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Financial Advisory Agreement

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Sectors: Specialty Retail
Governing Law: New York, View New York State Laws
Effective Date: December 12, 1997
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December 12, 1997


PRIVATE AND CONFIDENTIAL


AHC I Acquisition Corp. c/o DLJ Merchant Banking II, Inc. 277 Park Avenue New York, NY 10172


Attention: David Wittels


Gentlemen:


This letter agreement (the "Agreement") confirms our understanding that AHC I Acquisition Corp. (which together with its subsidiaries is hereinafter referred to as the "Company") has engaged Donaldson, Lufkin & Jenrette Securities Corporation ("DLJ") to act as its (i) exclusive financial advisor commencing with the acceptance of this Agreement with respect to the acquisition of Arcade Holding Corporation (the "Acquisition"), and (ii) following the closing of the Acquisition and continuing for a period through December 31, 2002 (the "Engagement Period") with respect to the review and analysis of financial and structural alternatives available to the Company with a view to meeting its long term strategic objectives.


As discussed, we propose to undertake certain services on your behalf, to the extent requested by you, which shall consist of the following: (i) advising you with regard to the Acquisition, (ii) assisting you in analyzing the Company's operations and its historical performance; and (iii) assisting you in analyzing the Company's future prospects.


As compensation for the services to be provided by DLJ hereunder, the Company agrees to pay DLJ (i) a financial advisory fee of $2,000,000 for services related to the Acquisition, payable upon consummation of the Acquisition and (ii) an annual advisory fee of $250,000, payable quarterly in equal installments of $62,500, payable March 31, June 30, September 30 and December 31 of each year. As further compensation, the Company agrees that in the event the Company determines to pursue any Transaction (as hereinafter defined) during the period of our engagement, DLJ shall have the right to act as the Company's exclusive financial advisor, sole placement agent, sole initial purchaser or sole managing underwriter or sole dealer-manager, as the case may be, with respect to each such Transaction.


For purposes of this letter, the term "Transaction" shall include each of the following: (i) the sale, merger, consolidation or any other business combination, in one or a series of transactions, involving any portion of the business, securities or assets of the Company; (ii) the acquisition (and any related matters such as financings, divestitures, etc.), in one or a series of transactions, of all or a portion of the business, securities or assets of another entity or person; (iii) any recapitalization, refinancing, repurchase or restructuring of the Company's equity or debt securities or indebtedness or any amendments or modifications to the Company's debt securities or indentures whether or not in connection therewith, involving, by or on behalf of the Company, an offer to purchase or


AHC I Acquisition Corp. Page 2 December 12, 1997


exchange for cash, property, securities, indebtedness or other consideration, or a solicitation of consents, waivers of authorizations with respect thereto; (iv) any spin-off, split-off or other extraordinary dividend of cash, securities or other assets to stockholders of the Company; or (v) any sale of securities of the Company effected pursuant to a private sale or an underwritten public offering.


If the Company determines to pursue any such Transaction, DLJ and the Company will enter into an agreement appropriate to the circumstances, containing provisions for, among other things, compensation, indemnification, contribution, and representations and warranties, which are usual and customary for similar agreements entered into by DLJ or other investment bankers of international standing acting in similar transactions. DLJ shall have no obligation to act as placement agent, initial purchaser, underwriter, or dealer manager to the Company or to place or purchase any securities of the Company, except to the extent that such obligations arise out of a placement agent agreement, purchase agreement, underwriting agreement or dealer-manager agreement, as the case may be, with respect to a particular Transaction executed and delivered by both DLJ and the Company.


As further consideration for its services hereunder, the Company shall, upon request by DLJ from time to time, reimburse DLJ promptly for all out-of-pocket expenses (including the reasonable fees and expenses of counsel) incurred by DLJ in connection with its engagement hereunder, regardless of whether a Transaction is consummated. As DLJ will be acting on your behalf, it is our practice to receive indemnification and the Company agrees to the indemnification and other obligations set forth in Schedule I attached hereto, which Schedule is an integral part hereof.


The Company acknowledges and agrees that DLJ has been retained solely to provide the advice or services set forth in this Agreement. In such capacity, DLJ shall act as an independent contractor, and any duties of DLJ arising out of its engagement hereunder shall be owed solely to the Company.


The Company shall make available to DLJ all available financial and other information concerning its business and operations which DLJ reasonably requests and will provide DLJ with access to the Company's officers, directors, employees, independent accountants and legal counsel. In performing its services hereunder, DLJ shall be entitled to rely without investigation upon all information that is available from public sources as well as all other information supplied to it by or on behalf of the Company or its advisors and, except as otherwise specifically agreed to in a writing signed by both parties, shall not in any respect be responsible for the accuracy or completeness of, or have any obligation to verify, the same or to conduct any appraisal of assets. To the extent consistent with legal requirements, all information given to DLJ by the Company, unless publicly available or otherwise available to DLJ without restriction or breach of any confidentiality agreement, will be held by DLJ in confidence and will not be disclosed to anyone other than DLJ's agents and advisors without the Company's prior approval or used for any purpose other than those referred to in this Agreement.


Any advice, written or oral, provided by DLJ pursuant to this Agreement will be treated by the Company as confidential,
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