement may
be amended, modified or supplemented only by a written instrument executed by
all parties. The section and other headings contained in this agreement are for
reference purposes only and shall not affect the meaning or interpretation of
this agreement. This agreement may be executed in any number of counterparts,
each of which shall be deemed to be an original and all of which together shall
be deemed to be one and the same instrument.


 


12.           Notwithstanding any
provision hereof, none of the Advisors obligations or their affiliates’
obligations under this agreement shall be an obligation of the Advisors’ or
their affiliates’ officers, directors, members, limited partners or general
partners (or of any officer, director, member, limited partner or general
partner of any member, limited partner or general partner of any of the
foregoing entities). Any such liability or obligation arising out of this
agreement shall be limited to and satisfied only out of the Advisors assets or
the assets of their affiliates, as applicable.


 


 


*     *    
*     *     *


 


4

















 


If the foregoing sets forth the understanding between the parties,
please so indicate on the enclosed signed copy of this letter in the space
provided therefor and return it to the Advisors, whereupon this letter shall
constitute a binding agreement.


 


 


	
   

  	
  Very
  truly yours,

  
	
   

  	
   

  
	
   

  	
  Genstar Capital LLC

  
	
   

  	
   

  
	
   

  	
   

  
	
   

  	
  By:

  	
  /s/
  DARREN J. GOLD

  	
   

  
	
   

  	
   

  	
  Name:
   Darren J. Gold

  
	
   

  	
   

  	
  Title:
   Principal

  
	
   

  	
   

  	
  Address:

  	
  Four
  Embarcadero Center

  
	
   

  	
   

  	
   

  	
  Suite
  1900

  
	
   

  	
   

  	
   

  	
  San
  Francisco, CA 94111

  
					



 


 


ADVISORY SERVICES AGREEMENT – SIGNATURE PAGE


 

















 


	
   

  	
  The
  Sterling Group, L.P.

  
	
   

  	
   

  
	
   

  	
   

  
	
   

  	
  By:

  	
  /s/ JOHN D. HAWKINS

  	
   

  
	
   

  	
   

  
	
   

  	
   

  	
  Name:
   John D. Hawkins

  
	
   

  	
   

  	
  Title:
   Principal

  
	
   

  	
   

  	
  Address:

  	
  Eight
  Greenway Plaza

  
	
   

  	
   

  	
   

  	
  Suite
  702

  
	
   

  	
   

  	
   

  	
  Houston,
  TX 77046

  
					



 


 


ADVISORY SERVICES AGREEMENT – SIGNATURE PAGE


 

















 


	
  AGREED TO AND ACCEPTED

  	
   

  
	
   

  	
   

  
	
  Panolam Holdings Co.

  	
   

  
	
   

  	
   

  
	
   

  	
   

  
	
  By: 

  	
  /s/ ROBERT MULLER

  	
   

  	
   

  
	
   

  	
  Name: Robert Muller

  	
   

  
	
   

  	
  Title: Chief Executive Officer

  	
   

  
				



 


 


ADVISORY SERVICES AGREEMENT – SIGNATURE PAGE


 

















 


ATTACHMENT A


 


Terms of Indemnity


 


This Attachment A is attached to and forms an integral part of
that certain letter dated September 30, 2005 from Genstar Capital LLC and The
Sterling Group, L.P. (together the “Advisors”), to
you, Panolam Holdings Co., regarding our Advisory Services Agreement (the “Advisory Services Agreement”).


