Exhibit 10.5

 

SUBORDINATED PROMISSORY NOTE

 

August 18, 2015

 

Section 1.                                          FUNDAMENTAL PROVISIONS.

 

Terms not otherwise defined herein shall have the meaning provided in Annex I
hereto. The following terms will be used as defined terms in this Subordinated
Promissory Note (as it may be amended, modified, extended and renewed from time
to time, this “Note”):

 

Issuer:                                                                                                           
Houlihan Lokey, Inc., a Delaware corporation (“Issuer”).

 

Holder:                                                                                                      
HLHZ Holding Company, LLC, a Delaware limited liability company

 

Principal Amount:                                             USD $45,000,000.00
(“Principal Amount”).

 

Section 2.                                          PROMISE TO PAY.

 

The Issuer promises to pay to the order of Holder, in accordance with the
payment procedure set forth herein, the outstanding Principal Amount, together
with accrued interest from the date of disbursement on the unpaid principal
balance at the applicable Interest Rate.

 

Section 3.                                          INTEREST; PAYMENTS.

 

(a)                                 Subject to the terms and conditions of
Section 12 and except as otherwise set forth herein, the Note shall bear
interest on the unpaid principal amount hereof from the date made through
repayment hereof (whether by acceleration or otherwise) at the Interest Rate. 
Interest on the Note shall accrue on a daily basis.  Interest will be calculated
daily on the basis of a 360-day year comprised of twelve 30 day months.  In
computing interest on the Note, the date of the issuance of the Note shall be
excluded and the date of repayment of the Note (including the repayment of any
portion of the Note) shall be included.  On (i) each Interest Payment Date prior
to the Maturity Date and (ii) the Maturity Date, the Issuer shall pay and
discharge in cash the interest accrued on the outstanding Principal Amount.

 

(b)                                 The Principal Amount of the Note will be
payable in installments of USD $7,500,000.00 payable on each Payment Date,
commencing on June 30, 2016; provided that in the event of any optional
prepayment, the amount of such payments shall be reduced in accordance with
Section 4.

 

(c)                                  If any payment of principal and interest or
any other amount payable hereunder is not paid when due, whether on an Interest
Payment Date, a Payment Date, the Maturity Date or any earlier date as a result
of acceleration of this Note after Default, then the amount then due and unpaid
shall thereafter bear interest until paid at a rate (“Default Interest Rate”)
per annum (based on a 360-day year, comprised of twelve 30 day months) equal to
the applicable Interest Rate plus two

 

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percent (2%) per annum, and such accrued interest at the Default Interest Rate
shall, subject to the terms and conditions of Section 12, be due and payable by
the Issuer on demand by Holder.

 

(d)                                 The Issuer shall make payment of all unpaid
principal, interest, and any other amounts due hereunder on the Maturity Date,
in immediately available funds, not later than 12:00 noon (New York time) (or
such later time as Holder shall agree). If any payment of principal and interest
to be made by the Issuer hereunder shall become due on a day which is not a
Business Day, such payment shall be made on the next succeeding Business Day and
such extension of time shall be included in computing the interest in such
payment.

 

(e)                                  Except as specifically hereinafter set
forth, all payments made by the Issuer under this Note shall be made by wire
transfer to the account listed below for Holder, or at such other place as
Holder designates to the Issuer, in immediately available funds, not later than
12:00 noon, New York time (or such later time as Holder shall agree) on the date
such payment is required to be made.

 

To Holder:

 

The Bank of Tokyo-Mitsubishi UFJ Trust Company
ABA No. 0260-0968-7
Account Number 310 062 381
For the account of ORIX USA Corporation

 

Section 4.                                          OPTIONAL PREPAYMENT.

 

Subject to the terms and conditions of Section 12, the Issuer may optionally
prepay the Note in whole or in part (in integral multiples of $100,000 or such
lesser amount as Holder shall agree), without premium or penalty, at any time
and from time to time by providing Holder notice of optional prepayment. Any
such prepayment shall be applied to reduce scheduled installments of principal
in inverse order of maturity.

 

Section 5.                                          LAWFUL MONEY.

 

Principal and interest are payable in lawful money of the United States of
America.

 

Section 6.                                          APPLICATION OF PAYMENTS.

 

Absent the occurrence of an Event of Default hereunder, any payments received by
Holder pursuant to the terms hereof shall be applied first to sums, other than
principal and interest due Holder hereunder, second to the accrued and unpaid
interest due hereunder and the balance, if any, to the payment of principal. Any
payments received by the Holder hereof during the continuation of an Event of
Default shall be applied to the amounts specified in this Section 6 in such
order as Holder may, in its sole discretion, elect.

 

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Section 7.                                          RESERVED.

 

Section 8.                                          REPRESENTATIONS AND
WARRANTIES.

 

Issuer represents and warrants to Holder that:

 

(a)                                 Due Organization .  It is duly formed and
validly existing, and is in good standing under the laws of its jurisdiction of
organization.

 

(b)                                 Authority.  It has the power and authority
to execute and deliver the Note and to perform its obligations hereunder.  The
execution, delivery and performance of the Note and the consummation of the
transactions contemplated hereby have been duly authorized by all of its
necessary corporate or similar action, and no other action or proceeding on its
part or on the part of its members is necessary to authorize the execution or
delivery the Note and consummation of the transactions contemplated hereby.  The
Note has been duly and validly executed and delivered by the Issuer.

 

(c)                                  Binding Effect.  The Note constitutes a
valid and binding obligation, enforceable against it in accordance with the
terms hereof subject to applicable bankruptcy, insolvency, fraudulent transfer
and similar laws affecting creditors’ rights generally and to general principles
of equity.

 

(d)                                 No Conflicts or Default.  Its execution,
delivery and performance of the Note do not and will not result in a breach or
violation of, or constitute a default under, any of the terms and provisions of
its organizational documents, any material law applicable to the Issuer or,
except as could not reasonably be expected to result in a Material Adverse
Effect on the Issuer or on its ability to perform its obligations under the
Note, any agreement to which the Issuer is a party.

