(HOULIHAN LOKEY HOWARD & ZUKIN CAPITAL LOGO)
HOULIHAN LOKEY HOWARD & ZUKIN CAPITAL
INVESTMENT BANKERS
www.hlhz.com
October 21, 2005
To: Schulte Roth & Zabel LLP ("SRZ"), as counsel to The Ad Hoc Committee (the
"Ad Hoc Committee") of Holders of 4.75% Convertible Subordinated Notes due
2006 (the "Notes") of PRG - Schultz International, Inc. and its affiliated
and subsidiary corporations (collectively, "PRG" or the "Company"), in care
of:
Schulte Roth & Zabel LLP
919 Third Avenue
New York, NY 10022
Attn: Jeffrey S. Sabin
Counsel to the Ad Hoc Committee
PRG - Schultz International, Inc.
600 Galleria Parkway
Suite 100
Atlanta, GA 30339
Attn: James McCurry
President and CEO
Gentlemen:
This letter confirms the terms of the agreement between Houlihan Lokey Howard &
Zukin Capital, Inc. ("Houlihan Lokey" or the "Finn"), SRZ, as counsel to the Ad
Hoc Committee (the "Ad Hoc Committee Counsel"), and the Company concerning the
Ad Hoc Committee Counsel's engagement of Houlihan Lokey to provide financial
advisory and related services to the Ad Hoc Commitee Counsel in connection with
the restructuring of the Company.
1. SCOPE OF ENGAGEMENT. Houlihan Lokey's exclusive representation of the Ad
Hoc Committee Counsel in connection with include:
(a) Evaluating the assets and liabilities of the Company;
(b) Analyzing and reviewing the financial and operating statements of the
Company;
(c) Analyzing the business plans and forecasts of the Company;
(d) Evaluating all aspects of the Company's near term liquidity, including
all available financing alternatives;
NEW YORK - 245 PARK AVENUE, 20TH FLOOR - NEW YORK, NY 10167
- TEL.212.497.4100 - FAX.212.661.3070
LOS ANGELES CHICAGO SAN FRANCISCO WASHINGTON, D.C. MINNEAPOLIS
DALLAS ATLANTA LONDON PARIS
INVESTMENT ADVISORY SERVICES THROUGHT
HOULIHAN LOKEY HOWARD & ZUKIN FINANCIAL ADVISORS.
Ad Hoc Committee of Holders of the Notes of PRG
October 21, 2005 -2-
(e) Providing such specific valuation or other financial analyses as the
Ad Hoc Committee may require in connection with the case;
(f) Assessing the financial issues and options concerning any proposed
Transaction; and
(g) Preparing analyzing and explaining any Transaction to various
constituencies.
As used herein, the term "Transaction" shall include the Company's efforts to
enter into any agreement or series of agreements, or transaction or series of
transactions (which agreement or transaction or series of transactions
subsequently closes within a reasonable time period thereafter), which in each
case may include, but is not limited to, the following:
(i) Any merger, consolidation, reorganization, recapitalization,
business combination or other transaction pursuant to which the
Company is acquired by, or combined with, any person, group of
persons, partnership, corporation or other entity (including,
without limitation, existing creditors, employees, affiliates,
and/or shareholders) (collectively, a "Purchaser");
(ii) The acquisition, directly or indirectly, by a Purchaser (or by
one or more persons acting together with a Purchaser pursuant to
a written agreement or otherwise) outside the ordinary course of
the Company's business, in a single transaction or a series of
transactions of (x) any of the assets or operations of the
Company; or (y) any outstanding or newly-issued shares of the
Company's capital stock (or any securities convertible into, or
options, warrants or other rights to acquire such capital stock);
(iii) The closing of any other sale, transfer or assumption of all or
substantially all of the assets, liabilities or stock of the
Company (including without limitation any consolidation or merger
involving the Company);
(iv) Obtaining the requisite consents or acceptances from the holders
of the Notes to a restructuring/recapitalization either
out-of-court or pursuant to a "pre-packaged" or "pre-arranged"
Chapter 11 plan of reorganization, through a tender offer,
exchange offer, consent solicitation or other process;
Ad Hoc Committee of Holders of the Notes of PRG
October 21, 2005 -3-
(v) The confirmation of any other Chapter 11 plan of reorganization
or liquidation, the terms of which have been substantially agreed
to by the Ad Hoc Committee; or
(vi) The material credit enhancement of the Notes in conjunction with
any other transaction involving the Company, the terms of which
have been approved by the Ad Hoc Committee (collectively, a
"Transaction").
