<PAGE> 1
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UNITED STATES SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
---------------------
FORM 10-Q
---------------------
<TABLE>
<S> <C> <S>
(MARK ONE)
[X] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(D) OF
THE SECURITIES EXCHANGE ACT OF 1934
FOR THE QUARTERLY PERIOD ENDED SEPTEMBER 30, 1997
OR
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(D) OF
THE SECURITIES EXCHANGE ACT OF 1934
FOR THE TRANSITION PERIOD FROM ____________ TO
____________
</TABLE>
COMMISSION FILE NUMBER 0-28000
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THE PROFIT RECOVERY GROUP INTERNATIONAL, INC.
(Exact name of registrant as specified in its charter)
---------------------
<TABLE>
<S> <C>
GEORGIA 58-2213805
(State or other jurisdiction of incorporation (I.R.S. Employer Identification No.)
or organization)
</TABLE>
2300 WINDY RIDGE PARKWAY
SUITE 100 NORTH
ATLANTA, GEORGIA 30339-8426
(770) 955-3815
(ADDRESS AND TELEPHONE NUMBER, INCLUDING AREA CODE, OF REGISTRANT'S PRINCIPAL
EXECUTIVE OFFICES)
Indicate by check mark whether the registrant (1) has filed all reports
required to be filed by Section 13 or 15(d) of the Securities Exchange Act of
1934 during the preceding 12 months (or for such shorter period that the
Registrant was required to file such reports), and (2) has been subject to such
filing requirements for the past 90 days. Yes [X] No [ ]
The number of outstanding shares of the issuer's class of capital stock as
of October 30, 1997, the latest practicable date, was as follows: 19,152,976
shares of Common Stock, no par value.
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<PAGE> 2
THE PROFIT RECOVERY GROUP INTERNATIONAL, INC. AND SUBSIDIARIES
FORM 10-Q
QUARTER ENDED SEPTEMBER 30, 1997
INDEX
<TABLE>
<CAPTION>
PAGE NO.
--------
<S> <C> <C>
PART I. Financial Information
Item 1. Financial Statements (Unaudited)
Condensed Consolidated Statements of Earnings --
Three and nine month periods ended September 30, 1997
and September 30, 1996................................. 1
Condensed Consolidated Balance Sheets --
September 30, 1997 and December 31, 1996............... 2
Condensed Consolidated Statements of Cash Flows --
Nine months ended September 30, 1997 and September 30,
1996................................................... 3
Notes to Condensed Consolidated Financial Statements...... 4
Item 2. Management's Discussion and Analysis of Financial
Condition and Results of Operations......................... 6
Item 3. Quantitative and Qualitative Disclosures about
Market Risk......................................... 11
PART II. Other Information........................................... 12
Signatures............................................................ 13
</TABLE>
<PAGE> 3
PART I. FINANCIAL INFORMATION
ITEM 1. FINANCIAL STATEMENTS (UNAUDITED)
THE PROFIT RECOVERY GROUP INTERNATIONAL, INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF EARNINGS
(AMOUNTS IN THOUSANDS, EXCEPT PER SHARE DATA)
(UNAUDITED)
<TABLE>
<CAPTION>
THREE MONTHS ENDED NINE MONTHS ENDED
SEPTEMBER 30, SEPTEMBER 30,
------------------- -----------------
1997 1996 1997 1996
-------- -------- ------- -------
<S> <C> <C> <C> <C>
Revenues.................................................. $29,627 $21,964 $76,445 $55,542
Cost of revenues.......................................... 14,693 11,002 39,553 29,105
Selling, general and administrative expenses.............. 8,790 6,623 25,709 18,694
------- ------- ------- -------
Operating income........................................ 6,144 4,339 11,183 7,743
Interest income (expense), net............................ 14 162 132 (227)
------- ------- ------- -------
Earnings before income taxes............................ 6,158 4,501 11,315 7,516
Income taxes (Note C)..................................... 2,400 1,759 4,397 6,453
------- ------- ------- -------
Net earnings............................................ $ 3,758 $ 2,742 $ 6,918 $ 1,063
======= ======= ======= =======
Pro forma information:
Historical earnings before income taxes................. $ 7,516
Pro forma income taxes (Note C)......................... 2,935
-------
Pro forma net earnings............................... $ 4,581
=======
Net earnings (pro forma net earnings for nine months ended
September 30, 1996) per common and common equivalent
share (Note D).......................................... $ .20 $ .15 $ .37 $ .27
======= ======= ======= =======
Weighted average common and common equivalent shares
outstanding............................................. 18,910 18,286 18,720 17,231
======= ======= ======= =======
</TABLE>
See accompanying notes to condensed consolidated financial statements.
1
<PAGE> 4
THE PROFIT RECOVERY GROUP INTERNATIONAL, INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED BALANCE SHEETS
(AMOUNTS IN THOUSANDS, EXCEPT SHARE DATA)
(UNAUDITED)
<TABLE>
<CAPTION>
SEPTEMBER 30, DECEMBER 31,
1997 1996
------------- ------------
<S> <C> <C>
ASSETS
Current assets:
Cash and cash equivalents (Note F)........................ $12,231 $16,891
Receivables:
Billed contract receivables............................ 5,122 3,864
Unbilled contract receivables.......................... 40,179 30,734
Employee advances...................................... 2,160 1,363
------- -------
Total receivables................................. 47,461 35,961
------- -------
Refundable income taxes................................... -- 2,049
Prepaid expenses and other current assets................. 1,292 528
------- -------
Total current assets.............................. 60,984 55,429
------- -------
Property and equipment:
Computer and other equipment.............................. 9,627 5,753
Furniture and fixtures.................................... 1,937 1,569
Leasehold improvements.................................... 1,331 1,183
------- -------
12,895 8,505
Less accumulated depreciation and amortization............ 4,314 2,272
------- -------
8,581 6,233
------- -------
Noncompete agreements, less accumulated amortization........ 3,734 4,509
Deferred loan costs, less accumulated amortization.......... 32 56
Goodwill, less accumulated amortization..................... 6,204 393
Deferred income taxes....................................... 1,174 1,174
Other assets................................................ 537 524
------- -------
$81,246 $68,318
======= =======
LIABILITIES AND SHAREHOLDERS' EQUITY
Current liabilities:
Current installments of long-term debt.................... $ 83 $ 79
Accounts payable and accrued expenses..................... 1,719 1,383
Accrued payroll and related expenses...................... 17,788 16,356
Deferred income taxes..................................... 7,607 7,607
------- -------
Total current liabilities......................... 27,197 25,425
Long-term debt, excluding current installments.............. 707 692
Deferred compensation....................................... 2,263 1,642
------- -------
Total liabilities................................. 30,167 27,759
------- -------
Shareholders' equity (Note B):
Preferred stock, no par value. Authorized 1,000,000
shares; no shares issued or outstanding in 1997 and
1996................................................... -- --
Common stock, no par value; stated value $.001 per share.
Authorized 60,000,000 shares; issued and outstanding
18,294,149 in 1997 and 17,649,152 in 1996.............. 18 18
Additional paid-in capital................................ 37,815 34,188
Cumulative translation adjustments........................ (56) (31)
Retained earnings......................................... 13,302 6,384
------- -------
Total shareholders' equity........................ 51,079 40,559
------- -------
$81,246 $68,318
======= =======
</TABLE>
See accompanying notes to condensed consolidated financial statements.
2
<PAGE> 5
THE PROFIT RECOVERY GROUP INTERNATIONAL, INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(AMOUNTS IN THOUSANDS)
(UNAUDITED)
<TABLE>
<CAPTION>
NINE MONTHS ENDED
SEPTEMBER 30,
--------------------
1997 1996
-------- --------
<S> <C> <C>
Cash flows from operating activities:
Net earnings.............................................. $ 6,918 $ 1,063
Adjustments to reconcile net earnings to net cash provided
by (used in) operating activities:
Depreciation and amortization.......................... 3,018 1,908
Deferred compensation expense.......................... 434 441
Deferred income taxes.................................. -- 3,700
Foreign translation adjustments........................ (25) 35
Changes in assets and liabilities, net of effects of
acquisitions:
Receivables.......................................... (10,990) (14,032)
Prepaid expenses and other current assets............ (743) (272)
Refundable income taxes.............................. 2,049 --
Other assets......................................... (93) (250)
Accounts payable and accrued expenses................ 333 741
Accrued payroll and related expenses................. 1,084 6,288
-------- --------
Net cash provided by (used in) operating
activities...................................... 1,985 (378)
-------- --------
Cash flows from investing activities:
Purchases of property and equipment....................... (4,054) (4,499)
Acquisition of businesses (Note E)........................ (3,194) --
-------- --------
Net cash used in investing activities............. (7,248) (4,499)
-------- --------
Cash flows from financing activities:
Net repayments of note payable to bank.................... -- (1,763)
Proceeds from loans from shareholders..................... -- 2,600
Repayments of long-term debt.............................. -- (7,117)
Repayments of loans from shareholders..................... -- (3,675)
Net proceeds from common stock............................ 603 33,961
Distributions............................................. -- (4,876)
-------- --------
Net cash provided by financing activities......... 603 19,130
-------- --------
Net change in cash and cash equivalents........... (4,660) 14,253
Cash and cash equivalents at beginning of period............ 16,891 642
-------- --------
Cash and cash equivalents at end of period.................. $ 12,231 $ 14,895
======== ========
Supplemental disclosure of cash flow information:
Cash paid during the period for interest............... $ 38 $ 1,091
======== ========
Cash paid during the period for income taxes........... $ 2,165 $ 1,598
======== ========
</TABLE>
See accompanying notes to condensed consolidated financial statements.
3
<PAGE> 6
THE PROFIT RECOVERY GROUP INTERNATIONAL, INC. AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
SEPTEMBER 30, 1997
(UNAUDITED)
NOTE A -- BASIS OF PRESENTATION
The accompanying unaudited condensed consolidated financial statements of
The Profit Recovery Group International, Inc. and its wholly owned subsidiaries
(the "Company") have been prepared in accordance with generally accepted
accounting principles for interim financial information and with the
instructions to Form 10-Q and Article 10 of Regulation S-X. Accordingly, they do
not include all of the information and footnotes required by generally accepted
accounting principles for complete financial statements. In the opinion of
management, all adjustments (consisting of normal recurring accruals) considered
necessary for a fair presentation have been included. Operating results for the
three and nine month periods ended September 30, 1997 are not necessarily
indicative of the results that may be expected for the year ending December 31,
1997. For further information, refer to the consolidated financial statements
and footnotes thereto included in the Company's Form 10-K for the fiscal year
ended December 31, 1996.
NOTE B -- INITIAL PUBLIC OFFERING
The Company's initial public offering of its common stock was declared
effective by the United States Securities and Exchange Commission on March 26,
1996, and public trading in the registered shares commenced March 27, 1996. The
initial public offering consisted of 4.6 million shares priced at $11 per share
with the Company selling 3.4 million newly issued shares and certain selling
shareholders selling 1.2 million existing shares. The proceeds from the offering
(net of underwriting discounts and commissions) were not distributed by the
underwriting syndicate until April 1, 1996.
On April 18, 1996, the Company received notification from its underwriting
syndicate that the syndicate had exercised its full over-allotment option to
purchase an additional 690,000 shares of Company common stock. All of these
shares were then sold to the syndicate by certain selling shareholders. The
Company received no proceeds from the sale of such shares.
NOTE C -- INCOME TAXES
The Company's predecessor entities prior to its initial public offering on
March 26, 1996 generally were either corporations electing to be taxed as
Subchapter S corporations or partnerships. As a result, any income tax
liabilities were the responsibilities of the respective shareholders and
partners. In connection with the initial public offering, all domestic entities
became C corporations. As a result of these conversions to C corporations, the
Company incurred a charge to operations of $3.7 million in the first quarter of
1996 for cumulative deferred income taxes. The results of operations for the
nine month period ended September 30, 1996 have been adjusted on a pro forma
basis to reflect federal and state income taxes at a composite effective rate of
39% as if the Company's predecessors had been C corporations throughout the
entire period.
NOTE D -- EARNINGS AND PRO FORMA EARNINGS PER COMMON AND COMMON EQUIVALENT SHARE
For operations prior to April 1, 1996, pro forma earnings per common and
common equivalent share has been computed by dividing the pro forma net
earnings, which gives effect to pro forma income taxes, by the weighted average
number of common and common equivalent shares outstanding during the period,
after giving effect to the reorganization enacted at the time of the Company's
March 1996 initial public offering. For purposes of determining the weighted
average number of common and common equivalent shares for all periods prior to
April 1, 1996, the Company has followed required supplementary guidance
contained in Securities and Exchange Commission Staff Accounting Bulletin Topic
4D and has treated all common shares, warrants, options and convertible
debentures issued within one year prior to its initial public offering as
exercised and outstanding, using the treasury stock method, regardless if the
effect were antidilutive. In
4
<PAGE> 7
THE PROFIT RECOVERY GROUP INTERNATIONAL, INC. AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
addition, the aforementioned computation includes the equivalent number of
common shares derived from dividing the distributions payable by $11.00 per
share.
For operations subsequent to March 31, 1996, the weighted average number of
common and common equivalent shares has been derived pursuant to requirements of
Accounting Principles Board Opinion No. 15, Earnings per Share. Fully diluted
earnings per share for affected reporting periods is not significantly different
from the primary earnings per share presented.
NOTE E -- ACQUISITIONS
On January 2, 1997, the Company acquired the net operating assets of Shaps
Group, Inc., a California-based company providing recovery audit services to
manufacturers and distributors of technology products. The Company issued
375,000 shares of its common stock in the transaction which was accounted for as
a pooling-of-interests. Since prior years' financial positions and results of
operations of Shaps Group, Inc. are not material in relation to the Company's
historical financial statements, the Company has not restated its prior years'
consolidated financial statements.
On February 11, 1997, the Company acquired all of the common stock of
Accounts Payable Recovery Services, Inc., a Texas-based company providing
recovery audit services to healthcare entities and energy companies. This
transaction was accounted for as a purchase with consideration of $2.0 million
in cash and 130,599 shares of the Company's common stock valued at $15.25 per
share. Approximately $100,000 in direct acquisition-related costs were also
incurred and capitalized as part of this transaction.
On May 23, 1997, the Company acquired all of the common stock of The Hale
Group, a California-based company providing recovery audit services to
healthcare entities. This transaction was accounted for as a purchase with
consideration of $1.1 million in cash and 74,998 shares of the Company's common
stock valued at $13.38 per share.
NOTE F -- CASH EQUIVALENTS
Cash equivalents at September 30, 1997 and December 31, 1996 consisted of
$2.5 million and $11.9 million, respectively, of reverse repurchase agreements
with NationsBank, N.A. (South) which were fully collateralized by United States
of America Treasury Notes in the possession of such bank. The reverse repurchase
agreements in effect on September 30, 1997 and December 31, 1996 matured and
were settled on October 1, 1997 and January 2, 1997, respectively.
The Company does not intend to take possession of collateral securities on
future reverse repurchase agreement transactions conducted with banking
institutions of national standing. The Company does insist, however, that all
such agreements provide for full collateralization using obligations of the
United States of America having a current market value equivalent to or
exceeding the reverse repurchase agreement amount.
NOTE G -- SUBSEQUENT EVENTS
On October 7, 1997, the Company acquired 98.4% of Financiere Alma, S.A. and
subsidiaries ("Alma"), a privately held recovery audit firm based in Paris,
France. This transaction was accounted for as a purchase with consideration of
$24.6 million in cash and approximately 859,000 restricted, unregistered shares
of the Company's common stock with an aggregate estimated fair value of
$9,959,000, based on preliminary valuations. Approximately $1.7 million in
direct acquisition-related costs were also incurred and capitalized as part of
this transaction. The Company has an obligation to acquire the remaining
interest in Alma by January 1999 for $398,000 in cash and 13,900 unregistered
shares of the Company's common stock. The Company increased its credit facility
with NationsBank, N.A. from $20.0 million to $30.0 million on October 3, 1997 to
finance the cash consideration paid and a portion of the direct
acquisition-related expenses incurred.
5
<PAGE> 8
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS
The following discussion and analysis should be read in conjunction with
the condensed consolidated financial statements and notes thereto included
elsewhere herein.
OVERVIEW
The Company is a leading provider of accounts payable and other recovery
audit services to large retailers, wholesale distributors, healthcare providers,
technology companies and other large transaction-intensive companies, as well as
to certain governmental agencies. In businesses with large purchase volumes and
continuously fluctuating purchase prices, some small percentage of erroneous
overpayments to vendors is inevitable. In addition, compliance with various
complex tax laws also results in overpayments to governmental agencies.
Moreover, services such as telecommunications, utilities and freight provided to
businesses under complex pricing arrangements can result in overpayments. All of
these overpayments result in "lost profits". The Company identifies and
documents overpayments by using sophisticated proprietary technology and
advanced audit techniques and methodologies, and by employing highly trained,
experienced recovery audit specialists. The Company receives a contractually
negotiated percentage of amounts recovered.
The earliest of the Company's predecessors was formed in November 1990, and
in early 1991 acquired the operating assets of Roy Greene Associates, Inc. and
Bottom Line Associates, Inc., which were formed in 1971 and 1985, respectively.
In January 1995, the Company purchased certain assets of Fail & Associates,
Inc., a direct U.S. competitor. In January 1997, the Company acquired the net
operating assets of Shaps Group, Inc., a California-based company providing
recovery audit services to manufacturers and distributors of technology
products. In February 1997, the Company acquired all of the common stock of
Accounts Payable Recovery Services, Inc., a Texas-based company providing
recovery audit services to healthcare entities and energy companies. In May
1997, the Company acquired all of the common stock of The Hale Group, a
California-based company that also provides recovery audit services to
healthcare entities. In October 1997, the Company acquired 98.4% of Financiere
Alma, S.A. and subsidiaries ("Alma"), a Paris-based recovery audit firm
specializing in identifying and recovering various types of French corporate tax
overpayments. The Company intends to continue pursuing domestic and
international strategic acquisitions, including direct competitors and
complementary businesses.
ANTICIPATED CHARGE TO EARNINGS
On October 7, 1997, the Company acquired 98.4% of Paris-based Alma. In
recognition of emerging developments such as the Alma acquisition, the Company
intends to restructure and realign certain facets of its European management
structure and expects to incur related pre-tax charges to operations in the
quarter ending December 31, 1997 in the range of $1.0 million to $1.2 million.
6
<PAGE> 9
RESULTS OF OPERATIONS
The following table presents, for the periods indicated, certain items in
the condensed consolidated statements of earnings as a percentage of revenues.
<TABLE>
<CAPTION>
THREE MONTHS NINE MONTHS
ENDED ENDED
SEPTEMBER 30, SEPTEMBER 30,
------------- -------------
1997 1996 1997 1996
----- ----- ----- -----
<S> <C> <C> <C> <C>
HISTORICAL
Revenues.................................................. 100.0% 100.0% 100.0% 100.0%
Cost of revenues.......................................... 49.6 50.1 51.8 52.4
Selling, general and administrative expenses.............. 29.7 30.1 33.6 33.7
----- ----- ----- -----
Operating income.................................. 20.7 19.8 14.6 13.9
Interest income (expense), net............................ 0.1 0.7 0.2 (0.4)
----- ----- ----- -----
Earnings before income taxes...................... 20.8 20.5 14.8 13.5
Income taxes.............................................. 8.1 8.0 5.8 11.6
----- ----- ----- -----
Net earnings...................................... 12.7% 12.5% 9.0% 1.9%
===== ===== ===== =====
PRO FORMA
Historical earnings before income taxes................... 13.5%
Pro forma income taxes.................................... 5.3
-----
Pro forma net earnings............................ 8.2%
=====
</TABLE>
Three and Nine Month Periods Ended September 30, 1997 Compared to Corresponding
Periods of the Prior Year
Revenues. The Company's revenues consist principally of contractual
percentages of overpayments recovered for clients that are primarily in the
retailing industry. Revenues increased 34.9% to $29.6 million for the third
quarter of 1997, up from $22.0 million for the third quarter of 1996. For the
nine months ended September 30, 1997, revenues were $76.4 million, or 37.6%
higher than $55.5 million achieved in the corresponding period of 1996.
Domestic revenues were $23.0 million in the third quarter of 1997, up 30.2%
from $17.7 million in the third quarter of 1997. This 30.2% increase consisted
of (i) 8.0% growth from existing clients served in both the 1997 and 1996
periods; (ii) 14.4% growth from the three complementary recovery audit firms
acquired in the first half of 1997; and (iii) 7.8% growth from provision of
services to new clients (net of the effect of revenues in the third quarter of
1996 from clients not served in the third quarter of 1997). For the first nine
months of 1997, domestic revenues were $58.8 million, an increase of 30.1% over
$45.2 million during the comparable period of 1996.
International revenues were $6.6 million in the third quarter of 1997, up
54.1% from $4.3 million in the third quarter of 1996. For the first nine months
of 1997, international revenues were $17.6 million, a 70.6% increase over $10.3
million during the comparable period of 1996. International revenue increases
for the 1997 periods over the corresponding periods of 1996 were primarily
attributable to new clients. Company operations in almost all international
markets experienced significant rates of revenue growth during the three and
nine month periods ended September 30, 1997, as compared with comparable periods
of 1996. The Company continues to believe that the rate of revenue growth for
its international operations will significantly exceed its rate of domestic
revenue growth for the foreseeable future if the revenue effect of acquired
businesses, if any, is excluded. There can be no assurance, however, that recent
international growth trends will continue. See "Forward-looking Statements."
The Company has experienced and expects to continue to experience
significant seasonality in its business. The Company typically realizes higher
revenues and operating income in the last two quarters of its fiscal year. This
trend is expected to continue and reflects the inherent purchasing and
operational cycles of the
7
<PAGE> 10
retailing industry, which is the principal industry served by the Company. The
Company's October 1997 acquisition of Alma is not expected to affect this trend
because Alma historically has experienced similar seasonality in its revenues
and operating income. Should the Company not continue to realize increased
revenues in future third and fourth quarter periods, profitability for any
affected quarter and the entire year could be materially and adversely affected
due to ongoing selling, general and administrative expenses that are largely
fixed over the short term. See "Forward-looking Statements."
Cost of Revenues. Cost of revenues consists principally of commissions
paid or payable to the Company's auditors based upon the level of overpayment
recoveries, and salaries and bonuses paid or payable to divisional and regional
managers. Also included are other direct costs incurred by these personnel
including rental of field offices, travel and entertainment, telephone,
utilities, maintenance and supplies, and clerical assistance. Cost of revenues
was 49.6% of revenues for third quarter of 1997, down from 50.1% in the
comparable quarter of 1996. For the nine months ended September 30, 1997, cost
of revenues was 51.8%, down from 52.4% during the comparable 1996 nine month
period.
Domestically, cost of revenues as a percentage of revenues was 49.9% and
52.6%, respectively, for the quarter and nine months ended September 30, 1997.
For the corresponding periods of 1996, these percentages were 50.4% and 52.8%,
respectively. Domestic cost of revenues as a percentage of revenues historically
has been lower in each of the last two quarters of a fiscal year as compared to
each of the initial two quarters of that year. This trend is expected to
continue and relates to the Company's historical quarterly revenue seasonality
patterns that result in various fixed components of domestic cost of revenues
being spread over a growing quarterly domestic revenue base. See
"Forward-looking Statements."
The Company has developed a revised compensation program for its
non-management domestic field auditors which it believes will more equitably
compensate these individuals for their unique experience, skills and
contributions in meeting Company objectives. The revised program has been
designed with considerable input from auditor focus groups, has been subjected
to thorough in-house testing, and has undergone extensive field tests in the
first quarter of 1997. The revised program was implemented in May 1997. The
Company has attempted to design the revised program such that future aggregate
domestic auditor compensation expense will be unchanged from aggregate amounts
which would otherwise be paid under the program historically in place. Although
the Company and certain of its domestic auditors have expended considerable time
and resources to design the revised program, there can be no assurance that it
will meet its design objectives. If the design objectives of the revised
compensation program are not achieved, the Company's domestic costs and revenues
could be materially and adversely affected. See "Forward-looking Statements."
Internationally, cost of revenues as a percentage of revenues was 48.4% and
48.8%, respectively, for the quarter and nine months ended September 30, 1997.
For the corresponding periods of 1996, these percentages were 48.7% and 50.6%,
respectively. The 1997 improvements resulted primarily from gross margin
expansions in the second and third quarters of 1997 in the Company's more
established international locations.
Selling, General and Administrative Expenses. Selling, general and
administrative expenses include the expenses of sales and marketing activities,
information technology services and the corporate data center, human resources,
legal and accounting, headquarters-related depreciation of property and
equipment and amortization of intangibles. Selling, general and administrative
expenses as a percentage of revenues decreased to 29.7% of revenues in the third
quarter of 1997, down from 30.1% in the third quarter of 1996. For the nine
months ended September 30, 1997, selling, general and administrative expenses as
a percentage of revenues was 33.6%, down slightly from 33.7% in the comparable
period of 1996.
On a domestic basis, selling, general and administrative expenses as a
percentage of revenues was 26.2% in the third quarter of 1997, up from 25.9% in
the comparable quarter of 1996. For the nine months ended September 30, 1997,
domestic selling, general and administrative expenses as a percentage of
revenues increased to 30.2%, up from 29.7% in the corresponding period of 1996.
The Company's 1997 domestic selling, general and administrative expense
percentages are higher than the comparable percentages in 1996 due to increased
expenditures for various 1997 initiatives such as significantly expanded
training programs and period costs associated with intensified mergers and
acquisitions efforts.
8
<PAGE> 11
Internationally, selling, general and administrative expenses as a
percentage of revenues improved to 41.6% of revenues in the second quarter of
1997, compared to 47.7% in the 1996 third quarter. For the nine month periods
ended September 30, 1997 and 1996, this percentage likewise improved to 45.1%
(1997) from 51.2% (1996). Improvements in 1997 related primarily to various
components of fixed costs being spread over a rapidly growing revenue base.
In connection with acquired businesses, the Company has recorded intangible
assets including goodwill and deferred con-compete costs. Amortization of these
intangible assets totaled $365,000 and $278,000 for the quarters ended September
30, 1997 and 1996, respectively, and $1.0 million and $834,000 for the nine
month periods ended September 30, 1997 and 1996, respectively.
Operating Income. Operating income increased 41.6% to $6.1 million in the
third quarter of 1997, up from $4.3 million in the third quarter of 1996. For
the nine months ended September 30, 1997, operating income increased 44.4% to
$11.2 million, up from $7.7 million in the comparable period of 1996. As a
percentage of total revenues, operating income increased to 20.7% for the
quarter ended September 30, 1997, up from 19.8% for the quarter ended September
30, 1996. For the nine months ended September 30, 1997, operating income as a
percentage of total revenues was 14.6%, up from 13.9% during the comparable
period of 1996. Significant revenue increases coupled with operating margin
improvements, the components of which are discussed above, yielded the
improvements in the 1997 periods.
Interest Income (Expense), Net. The Company reported net interest income
of $14,000 during the third quarter of 1997, compared to $162,000 during the
comparable quarter of 1996. The 1997 reduction relates principally to increased
interest expense on growing deferred compensation liabilities and a reduction of
investable funds as proceeds from the Company's March 1996 initial public
offering are expended on acquired companies and used for other corporate
purposes. For the nine months ended September 30, 1997, net interest income was
$132,000, compared to net interest expense of $227,000 during the comparable
period of 1996. The 1996 nine month period reflects significant levels of
interest expense incurred during the first quarter of that year in connection
with various debt obligations. Substantially all of such debt obligations were
repaid with a portion of the proceeds from the March 1996 initial public
offering.
Earnings Before Income Taxes. Earnings before income taxes rose 36.8% and
50.5% in the quarter and nine months ended September 30, 1997, respectively,
compared to the same periods of 1996. The improvements in earnings before income
taxes in the 1997 periods resulted from increased revenues, improved operating
margins and changes in interest income (expense), net.
Income Taxes. The Company's predecessor entities prior to its initial
public offering on March 26, 1996 generally were either corporations electing to
be taxed as Subchapter S corporations or partnerships. As a result, any income
tax liabilities were the responsibilities of the respective shareholders and
partners. In connection with the initial public offering, all domestic entities
became C corporations. As a result of these conversions to C corporations, the
Company incurred a charge to operations of $3.7 million in the first quarter of
1996 for cumulative deferred income taxes.
The provisions for income taxes for all periods subsequent to March 31,
1996 consist of federal and state income taxes at the Company's composite
effective rate of 39.0%. The provision for income taxes for the nine months
ended September 30, 1997 consists of the above-described $3.7 million charge for
cumulative deferred income taxes in the first quarter of such year combined with
$2.8 million in tax provisions at a 39.0% composite effective rate for the two
quarters subsequent to the March 26, 1996 initial public offering.
Pro Forma Income Taxes. The results of operations for the nine months
ended September 30, 1996 have been adjusted on a pro forma basis to reflect
federal and state income taxes as a composite effective rate of 39.0% as if the
Company's predecessors had been C corporations throughout the entire period.
LIQUIDITY AND CAPITAL RESOURCES
Through December 31, 1996, the Company's predecessors had acquired and
assimilated three operating companies and financed these acquisitions primarily
through a combination of bank and seller financing. Ongoing Company operations
and capital requirements prior to the Company's initial public offering were met
9
<PAGE> 12
primarily with cash flows provided by operating activities and, to a lesser
extent, with the proceeds from bank and shareholder loans. On April 1, 1996, the
Company received its $34.8 million portion of the proceeds (net of underwriting
discounts and commissions) from its initial public offering. Of these proceeds,
approximately $1.1 million was subsequently utilized to pay expenses of the
offering, approximately $4.9 million was used to pay previously declared and
unpaid Subchapter S shareholder distributions and partnership distributions, and
approximately $14.6 million was used to pay principal and accrued interest on
substantially all outstanding interest-bearing debt (other than that portion of
certain convertible debt that was converted to Common Stock concurrent with the
initial public offering). Of the residual $14.2 million of net proceeds,
approximately $2.9 million continued to be available as of September 30, 1997 to
expand international operations, to acquire complementary businesses and for
general corporate purposes, including working capital.