 

(e)                                  Compliance with Laws and Agreements.  The
Issuer is in compliance with (a) all applicable laws and all judgments, decrees
and orders of any governmental authority and (b) all indentures, agreements or
other instruments binding upon it or its properties, except where
non-compliance, either singly or in the aggregate, could not reasonably be
expected to result in a Material Adverse Effect on the Issuer or on its ability
to perform its obligations under the Note.

 

Section 9.                                          COVENANTS.

 

(a)                                 Payment and Performance of Note Obligations.
The Issuer covenants and agrees that, from the date hereof until the Discharge
of Obligations with respect to the Note, it shall pay and perform all Note
Obligations arising under, and in accordance with, the terms of the Note.

 

(b)                                 Tax Matters.

 

(i)                                     If the Issuer shall be required by law
to deduct any Covered Taxes from or in respect of any sum payable hereunder such
sum shall be increased as may be necessary so that, after making all such
deductions, Holder receive an amount equal to the sum it would have received had
no such deduction

 

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for Covered Taxes been made.  If the Issuer shall be required by law to deduct
or withhold any taxes other than Covered Taxes from or in respect of any sum
payable hereunder, Holder shall be treated for all purposes of this Note as
having received any such amounts so deducted or withheld.

 

(ii)                                  If Holder is entitled to an exemption from
or reduction of withholding tax with respect to payments made under this Note,
Holder shall deliver to the Issuer, at the time or times reasonably requested by
the Issuer, such properly completed and executed documentation reasonably
requested by the Issuer as will permit such payments to be made without
withholding or at a reduced rate of withholding or to determine whether or not
Holder is subject to backup withholding or information reporting requirements,
including, without limitation, an Internal Revenue Service Form W-9 or
applicable Internal Revenue Service Form W-8.

 

(iii)                               If a payment made to Holder under this Note
would be subject to U.S. federal withholding tax imposed by FATCA if Holder were
to fail to comply with the applicable reporting requirements of FATCA (including
those contained in Section 1471(b) or 1472(b) of the Code, as applicable),
Holder shall deliver to the Issuer at the time or times prescribed by law and at
such time or times reasonably requested by the Issuer such documentation
prescribed by applicable law (including as prescribed by
Section 1471(b)(3)(C)(i) of the Code) and such additional documentation
reasonably requested by the Issuer as may be necessary for the Issuer to comply
with its obligations under FATCA and to determine that Holder has complied with
Holder’s obligations under FATCA or to determine the amount to deduct and
withholding from such payment.

 

(c)                                  Continuation of Business and Maintenance of
Corporate Existence and Licenses. The Issuer covenants and agrees that, from the
date hereof until the Discharge of Obligations with respect to the Note, it
shall preserve and maintain, and cause each of its Subsidiaries to preserve and
maintain, their existence, legal structure, legal name, rights (charter and
statutory), permits, licenses, approvals, privileges and franchises, except
where the failure to do so would not reasonably be expected to have a Material
Adverse Effect.

 

(d)                                 Dividends and Other Payments in Respect of
Equity Interests. The Issuer covenants and agrees that, from the date hereof
until the Discharge of Obligations with respect to the Note, (i) during the
continuance of an Event of Default, or (ii) if any payments required to have
been made pursuant to Section 3(b) have not been made, in each case it shall not
(a) declare or pay any dividends, purchase, redeem, retire, defease or otherwise
acquire for value any of its Equity Interests or any warrants, rights or options
to acquire such Equity Interests, now or hereafter outstanding, return any
equity to its stockholders as such, make any distribution of assets, capital
stock, warrants, rights, options, Obligations or securities to its equity
holders as such, or (b) permit any of its Subsidiaries to purchase, redeem,
retire, defease or otherwise acquire for value any Equity Interests of the
Issuer or

 

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any warrants, rights or options to acquire such equity interests.  This section
9(d) shall not restrict the payment of the IPO Dividend.

 

Section 10.                                   EVENTS OF DEFAULT.  The occurrence
of any of the following events shall constitute an “Event of Default”.

 

(a)                                 Payment under Note. The Issuer shall fail to
make payment of any principal or interest or fee when due under this Note, or a
default shall be made in the payment of any other portion of the Note
Obligations as and when the same shall be due and payable, and such failure or
default shall continue for three (3) days after notice to the Issuer from Holder
(it being understood that the failure of the Issuer to make any such payment as
a result of a prohibition thereon under Section 12 shall not constitute an Event
of Default).

 

(b)                                 Observance of Terms under Note. A default in
the due observance or performance of any term, covenant, condition or agreement
on the part of the Issuer to be observed or performed pursuant to the terms of
this Note, if such default (other than a default with respect to the payment of
any amount due to Holder) shall have occurred and continued for fifteen (15)
days after notice to the Issuer from Holder.

 

(c)                                  Voluntary Actions. The Issuer or any
Significant Subsidiary of the Issuer shall: (i) apply for or consent to the
appointment of a receiver, trustee or liquidator for itself or any of its
properties or assets; (ii) admit in writing the inability to pay its debts as
they mature; (iii) make a general assignment for the benefit of creditors;
(iv) suffer an order for relief to be entered against it or be declared to be
insolvent; or (v) file a voluntary petition in bankruptcy, or a petition seeking
reorganization or take advantage of any bankruptcy, reorganization, insolvency,
readjustment of debt, dissolution or liquidation law or statute, or an answer
admitting the material allegations of a petition filed against it in any
proceeding under any such law or if action shall be taken by the Issuer or any
Significant Subsidiary of the Issuer for the purpose of effecting any of the
foregoing.

 

(d)                                 Involuntary Actions. The expiration of sixty
(60) days after the filing of any involuntary petition against the Issuer or any
Significant Subsidiary of the Issuer seeking relief under the Bankruptcy Code,
without the petition being dismissed prior to that time, or an order, judgment
or decree shall be entered, without the application, approval or consent of the
Issuer or Significant Subsidiary of the Issuer by any court of competent
jurisdiction approving a petition seeking a reorganization of the Issuer or any
Significant Subsidiary or of all or a substantial part of the properties or
assets of the Issuer or any Significant Subsidiary of the Issuer or appointing a
receiver, trustee or liquidator of the Issuer or any Significant Subsidiary of
the Issuer and such order, judgment or decree shall continue unstayed and in
effect for a period of sixty (60) days or more.