2. EXCLUSIVE REPRESENTATION- Neither the Ad Hoc Committee, its constituents, nor
any of their advisors or professionals (including, but not limited to, Ad Hoc
Committee Counsel), shall be liable for the fees, expenses or other amounts
payable to Houlihan Lokey hereunder. Notwithstanding such arrangement, I
Houlihan Lokey's duties hereunder run solely to the Ad Hoc Committee Counsel,
and Houlihan Lokey is not authorized to be, and will not purport to be, acting
on behalf of, or at the direction of the Company for any purpose unless
otherwise agreed to by the Ad Hoc Committee Counsel and the Company, All
financial advice written or oral, provided by Houlihan Lokey to the Ad Hoc
Committee Counsel pursuant to this Agreement is intended solely for the use and
benefit of the Ad Hoc Committee Counsel, which agrees that such advice may not
be disclosed publicly or made available, other than to the Ad Hoc Committee, its
constituents, or any of its or their advisors or professionals, to third-parties
without the prior consent of Houlihan Lokey, which consent shall not be
unreasonably withheld. At the direction of Ad Hoc Committee Counsel, certain
communication and correspondence between Houlihan Lokey and the Ad Hoc
Committee, and work product and analyses prepared by Houlihan Lokey for the Ad
Hoc Committee in connection with this matter, will be considered in preparation
for litigation over the restructuring of the Company, and accordingly, will be
subject to the attorney-client privilege and work-product privilege between
Houlihan Lokey and the Ad Hoc Committee.
3. ADVISOR. Houlihan Lokey's services are limited to those specifically provided
in this Agreement or subsequently agreed-upon by the parties hereto, and
Houlihan Lokey shall have no obligation or responsibility for any other
services. Houlihan Lokey is providing its services hereunder as an independent
contractor, and the parties agree that this Agreement does not create an agency
or fiduciary relationship between Houlihan Lokey and the parties to this
Agreement
4. CONSIDERATION. As consideration for the services being provided by Houlihan
Lokey to assist the Ad Hoc Committee Counsel in analyzing various restructuring
options concerning the Company, the Company shall pay Houlihan Lokey a fee of
$100,000 per month (the "Monthly Fee(1)"). Notwithstanding any termination of
this Agreement, the Company agrees to pay Houlihan Lokey the Monthly Fee for a
minimum of three (3) months. Payment shall be made to Houlihan Lokey at the
address above, Attention: David R. Hilly. The first Monthly Fee shall be
pro-rated for the period October 21, 2005 through October 31, 2005 and shall be
due and payable in cash upon the Company and Houlihan Lokey's execution of this
Agreement. All additional
Ad Hoc Committee of Holders of the Notes of PRG
October 21, 2005 -4-
Monthly Fees shall be due and payable in cash in advance on the 1st day of each
month. In addition, the Company agrees to promptly reimburse Houlihan Lokey,
upon request from time to time, for all out-of-pocket expenses reasonably
incurred by Houlihan Lokey before termination (or related to Houlihan Lokey's
pre-termination services) in connection with the matters contemplated by this
Agreement. Out-of-pocket expenses shall include, but not limited to, all
reasonable travel expenses, duplicating charges, on-line service charges,
messenger services, delivery services, meeting services, long distance telephone
and facsimile charges incurred by Houlihan Lokey.