During October 1997, the Company increased its Credit Facility with
NationsBank, N.A. from $20.0 million to $30.0 million. The credit facility
permits the Company to borrow up to $30.0 million on a term loan basis to
finance mergers and acquisitions. Alternatively, the Company, at its option, may
utilize up to $10.0 million as a revolving line of credit for working capital
and utilize the remaining $20.0 million for mergers and acquisitions. Borrowings
under the Credit Facility can be made through September 1999. As of October 30,
1997, the Company had outstanding principal borrowings of $24.7 million under
the credit facility at a floating prime interest rate then at 8.5% per annum.
Such borrowings were made in October 1997 in connection with the financing of
the Alma acquisition.
Net cash provided by operating activities was $2.0 million for the nine
months ended September 30, 1997. For the nine months ended September 30, 1996,
net cash used in operating activities was $378,000. During 1996, the Company
overestimated its federal and state income tax liabilities resulting in $2.0
million in refundable income taxes on its Consolidated Balance Sheet at December
31, 1996 which was subsequently recovered by the Company in the first quarter of
1997. Excluding the effect of having recovered this $2.0 million in excess
payments, net cash provided by operating activities for the nine months ended
September 30, 1997 would have been negligible.
Net cash used in investing activities was $7.2 million for the nine months
ended September 30, 1997. This total consisted of $4.0 million used to acquire
property and equipment (primarily computed-related equipment), $2.1 million paid
in connection with the February 1997 acquisition of Accounts Payable Recovery
Services, Inc., and $1.1 million paid in connection with the May 1997
acquisition of The Hale Group. Net cash used in investing activities was $4.5
million for the nine months ended September 30, 1996. Due to the Company's rapid
growth, the Company doubled the size of its Atlanta home office during 1996 to
approximately 45,000 square feet. This project was completed in the third
quarter of 1996 and, combined with ongoing computer-related equipment additions,
comprised the majority portion of the Company's property and equipment additions
for the nine months ended September 30, 1996.
From January 1, 1997 through October 30, 1997, the Company acquired four
recovery audit firms. The Company is pursuing, and intends to continue to
pursue, the acquisition of domestic and international businesses including both
direct competitors and businesses providing other types of recovery services.
Future acquisitions may include much larger businesses than those acquired to
date. There can be no assurance, however, that the Company will be successful in
consummating further acquisitions due to factors such as receptivity of
potential acquisition candidates and valuation issues. Additionally, there can
be no assurance that future acquisitions, if consummated, can be successfully
assimilated into the Company. See "Forward-looking Statements."
Net cash provided by financing activities was $603,000 for the nine months
ended September 30, 1997 and consisted of proceeds from the exercise of certain
employee stock options. Net cash provided by financing activities was $19.1
million for the nine months ended September 30, 1996, and reflects proceeds from
the Company's initial public offering, net of repayments of debt and other
obligations paid from those proceeds.
The Company believes that its current working capital, its existing line of
credit and cash flow generated from future operations will be sufficient to meet
the Company's working capital and capital expenditure requirements through
September 30, 1998 unless one or more acquisitions are consummated which require
the Company to seek additional debt or equity financing.
10
<PAGE> 13
NEW ACCOUNTING STANDARDS
The Company has determined that the adoption of Statement of Financial
Accounting Standards No. 128, "Earnings per Share", will not have a material
impact on the Company's reported per share results of operations. This
pronouncement is effective for periods ending after December 15, 1997, including
interim periods; earlier application is not permitted. Once effective, this
pronouncement requires restatement of all prior-period earnings per share data
presented.
Statement of Financial Accounting Standards No. 130, "Reporting
Comprehensive Income", establishes standards for reporting and display of
comprehensive income and its components (revenues, expenses, gains and losses)
in a full set of general purpose financial statements. This Statement requires
that all items that are required to be recognized under accounting standards as
components of comprehensive income be reported in a financial statement that is
displayed with the same prominence as other financial statements. The Company
believes that its components of comprehensive income will consist principally of
traditionally-determined net income and foreign currency translation
adjustments. This Statement is effective for fiscal years beginning after
December 15, 1997. Reclassification of financial statements for earlier periods
provided for comparative purposes is required.
Statement of Financial Accounting Standards No. 131, "Disclosures about
Segments of an Enterprise and Related Information" establishes revised standards
for the manner in which public business enterprises report information about
operating segments. The Company does not believe that this Statement will
significantly alter the segment disclosures it currently provides. This
Statement is effective for fiscal years beginning after December 15, 1997.
FORWARD-LOOKING STATEMENTS
Statements made in this Form 10-Q for the quarter ended September 30, 1997
that state the Company's or management's intentions, hopes, beliefs,
expectations or predictions of the future are forward-looking statements within
the meaning of the Private Securities Litigation Reform Act of 1995. It is
important to note that the Company's actual results could differ materially from
those contained in such forward-looking statements. Additional information
concerning factors that could cause actual results to differ materially from
those in forward-looking statements is contained from time to time in the
Company's SEC filings including the Risk Factors section of the Company's
Prospectus dated July 29, 1997 included in registration statement number
333-31805 on Form S-3.
ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
Not applicable.
11
<PAGE> 14
PART II. OTHER INFORMATION
ITEM 1. LEGAL PROCEEDINGS
None.
ITEM 2. CHANGES IN SECURITIES
None.
ITEM 3. DEFAULTS UPON SENIOR SECURITIES
None.
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
None.
ITEM 5. OTHER INFORMATION
None.
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K
(a) Exhibits
<TABLE>
<C> <C> <S>
3.1 -- Articles of Incorporation of the Registrant (incorporated by
reference to Exhibit 3.1 to Registrant's March 26, 1996
registration statement number 333-1086 on Form S-1).
3.2 -- Bylaws of the Registrant (incorporated by reference to
Exhibit 3.2 to Registrant's March 26, 1996 registration
statement number 333-1086 on Form S-1).
10.1 -- Contract for the Mandate of the President of the
Directorate, dated October 7, 1997, between Alma
Intervention and Marc Eisenberg.
10.2 -- Consulting Agreement, dated October 7, 1997, between the
Registrant and Lieb Finance S.A.
10.3 -- Second Amendment to Employment Agreement, dated September
17, 1997, between The Profit Recovery Group International I,
Inc. and John M. Cook.
10.4 -- Employment Agreement, dated October 17, 1997, between The
Profit Recovery Group International I, Inc. and Michael A.
Lustig.
10.5 -- Compensation Agreement, dated October 17, 1997, between The
Profit Recovery Group International I, Inc. and Michael A.
Lustig.
10.6 -- First Amendment to Loan and Security Agreement, dated
October 3, 1997, between NationsBank, N.A. and the
Registrant and its subsidiaries.
11.1 -- Statement Re: Computation of net earnings per share.
27.1 -- Financial Data Schedule (for SEC use only).
</TABLE>
(b) Reports on Form 8-K
On July 30, 1997, Registrant filed a report on Form 8-K dated July 29,
1997 which contained Registrant's press release of July 14, 1997 whereby
Registrant reported its financial results for the quarter ended June 30,
1997.
12
<PAGE> 15
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the
Registrant has duly caused this report to be signed on its behalf by the
undersigned, thereunto duly authorized.
<TABLE>
<S> <C>
THE PROFIT RECOVERY GROUP
INTERNATIONAL, INC.
Dated: November 7, 1997 By: /s/ DONALD E. ELLIS, JR.
--------------------------------------------
Donald E. Ellis, Jr.
Senior Vice President,
Treasurer and
Chief Financial Officer
(principal financial officer)
Dated: November 7, 1997 By: /s/ MICHAEL R. MELTON
--------------------------------------------
Michael R. Melton
Vice President -- Finance
(principal accounting officer)
</TABLE>
13
<PAGE> 1
EXHIBIT 10.1
CONTRACT FOR THE MANDATE
OF THE PRESIDENT OF THE DIRECTORATE
BETWEEN THE UNDERSIGNED:
ALMA INTERVENTION, a Societe Anonyme with a Supervisory Board (Conseil de
Surveillance) and Directorate (Directoire), having its registered office at
Domaine des Bois d'Houlbec, Houlbec Cocherel, 27120 Pacy s/ Eure, registered at
the Companies Registry of Evreux under number B 339 602 195, represented by Mr
John Cook, Chairman of the Supervisory Board, duly empowered for these purposes,
hereinafter referred to as "ALMA",
ON ONE HAND,
AND
MR MARC EISENBERG, born 9 April 1955 in Paris, 75014, of French nationality,
residing at 14, rue Margueritte, 75017 Paris.
ON THE OTHER HAND.
IT HAS BEEN AGREED AND DECIDED AS FOLLOWS:
1. MANDATE
The Supervisory Board of ALMA has appointed Mr Marc Eisenberg as member
and President of the Directorate for a mandate of five years, unless
sooner terminated in accordance with the terms hereof.
Mr Marc Eisenberg will perform the duties incumbent upon the "President
of the Directorate" of ALMA as from the date of his appointment,
according to the terms and conditions set forth below.
2. MANAGERIAL DUTIES
Mr Marc Eisenberg will be mandated to exercise all powers necessary for
the management of the company's assets and will be empowered, for this
purpose, to carry out all acts and enter into any and all contracts of
any kind or form involving ALMA within the limit of ALMA's object and
interest and within the limits of this agreement.
Subject to the terms and conditions of this agreement, Mr Marc
Eisenberg will have complete discretionary control of ALMA signature
and will be empowered within the limit of the objects of ALMA and on
behalf of ALMA, to enter into any contract, assume any obligation, make
any waiver, sign any comprise ("compromis") and act in
-1-
<PAGE> 2
every circumstance on behalf of ALMA, without having to produce
authorization or power of attorney specifically granted powers for any
of the above purposes.
Mr Marc Eisenberg will devote all of his time and efforts for the
proper performance of his contractual duties. It is, however, expressly
agreed that Mr Marc Eisenberg shall be able to engage and pursue other
non-competitive activities so long as such activities do not interfere
with his duties hereunder.
3. SPECIAL AUTHORIZATIONS
3.1 SPECIFIC DECISIONS REQUIRING COUNTERSIGNATURE
The parties agree, in accordance with ALMA Memorandum and Articles of
Association ("Statuts") that Mr Marc Eisenberg will be required to
secure, for any transaction (or series of related transactions)
involving an amount exceeding FRF 1,000,000, the signature of another
Member of the Directorate; similarly, for any transaction (or series of
related transactions) involving a sum in excess of FRF 2,000,000, Mr
Marc Eisenberg must secure prior authorization from the Chairman of the
Supervisory Board in addition to the signature of another member of the
Directorate.
3.2 AUTHORIZATION OF THE SUPERVISORY BOARD
Mr Marc Eisenberg is required to obtain the express agreement of the
Supervisory Board prior to the implementation of the following
decisions:
- any issuing of shares or securities of any nature, including,
particularly, those issued in fulfillment of a promise or in
payment of dividends;
- any change in the Statuts or any decisions that would be
designed to or result in any change in the Statuts;
- the establishment, acquisition or transfer of any subsidiary,
branch or office or the holding of any securities or deeds of
any third company, with the exception of securities ALMA may
hold it being understood that the Chairman of the Supervisory
Board will be entitled to determine the types of investments
that are made by Alma;
- the signature of any loan agreement involving a sum in excess
of FRF 2,000,000;
- the granting or concession of any charge over ALMA's assets in
order to guarantee a sum greater than FRF 2,000,000;
- the concession or granting of any pledge, security or
guarantee, other than the guarantees or pledges provided for
in the preceding subparagraph, involving a sum exceeding the
total annual ceiling authorized by the Supervisory Board, but
only as regards securities intended to guarantee a good
provision of services ("la bonne fin") provided by ALMA to its
clients within the scope of its present activity;
-2-
<PAGE> 3
- the drawing-up of accounts following each financial year as
well as the allocation of earnings and, especially, the
decision to pay dividends;
- the ceasing of any core activity of ALMA;
- the commencement of a new core activity which would not be a
logical continuation of ALMA's present business;
- appointment of Auditors;
- the signing or termination of any contract involving (i) a
term in excess of three years, or (ii) yearly expenses for
ALMA in excess of FRF 1,000,000, with the following
exceptions:
a) contracts signed with clients of ALMA;
b) agreements signed with attorneys or with other
brokers or agents in the normal course of company
activity whose compensation does not exceed 10% of
the amounts invoiced by ALMA in connection with a
given file;
- the acquisition or transfer of any assets with a value in
excess of FRF 1,500,000;
- the signing of any new collective agreement with the
employees;
- the hiring of any person whose base salary could exceed FRF
1,000,000 and whose total earnings could exceed FRF 2,000,000
or whose contractual termination compensation could equal or
exceed six months of salary;
- any amendment or modification of Eric Eisenberg's employment
contract;
- any change in the employment contract of any employee which
would increase the employee's total remuneration in excess of
FRF 2,000,000 or diminish any non-competition covenants;
- the termination of any employee or representative whose total
annual salary exceeds FRF 1,000,000, with the exception of any
termination for serious and gross misconduct (faute lourde ou
faute grave);
- any additional remuneration or benefits to or for the benefit
of Mr Marc Eisenberg.
In the event of the Supervisory Board's refusal to authorize any of the
above actions listed above, Mr Marc Eisenberg can, should he deem it
useful, convene an Extraordinary General Assembly.
3.3 QUARTERLY REPORT TO THE SUPERVISORY BOARD
In addition to reports reasonably requested by the Supervisory Board or
required by law, every quarter a report on new litigation or legal
proceedings initiated by ALMA and exceeding an initial risk threshold
of FRF 400,000 will be submitted to the Supervisory Board, with the
exception of accounts collection proceedings.
-3-
<PAGE> 4
Failure by the Supervisory Board to approve such litigation will
require the Directorate to put an end to such litigation or legal
proceeding as expedioustly as possible.
Failure to comply with the provisions of this article 3 will constitute
just grounds for terminating Mr Marc Eisenberg's appointment as
President of the Directorate.
4. SALARY
Mr Marc Eisenberg will earn, by virtue of this agreement, a gross fixed
annual salary of FRF 975,000.
In addition, from and including, the fiscal year 1 January 1998 - 31
December 1998, Mr Marc Eisenberg is entitled to a variable sum
determined in accordance with ALMA's success in meeting performance
goals as defined in article 10 below. This variable sum will be
calculated according to the scale below:
- meeting threshold: 20% of the fixed salary;
- meeting target: 44% of the fixed salary;
- meeting stretch: 67% of the fixed salary.
The variable sum will be paid to Mr Marc Eisenberg during the month
following the certification of the accounts of the relevant year under
US GAAP by the joint Auditors and at the latest by 31 March following
the end of said fiscal year.
In order to be eligible to receive the variable sum referred to above
for any fiscal year, Mr Marc Eisenberg must be providing services to
ALMA pursuant to this agreement at the end of such fiscal year. If Mr
Marc Eisenberg resigns or his appointment is terminated for any reason
whatsoever, he shall not be entitled to any variable sum for the fiscal
year in which such resignation or termination occurs or thereafter
provided that if Mr Marc Eisenberg's appointment hereunder is
terminated by Alma other than for faute grave or lourde or breach of
the non competition clauses in article 8 below after 30 June in any
calendar year, Mr Marc Eisenberg will be entitled to the variable sum
for such year on a prorata basis.
5. STOCK OPTION
In the event that ALMA meets the target level of performance set out in
Article 10 below for the annual period ended 31 December 1998, he will
automatically become party to a separate Stock Option Agreement in
substantially the form attached hereto as Annex 1 ("STOCK OPTION
AGREEMENT") in accordance with which Mr Marc Eisenberg will be granted
non-qualified options ("OPTIONS") to purchase 50,000 shares of PRG's no
par Common Stock under The Profit Recovery Group International, Inc.
1996 Stock Option Plan at a purchase price equal to the closing price
per share of PRG's Common Stock as reported by NASDAQ on the date of
such grant, or if such date is not a date on which PRG's Common Stock
trades, then the closing price per share on the next preceding trading
day.
The Options granted to Mr Marc Eisenberg pursuant hereto shall vest
over a five (5) year period from the date of grant at the rate of
twenty (20%) per cent per year.
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<PAGE> 5
Unvested portions of the Option's shall terminate upon the death or
disability of Mr Marc Eisenberg, or termination of his appointment
hereunder.
Mr Marc Eisenberg will be eligible for additional stock options during
the term hereof at the sole discretion of PRG's Compensation Committee
in recognition of his contribution to the success of PRG and ALMA.
6. PAYMENT OF COMPENSATION UPON TERMINATION
In the event of the termination, other than for one or more of the five
conditions specified below, of Mr Marc Eisenberg's mandate by ALMA, the
parties agree that a special compensation will be paid to Mr Marc
Eisenberg.
This compensation payment upon termination is granted in recognition of
the following:
- Mr Marc Eisenberg's ratifying the non-competition clause;
- services rendered in the interest of ALMA by Mr Marc
Eisenberg;
- the moral damage resulting from his termination.
It is expressly agreed between the parties that this compensation is
unseverable and that each of the above conditions is sufficient in and
of itself to justify payment of the termination compensation.
In the event that this compensation is demanded pursuant to the
provisions of this agreement, it shall be considered by the parties to
be an irrevocable and uncontestable, except as expressly provided for
herein.
This sum of this termination compensation is set at the equivalent
amount in French Francs of USD 1,000,000 (one million US dollars).
However, this termination compensation will not be due should the
termination result from one or any of the conditions set forth below:
1. Grave or gross misconduct (faute grave or faute lourde) in
accordance with the definition of these terms under French
jurisprudence by Mr Marc Eisenberg.
2. In the event Mr Marc Eisenberg violates the terms of the
non-competition clause set forth in article 8 below, or the
restrictions set forth in clause 10 of the Sales Agreement of
this date.
3. In the event that ALMA fails to meet its threshold levels of
performance set out in article 10, for a period of two
consecutive term years it being understood that the decision
to terminate Mr Marc Eisenberg's mandate will have to be made
within the period of three months from the date where the
General Assembly recorded the failure to meet ALMA's threshold
performance level.
4. In the event of Mr Marc Eisenberg's resignation, the death of
Mr Marc Eisenberg or of his Total Disability, as defined
below.
-5-
<PAGE> 6
5. Mr Marc Eisenberg's failure or refusal to comply with the
provisions of article 3 where such failure constitutes faute
grave or faute lourde.
In the event Mr Marc Eisenberg is unable due to illness, accident or
any other physical or mental incapacity to perform the services
required of him hereunder for NINETY (90) days within any ONE HUNDRED
EIGHTY (180) day period, or such earlier date as the law permits, the
Chairman of the Supervisory Board may appoint another person (the
"INTERIM PRESIDENT") to serve in Mr Marc Eisenberg's place and stead as
a member and President of the Directorate.
The appointment of such Interim President shall not be deemed a
termination of Mr Marc Eisenberg's appointment hereunder and shall not
entitle Mr Marc Eisenberg to any termination compensation. The Interim
President may continue to serve in Mr Marc Eisenberg's place and stead
until the earlier of (i) such time as Mr Marc Eisenberg's condition has
resolved such that he is able and willing to resume his duties
hereunder, or (ii) the expiration of the five year term of this
agreement.
If there is any dispute as to whether Mr Marc Eisenberg is able to
resume his duties hereunder, the issue shall be determined by medical
doctor(s) as provided in section (ii) of the paragraph immediately
below.
During any such disability, Mr Marc Eisenberg shall be entitled to
receive salary or other remuneration hereunder to the extent that Alma
receives reimbursement from the French government in respect of such
salary or other remuneration and is obliged by law to top up such
reimbursement.
For purposes of this agreement, Mr Marc Eisenberg shall be deemed
Totally Disabled if (i) it is determined that he is totally disabled by
the standards established by health insurance medical experts, or (ii)
in the judgement of both a medical doctor selected by the Chairman of
the Supervisory Board and a medical doctor selected by Mr Marc
Eisenberg, or his legal representative (or, in the event such doctors
fail to agree, then in the majority opinion of such doctors and a third
medical doctor chosen by such doctors) that Mr Marc Eisenberg's
disability is such that he is unable due to illness, accident or any
other physical or mental incapacity to perform the services required of
him hereunder in substantially the same manner as he was as of the
commencement of the term of this agreement, and that such condition is
not likely to resolve within the then remaining period of this
agreement.
In the event Mr Marc Eisenberg disputes the validity of his termination
pursuant to paragraph 1 or 5 above and of legal proceedings in respect
of this special termination compensation are undertaken, this
compensation will be placed in escrow by ALMA, in a CARPA account
designated by ALMA, within 15 days from the date of notification of
dispute.
This sum will only be paid to Mr Marc Eisenberg provided that a
definitive court decision confirms that the grounds for witholding
payment of the special termination compensation are invalid.
In the contrary case, said sum will be reimbursed to ALMA from the
escrow account.
Accrued interest on the amount held in escrow will be paid to the
beneficiary of the sum awarded by a court.
-6-
<PAGE> 7
In the event that The Profit Recovery Group International Inc. ("PRG"),
would transfer directly or indirectly, control of ALMA to a third party
during the initial five year period defined by this agreement, the
special compensation described above will be payable to Mr Marc
Eisenberg, even pursuant to his resignation, within such five year
period, provided at the time of such resignation none of the five
conditions of termination set forth above exist.
This agreement having been contractually established for a period of
five years, it is expressly agreed between the parties that the
termination compensation provided for will not be payable by ALMA after
the expiration of this first term.
7. NOTICE OF TERMINATION
Mr Marc Eisenberg's appointment pursuant to this agreement may be
terminated by Mr Eisenberg by giving ALMA thirty days prior written
notice, which notice however may be waived by ALMA.
8. NON-COMPETITION
Mr Marc Eisenberg undertakes not to solicit or hire, directly or
indirectly, any persons who are or becomes employees, independent
contractors or agents of ALMA or any of its subsidiaries (the "ALMA
GROUP"), PRG or any of its affiliates in whatever capacity, even in the
case of activities not in direct competition with those of the ALMA
Group or PRG or any of its affiliates.
The non-solicitation of employees and independent contractors contained
in the previous paragraph of this article 8 excludes the solicitation
or hiring of independent contractors other than those who provide
substantially all of their services to ALMA, so long as it is for a
non-competitive business and the contractor agrees not to solicit other
employees or contractors on behalf of Mr Marc Eisenberg.
He further undertakes not to solicit or serve any of the customers of
the ALMA Group or PRG or any of its affiliates, directly or indirectly,
on his own behalf or on behalf of others for any purpose whatsover.
He further undertakes not to take any interest, direct or indirect
(with the exception of interests not exceeding 5% of a company whose
shares are quoted on a Stock Exchange) in companies or groups which are
in competition with the business of the ALMA Group or PRG or any of its
affiliates, on French territory or in any other country where the ALMA
Group or PRG or any of its affiliates conducts their business at the
date of termination of this agreement.
He undertakes to abstain from providing any services, directly or
indirectly, which are in competition with the business of the ALMA
Group or of PRG or any of its affiliates, on French territory or in any
other country where the ALMA Group or PRG or any of its affiliates
could conduct their business as carried on at the date of termination
of this agreement.
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<PAGE> 8
All of the above undertakings provided for by this clause are to be
undertaken during the period of this agreement and for a period of five
years from the date of Mr Marc Eisenberg's departure from ALMA for any
reason whatsoever. This period will however be reduced to three years
in the event of termination of Mr Marc Eisenberg by ALMA during the
initial five years of this agreement on whatever ground except for (i)
serious or gross misconduct (faute grave or lourde), (ii) violation of
the terms of the non-competition clause set forth in this article 8,
the confidentiality clause set forth in article 9 below or the
restrictions set forth in clause 10 of the Sales Agreement. The period
of five years, from Mr Marc Eisenberg's departure from ALMA at any time
after the initial five years will be reduced to two years from such
departure in the event of termination of Mr Marc Eisenberg by ALMA on
whatever ground except for (i) serious or gross misconduct (faute grave
or lourde), or (ii) violation of the terms of the non-competition
clause set forth in this article 8, the confidentiality clause set
forth in article 9 below or restrictions set forth in clause 10 of the
Sales Agreement.
9. CONFIDENTIALITY
During the term of this agreement, and for a period of five years from
the date of Mr Marc Eisenberg's departure from ALMA for any reason
whatsoever, Mr Marc Eisenberg will not divulge to any third party
whatsoever or use for his own or another's advantage any of the trade
secrets or confidential know-how or confidential financial or trading
information as to customers of the ALMA Group, PRG or its affiliates,
or in relation to the business, finances, dealings or affairs of the
ALMA Group, PRG or any of its affiliates except insofar as Mr Marc
Eisenberg may prove the same has become a matter of public knowledge
(otherwise than by a breach by him of this clause) or insofar as such
disclosure may be required by law.
Mr Marc Eisenberg undertakes to keep confidential any information not
intended release to the public, any know-how, any intellectual
property, any patents, etc, involving any aspect of ALMA's, or any
aspect of one its subsidiary's, business.
Mr Marc Eisenberg accepts and agrees that breach by him of this
confidentiality clause will constitute grave or gross misconduct (faute
grave or lourde) by him.
10. PERFORMANCE LEVELS
Mr Marc Eisenberg will deploy his best efforts to ensure that ALMA
meets performance levels set out below:
- for ALMA's fiscal year ending on 31 December 1998, the
threshold performance level, the target performance level and
the stretch performance level are, respectively, FRF
28,800,000, FRF 31,900,000 and FRF 38,300,000 of the net
result before taxation;
- for ALMA's subsequent fiscal years (established for a twelve
month period), the threshold performance level will be equal
to 120% of the net result before taxation on the books for the
previous year; and, should it be necessary, this threshold
performance level will be subject to redefinition by consensus
taking in account of any changes that may affect ALMA's
Business.
-8-
<PAGE> 9
It is further specified that, for the purposes of measuring ALMA's
achievement of the various levels of performance, the sum of any
payment made by the Principals in compensation for any loss sustained
by ALMA under the terms of the WARRANTY AGREEMENT signed on the date of
the transfer of control of ALMA to PRG to a party other than ALMA will
be included in the accountancy of the net result. Conversely, the
following items will not be included in the calculation of the net
result for the purposes of measuring ALMA's achievement of the various
levels of performance:
- the impact of any change of accounting methods imposed on
ALMA;
- the amount of any royalty payment or other management fee
levied by PRG or any other company within the PRG Group on
ALMA; provided, however, that direct charges of actual amounts
incurred by PRG or any other company within PRG for or on
behalf of ALMA, including but not limited to any compensation
or other remuneration paid to Mr Marc Eisenberg or Mr Eric
Eisenberg.
In the event that ALMA fails to meet its threshold performance level as
defined in article 10, for a period of two consecutive term years, this
will constitute valid grounds for revoking Mr Marc Eisenberg's mandate,
provided however that such revocation will have to be decided upon
within three months from the preparation of the accounts of the
relevant financial year.
11. PROTECTED INFORMATION
All software, computer diskettes, CDs, video tapes, files, audit
reports and other information in writing or in print or any other
presentation as well as all Technical Information and Trade Secrets
relating to the business of the ALMA Group to which Mr Marc Eisenberg
will have access under the terms and conditions of this agreement shall
be and remain the sole and exclusive property of ALMA. For this reason,
upon the termination of his agreement for whatever reason whatsoever,
Mr Marc Eisenberg will deliver the entirety of the foregoing that are
in his possession and that constitute property belonging to ALMA.
12. INVENTIONS
Mr Marc Eisenberg has the duty to disclose any product, service,
invention, improvement, discovery, process, formula, program, system or
method (collectively "INVENTIONS") that he develops that relate in any
way to this agreement or to the business of the ALMA Group and for the
term of his mandate.
These Inventions shall become the sole and exclusive property of ALMA
provided that they directly relate to the actual business of the ALMA
Group, that they coincide with actual or anticipated development of the
business of the ALMA Group and that these Inventions were made or
conceived by Mr Marc Eisenberg, either solely by Mr Marc Eisenberg or
jointly with others, in the exercise of his mandate.
-9-
<PAGE> 10
These Inventions shall constitute protected information for the purpose
of the preceding article.
Mr Marc Eisenberg promises to execute and deliver any document, and,
more generally do such other acts as necessary for securing all right,
title and interest of ALMA in and to any such Invention.
13. COPYRIGHTS
Mr Marc Eisenberg understands that any original works of authorship
fixed in tangible form that he shall develop during and according to
the terms of his mandate, either solely by Mr Marc Eisenberg or jointly
with others, will constitute property belonging to ALMA.
14. COMPANY CAR - BUSINESS EXPENSES - BENEFITS
ALMA shall place at the disposal of Mr Marc Eisenberg a motor car being
a BMW, ZI model or its equivalent, insured and maintained at the cost
of ALMA and the fuel and parking costs relating to the use of the car
will be paid by ALMA as well as petrol, toll and parking expenses
incurred.
In addition, Mr Marc Eisenberg shall continue to enjoy the benefit of a
professional residence, maintained according to the same terms and
under the same conditions as when he was Chairman of the Board of
Directors of ALMA.