 

(e)                                  Cross Acceleration. (i) The Issuer shall
fail to pay any principal of, premium or interest on or any other amount payable
in respect of the Senior Debt Obligations

 

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at the maturity thereof, and such failure shall continue after the applicable
grace period, if any, specified in the Senior Debt Documents; or (ii) any other
event shall occur or condition shall exist under any agreement or instrument
relating to the Senior Debt Obligations and shall continue after the applicable
grace period, if any, specified in the Senior Debt Documents, if the effect of
such event or condition is to accelerate the maturity of the Senior Debt
Obligations or otherwise to cause the Senior Debt Obligations to mature; or the
Senior Debt Obligations shall be declared to be due and payable or required to
be prepaid or redeemed, purchased or defeased, or an offer to prepay, redeem,
purchase or defease the Senior Debt Obligations shall be required to be made, in
each case under this clause (ii) prior to the stated maturity thereof, in each
case other than by a regularly scheduled required prepayment, mandatory
prepayment or redemption of all or any portion of the Senior Debt Obligations.

 

Section 11.                                   REMEDIES.

 

(a)                                 If an Event of Default specified in
Section 10(c) or 10(d) of this Note occurs, then, subject to the terms and
conditions set forth in Section 12, the entire balance of principal together
with all accrued interest thereon, and all other Note Obligations payable by the
Issuer hereunder shall become immediately due and payable, both as to principal
and interest.

 

(b)                                 If any Event of Default other than the
Events of Default referred to in Section 10(a) of this Note occurs, then,
subject to the terms and conditions set forth in Section 12, at any time
thereafter during the continuance of such Event of Default, at the option of the
Holder hereof, Holder may, by written notice to the Issuer, declare immediately
due and payable the entire balance of principal together with all accrued
interest thereon, and all other Note Obligations payable by the Issuer under the
Note.

 

Section 12.                                   SUBORDINATION.

 

(a)                                 Restriction on Payments.  Prior to the Final
Discharge Date, the Issuer shall not, and the Issuer shall procure that none of
its Subsidiaries will, make any payment of any Note Obligation hereunder at any
time unless the making or receipt of that payment is permitted under
Section 12(b).

 

(b)                                 Permitted Payments.

 

(i)                                     Subject to Section 12(b)(ii) and to the
extent permitted by all applicable Senior Debt Documents, the Issuer may make
payments in respect of the Note Obligations (whether principal, interest or
otherwise) from time to time when due, and Holder may accept or agree to accept
such payments at any time.

 

(ii)                                  Notwithstanding the foregoing, no payment
in respect of the Note Obligations described in Section 12(b)(i) above may be
made if (i) such payment would result in a breach of any Senior Debt Document or
(ii) an

 

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event of default under any Senior Debt Document has occurred and is continuing
(for the avoidance of doubt, after the expiration of all applicable cure or
grace periods), unless, solely in the case of clause (ii) above, (x) the prior
consent of each applicable Senior Agent is obtained or (y) such payment occurs
in connection with the payment of any Senior Debt Obligations on the Final
Discharge Date.

 

(c)                                  Payment Obligations Continue.  The Issuer
shall not be released from the liability to make any payment (including of
Default Interest, which shall continue to accrue) in relation to any Note
Obligations by the operation of Section 12(a) and Section 12(b) even if the
Issuer’s obligation to make that payment is restricted at any time by the terms
of either of those Sections (it being understood that the failure of the Issuer
to make any such payment as a result of a prohibition thereon under Section 12
shall not constitute an Event of Default).

 

(d)                                 Restriction on Enforcement.  Holder hereby
agrees that until the Final Discharge  Date:

 

(i)                                     It shall not, without the prior written
consent of the Senior Agents, commence, or join or participate in, any
Enforcement Action.

 

(ii)                                  In the event (i) any event of default
under any Senior Debt Document then exists or would result from such payment on
the Note Obligations, or (ii) Holder receives any payment or prepayment of
principal, interest or any other amount, in whole or in part, of (or with
respect to) the Note Obligations in violation of the terms of the Senior Debt
Documents, then, and in any such event, any payment or distribution of any kind
or character, whether in cash, property or securities, which shall be payable or
deliverable with respect to any or all of the Note Obligations or which has been
received by Holder shall be held in trust by Holder for the benefit of the
Senior Debt Parties and shall forthwith be paid or delivered directly to the
applicable Senior Agents for application to the payment of the Senior Debt
Obligations (after giving effect to the relative payment priorities of such
Senior Debt Obligations), to the extent necessary to make payment in full in
cash of all sums due under the Senior Debt Obligations remaining unpaid and not
cash collateralized after giving effect to any concurrent payment or
distribution to the Senior Agents or the Senior Debt Parties. In any such event,
the Senior Agents may, but shall not be obligated to, demand, claim and collect
any such payment or distribution that would, but for these subordination
provisions, be payable or deliverable with respect to the Note Obligations.
Notwithstanding the foregoing, if one or more events of default shall exist
under the Senior Debt Documents, the Senior Agents may agree in writing that
payments may be made with respect to the Note Obligations which would otherwise
be prohibited pursuant to this Agreement.

 

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(iii)                               If Holder shall acquire by grant,
indemnification, subrogation or otherwise, any lien or other interest in any of
the assets or properties of the Issuer or any subsidiary thereof, such lien or
other interest shall be subordinate in right of payment to the Senior Debt
Obligations and any liens in respect of the Senior Debt Obligations as provided
herein, and Holder hereby waives any and all rights it may acquire by
subrogation or otherwise to any lien in respect of the Senior Debt Obligations
or any portion thereof until such time as the Final Discharge Date shall have
occurred.  In the event that a lien described in this subsection (iii) exists,
until the Final Discharge Date, the Senior Agents are granted a power of
attorney to execute any and all documentation necessary to release such lien and
any filings perfecting such lien.