In addition, if a Transaction is consummated, upon the consummation of the
Transaction Houlihan Lokey shall be paid an additional fee (a "Transaction Fee")
equal to seventy-five (75) basis points of the value of the Aggregate Gross
Consideration ("ACG") received by holders of the Notes(1), payable in cash or,
at the option of the Ad Hoc Committee, in the same consideration received by the
holders of the Notes. For purposes of calculating the Transaction Fee, the
Aggregate Gross Consideration shall be the cumulative total proceeds and other
consideration paid to or received by, or to be paid or received by, the holders
of the Notes in connection with that Transaction and all Transactions
consummated on or prior to the date such Transaction was consummated, including,
but not limited to, cash, notes, securities, preferred stock, common stock,
other property and/or payments made in installments, all related rights, options
and contractual benefits, including, any interest payments received by the
holders of the Notes after the effective date of this Agreement. The Transaction
Fee shall be reduced by fifty percent (50%) of the aggregate Monthly Fees paid
to Houlihan Lokey following the fifth full month but in no event shall the
Transaction Fee be reduced to less than zero. The Transaction Fee shall be paid
upon the consummation of a Transaction either (i) during the term of this
Agreement or (ii) within twelve months of the effective date of termination of
this Agreement (such twelve-month period being referred to herein as the "Tail
Period.") unless paid in kind.
The parties acknowledge that a substantial professional commitment of time and
effort will be required by Houlihan Lokey and its professionals hereunder, and
that such commitment may foreclose other opportunities for the Firm. Moreover,
the actual time and commitment required for the engagement may vary
substantially from week to week or month to month, creating "peak load" issues
for the Firm. Given the numerous issues which may arise in these cases, the
Firm's
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(1) For the purpose of calculating the value of the ACG received by the holders
of the Notes represented by the Ad Hoc Committee in the Transaction, any
consideration received, including, without limitation, cash, debt
securities, equity securities, property or other interests or
consideration, will be valued as follows: the greater of (i) if the value
of such securities is disclosed in a court approved disclosure statement in
support of a confirmed Chapter 11 plan, the value of the securities in such
disclosure statement; or (ii) (x) if such securities are traded, the
securities will be valued at the mean of the closing bid and asked
quotations averaged for the ten trading days immediately prior to the
closing of the Transaction; or (y) if such securities have not been traded
prior to the closing of the Transaction, Houlihan Lokey will prepare a
valution of the securities and, together with the Ad Hoc Committee and the
Company, will mutually agree on a fair valuation thereof for the purposes
of calculating the Transaction fee, provided that, for purposes of
calculating the Transaction Fee under this agreement, the AGC shall not
exceed the face amount of the Notes plus any accrued and unpaid interest
thereon.
Ad Hoc Committee of Holders of the Notes of PRG
October 21, 2005 -5-
commitment to the variable level of time and effort necessary to address such
issues, the expertise and capabilities of Houlihan lokey that will be required
in this engagement, and the market rate for Houlihan Lokey's services of this
nature whether in, or out of court, the parties agree that the fee arrangement
hereunder is reasonable, fairly compensates Houlihan Lokey and provides
certainty to the Company and the Ad Hoc Committee.
5. BANKRUPTCY COURT: In the event the Company seeks protection under Title 11 of
the United States Code (the "Bankruptcy Code"), the Company shall affirmatively
support the retention of Houlihan Lokey by any Official Committee of Unsecured
Creditors appointed in the case or cases resulting from such filing pursuant to
section 1103 of the Bankruptcy Code and use all reasonable efforts to fulfill
its obligations owed upon such filing under this Agreement in a manner mutually
agreeable to the Ad Hoc Committee Counsel, the Company and Houlihan Lokey,
provided, however, that the form of documentation to satisfy the foregoing
obligations shall be acceptable to Houlihan Lokey in its sole discretion. Upon
the filing of a bankruptcy case, Houlihan Lokey's obligations to provide
services under this Agreement on behalf of the Ad Hoc Committee Counsel may, at
Houlihan Lokey's exclusive option, cease until such time as Houlihan Lokey is
authorized by the Bankruptcy Court having jurisdiction over the case to provide
services under Sections 328 and 1103 of the Bankruptcy Code, provided however,
that the obligations of the Company under this Agreement shall continue in full
force and effect.