All reasonable expenses of Mr Marc Eisenberg incurred in connection
with the exercise of his mandate will be reimbursed to him against
invoices and proof of expenditure.
Mr Marc Eisenberg will have the benefit of health insurance for
directors in accordance with the law during the term of his
appointment.
15. SUBMISSION TO JURISDICTION
This agreement shall be governed by and construed in accordance with
French Law and any litigation relating to its execution, to its
interpretation and to its termination will be governed by a court of
the jurisdiction of the Court of Appeals where ALMA is headquartered.
16. NOTICES
Any notice to be given under this Agreement shall be given in writing
by certified mail, return receipt requested, and addressed as set forth
below:
If to ALMA: 114, rue Chaptal
92532 Levallois Perret Cedex
-10-
<PAGE> 11
with copies to:
The Profit Recovery Group International, Inc.
2300 Windy Ridge Parkway
Suite 100 North
Atlanta, GA 30339-8426
Attention: Clinton McKellar, Jr
Senior Vice President and General Counsel
and to:
Ashurst Morris Crisp
22, rue de Marignan
75008 Paris
Attention: Christopher Crosthwaite
If to Mr Marc Eisenberg: 14, rue Margueritte
75017 Paris
The date of notice is the date of receipt of the letter, the return
receipt authenticating its receipt.
17. CHANGES TO THE AGREEMENT
Any modification of or change made to this agreement shall be done by
an additional agreement, executed, approved and signed by John Cook,
Chairman of the Supervisory Board (whilst in office) and thereafter by
the Chairman of the Supervisory Board, and Mr Marc Eisenberg.
18. SEVERABILITY
Any provision that may be declared null and void by a court of a given
jurisdiction, shall remain null and void within that jurisdiction.
However, the nullity of one provision shall not operate or be construed
as affecting any other provision nor as affecting the validity of the
overall agreement.
MADE ON 7 OCTOBER 1997,
AT LONDON.
- -----------------------------------
MR JOHN COOK
FOR ALMA INTERVENTION
- -----------------------------------
MR MARC EISENBERG
-11-
<PAGE> 1
EXHIBIT 10.2
CONSULTING AGREEMENT
This Consulting Agreement (the "AGREEMENT") is entered into as of this 7th day
of October, 1997, between THE PROFIT RECOVERY GROUP INTERNATIONAL, INC., a
Georgia corporation (the "COMPANY") and Lieb Finance SA, a company organized
under the laws of Luxembourg (the "CONSULTANT").
WHEREAS, this Agreement is related to the acquisition of shares and control of
Financiere Alma SA ("FA"), Alma Intervention SA ("AI"), and certain other
subsidiaries of AI (collectively the "ALMA GROUP") by Company pursuant to that
certain Sale Agreement of even date herewith among the Company, Marc Eisenberg
(M. Eisenberg) and Eric Eisenberg (the "SALE AGREEMENT"); and
WHEREAS, the Company has requested that the Consultant through the services of
its sole owner and employee, Marc Eisenberg ("M. EISENBERG") assist the Company
in promoting the Company and the Alma Group in certain portions of Europe and
providing strategic consulting services to the Company and its affiliates in
Europe with respect to market development and penetration and long-term planning
with particular emphasis on the image and services of the Company; and
WHEREAS, M. Eisenberg will also serve as a member and President of the
Directorate of AI pursuant to the Contract for the Mandate of the President of
the Directorate between AI and M. Eisenberg of even date herewith ( the
"MANDATE"), a copy of which is attached hereto as ANNEX 1.
NOW, THEREFORE, in consideration of the mutual covenants contained herein and
other good and valuable consideration the receipt of which is hereby
acknowledged, the parties agree as follows:
1. Consulting Services
1.1 The Consultant shall make available the services of M. Eisenberg,
subject to his obligations under the Mandate, on a reasonable and
continuing basis to consult with the Company on strategic and
long-term planning matters for the Company and its affiliates in
certain portions of Europe.
1.2 During the term of this Agreement and for five years thereafter
the Consultant shall not engage in any activity, which M.
Eisenberg has undertaken not to engage in clause 10 of the Sale
Agreement or the sections of the Mandate entitled "NON-COMPETITION
AND CONFIDENTIALITY."
-1-
<PAGE> 2
2. Term and Termination
2.1 This Agreement shall be in force and effect for a period of five
years from the date hereof, unless sooner terminated as
hereinafter provided.
2.2 Upon the termination or revocation of the Mandate for any reason
whatsoever, including without limitation, M. Eisenberg's
resignation from his appointment under the Mandate, this Agreement
shall automatically terminate concurrently with the termination or
revocation of the Mandate. Consultant may resign its engagement
under this Agreement by giving the Company thirty days prior
written notice, which notice, however, may be waived by the
Company.
2.3 In the event of termination or revocation of the Mandate by AI and
as a result of such revocation or termination under the specific
terms of the Mandate M. Eisenberg is entitled to the termination
compensation specified in Section 6 thereof without regard to the
enforceability of such provision of the Mandate under French law,
then to the extent that AI does not pay such termination
compensation to M. Eisenberg, either directly or indirectly, such
unpaid termination compensation shall be paid by the Company
pursuant to this Agreement.
3. Consulting Fees
3.1 For the provision of the consulting services hereunder the
Consultant shall be entitled during the term hereof to receive
payment to the Consultant's designated account (as the Consultant
from time to time may designate in writing to the Company) in the
annual sum of US$ equivalent of 325,000 FRF, less any required
federal, state and local withholding and payroll taxes, which net
amount shall be due and payable in arrears in equal monthly
installments. Notwithstanding anything to the contrary contained
herein, during any period in which M. Eisenberg is not entitled to
receive salary or other remuneration as a result of his disability
as provided in the Mandate, Consultant shall not be entitled to
any consulting fees or other remuneration under this Agreement.
3.2 The first such monthly installment shall be due and payable on
November 10, 1997. Subsequent installments for the duration of
this Agreement shall be due and payable on the tenth day of each
month thereafter.
3.3 Subject to compliance with the Company's standard expense
reimbursement policies, the Company shall reimburse the Consultant
for all reasonable out-of-pocket expenditures and disbursements
incurred by the Consultant in connection with the performance of
duties under this Agreement. The Consultant shall submit requests
for such reimbursement, accompanied by copies of invoices or other
reasonable support data. The Company shall promptly pay
submissions to
-2-
<PAGE> 3
the Company in accordance with the Company's standard expense
reimbursement policies, accompanied by the appropriate supporting
data.
4. Confidentiality
4.1 During the term of this Agreement, and for a period of five years
from the date of termination for any reason whatsoever, Consultant
will not divulge to any third party whatsoever or use for its own
or another's advantage any of the trade secrets or confidential
know-how or confidential financial or trading information as to
clients of the Alma Group, the Company or its affiliates, or in
relation to the business, finances, dealings or affairs of the
Alma Group, the Company or any of its affiliates except insofar as
Consultant may prove the same has become a matter of public
knowledge (otherwise than by a breach by him of this clause) or
insofar as such disclosure may be required by law.
4.2 Consultant undertakes to keep confidential any information not
intended release to the public, any know-how, any intellectual
property, any patents, etc, involving any aspect of the business
of the Company or any of its affiliates or the Alma Group.
5. Protected Information
All software, computer diskettes, CDs, video tapes, files, audit reports
and other information in writing or in print or any other presentation as
well as all technical information and trade secrets relating to the
business of the Company and any of its affiliates or the Alma Group to
which Consultant will have access under the terms and conditions of this
Agreement shall be and remain the sole and exclusive property of the
Company or the Alma Group, as appropriate. For this reason, upon the
termination of this Agreement for whatever reason whatsoever, Consultant
will deliver the entirety of the foregoing that are in its possession and
that constitute property belonging to the Company or the Alma Group.
6. Copyrights and Inventions
6.1 Consultant has the duty to disclose any product, service,
invention, improvement, discovery, process, formula, program,
system or method (collectively "INVENTIONS") that it develops that
relate in any way to this Agreement or to the business of the
Company or any of its affiliates or the Alma Group and for the
term of this Agreement.
These Inventions shall become the sole and exclusive property of
the Company or the Alma Group, as appropriate provided that they
directly relate to the actual business of the Company or the Alma
Group, that they coincide with actual or anticipated development
of the business of the Company or the Alma Group and that these
Inventions were made or conceived by Consultant or its sole
employee,
-3-
<PAGE> 4
either solely by Consultant or its sole employee or jointly with
others.
These Inventions shall constitute protected information for the
purpose of the preceding article.
Consultant agrees to execute and deliver any document, and, more
generally do such other acts as necessary for securing all right,
title and interest of the Company or the Alma Group, as
appropriate in and to any such Invention.
6.2 Consultant acknowledges and agrees that any original works of
authorship fixed in tangible form that Consultant or its sole
employee shall develop during and according to the terms of this
Agreement, either solely by Consultant or its sole employee or
jointly with others, will constitute property belonging to the
Company or the Alma Group, as appropriate.
7. Successors and Assigns
Neither party may assign this Agreement; provided, however, that the
Company may assign this Agreement to any subsidiary or affiliate of the
Company so long as the Company remains liable to Consultant hereunder.
8. Severability
In the event one or more of the words, phrases, sentences, clauses or
subdivisions or subparagraphs herein shall be held to be invalid, this
Agreement shall be construed in such manner as to give validity to all
other provisions.
9. Jurisdiction
9.1 This Agreement shall be governed by the laws of Georgia.
9.2 The Consultant hereby irrevocably submits to the jurisdiction of
the federal courts within the State of Georgia and hereby appoints
the Secretary of State of the State of Georgia as agent for
purpose of receiving service of process in respect of any
proceeding in such courts relating to this Agreement or its
enforcement.
10. Notices
Any notice to be given under this Agreement shall be given in writing and
shall be effected personal delivery or by sending such notice by
certified mail, return receipt requested and addressed as set forth
below.
If to the Company: John M. Cook, Chairman and CEO
The Profit Recovery Group International, Inc.
2300 Windy Ridge Parkway, Suite 100 North
Atlanta, Georgia 30339-8426
-4-
<PAGE> 5
If to the Consultant: Lieb Finance SA
c/o Wilinski & Scotto
19, rue Marbeuf
75008 Paris
11. Waiver
The waiver by one party of a breach of any provision of this Agreement by
the other party shall not operate or be construed as a waiver of any
subsequent breach of the same or any other provision by the other party.
12. Authorization
12.1 The Company represents and warrants to the Consultant that the
execution, delivery and performance of this Agreement has been
authorized and approved by all necessary corporate actions.
12.2 The Consultant represents and warrants to the Company that the
execution, delivery and performance of this Agreement has been
authorized and approved by all necessary corporate actions.
13. Entire Agreement
This Agreement, together with the Mandate and the other documents
referred to therein constitute the entire agreement of the parties with
respect to the subject matter hereof and supercedes any prior
discussions, understandings or agreements with respect to such subject
matter.
14. Counterparts
This Agreement may be executed in one or more counterparts, each of which
shall be deemed an original, and together shall constitute one and the
same agreement.
-5-
<PAGE> 6
IN WITNESS WHEREOF, the parties hereto have executed this Agreement at Broadwalk
House, 5 Appold Street, London EC2A 2HA, as of the date first written above.
THE PROFIT RECOVERY GROUP INTERNATIONAL, INC.
By: Mr Clinton McKellar, Jr.
Title: Senior Vice President and General Counsel
- -------------------------------------------------
By: Marc Eisenberg
Title: Sole Representative
-6-
<PAGE> 1
EXHIBIT 10.3
SECOND AMENDMENT TO EMPLOYMENT AGREEMENT
THIS SECOND AMENDMENT is made this 17th day of September, 1997, effective
as of the 22nd day of July, 1997, by and among THE PROFIT RECOVERY GROUP
INTERNATIONAL I, INC., a Georgia corporation (the "Company") and JOHN M. COOK
(hereinafter referred to as "Employee").
W I T N E S S E T H:
WHEREAS, Company, as successor to The Profit Recovery Group International
II, L.P., and and Employee are parties to that certain Employment Agreement
dated March 20, 1996, as amended by that certain First Amendment to Employment
Agreement, dated March 7, 1996, effective as of December 31, 1996 (the
"Employment Agreement"); and
WHEREAS, Company and Employee desire to amend the Employment Agreement.
NOW, THEREFORE, for good and valuable consideration, the adequacy and
receipt of which are acknowledged, the parties hereto do hereby agree as
follows:
1. The Section 1(b) of Exhibit B to the Employment Agreement is
hereby deleted in its entirety and replaced with the following new Section 1(b)
of Exhibit B to the Employment Agreement:
"(b) Bonus. Commencing with the Term Year beginning January 1, 1997, an
annual bonus ("Bonus") in an amount determined as provided herein for
such Term Year and each succeeding Term Year during the term hereof,
payable in a lump sum within ninety (90) days following the end of each
such Term Year. The maximum potential Bonus for any Term Year shall be
one hundred fifty (150%) percent of Employee's Base Salary for such Term
Year. For each Term Year, Employee shall be entitled to a Bonus if and
only if the following annual increases in EPS, as hereinafter defined,
are achieved by the Company during such Term Year over the immediately
preceding Term Year:
(i) "Threshold" - Employee shall be entitled to a Bonus in an
amount equal to fifty (50%) percent of his Base Salary if
EPS increase by twenty (20%) percent or more but less than
thirty (30%) percent;
(ii) "Target" - Employee shall be entitled to a Bonus in an
amount equal to one hundred (100%) percent of his Base
Salary if EPS increase by thirty (30%) percent or more but
less than forty (40%) percent; and
<PAGE> 2
(iii) "Stretch" - Employee shall be entitled to a Bonus in an
amount equal to one hundred fifty (150%) percent of his
Base Salary if EPS increase by forty (40%) percent or more.
2. Except to the extent expressly modified above, the Employment
Agreement shall remain in full force and effect as originally executed.
IN WITNESS WHEREOF, and intending to be legally bound hereby, the parties
have hereunto affixed their hands and seals the day and year first written
above.
THE PROFIT RECOVERY GROUP
INTERNATIONAL I, INC.
By:
--------------------------------------
Clinton McKellar, Jr.
Title: Senior Vice President, General Counsel
and Secretary
EMPLOYEE:
-------------------------------------------
John M. Cook
40 Cates Ridge
Atlanta, GA 30327
-2-
<PAGE> 1
EXHIBIT 10.4
EMPLOYMENT AGREEMENT
THIS EMPLOYMENT AGREEMENT ("Agreement"), is made as of the 17th day of
October, 1997, effective as of January 1, 1997 (the "Effective Date"), by and
between THE PROFIT RECOVERY GROUP INTERNATIONAL I, INC., a Georgia corporation
(the "Company") and MICHAEL A. LUSTIG, a resident of the State of Georgia (the
"Employee").
W I T N E S S E T H:
WHEREAS, the Company desires to retain Employee to provide services to
the Company and its Affiliates (as defined in Section 23 below), and Employee
desires to provide his services to the Company pursuant to the terms and
conditions that follow;
NOW, THEREFORE, in consideration of the mutual promises and covenants
hereinafter contained and other good and valuable consideration, the receipt and
sufficiency of which are hereby acknowledged, the parties do hereby agree as
follows:
1. EMPLOYMENT. Employee shall serve as President of the Company.
Employee agrees to apply Employee's full time efforts to the position and to
perform Employee's work at all times to the best of Employee's ability and at
the direction of the Chief Executive Officer of the Company. Employee will
render to the Company at regular intervals set by the Company, reports and
accounting of the status and progress of any work Employee is performing.
2. TERM. The initial term of this Agreement shall commence on January
1, 1997, and shall continue until December 31, 1997, unless sooner terminated as
hereinafter provided. Unless otherwise terminated pursuant to Section 14 hereof,
this Agreement shall automatically renew on a year-to-year basis at the end of
the initial term and each subsequent renewal term unless either party gives
written notice of non-renewal to the other at least ninety (90) days prior to
the end of the initial term or a renewal term. The initial term of this
Agreement and any subsequent one-year renewal period shall be deemed a "Term
Year."
3. SCOPE OF THE COMPANY'S ACTIVITIES. Employee acknowledges and agrees
that the Company conducts the following business in the following territories:
(a) Scope of the Company's Business. The Company is engaged in
the business of auditing accounts payable, paid bill files, promotional and
demonstrator agreements, personal property, real estate, sales and use tax and
other taxes, common area maintenance charges, telephone and other utilities,
sales promotion, advertising and cosmetic wage/commission agreements of its
Clients, as hereinafter defined, to identify and document for subsequent charge
back or credit over-payments and/or under deductions (collectively, the "Audit
Activities"), and rendering management counseling services associated with the
Audit Activities (collectively, the "Business of the Company").
<PAGE> 2
(b) Location of the Company's Business. The Company actively
conducts business with its clients (herein referred to as "Clients") throughout
the United States, Australia, Belgium, Canada, France, Germany, Great Britain,
Hong Kong, Indonesia, Malaysia, Mexico, the Netherlands, New Zealand, Singapore,
South Africa, Taiwan, and Thailand. The address of the Company's principal
office in Atlanta, Georgia where Employee provides substantially all of his
services on behalf of the Company is 2300 Windy Ridge Parkway, Suite 100, North,
Atlanta, Cobb County, Georgia 30339-8426 (the "Principal Office").
4. COMPENSATION. For services rendered by Employee under this Agreement
during the term hereof, Employee shall be entitled to receive the compensation
and benefits set forth in Sections 10, 11 and 12 hereof and in that certain
Compensation Agreement by and between Employee and the Company (the
"Compensation Agreement"), which provides in part that as of the Effective Date
Employee's Base Salary (as defined therein) is Two Hundred Forty-Five Thousand
and No/100 ($245,000.00) Dollars), exclusive of Twenty Thousand and No/100
($20,000.00) Dollars of salary to be deferred in accordance therewith, subject
to any future amendment of the Compensation Agreement.
5. STOCK OPTION. Employee and The Profit Recovery Group International,
Inc., a Georgia corporation ("PRGX"), are party to one or more separate stock
option agreements in accordance with which Employee has been granted
non-qualified options to purchase One Hundred Eleven Thousand Five Hundred
(111,500) shares of PRGX Common Stock under the 1996 Stock Option Plan (the
"Plan"). Additionally, the Company will grant Employee 37,500 stock options if
the Company's earnings per share ("EPS") for 1997 increases by at least
thirty-five (35%) percent over 1996 EPS. If EPS for 1997 increases by more than
forty (40%) percent over 1996 EPS, the total stock option awarded will be
increased to 75,000 stock options. The Company shall have the right to revise
the 1997 EPS targets stated above to reflect business and organizational changes
occurring during 1997 that are outside of the ordinary course of PRGX's
business, including adjustments to exclude extraordinary charges incurred in
connection with PRGX's acquisition of Groupe Alma. Any stock options so granted
which relate to increases in 1997 EPS over 1996 EPS will (i) vest ratably and
proportionately over four (4) years and be reflected in the form of The Profit
Recovery Group International, Inc. Non-Qualified Stock Option Agreement
previously adopted and approved by the Company's Compensation Committee, (ii) be
granted at fair market value as of December 31, 1997; and (iii) relate to and be
part of Employee's compensation package for 1997, notwithstanding that KPMG Peat
Marwick will need additional time after the end of 1997 to complete its audit in
order to make a final determination of whether the earnings per share goals were
achieved.
6. SPECIFIC ACKNOWLEDGMENTS. Employee acknowledges that the Company has
expended and will continue to expend substantial time, money, effort and other
resources to develop its goodwill, clients, business sources and relationships
and that the Company has a legitimate business interest in protecting same. In
connection with Employee's employment by the Company as herein provided, the
Company will introduce Employee to its Clients, business sources and
relationships and will expend considerable time, effort and capital to train
Employee in the business of the Company. Employee further acknowledges that, by
virtue of Employee's employment with the Company, Employee will be in a position
of substantial responsibility and authority and will have frequent and
substantial contact with certain of the Company's Clients and business sources
and relationships. Employee further acknowledges that in Employee's capacity,
Employee will be privy to certain confidential information, Company secrets
2
<PAGE> 3
and proprietary information not generally known or available to the Company's
competitors or the general public.
(a) Agreement Not to Compete - Competing Businesses. Employee
covenants and agrees that during Employee's employment by the Company and for a
period of eighteen (18) months after the termination of Employee's employment
for any reason whatsoever, of such employment, he will not, without the prior
written consent of the Company signed by the President of the Company, directly
or indirectly, (i) for himself or (ii) as a consultant, management, supervisory
or executive employee or owner of a Competing Business, as hereinafter defined,
or (iii) as an independent contractor for a Competing Business, engage in any
business, within a radius of thirty (30) miles of the Principal Office, for
which Employee provides services which are the same or substantially similar to
his duties as Employee as herein described.
(b) Agreement Not to Solicit Clients. Employee covenants and
agrees that during Employee's employment by the Company and for a period of
eighteen (18) months after termination of Employee's employment for any reason
whatsoever, Employee will not, without the prior written consent of the Company
signed by the President of the Company, directly or indirectly, on Employee's
behalf or on behalf of a Competing Business, as hereinafter defined, solicit,
divert or appropriate, or attempt to solicit, divert or appropriate any of the
Company's Clients for whom Employee performed services or otherwise had direct
contact, influence and/or responsibility during the twenty-four (24) month
period immediately preceding the termination of Employee's employment with the
Company (or such shorter period if Employee is employed for less than 24 months)
for the purpose of providing services of the type identified in Section 3 (a)
hereof. Employee's covenants pursuant to this subsection (b) shall also apply to
prospective customers of the Company with respect to which Employee participated
in soliciting on behalf of the Company during the twenty-four (24) month period
immediately preceding the termination of Employee's employment with the Company
(or such shorter period if Employee is employed for less than 24 months).
(c) Agreement Not to Solicit Employees or Contractors.
Employee covenants and agrees that during Employee's employment by the Company
and for a period of eighteen (18) months after termination of Employee's
employment for any reason whatsoever, Employee will not, without the prior
written consent of the Company signed by the President of the Company, directly
or indirectly, on Employee's behalf or on behalf of others, solicit, entice,
persuade or induce, or attempt to solicit, entice, persuade or induce any person
who is actively employed by, or is performing services as an independent
contractor for, the Company and (i) who was employed by, or was performing
services as an independent contractor for, the Company at any time during which
Employee was employed by the Company and (ii) who reported to Employee or was
within Employee's chain of responsibility, or (iii) who had regular contact with
Employee, to terminate his or her employment or contractual arrangement with the
Company or to become employed or engaged by any person, firm or entity other
than the Company, or approach any such person for any of the foregoing purposes
or authorize or assist in the taking of any such action by any third party.
3
<PAGE> 4
(d) Proprietary Information. All Proprietary Information, as
hereinafter defined, and all physical embodiments thereof received or developed
by Employee or disclosed to Employee while employed by the Company is
confidential to and is and will remain the sole and exclusive property of the
Company. Except to the extent necessary to perform the duties assigned to
Employee by the Company, Employee will hold such Proprietary Information in
trust and in the strictest confidence, and will not use, reproduce, distribute,
disclose or otherwise disseminate the Proprietary Information or any physical
embodiments thereof and may in no event take any action causing or fail to take
the action necessary in order to prevent any Proprietary Information disclosed
to or developed by Employee to lose its character or cease to qualify as
Proprietary Information. The confidentiality requirements and use restrictions
contained in this subsection shall survive any termination of Employee's
employment with the Company but shall not apply (i) to any information that
falls into the public domain through no fault of Employee, or (ii) to
Proprietary Information which is not Trade Secrets, as hereinafter defined, when
a period of five (5) years has expired following the termination of Employee's
employment with Company. Upon request by the Company, and in any event upon
termination of Employee's employment with the Company for any reason, Employee
will promptly deliver to the Company all property belonging to the Company,
including without limitation all Proprietary Information (and all physical
embodiments thereof) then in Employee's custody, control, or possession.
(e) Contracts or Other Agreements with Former Employer or
Business. Employee agrees that Employee will provide to the Company, upon the
execution of this Agreement, a copy of the pertinent portions of any employment
agreement or similar document executed by Employee with a former employer or any
other business. Employee warrants and represents that (i) the execution and
delivery of this Agreement by Employee and the performance of the obligations,
covenants and agreements contained herein, do not and will not conflict with or
result in any breach or violation of any of the terms and provisions of any
agreement, judgment, order, statute or other instrument or restriction of any
kind with respect to which Employee is bound, and (ii) Employee is not subject
to any restrictive covenant agreement, covenant not to compete, nonsolicitation
agreement or other agreement that would prohibit Employee from carrying out
Employee's duties hereunder.
(f) Definitions.
- "Competing Business" means any business
organization of whatever form engaged, either directly or indirectly, in any
business or enterprise which is the same as, or substantially the same as, the
Business of the Company, as defined in Section 2(a) hereof.
- "Proprietary Information" means information
related to the Company or its Affiliates or clients (i) which derives economic
value, actual or potential, from not being generally known to or readily
ascertainable by other persons who can obtain economic value from its disclosure
or use; and (ii) which is the subject of efforts that are reasonable under the
circumstances to maintain its secrecy. Such Proprietary Information shall
include information in any form or media and shall not necessarily be in
writing. Proprietary Information also includes information which has been
disclosed to the Company or its Affiliates by a third party and which the
Company or its Affiliates are obligated to treat as confidential. Trade Secrets
means Proprietary Information which meets the foregoing criteria and which is
also deemed to be a "Trade Secret" as that term is defined in the Georgia Trade
Secrets Act of 1990, O.C.G.A. ss. 10-1-760, et. seq., including but not limited
to technical and nontechnical data, formulas,
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<PAGE> 5
patterns, compilations, programs, devices, methods, techniques, drawings,
processes, financial data, financial plans, product plans, and lists of actual
or potential customers and suppliers. Proprietary Information may or may not be
marked by the Company or its Affiliates as "proprietary" or "secret" or with
other words or markings of similar meaning, and the failure of the Company to
make such notations upon the physical embodiments of any Proprietary Information
shall not affect the status of such information as Proprietary Information.
7. OWNERSHIP BY COMPANY. All software, computer diskettes, CDs, video
tapes, literature, cassettes, photographs, prints, slides, records, notes,
files, memoranda, reports, audit reports, price lists, client lists, documents,
and all copies thereof, equipment, and apparatus and like items relating to the
business of the Company, Proprietary Information or Trade Secrets which shall be
prepared by Employee or which shall be disclosed to or which shall come into
Employee's possession shall be and remain the sole and exclusive property of the
Company. Employee agrees that, upon the termination of employment with the
Company for any reason whatsoever, or at any other time upon request, Employee
will promptly deliver to the Company the originals and all copies of any of the
foregoing that are in Employee's possession, custody or control, and any other
property belonging to the Company.
8. INVENTIONS. Employee agrees that, during the term of this Agreement,
Employee has a continuing duty to disclose to the Company any invention,
improvement, discovery, process, formula, code, program, system or method
(collectively, "Inventions") developed or being developed by Employee any time
during the term of Employee's employment, either solely by Employee or jointly
with others, whether or not such Inventions are assignable to the Company as set
forth below. Any Invention which Employee has conceived or made or may conceive
or make at any time while employed by the Company, either solely by Employee or
jointly with others, (a) which relate in any way to the actual Business of the
Company, or (b) which relate in any way to the actual or anticipated research or
development of the Company, or (c) which are suggested by or result from any
task assigned to Employee on behalf of the Company, shall be the sole and
exclusive property of the Company, and Employee hereby assigns to the Company
any right, title or interest Employee may have to such Invention. Furthermore,
any such Invention shall constitute Proprietary Information as set forth above.
At the request and expense of the Company, Employee will execute and deliver all
documents and will do such other acts as may be in the Company's opinion
necessary or desirable to secure to the Company or its nominee all right, title
and interest in and to any such Invention. The provisions of this Section shall
be binding upon Employee's heirs, legal representatives, successors and assigns.
9. COPYRIGHTS. Employee understands that any original works of
authorship fixed in tangible form, including, without limitation, computer
software and manuals, advertising material, and training material, prepared by
Employee, either solely or jointly with others, within the scope of Employee's
employment by the Company, constitute works made for hire as provided by law, so
that such works are owned by the Company. If, for any reason, a work of
authorship by Employee created during the term of Employee's employment by the
Company and related to the Business of the Company is considered other than a
work for hire, then Employee hereby assigns all Employee's right, title and
interest in copyrights to such works of authorship to the Company.
10. INSURANCE AND BENEFITS.
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<PAGE> 6
(a) Subject to Employee being insurable at standard rates as
of the commencement of employment (or when coverage is applied for, as
applicable) and to the availability of such coverage from the Company's
customary insurance providers, the Company shall (i) obtain on Employee's behalf
life, disability, hospitalization and medical insurance coverage in accordance
with the Company's standard group coverage, (ii) pay the premiums, or reimburse
Employee for premiums paid, to obtain, coverage as described below in addition
to the Company's standard group coverage in accordance with the Company's
standard policies and procedures: (A) basic term life insurance policy at the
best available rates for a fifteen (15) year level term type product, but not
higher than standard nonsmoker rates, in an amount of coverage equal to One
Million ($1,000,000) Dollars, and (B) disability income insurance coverage,
which, when added to the standard group coverages, will provide a monthly
benefit of sixty (60%) percent of the sum of (x) Employee's current Base Salary,
(y) any amount of Bonus (as defined in the Compensation Agreement) payable to
Employee, without adjustment or deduction for any Bonus amount the payment of
which was deferred pursuant to this Agreement, for the Term Year preceding the
Term Year in which the disability occurs, and (z) any amount of salary for the
Term Year in which the Disability occurs the payment of which is deferred
pursuant to this Agreement, and (iii) share the cost of Employee's health
insurance premiums in accordance with the Company's standard employee policies
and procedures. The Company will reimburse Employee for any amount incurred in
connection with an annual physical examination not covered by insurance.