 

(iv)                              If, at any time, all or part of any payment
with respect to Senior Debt Obligations theretofore made (whether by the Issuer,
any affiliate or subsidiary thereof or any other person or enforcement of any
right of setoff or otherwise) is rescinded or must otherwise be returned by the
holders of Senior Debt Obligations for any reason whatsoever (including, without
limitation, the insolvency, bankruptcy or reorganization of the Issuer or such
other persons), the subordination provisions set forth herein shall continue to
be effective or be reinstated, as the case may be, all as though such payment
had not been made.

 

(v)                                 Holder waives any marshalling rights with
respect to the Senior Debt Parties in any Insolvency or Liquidation Proceeding.

 

(e)                                  Guarantees and Security.  Any payments made
to, or received by, Holder in respect of any guaranty or security in support of
the Note Obligations shall be subject to the terms of this Agreement and applied
on the same basis as payments made directly by the obligor under the Note
Obligations. To the extent that the Issuer or any of its subsidiaries provides a
guaranty or any security in support of any Note Obligations, Holder will cause
each such person to become a party hereto (if such person is not already a party
hereto) promptly after the date of the execution and delivery of the respective
guarantee or security documentation, provided that any failure to comply with
the foregoing requirements of this Section 12(e) will have no effect whatsoever
on the subordination provisions contained herein (which shall apply to all
payments received with respect to any guarantee or security for any Note
Obligations, whether or not the person furnishing such guarantee or security is
a party hereto).

 

(f)                                   Prohibited Payments.  Holder hereby
acknowledges and agrees that no payments will be accepted by it in respect of
the Note Obligations (unless promptly turned over to the Senior Agents as
contemplated by Section 12(d) above), to the extent such payments would be
prohibited under any Senior Debt Obligations (or the Senior Debt Documents).

 

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(g)                                  Subordination.

 

(i)                                     Anything to the contrary
notwithstanding, all Note Obligations shall be subordinate and junior in right
of payment, to the extent and in the manner herein set forth, to the prior
payment in full, in cash, and performance of all Senior Debt Obligations. The
foregoing shall apply notwithstanding the availability of collateral to the
Senior Debt Parties or the holders of Note  Obligations or the actual date and
time of execution, delivery, recordation, filing or perfection of any liens
granted with respect to the Senior Debt Obligations, or the lien or priority of
payment thereof, and in any instance wherein the Senior Debt Obligations or any
claim for the Senior Debt Obligations is subordinated, avoided or disallowed, in
whole or in part, under any debtor relief law. In the event of an Insolvency or
Liquidation Proceeding with respect to the Issuer, (i) the lenders or holders of
any Senior Debt Obligations shall be entitled to the Discharge of Obligations
with respect to the Senior Debt Obligations before Holder is entitled to receive
any payment on account of any Note Obligations, (ii) the lenders or holders of
any Senior Debt Obligations shall be entitled to receive any payment or
distribution of any kind or character, whether in cash, property or securities
or by set-off or otherwise, which may be payable or deliverable in any
Insolvency or Liquidation Proceeding in respect of any Note Obligations,
(iii) until the Final Discharge Date, any payment or distribution of assets of
the Issuer of any kind or character, whether in cash, property or securities, to
which Holder would be entitled, except for payments permitted under
Section 12(b), shall be paid or delivered by Holder directly to the Senior
Agents for application in accordance with the Senior Debt Documents, (iv) Holder
shall execute, verify, deliver and file any proofs of claim in respect of the
Note Obligations requested by any Senior Agent in connection with any such
Insolvency or Liquidation Proceeding and hereby irrevocably authorizes, empowers
and appoints each Senior Agent as its agent and attorney-in-fact (and to the
extent required by applicable law, grant a power of attorney to the Senior
Agents on such terms as the Senior Agents may reasonably require) to execute,
verify, deliver and file such proofs of claim upon the failure of Holder to do
so prior to 15 days before the expiration of the time to file any such proof of
claim; provided that (x) no Senior Agent shall have an obligation to execute,
verify, deliver, file and vote any such proof of claim and (y) if a Senior Agent
is not entitled to execute, verify, deliver, file or vote any such proof of
claim and a Senior Agent requests Holder or Issuer to take that action, Holder
or Issuer shall take that action itself in accordance with the instructions of
such Senior Agent.  In the event that a Senior Agent votes any claim in
accordance with the authority granted hereby, Holder shall not be entitled to
change or withdraw such vote.

 

(ii)                                  In any Insolvency or Liquidation
Proceeding relating to the Issuer, Holder agrees that the lenders or holders of
Senior Debt Obligations shall be entitled to the Discharge of Obligations with
respect to the Senior Debt Obligations (including interest accrued on or
accruing after the commencement of any Insolvency or Liquidation Proceeding,
regardless

 

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of whether allowed or allowable in such proceeding and any premium stated to be
payable) before Holder receives payment of any amount in respect of the Note
Obligations.  No right of the Senior Agents to enforce the subordination of the
Issuer’s obligations hereunder may be impaired by any act or failure to act by
the Issuer or Holder or by the failure of the Issuer or the Holder to comply
with the terms of this Note.  No failure or delay on the part of any party
hereto or any holder of Senior Debt Obligations in exercising any right, power
or remedy hereunder shall operate as a waiver thereof, nor shall any single or
partial exercise of any such right, power or remedy preclude any other or
further exercise thereof or the exercise of any other right, power or remedy
hereunder.  If the Issuer or Holder violates any of the terms of this
Section 12, in addition to any remedies in law, equity or otherwise, each Senior
Agent may restrain such violation in any court of law and may interpose this
Note as a defense in any action by Holder.  Holder hereto acknowledges that to
the extent that no adequate remedy at law exists for breach of its obligations
under this Note, in the event Holder fails to comply with its obligations
hereunder, the Senior Agents shall have the right to obtain specific performance
of the obligations of Holder, injunctive relief or such other equitable relief
as may be available. Holder hereby acknowledges that the Senior Agents and the
holders of the Senior Debt Obligations are intended third party beneficiaries of
this Section 12 and shall be entitled to enforce the same against Holder, the
Issuer or any guarantor of the Note Obligations.