6. TERMINATION. This Agreement is terminable upon ten (10) days written notice
by the Ad Hoc Committee Counsel, Houlihan Lokey or the Company, provided,
however, that (a) if the Agreement is terminated during the first three (3)
months of the engagement, the Company shall immediately pay Houlihan Lokey the
unpaid portion of those Monthly Fees for the first three (3) months of the
engagement, and (b) if the Agreement is terminated thereafter, the Company shall
pay Houlihan Lokey all previously unpaid Monthly Fees and the pro-rata portion
of the Monthly Fee for the month in which the Agreement is terminated. The
termination of the Agreement will not affect (a) the Company's indemnification,
reimbursement, contribution and other obligations set forth in this Agreement
and (b) Houlihan Lokey's right to receive, and the Company' obligation to pay
(i) any and all fees and expenses accrued as of the effective date of
termination of this Agreement, and (ii) those fees earned for a Transaction that
is consummated during the Tail Period as described in this Agreement.
7. INFORMATION. The Ad Hoc Committee and the Ad Hoc Committee Counsel
acknowledges and agrees that, in rendering its services hereunder, Houlihan
Lokey will be using and relying on information made available to it by the
Company and their advisors (the "Information") (and information available from
public sources and other sources deemed reliable by Houlihan Lokey) without
independent verification thereof by Houlihan Lokey or independent appraisal by
Houlihan Lokey. Houlihan Lokey does not assume responsibility for the accuracy
or completeness of the Information or any other information regarding the
Company.
8. CHOICE OF LAW; JURISDICTION. THIS AGREEMENT HAS BEEN NEGOTIATED, EXECUTED AND
DELIVERED AT AND SHALL BE DEEMED TO
Ad Hoc Committee of Holders of the Notes of PRG
October 21, 2005 -6-
HAVE BEEN MADE IN NEW YORK, NEW YORK. THIS AGREEMENT SHALL BE GOVERNED BY AND
CONSTRUED IN ACCORDANCE WITH THE LAWS OF THE STATE OF NEW YORK. REGARDLESS OF
ANY PRESENT OR FUTURE DOMICILE OR PRINCIPAL PLACE OF BUSINESS OF THE PARTIES
HERETO, EACH PARTY HEREBY IRREVOCABLY CONSENTS AND AGREES THAT ANY CLAIMS OR
DISPUTES BETWEEN OR AMONG THE PARTIES HERETO PERTAINING TO THIS AGREEMENT OR TO
ANY MATTER ARISING OUT OF OR RELATED TO THIS AGREEMENT SHALL BE BROUGHT IN ANY
STATE OR FEDERAL COURT OF COMPETENT JURISDICTION IN THE STATE OF NEW YORK,
PROVIDED THAT SUCH CONSENT AND AGREEMENT SHALL NOT BE DEEMED TO REQUIRE ANY
BANKRUPTCY CASE INVOLVING THE COMPANY TO BE FILED IN SUCH COURTS. BY EXECUTION
AND DELIVERY OF THIS AGREEMENT, EACH PARTY SUBMITS AND CONSENTS IN ADVANCE TO
SUCH JURISDICTION IN ANY ACTION OR SUIT COMMENCED IN ANY SUCH COURT. EACH PARTY
HEREBY WAIVES ANY OBJECTION WHICH IT MAY HAVE BASED UPON LACK OF PERSONAL
JURISDICTION, IMPROPER VENUE OR FORUM NON CONVENIENS AND HEREBY CONSENTS TO THE
GRANTING OF SUCH LEGAL OR EQUITABLE RELIEF AS IS DEEMED APPROPRIATE BY SUCH
COURT. THE CONSENT TO SERVICE OF PROCESS IN ACCORDANCE WITH NEW YORK LAW. THE
PARTIES HERETO WAIVE ANY RIGHT TO TRIAL BY JURY IN ANY ACTION, PROCEEDING OR
COUNTERCLAIM (WHETHER BASED UPON CONTACT, TORT OR OTHERWISE) RELATED TO OR
ARISING OUT OF THE ENGAGEMENT OF HOULIHAN LOKEY PURSUANT TO, OR THE PERFORMANCE
BY HOULIHAN LOKEY OF THE SERVICES CONTEMPLATED BY, THIS AGREEMENT.