 


In consideration of the Advisors agreement to provide you with certain
services as set forth in the Advisory Services Agreement, you agree to
indemnify and hold harmless the Advisors and their affiliates and their
respective officers, directors, employees, agents and advisors and each other
person, if any, controlling the Advisors or any of their affiliates (each such
person, including ourselves, being an “Indemnified Person”)
from and against any losses, claims, damages or liabilities related to, or
arising out of, any Transaction (as defined in the Advisory Services Agreement)
or the Advisors engagement by you pursuant to, and their performance of
services as contemplated by, the Advisory Services Agreement and you will
reimburse each Indemnified Person for all expenses (including reasonable fees
and expenses of counsel) as they are incurred in connection with investigating,
preparing, pursuing or defending any action, claim, suit, investigation or proceeding
arising therefrom, whether or not pending or threatened and whether or not any
Indemnified Person is a party. You also agree that no Indemnified Person shall
have any liability (whether direct or indirect, in contract or tort or
otherwise) to you or your security holders or creditors related to or arising
out of the Advisors engagement pursuant to, and their performance of services
as contemplated by, the Advisory Services Agreement, except for any such
liability for losses, claims, damages or liabilities incurred by you that are
finally judicially determined to have resulted from bad faith or gross
negligence of such Indemnified Person.


 


You will not, without the Advisors prior written consent, settle,
compromise, consent to the entry of judgment in or otherwise seek to terminate
any action, claim, suit or proceeding in respect of which indemnification may
be sought hereunder (whether or not any Indemnified Person is a party thereto)
unless such settlement, compromise, consent or termination includes an
irrevocable and unconditional full release of each Indemnified Person from any
and all liabilities arising out of such action, claim, suit or proceeding. No
Indemnified Person seeking indemnification, reimbursement or contribution under
this agreement will, without your prior written consent, settle, compromise,
consent to the entry of judgment in or otherwise seek to terminate any action,
claim, suit, investigation or proceeding referred to in the preceding
paragraph.


 


If the indemnification provided for in the second paragraph of this Attachment
A is judicially determined to be unavailable (other than in accordance with
the terms hereof) to an Indemnified Person, in respect of any losses, claims,
damages or liabilities referred to herein, then, in lieu of indemnifying such
Indemnified Person hereunder, you shall contribute to the amount paid or
payable by such Indemnified Person as a result of such losses, claims, damages
or liabilities (and expenses relating thereto) (i) in such proportion as
is appropriate to reflect the relative benefits to you, on the one hand, and
the Advisors, on the other hand, of the Transaction (whether or not the
Transaction is consummated), or (ii) if (but only if) the allocation provided 


 

















 


by clause (i) above is not
available, in such proportion as is appropriate to reflect not only the
relative benefits referred to in such clause (i) but also the relative fault of
each of you and the Advisors, as well as any other relevant equitable
considerations, provided  however, in no event shall either
Advisor’s aggregate contribution to amounts paid or payable hereunder exceed
the aggregate amount of fees actually received by such Advisor for the specific
Transaction or services in question under the Advisory Services Agreement. For
purposes of this agreement, the relative benefits to you and the Advisors of
the Transaction shall be deemed to be in the same proportion as (a) the total
value paid or contemplated to be paid or received or contemplated to be
received or paid by you or your stockholders, as the case may be, in the
Transaction(s) or services that are the subject of the Advisory Services
Agreement, whether or not any such Transaction is consummated, bears to (b) the
related fees paid or to be paid to the Advisors under the Advisory Services
Agreement.


 


The indemnification contained herein in no way limits
any other indemnification to which the Advisors or their affiliates are
entitled pursuant to any other agreements.


 


The provisions of this Attachment A shall apply to any Transaction
and/or services provided under the Advisory Services Agreement and any
modifications thereof, and shall remain in full force and effect regardless of
any termination or the completion of the Advisors’ services under the Advisory
Services Agreement.


 


 


	
  AGREED TO AND ACCEPTED:

  	
   

  
	
   

  	
   

  
	
  Panolam Holdings Co.

  	
   

  
	
   

  	
   

  
	
   

  	
   

  
	
  By: 

  	
  /s/ ROBERT MULLER

  	
   

  	
   

  
	
  Name: Robert Muller

  	
   

  	
   

  
	
  Title: Chief Executive Officer