 

(iii)                               If payment hereunder is accelerated because
of an Event of Default, Holder will promptly notify the Senior Agents of the
acceleration.  The provisions of this Section 12, the interest rate for the Note
Obligations and the repayment terms of this Note may not be amended or modified
without the written consent of the Senior Agents; provided that without such
consent of the Senior Agents, the interest rate may be reduced and the payment
terms of the Note Obligations may be modified to reduce or extend any
amortization or otherwise relax the terms, conditions and covenants set forth in
the Note.  Until the Final Discharge Date, without the written consent of the
Senior Agents, the Note may not be modified to add any covenants or obligations
or to amend the covenants and obligations of the Issuer in a manner which is
more restrictive to the Issuer than as set forth in the Note as of the date
hereof.

 

Section 13.                                   WAIVER.

 

The Issuer, endorsers, guarantors and sureties of this Note hereby waive
diligence, demand for payment, presentment for payment, protest, notice of
nonpayment, notice of protest, notice of intent to accelerate, notice of
acceleration, notice of dishonor, and notice of nonpayment, and all other
notices or demands of any kind (except notices specifically provided for herein)
and expressly agree that, without in any way affecting the liability of the
Issuer, endorsers, guarantors or sureties, the Holder hereof may extend

 

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any maturity date or the time for payment of any installment due hereunder,
otherwise modify this Note, accept additional security, release any Person
liable, and release any security or guaranty. The Issuer, endorsers, guarantors
and sureties waive, to the full extent permitted by law, the right to plead any
and all statutes of limitations as a defense.

 

Section 14.                                   RESERVED.

 

Section 15.                                   ATTORNEYS’ FEES.

 

If this Note is not paid when due or if any Event of Default occurs, the Issuer
promises to pay all costs of enforcement and collection and preparation
therefor, including but not limited to, reasonable attorneys’ fees, whether or
not any action or proceeding is brought to enforce the provisions hereof
(including without limitation, all such costs incurred in connection with any
bankruptcy, receivership or other court proceedings, whether at the trial or
appellate level).

 

Section 16.                                   SEVERABILITY.

 

If any provision of this Note is unenforceable, the enforceability of the other
provisions shall not be affected and they shall remain in full force and effect.

 

Section 17.                                   NUMBER AND GENDER.

 

In this Note the singular shall include the plural and the masculine shall
include the feminine and neuter gender, and vice versa.

 

Section 18.                                   HEADINGS.

 

Headings at the beginning of each numbered section of this Note are intended
solely for convenience and are not part of this Note.

 

Section 19.                                   NOTICES.

 

(a)                                 Any notice or other communication required
or permitted to be given or made under this Note (i) shall be in writing,
(ii) shall refer specifically to this Note, (iii) may be delivered by (A) hand
delivery, (B) First Class U.S. Mail (regular, certified, registered or expedited
delivery), (C) Federal Express or UPS Overnight, or other nationally recognized
delivery service, (D) fax, or (E) e-mail or other electronic transmission, and
(iv) shall be delivered or transmitted to the appropriate address as set forth
in clause (b) below.

 

(b)                                 Each notice or other communication shall be
delivered or addressed to a party at its address set forth below. A party’s
address for notice may be changed from time-to-time only by notice given to the
other party.

 

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If to Holder:

 

ORIX USA Corporation

1717 Main Street, Suite 900

Dallas, Texas 75201

Attention: Treasury

Fax Number: Fax (214) 237-2018

Email Address: treasury@orix.com

 

If to the Issuer:

 

Houlihan Lokey, Inc.

10250 Constellation Blvd., 5th Floor

Los Angeles, CA 90067

Attention: Senior Vice President, Finance

Email Address: etaniguchi@HL.com

 

Section 20.                                   APPLICABLE LAW.

 

This Note and the transactions contemplated thereby are being executed and
delivered and are intended to be performed in the State of New York, and shall
be construed in accordance with and governed by the local laws of the State of
New York, and enforceable in the federal and state courts in the State of New
York.  EACH PARTY HERETO WAIVES TRIAL BY JURY WITH RESPECT TO ANY ACTION, CLAIM,
SUIT OR PROCEEDING IN RESPECT OF OR ARISING OUT OF THIS NOTE OR ANY OF THE OTHER
INSTRUMENTS OR DOCUMENTS EXECUTED IN CONNECTION HEREWITH, AND SHALL NOT SEEK TO
CONSOLIDATE, BY COUNTERCLAIM OR OTHERWISE, ANY ACTION IN WHICH A JURY TRIAL
CANNOT BE OR HAS NOT BEEN WAIVED.

 

Section 21.                                   NON WAIVER.

 

Neither any failure nor any delay on the part of Holder in exercising any right,
power or privilege hereunder shall operate as a waiver thereof, nor shall a
single or partial exercise thereof preclude any other or further exercise of any
other right, power or privilege, nor shall any course of dealing between the
Issuer and Holder operate as a waiver of any right or rights of Holder.

 

Section 22.                                   MODIFICATION, AMENDMENT, ETC.

 

No modification, amendment or waiver of any provision of this Note, nor consent
to any departure by the Issuer, shall in any event be effective unless the same
shall be in writing and signed by Holder and then such waiver or consent shall
be effective only in the specific instance and for the specific purpose for
which given. No notice or demand on the Issuer in any case shall entitle the
Issuer to any other or further notice or demand in the same, similar or other
circumstance.

 

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Section 23.                                   COUNTERPARTS.

 

This Note may be executed in two or more counterparts, each of which shall
constitute but one agreement. This Note shall be effective when counterparts
which, when taken together, bear the signature (including execution by
facsimile) of all parties hereto, shall have been delivered to and received by
Holder and the Issuer.

 

Section 24.                                   INTEGRATION.

