Exhibit 10.1

 

LOGO [g87292img001.jpg]    FTI Consulting   

2001 Ross Avenue

Suite 400

Dallas, TX 75201

+1.214.397.1600 telephone

+1.214.397.1790 facsimile

www.fticonsulting.com

June 6, 2008

Mr. Edward H. Orzetti

Keystone Automotive Operations, Inc.

44 Tunkhannock Avenue

Exeter, PA 18643

Dear Mr. Orzetti

 

1. Introduction

This letter confirms the engagement of FTI Palladium Partners, a division of FTI
Consulting, Inc. and its wholly owned subsidiaries (collectively referred as
“FTI”) by Keystone Automotive Operations, Inc. (“Keystone” or the “Company”) to
provide certain employees to the Company to assist it with the services
described below (the “Engagement”). This letter of engagement and the related
supporting schedules constitute the engagement contract (the “Engagement
Contract”) pursuant to which the Services will be provided.

 

2. Scope of Services

To the extent requested by you, FTI will provide the following individuals to
work with you and your team in connection with the services (the “Services”)
outlined below:

 

  •  

Provide the services Of Stuart Gleichenhaus (“Gleichenhaus”) to serve as the
interim chief financial officer (the “CFO”) of the Company, reporting directly
to the President and Chief Executive Officer. In the capacity of interim CFO,
Gleichenhaus will enjoy the same full and free access to the Board of Directors
and its Committees as other members of the senior management as specified in the
Corporate Governance Guidelines of the Board of Directors and, to the extent
determined by the Board of Directors from time to time, will be granted the
right to attend and participate (but not vote) in the meetings of the Company’s
Board of Directors, or its Committees, as an observer (it being understood that
the Board of Directors of the Company may from time to time meet in “executive
session” or otherwise ask that certain or all non-directors not attend such
meeting or a portion thereof) (such role referred to as “Board Observer”);

 

  •  

To the extent determined by mutual agreement of you and Gleichenhaus, provide
the services of other temporary employees (the “Temporary Employees”) to support
Gleichenhaus in his role as CFO and in the accomplishment of the following
specific aspects of the Services in coordination with the Company’s senior
management and assigned permanent employees:

 

  a. Work with management in the preparation of financial reports;

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Mr. Edward H. Orzetti

Keystone Automotive Operations, Inc.

June 6, 2008

 

  b. Work with management to further identify and implement both short-term and
long-term process improvement and control initiatives within the finance
organization;

 

  c. Assist in the communication and/or negotiation with outside constituents
including banks, bondholders, analysts, and regulatory bodies;

 

  d. Assist with the day-to-day and month-end functions of the finance and
accounting organization;

 

  e. Assist in the preparation of financial analysis and planning functions
including operating and financial budgets for future periods;

 

  f. Analyze sales and margin productivity by SKU to determine return on
investment in inventory including potential opportunities for margin
improvement;

 

  g. Analyze supply chain effectiveness including fixed and variable warehouse
costs and delivery to customer economics to identify potential cost reductions
and service level improvements;

 

  h. Analyze corporate and operations overhead functions and associated costs to
identify potential cost reductions;

 

  i. Create tools to measure and monitor improvements;

 

  j. Assist management, if required, in the development of and implementation of
cash management and working capital strategies, tactics and processes;

 

  k. Assist management, if required, with the development of a business plan,
and such other related forecasts to be utilized by the Company for other
corporate purposes; and

 

  l. Provide such other similar services as may be requested by the Board of
Directors or President and Chief Executive Officer.

We will keep you informed as to our staffing and will not add additional
Temporary Employees to the assignment without first obtaining your consent that
such additional resources are required and do not duplicate the activities of
other employees or professionals. Moreover, we will attempt to utilize Company
personnel to fulfill such roles and will take such steps as may be necessary to
avoid duplication with the Company’s other professionals. Furthermore, we will
obtain your consent as to the areas of responsibility being filled by all
Temporary Employees and will adjust the staffing level upwards or downwards as
you direct.