(b) Employee shall be provided an annual automobile allowance
of Twelve Thousand and No/100 ($12,000.00) Dollars, payable in accordance with
the Company's customary procedures, which amount shall be reviewed annually and
may be modified in writing prior to the commencement of any Term Year.
(c) The Company will pay for an executive financial program
for Employee as provided by Advisory Services, Ltd.
(d) Employee shall be entitled to participate in any 401(k)
Plan of the Company generally available to other employees of the Company,
except as may be limited by applicable law or regulation.
(e) The Company shall pay Employee's reasonable travel and
business expenses (including air travel at coach rate), subject to Employee's
submission of receipts therefor in accordance with the Company's normal
practices and procedures.
(f) Any amounts the Company pays for insurance coverage or
fringe benefits that are supplemental or in addition to the Company's standard
insurance coverage or benefits shall be compensation in addition to Base Salary
(but not included within the definition of Base Salary) and shall be reflected
on Employee's W-2.
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<PAGE> 7
11. PAYMENT OF COMPENSATION UPON TERMINATION.
In addition to any deferred compensation to which Employee might be
entitled pursuant to Section 12 hereof following Employee's termination of
employment, Employee shall receive the following compensation upon the
termination of Employee's employment under the Employment Agreement:
(a) In the event Employee's employment hereunder is terminated
for cause or if Employee voluntarily resigns, Employee shall be entitled to
receive Employee's Base Salary prorated through the date of termination, payable
within sixty (60) days after termination and Employee shall not be entitled to
receive any Bonus (as defined in the Compensation Agreement), or any other
amount in respect of the Term Year in which termination occurs or in respect of
any subsequent years.
(b) In the event Employee's employment hereunder is terminated
by the Company without cause, Employee shall be entitled to receive Base Salary
and Bonus for the Term Year in which such termination occurs prorated through
the date of such termination, plus a severance payment equal to six (6) months
of Base Salary at the rate then in effect and shall not be entitled to receive
any other amount in respect of the Term Year in which termination occurs or in
respect of any subsequent years. The prorated Base Salary shall be payable in a
lump sum within sixty (60) days after termination, the prorated Bonus shall be
payable in a lump sum within ninety (90) days after the end of the Term Year to
which it relates, and the severance payment shall be payable in six (6) equal
monthly installments commencing on the last day of the first month following
termination. If the Company gives Employee notice of non-renewal pursuant to
Section 2 of this Agreement, it shall be deemed to be a termination of
Employee's employment without cause and Employee shall be entitled to
compensation pursuant to this Section 11(b).
(c) In the event Employee's employment hereunder is terminated
by Employee's death, Employee's legal representative shall be entitled to
receive Base Salary and Bonus for the Term Year in which such termination occurs
prorated through the date of such termination and any other payments
specifically provided for herein in respect of death and shall not be entitled
to receive any other amount in respect of the Term Year in which termination
occurs or in respect of any subsequent years. The prorated Base Salary shall be
payable in a lump sum within sixty (60) days after termination and the prorated
Bonus shall be payable in a lump sum within ninety (90) days after the end of
the Term Year to which it relates.
(d) In the event Employee's employment hereunder is terminated
for Disability, Employee or Employee's legal representative shall be entitled to
receive (A) Base Salary and Bonus for the Term Year in which such termination
occurs prorated through the date of such termination, with the prorated Base
Salary payable to Employee payable in a lump sum within sixty (60) days after
termination and the prorated Bonus payable in a lump sum within ninety (90) days
after the end of the Term Year to which it relates; and (B) Base Salary at the
rates in effect upon the date of such termination payable in accordance with the
Company's normal payroll procedure until the disability payments provided for
under any of the Company's standard group disability insurance coverage provided
pursuant to Section 10(a) hereof are scheduled to commence (but in no event
longer than ninety (90) days after the date of Employee's termination) and shall
not be entitled to receive any other amount in respect of the Term Year in which
termination occurs or in respect of any subsequent years.
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<PAGE> 8
(e) In the event this Agreement is not renewed due to the
Company giving Employee notice of non-renewal pursuant to Section 2 hereof,
Employee shall be entitled to receive such severance payment or any other amount
with respect to the Company's non-renewal of this Agreement as if such
non-renewal were termination without cause hereunder. Non-renewal by Employee
shall give rise to no right to receive any severance payment hereunder.
(f) If Employee's employment hereunder terminates for any
reason during a Term Year, Employee will be paid within sixty (60) days of
termination for all unused vacation time accrued up to the date of termination.
12. DEFERRED COMPENSATION.
(a) Annual Deferred Compensation Credit. An account
("Employee's Account") has been maintained on the books and records of the
Company for the purposes hereinafter provided. As of December 31, 1996, the
amount credited to Employee's Account, whether vested or unvested (the "Credit
Balance"), equals $40,903.22 (including $903.18 in accrued interest). As of the
end of each Term Year beginning with the Term Year ending December 31, 1997, the
Credit Balance of Employee's Account shall be increased by an amount equal to
the sum of (i) the Salary Deferred Compensation Credit (as defined in the
Compensation Agreement) for such Term Year, and (ii) Twenty Thousand and No/100
($20,000.00) Dollars (the "Company Deferred Compensation Credit"). In the event
of the termination of Employee's employment hereunder for any reason prior to
the end of any Term Year, however, no credits shall be made to Employee's
Account with respect to a Company Deferred Compensation Credit for such Term
Year. Employee's Account shall also be credited from and after the date hereof
with an amount computed like interest on the credit balance of Employee's
Account at the Prime Rate (as hereinafter defined). For these purposes, the
Salary Deferred Compensation Credit and all interest so accrued on the credit
balance of Employee's Account shall be deemed to be credited to Employee's
Account as of the end of each month of each Term Year, and the Company Deferred
Compensation Credit shall be deemed to be credited to Employee's Account as of
December 31 of each Term Year, as provided in Section 12(b) hereof. As used in
this Agreement, the term "Prime Rate" means the rate publicly announced from
time to time by NationsBank, N.A. (South), Atlanta, Georgia, as its "prime
rate."
(b) Vesting. The provisions of this Section 12(b) shall
determine the portion of Employee's Account which is vested and eligible for
payment in accordance with Section 12(c) hereof.
(i) General Vesting Rule. Subject to the other
provisions of this Section 12(b), Employee shall in all events be immediately
vested in the portion of Employee's Account attributable to all Salary Deferred
Compensation Credits (as defined in the Compensation Agreement) and interest
credited with respect thereto (as determined pursuant to Section 12(a) hereof).
Subject to the other provisions of this Section 12(b), Employee's right to the
portion of Employee's Account attributable to each Company Deferred Compensation
Credit and all interest credited with respect thereto (as determined pursuant to
Section 12(a) hereof) will vest as follows: (A) Employee's rights shall be
immediately vested as of the end of the Term Year for which such amount is
credited with respect to that portion of the Company Deferred Compensation
Credit equal to the product of ten (10%) percent of the Company Deferred
Compensation Credit multiplied by the number of calendar years elapsed from the
end of the calendar year in respect of which any funds were first credited to
Employee's Account to the Term Year
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<PAGE> 9
for which such amount is credited (except in the case of termination of
Employee's employment hereunder without cause, in which case vesting of the
product described in this sentence in respect to the Term Year in which
termination without cause occurs will be prorated through the date of
termination), and (B) thereafter, Employee's rights to the remainder of each
Term Year's Company Deferred Compensation Credit shall vest based on ten (10%)
percent of the Balance for each subsequent year until Employee is one hundred
(100%) percent vested in such Company Deferred Compensation Credit. As a result
of clause (A) and clause (B) above, all contributions shall be fully vested at
the end of ten (10) Term Years.
(ii) Termination Due to Death or Disability. In
the event of termination of Employee's employment hereunder due to death or
Disability, then notwithstanding anything to the contrary in Section 12(b)(i)
hereof, Employee, in the event of Disability, or Employee's Beneficiary, in the
event of Employee's death, shall be vested in the Credit Balance of Employee's
Account.
(iii) Termination for Gross Cause. Upon the
termination of Employee's employment hereunder for Gross Cause, notwithstanding
anything to the contrary in Section 12(b)(i) hereof, Employee shall be vested in
the Salary Deferred Compensation Credit in Employee's Account as of the end of
the month preceding such termination or resignation but shall not be vested in
any portion of the Company Deferred Compensation Credit, regardless of whether
or not previously vested, or any interest accrued thereon.
(iv) No Further Credits. Upon Employee's
termination of employment hereunder for any reason, no further increase in the
Credit Balance shall be made to Employee's Account.
(c) Payments Following Termination of Employment.
(i) Termination. In the event of termination of
Employee's employment hereunder for any reason, Employee (or, in the event of
Employee's death, Employee's Beneficiary) shall receive a payment equal to the
portion of the Credit Balance of Employee's Account which is vested in
accordance with Section 12(b) hereof within sixty (60) days after the earlier to
occur of (A) Employee's death, or (B) such termination of Employee's employment.
(ii) Forfeiture of Balance of Employee's Account.
The portion of the Credit Balance of Employee's Account which is not vested in
accordance with Section 12(b) hereof following termination of Employee's
employment hereunder shall be forfeited and Employee shall not be entitled to
any payment with respect thereto.
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(d) Beneficiary. Employee shall have the right to designate a
beneficiary ("Beneficiary") under this Agreement who shall succeed to Employee's
right to receive payments with respect to this Section 12 hereof in the event of
Employee's death. In the event Employee fails to designate a Beneficiary or a
Beneficiary dies without Employee's designation of a successor Beneficiary, then
for all purposes hereunder the Beneficiary shall be Employee's estate. No
designation of Beneficiary shall be valid unless in writing signed by Employee,
dated and delivered to the Company. Beneficiaries may be changed by Employee
without the consent of any prior Beneficiary.
(e) Rights Unsecured; Unfunded Plan; ERISA.
(i) The Company's obligations arising under this
Section 12 hereof to pay benefits to Employee or Employee's Beneficiary
constitute a mere promise by the Company to make payments in the future in
accordance with the terms hereof and Employee and Employee's Beneficiary have
the status of a general unsecured creditor of the Company. Neither Employee nor
Employee's Beneficiary shall have any rights in or against any specific assets
of the Company.
(ii) It is the intention of the Company and
Employee that the Company's obligations under this Section 12 hereof be unfunded
for income tax purposes and for purposes of Title I of the Employee Retirement
Income Security Act of 1974, as amended ("ERISA").
(iii) The Company and Employee shall treat its
obligations under this Section 12 hereof as maintained for a select group of
management or highly compensated employees exempt from Parts 2, 3 and 4 of Title
I of ERISA. The Company shall comply with the reporting and disclosure
requirements of Part 1 of Title I of ERISA in accordance with U.S. Department of
Labor Regulation ss.2520.104-23.
(f) Nonassignability. The rights Employee and Employee's
Beneficiary to payments pursuant to this Section 12 hereof are not subject in
any manner to anticipation, alienation, sale, transfer, assignment, pledge,
encumbrance attachment, or garnishment by creditors of Employee or Employee's
Beneficiary.
13. REMEDIES.
(a) Employee acknowledges and agrees that, by virtue of the
duties and responsibilities attendant to Employee's employment by the Company
and the special knowledge of the Company's affairs, business, clients and
operations that Employee has and will have as a consequence of such employment,
irreparable loss and damage will be suffered by the Company if Employee should
breach or violate any of the covenants and agreements contained in Sections 6,
7, 8, or 9 hereof; and Employee further acknowledges and agrees that each of
such covenants is reasonably necessary to protect and preserve the Company.
Employee, therefore, agrees and consents that, in addition to any other remedies
available to it, the Company shall be entitled to specific performance by
temporary as well as permanent injunction to prevent a breach or contemplated
breach by Employee of any of the covenants or agreements contained in such
Sections.
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(b) The existence of any claim, demand, action or cause of
action that Employee may have against the Company, whether predicated upon this
Agreement or otherwise, shall not constitute a defense to the enforcement by the
Company of any of the covenants contained in Sections 6, 7, 8, or 9 hereof.
(c) Nothing contained in this Agreement shall limit, abridge
or modify the rights of the parties under applicable trade secret, trademark,
copyright or patent law or under the laws of unfair competition.
(d) In the event a court of competent jurisdiction determines
that Employee has breached any of the foregoing covenants contained in Sections
6, 7, 8, or 9 hereof, Employee shall pay all costs of enforcement of the
foregoing covenants, including, but not limited to, court costs and reasonable
attorney's fees.
14. TERMINATION.
(a) This Agreement may be terminated by the Company for
"cause" upon delivery of notice of termination to Employee. As used herein,
"cause" shall mean (i) fraud, dishonesty, gross negligence, willful misconduct,
commission of a felony or act of moral turpitude (e.g. theft, embezzlement and
the like), or (ii) engaging in activities prohibited by Sections 6, 7, 8, or 9
hereof, or any other material breach of this Agreement, and "Gross Cause" shall
refer to any item or items listed in subclause 14(a)(i) immediately above.
(b) This Agreement may be terminated by the Company or
Employee without cause by giving the other party thirty (30) days prior written
notice and such termination shall be effective on the thirtieth (30th) day
following receipt of such notice or such earlier date as the parties shall
mutually agree.
(c) In the event of Employee's Disability, physical or mental,
the Company shall have the right, subject to all applicable laws, including
without limitation, the Americans with Disabilities Act ("ADA"), to terminate
Employee's employment immediately. For purposes of this Agreement, the term
"Disability" shall mean Employee's inability, in the judgment in accordance with
the ADA, of both a medical doctor selected by the Company and a medical doctor
selected by Employee or Employee's legal representative (or, in the event that
such doctors fail to agree, then in the majority opinion of such doctors and a
third medical doctor chosen by such doctors) due to illness, accident or any
other physical or mental incapacity to perform the services required of Employee
hereunder for an aggregate of ninety (90) days within any period of one hundred
eighty (180) consecutive days during which this Agreement is in effect.
15. SUCCESSORS AND ASSIGNS. This Agreement may not be assigned by
Employee. This Agreement may be assigned by the Company.
16. SEVERABILITY. In the event that one or more of the words, phrases,
sentences, clauses, sections, subdivisions or subparagraphs contained herein
shall be held invalid, this Agreement shall be construed as if such invalid
portion had not been inserted, and if such invalidity shall be caused by the
length of any period of time, the number or location of Clients, the size of any
area, or the description of the duties of Employee set forth in any part hereof,
such period of time, number or location of Clients,
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area, or description of duties, or any combination thereof, shall be considered
to be reduced to a period, number, location, area or description which would
cure such invalidity.
17. SUBMISSION TO JURISDICTION. This Agreement shall be governed by and
construed under the laws of the State of Georgia. Employee hereby agrees to
submit to the jurisdiction of the courts of the State of Georgia or the federal
courts within the State of Georgia and hereby appoints the Secretary of State of
the State of Georgia as agent for the purpose of receiving service of process in
respect of any proceeding in connection herewith. Time is of the essence of this
Agreement and each and every Section and subsection hereof.
18. NOTICES. Any notice to be given under this Agreement shall be given
in writing and may be effected by personal delivery or by placing such in the
United States certified mail, return receipt requested and addressed as set
forth below:
If to Company: The Profit Recovery Group International I, Inc.
2300 Windy Ridge Parkway
Suite 100, North
Atlanta, Georgia 30339-8426
Attention: Chairman of the Board
If to Employee: At the address specified below Employee's signature.
19. REQUIRED DEDUCTIONS OR WITHHOLDINGS. All amounts payable to
Employee pursuant to the Employment Agreement or the Compensation Agreement
shall have deducted or withheld therefrom by the Company such amount or amounts
as may be required to be so deducted or withheld pursuant to applicable federal,
state or local laws.
20. ENTIRE AGREEMENT AND AMENDMENT. The Employment Agreement, the
Compensation Agreement and the Plan constitute the entire agreement of the
parties hereto with respect to the subject matter hereof and supersedes all
prior discussions, understandings and agreements among the parties hereto,
including, without limitation, that certain Employment Agreement dated November
27, 1996 and that certain Compensation Agreement also dated as of November 27,
1996. Any such prior agreements other than the Plan shall, from and after the
effective date hereof, be null and void. This Agreement may not be changed
orally, but only by an agreement in writing signed by the party against whom
enforcement of any waiver, change, modification, extension or discharge is
sought.
21. WAIVER. The waiver by one party of a breach of any provision of
this Agreement by the other party shall not operate or be construed as a waiver
of any subsequent breach of the same or any other provision by the other party.
22. AUTHORIZATION. The Company represents and warrants to Employee that
this Agreement has been authorized and approved by all necessary corporate
actions.
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23. AFFILIATES. As used herein, "Affiliates" shall mean PRGX, and all
entities, whether now or hereafter existing, 51% or more of the outstanding
capital stock of which is owned by any combination of the Company and/or any
Affiliate and which are engaged in substantially the same business as the
Business of the Company regardless of the industry segment of its Clients and/or
which provide services or employees to the Company or any Affiliate in
connection with the operations thereof.
24. COUNTERPARTS. This Agreement may be executed in one or more
counterparts, each of which shall be deemed an original and together which shall
constitute one and the same instrument.
IN WITNESS WHEREOF, the parties hereto have executed this
Agreement as of the date first written above.
COMPANY:
THE PROFIT RECOVERY GROUP
INTERNATIONAL I, INC.
By:
-------------------------------------
John M. Cook, Chief Executive Officer
EMPLOYEE:
(SEAL)
----------------------------------------
Michael A. Lustig
2660 Peachtree Road, N.W. #6H
Atlanta, GA 30305
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<PAGE> 1
EXHIBIT 10.5
COMPENSATION AGREEMENT
THIS COMPENSATION AGREEMENT ("Agreement") is made this 17th day of
October, 1997 effective as of January 1, 1997 (the "Effective Date"), by and
between THE PROFIT RECOVERY GROUP INTERNATIONAL I, INC., a Georgia corporation
(the "Company") and MICHAEL A. LUSTIG, a resident of the State of Georgia (the
"Employee").
W I T N E S S E T H:
WHEREAS, the parties hereto are party to that certain Employment
Agreement, dated September __, 1997 and effective as of the Effective Date (the
"Employment Agreement") whereby the Company employs Employee as President of the
Company's Retail, Wholesale and Government Divisions, and Employee accepts such
employment in accordance with the terms thereof; and
WHEREAS, the Employment Agreement provides that the compensation
payable to Employee shall be as set forth herein (any terms capitalized but not
otherwise defined herein shall have the meanings ascribed to them in the
Employment Agreement).
NOW, THEREFORE, in consideration of the foregoing and of the mutual
promises and covenants contained herein and other good and valuable
consideration the receipt and sufficiency of which are hereby acknowledged, the
parties hereto hereby agree as follows:
1. COMPENSATION. For services rendered by Employee under the Employment
Agreement during the term thereof, Employee shall be entitled to receive the
following compensation (subject to following sections), provided that such
compensation and Performance Goals (as defined below) may be reviewed annually
and modified by the Company in writing prior to the commencement of any Term
Year.
(a) Base Salary. Two Hundred Forty-Five Thousand and No/100
($245,000.00) Dollars) ("Base Salary") shall be payable in accordance with the
Company's customary payroll procedures. For purposes of this Agreement, the term
"Adjusted Base Salary" shall mean and refer to the sum of Employee's Base Salary
and Twenty Thousand and No/100 ($20,000.00) Dollars (such Twenty Thousand and
No/100 ($20,000.00) Dollars, together with interest accrued thereon as
hereinafter provided, is hereinafter referred to as the "Salary Deferred
Compensation Credit"). Employee's Salary Deferred Compensation Credit shall not
be paid to Employee but such amount shall instead be deferred and credited to
Employee's Account (as defined in Section 12(a) of the Employment Agreement) as
deferred compensation in accordance with Section 12 of the Employment Agreement.
In the event of termination of Employee's employment under the Employment
Agreement for any reason during any Term Year, no portion of the Salary Deferred
Compensation Credit shall be credited to Employee's Account in respect of the
month in which such termination occurs or any subsequent period.
(b) Bonus. An annual bonus ("Bonus") in an amount determined
and payable as provided herein for each Term Year during the term of the
Employment Agreement, payable in a lump sum within ninety (90) days following
the end of each Term Year; provided, however, that Employee shall be entitled to
a Bonus only if certain Performance Goal Attainment Measures (as set forth in
Exhibit 1 hereto) are achieved by Employee and the Company. The amount of any
Bonus will depend on which Performance Goal Payout Level (as defined in Exhibit
1 hereto) Employee and the Company have
<PAGE> 2
attained. The Performance Goal Attainment Measures and related provisions
applicable to Employee hereunder are set forth in the "Incentive Summary"
attached as Exhibit 1 hereto. The maximum potential Bonus shall be established
from time to time by mutual consent of the parties hereto, but, assuming no
decrease in Base Salary, shall not be less than One Hundred Thirty-Two Thousand
Five Hundred and No/100 ($132,500.00) Dollars per Term Year without Employee's
consent.
2. TERMINATION. This Agreement shall terminate effect upon the
termination of the Employment Agreement; provided, however, that all provisions
hereof relating to any actions, including payment, subsequent to termination
shall survive such termination.
3. INCORPORATION BY REFERENCE. The provisions of the Employment
Agreement are hereby incorporated herein by reference.
4. SUCCESSORS AND ASSIGNS. This Agreement may not be assigned by
Employee. In the event that the Employment Agreement is assigned this Agreement
shall be assigned to the assignee thereof.
5. COUNTERPARTS. This Agreement may be executed in one or more
counterparts, each of which shall be deemed an original and together which shall
constitute one and the same instrument.
IN WITNESS WHEREOF, the parties hereto have executed this
Agreement as of the date first written above.
COMPANY:
THE PROFIT RECOVERY GROUP
INTERNATIONAL I, INC.
By:
-----------------------------------------
John M. Cook, Chief Executive Officer
EMPLOYEE:
(SEAL)
--------------------------------------------
Michael A. Lustig
-2-
<PAGE> 3
EXHIBIT 1
1997 PRG Executive Incentive
Plan Summary
Annual Payout
Objective
- To motivate and reward outstanding performance, and to
reinforce and support PRG's strategic plans and financial
goals.
- Attract and retain highly talented associates by offering a
competitive total compensation package.
Plan Payouts
- Incentive awards under the plan will be based upon
year-to-date base salary earnings for the period January 1,
1997 - December 31, 1997.
- Incentive plan measurements/goals and levels of payout are
shown on the attached incentive summary. Also attached are
definitions for each of the measurement categories.
- One-fifth of the payout is attributable to meeting each of the
four quarters' goals in each category of measurement, and
one-fifth is attributable to meeting the annual goals for each
category of measurement.
- Incentive payments will be paid within 60 days following the
end of the fiscal year. Participants must be actively employed
in order to receive awards. Exceptions may be made in
terminations due to retirement, disability, or death.
- Participants must have satisfactory performance at the time
payments are made to be eligible. Participants on performance
plans are not eligible to receive payments.
Part-Year Participation
- If an associate becomes eligible for the PRG Executive
Incentive Plan after January 1, 1997, he/she may be eligible
for a prorated payout based on the date of entry into the
Plan.
- Prorated payouts will be based on year-to-date base salary
earnings from the date of entry into the Plan. Entry into the
Plan must be prior to October 1, 1997 for participation in the
Plan during 1997.
-3-
<PAGE> 4
Management of the Plan
- The plan is effective from January 1, 1997 through December
31, 1997.
- Overall responsibility for the plan resides with the Chairman
and Chief Executive Officer, Chief Financial Officer, and
Senior Vice President Human Resources, and payments are
subject to Board of Directors' approval.
- Management reserves the right to amend the plan, with regard
to participation, procedures, awards and any other provisions.
This includes revision of financial targets in the event of
business or organizational change deemed to warrant such
action.
-4-
<PAGE> 5
1997 Incentive Plan Measures - Executive
Definitions of Categories
A) EPS - Earnings per share of PRGX as recorded in quarterly/annual
consolidated financial statements reported in the Company's quarterly
10Q and annual 10K. Measurements will be quarterly based upon
threshold, target, and stretch quarterly goals, however, payouts on EPS
will only be annual.
B) "PRG" Operating Profit - Operating profit for subsidiaries wholly owned
by PRGX as of December 1, 1996. Measurement will be quarterly and will
have threshold, target, and stretch goals for each quarter.
-5-
<PAGE> 6
ATTACHMENT A
1997 INCENTIVE SUMMARY
PAYOUT LEVELS
(expressed as a percentage of base salary)
Threshold 30%
Target 40%
Stretch 50%
GOAL ATTAINMENT MEASURES
Qtrly EPS 25%
Qtrly "PRG" Operating Profit 75%
-6-
<PAGE> 1
EXHIBIT 10.6
FIRST AMENDMENT TO LOAN AND SECURITY AGREEMENT
THIS FIRST AMENDMENT TO LOAN AND SECURITY AGREEMENT (the "First
Amendment") is dated as of the 3rd day of October, 1997, by and between
NATIONSBANK, N.A., a national banking association, successor by merger to
NATIONSBANK, N.A. (SOUTH) ("Lender") and THE PROFIT RECOVERY GROUP
INTERNATIONAL, INC., a Georgia corporation ("Borrower"); THE PROFIT RECOVERY
GROUP INTERNATIONAL I, INC., a Georgia corporation ("PRG International"); THE
PROFIT RECOVERY GROUP U.K., INC., a Georgia corporation ("PRG U.K."); THE PROFIT
RECOVERY GROUP ASIA, INC., a Georgia corporation ("PRG Asia"); THE PROFIT
RECOVERY GROUP CANADA, INC., a Georgia corporation ("PRG Canada"); THE PROFIT
RECOVERY GROUP NEW ZEALAND, INC., a Georgia corporation ("PRG New Zealand"); THE
PROFIT RECOVERY GROUP NETHERLANDS, INC., a Georgia corporation ("PRG
Netherlands"); THE PROFIT RECOVERY GROUP BELGIUM, INC., a Georgia corporation
("PRG Belgium"); THE PROFIT RECOVERY GROUP MEXICO, INC., a Georgia corporation
("PRG Mexico") THE PROFIT RECOVERY GROUP FRANCE, INC., a Georgia corporation
("PRG France"); THE PROFIT RECOVERY GROUP AUSTRALIA, INC., a Georgia corporation
("PRG Australia"); THE PROFIT RECOVERY GROUP GERMANY, INC., a Georgia
corporation ("PRG Germany"); PRG INTERNATIONAL HOLDING COMPANY, INC., a Georgia
corporation ("PRG International Holding"); ACCOUNTS PAYABLE RECOVERY SERVICES,
INC., a Georgia corporation ("Accounts Payable"); CLINTON McKELLAR, JR. acting
as attorney (mandataire) in the name of and on behalf of PRG FRANCE SA, a French
societe anonyme in the process of being incorporated ("French PRG"); and THE
PROFIT RECOVERY GROUP SOUTH AFRICA, INC., a Georgia corporation ("PRG South
Africa") (Borrower, PRG International, PRG U.K., PRG Asia, PRG Canada, PRG New
Zealand, PRG Netherlands, PRG Belgium, PRG Mexico, PRG France, PRG Australia and
PRG Germany, each an "Existing Loan Party" and, collectively, the "Existing Loan
Parties"; and PRG International Holding, Accounts Payable, French PRG and PRG
South Africa each a "New Loan Party" and, collectively, the "New Loan Parties";
and the New Loan Parties and the Existing Loan Parties other than Borrower each
a "Guarantor" and, collectively, the "Guarantors").
W I T N E S S E T H :
WHEREAS, Lender, Borrower and Existing Loan Parties are parties to that
certain Loan and Security Agreement dated September 27, 1996 (such Agreement
being hereinafter referred to as the "Loan Agreement");
WHEREAS, Lender, Borrower, Existing Loan Parties and New Loan Parties
desire to amend and modify the Loan Agreement as more particularly set forth
herein; and
NOW, THEREFORE, for and in consideration of the sum of Ten and No/100
Dollars ($10.00) and other good and valuable consideration, the receipt and
sufficiency of which are
<PAGE> 2
hereby acknowledged, Lender, Borrower, Existing Loan Parties and New Loan
Parties hereby agree as follows:
1. Defined Terms. Capitalized terms used herein without definition are used as
defined in the Loan Agreement.
2. New Loan Parties. Each New Loan Party agrees that such New Loan Party shall
be hereafter considered a Loan Party, as such term is defined in the Loan
Agreement; and each New Loan Party hereby adopts, ratifies and agrees to be
bound by all provisions of the Loan Agreement, as amended from time to time, as
it applies (and, in the case of French PRG, to the extent applicable) to Loan
Parties. Each New Loan Party, excluding French PRG, specifically grants to
Lender a continuing security interest in all of the Property of such New Loan
Party to the full extent that Existing Loan Parties have granted such a security
interest in the Property of Existing Loan Parties under the provisions of the
Loan Agreement. As contemplated in Section 6 below, French PRG will pledge to
Lender as collateral for the guaranty obligations of French PRG all of the
shares owned by French PRG in Financiere Alma SA and Alma Intervention SA.
3. Specific Amendments to Loan Agreement. Lender, Borrower, Existing Loan
Parties and New Loan Parties hereby agree that the Loan Agreement is hereby
amended and modified as follows:
(a) The definitions for the following terms in Section 1, Paragraph 1.1 are
hereby deleted in their entirety, and inserted in lieu thereof shall be the
following:
(i) "Accounts - means all accounts, contract rights, chattel paper,
instruments and documents, whether now owned or hereafter created or acquired
by Loan Party or in which Loan Party now has or hereafter acquires any
interest; except that amounts due from or payable to any Affiliate,
Subsidiary or Loan Party shall be excluded therefrom."