 

This Note contains the complete understanding and agreement of the Holder hereof
and the Issuer and supersedes all prior representations, warranties, agreements,
arrangements, understandings and negotiations.

 

Section 25.                                   BINDING EFFECT; ASSIGNMENTS.

 

This Note will be binding upon, and inure the benefit of, the Holder hereof, the
Issuer, and their respective successors and assigns. The Issuer may not delegate
its obligations under this Note.  Holder may not assign or otherwise transfer
any of its rights or obligations hereunder without the written consent of the
Issuer.  The Issuer hereby consents to the transfer of this Note, first to Fram
and then to ORIX USA and/or its Affiliates, in each case in order to effect the
IPO Dividend.

 

Section 26.                                   SURVIVAL.

 

The representations, warranties and covenants of the Issuer in this Note shall
survive the execution and delivery of this Note.

 

Section 27.                                   RIGHT TO DEFEND.

 

Holder shall have the right, at the sole cost and expense of the Issuer, to
appear in or defend any action or proceeding in which named or joined or
otherwise purporting to affect the rights or duties of the parties hereunder and
in connection therewith recover from the Issuer all necessary costs and expenses
(including reasonable attorneys’ fees), with counsel reasonably satisfactory to
Holder.

 

Section 28.                                   INDEMNIFICATION.

 

The Issuer hereby protects, indemnifies, defends and holds harmless Holder from
and against any and all liability, expense or damage of any kind or nature from
any suits, claims or demands, including reasonable attorneys’ fees and expenses,
on account of any matter or thing, whether in suit or not, arising out of this
Note and the transactions contemplated hereby, other than taxes (which shall be
governed exclusively by Section 9(b) hereof). The parties hereto recognize that
no indemnity is intended to indemnify a Person’s gross negligence, unexcused
failure to perform or unlawful acts.

 

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Section 29.                                   INTEREST RATE LIMITATION.

 

The Issuer hereby agrees to pay an effective rate of interest that is the sum of
the interest rate provided for herein, together with any additional rate of
interest resulting from any other charges of interest or in the nature of
interest paid or to be paid in connection with the Note, including, without
limitation, any fees to be paid by the Issuer pursuant to the provisions of the
Note. Holder and the Issuer agree that none of the terms and provisions
contained herein shall be construed to create a contract for the use,
forbearance or detention of money requiring payment of interest at a rate in
excess of the maximum interest rate permitted to be charged by the laws of the
State of New York. In such event, if Holder shall collect monies which are
deemed to constitute interest which would otherwise increase the effective
interest rate of this Note to a rate in excess of the maximum rate permitted to
be charged by the laws of the State of New York, all such sums deemed to
constitute interest in excess of such maximum rate shall, at the option of the
Holder, be credited to the payment of other amounts payable under the Note or
returned to the Issuer. All agreements between the Issuer and Holder, whether
now existing or hereafter arising and whether written or oral, are hereby
limited so that in no contingency, whether by reason of acceleration of the
maturity of any indebtedness governed hereby or otherwise, shall the interest
contracted for, charged or received by Holder exceed the maximum amount
permitted under law. If, from any circumstances whatsoever, interest would
otherwise be payable to Holder in excess of the maximum lawful amount, the
interest payable to Holder shall be reduced to the maximum amount permitted
under applicable law; and, if from any circumstance Holder shall ever receive
anything of value deemed interest by applicable law in excess of the maximum
lawful amount, an amount equal to any excessive interest shall be applied to the
reduction of the principal of the Note and not to the payment of interest, or if
such excessive interest exceeds the unpaid balance of principal of the Loan such
excess shall be refunded to the Issuer. All interest paid or agreed to be paid
to Holder shall, to the extent permitted by applicable law, be amortized,
prorated, allocated, and spread throughout the full period until payment in full
of the principal of the Note (including the period of any renewal or extension
thereof) so that interest thereon for such full period shall not exceed the
maximum amount permitted by applicable law.

 

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Holder:

 

 

 

HLHZ HOLDING COMPANY, LLC, a Delaware limited liability company

 

 

 

By:

FRAM HOLDINGS, Inc.,

 

 

its sole member

 

 

 

 

 

By:

/s/ Paul E. Wilson

 

 

Name:

Paul E. Wilson

 

 

Title:

Chief Financial Officer

 

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ISSUER:

 

 

 

HOULIHAN LOKEY, INC., a Delaware corporation

 

 

 

 

 

By:

s/ J. Lindsey Alley

 

 

Name:

J. Lindsey Alley

 

 

Title:

Chief Financial Officer

 

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ANNEX A

 

GLOSSARY OF DEFINED TERMS

 

In addition to the other terms defined elsewhere in this Agreement, for the
purposes of same, the following words and terms shall have the meaning set forth
below (such meanings being equally applicable to both the singular and plural
form of the terms defined):

 

“Affiliate” means, as to any Person, any other Person that, directly or
indirectly, controls, is controlled by or is under common control with such
Person.  For purposes of this definition, the term “control” (including the
terms “controlling,” “controlled by” and “under common control with”) of a
Person means the possession, direct or indirect, of the power to direct or cause
the direction of the management and policies of such Person, whether through the
ownership of voting interests, by contract or otherwise.

 

“Bankruptcy Code” means Title 11 of the United States Code entitled
“Bankruptcy”, as now and hereafter in effect, or any successor statute.

 

“Bankruptcy Law” means the Bankruptcy Code and any similar federal, state or
foreign law for the relief of debtors, conservatorship, bankruptcy, general
assignment for the benefit of creditors, moratorium, rearrangement,
receivership, insolvency, reorganization or similar debtor relief laws of the
United States or other applicable jurisdictions from time to time in effect and
any similar federal, state or foreign law for the relief of debtors affecting
the rights of creditors generally.

 

“Business Day” means a day other than a Saturday, Sunday or other day on which
commercial banks in New York, New York are authorized or required by law to
close.

