Villaraigosa hits cap *

Email sent by Richard Kline of Fleishman-Hillard:

I wanted to personally provide you insight into developments at Fleishman-Hillard, Los Angeles, some of which you may have seen in the media and some which you probably have not.

Fleishman-Hillard has reached an agreement with the City Attorney to settle all civil claims regarding billings by our Los Angeles office to the City of Los Angeles. If it is approved by the appropriate City agencies, the agreement will resolve the lawsuit brought by the City Attorney as well as all issues raised by the City Controller in an audit report on this matter.

As you may recall, FH proactively discontinued all work for the City early last year to allow the City agencies which we represented to focus on their work rather than our representation of them.

Fleishman-Hillard has agreed to pay $4.5 million and to waive payment of approximately $1.3 million the Department of Water and Power (DWP) owes Fleishman-Hillard for unpaid invoices from 2003 and 2004.

As we said several months ago, we conducted an extensive internal investigation of these issues. On the basis of that investigation, the agency believes some senior executives of the Los Angeles office, who are no longer with the firm, caused certain bills to be presented to the City that appear to be improper and indefensible. We turned over the results of our investigation to the appropriate federal and county authorities, and we continue to cooperate fully with them.

The settlement payment is substantially more than the amount of questioned billing, but we believe the cost to our reputation of a prolonged legal and political battle would ultimately be far greater than the cost of this settlement. This agreement also will allow us to avoid significant litigation expense and will help us focus more resources on serving our clients instead of defending the firm in these actions. The agreement will not resolve all issues surrounding events in Los Angeles, but we believe it is a significant step in setting this matter right.

We take full responsibility for any billing issues and we have taken steps to ensure the integrity of our billing process. These include:

* A strong, entirely new senior management team in Los Angeles, each of whom has deep L.A. experience and expertise.

* Improved procedures and oversight for financial reporting.

* A requirement that employees must now personally certify the accuracy of time billed to clients.

* A new agency-wide case-based ethics training curriculum.

* The launch of a hot-line to allow anonymous reporting of any inappropriate acts.

* The elimination of all company political contributions.

* Engaging independent auditors to test compliance with our policies and procedures by conducting audits on a continuing basis.

A respected PR industry trade publication, The Holmes Report, stated recently in summarizing the results of its industry-wide survey that events in our Los Angeles office "may have attracted a good deal of the industry's attention in 2004, but it clearly did not distract employees at Fleishman-Hillard, our Best Big Agency to Work For. The firm's scores improved across the board but most noticeably in Los Angeles itself, where the new management team has clearly acted quickly to restore confidence and bring employee perceptions back into line with those across the rest of Fleishman's U.S. network."

We continue to focus on providing quality work, generating outstanding results for all of our clients and being worthy of your continued trust and respect. We will continue to do everything possible to prove our commitment to our company values and to our community.

If you have any questions, concerns, comments or suggestions, please don't hesitate to call me personally at the number above or email me at [email address deleted]. I look forward to talking with you soon.

Best,

Richard S. Kline
Regional President and Senior Partner
General Manager - Los Angeles