In addition to these specific services, we understand that at your request and
to the extent appropriate, such Temporary Employees may be asked to participate
in meetings and discussions with the Company, its lenders, other constituencies
and their respective professionals.

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Mr. Edward H. Orzetti

Keystone Automotive Operations, Inc.

June 6, 2008

 

The Services of the Temporary Employees may be performed by FTI or by any
subsidiary of FTI, as FTI shall determine in consultation with the Company. FTI
may also provide, with the prior approval of the Company, non-officer Services
through agents or independent contractors. References herein to FTI and its
employees shall be deemed to apply also, unless the context shall otherwise
indicate, to employees of each such subsidiary and to any such agents or
independent contractors and their employees. Prior to providing services
hereunder, each Temporary Employee, FTI subsidiary, agent, independent
contractor and employee thereof shall execute a Confidentiality Agreement
similar to the confidentiality agreement customarily required of Company
employees. Additionally, each Temporary Employee and FTI or FTI Subsidiary
employee, agent, or independent contractor assigned to the Services for the
Company shall also agree to abide by the terms and conditions of all policies
and procedures of the Company, including without limitation the Company’s
Business Conduct Policy, Corporate Governance Guidelines, Code of Ethics and
Whistleblower Policy.

 

3. No Assurance on Financial Data

Because of the time and scope limitations implicit in this Engagement, the depth
of our analyses and verification of the data is significantly limited. We
understand that our Temporary Employees are not being requested to perform an
audit or to apply generally accepted auditing standards or procedures. We
further understand that all of our professionals are entitled, except in the
event that it is unreasonable to do so, to rely on the accuracy and validity of
the data disclosed to us or supplied to us by the Company’s officers, directors,
employees and agents. We will not be under any obligation to update data
submitted to us or extend our activities beyond the scope set forth herein,
unless we agree to do so upon your specific request. Further, due to the factors
referenced in this paragraph, any periodic oral and/or written reports provided
by us will not provide assurances concerning the integrity of the information
used in our analyses and on which our findings and advice to you may be based.

 

4. Privileged and Confidential Information and Work Product

The Company acknowledges that all advice (written or oral) given by the
Temporary Employees to the Company in connection with the Engagement is intended
solely for the benefit and use of the Company (limited to the Board of Directors
and management) and we understand that the Company has agreed to treat any
advice received from us, whether orally or in writing, confidential and, except
as provided in this Engagement Contract, will not publish, distribute or
disclose in any manner any advice developed by or received from us without our
prior written approval (except to the Company’s respective officers, directors,
employees, attorneys, advisors lenders, or prospective lenders and persons who
have a need to know such information in order to perform services under this
Engagement Contract). Such approval shall not be unreasonably withheld. Our
approval is not needed if (a) the advice sought is required to be disclosed by
law or the rules of the NASDAQ Market or any stock exchange upon which the
Company’s stock is listed or by an order binding on the Company or us, issued by
a court having competent jurisdiction over the Company or us, as applicable
(unless such order specifies that the advice to be disclosed is to be

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Mr. Edward H. Orzetti

Keystone Automotive Operations, Inc.

June 6, 2008

 

placed under seal) provided however that the Company shall provide FTI with
prompt written notice of such requirement, (b) such information is otherwise
publicly available, (c) the disclosure is of information in the possession of
the Company prior to this Engagement or is independently developed by the
Company, or (d) the disclosure is of information acquired from a third party
who, to the Company’s knowledge owes no obligation of confidence with respect to
such information.

 

5. Fees

Our agreed upon compensation for the Services to be rendered pursuant to this
letter agreement is set forth on Schedule I. We will also be reimbursed for
customary and reasonable out-of-pocket expenses including, but not limited to,
travel, lodging, costs of reproduction, reasonable out-of-pocket counsel fees
and other direct expenses.