(ii) "Permitted Distributions - means a Distribution made by a Loan
Party which does not result in the Combined Debt Service Coverage Ratio
of the Loan Parties to be less than 1.5 to 1.0 for any fiscal quarter or
the U.S. Debt Service Coverage Ratio to be less than 1.0 to 1.0 for any
fiscal quarter."
(iii) "Revolver Loan Period - means the period from the date of this
Agreement until September 30, 1999."
(b) Definitions for the following terms are hereby inserted into Section 1,
Paragraph 1.1, to read as follows:
(i) "U.S. Debt Service Coverage Ratio - means, for any period of time,
the ratio computed as of the last day of such period of time of (i) U.S.
EBITDA to (ii) U.S. Debt Service."
2
<PAGE> 3
(ii) "U.S. Debt Service - means Debt Service relating to and arising
from the operations of the Loan Parties in the United States of America
plus, if not already included, the debt service relating to the Loans."
(iii) "U.S. EBITDA - means EBITDA relating to and arising solely from the
operations of the Loan Parties within the United States of America."
(c) The first sentence of Section 2, Paragraph 2.1, is hereby deleted in its
entirety, and inserted in lieu thereof shall be the following:
"2.1 Term Loan. Subject to all of the terms and conditions of this
Agreement, Lender agrees, upon Borrower's request, to advance to Borrower,
from time to time until September 30, 1999, Term Loans in an aggregate
principal amount outstanding at any one time not to exceed $30,000,000.00,
the proceeds of which are to be used by Borrower in connection with future
acquisitions. It is anticipated that $26,500,000.00 will be advanced to
Borrower and, in turn, made available, directly or indirectly, to French PRG
for the purpose of acquiring shares in certain French companies being
Financiere Alma SA and Alma Intervention SA."
(d) Subparagraph (A) of Section 2, Paragraph 2.3 is hereby deleted in its
entirety, and inserted in lieu thereof shall be the following:
"(A) At no time shall Lender be obligated to advance amounts under
either the Term Loan or the Revolver Loan if, as a result of such advance,
the aggregate principal balance of the Loans would exceed $30,000,000.00
(subject to permanent reduction at Borrower's election pursuant to Section
3.2(D) herein)."
(e) New subparagraphs (D) and (E) are hereby inserted into Section 2,
Paragraph 2.3, to read as follows:
"(D) At no time shall Lender be obligated to advance amounts under
the Loans unless, at the time of such advance, Loan Parties have accounts
receivable or contracts receivable (billed and unbilled) net of reserves
equal to or greater than the amount which would be outstanding on the Loans
following such advance.
(E) At all times throughout the term of the Loans, the accounts
receivable or contracts receivable of Loan Parties (billed and unbilled) net
of reserves shall be equal to or greater than the amount outstanding under
the Loans. If at any time such ratio is not achieved, Borrower shall reduce
the amount outstanding under the Loans by an amount necessary to cause such
ratio to be achieved."
(f) Subparagraph (B) of Section 3, Paragraph 3.1 is hereby deleted in its
entirety, and inserted in lieu thereof shall be the following:
3
<PAGE> 4
"(B) Payment of Principal and Interest. Each advance under the Term
Loan shall be repayable in forty-eight (48) monthly installments. Payment of
such monthly installments shall commence one (1) month following the date of
the Term Note applicable to such advance and shall continue on the same day
of each and every month thereafter until the maturity date of such Term Note.
Monthly payments of accrued and unpaid interest only shall be due and payable
under such Term Note in arrears for the first twelve (12) months; thereafter,
for the next thirty-five (35) months, the monthly payments shall consist of
all accrued and unpaid interest together with one sixtieth (1/60) of the
original principal amount of such Term Note, and the remainder of all accrued
and unpaid interest together with the remaining unpaid principal balance
shall be immediately paid in full forty-eight (48) months following the date
of such Term Note."
(g) The date "September 30, 1998" in the fourth line of subparagraph (B) of
Section 3, Paragraph 3.2 is hereby deleted and the date "September 30, 1999"
is inserted in lieu thereof.
(h) Section 3, Paragraph 3.4 is hereby deleted in its entirety, and inserted
in lieu thereof shall be the following:
"3.4 Unused Facility Fee. In addition to other fees payable under the
terms and conditions of this Agreement and in addition to principal and
interest under the Revolver Note and each of the Term Notes, Borrower shall
pay to Lender on the first day of April, July, October and January,
commencing on January 1, 1998 and ending October 1, 1999, a fee equal to .25
percent (on a per annum basis) of the difference between (i) the maximum
aggregate amount which Lender has agreed to advance under the Loans (which,
as of the date hereof, is $30,000,000.00); and (ii) the average daily
aggregate outstanding principal balance under the Loans throughout the fiscal
quarter preceding such payment date. Borrower may, at its option, elect to
permanently reduce the maximum amount which Borrower is entitled to borrow
and which Lender is obligated to advance under the Loans by providing Lender
with three business days advance written notice of such election and
provided that the minimum amount of such permanent reduction of the Loans is
at least $1,000,000.00."
(i) New subparagraphs (F) and (G) are hereby inserted into Section 9,
Paragraph 9.3, to read as follows:
"(F) Maintain a U.S. Debt Service Coverage Ratio of at least 1.0 to
1.0 measured as of the end of each fiscal quarter for the period consisting
of such fiscal quarter together with the preceding three fiscal quarters.
(G) Maintain accounts receivable or contracts receivable (billed
and unbilled) net of reserves in an amount equal to or greater than the
amount of Loans outstanding under this Agreement."
4
<PAGE> 5
(j) Lender's address for notice in Section 12, Paragraph 12.10 is hereby
deleted, and inserted in lieu of shall be the following:
"NationsBank, N.A.
600 Peachtree Street, N.E., 19th Floor
Atlanta, Georgia 30308
Attention: Ms. Melinda M. Bergbom, Senior Vice President
Telecopier No: (404) 607-6343".
(k) Exhibit A-1, Exhibit A-2, Exhibit A-3 and Exhibit E are deleted in
their entirety, and substituted in lieu thereof are the attached Exhibit A-1,
Exhibit A-2, Exhibit A-3 and Exhibit E.
4. Commitment Fee. Simultaneously with the execution of this Agreement, Borrower
shall pay to Lender an aggregate commitment fee of $25,000.00, with respect to
the Revolver Loan and with respect to the Term Loan, which has been fully
earned, and shall not be subject to rebate except as may be required by
applicable law. Such fees shall compensate Lender for the costs associated with
the origination, structuring, processing, approving and closing the Revolver
Loan and the Term Loan, including, but not limited to, administrative,
out-of-pocket, general overhead and lost opportunity costs, but not including
any expenses for which Borrower has agreed to reimburse Lender pursuant to any
other provisions of this Agreement or any of the other Loan Documents, such as,
by way of example, legal fees and expenses.
5. Representations and Warranties. In order to induce Lender to agree to the
modifications made to the Loan Agreement set forth herein, Borrower, Existing
Loan Parties and New Loan Parties hereby expressly reaffirm or affirm, as the
case may be, all covenants, agreements, representations and warranties set forth
in the Loan Agreement.
6. Agreements Regarding Pledge of Stock.
(a) In order to induce Lender to agree to the modifications made to the Loan
Agreement set forth herein, Borrower covenants and agrees that, within thirty
(30) days of the date of this Agreement, Borrower shall execute and deliver to
Lender all such documents or instruments as may be reasonably necessary to grant
to Lender as collateral for all of Borrower's obligations to Lender a first in
priority pledge and security interest in all of the stock which Borrower owns,
or will own, in French PRG. The terms and conditions of all such documents shall
be reasonably satisfactory to Lender and shall include an opinion of French
counsel that all such documents are valid and enforceable in accordance with
their terms. Failure by Borrower to comply with the terms and conditions of this
Section 6 shall constitute an Event of Default under the Loan Agreement.
5
<PAGE> 6
(b) In order to induce Lender to agree to the modifications made to the Loan
Agreement set forth herein, Borrower covenants and agrees that, within thirty
(30) days from the date of this Agreement, Borrower shall procure and cause to
be delivered to Lender (i) a Guaranty by French PRG of the obligations of
Borrower to Lender ; and (ii) all such documents or instruments as may be
reasonably necessary to grant to Lender as collateral for the obligations of
French PRG to Lender a first-in-priority pledge and security interest in all of
the stock which French PRG owns, or will own, in Alma Intervention SA and
Financiere Alma SA. The terms and conditions of all such documents shall be
reasonably satisfactory to Lender and shall include an opinion of French counsel
that all such documents have been properly authorized and executed and are valid
and enforceable in accordance with their terms. Failure by Borrower to comply
with the terms and conditions of this Section 6 shall constitute an Event of
Default under the Loan Agreement.
7. No Other Agreement. Except as expressly amended and modified herein, the Loan
Agreement shall remain unchanged and in full force and effect, and the parties
do hereby ratify and affirm the same. This Agreement constitutes the entire
understanding and agreement of the parties hereto with respect to the
modification of the Loan Agreement and supersedes all prior agreements,
understandings or negotiations regarding said modification.
8. Binding Effect. This Agreement shall be binding upon and shall inure to the
benefit of the parties hereto and their respective heirs, successors and
assigns.
9. Georgia Law. This Agreement shall be governed by and interpreted in
accordance with the laws of the State of Georgia.
IN WITNESS WHEREOF, the parties hereto have caused this First Amendment to be
executed under seal as of the date first above written.
[SIGNATURES BEGIN ON FOLLOWING PAGE]
6
<PAGE> 7
[SIGNATURES CONTINUED FROM PREVIOUS PAGE]
LENDER:
NATIONSBANK, N.A., a national banking
association
By:
----------------------------------
Name:
--------------------------
Title:
-------------------------
(BANK SEAL)
BORROWER:
THE PROFIT RECOVERY GROUP
INTERNATIONAL, INC., a Georgia
corporation
By:
-----------------------------------
Donald E. Ellis, Jr., Senior
Vice President
Attest:
--------------------------------
Clinton McKellar, Jr., Secretary
[CORPORATE SEAL]
[SIGNATURES CONTINUED ON FOLLOWING PAGE]
[SIGNATURES FOR FIRST AMENDMENT TO LOAN AND SECURITY AGREEMENT]
7
<PAGE> 8
[SIGNATURES CONTINUED FROM PREVIOUS PAGE]
GUARANTORS:
THE PROFIT RECOVERY GROUP
INTERNATIONAL I, INC., a Georgia
corporation
By:
--------------------------------------
Donald E. Ellis, Jr., Senior
Vice President
Attest:
----------------------------------
Clinton McKellar, Jr., Secretary
[CORPORATE SEAL]
THE PROFIT RECOVERY GROUP
U.K., INC., a Georgia corporation
By:
--------------------------------------
Donald E. Ellis, Jr., Senior
Vice President
Attest:
----------------------------------
Clinton McKellar, Jr., Secretary
[CORPORATE SEAL]
[SIGNATURES CONTINUED ON FOLLOWING PAGE]
[SIGNATURES FOR FIRST AMENDMENT TO LOAN AND SECURITY AGREEMENT]
8
<PAGE> 9
[SIGNATURES CONTINUED FROM PREVIOUS PAGE]
THE PROFIT RECOVERY GROUP
ASIA, INC., a Georgia corporation
By:
-------------------------------------
Donald E. Ellis, Jr., Senior
Vice President
Attest:
---------------------------------
Clinton McKellar, Jr., Secretary
[CORPORATE SEAL]
THE PROFIT RECOVERY GROUP
CANADA, INC., a Georgia corporation
By:
-------------------------------------
Donald E. Ellis, Jr., Senior
Vice President
Attest:
---------------------------------
Clinton McKellar, Jr., Secretary
[CORPORATE SEAL]
[SIGNATURES CONTINUED ON FOLLOWING PAGE]
[SIGNATURES FOR FIRST AMENDMENT TO LOAN AND SECURITY AGREEMENT]
9
<PAGE> 10
[SIGNATURES CONTINUED FROM PREVIOUS PAGE]
THE PROFIT RECOVERY GROUP NEW
ZEALAND, INC., a Georgia corporation
By:
-------------------------------------
Donald E. Ellis, Jr., Senior
Vice President
Attest:
---------------------------------
Clinton McKellar, Jr., Secretary
[CORPORATE SEAL]
THE PROFIT RECOVERY GROUP
NETHERLANDS, INC., a Georgia corporation
By:
-------------------------------------
Donald E. Ellis, Jr., Senior
Vice President
Attest:
---------------------------------
Clinton McKellar, Jr., Secretary
[CORPORATE SEAL]
THE PROFIT RECOVERY GROUP
BELGIUM, INC., a Georgia corporation
By:
-------------------------------------
Donald E. Ellis, Jr., Senior
Vice President
Attest:
---------------------------------
Clinton McKellar, Jr., Secretary
[CORPORATE SEAL]
[SIGNATURES CONTINUED ON FOLLOWING PAGE]
[SIGNATURES FOR FIRST AMENDMENT TO LOAN AND SECURITY AGREEMENT]
10
<PAGE> 11
[SIGNATURE PAGE CONTINUED FROM PREVIOUS PAGE]
THE PROFIT RECOVERY GROUP
MEXICO, INC., a Georgia corporation
By:
-------------------------------------
Donald E. Ellis, Jr., Senior
Vice President
Attest:
---------------------------------
Clinton McKellar, Jr., Secretary
[CORPORATE SEAL]
THE PROFIT RECOVERY GROUP
FRANCE, INC., a Georgia corporation
By:
-------------------------------------
Donald E. Ellis, Jr., Senior
Vice President
Attest:
---------------------------------
Clinton McKellar, Jr., Secretary
[CORPORATE SEAL]
[SIGNATURES CONTINUED ON FOLLOWING PAGE]
[SIGNATURES FOR FIRST AMENDMENT TO LOAN AND SECURITY AGREEMENT]
11
<PAGE> 12
[SIGNATURES CONTINUED FROM PREVIOUS PAGE]
THE PROFIT RECOVERY GROUP
AUSTRALIA, INC., a Georgia corporation
By:
-------------------------------------
Donald E. Ellis, Jr., Senior
Vice President
Attest:
---------------------------------
Clinton McKellar, Jr., Secretary
[CORPORATE SEAL]
THE PROFIT RECOVERY GROUP
GERMANY, INC., a Georgia corporation
By:
-------------------------------------
Donald E. Ellis, Jr., Senior
Vice President
Attest:
---------------------------------
Clinton McKellar, Jr., Secretary
[CORPORATE SEAL]
[SIGNATURES CONTINUED ON FOLLOWING PAGE]
[SIGNATURES FOR FIRST AMENDMENT TO LOAN AND SECURITY AGREEMENT]
12
<PAGE> 13
[SIGNATURES CONTINUED FROM PREVIOUS PAGE]
PRG INTERNATIONAL HOLDING COMPANY,
INC., a Georgia corporation
By:
-------------------------------------
Donald E. Ellis, Jr., Senior
Vice President
Attest:
---------------------------------
Clinton McKellar, Jr., Secretary
[CORPORATE SEAL]
ACCOUNTS PAYABLE RECOVERY SERVICES,
INC., a Georgia corporation
By:
-------------------------------------
Donald E. Ellis, Jr., Senior
Vice President
Attest:
---------------------------------
Clinton McKellar, Jr., Secretary
[CORPORATE SEAL]
[SIGNATURES CONTINUED ON FOLLOWING PAGE]
[SIGNATURES FOR FIRST AMENDMENT TO LOAN AND SECURITY AGREEMENT]
13
<PAGE> 14
[SIGNATURES CONTINUED FROM PREVIOUS PAGE]
PRG FRANCE SA
By:
--------------------------------------------
Clinton McKellar, Jr. acting as attorney
(mandataire) in the name of and on behalf of
PRG France SA, a French societe anonyme in
the process of being incorporated
THE PROFIT RECOVERY GROUP SOUTH
AFRICA, INC., a Georgia corporation
By:
--------------------------------------------
Donald E. Ellis, Jr., Senior
Vice President
Attest:
----------------------------------------
Clinton McKellar, Jr., Secretary
[CORPORATE SEAL]
[SIGNATURES FOR FIRST AMENDMENT TO LOAN AND SECURITY AGREEMENT]
14
<PAGE> 15
EXHIBIT E
FORM OF COMPLIANCE CERTIFICATE
NationsBank, N.A.
600 Peachtree Street, N.E.
19th Floor
Atlanta, Georgia 30308
Attention: Melinda M. Bergbom, Senior Vice President
The undersigned, the Chief Financial Officer of The Profit Recovery
Group International, Inc., a Georgia corporation ("Borrower"), gives this
Certificate to NationsBank, N.A. ("Lender") in accordance with the requirements
of Section 9.1(K) of that certain Loan and Security Agreement, dated September
27, 1997, as amended, by and between Lender and Borrower and certain affiliated
entities of Borrower (the "Loan Agreement") (capitalized terms used in this
Certificate, unless otherwise defined herein, shall have the means ascribed to
them in the Loan Agreement). Based upon my review of the financial statements of
the Loan Parties for the (month/fiscal year) ending _________________, 19__,
copies of which are attached hereto, I hereby certify to the best of my
knowledge that:
(1) The Combined Total Liabilities to Net Worth Ratio of the Loan
Parties does not exceed 1.5 to 1.0;
(2) The ratio of Funded Debt to EBITDA does not exceed 2.0 to 1.0;
(3) The Combined Debt Service Coverage Ratio of the Loan Parties is
not less than 1.5 to 1.0;
(4) The Combined Net Worth of the Loan Parties is not less than
$34,000,000.00;
(5) The ratio of Current Assets to Current Liabilities of the Loan
Parties is not less than 1.0 to 1.0;
(6) The U.S. Debt Service Coverage Ratio of the Loan Parties is not
less than 1.0 to 1.0; and
(7) The ratio of accounts receivable or contracts receivable
(billed and unbilled) net of reserves of the Loan Parties is not less
than the amount of Loans outstanding under the Loan Agreement.
Very truly yours,
By:
----------------------------
Chief Financial Officer
Date: ___________________________
<PAGE> 16
NATIONSBANK
PROMISSORY NOTE
$26,500,000.00 Date: October 3, 1997
Atlanta, Georgia
1. PROMISE TO PAY. FOR VALUE RECEIVED, the undersigned, THE PROFIT
RECOVERY GROUP INTERNATIONAL, INC., a Georgia corporation (hereinafter referred
to as "Maker"), promises to pay to the order of NATIONSBANK, N.A., a national
bank (hereinafter referred to as "Payee"; Payee and any subsequent holder of all
or any part interest in this Note being hereinafter referred to collectively as
"Holder"), at the following address:
NationsBank, N.A.
600 Peachtree Street, N.E.
19th Floor
Atlanta, Georgia 30308
Attn: Melinda M. Bergbom, Senior Vice President
or at any such other place as Holder may designate to Maker in writing from time
to time, the principal sum of TWENTY-SIX MILLION FIVE HUNDRED THOUSAND AND
NO/100THS DOLLARS ($26,500,000.00), or so much thereof as shall be disbursed
hereunder and shall from time to time be outstanding and unpaid, together with
interest thereon at the rates hereinafter set forth (subject to adjustment and
designation of the applicable interest rate or rates as provided below), in
lawful money of the United States of America, which at the time of payment shall
be legal tender in payment of all debts and dues, public and private, such
principal and interest to be paid in the manner hereinafter provided. This
Promissory Note (the "Note") is executed and delivered pursuant to that certain
Loan and Security Agreement, dated September 27, 1996, among Payee, Maker and
certain affiliates of Maker (hereinafter, together with all supplements and
amendments thereto, the "Loan Agreement"). This Note is a Term Note referred to
in, and is issued pursuant to, the Loan Agreement, and is entitled to all of the
benefits and security of the Loan Agreement. All of the terms, covenants and
conditions of the Loan Agreement and all other instruments evidencing or
securing the indebtedness hereunder are hereby made a part of this Note and are
deemed incorporated herein in full. All capitalized terms used herein, unless
otherwise specifically defined in this Note, shall have the meanings ascribed to
them in the Loan Agreement.
<PAGE> 17
2. DEFINITIONS. As used herein, the following terms shall have the
indicated definitions:
(a) "Business Day" means any day whereon banks are open for business in
Atlanta, Georgia and, with respect to borrowing, payment or rate selection of
the Fixed Rate or a Eurodollar Interest Period, any day whereon banks are open
for business in both Atlanta, Georgia and New York, New York and whereon
dealings in U.S. dollars are carried on in the London interbank market.
(b) "Default Rate" means (i) with respect to the Floating Rate, a rate
per annum equal to the Prime Rate plus two percent (2%); and (ii) with respect
to the Fixed Rate for the remainder of the applicable Eurodollar Interest
Period, a rate per annum equal to the applicable Eurodollar Rate plus two
percent (2%), and after such applicable Eurodollar Interest Period at the rate
per annum equal to the Prime Rate plus two percent (2%).
(c) "Effective Date" means any Business Day designated by Maker in a
Rate Selection Notice as the date such rate selection shall become effective.
(d) "Eurodollar Interest Period" means, with respect to the Fixed Rate,
a period of thirty (30) days, sixty (60) days, ninety (90) days or one hundred
eighty (180) days to the extent eurodollar borrowings of such or similar periods
are available, commencing on a Business Day and selected by the Maker in its
Rate Selection Notice; provided, however, such Eurodollar Interest Period shall
commence on the last day of the immediately preceding Eurodollar Interest Period
in the case of a rollover to a successive Eurodollar Interest Period. If any
Eurodollar Interest Period would otherwise end on a day which is not a Business
Day, such Eurodollar Interest Period shall end on the next succeeding Business
Day. Any Eurodollar Interest Period must end on or before the maturity date of
this Note.
(e) "Eurodollar Rate" means, with respect to the relevant Eurodollar
Interest Period, the sum of the LIBOR Rate applicable to that Eurodollar
Interest Period plus one and three-quarters percent (1.75%) per annum, subject
to adjustment from time to time as hereinafter provided. The Eurodollar Rate
shall be rounded, if necessary, to the next higher one-sixteenth of one percent.
(f) "Event of Default" means an Event of Default as that term is
defined in the Loan Agreement.
(g) "Fixed Rate" means the rate per annum for the applicable Eurodollar
Rate selected from time to time pursuant to this Note.
(h) "Floating Rate" means a rate per annum equal to the Prime Rate,
changing when and as the Prime Rate changes.
(i) "LIBOR Rate" means the simple interest rate per annum determined by
Holder,
2
<PAGE> 18
taking into account the rates at which deposits in United States dollars for
periods of thirty (30) days, sixty (60) days, ninety (90) days and one hundred
eighty (180) days (each of the foregoing is individually referred to as "LIBOR
Rate Option") are offered in the interbank eurodollar market, and such other
factors as Holder may reasonably deem appropriate from time to time. The LIBOR
Rate is established in the discretion of Holder for the particular indebtedness
evidenced by this Note, and may not be the lowest rate based in part upon which
market for deposits in the interbank eurodollar market at which Holder prices
loans on the date on which the LIBOR Rate is established. The rate of interest
charged under this Note with respect to any selection of any of the LIBOR Rate
Options shall be the selected LIBOR Rate Option on the Effective Date of the
Rate Selection Notice, and shall continue to be the same rate of interest,
without daily adjustment, until the maturity of the selected LIBOR Rate Option
has fully elapsed or the Rate Selection Notice has been terminated as otherwise
provided herein. The LIBOR Rate Option applicable to new selections shall be the
rate of interest of the selected LIBOR Rate Option on the Effective Date of the
Rate Selection Notice. In the event that Holder shall have determined that the
dollar deposits in an amount approximately equal to the Principal Amount are not
available to Holder at such time in the interbank eurodollar market, or that
reasonable means within the customary operating practices of Holder do not exist
for ascertaining a LIBOR Rate, or if any change in any law or regulation or in
the interpretation thereof by any governmental authority charged with the
administration or interpretation thereof shall make in unlawful for Holder to
make or maintain LIBOR Rates with respect to the principal balance hereof or to
fund the principal advanced hereunder in the interbank eurodollar market then,
Holder shall promptly notify Maker and thereafter such portion of the principal
balance hereof shall bear interest at the Floating Rate until such time, if any,
as a LIBOR Rate loan can be made by Holder to Maker, following which Holder
shall be entitled to the selection of the LIBOR Rate Options as provided in this
Note.
(j) "Minimum Notice Period" means a period commencing no later than
10:00 a.m. Atlanta, Georgia time three (3) Business Days prior to the Effective
Date of a Fixed Rate Advance.
(k) "Prime Rate" shall be the per annum rate announced by Payee from
time to time as its Prime Rate and as one of the several interest rate bases
used by Payee. Payee lends at rates both above and below the Prime Rate and is
not represented or intended to be the lowest or most favorable rate of interest
offered by Payee. If, and to the extent and from time to time, the Prime Rate of
Payee increases or decreases, then the Prime Rate under this Note shall be
corresponding increased or decreased, such increase or decrease hereunder to be
effective as of the date on which such increase or decrease of the Prime Rate of
Payee occurs. The Prime Rate in effect at the end of each day shall be the Prime
Rate utilized for purposes of calculating interest under this Note for such day.
In the event that Payee shall abolish or abandon the practice of establishing
its Prime Rate, Holder shall designate a comparable reference rate which shall
be deemed to be the Prime Rate hereunder.
(l) "Principal Amount" means the principal amount outstanding from time
to time under this Note.
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<PAGE> 19
(m) "Rate Option" means the rate per annum equal to either (i) the
Floating Rate or (ii) the Eurodollar Rate.
(n) "Rate Selection Notice" means a written or telephonic notice (such
telephonic notice to be immediately confirmed by written or telefaxed notice)
providing irrevocable notice by the Maker to the Payee specifying (i) the
Eurodollar Interest Period which Maker desires to select, and (ii) the Effective
Date of each such Eurodollar Rate selection.
(o) "Regulation D" means Regulation D of the Board of Governors of the
Federal Reserve System from time to time in effect and shall include any
successor or other regulation or official interpretation of said Board of
Governors relating to Reserve Requirements applicable to member banks of the
Federal Reserve System.
(p) "Reserve Requirement" means, with respect to a Eurodollar Interest
Period, the maximum aggregate reserve requirement (including all basic,
supplemental, marginal and other reserves and taking into account any
transitional adjustments or scheduled changes in reserve requirements during
such Eurodollar Interest Period) which is imposed under Regulation D on
non-personal time deposits of $100,000.00 or more with a maturity date equal to
that on Eurocurrency liabilities.
3. FLOATING RATE BORROWING. Except as provided in Section 4 below,
this Note shall bear interest at the rate per annum equal to the Floating Rate
and, therefore, the initial rate of interest as of the date hereof, expressed
in simple interest terms, is 8.618% per annum. If at any time or from time to
time the Floating Rate increases or decreases, then the rate of interest
hereunder shall be correspondingly increased or decreased effective on the date
of which such increase or decrease of such Floating Rate takes effect.
4. SELECTION OF FIXED RATE. Subject to the terms and conditions of
this Note, Maker may elect from time to time that interest accrue at a rate per
annum equal to the Eurodollar Rate rather than the rate per annum equal to the
Floating Rate, and for a Eurodollar Interest Period selected hereunder for all
(but not less than all) of the outstanding principal balance of this Note by
giving the Holder the appropriate Rate Selection Notice in not less than the
Minimum Notice Period applicable thereto. The Principal Amount shall bear
interest from and including the first day of the Eurodollar Interest Period
applicable thereto and during such Eurodollar Interest Period. Except in
accordance with Section 7 hereof, the Rate Option shall not be changed by the
Maker. Maker may select a new Eurodollar Interest Period and Eurodollar Rate to
apply to the Principal Amount, effective as of the last day of the existing
Eurodollar Interest Period, by giving a Rate Selection Notice in not less than
the Minimum Notice Period. If at the end of a Eurodollar Interest Period the
Maker fails to select a new Eurodollar Rate and new Eurodollar Interest Period,
then the Principal Amount shall accrue interest at the Floating Rate on and
after the last day of such existing Eurodollar Interest Period until paid or
until the Effective Date of a new Rate Option selected by the Maker. The Maker
may not select the Fixed Rate if, on the date of the Rate Selection Notice or
the Effective Date of such selection, there exists an Event of Default.
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<PAGE> 20
5. RESTRICTIONS ON FIXED RATE. Notwithstanding anything in this Note to
the contrary, Maker may not select that this Note accrue at the Fixed Rate
unless the outstanding principal balance of this Note as of the date of such
election is equal to or greater than $500,000.00.
6. TELEPHONIC NOTICES. Maker hereby authorizes the Payee to effect Rate
Option selections based on telephonic notices made by any one of the following
(or such other persons as Borrower may designate in writing from time to time to
Lender):
Donald E. Ellis, Jr.
Michael Melton
The Maker agrees to deliver promptly to Payee a written confirmation of each
telephone notice signed by an authorized officer of Maker. If the written
confirmation differs in any material respect from the action taken by the Payee,
the records of the Payee shall govern absent manifest error.