9. AUTHORITY. The Company has all requisite corporate power and authority to
enter into this Agreement and the transactions contemplated hereby (including,
without limitation, any Transaction). The Company and Houlihan Lokey have fully
reviewed this Agreement, have obtained counsel on its terms, and have
participated in the drafting of this Agreement such that it shall not be
construed against any one party. This Agreement has been duly and validly
authorized by all necessary corporate action on the part of the Company and has
been duly executed and delivered by the Company and constitutes a legal, valid
and binding agreement of the Company, enforceable in accordance with its terms.
10. COUNTERPARTS. For the convenience of the parties, any number of counterparts
of this Agreement may be executed by the parties hereto. Each such counterpart
shall be, and shall be deemed to be, an original instrument, but all such
counterparts taken together shall constitute one and the same Agreement.
11. SEVERABILITY. If it is found in a final judgment by a court of competent
jurisdiction (not subject to further appeal) that any term or provision hereof
is invalid or unenforceable, (i) the remaining terms and provisions hereof shall
be unimpaired and shall remain in full force and effect and (ii) the invalid or
unenforceable provision or term shall be replaced by a term or
Ad Hoc Committee of Holders of the Notes of PRG
October 21, 2005 -7-
provision that is valid and enforceable and that comes closest to expressing the
intention of such invalid or unenforceable term or provision.
12. Entire Agreement. This Agreement embodies the entire agreement and
understanding of the parties hereto and supersedes any and all prior agreements,
arrangements and understanding relating to the mailers provided for herein. No
alteration, waiver, amendment, change or supplement hereto shall be binding or
effective unless the same is set forth in writing signed by a duly authorized
representative of each party.
13. Indemnification. As a material part of the consideration for Houlihan Lokey
to furnish its services under this Agreement, the Company shall indemnify
Houlihan Lokey and shall hold harmless Houlihan Lokey and its affiliates, and
their respective past, present and future directors, officers, shareholders,
employees, agents and controlling persons within the meaning of either Section
15 of the Securities Act of 1933, as amended, or Section 20 of the Securities
Exchange Act of 1934, as amended (collectively, the "Indemnified Parties"), to
the fullest extent lawful, from and against any and all losses, claims, damages
or liabilities (or actions in respect thereof), Ad Hoc Committee, or any
Transaction (as defined herein) or proposed Transaction contemplated thereby. In
addition, the Company shall reimburse the Indemnified Parties for any legal or
other expenses reasonably incurred by them in respect thereof at the time such
expenses are incurred; provided, however, there shall be no liability under the
foregoing indemnity and reimbursement agreement to the extent that any loss,
claim, damage or liability which is finally judicially determined (and from
which there is no further right of appeal) to have resulted from the willful
misconduct, gross negligence, bad faith or self-dealing of any Indemnified
Party.
If for any reason the foregoing indemnification is unavailable to any
Indemnified Party or is insufficient to hold any Indemnified Party harmless, the
Company shall contribute to the amount paid or payable by the Indemnified Party
as a result of such losses, claims, damages, liabilities or expenses in such
proportion as is appropriate to reflect the relative benefits received (or
anticipated to be received) by the Ad Hoc Committee and the Company, on the
one hand, and Houlihan Lokey, on the other hand, in connection with the proposed
Transaction and/or the services rendered by Houlihan Lokey. If, however, the
allocation provided by the immediately preceding sentence is not permitted by
applicable law or otherwise, then the Company shall contribute to such amount
paid or payable by any Indemnified Party in such proportion as is appropriate to
reflect not only such relative benefits, but also the relative fault of the Ad
Hoc Committee and the Company, on the one hand, and Houlihan Lokey, on the
other hand, in connection therewith, as well as any other relevant equitable
considerations. Notwithstanding the foregoing, the aggregate contribution of all
Indemnified Parties to any such losses, claims, damages, liabilities and
expenses shall not exceed the amount of fees actually received by Houlihan Lokey
pursuant to the Agreement.