We will require a retainer (the “Retainer”) of $125,000, due upon the execution
of this Engagement Contract. We will further submit to the Company monthly
invoices (or more frequently at FTI’s discretion) for services rendered and
expenses incurred by additional temporary employees, which are due within 15
business days of receipt. Upon the conclusion of this engagement, the Retainer
either will be returned to the Company upon payment in full of all of our
outstanding invoices or, in our sole discretion, applied to any outstanding
invoice.

It is understood that if employees of FTI are required to testify at any
administrative or judicial proceeding relating to this matter (whether during
the term of this letter agreement or after termination), FTI will be compensated
by the Company at the regular hourly rates for each such employee, in effect at
the time, (except that during the term of this letter agreement any compensation
for such activities by Temporary Employee assigned full time to the Company
shall be subsumed by the monthly compensation rate being invoiced to the
Company) and reimbursed for reasonable out-of-pocket expenses (including counsel
fees).

The Company agrees to promptly notify FTI if it extends (or solicits the
possible interest in receiving) an offer of employment to a principal or
employee of FTI involved in this Engagement prior to the date of the final
invoice rendered by FTI with respect to this Engagement and agrees that it will
pay FTI a cash fee, upon hiring, equal to 150% of the aggregate first year’s
annualized compensation, including any guaranteed or target bonus, to be paid to
FTI’ s former principal or employee.

 

6. Conflicts of Interest

Based on the list of interested parties (the “Potentially Interested Parties”)
provided by you, we have undertaken a limited review of our records to determine
FTI’s professional relationships with the Company and its significant
parties-in-interest. From the results of such review, we are not aware of any
conflicts of interest or relationships that would preclude us from performing
the above Services for you. To the extent other employees of FTI may have
undertaken any advisory assignments in the past for parties-in-interest to the
Company, such FTI employees and any information in their possession will be kept
separated by an ethical wall from any FTI employees engaged hereunder.

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Mr. Edward H. Orzetti

Keystone Automotive Operations, Inc.

June 6, 2008

 

As you know, however, we are a large consulting firm with numerous offices
throughout the United States. We are regularly engaged by new clients, which may
include one or more of the Potentially Interested Parties. We will not accept an
engagement that directly conflicts with this Engagement without your prior
written consent.

 

7. Limitation of Liability

The Company agrees to indemnify, hold harmless and defend FTI against any and
all losses, claims, damages, liabilities, penalties, judgments, awards, amounts
paid in settlement, reasonable out-of-pocket costs, fees, expenses and
disbursements including, without limitation, the reasonable out-of-pocket costs,
fees, expenses and disbursements, as and when incurred, of investigating,
preparing or defending any action, suit, proceeding or investigation (whether or
not in connection with proceedings or litigation in which FTI is a party),
directly or indirectly caused by, relating to, based upon, arising out of or in
connection with the engagement of FTI by the Company or any services rendered
pursuant to such engagement; provided that the Company will not be responsible
for payment of indemnification amounts hereunder (and any indemnified person
shall reimburse the Company for indemnification amounts already paid) that are
determined by a final judgment of a court of competent jurisdiction to have
resulted from an indemnified person’s bad faith, self dealing, gross negligence
or willful misconduct. These indemnification provisions extend to the officers,
directors, principals, members, managers, stockholders, employees,
representatives, agents and counsel of FTI and shall survive the termination or
expiration of the engagement. The contract rights to indemnification conferred
in this paragraph shall not be exclusive of any other right that any indemnified
person may have or hereafter acquire under any statute, agreement, order of a
bankruptcy court or pursuant to any directors and officers liability insurance
policy (including any such policy identified in Schedule I). The Company shall
also reimburse any indemnified person for all reasonable out-of-pocket expenses
incurred in connection with enforcing such indemnified person’s rights under
this letter agreement.

In addition to the above indemnification, FTI personnel serving as employees of
the Company will be entitled to the benefit of the most favorable indemnities
provided by the Company to its officers and directors, whether under the
Company’s by-laws, certificate of incorporation, by contract or otherwise.

