If a bankruptcy judge approves, Houlihan Lokey will make money no matter what road its client may take.
Whatever the future holds for Polaroid Corp., the consumer electronics firm that filed for bankruptcy in December in the wake of a fraud investigation involving owner Tom Petters, the company's financial advisory firm stands to make a lot of money.
Polaroid, which markets digital cameras, camcorders, printers and DVD players, filed for Chapter 11 protection last month seeking protection from creditors as it tries to come up with a viable business plan. Polaroid hired Houlihan Lokey Howard & Zukin Capital at an initial cost of $165,577 to help advise the firm, according to court papers.
But that was just the beginning.
If a federal bankruptcy judge approves, Houlihan Lokey would continue to help Polaroid reorganize, find a buyer, or refinance its operations in exchange for hefty upfront cash payments, plus a share of potential business transactions.
According to a motion filed Wednesday, the firm would be paid a nonrefundable, up-front fee of $300,000, plus a fee of $150,000 a month (paid in advance), for helping Polaroid sort out its options. If the agreement ends in less than six months, Houlihan Lokey would get a termination fee of $450,000, equal to three months worth of fees.
If Polaroid successfully restructures, Houlihan Lokey would get 1.25 percent of Polaroid's value, as determined by the court.
Or, if Polaroid were sold, Houlihan Lokey would get 1.25 percent of the sale price. Its payment would be based on the full sale value even if only part of Polaroid were sold.
If Polaroid can refinance its business by attracting outside investment, then Houlihan Lokey would collect between 1 and 6 percent of the financing, depending on investment structure. For example, if the money were raised by selling securities or preferred stock, Houlihan Lokey would get 6 percent.
The agreement calls for Houlihan Lokey to have priority over payments to other Polaroid creditors.
Neither the court-appointed trustee for Polaroid nor a representative of Houlihan Lokey could be reached Thursday for comment.
Petters, one of the Twin Cities best known businessmen whose holdings include Polaroid and Sun Country Airlines, was charged in October with running a $3.5 billion investment fraud scheme primarily through an investment entity called Petters Co. Inc.
Petters, 51, of Wayzata, has maintained his innocence. Five other participants in the business have pleaded guilty to fraud, conspiracy, money-laundering or tax code violations.
As a result of a federal investigation, Petters Co. Inc. and the holding company known as Petters Group Worldwide were placed in the hands of a receiver and put into bankruptcy in October. Polaroid struggled to continue its operation, but filed for Chapter 11 protection Dec. 18.
Steve Alexander • 612-673-4553