7. YIELD PROTECTION. With respect only to interest calculated at the
Fixed Rate, if any existing or future law, governmental rule, policy, guideline,
regulation or directive, whether or not having the force of law, or compliance
of the Payee with such, (i) subjects the Payee to any tax, duty, charge or
withholding on or from payments due from the Maker (excluding U.S. taxation of
the overall net income of the Payee), or changes the basis of taxation of
payment to the Payee in respect of the Indebtedness, or (ii) imposes or
increases or deems applicable any reserve, assessment (other than reserves and
assessments included in the Reserve Requirement with respect to principal
accruing at the Fixed Rate), special deposit, insurance charge or similar
requirement against assets of, deposits with or for the account of, or credit
extended by, the Payee (other than reserves and assessments taken into account
in determining the Fixed Rate), or (iii) imposes any other condition the result
of which is to increase the cost to the Payee of making, funding or maintaining
U.S. dollar loans or reduces any amount receivable by the Payee in connection
with U.S. dollar loans, or requires the Payee to make any payment calculated by
reference to the amount of loans held or interest received by it, by an amount
deemed material by the Payee, or (iv) affects the amount of capital required or
expected to be maintained by the Payee or any corporation controlling the Payee
and the Payee determines that the amount of capital required is increased by or
based upon the existence of the Loan or any of the Loan Documents or its
obligation to make the Loan hereunder or of commitments of this type, then
within 15 days of demand by the Payee, Maker shall pay the Payee that portion of
such increased expense incurred (including, in the case of Paragraph 7(iv), any
reduction in the rate of return on capital to an amount below that which it
could have achieved but for such change in regulation after taking into account
Payee's policies as to capital adequacy) or the amount of reduction in an amount
received which the Payee determines is attributable to making, funding and
maintaining the Loan. A certificate of Payee is to the amounts payable pursuant
to this Paragraph 7 (which certificate shall reflect in reasonable detail the
method and basis for the calculation thereof) submitted to Maker shall, absent
manifest error, be final and binding upon all of the parties hereto. Payee will
give
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<PAGE> 21
Maker notice that Payee has determined that amounts are due and payable pursuant
to this Paragraph 7 within a reasonable time after such determination by Payee.
Payee agrees that the determination of any such increased expense incurred or in
the amount of reduction in the amount received shall be consistent with such
determination made with respect to other loans of Payee which are similarly
structured, of a similar amount and for a similar purpose.
8. (a) AVAILABILITY OF INTEREST RATE. If the Payee determines that (i)
maintenance of the Fixed Rate would violate any applicable law, rule,
regulation, or directive, whether or not having the force of law, (ii) deposits
of a type and maturity appropriate to match fund a Fixed Rate loan are not
available, or (iii) a Eurodollar Rate does not accurately reflect the cost of
making or maintaining the Fixed Rate, then the Payee shall suspend the
availability of the affected LIBOR Rate Option and require that the Fixed Rate
under an affected LIBOR Rate Option to be converted to an unaffected Rate
Option. Subject to the terms and conditions of this Note, the Maker may select,
by giving a Rate Selection Notice in not less than the Minimum Notice Period,
any unaffected Rate Option to apply to this Note. If the Maker fails to select a
new Rate Option, this Note shall accrue interest at the Floating Rate.
(b) BANK CERTIFICATES; SURVIVAL OF INDEMNITY. A certificate of the
Payee as to the amount due under Section 7 shall be final, conclusive and
binding on the Maker in the absence of manifest error. Determination of amounts
payable under such Section 7 shall be calculated as though the Holder funded its
Fixed Rate loan through the purchase of a deposit of the type and maturity
corresponding to the deposit used as a reference in determining the Eurodollar
Rate applicable to such Fixed Rate loan, whether in fact that is the case or
not. Unless otherwise provided herein, the amount specified in the certificate
shall be payable on demand after receipt by the Maker of the certificate. The
obligations under Section 7 shall survive for a period of six (6) months
following repayment of the Loan.
9. PAYMENTS OF PRINCIPAL AND INTEREST. Commencing on November 1, 1997
and continuing on the first (1st) day of each calendar month thereafter through
and including October 1, 1998, there shall be due and payable monthly
installments consisting only of accrued and unpaid interest under this Note;
thereafter, commencing on November 1, 1998 and continuing on the first (1st) day
of each calendar month thereafter through and including September 1, 2001, there
shall be due and payable monthly installments consisting of (i) all accrued and
unpaid interest under this Note, and (ii) principal in the amount of FOUR
HUNDRED FORTY-ONE THOUSAND SIX HUNDRED SIXTY-SIX AND 67/100THS DOLLARS
($441,666.67).
Interest shall be calculated on a 360 day year basis for the actual
number of days elapsed. If any payment of principal or interest hereunder would
become due and payable on a day which is not a Business Day, then such payment
shall be due and payable on the next succeeding Business Day.
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<PAGE> 22
10. MATURITY DATE. If not sooner paid (subject to the restrictions on
prepayment contained in the Loan Documents) the entire outstanding principal
balance of this Note shall be due and payable in full on October 1, 2001.
11. APPLICATION OF PAYMENTS. If any permitted payments or prepayments
are received when no Event of Default exists hereunder or under any of the Loan
Documents, and if any such payments do not fully pay all sums evidenced by this
Note, then such payment first shall be applied to the payment of late charges
and other fees payable under this Note or the Loan Documents, then to accrued
and unpaid interest under this Note and, then, to the outstanding principal
balance of this Note. Following any partial prepayment of this Note, following
the date of such prepayment, monthly installments shall be due and payable
consisting of (i) all accrued and unpaid interest, and (ii) equal installments
of principal based upon an amortization of the outstanding principal balance of
the Note following such prepayment over the number of monthly installments
payable between such date and the maturity date of this Note.
12. FACILITY. The loan made pursuant to this Note is governed by the
terms of the Loan Agreement whereby the loan evidenced by this Note shall be
made pursuant to and subject to the Loan Agreement.
13. PREPAYMENT. Maker may, from time to time, pay all or any portion
this Note without prepayment premium or penalty provided that, at the time of
such prepayment, this Note is accruing interest at the Floating Rate. If a
prepayment of all or any portion of the outstanding amount of this Note is made
at the time that this Note is accruing interest at the Fixed Rate, then there
shall be due and payable as a condition to such prepayment a prepayment premium
equal to any loss or cost incurred by Holder resulting from such prepayment
including, without limitation, any loss or cost in liquidating or employing
deposits acquired to fund or maintain the fixed rate under this Note.
14. LATE CHARGE. A late charge shall be due and payable in the amount
of five percent (5%) of the amount of any installment or payment of interest
and/or principal not paid within ten (10) days of the date on which such
installment or payment was due. Holder shall have no obligation to accept any
such delinquent payment of principal and/or interest without the accompanying
late charge, and the acceptance by Holder of such delinquent payment without the
accompanying late charge shall not constitute a waiver by Holder of the right to
enforce and collect such late charge. Maker acknowledges and agrees that the
late charge herein provided is not a charge in the nature of interest imposed
for the use of money advanced under this Note; rather, the late charge is
imposed to compensate Holder for the expense, inconvenience and economic
frustration experienced by Holder as a result of Maker's failure to make timely
payments due hereunder, and is a reasonable forecast and estimate of Holder's
actual damages and loss on account of such delinquent payment.
15. DEFAULT AND ACCELERATION. It is hereby expressly agreed that should
default occur in any payment of principal or interest stipulated, or should any
other Event of
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<PAGE> 23
Default occur, then, and in any such event, the outstanding principal balance of
the indebtedness evidenced hereby, and any other sums advanced hereunder or
under the Loan Documents (hereinafter defined), together with all accrued and
unpaid interest, at the option of Holder and without notice to Maker except as
otherwise provided herein or in the Loan Documents, shall at once become due and
payable and may be collected forthwith, regardless of the stipulated date of
maturity. Interest shall accrue at the applicable Default Rate from maturity, or
sooner following the occurrence of a default hereunder and after the expiration
date of any period provided for the curing of such default and for so long as
such default continues, regardless of whether or not there has been an
acceleration of the indebtedness evidenced hereby as set forth herein. All such
interest at the Default Rate shall be paid at the time of and as a condition
precedent to the curing of any such default should Maker have the right to cure
such default. Time is of the essence of this Note. In the event this Note, or
any part thereof, is collected by or through an attorney-at-law, Maker agrees to
pay all costs of collection including, but not limited to, reasonable attorneys'
fees actually incurred.
16. WAIVERS.
(a) Except as expressly required herein or in the Loan Documents,
presentment for payment, demand, protest and notice of demand, protest and
non-payment and all other notices, except for such notices (if any) of default
provided to be given hereunder or under any of the Loan Documents, are hereby
waived by Maker. No failure to accelerate the debt evidenced hereby by reason of
default hereunder, acceptance of a past due installment, or indulgences granted
from time to time shall be construed (i) as a novation of this Note or as a
reinstatement of the indebtedness evidenced hereby or as a waiver of such right
of acceleration or of the right of Holder thereafter to insist upon strict
compliance with the terms of this Note, or (ii) to prevent the exercise of such
right of acceleration or any other right granted hereunder or by the laws of the
State of Georgia; and Maker hereby expressly waives the benefit of any statute
or rule of law or equity now provided, or which may hereafter be provided, which
would produce a result contrary to or in conflict with the foregoing. No
extension of the time for the payment of this Note or any installment due
hereunder, made by agreement with any person now or hereafter liable for the
payment of this Note, shall operate to release, discharge, modify, change or
affect the original liability of Maker under this Note, either in whole or in
part, unless Holder agrees otherwise in writing. This Note may not be changed
orally, but only by an agreement in writing signed by the party against whom
enforcement of any waiver, change, modification or discharge is sought.
(b) Maker hereby waives and renounces for itself, its heirs, successors
and assigns, all rights to the benefit of any statute of limitations and any
moratorium, reinstatement, marshalling, forbearance, valuation, stay, extension,
redemption, appraisement, exemption and homestead now provided, or which may
hereafter be provided by the Constitution and laws of the United States of
America and of any state thereof, both as to itself and in and to all of its
property, real and personal, against the enforcement and collection of the
obligations evidenced by this Note. Maker hereby transfers, conveys and assigns
to Holder a sufficient amount of such homestead or exemption as may be set apart
in bankruptcy, to pay this Note in full, with
8
<PAGE> 24
all costs of collection, and does hereby direct any trustee in bankruptcy having
possession of such homestead or exemption to deliver to Holder a sufficient
amount of property or money set apart as exempt to pay the indebtedness
evidenced hereby, or any renewal thereof, and does hereby appoint Holder the
attorney-in-fact for Maker to claim any and all homestead exemptions allowed by
law.
17. GOVERNING LAW. This Note is intended as a contract under and shall
be construed and enforceable in accordance with the laws of the State of
Georgia.
18. DEFINITIONS. As used herein, the terms "Maker" and "Holder" shall
be deemed to include their respective heirs, successors, legal representatives
and assigns, whether by voluntary action of the parties or by operation of law.
In the event that more than one person, firm or entity is a Maker hereunder,
then all references to "Maker" shall be deemed to refer equally to each of said
persons, firms, or entities, all of whom shall be jointly and severally liable
for all of the obligations of Maker hereunder.
19. LEGAL LIMITATIONS. It is the express intent hereof that the
undersigned not pay and the Holder not receive, directly or indirectly in any
manner whatsoever, interest in excess of that which may be legally paid by the
undersigned under applicable law. In no event, whether by reason of demand for
payment or acceleration of the maturity of the Note or otherwise, shall the
interest contracted for, charged or received by Holder hereunder or otherwise
exceed the maximum amount permissible under applicable law. If, from any
circumstance whatsoever, interest would otherwise be payable to Holder in excess
of the maximum lawful amount permitted under applicable law, the interest
payable to Holder shall be reduced automatically to the maximum amount permitted
under applicable law. If Holder shall ever receive anything of value deemed
interest under applicable law which would apart from this provision be in excess
of the maximum lawful amount, an amount equal to any amount which would have
been excessive interest shall be applied to the reduction of the principal
amount owing on the Note in the inverse order of its maturity and not to the
payment of interest, or if such amount which would have been excessive interest
exceeds the unpaid principal balance of the Note, such excess shall be refunded
to Maker. 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 stated term (including any renewal or extension) of such
indebtedness so that the amount of interest on account of such indebtedness does
not exceed the maximum permitted by applicable law. The provisions of this
paragraph shall control all existing and future agreements between Maker and
Holder.
20. ARBITRATION. Any controversy or claim between or among the parties
hereto including but not limited to those arising out of or relating to this
Note or any related agreements or instruments, including any claim based on or
arising from an alleged tort, shall be determined by binding arbitration in
accordance with the Federal Arbitration Act (or if not applicable, the
applicable state law), the Rules of Practice and Procedure for the Arbitration
of Commercial Disputes or Judicial Arbitration and Mediation Services, Inc.
("J.A.M.S."), and the "Special Rules" set forth below. In the event of any
inconsistency, the Special Rules shall
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<PAGE> 25
control. Judgment upon any arbitration award may be entered in any court having
jurisdiction. Any party to this Note may bring an action, including a summary or
expedited proceeding, to compel arbitration of any controversy or claim in which
this Note applies in any court having jurisdiction over such action.
21. SPECIAL RULES. The arbitration shall be conducted in the city of
Maker's domicile at the time of this Note's execution and administered by
J.A.M.S., who will appoint an arbitrator; if J.A.M.S. is unable or legally
precluded from administering the arbitration, then the American Arbitration
Association will serve. All arbitration hearings will be commenced within ninety
(90) days of the demand for arbitration; further the arbitrator shall only, upon
a showing of cause, be permitted to extend the commencement of such hearing for
an additional sixty (60) days.
22. RESERVATION OF RIGHTS. Nothing in this Note shall be deemed to (i)
limit the applicability of any otherwise applicable statutes of limitation or
repose and any waivers contained in this Note; or (ii) be a waiver by the Holder
of the protection afforded to it by 12 U.S.C. Section 91 or any substantially
equivalent state law; or (iii) limit the right of the Holder hereto (a) to
exercise self help remedies such as (but not limited to) setoff, or (b) to
foreclose against any real or personal property collateral, or (c) to obtain
from a court provisional or ancillary remedies such as (but not limited to)
injunctive relief, writ of possession or the appointment of a receiver. The
Holder may exercise such self help rights, foreclosure upon such property, or
obtain such provisional or ancillary remedies before, during or after the
pendency of any arbitration proceeding brought pursuant to this Note. Neither
the exercise or self help remedies nor the institution or maintenance of an
action for foreclosure or provisional or ancillary remedies shall constitute a
waiver of the right of any party, including the claimant in such action, to
arbitrate the merits of the controversy or claim occasioning resort to such
remedies. Nothing in this Note shall be deemed to limit the right of Maker to
seek injunctive relief.
23. TITLES. The titles of sections or paragraphs herein are used for
the convenience of the parties only and neither amplify, modify or alter in any
way the provisions of this instrument.
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<PAGE> 26
IN WITNESS WHEREOF, Maker has executed this Note under seal on the date
first above written.
MAKER:
THE PROFIT RECOVERY GROUP
INTERNATIONAL, INC., a Georgia
corporation
By:
-----------------------------------
Donald E. Ellis, Jr., Senior
Vice President
Attest:
---------------------------------
Clinton McKellar, Jr., Secretary
(CORPORATE SEAL)
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<PAGE> 27
EXHIBIT A-3
NATIONSBANK
PROMISSORY NOTE
(TERM NOTE-FIXED RATE)
$________________ Date: ___________, 1997
Atlanta, Georgia
1. PROMISE TO PAY. FOR VALUE RECEIVED, the undersigned, THE PROFIT
RECOVERY GROUP INTERNATIONAL, INC., a Georgia corporation (hereinafter referred
to as "Maker"), promises to pay to the order of NATIONSBANK, N.A., a national
bank (hereinafter referred to as "Payee"; Payee and any subsequent holder of all
or any part interest in this Note being hereinafter referred to collectively as
"Holder"), at the following address:
NationsBank, N.A.
600 Peachtree Street, N.E.
19th Floor
Atlanta, Georgia 30308
Attn: Melinda M. Bergbom, Senior Vice President
or at any such other place as Holder may designate to Maker in writing from
time to time, the principal sum of ________ AND NO/100THS DOLLARS
($_____________.00), or so much thereof as shall be disbursed hereunder and
shall from time to time be outstanding and unpaid, together with interest
thereon at the rates hereinafter set forth (subject to adjustment as provided
below), in lawful money of the United States of America, which at the time of
payment shall be legal tender in payment of all debts and dues, public and
private, such principal and interest to be paid in the manner hereinafter
provided. This Promissory Note (the "Note") is executed and delivered pursuant
to that certain Loan and Security Agreement, dated September 27, 1996, among
Payee, Maker and certain affiliates of Maker (hereinafter, together with all
supplements and amendments thereto, the "Loan Agreement"). This Note is a Term
Note referred to in, and is issued pursuant to, the Loan Agreement, and is
entitled to all of the benefits and security of the Loan Agreement. All of the
terms, covenants and conditions of the Loan Agreement and all other instruments
evidencing or securing the indebtedness hereunder are hereby made a part of
this Note and are deemed incorporated herein in full. All capitalized terms
used herein, unless otherwise specifically defined in this Note, shall have the
meanings ascribed to them in the Loan Agreement.
<PAGE> 28
2. DEFINITIONS. As used herein, the following terms shall have the
indicated definitions:
(a) "Business Day" means any day whereon banks are open for business in
Atlanta, Georgia and, with respect to borrowing, payment or rate selection of
the Fixed Rate or a Eurodollar Interest Period, any day whereon banks are open
for business in both Atlanta, Georgia and New York, New York and whereon
dealings in U.S. dollars are carried on in the London interbank market.
(b) "Default Rate" means [the rate of interest specified in Section 3]
plus 2% per annum.
(c) "Event of Default" means an Event of Default as that term is
defined in the Loan Agreement.
3. INTEREST RATE. This Note shall bear interest at the rate of ________
percent (___%) per annum.
4. PAYMENTS OF PRINCIPAL AND INTEREST. Commencing one (1) month from
the date of this Note and continuing on the same day of each calendar month
thereafter through and including [the day which is 12 months from the date of
the Note], there shall be due and payable monthly installments of only accrued
and unpaid interest under this Note; thereafter, commencing one (1) month after
[the day which is 12 months from the date of the Note] and continuing on the
same day of each calendar month thereafter through and including [the day which
is 47 months from the date of the Note], there shall be due and payable equal
monthly installments in the amount of $ __________.
Interest shall be calculated on a 360 day year basis for the actual
number of days elapsed. If any payment of principal or interest hereunder would
become due and payable on a day which is not a Business Day, then such payment
shall be due and payable on the next succeeding Business Day.
5. MATURITY DATE. If not sooner paid (subject to the restrictions on
prepayment contained in the Loan Documents) the entire outstanding principal
balance of this Note shall be due and payable in full 48 months from the date of
this Note.
6. APPLICATION OF PAYMENTS. If any permitted payments or prepayments
are received when no Event of Default exists hereunder or under any of the Loan
Documents, and if any such payments do not fully pay all sums evidenced by this
Note, then such payment first shall be applied to the payment of late charges
and other fees payable under this Note or the Loan Documents, then to accrued
and unpaid interest under this Note and, then, to the outstanding principal
balance of this Note.
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<PAGE> 29
7. FACILITY. The loan made pursuant to this Note is governed by the
terms of the Loan Agreement whereby the loan evidenced by this Note shall be
made pursuant to and subject to the Loan Agreement.
8. PREPAYMENT. Maker may, from time to time, pay all or any portion
this Note without prepayment premium or penalty. Following any partial
prepayment of this Note, following the date of such prepayment, equal monthly
installments of principal and interest shall be due and payable based upon a
reamortization of the outstanding principal balance of this Note following such
prepayment over the number of monthly installments payable between such date and
the maturity date of this Note and utilizing the rate of interest set forth in
this Note.
9. LATE CHARGE. A late charge shall be due and payable in the amount
of five percent (5%) of the amount of any installment or payment of interest
and/or principal not paid within ten (10) days of the date on which such
installment or payment was due. Holder shall have no obligation to accept any
such delinquent payment of principal and/or interest without the accompanying
late charge, and the acceptance by Holder of such delinquent payment without the
accompanying late charge shall not constitute a waiver by Holder of the right to
enforce and collect such late charge. Maker acknowledges and agrees that the
late charge herein provided is not a charge in the nature of interest imposed
for the use of money advanced under this Note; rather, the late charge is
imposed to compensate Holder for the expense, inconvenience and economic
frustration experienced by Holder as a result of Maker's failure to make timely
payments due hereunder, and is a reasonable forecast and estimate of Holder's
actual damages and loss on account of such delinquent payment.
10. DEFAULT AND ACCELERATION. It is hereby expressly agreed that should
default occur in any payment of principal or interest stipulated, or should any
other Event of Default occur, then, and in any such event, the outstanding
principal balance of the indebtedness evidenced hereby, and any other sums
advanced hereunder or under the Loan Documents (hereinafter defined), together
with all accrued and unpaid interest, at the option of Holder and without notice
to Maker except as otherwise provided herein or in the Loan Documents, shall at
once become due and payable and may be collected forthwith, regardless of the
stipulated date of maturity. Interest shall accrue at the applicable Default
Rate from maturity, or sooner following the occurrence of a default hereunder
and after the expiration date of any period provided for the curing of such
default and for so long as such default continues, regardless of whether or not
there has been an acceleration of the indebtedness evidenced hereby as set forth
herein. All such interest at the Default Rate shall be paid at the time of and
as a condition precedent to the curing of any such default should Maker have the
right to cure such default. Time is of the essence of this Note. In the event
this Note, or any part thereof, is collected by or through an attorney-at-law,
Maker agrees to pay all costs of collection including, but not limited to,
reasonable attorneys' fees actually incurred.
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<PAGE> 30
11. WAIVERS.
(a) Except as expressly required herein or in the Loan Documents,
presentment for payment, demand, protest and notice of demand, protest and
non-payment and all other notices, except for such notices (if any) of default
provided to be given hereunder or under any of the Loan Documents, are hereby
waived by Maker. No failure to accelerate the debt evidenced hereby by reason of
default hereunder, acceptance of a past due installment, or indulgences granted
from time to time shall be construed (i) as a novation of this Note or as a
reinstatement of the indebtedness evidenced hereby or as a waiver of such right
of acceleration or of the right of Holder thereafter to insist upon strict
compliance with the terms of this Note, or (ii) to prevent the exercise of such
right of acceleration or any other right granted hereunder or by the laws of the
State of Georgia; and Maker hereby expressly waives the benefit of any statute
or rule of law or equity now provided, or which may hereafter be provided, which
would produce a result contrary to or in conflict with the foregoing. No
extension of the time for the payment of this Note or any installment due
hereunder, made by agreement with any person now or hereafter liable for the
payment of this Note, shall operate to release, discharge, modify, change or
affect the original liability of Maker under this Note, either in whole or in
part, unless Holder agrees otherwise in writing. This Note may not be changed
orally, but only by an agreement in writing signed by the party against whom
enforcement of any waiver, change, modification or discharge is sought.
(b) Maker hereby waives and renounces for itself, its heirs, successors
and assigns, all rights to the benefit of any statute of limitations and any
moratorium, reinstatement, marshalling, forbearance, valuation, stay, extension,
redemption, appraisement, exemption and homestead now provided, or which may
hereafter be provided by the Constitution and laws of the United States of
America and of any state thereof, both as to itself and in and to all of its
property, real and personal, against the enforcement and collection of the
obligations evidenced by this Note. Maker hereby transfers, conveys and assigns
to Holder a sufficient amount of such homestead or exemption as may be set apart
in bankruptcy, to pay this Note in full, with all costs of collection, and does
hereby direct any trustee in bankruptcy having possession of such homestead or
exemption to deliver to Holder a sufficient amount of property or money set
apart as exempt to pay the indebtedness evidenced hereby, or any renewal
thereof, and does hereby appoint Holder the attorney-in-fact for Maker to claim
any and all homestead exemptions allowed by law.
12. GOVERNING LAW. This Note is intended as a contract under and shall
be construed and enforceable in accordance with the laws of the State of
Georgia.
13. DEFINITIONS. As used herein, the terms "Maker" and "Holder" shall
be deemed to include their respective heirs, successors, legal representatives
and assigns, whether by voluntary action of the parties or by operation of law.
In the event that more than one person, firm or entity is a Maker hereunder,
then all references to "Maker" shall be deemed to refer equally to each of said
persons, firms, or entities, all of whom shall be jointly and
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<PAGE> 31
severally liable for all of the obligations of Maker hereunder.
14. LEGAL LIMITATIONS. It is the express intent hereof that the
undersigned not pay and the Holder not receive, directly or indirectly in any
manner whatsoever, interest in excess of that which may be legally paid by the
undersigned under applicable law. In no event, whether by reason of demand for
payment or acceleration of the maturity of the Note or otherwise, shall the
interest contracted for, charged or received by Holder hereunder or otherwise
exceed the maximum amount permissible under applicable law. If, from any
circumstance whatsoever, interest would otherwise be payable to Holder in excess
of the maximum lawful amount permitted under applicable law, the interest
payable to Holder shall be reduced automatically to the maximum amount permitted
under applicable law. If Holder shall ever receive anything of value deemed
interest under applicable law which would apart from this provision be in excess
of the maximum lawful amount, an amount equal to any amount which would have
been excessive interest shall be applied to the reduction of the principal
amount owing on the Note in the inverse order of its maturity and not to the
payment of interest, or if such amount which would have been excessive interest
exceeds the unpaid principal balance of the Note, such excess shall be refunded
to Maker. 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 stated term (including any renewal or extension) of such
indebtedness so that the amount of interest on account of such indebtedness does
not exceed the maximum permitted by applicable law. The provisions of this
paragraph shall control all existing and future agreements between Maker and
Holder.
15. ARBITRATION. Any controversy or claim between or among the parties
hereto including but not limited to those arising out of or relating to this
Note or any related agreements or instruments, including any claim based on or
arising from an alleged tort, shall be determined by binding arbitration in
accordance with the Federal Arbitration Act (or if not applicable, the
applicable state law), the Rules of Practice and Procedure for the Arbitration
of Commercial Disputes or Judicial Arbitration and Mediation Services, Inc.
("J.A.M.S."), and the "Special Rules" set forth below. In the event of any
inconsistency, the Special Rules shall control. Judgment upon any arbitration
award may be entered in any court having jurisdiction. Any party to this Note
may bring an action, including a summary or expedited proceeding, to compel
arbitration of any controversy or claim in which this Note applies in any court
having jurisdiction over such action.
16. SPECIAL RULES. The arbitration shall be conducted in the city of
Maker's domicile at the time of this Note's execution and administered by
J.A.M.S., who will appoint an arbitrator; if J.A.M.S. is unable or legally
precluded from administering the arbitration, then the American Arbitration
Association will serve. All arbitration hearings will be commenced within ninety
(90) days of the demand for arbitration; further the arbitrator shall only, upon
a showing of cause, be permitted to extend the commencement of such hearing for
an additional sixty (60) days.
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<PAGE> 32
17. RESERVATION OF RIGHTS. Nothing in this Note shall be deemed to (i)
limit the applicability of any otherwise applicable statutes of limitation or
repose and any waivers contained in this Note; or (ii) be a waiver by the Holder
of the protection afforded to it by 12 U.S.C. Section 91 or any substantially
equivalent state law; or (iii) limit the right of the Holder hereto (a) to
exercise self help remedies such as (but not limited to) setoff, or (b) to
foreclose against any real or personal property collateral, or (c) to obtain
from a court provisional or ancillary remedies such as (but not limited to)
injunctive relief, writ of possession or the appointment of a receiver. The
Holder may exercise such self help rights, foreclosure upon such property, or
obtain such provisional or ancillary remedies before, during or after the
pendency of any arbitration proceeding brought pursuant to this Note. Neither
the exercise or self help remedies nor the institution or maintenance of an
action for foreclosure or provisional or ancillary remedies shall constitute a
waiver of the right of any party, including the claimant in such action, to
arbitrate the merits of the controversy or claim occasioning resort to such
remedies. Nothing in this Note shall be deemed to limit the right of Maker to
seek injunctive relief.
18. TITLES. The titles of sections or paragraphs herein are used for
the convenience of the parties only and neither amplify, modify or alter in any
way the provisions of this instrument.
IN WITNESS WHEREOF, Maker has executed this Note under seal on the date
first above written.
MAKER:
THE PROFIT RECOVERY GROUP
INTERNATIONAL, INC., a Georgia
corporation
By:
-----------------------------------
Donald E. Ellis, Jr., Senior
Vice President
Attest:
---------------------------------
Clinton McKellar, Jr., Secretary
(CORPORATE SEAL)
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<PAGE> 33
EXHIBIT A-2
NATIONSBANK
PROMISSORY NOTE
$10,000,000.00 Date: _____________, 1997
Atlanta, Georgia
1. PROMISE TO PAY. FOR VALUE RECEIVED, the undersigned, THE PROFIT
RECOVERY GROUP INTERNATIONAL, INC., a Georgia corporation (hereinafter referred
to as "Maker"), promises to pay to the order of NATIONSBANK, N.A., a national
bank (hereinafter referred to as "Payee"; Payee and any subsequent holder of all
or any part interest in this Note being hereinafter referred to collectively as
"Holder"), at the following address:
NationsBank, N.A.