The Company agrees that it will specifically include and cover Gleichenhaus (and
any other employee of FTI who, at the request of the Board of Directors of the
Company, FTI agrees will serve as an officer of the Company) under the Company’s
policies for directors’ and officers’ insurance. If such coverage is not
provided by the Company, then FTI shall have the right to terminate this letter
agreement upon notice to the Company. The provisions of this section 7 are in
the nature of contractual obligations and no change in applicable law or the
Company’s charter, by-laws or other organizational documents or policies shall
affect any of Gleichenhaus’s rights hereunder. The obligations of the parties as
reflected herein shall survive the termination of the Engagement.

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Mr. Edward H. Orzetti

Keystone Automotive Operations, Inc.

June 6, 2008

 

The parties intend that an independent contractor relationship will be created
by this letter agreement. As an independent contractor, FTI will have complete
and exclusive charge of the management and operation of its business, including
hiring and paying the wages and other compensation of all its employees and
agents, and paying all bills, expenses and other charges incurred or payable
with respect to the operation of its business. None of FTI’ s employees serving
as a Temporary Employee, including Gleichenhaus in his capacity as CFO of the
Company, will be entitled to receive from the Company any salary, bonus,
compensation, vacation pay, sick leave, retirement, pension or social security
benefits, workers compensation, disability, unemployment insurance benefits or
any other Company employee benefits. FTI will be responsible for all employment,
withholding, income and other taxes incurred in connection with the operation
and conduct of its business (including those related to Gleichenhaus and the
Temporary Employees).

 

8. Waiver of Jury Trial/Dispute Resolution

The Company agrees that neither it nor any of its assignees or successors shall
(a) seek a jury trial in any lawsuit, proceeding, counterclaim or any other
action based upon or arising out of or in connection with the engagement of FTI
by the Company or any services rendered pursuant to such engagement or (b) seek
to consolidate any such action with any other action in which a jury trial
cannot be or has not been waived. The provisions of this paragraph have been
fully discussed by the Company and FTI and shall be subject to no exceptions.

 

9. Term of Engagement

This letter agreement shall be effective as of the date hereof and shall
continue in effect until termination or completion of our engagement hereunder.
Either you or we may terminate this letter agreement and our engagement at any
time upon the giving of at least five (5) business days prior written notice to
the other party or immediately by either party for Cause or upon a material
breach of this Agreement by the other party. Termination shall not affect our
right to receive payment for services performed, reimbursement for reasonable
out-of-pocket expenses properly incurred (in accordance with the terms of this
letter agreement), except in the event of a termination by the Company for Cause
or due to a material breach by FTI of this Agreement, or the Company’s
obligations under section 7 herein. In the event of termination, other than by
the Company for Cause or material breach by FTI, prior to the end of a calendar
month, you agree to pay us a pro rata portion of any set monthly compensation
based upon the number of days elapsed in the month up to the effective time of
termination.

For purposes of this Engagement Contract, “Cause” shall mean if (i) any of the
officers or directors of the Company or the officers, directors, principals or
other management level employees of FTI is convicted of, admits guilt in a
written document filed with a court of competent jurisdiction to, or enters a
plea of nolo contendere to, an allegation of fraud, embezzlement,

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Mr. Edward H. Orzetti

Keystone Automotive Operations, Inc.

June 6, 2008

 

misappropriation or any felony, (ii) any of the officers of the Company
willfully disobeys a lawful direction of the Board of Directors; or (iii) a
material breach of any of FTI’s or the Company’s material obligations under this
Engagement Contract which is not cured within thirty (30) days of the written
notice to breaching party describing in reasonable detail the nature of the
alleged breach.

If any provision of this Engagement Contract shall be invalid or unenforceable,
in whole or in part, then such provision shall be deemed to be modified or
restricted to the extent and in the manner necessary to render the same valid
and enforceable, or shall be deemed excluded from this letter agreement, as the
case may require, and this letter agreement shall be construed and enforced to
the maximum extent permitted by law as if such provision had been originally
incorporated herein as so modified or as if such provision had not been
originally incorporated herein, as applicable.

