EXHIBIT 10.8
Genstar Capital LLC
Genstar Capital LLC
Metro Tower, Suite 1170
000 Xxxxx Xxxx
Xxxxxx Xxxx, XX 00000
January 24, 1999
PERSONAL AND CONFIDENTIAL
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Panolam Industries International, Inc.
00 Xxxxxxxx Xxxxx
Xxxxxxx, XX 00000
Attn: Xxxxxx X. Xxxxxx, Xx., President and Chief Executive Officer
Re: Pioneer
Dear Xxxxxx:
The purpose of this letter is to confirm and memorialize the arrangement under
which Genstar Capital LLC ("Genstar") has been engaged by Panolam Industries
International, Inc. ("Panolam") in connection with the acquisition of Pioneer
Plastics Corporation ("Pioneer"). The acquisition of Pioneer and the financing
of the acquisition is referred to herein as the "Transaction."
As you know, our engagement commenced with the decision to approach Pioneer in
April of 1998. In connection with our engagement we have and will continue to
provide Panolam with financial advice and assistance in connection with the
Transaction, including advice and assistance with respect to defining
objectives, performing valuation analyses, and structuring, planning and
negotiating the Transaction. In particular, we have negotiated the terms and
conditions of the acquisition and structured, negotiated and arranged $280
million of external financing for the acquisition ($135 million of senior
subordinated debt, $140 million of senior secured bank debt and $5 million of
equity)(the "Financing").
In the event the Transaction is consummated, Genstar will be paid a "Transaction
Fee." In light of the aggregate value of the Transaction (including contingent
payments) and the financing arranged, our Transaction Fee would typically be
between 1.3% and 1.4% of the aggregate value. For the Transaction, we have
agreed on a Transaction Fee of $4,025,000. The Transaction Fee will be fully
earned on the date of closing of the Transaction.
To accommodate cash flow concerns raised by some of the financing sources, you
and we have agreed that a portion of the Transaction Fee will be deferred and
payable over time. The Transaction Fee will be payable as follows:
(i) $2,000,000 upon closing of the Transaction; and
(ii) $2,025,000 payable in twelve quarterly installments of $168,750
(the "Deferred Fee"), commencing March 31, 1999 and at the end
of each June, September, December and March thereafter, which
amounts shall be prorated for the periods
from February 18, 1999 to March 31, 1999 and January 1, 2002 to
February 18, 2002.
The Deferred Fee shall be subordinate in right of payment to the senior
subordinated debt and senior secured bank debt incurred in the Financing.
If an agreed upon Transaction with Pioneer is not thereafter consummated and
Panolam receives compensation pursuant to termination provisions (a "Breakup
Fee") contained in a definitive agreement related to a business combination with
Pioneer, then in lieu of a Transaction Fee, we will charge a "Termination Fee."
The Termination Fee shall be equal to 50% of the Breakup Fee.
Any advice or opinions provided by Genstar may not be disclosed or referred to
publicly except in accordance with our prior written consent.
In addition to our fee for professional services, we will separately xxxx our
expenses as incurred. Generally, these expenses include travel costs, document
product and other expenses of this type.
Genstar will act under this letter agreement as an independent contractor with
duties to Panolam. Because we will be acting on your behalf in this capacity,
it is our practice to receive indemnification. A copy of our standard indemnity
form is attached to this letter.
Our services hereunder may be terminated with or without cause by you or us at
any time and without liability or continuing obligation to you or us (except for
any compensation earned and expenses incurred by us to date of termination and
except, in the case of termination by you, for our right pursuant to this letter
for any transactions effected within one year of such termination) and provided
that the indemnity provisions will remain operative regardless of any such
termination.
Genstar and Panolam (on its own behalf and, to the extent permitted by law, on
behalf of its shareholders) each waives any rights to trial by jury in any
action, claim, suit or proceeding with respect to Genstar's engagement as
financial advisor or its role in connection herewith.
If the terms of our engagement as set forth in this letter are satisfactory,
kindly sign the enclosed copy of this letter and indemnification form and return
them to us.
Very truly yours,
Genstar Capital LLC
By:
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Managing Director
By:
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Managing Director
2 of 5
Accepted:
Panolam Industries International, Inc.
By:
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Xxxxxx X. Xxxxxx, Xx.
President and Chief Executive Officer
Date: January 24, 1999
Enclosure
3 of 0
Xxxxxxx Xxxxxxx XXX
Xxxxx Xxxxx, Xxxxx 0000
000 Xxxxx Xxxx
Xxxxxx Xxxx, XX 00000
This letter will confirm that we have engaged Genstar Capital LLC to advise and
assist us in connection with the matters referred to in our letter agreement
dated January 24, 1999 (the "Engagement Letter"). In consideration of your
agreement to act on our behalf in connection with such matters, we agree to
indemnify and hold harmless you and your affiliates and your and their
respective officers, directors, employees and agents and each other person, if
any, controlling you or any of your affiliates (you and each such person being
an "Indemnified Person") from and against any losses, claims, damages or
liabilities related to, arising out of or in connection with the engagement
(the "Engagement") under the Engagement Letter, and will reimburse each
Indemnified Person for all expenses (including fees and expenses of counsel) as
they are incurred in connection with investigating, preparing, pursuing or
defending any action, claim, suit, investigation or proceeding related to,
arising out of or in connection with the Engagement, whether or not pending or
threatened and whether or not any Indemnified Person is a party. We also agree
that no Indemnified Person shall have any liability (whether direct or indirect
in contract or tort or otherwise) to us or in connection with the Engagement
except for any such liability for losses, claims, damages or liabilities
incurred by us that are finally judicially determined to have resulted from bad
faith or gross negligence of such Indemnified Person.
We will not, without your prior written consent, settle, compromise, consent to
the entry of judgement in or otherwise seek to terminate any action, claims,
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 a release of each
Indemnified Person from any liabilities arising out of such action, claim, suit
or proceeding. No Indemnified Person seeking indemnification, reimbursement or
contribution under this agreement will, without our prior written consent,
settle, compromise, consent to the entry of judgement 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 first paragraph of this agreement 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, than, in lieu of indemnifying such Indemnified
Person hereunder, we 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 us, on the other
hand, of the Engagement or (ii) if the allocation provided by cause (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 us, as
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well as any other relevant equitable considerations; provided, however, in no
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event shall your aggregate contribution to the amount paid or payable exceed the
aggregate amount of fees actually received by you for the specific transaction
in question under the Engagement Letter. For the purpose of this agreement, the
relative benefits to us and you of the Engagement 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 by us or our stockholders, as the case
may be, in the transaction or transactions that are the subject of the
Engagement, whether or not any such transaction is consummated, bears to (b) the
fees paid or to be paid to you under the Engagement Letter.
The provisions of this agreement shall apply to the Engagement and any
modification thereof and shall remain in full force and effect regardless of any
termination or the completion of your services under the Engagement Letter.
This agreement and the Engagement Letter shall be governed by and constructed in
accordance with the laws of the State of New York applicable to contracts
executed in and to be performed in that state.
Very truly yours,
Panolam Industries International, Inc.
By:
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Xxxxxx X. Xxxxxx, Xx.
President and Chief Financial Officer
Accepted:
Genstar Capital LLC
By:
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Managing Director
By:
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Managing Director
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