 

“Capital Stock” means any and all shares, interests, participations or other
equivalents (however designated) of capital stock of a corporation, any and all
equivalent ownership interests in a Person (other than a corporation),
including, without limitation, common stock, preferred stock, partnership
interests and membership interests, and any and all warrants, rights or options
to purchase or other arrangements or rights to acquire any of the foregoing.

 

“Code” means the Internal Revenue Code of 1986, as amended.

 

“Covered Taxes” means any tax of any kind, but excluding (a) franchise taxes,
branch profits and taxes imposed on or measured by the net income or receipts of
Holder under the law of any jurisdiction, (b) any such withholding tax that is
in effect and would apply to a payment to Holder at the time Holder becomes a
party to this Agreement, (c) taxes attributable to Holder’s failure to comply
with Section 9(b)(ii) or Section 9(b)(iii) and (d) any withholding taxes imposed
under FATCA.

 

“Default” means any of the events or circumstances specified in Section 10
hereof, whether or not any requirement for the giving of notice, the lapse of
time, or both, has been satisfied.

 

“Default Interest Rate” is defined in Section 3(c).

 

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“Discharge of Obligations” means, with respect to any Obligations (other than
contingent or indemnification obligations not yet due and payable and for which
no claim has been made or asserted), (a) the full cash payment thereof,
including any interest, fees, premium and other charges accruing during an
insolvency proceeding (whether or not allowed in the proceeding) and (b) the
termination or expiration of all commitments, in each case, in accordance with
the applicable debt documents.

 

“Enforcement Action” means in relation to the Note Obligations:

 

(a)                                 the acceleration of any Note Obligations or
the making of any declaration that any Note Obligations are prematurely due and
payable;

 

(b)                                 the making of any declaration that any Note
Obligations are payable on demand;

 

(c)                                  the making of a demand in relation to a
Note Obligation that is payable on demand (other than a demand made by Holder in
relation to any Note Obligations which are on-demand Note Obligations to the
extent that any resulting payment would be permitted under Section 12(b));

 

(d)                                 the exercise of any right to require the
Issuer or any affiliate or subsidiary thereof to acquire any Note Obligations
(including exercising any put or call option against any such affiliate or
subsidiary for the redemption or purchase of any such Note Obligations);

 

(e)                                  the exercise of any right of set-off or
recoupment, bankers’ lien, account combination or payment netting against the
Issuer or any affiliate or subsidiary thereof in respect of any Note Obligations
other than the exercise of any such right which is otherwise expressly permitted
under or not prohibited by the Senior Debt Documents to the extent that the
exercise of that right gives effect to a payment permitted under Section 12(b);

 

(f)                                   the suing for, commencing or joining of
any legal or arbitration proceedings against the Issuer or any affiliate or
subsidiary thereof to recover any Note Obligations; and

 

(g)                                  any foreclosure proceeding, the exercise of
any power of sale, the obtaining of a receiver, the seeking of default interest,
the suing on, or otherwise taking any action to enforce the obligation of the
Issuer or any affiliate or subsidiary thereof to pay any amounts relating to any
Note Obligations or the taking of any other enforcement action against any asset
or property of the Issuer or any such affiliate or subsidiary.

 

“Equity Interests” means, with respect to any Person, shares in (or other
ownership or profit interests in) such Person, warrants, options or other rights
for the purchase or other acquisition from such Person of shares in (or other
ownership or profit interests in) such Person, securities convertible into or
exchangeable for shares in (or other ownership or profit interests in) such
Person or warrants, rights or options for the purchase or other acquisition from
such Person

 

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of such shares (or such other interests), and other ownership or profit
interests in such Person (including partnership, member or trust interests
therein), whether voting or nonvoting.

 

“Event of Default” means any of the events or circumstances specified in
Section 10 hereof, provided that any requirement for the giving of notice, the
lapse of time, or both, has been satisfied.

 

“FATCA” means Sections 1471 through 1474 of the Code, as of the date of this
Note (or any successor version that is substantively comparable and not
materially more onerous to comply with), any current or future regulations or
official interpretations thereof, any agreements entered into pursuant to
Section 1471(b)(1) of the Code, any intergovernmental agreement between a
non-U.S. jurisdiction and the United States of America with respect to the
foregoing and any law, regulation or practice adopted pursuant to any such
intergovernmental agreement.

 

“Final Discharge Date” means the date on which the Discharge of Obligations with
respect to the Senior Debt Obligations shall have occurred.

 

“Fram” means Fram Holdings, Inc., a Delaware corporation.

 

“FRAM Notes” means the promissory notes issued pursuant to the Third Amended and
Restated Stockholders Agreement dated as of February 17, 2009, by and among
Fram, ORIX USA Corporation, and the Holders identified therein.

 

“HLHZ” means HLHZ Holding Company, LLC, a Delaware limited liability company.

 

“Holder” means HLHZ Holding Company, LLC, a Delaware limited liability company,
together with its successors and assigns.

 

“IPO Dividend” means the dividends and distributions payable, on the date
hereof, (a) by the Issuer to HLHZ, (b) by HLHZ to Fram and (c) by Fram to the
holders of record of Fram’s common stock as of the “open of business” on the day
prior to the day of pricing of the Issuer’s initial public offering and any
dividends, distributions or other transfers of this Note that occur on the date
hereof in connection therewith.

 

“Insolvency or Liquidation Proceeding” means (a) any voluntary or involuntary
case or proceeding under any debtor relief law with respect to the Issuer or any
Significant Subsidiary of the Issuer, (b) any other voluntary or involuntary
insolvency, reorganization or bankruptcy case or proceeding, or any
receivership, administration, administrative receivership, liquidation,
reorganization, dissolution or other similar case or proceeding or declaration
of a moratorium in any applicable jurisdiction with respect to the Issuer or any
Significant Subsidiary of the Issuer or with respect to any of its assets or
(c) any liquidation, dissolution, reorganization or winding up of the Issuer or
any Significant Subsidiary of the Issuer whether voluntary or involuntary and
whether or not involving insolvency or bankruptcy and including the passing of a
resolution or making of an order for any of the foregoing. Notwithstanding the
foregoing, any liquidation, dissolution, reorganization, consolidation or other
transaction that is permitted by a Senior Debt Document shall not be deemed to
be an “Insolvency or Liquidation Proceeding.”