Ad Hoc Committee of Holders of the Notes of PRG
October 21, 2005 -8-
The Ad Hoc Committee and the Company shall not effect any settlement or release
from liability in connection with any matter for which an Indemnified Party
would be entitled to indemnification from the Company unless, such settlement or
release contains a release of the Indemnified Parties reasonably satisfactory in
form and substance to Houlihan Lokey. Notwithstanding the immediately preceding
sentence, if Houlihan Lokey refuses to approve a confidential settlement,
compromise or discharge which would provide for an express full and
unconditional release of Houlihan Lokey and the other Indemnified Parties, and
which further provides that there shall be no action of, agreement, payment or
admission by, or any adverse statement with respect to the character,
professionalism, due care, loyalty, expertise or reputation of, Houlihan Lokey
or any other Indemnified Party, the Company may enter into such proposed
settlement, compromise or discharge on behalf of any or all of the defendants
other than the Indemnified Parties, and thereafter the Company shall have no
further obligation to pay any judgment rendered against, or to pay the amount of
any settlement subsequently agreed to by any Indemnified Party. The Ad Hoc
Committee and/or the Company shall not be required to indemnify any Indemnified
Party for any amount paid or payable by such party in the settlement or
compromise of any claim or action without the prior written consent of the Ad
Hoc Committee and the Company.
Within the earlier of one year from the termination of this Agreement or the
consummation of a Transaction, prior to entering into any agreement or
arrangement with respect to, or effecting, any (i) merger, statutory exchange or
other business combination or proposed sale, exchange, dividend or other
distribution or liquidation of all or a significant proportion of its assets, or
(ii) significant recapitalization or classification of its outstanding
securities that does not directly or indirectly provide for the assumption of
the obligations of the Company set forth in this Agreement, the Company will
notify Houlihan Lokey in writing thereof (if not previously so notified) and, if
requested by Houlihan Lokey, shall arrange in connection therewith alternative
means of providing for the obligations of the Company set forth herein,
including the assumption of such obligations by another party, insurance, surety
bonds or the creation of an escrow, in each case in an amount and upon terms and
conditions reasonably satisfactory to Houlihan Lokey.
The Ad Hoc Committee and the Company further agree that neither Houlihan Lokey
nor any other Indemnified Party shall have any liability, regardless of the
legal theory advanced, to the Ad Hoc Committee, the Company or any other person
or entity (including the Company" equity holders and creditors) related to or
arising out of Houlihan Lokey's engagement, except to the extent that any
liability for losses, claims, damages, liabilities or expenses incurred by the
Ad Hoc Committee and/or the Company which are finally judicially determined to
have resulted from the willful misconduct, gross negligence, bad faith or
self-dealing of any Indemnified Party. The indemnity, reimbursement,
contribution and other obligations and agreements of the Ad Hoc Committee and
the Company set forth herein shall apply to any modifications of this Agreement,
shall be in addition to any liability which these parties may otherwise have,
and shall be binding upon and inure to the benefit of any successors, assigns,
heirs and personal representatives of these parties and each Indemnified Party.
The foregoing indemnification provisions shall survive
Ad Hoc Committee of Holders of the Notes of PRG
October 21, 2005 -9-
the consummation of any Transaction and/or any termination of the relationship
established by this Agreement.
The obligations of Houlihan Lokey are solely corporate obligations, and no
officer, director, employee, agent, shareholder or controlling person of
Houlihan Lokey shall be subjected to any personal liability whatsoever to any
person, nor will any such claim be asserted by or on behalf of any other party
to this Agreement or any person relying on the services provided hereunder. The
Company's obligations with respect to any and all payments owing to Houlihan
Lokey and the indemnification, reimbursement, contribution and other similar
obligations of the Company under this Agreement shall survive any termination of
this Agreement.
Accepted and agreed to as of the date above.
PRG - SCHULTZ INTERNATIONAL, INC.
/s/ James E. Moylan, Jr.
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BY: James E. Moylan, Jr.
Title: EXECUTIVE VICE PRESIDENT AND
CHIEF FINANCIAL OFFICER
ON BEHALF OF THE AD HOC COMMITTEE:
AD HOC COMMITTEE COUNSEL
SCHULTE ROTH & ZABEL LLP
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By: Jeffrey Sabin
HOULIHAN LOKEY HOWARD & ZUKIN CAPITAL, INC.
/s/ David R.Hilty
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By: David R.Hilty
Managing Director