600 Peachtree Street, N.E.
19th Floor
Atlanta, Georgia 30308
Attn: Melinda M. Bergbom, Senior Vice President
or at any such other place as Holder may designate to Maker in writing from time
to time, the principal sum of TEN MILLION AND NO/100THS DOLLARS
($10,000,000.00), or so much thereof as shall be disbursed hereunder and shall
from time to time be outstanding and unpaid, together with interest thereon at
one or more of the rates hereinafter set forth (subject to adjustment and
designation of the applicable interest rate or rates as provided below), in
lawful money of the United States of America, which at the time of payment shall
be legal tender in payment of all debts and dues, public and private, such
principal and interest to be paid in the manner hereinafter provided. This
Promissory Note (the "Note") is executed and delivered pursuant to that certain
Loan and Security Agreement, dated as of even date herewith, among Payee, Maker
and certain affiliates of Maker (hereinafter, together with all supplements and
amendments thereto, the "Loan Agreement"). This Note is the Revolver Note
referred to in, and is issued pursuant to, the Loan Agreement, and is entitled
to all of the benefits and security of the Loan Agreement. All of the terms,
covenants and conditions of the Loan Agreement and all other instruments
evidencing or securing the indebtedness hereunder are hereby made a part of this
Note and are deemed incorporated herein in full. All capitalized terms used
herein, unless otherwise specifically defined in this Note, shall have the
meanings ascribed to them in the Loan Agreement.
<PAGE> 34
2. DEFINITIONS. As used herein, the following terms shall have the
indicated definitions:
(a) "Advance" means a Fixed Rate Advance or a Floating Rate Advance.
(b) "Business Day" means any day whereon banks are open for business in
Atlanta, Georgia and, with respect to borrowing, payment or rate selection of a
Fixed Rate Advance or a Eurodollar Interest Period, any day whereon banks are
open for business in both Atlanta, Georgia and New York, New York and whereon
dealings in U.S. dollars are carried on in the London interbank market.
(c) "Default Rate" means (i) with respect to each Floating Rate
Advance, a rate per annum equal to the Prime Rate plus two percent (2%); and
(ii) with respect to each Fixed Rate Advance for the remainder of the applicable
Eurodollar Interest Period, a rate per annum equal to the applicable Eurodollar
Rate plus two percent (2%), and after such applicable Eurodollar Interest Period
at the rate per annum equal to the Prime Rate plus two percent (2%).
(d) "Effective Date" means any Business Day designated by Maker in a
Rate Selection Notice as the date such rate selection shall become effective, or
the first day of Floating Rate Advance.
(e) "Eurodollar Interest Period" means, with respect to a Fixed Rate
Advance, a period of thirty (30) days, sixty (60) days, ninety (90) days or one
hundred eighty (180) days to the extent eurodollar borrowings of such or similar
periods are available, commencing on a Business Day and selected by the Maker in
its Rate Selection Notice; provided, however, such Eurodollar Interest Period
shall commence on the last day of the immediately preceding Eurodollar Interest
Period in the case of a rollover to a successive Eurodollar Interest Period. If
any Eurodollar Interest Period would otherwise end on a day which is not a
Business Day, such Eurodollar Interest Period shall end on the next succeeding
Business Day. Any Eurodollar Interest Period must end on or before the maturity
date of this Note.
(f) "Eurodollar Rate" means, with respect to a Fixed Rate Advance for
the relevant Eurodollar Interest Period, the sum of the LIBOR Rate applicable to
that Eurodollar Interest Period plus one and three-quarters percent (1.75%) per
annum, subject to adjustment from time to time as hereinafter provided. The
Eurodollar Rate shall be rounded, if necessary, to the next higher one-sixteenth
of one percent.
(g) "Event of Default" means an Event of Default as that term is
defined in the Loan Agreement.
(h) "Fixed Rate Advance" means that portion of the Principal Amount to
which the Eurodollar Rate is applicable for a particular Eurodollar Interest
Period.
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<PAGE> 35
(i) "Floating Rate" means a rate per annum equal to the Prime Rate,
changing when and as the Prime Rate changes.
(j) "Floating Rate Advance" means that portion of the Principal Amount
of the Note bearing interest at the Floating Rate.
(k) "LIBOR Rate" means the simple interest rate per annum determined by
Holder, taking into account the rates at which deposits in United States dollars
for periods of thirty (30) days, sixty (60) days, ninety (90) days and one
hundred eighty (180) days (each of the foregoing is individually referred to as
"LIBOR Rate Option") are offered in the interbank eurodollar market, and such
other factors as Holder may reasonably deem appropriate from time to time. The
LIBOR Rate is established in the discretion of Holder for the particular
indebtedness evidenced by this Note, and may not be the lowest rate based in
part upon which market for deposits in the interbank eurodollar market at which
Holder prices loans on the date on which the LIBOR Rate is established. The rate
of interest charged under this Note with respect to any selection of any of the
LIBOR Rate Options shall be the selected LIBOR Rate Option on the Effective Date
of the Rate Selection Notice, and shall continue to be the same rate of
interest, without daily adjustment, until the maturity of the selected LIBOR
Rate Option has fully elapsed or the Rate Selection Notice has been terminated
as otherwise provided herein. The LIBOR Rate Option applicable to new selections
shall be the rate of interest of the selected LIBOR Rate Option on the Effective
Date of the Rate Selection Notice. In the event that Holder shall have
determined that the dollar deposits in an amount approximately equal to the
portion of the Principal Amount to which any of the LIBOR Rate Options apply are
not available to Holder at such time in the interbank eurodollar market, or that
reasonable means within the customary operating practices of Holder do not exist
for ascertaining a LIBOR Rate, or if any change in any law or regulation or in
the interpretation thereof by any governmental authority charged with the
administration or interpretation thereof shall make in unlawful for Holder to
make or maintain LIBOR Rates with respect to the principal balance hereof or any
portion thereof or to fund any portion of the principal advanced hereunder in
the interbank eurodollar market then, Holder shall promptly notify Maker and
thereafter such portion of the principal balance hereof shall bear interest at
the Floating Rate until such time, if any, as a LIBOR Rate loan can be made by
Holder to Maker, following which Holder shall be entitled to the selection of
the LIBOR Rate Options as provided in this Note.
(l) "Minimum Notice Period" means a period commencing no later than
10:00 a.m. Atlanta, Georgia time three (3) Business Days prior to the Effective
Date of a Fixed Rate Advance.
(m) "Prime Rate" shall be the per annum rate announced by Payee from
time to time as its Prime Rate and as one of the several interest rate bases
used by Payee. Payee lends at rates both above and below the Prime Rate and is
not represented or intended to be the lowest or most favorable rate of interest
offered by Payee. If, and to the extent and from time to time, the Prime Rate of
Payee increases or decreases, then the Prime Rate under this Note shall
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<PAGE> 36
be corresponding increased or decreased, such increase or decrease hereunder to
be effective as of the date on which such increase or decrease of the Prime Rate
of Payee occurs. The Prime Rate in effect at the end of each day shall be the
Prime Rate utilized for purposes of calculating interest under this Note for
such day. In the event that Payee shall abolish or abandon the practice of
establishing its Prime Rate, Holder shall designate a comparable reference rate
which shall be deemed to be the Prime Rate hereunder.
(n) "Principal Amount" means the principal amount outstanding from time
to time under this Note.
(o) "Rate Option" means the rate per annum equal to either (i) the
Floating Rate or (ii) the Eurodollar Rate.
(p) "Rate Selection Notice" means a written or telephonic notice (such
telephonic notice to be immediately confirmed by written or telefaxed notice)
providing irrevocable notice by the Maker to the Payee specifying (i) the
Principal Amount which shall be governed by the Eurodollar Rate, (ii) the
Eurodollar Interest Period applicable to each such amount to be governed by the
Eurodollar Rate, and (iii) the Effective Date of each such Eurodollar Rate
selection.
(a) "Regulation D" means Regulation D of the Board of Governors of the
Federal Reserve System from time to time in effect and shall include any
successor or other regulation or official interpretation of said Board of
Governors relating to Reserve Requirements applicable to member banks of the
Federal Reserve System.
(b) "Reserve Requirement" means, with respect to a Eurodollar Interest
Period, the maximum aggregate reserve requirement (including all basic,
supplemental, marginal and other reserves and taking into account any
transitional adjustments or scheduled changes in reserve requirements during
such Eurodollar Interest Period) which is imposed under Regulation D on
non-personal time deposits of $100,000.00 or more with a maturity date equal to
that on Eurocurrency liabilities.
3. FLOATING RATE BORROWING. Except as provided in Section 4 below,
this Note shall bear interest at the rate per annum equal to the Floating Rate
and, therefore, the initial rate of interest as of the date hereof, expressed
in simple interest terms, is 8.25% per annum. If at any time or from time to
time the Floating Rate increases or decreases, then the rate of interest
hereunder shall be correspondingly increased or decreased effective on the date
of which such increase or decrease of such Floating Rate takes effect.
4. SELECTION OF FIXED RATE ADVANCE. Subject to the terms and
conditions of this Note, Maker may elect from time to time to pay interest at a
rate per annum equal to the Eurodollar Rate rather than the rate per annum
equal to the Floating Rate, and for a Eurodollar Interest Period selected
hereunder for all or any outstanding portion of the Note
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<PAGE> 37
(subject to the provision of Paragraph 5 below) by giving the Holder the
appropriate Rate Selection Notice in not less than the Minimum Notice Period
applicable thereto. The Principal Amount of each Fixed Rate Advance shall bear
interest from and including the first day of the Eurodollar Interest Period
applicable thereto and during such Eurodollar Interest Period. Except in
accordance with Section 7 hereof, the Rate Option applicable to such Fixed Rate
Advance shall not be changed by the Maker. Maker may select a new Eurodollar
Interest Period and Eurodollar Rate to apply to an outstanding Fixed Rate
Advance, effective as of the last day of the existing Eurodollar Interest Period
applicable to such Fixed Rate Advance, by giving a Rate Selection Notice in not
less than the Minimum Notice Period and subject to the minimum advance amount
provisions applicable to the Fixed Rate Advance selected. If at the end of a
Eurodollar Interest Period for an outstanding Fixed Rate Advance, the Maker
fails to select a new Eurodollar Rate and new Eurodollar Interest Period, then
such Advance shall be a Floating Rate Advance on and after the last day of such
existing Eurodollar Interest Period until paid or until the Effective Date of a
new Rate Option with respect thereto selected by the Maker. An outstanding
Floating Rate Advance can be converted to a Fixed Rate Advance at any time by
providing a Rate Selection Notice (and subject to the provisions of Paragraph 5
below). The Maker may not select a Fixed Rate Advance for any Advance if, on the
date of the Rate Selection Notice or the Effective Date of such selection, there
exists an Event of Default.
5. RESTRICTIONS ON LOANS. The amount of any Fixed Rate Advance pursuant
to this Note shall be in a minimum amount of $500,000.00.
6. TELEPHONIC NOTICES. Maker hereby authorizes the Payee to extend
Advances and effect Rate Option selections based on telephonic notices made by
any one of the following (or such other persons as Borrower may designate in
writing from time to time to Lender):
Donald E. Ellis, Jr.
Michael Melton
The Maker agrees to deliver promptly to Payee a written confirmation of each
telephone notice signed by an authorized officer of Maker. If the written
confirmation differs in any material respect from the action taken by the Payee,
the records of the Payee shall govern absent manifest error.
7. YIELD PROTECTION. With respect only to interest calculated at the
Fixed Rate, if any existing or future law, governmental rule, policy, guideline,
regulation or directive, whether or not having the force of law, or compliance
of the Payee with such, (i) subjects the Payee to any tax, duty, charge or
withholding on or from payments due from the Maker (excluding U.S. taxation of
the overall net income of the Payee), or changes the basis of taxation of
payment to the Payee in respect of the Indebtedness, or (ii) imposes or
increases or deems applicable any reserve, assessment (other than reserves and
assessments included in the
5
<PAGE> 38
Reserve Requirement with respect to Fixed Rate Advances), special deposit,
insurance charge or similar requirement against assets of, deposits with or for
the account of, or credit extended by, the Payee (other than reserves and
assessments taken into account in determining the interest rate applicable to
Fixed Rate Advances), or (iii) imposes any other condition the result of which
is to increase the cost to the Payee of making, funding or maintaining U.S.
dollar loans or reduces any amount receivable by the Payee in connection with
U.S. dollar loans, or requires the Payee to make any payment calculated by
reference to the amount of loans held or interest received by it, by an amount
deemed material by the Payee, or (iv) affects the amount of capital required or
expected to be maintained by the Payee or any corporation controlling the Payee
and the Payee determines that the amount of capital required is increased by or
based upon the existence of the Loan or any of the Loan Documents or its
obligation to make the Loan hereunder or of commitments of this type, then
within 15 days of demand by the Payee, Maker shall pay the Payee that portion of
such increased expense incurred (including, in the case of Paragraph 7(iv), any
reduction in the rate of return on capital to an amount below that which it
could have achieved but for such change in regulation after taking into account
Payee's policies as to capital adequacy) or the amount of reduction in an amount
received which the Payee determines is attributable to making, funding and
maintaining the Loan. A certificate of Payee is to the amounts payable pursuant
to this Paragraph 7 (which certificate shall reflect in reasonable detail the
method and basis for the calculation thereof) submitted to Maker shall, absent
manifest error, be final and binding upon all of the parties hereto. Payee will
give Maker notice that Payee has determined that amounts are due and payable
pursuant to this Paragraph 7 within a reasonable time after such determination
by Payee. Payee agrees that the determination of any such increased expense
incurred or in the amount of reduction in the amount received shall be
consistent with such determination made with respect to other loans of Payee
which are similarly structured, of a similar amount and for a similar purpose.
8. (a) AVAILABILITY OF INTEREST RATE. If the Payee determines that (i)
maintenance of the Fixed Rate Advances would violate any applicable law, rule,
regulation, or directive, whether or not having the force of law, (ii) deposits
of a type and maturity appropriate to match fund a Fixed Rate Advance are not
available, or (iii) a Eurodollar Rate does not accurately reflect the cost of
making or maintaining a Fixed Rate Advance, then the Payee shall suspend the
availability of the affected LIBOR Rate Option and require any Fixed Rate
Advances outstanding under an affected LIBOR Rate Option to be converted to an
unaffected Rate Option; provided, however, with respect to the circumstance
described above in clause (iii) of this Section 8(a) only, the Fixed Rate shall
be converted to an unaffected Rate Option at the end of the Eurodollar Interest
Period applicable to such Fixed Rate Advance. Subject to the terms and
conditions of this Note, including the minimum borrowing provisions applicable
to the Fixed Rate Advance for which a new Rate Option is selected, the Maker may
select, by giving a Rate Selection Notice in not less than the Minimum Notice
Period, any unaffected Rate Option to apply to such affected Advances. If the
Maker fails to select a new Rate Option, the affected Advances shall be Floating
Rate Advances.
(b) FAILURE TO PAY OR BORROW ON CERTAIN DATES. If any payment of
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<PAGE> 39
a Fixed Rate Advance occurs on a date which is not the last day of the
applicable Eurodollar Interest Period, whether because of acceleration,
prepayment or otherwise, or a Fixed Rate Advance is not made on the date
specified by the Maker for any reason other than a default by the Payee, the
Maker will indemnify the Payee for any loss or cost incurred by Payee resulting
therefrom, including, without limitation, any loss or cost in liquidating or
employing deposits acquired to fund or maintain the Fixed Rate Advance.
(c) BANK CERTIFICATES; SURVIVAL OF INDEMNITY. A certificate of the
Payee as to the amount due under Sections 7 and 8(b) shall be final, conclusive
and binding on the Maker in the absence of manifest error. Determination of
amounts payable under such Sections 7 and 8(b) in connection with a Fixed Rate
Advance shall be calculated as though the Holder funded its Fixed Rate Advance
through the purchase of a deposit of the type and maturity corresponding to the
deposit used as a reference in determining the Eurodollar Rate applicable to
such Fixed Rate Advance, whether in fact that is the case or not. Unless
otherwise provided herein, the amount specified in the certificate shall be
payable on demand after receipt by the Maker of the certificate. The obligations
under Section 7 and 8(b) shall survive for a period of six (6) months following
repayment of the Loan.
9. PAYMENTS OF INTEREST. Accrued and unpaid interest only shall be due
and payable on the last day of each calendar month commencing on October 31,
1996 and continuing through and including September 30, 1999.
Interest shall be calculated on a 360 day year basis for the actual
number of days elapsed. If any payment of principal or interest hereunder would
become due and payable on a day which is not a Business Day, then such payment
shall be due and payable on the next succeeding Business Day.
10. PAYMENT OF PRINCIPAL. If not sooner paid (subject to the
restrictions on prepayment contained in the Loan Documents) the entire
outstanding principal balance of this Note shall be due and payable in full on
September 30, 1999.
11. APPLICATION OF PAYMENTS. If any permitted payments or prepayments
are received when no Event of Default exists hereunder or under any of the Loan
Documents, and if any such payments do not fully pay all sums evidenced by this
Note, then such payment first shall be applied to the payment of late charges
and other fees payable under this Note or the Loan Documents, then to accrued
and unpaid interest under this Note and, then, the balance of such payment shall
be applied to the outstanding principal balance of this Note in the following
order of application:
(a) The Principal Amount accruing interest at the Floating Rate at the
time of such prepayment; and
(b) The Principal Amount accruing interest at the Eurodollar Rate as of
the date of
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<PAGE> 40
such prepayment in the order of the maturity dates of the Eurodollar Interest
Periods in effect at such time.
12. FACILITY. The loan evidenced by this Note is governed by the terms
of the Loan Agreement whereby advances of principal under this Note shall be
made pursuant to and subject to the Loan Agreement.
13. PREPAYMENT. Maker may from time to time, pay all or any portion of
outstanding Floating Rate Advances. A Fixed Rate Advance may not be paid prior
to the last day of the applicable Eurodollar Interest Period unless, at the time
of such prepayment, Maker pays to Holder all costs associated with the early
termination of such Fixed Rate Advance as provided in Section 8(b) herein.
14. LATE CHARGE. A late charge shall be due and payable in the amount
of five percent (5%) of the amount of any installment or payment of interest
and/or principal not paid within ten (10) days of the date on which such
installment or payment was due. Holder shall have no obligation to accept any
such delinquent payment of principal and/or interest without the accompanying
late charge, and the acceptance by Holder of such delinquent payment without the
accompanying late charge shall not constitute a waiver by Holder of the right to
enforce and collect such late charge. Maker acknowledges and agrees that the
late charge herein provided is not a charge in the nature of interest imposed
for the use of money advanced under this Note; rather, the late charge is
imposed to compensate Holder for the expense, inconvenience and economic
frustration experienced by Holder as a result of Maker's failure to make timely
payments due hereunder, and is a reasonable forecast and estimate of Holder's
actual damages and loss on account of such delinquent payment.
15. DEFAULT AND ACCELERATION. It is hereby expressly agreed that should
default occur in any payment of principal or interest stipulated, or should any
other Event of Default occur, then, and in any such event, the outstanding
principal balance of the indebtedness evidenced hereby, and any other sums
advanced hereunder or under the Loan Documents (hereinafter defined), together
with all accrued and unpaid interest, at the option of Holder and without notice
to Maker except as otherwise provided herein or in the Loan Documents, shall at
once become due and payable and may be collected forthwith, regardless of the
stipulated date of maturity. Interest shall accrue on each Advance at the
applicable Default Rate from maturity, or sooner following the occurrence of a
default hereunder and after the expiration date of any period provided for the
curing of such default and for so long as such default continues, regardless of
whether or not there has been an acceleration of the indebtedness evidenced
hereby as set forth herein. All such interest at the Default Rate shall be paid
at the time of and as a condition precedent to the curing of any such default
should Maker have the right to cure such default. Time is of the essence of this
Note. In the event this Note, or any part thereof, is collected by or through an
attorney-at-law, Maker agrees to
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<PAGE> 41
pay all costs of collection including, but not limited to, reasonable attorneys'
fees actually incurred.
16. WAIVERS.
(a) Except as expressly required herein or in the Loan Documents,
presentment for payment, demand, protest and notice of demand, protest and
non-payment and all other notices, except for such notices (if any) of default
provided to be given hereunder or under any of the Loan Documents, are hereby
waived by Maker. No failure to accelerate the debt evidenced hereby by reason of
default hereunder, acceptance of a past due installment, or indulgences granted
from time to time shall be construed (i) as a novation of this Note or as a
reinstatement of the indebtedness evidenced hereby or as a waiver of such right
of acceleration or of the right of Holder thereafter to insist upon strict
compliance with the terms of this Note, or (ii) to prevent the exercise of such
right of acceleration or any other right granted hereunder or by the laws of the
State of Georgia; and Maker hereby expressly waives the benefit of any statute
or rule of law or equity now provided, or which may hereafter be provided, which
would produce a result contrary to or in conflict with the foregoing. No
extension of the time for the payment of this Note or any installment due
hereunder, made by agreement with any person now or hereafter liable for the
payment of this Note, shall operate to release, discharge, modify, change or
affect the original liability of Maker under this Note, either in whole or in
part, unless Holder agrees otherwise in writing. This Note may not be changed
orally, but only by an agreement in writing signed by the party against whom
enforcement of any waiver, change, modification or discharge is sought.
(b) Maker hereby waives and renounces for itself, its heirs, successors
and assigns, all rights to the benefit of any statute of limitations and any
moratorium, reinstatement, marshalling, forbearance, valuation, stay, extension,
redemption, appraisement, exemption and homestead now provided, or which may
hereafter be provided by the Constitution and laws of the United States of
America and of any state thereof, both as to itself and in and to all of its
property, real and personal, against the enforcement and collection of the
obligations evidenced by this Note. Maker hereby transfers, conveys and assigns
to Holder a sufficient amount of such homestead or exemption as may be set apart
in bankruptcy, to pay this Note in full, with all costs of collection, and does
hereby direct any trustee in bankruptcy having possession of such homestead or
exemption to deliver to Holder a sufficient amount of property or money set
apart as exempt to pay the indebtedness evidenced hereby, or any renewal
thereof, and does hereby appoint Holder the attorney-in-fact for Maker to claim
any and all homestead exemptions allowed by law.
17. GOVERNING LAW. This Note is intended as a contract under and shall
be construed and enforceable in accordance with the laws of the State of
Georgia.
18. DEFINITIONS. As used herein, the terms "Maker" and "Holder" shall
be deemed to include their respective heirs, successors, legal representatives
and assigns, whether
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<PAGE> 42
by voluntary action of the parties or by operation of law. In the event that
more than one person, firm or entity is a Maker hereunder, then all references
to "Maker" shall be deemed to refer equally to each of said persons, firms, or
entities, all of whom shall be jointly and severally liable for all of the
obligations of Maker hereunder.
19. LEGAL LIMITATIONS. It is the express intent hereof that the
undersigned not pay and the Holder not receive, directly or indirectly in any
manner whatsoever, interest in excess of that which may be legally paid by the
undersigned under applicable law. In no event, whether by reason of demand for
payment or acceleration of the maturity of the Note or otherwise, shall the
interest contracted for, charged or received by Holder hereunder or otherwise
exceed the maximum amount permissible under applicable law. If, from any
circumstance whatsoever, interest would otherwise be payable to Holder in excess
of the maximum lawful amount permitted under applicable law, the interest
payable to Holder shall be reduced automatically to the maximum amount permitted
under applicable law. If Holder shall ever receive anything of value deemed
interest under applicable law which would apart from this provision be in excess
of the maximum lawful amount, an amount equal to any amount which would have
been excessive interest shall be applied to the reduction of the principal
amount owing on the Note in the inverse order of its maturity and not to the
payment of interest, or if such amount which would have been excessive interest
exceeds the unpaid principal balance of the Note, such excess shall be refunded
to Maker. 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 stated term (including any renewal or extension) of such
indebtedness so that the amount of interest on account of such indebtedness does
not exceed the maximum permitted by applicable law. The provisions of this
paragraph shall control all existing and future agreements between Maker and
Holder.
20. ARBITRATION. Any controversy or claim between or among the parties
hereto including but not limited to those arising out of or relating to this
Note or any related agreements or instruments, including any claim based on or
arising from an alleged tort, shall be determined by binding arbitration in
accordance with the Federal Arbitration Act (or if not applicable, the
applicable state law), the Rules of Practice and Procedure for the Arbitration
of Commercial Disputes or Judicial Arbitration and Mediation Services, Inc.
("J.A.M.S."), and the "Special Rules" set forth below. In the event of any
inconsistency, the Special Rules shall control. Judgment upon any arbitration
award may be entered in any court having jurisdiction. Any party to this Note
may bring an action, including a summary or expedited proceeding, to compel
arbitration of any controversy or claim in which this Note applies in any court
having jurisdiction over such action.
21. SPECIAL RULES. The arbitration shall be conducted in the city of
Maker's domicile at the time of this Note's execution and administered by
J.A.M.S., who will appoint an arbitrator; if J.A.M.S. is unable or legally
precluded from administering the arbitration, then the American Arbitration
Association will serve. All arbitration hearings will be commenced within ninety
(90) days of the demand for arbitration; further the arbitrator shall
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<PAGE> 43
only, upon a showing of cause, be permitted to extend the commencement of such
hearing for an additional sixty (60) days.
22. RESERVATION OF RIGHTS. Nothing in this Note shall be deemed to (i)
limit the applicability of any otherwise applicable statutes of limitation or
repose and any waivers contained in this Note; or (ii) be a waiver by the Holder
of the protection afforded to it by 12 U.S.C. Section 91 or any substantially
equivalent state law; or (iii) limit the right of the Holder hereto (a) to
exercise self help remedies such as (but not limited to) setoff, or (b) to
foreclose against any real or personal property collateral, or (c) to obtain
from a court provisional or ancillary remedies such as (but not limited to)
injunctive relief, writ of possession or the appointment of a receiver. The
Holder may exercise such self help rights, foreclosure upon such property, or
obtain such provisional or ancillary remedies before, during or after the
pendency of any arbitration proceeding brought pursuant to this Note. Neither
the exercise or self help remedies nor the institution or maintenance of an
action for foreclosure or provisional or ancillary remedies shall constitute a
waiver of the right of any party, including the claimant in such action, to
arbitrate the merits of the controversy or claim occasioning resort to such
remedies. Nothing in this Note shall be deemed to limit the right of Maker to
seek injunctive relief.
23. TITLES. The titles of sections or paragraphs herein are used for
the convenience of the parties only and neither amplify, modify or alter in any
way the provisions of this instrument.
IN WITNESS WHEREOF, Maker has executed this Note under seal on the date
first above written.
MAKER:
THE PROFIT RECOVERY GROUP
INTERNATIONAL, INC., a Georgia
corporation
By:
-------------------------------------
Donald E. Ellis, Jr., Senior
Vice President
Attest:
---------------------------------
Clinton McKellar, Jr., Secretary
(CORPORATE SEAL)
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<PAGE> 44
NATIONSBANK
PROMISSORY NOTE
$10,000,000.00 Date: October 3, 1997
Atlanta, Georgia
1. PROMISE TO PAY. FOR VALUE RECEIVED, the undersigned, THE PROFIT
RECOVERY GROUP INTERNATIONAL, INC., a Georgia corporation (hereinafter referred
to as "Maker"), promises to pay to the order of NATIONSBANK, N.A., a national
bank (hereinafter referred to as "Payee"; Payee and any subsequent holder of all
or any part interest in this Note being hereinafter referred to collectively as
"Holder"), at the following address:
NationsBank, N.A.
600 Peachtree Street, N.E.
19th Floor
Atlanta, Georgia 30308
Attn: Melinda M. Bergbom, Senior Vice President
or at any such other place as Holder may designate to Maker in writing from time
to time, the principal sum of TEN MILLION AND NO/100THS DOLLARS
($10,000,000.00), or so much thereof as shall be disbursed hereunder and shall
from time to time be outstanding and unpaid, together with interest thereon at
one or more of the rates hereinafter set forth (subject to adjustment and
designation of the applicable interest rate or rates as provided below), in
lawful money of the United States of America, which at the time of payment shall
be legal tender in payment of all debts and dues, public and private, such
principal and interest to be paid in the manner hereinafter provided. This
Promissory Note (the "Note") is executed and delivered pursuant to that certain
Loan and Security Agreement, dated as of even date herewith, among Payee, Maker
and certain affiliates of Maker (hereinafter, together with all supplements and
amendments thereto, the "Loan Agreement"). This Note is the Revolver Note
referred to in, and is issued pursuant to, the Loan Agreement, and is entitled
to all of the benefits and security of the Loan Agreement. All of the terms,
covenants and conditions of the Loan Agreement and all other instruments
evidencing or securing the indebtedness hereunder are hereby made a part of this
Note and are deemed incorporated herein in full. All capitalized terms used
herein, unless otherwise specifically defined in this Note, shall have the
meanings ascribed to them in the Loan Agreement.
<PAGE> 45
2. DEFINITIONS. As used herein, the following terms shall have the
indicated definitions:
(a) "Advance" means a Fixed Rate Advance or a Floating Rate Advance.
(b) "Business Day" means any day whereon banks are open for business in
Atlanta, Georgia and, with respect to borrowing, payment or rate selection of a
Fixed Rate Advance or a Eurodollar Interest Period, any day whereon banks are
open for business in both Atlanta, Georgia and New York, New York and whereon
dealings in U.S. dollars are carried on in the London interbank market.
(c) "Default Rate" means (i) with respect to each Floating Rate
Advance, a rate per annum equal to the Prime Rate plus two percent (2%); and
(ii) with respect to each Fixed Rate Advance for the remainder of the applicable
Eurodollar Interest Period, a rate per annum equal to the applicable Eurodollar
Rate plus two percent (2%), and after such applicable Eurodollar Interest Period
at the rate per annum equal to the Prime Rate plus two percent (2%).
(d) "Effective Date" means any Business Day designated by Maker in a
Rate Selection Notice as the date such rate selection shall become effective, or
the first day of Floating Rate Advance.