This Engagement Contract and each related confidentiality agreement constitute
the entire understanding between the parties with respect to the subject matter
and supercede all prior written and oral proposals, understandings, agreements
and/or representations, all of which are merged herein. Any amendment or
modification of this letter agreement shall be in writing and executed by each
of the parties hereto.

 

10. Governing Law and Jurisdiction

This Engagement Agreement shall be governed by and construed and enforced in
accordance with the laws of the State of New York. The Courts of New York shall
have exclusive jurisdiction in relation of any claim, dispute or difference
concerning the Engagement Agreement and any matter arising from it. The parties
hereto irrevocably waive any right they may have to object to any action being
brought in these Courts, to claim that the action has been brought to an
inconvenient forum or to claim that those Courts do not have jurisdiction.

 

11. Notice

All notices required or permitted to be delivered under this Engagement Contract
shall be sent, if to us, to the address set forth above, to the attention of
Eric Miller, and if to you, to the address for you set forth above, to the
attention of your General Counsel, or to such other name or address as may be
given in writing to the other party. All notices under the Engagement Contract
shall be sufficient if delivered by facsimile or overnight mail. Any notice
shall be deemed to be given only upon actual receipt.

 

12. Continuation of Terms

The terms of the Engagement Contract that by their context are intended to be
performed after termination or expiration of this Engagement Contract, including
but not limited to, section 4 and section 7, are intended to survive such
termination or expiration and shall continue to bind all parties.

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Mr. Edward H. Orzetti

Keystone Automotive Operations, Inc.

June 6, 2008

 

13. Citation of Engagement

Notwithstanding anything to the contrary contained herein, after the engagement
of FTI becomes a matter of public record, we shall have the right to disclose
our retention by the Company or the successful completion of its services
hereunder in marketing or promotional materials placed by FTI, at its own
expense, in financial and other newspapers or otherwise.

We look forward to working with you on this matter. Please sign and return a
copy of this letter signifying your agreement with the terms and provisions
herein. If you have any questions, please contact Stuart Gleichenhaus at
(214) 397-1612 or Bob Duffy at (617) 897-1501

 

Very truly yours, FTI Palladium Partners By:   /s/ Stuart Gleichenhaus   Stuart
Gleichenhaus   Senior Managing Director Date:   7/2/08

 

Agreed by:   Keystone Automotive Operations, Inc.

 

By:   /s/ Edward H. Orzetti   Edward H. Orzetti   President and Chief Executive
Officer Date:   7/2/08

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SCHEDULE I

Compensation Requirements

FTI will be paid a monthly fee in the amount of $110,000 on the first business
day of each month for the full-time engagement of Stuart Gleichenhaus in the
performance of the Services. Fees in connection with this Engagement for the
additional Temporary Employees will be based upon the time spent in providing
the Services, multiplied by our standard hourly rates summarized as follows. It
is anticipated that the monthly fee for Gleichenhaus plus one additional
Temporary Employee would be $175,000. Any further Temporary Employees would be
as shown below.

 

     Per Hour

Senior Managing Director

   $ 610 - $715

Director / Managing Director

   $ 435 - $620

Consultants / Senior Consultants

   $ 225 - $425

Administrative

   $ 95 - $175

As deemed appropriate and necessary and in accordance with the Engagement
Contract, in addition to the Temporary Employees, experts or individuals from
FTI’ s specialty service areas, including but not limited to tax and/or
insurance consulting, may be called upon to perform specific advising from time
to time. Fees for these individuals will be based upon their time reasonably
spent in providing those specialty services, multiplied by their hourly rates.

Hourly rates are subject to periodic adjustment. We will notify you of any such
changes to our rates. Note that we do not provide any assurance regarding the
outcome of our work and our fees will not be contingent on the results of such
work. In addition to the fees outlined above, FTI will bill for reasonable
expenses relative to the Engagement Contract which may include airfare, meals
and hotel accommodations, telephone, industry research relative to the
Engagement Contract, counsel fees, duplicating and printing, etc.