 

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“Interest Payment Date” means each June 30, September 30, December 31, and
March 31, commencing September 30, 2015, and continuing until the payment in
full of all Note Obligations.

 

“Interest Period” means (a) initially, the period commencing on the date hereof
and ending on September 30, 2015; and (b) thereafter, each period commencing on
the last day of the immediately preceding Interest Period and ending on the last
day of the third calendar month thereafter; provided that, in each of the case
of clauses (a) and (b), (i) if any Interest Period would end on a day other than
a Business Day, such Interest Period shall be extended to the next succeeding
Business Day unless such next succeeding Business Day would fall in the next
calendar month, in which case such Interest Period shall end on the next
preceding Business Day, (ii) any Interest Period that commences on the last
Business Day of a calendar month (or on a day for which there is no numerically
corresponding day in the last calendar month of such Interest Period) shall end
on the last Business Day of the last calendar month of such Interest Period, and
(iii) no Interest Period shall extend beyond the date on which the Note
Obligations hereunder is repaid in full.

 

“Interest Rate” means a rate per annum equal to the London Interbank Offer Rate
(rounded upwards, if necessary, to the nearest 1/100th) appearing on Reuters
Screen LIBOR01 Page (or any successor or substitute page of such service) as the
London interbank offered rate for deposits in Dollars for a three month term at
approximately 11:00 a.m. on the date which is two (2) Business Days prior to the
commencement of the applicable Interest Period, plus 165 basis points.

 

“Issuer” is defined in Section 1.

 

“Material Adverse Effect” means a material adverse effect on (a) the business,
financial condition, operations, assets or liabilities of the Issuer and its
Subsidiaries, taken as a whole; (b) the rights and remedies of the Holder under
the Note or (c) the ability of the Issuer to perform its Note Obligations.

 

“Maturity Date” means the date that is the second anniversary of the date
hereof.

 

“Note” is defined in Section 1.

 

“Note Obligations” means all Obligations of every nature of the Issuer now or
hereafter existing under or arising out of or in connection with this Note,
together with all extensions or renewals thereof, whether for principal,
interest, any fees, any costs, expenses, damages, indemnities, taxes, payments
otherwise contemplated, whether voluntary or involuntary, direct or indirect,
absolute or contingent, liquidated or unliquidated, whether or not jointly owed
with others, and whether or not from time to time decreased or extinguished and
later increased, created or incurred, and all or any portion of such obligations
or liabilities that are paid, to the extent all or any part of such payment is
avoided or recovered directly or indirectly from Holder as a preference,
fraudulent transfer, transfer at under value or otherwise (including interest
that, but for the filing of a petition in bankruptcy or insolvency with respect
to the Issuer, would accrue on such obligations, whether or not a claim is
allowed against the Issuer for such amounts in the related bankruptcy or
insolvency proceeding).

 

A-4

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“Obligation” means, with respect to any Person, any payment, performance or
other obligation of such Person of any kind, including any liability of such
Person on any claim, whether or not the right of any creditor to payment in
respect of such claim is reduced to judgment, liquidated, unliquidated, fixed,
contingent, matured, disputed, undisputed, legal, equitable, secured or
unsecured, and whether or not such claim is discharged, stayed or otherwise
affected by any proceeding under Bankruptcy Law.

 

“Payment Date” means each June 30, September 30, December 31, and March 31,
commencing June 30, 2016, and continuing until the payment in full of all Note
Obligations.

 

“Person” means an individual, a partnership, a company, a limited liability
company, a corporation, a business trust, a joint stock company, a trust, an
unincorporated association, a joint venture, a governmental authority or any
other entity.

 

“Principal Amount” is defined in Section 1.

 

“Senior Agent” means the administrative agent, trustee or collateral agent
appointed under any Senior Debt Document and shall specifically include Bank of
America, N.A. in its capacity as the Lender under the Senior Credit Agreement.

 

“Senior Credit Agreement” means the $75,000,000 senior credit facility to be
entered into in connection with the Issuer’s public offering, by and among
Houlihan Lokey, Inc., as borrower, and Bank of America, N.A., as the lender
thereunder, as it may be amended, amended and restated, replaced or refinanced
from time to time.

 

“Senior Debt Documents” shall mean any documents governing the terms of Senior
Debt Obligations.

 

“Senior Debt Obligations” means the Issuer’s Obligations under the Senior Credit
Agreement and any other indenture, agreement or instrument evidencing
indebtedness for borrowed money, unless the indenture, agreement or instrument
under which such indebtedness is incurred provides that it is (a) on parity with
or subordinated in right of payment to this Note, or (b) subordinated in right
of payment to the obligations under the Senior Credit Agreement, provided that
in no case shall the FRAM Notes constitute Senior Debt Obligations.

 

“Senior Debt Parties” means each Person party to the Senior Debt Documents as a
lender, and shall include, without limitation, the lender parties to the Senior
Credit Agreement.

 

“Significant Subsidiary” means any Subsidiary that would be a “significant
subsidiary” as defined in Article 1, Rule 1-02 of Regulation S-X, promulgated
pursuant to the Securities Act of 1933, as it may be amended from time to time.

 

“Subsidiary” means, with respect to any specified Person: (a) any corporation,
association or other business entity of which more than 50% of the total voting
power of shares of Capital Stock entitled (without regard to the occurrence of
any contingency and after giving effect to any voting agreement or stockholders’
agreement that effectively transfers voting power) to vote in the election of
directors, managers or trustees of the corporation, association or other
business entity is at the time owned or controlled, directly or indirectly, by
that Person or

 

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one or more of the other Subsidiaries of that Person (or a combination thereof);
or (b) any partnership (i) the sole general partner or the managing general
partner of which is such Person or a Subsidiary of such Person or (ii) the only
general partners of which are that Person or one or more Subsidiaries of that
Person (or any combination thereof).

 

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