(e) "Eurodollar Interest Period" means, with respect to a Fixed Rate
Advance, a period of thirty (30) days, sixty (60) days, ninety (90) days or one
hundred eighty (180) days to the extent eurodollar borrowings of such or similar
periods are available, commencing on a Business Day and selected by the Maker in
its Rate Selection Notice; provided, however, such Eurodollar Interest Period
shall commence on the last day of the immediately preceding Eurodollar Interest
Period in the case of a rollover to a successive Eurodollar Interest Period. If
any Eurodollar Interest Period would otherwise end on a day which is not a
Business Day, such Eurodollar Interest Period shall end on the next succeeding
Business Day. Any Eurodollar Interest Period must end on or before the maturity
date of this Note.
(f) "Eurodollar Rate" means, with respect to a Fixed Rate Advance for
the relevant Eurodollar Interest Period, the sum of the LIBOR Rate applicable to
that Eurodollar Interest Period plus one and three-quarters percent (1.75%) per
annum, subject to adjustment from time to time as hereinafter provided. The
Eurodollar Rate shall be rounded, if necessary, to the next higher one-sixteenth
of one percent.
(g) "Event of Default" means an Event of Default as that term is
defined in the Loan Agreement.
(h) "Fixed Rate Advance" means that portion of the Principal Amount to
which the Eurodollar Rate is applicable for a particular Eurodollar Interest
Period.
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<PAGE> 46
(i) "Floating Rate" means a rate per annum equal to the Prime Rate,
changing when and as the Prime Rate changes.
(j) "Floating Rate Advance" means that portion of the Principal Amount
of the Note bearing interest at the Floating Rate.
(k) "LIBOR Rate" means the simple interest rate per annum determined by
Holder, taking into account the rates at which deposits in United States dollars
for periods of thirty (30) days, sixty (60) days, ninety (90) days and one
hundred eighty (180) days (each of the foregoing is individually referred to as
"LIBOR Rate Option") are offered in the interbank eurodollar market, and such
other factors as Holder may reasonably deem appropriate from time to time. The
LIBOR Rate is established in the discretion of Holder for the particular
indebtedness evidenced by this Note, and may not be the lowest rate based in
part upon which market for deposits in the interbank eurodollar market at which
Holder prices loans on the date on which the LIBOR Rate is established. The rate
of interest charged under this Note with respect to any selection of any of the
LIBOR Rate Options shall be the selected LIBOR Rate Option on the Effective Date
of the Rate Selection Notice, and shall continue to be the same rate of
interest, without daily adjustment, until the maturity of the selected LIBOR
Rate Option has fully elapsed or the Rate Selection Notice has been terminated
as otherwise provided herein. The LIBOR Rate Option applicable to new selections
shall be the rate of interest of the selected LIBOR Rate Option on the Effective
Date of the Rate Selection Notice. In the event that Holder shall have
determined that the dollar deposits in an amount approximately equal to the
portion of the Principal Amount to which any of the LIBOR Rate Options apply are
not available to Holder at such time in the interbank eurodollar market, or that
reasonable means within the customary operating practices of Holder do not exist
for ascertaining a LIBOR Rate, or if any change in any law or regulation or in
the interpretation thereof by any governmental authority charged with the
administration or interpretation thereof shall make in unlawful for Holder to
make or maintain LIBOR Rates with respect to the principal balance hereof or any
portion thereof or to fund any portion of the principal advanced hereunder in
the interbank eurodollar market then, Holder shall promptly notify Maker and
thereafter such portion of the principal balance hereof shall bear interest at
the Floating Rate until such time, if any, as a LIBOR Rate loan can be made by
Holder to Maker, following which Holder shall be entitled to the selection of
the LIBOR Rate Options as provided in this Note.
(l) "Minimum Notice Period" means a period commencing no later than
10:00 a.m. Atlanta, Georgia time three (3) Business Days prior to the Effective
Date of a Fixed Rate Advance.
(m) "Prime Rate" shall be the per annum rate announced by Payee from
time to time as its Prime Rate and as one of the several interest rate bases
used by Payee. Payee lends at rates both above and below the Prime Rate and is
not represented or intended to be the lowest or most favorable rate of interest
offered by Payee. If, and to the extent and from time to time, the Prime Rate of
Payee increases or decreases, then the Prime Rate under this Note shall
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<PAGE> 47
be corresponding increased or decreased, such increase or decrease hereunder to
be effective as of the date on which such increase or decrease of the Prime
Rate of Payee occurs. The Prime Rate in effect at the end of each day shall be
the Prime Rate utilized for purposes of calculating interest under this Note
for such day. In the event that Payee shall abolish or abandon the practice of
establishing its Prime Rate, Holder shall designate a comparable reference rate
which shall be deemed to be the Prime Rate hereunder.
(n) "Principal Amount" means the principal amount outstanding from time
to time under this Note.
(o) "Rate Option" means the rate per annum equal to either (i) the
Floating Rate or (ii) the Eurodollar Rate.
(p) "Rate Selection Notice" means a written or telephonic notice (such
telephonic notice to be immediately confirmed by written or telefaxed notice)
providing irrevocable notice by the Maker to the Payee specifying (i) the
Principal Amount which shall be governed by the Eurodollar Rate, (ii) the
Eurodollar Interest Period applicable to each such amount to be governed by the
Eurodollar Rate, and (iii) the Effective Date of each such Eurodollar Rate
selection.
(a) "Regulation D" means Regulation D of the Board of Governors of the
Federal Reserve System from time to time in effect and shall include any
successor or other regulation or official interpretation of said Board of
Governors relating to Reserve Requirements applicable to member banks of the
Federal Reserve System.
(b) "Reserve Requirement" means, with respect to a Eurodollar Interest
Period, the maximum aggregate reserve requirement (including all basic,
supplemental, marginal and other reserves and taking into account any
transitional adjustments or scheduled changes in reserve requirements during
such Eurodollar Interest Period) which is imposed under Regulation D on
non-personal time deposits of $100,000.00 or more with a maturity date equal to
that on Eurocurrency liabilities.
3. FLOATING RATE BORROWING. Except as provided in Section 4 below,
this Note shall bear interest at the rate per annum equal to the Floating Rate
and, therefore, the initial rate of interest as of the date hereof, expressed
in simple interest terms, is 8.25% per annum. If at any time or from time to
time the Floating Rate increases or decreases, then the rate of interest
hereunder shall be correspondingly increased or decreased effective on the date
of which such increase or decrease of such Floating Rate takes effect.
4. SELECTION OF FIXED RATE ADVANCE. Subject to the terms and
conditions of this Note, Maker may elect from time to time to pay interest at a
rate per annum equal to the Eurodollar Rate rather than the rate per annum
equal to the Floating Rate, and for a Eurodollar Interest Period selected
hereunder for all or any outstanding portion of the Note
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<PAGE> 48
(subject to the provision of Paragraph 5 below) by giving the Holder the
appropriate Rate Selection Notice in not less than the Minimum Notice Period
applicable thereto. The Principal Amount of each Fixed Rate Advance shall bear
interest from and including the first day of the Eurodollar Interest Period
applicable thereto and during such Eurodollar Interest Period. Except in
accordance with Section 7 hereof, the Rate Option applicable to such Fixed Rate
Advance shall not be changed by the Maker. Maker may select a new Eurodollar
Interest Period and Eurodollar Rate to apply to an outstanding Fixed Rate
Advance, effective as of the last day of the existing Eurodollar Interest Period
applicable to such Fixed Rate Advance, by giving a Rate Selection Notice in not
less than the Minimum Notice Period and subject to the minimum advance amount
provisions applicable to the Fixed Rate Advance selected. If at the end of a
Eurodollar Interest Period for an outstanding Fixed Rate Advance, the Maker
fails to select a new Eurodollar Rate and new Eurodollar Interest Period, then
such Advance shall be a Floating Rate Advance on and after the last day of such
existing Eurodollar Interest Period until paid or until the Effective Date of a
new Rate Option with respect thereto selected by the Maker. An outstanding
Floating Rate Advance can be converted to a Fixed Rate Advance at any time by
providing a Rate Selection Notice (and subject to the provisions of Paragraph 5
below). The Maker may not select a Fixed Rate Advance for any Advance if, on the
date of the Rate Selection Notice or the Effective Date of such selection, there
exists an Event of Default.
5. RESTRICTIONS ON LOANS. The amount of any Fixed Rate Advance pursuant
to this Note shall be in a minimum amount of $500,000.00.
6. TELEPHONIC NOTICES. Maker hereby authorizes the Payee to extend
Advances and effect Rate Option selections based on telephonic notices made by
any one of the following (or such other persons as Borrower may designate in
writing from time to time to Lender):
Donald E. Ellis, Jr.
Michael Melton
The Maker agrees to deliver promptly to Payee a written confirmation of each
telephone notice signed by an authorized officer of Maker. If the written
confirmation differs in any material respect from the action taken by the Payee,
the records of the Payee shall govern absent manifest error.
7. YIELD PROTECTION. With respect only to interest calculated at the
Fixed Rate, if any existing or future law, governmental rule, policy, guideline,
regulation or directive, whether or not having the force of law, or compliance
of the Payee with such, (i) subjects the Payee to any tax, duty, charge or
withholding on or from payments due from the Maker (excluding U.S. taxation of
the overall net income of the Payee), or changes the basis of taxation of
payment to the Payee in respect of the Indebtedness, or (ii) imposes or
increases or deems applicable any reserve, assessment (other than reserves and
assessments included in the
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<PAGE> 49
Reserve Requirement with respect to Fixed Rate Advances), special deposit,
insurance charge or similar requirement against assets of, deposits with or for
the account of, or credit extended by, the Payee (other than reserves and
assessments taken into account in determining the interest rate applicable to
Fixed Rate Advances), or (iii) imposes any other condition the result of which
is to increase the cost to the Payee of making, funding or maintaining U.S.
dollar loans or reduces any amount receivable by the Payee in connection with
U.S. dollar loans, or requires the Payee to make any payment calculated by
reference to the amount of loans held or interest received by it, by an amount
deemed material by the Payee, or (iv) affects the amount of capital required or
expected to be maintained by the Payee or any corporation controlling the Payee
and the Payee determines that the amount of capital required is increased by or
based upon the existence of the Loan or any of the Loan Documents or its
obligation to make the Loan hereunder or of commitments of this type, then
within 15 days of demand by the Payee, Maker shall pay the Payee that portion of
such increased expense incurred (including, in the case of Paragraph 7(iv), any
reduction in the rate of return on capital to an amount below that which it
could have achieved but for such change in regulation after taking into account
Payee's policies as to capital adequacy) or the amount of reduction in an amount
received which the Payee determines is attributable to making, funding and
maintaining the Loan. A certificate of Payee is to the amounts payable pursuant
to this Paragraph 7 (which certificate shall reflect in reasonable detail the
method and basis for the calculation thereof) submitted to Maker shall, absent
manifest error, be final and binding upon all of the parties hereto. Payee will
give Maker notice that Payee has determined that amounts are due and payable
pursuant to this Paragraph 7 within a reasonable time after such determination
by Payee. Payee agrees that the determination of any such increased expense
incurred or in the amount of reduction in the amount received shall be
consistent with such determination made with respect to other loans of Payee
which are similarly structured, of a similar amount and for a similar purpose.
8. (a) AVAILABILITY OF INTEREST RATE. If the Payee determines that (i)
maintenance of the Fixed Rate Advances would violate any applicable law, rule,
regulation, or directive, whether or not having the force of law, (ii) deposits
of a type and maturity appropriate to match fund a Fixed Rate Advance are not
available, or (iii) a Eurodollar Rate does not accurately reflect the cost of
making or maintaining a Fixed Rate Advance, then the Payee shall suspend the
availability of the affected LIBOR Rate Option and require any Fixed Rate
Advances outstanding under an affected LIBOR Rate Option to be converted to an
unaffected Rate Option; provided, however, with respect to the circumstance
described above in clause (iii) of this Section 8(a) only, the Fixed Rate shall
be converted to an unaffected Rate Option at the end of the Eurodollar Interest
Period applicable to such Fixed Rate Advance. Subject to the terms and
conditions of this Note, including the minimum borrowing provisions applicable
to the Fixed Rate Advance for which a new Rate Option is selected, the Maker may
select, by giving a Rate Selection Notice in not less than the Minimum Notice
Period, any unaffected Rate Option to apply to such affected Advances. If the
Maker fails to select a new Rate Option, the affected Advances shall be Floating
Rate Advances.
(b) FAILURE TO PAY OR BORROW ON CERTAIN DATES. If any payment of
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<PAGE> 50
a Fixed Rate Advance occurs on a date which is not the last day of the
applicable Eurodollar Interest Period, whether because of acceleration,
prepayment or otherwise, or a Fixed Rate Advance is not made on the date
specified by the Maker for any reason other than a default by the Payee, the
Maker will indemnify the Payee for any loss or cost incurred by Payee resulting
therefrom, including, without limitation, any loss or cost in liquidating or
employing deposits acquired to fund or maintain the Fixed Rate Advance.
(c) BANK CERTIFICATES; SURVIVAL OF INDEMNITY. A certificate of the
Payee as to the amount due under Sections 7 and 8(b) shall be final, conclusive
and binding on the Maker in the absence of manifest error. Determination of
amounts payable under such Sections 7 and 8(b) in connection with a Fixed Rate
Advance shall be calculated as though the Holder funded its Fixed Rate Advance
through the purchase of a deposit of the type and maturity corresponding to the
deposit used as a reference in determining the Eurodollar Rate applicable to
such Fixed Rate Advance, whether in fact that is the case or not. Unless
otherwise provided herein, the amount specified in the certificate shall be
payable on demand after receipt by the Maker of the certificate. The obligations
under Section 7 and 8(b) shall survive for a period of six (6) months following
repayment of the Loan.
9. PAYMENTS OF INTEREST. Accrued and unpaid interest only shall be due
and payable on the last day of each calendar month commencing on October 31,
1996 and continuing through and including September 30, 1999.
Interest shall be calculated on a 360 day year basis for the actual
number of days elapsed. If any payment of principal or interest hereunder would
become due and payable on a day which is not a Business Day, then such payment
shall be due and payable on the next succeeding Business Day.
10. PAYMENT OF PRINCIPAL. If not sooner paid (subject to the
restrictions on prepayment contained in the Loan Documents) the entire
outstanding principal balance of this Note shall be due and payable in full on
September 30, 1999.
11. APPLICATION OF PAYMENTS. If any permitted payments or prepayments
are received when no Event of Default exists hereunder or under any of the Loan
Documents, and if any such payments do not fully pay all sums evidenced by this
Note, then such payment first shall be applied to the payment of late charges
and other fees payable under this Note or the Loan Documents, then to accrued
and unpaid interest under this Note and, then, the balance of such payment shall
be applied to the outstanding principal balance of this Note in the following
order of application:
(a) The Principal Amount accruing interest at the Floating Rate at the
time of such prepayment; and
(b) The Principal Amount accruing interest at the Eurodollar Rate as of
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<PAGE> 51
the date of such prepayment in the order of the maturity dates of the Eurodollar
Interest Periods in effect at such time.
12. FACILITY. The loan evidenced by this Note is governed by the terms
of the Loan Agreement whereby advances of principal under this Note shall be
made pursuant to and subject to the Loan Agreement.
13. PREPAYMENT. Maker may from time to time, pay all or any portion of
outstanding Floating Rate Advances. A Fixed Rate Advance may not be paid prior
to the last day of the applicable Eurodollar Interest Period unless, at the time
of such prepayment, Maker pays to Holder all costs associated with the early
termination of such Fixed Rate Advance as provided in Section 8(b) herein.
14. LATE CHARGE. A late charge shall be due and payable in the amount
of five percent (5%) of the amount of any installment or payment of interest
and/or principal not paid within ten (10) days of the date on which such
installment or payment was due. Holder shall have no obligation to accept any
such delinquent payment of principal and/or interest without the accompanying
late charge, and the acceptance by Holder of such delinquent payment without the
accompanying late charge shall not constitute a waiver by Holder of the right to
enforce and collect such late charge. Maker acknowledges and agrees that the
late charge herein provided is not a charge in the nature of interest imposed
for the use of money advanced under this Note; rather, the late charge is
imposed to compensate Holder for the expense, inconvenience and economic
frustration experienced by Holder as a result of Maker's failure to make timely
payments due hereunder, and is a reasonable forecast and estimate of Holder's
actual damages and loss on account of such delinquent payment.
15. DEFAULT AND ACCELERATION. It is hereby expressly agreed that should
default occur in any payment of principal or interest stipulated, or should any
other Event of Default occur, then, and in any such event, the outstanding
principal balance of the indebtedness evidenced hereby, and any other sums
advanced hereunder or under the Loan Documents (hereinafter defined), together
with all accrued and unpaid interest, at the option of Holder and without notice
to Maker except as otherwise provided herein or in the Loan Documents, shall at
once become due and payable and may be collected forthwith, regardless of the
stipulated date of maturity. Interest shall accrue on each Advance at the
applicable Default Rate from maturity, or sooner following the occurrence of a
default hereunder and after the expiration date of any period provided for the
curing of such default and for so long as such default continues, regardless of
whether or not there has been an acceleration of the indebtedness evidenced
hereby as set forth herein. All such interest at the Default Rate shall be paid
at the time of and as a condition precedent to the curing of any such default
should Maker have the right to cure such default. Time is of the essence of this
Note. In the event this Note, or any part thereof, is collected by or through an
attorney-at-law, Maker agrees to pay all costs of collection including, but not
limited to, reasonable attorneys' fees actually incurred.
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16. WAIVERS.
(a) Except as expressly required herein or in the Loan Documents,
presentment for payment, demand, protest and notice of demand, protest and
non-payment and all other notices, except for such notices (if any) of default
provided to be given hereunder or under any of the Loan Documents, are hereby
waived by Maker. No failure to accelerate the debt evidenced hereby by reason of
default hereunder, acceptance of a past due installment, or indulgences granted
from time to time shall be construed (i) as a novation of this Note or as a
reinstatement of the indebtedness evidenced hereby or as a waiver of such right
of acceleration or of the right of Holder thereafter to insist upon strict
compliance with the terms of this Note, or (ii) to prevent the exercise of such
right of acceleration or any other right granted hereunder or by the laws of the
State of Georgia; and Maker hereby expressly waives the benefit of any statute
or rule of law or equity now provided, or which may hereafter be provided, which
would produce a result contrary to or in conflict with the foregoing. No
extension of the time for the payment of this Note or any installment due
hereunder, made by agreement with any person now or hereafter liable for the
payment of this Note, shall operate to release, discharge, modify, change or
affect the original liability of Maker under this Note, either in whole or in
part, unless Holder agrees otherwise in writing. This Note may not be changed
orally, but only by an agreement in writing signed by the party against whom
enforcement of any waiver, change, modification or discharge is sought.
(b) Maker hereby waives and renounces for itself, its heirs, successors
and assigns, all rights to the benefit of any statute of limitations and any
moratorium, reinstatement, marshalling, forbearance, valuation, stay, extension,
redemption, appraisement, exemption and homestead now provided, or which may
hereafter be provided by the Constitution and laws of the United States of
America and of any state thereof, both as to itself and in and to all of its
property, real and personal, against the enforcement and collection of the
obligations evidenced by this Note. Maker hereby transfers, conveys and assigns
to Holder a sufficient amount of such homestead or exemption as may be set apart
in bankruptcy, to pay this Note in full, with all costs of collection, and does
hereby direct any trustee in bankruptcy having possession of such homestead or
exemption to deliver to Holder a sufficient amount of property or money set
apart as exempt to pay the indebtedness evidenced hereby, or any renewal
thereof, and does hereby appoint Holder the attorney-in-fact for Maker to claim
any and all homestead exemptions allowed by law.
17. GOVERNING LAW. This Note is intended as a contract under and shall
be construed and enforceable in accordance with the laws of the State of
Georgia.
18. DEFINITIONS. As used herein, the terms "Maker" and "Holder" shall
be deemed to include their respective heirs, successors, legal representatives
and assigns, whether by voluntary action of the parties or by operation of law.
In the event that more than one person, firm or entity is a Maker hereunder,
then all references to "Maker" shall be deemed to refer equally to each of said
persons, firms, or entities, all of whom shall be jointly and
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<PAGE> 53
severally liable for all of the obligations of Maker hereunder.
19. LEGAL LIMITATIONS. It is the express intent hereof that the
undersigned not pay and the Holder not receive, directly or indirectly in any
manner whatsoever, interest in excess of that which may be legally paid by the
undersigned under applicable law. In no event, whether by reason of demand for
payment or acceleration of the maturity of the Note or otherwise, shall the
interest contracted for, charged or received by Holder hereunder or otherwise
exceed the maximum amount permissible under applicable law. If, from any
circumstance whatsoever, interest would otherwise be payable to Holder in excess
of the maximum lawful amount permitted under applicable law, the interest
payable to Holder shall be reduced automatically to the maximum amount permitted
under applicable law. If Holder shall ever receive anything of value deemed
interest under applicable law which would apart from this provision be in excess
of the maximum lawful amount, an amount equal to any amount which would have
been excessive interest shall be applied to the reduction of the principal
amount owing on the Note in the inverse order of its maturity and not to the
payment of interest, or if such amount which would have been excessive interest
exceeds the unpaid principal balance of the Note, such excess shall be refunded
to Maker. 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 stated term (including any renewal or extension) of such
indebtedness so that the amount of interest on account of such indebtedness does
not exceed the maximum permitted by applicable law. The provisions of this
paragraph shall control all existing and future agreements between Maker and
Holder.
20. ARBITRATION. Any controversy or claim between or among the parties
hereto including but not limited to those arising out of or relating to this
Note or any related agreements or instruments, including any claim based on or
arising from an alleged tort, shall be determined by binding arbitration in
accordance with the Federal Arbitration Act (or if not applicable, the
applicable state law), the Rules of Practice and Procedure for the Arbitration
of Commercial Disputes or Judicial Arbitration and Mediation Services, Inc.
("J.A.M.S."), and the "Special Rules" set forth below. In the event of any
inconsistency, the Special Rules shall control. Judgment upon any arbitration
award may be entered in any court having jurisdiction. Any party to this Note
may bring an action, including a summary or expedited proceeding, to compel
arbitration of any controversy or claim in which this Note applies in any court
having jurisdiction over such action.
21. SPECIAL RULES. The arbitration shall be conducted in the city of
Maker's domicile at the time of this Note's execution and administered by
J.A.M.S., who will appoint an arbitrator; if J.A.M.S. is unable or legally
precluded from administering the arbitration, then the American Arbitration
Association will serve. All arbitration hearings will be commenced within ninety
(90) days of the demand for arbitration; further the arbitrator shall
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only, upon a showing of cause, be permitted to extend the commencement of such
hearing for an additional sixty (60) days.
22. RESERVATION OF RIGHTS. Nothing in this Note shall be deemed to (i)
limit the applicability of any otherwise applicable statutes of limitation or
repose and any waivers contained in this Note; or (ii) be a waiver by the Holder
of the protection afforded to it by 12 U.S.C. Section 91 or any substantially
equivalent state law; or (iii) limit the right of the Holder hereto (a) to
exercise self help remedies such as (but not limited to) setoff, or (b) to
foreclose against any real or personal property collateral, or (c) to obtain
from a court provisional or ancillary remedies such as (but not limited to)
injunctive relief, writ of possession or the appointment of a receiver. The
Holder may exercise such self help rights, foreclosure upon such property, or
obtain such provisional or ancillary remedies before, during or after the
pendency of any arbitration proceeding brought pursuant to this Note. Neither
the exercise or self help remedies nor the institution or maintenance of an
action for foreclosure or provisional or ancillary remedies shall constitute a
waiver of the right of any party, including the claimant in such action, to
arbitrate the merits of the controversy or claim occasioning resort to such
remedies. Nothing in this Note shall be deemed to limit the right of Maker to
seek injunctive relief.
23. TITLES. The titles of sections or paragraphs herein are used for
the convenience of the parties only and neither amplify, modify or alter in any
way the provisions of this instrument.
IN WITNESS WHEREOF, Maker has executed this Note under seal on the date
first above written.
MAKER:
THE PROFIT RECOVERY GROUP
INTERNATIONAL, INC., a Georgia
corporation
By:
--------------------------------------
Donald E. Ellis, Jr., Senior
Vice President
Attest:
----------------------------------
Clinton McKellar, Jr., Secretary
(CORPORATE SEAL)
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<PAGE> 55
EXHIBIT A-1
NATIONSBANK
PROMISSORY NOTE
(TERM NOTE)
$____________ Date: ___________, 1997
Atlanta, Georgia
1. PROMISE TO PAY. FOR VALUE RECEIVED, the ndersigned, THE PROFIT
RECOVERY GROUP INTERNATIONAL, INC., a Georgia corporation (hereinafter referred
to as "Maker"), promises to pay to the order of NATIONSBANK, N.A., a national
bank (hereinafter referred to as "Payee"; Payee and any subsequent holder of all
or any part interest in this Note being hereinafter referred to collectively as
"Holder"), at the following address:
NationsBank, N.A.
600 Peachtree Street, N.E.
19th Floor
Atlanta, Georgia 30308
Attn: Melinda M. Bergbom, Senior Vice President
or at any such other place as Holder may designate to Maker in writing from time
to time, the principal sum of ___________________ AND NO/100THS DOLLARS ($
__________.00), or so much thereof as shall be disbursed hereunder and shall
from time to time be outstanding and unpaid, together with interest thereon at
the rates hereinafter set forth (subject to adjustment and designation of the
applicable interest rate or rates as provided below), in lawful money of the
United States of America, which at the time of payment shall be legal tender in
payment of all debts and dues, public and private, such principal and interest
to be paid in the manner hereinafter provided. This Promissory Note (the "Note")
is executed and delivered pursuant to that certain Loan and Security Agreement,
dated September 27, 1996, among Payee, Maker and certain affiliates of Maker
(hereinafter, together with all supplements and amendments thereto, the "Loan
Agreement"). This Note is a Term Note referred to in, and is issued pursuant to,
the Loan Agreement, and is entitled to all of the benefits and security of the
Loan Agreement. All of the terms, covenants and conditions of the Loan Agreement
and all other instruments evidencing or securing the indebtedness hereunder are
hereby made a part of this Note and are deemed incorporated herein in full. All
capitalized terms used herein, unless otherwise specifically defined in this
Note, shall have the meanings ascribed to them in the Loan Agreement.
<PAGE> 56
2. DEFINITIONS. As used herein, the following terms shall have the
indicated definitions:
(a) "Business Day" means any day whereon banks are open for business in
Atlanta, Georgia and, with respect to borrowing, payment or rate selection of
the Fixed Rate or a Eurodollar Interest Period, any day whereon banks are open
for business in both Atlanta, Georgia and New York, New York and whereon
dealings in U.S. dollars are carried on in the London interbank market.
(b) "Default Rate" means (i) with respect to the Floating Rate, a rate
per annum equal to the Prime Rate plus two percent (2%); and (ii) with respect
to the Fixed Rate for the remainder of the applicable Eurodollar Interest
Period, a rate per annum equal to the applicable Eurodollar Rate plus two
percent (2%), and after such applicable Eurodollar Interest Period at the rate
per annum equal to the Prime Rate plus two percent (2%).
(c) "Effective Date" means any Business Day designated by Maker in a
Rate Selection Notice as the date such rate selection shall become effective.
(d) "Eurodollar Interest Period" means, with respect to the Fixed Rate,
a period of thirty (30) days, sixty (60) days, ninety (90) days or one hundred
eighty (180) days to the extent eurodollar borrowings of such or similar periods
are available, commencing on a Business Day and selected by the Maker in its
Rate Selection Notice; provided, however, such Eurodollar Interest Period shall
commence on the last day of the immediately preceding Eurodollar Interest Period
in the case of a rollover to a successive Eurodollar Interest Period. If any
Eurodollar Interest Period would otherwise end on a day which is not a Business
Day, such Eurodollar Interest Period shall end on the next succeeding Business
Day. Any Eurodollar Interest Period must end on or before the maturity date of
this Note.
(e) "Eurodollar Rate" means, with respect to the relevant Eurodollar
Interest Period, the sum of the LIBOR Rate applicable to that Eurodollar
Interest Period plus one and three-quarters percent (1.75%) per annum, subject
to adjustment from time to time as hereinafter provided. The Eurodollar Rate
shall be rounded, if necessary, to the next higher one-sixteenth of one percent.
(f) "Event of Default" means an Event of Default as that term is
defined in the Loan Agreement.
(g) "Fixed Rate" means the rate per annum for the applicable Eurodollar
Rate selected from time to time pursuant to this Note.
(h) "Floating Rate" means a rate per annum equal to the Prime Rate,
changing when
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<PAGE> 57
and as the Prime Rate changes.
(i) "LIBOR Rate" means the simple interest rate per annum determined by
Holder, taking into account the rates at which deposits in United States dollars
for periods of thirty (30) days, sixty (60) days, ninety (90) days and one
hundred eighty (180) days (each of the foregoing is individually referred to as
"LIBOR Rate Option") are offered in the interbank eurodollar market, and such
other factors as Holder may reasonably deem appropriate from time to time. The
LIBOR Rate is established in the discretion of Holder for the particular
indebtedness evidenced by this Note, and may not be the lowest rate based in
part upon which market for deposits in the interbank eurodollar market at which
Holder prices loans on the date on which the LIBOR Rate is established. The rate
of interest charged under this Note with respect to any selection of any of the
LIBOR Rate Options shall be the selected LIBOR Rate Option on the Effective Date
of the Rate Selection Notice, and shall continue to be the same rate of
interest, without daily adjustment, until the maturity of the selected LIBOR
Rate Option has fully elapsed or the Rate Selection Notice has been terminated
as otherwise provided herein. The LIBOR Rate Option applicable to new selections
shall be the rate of interest of the selected LIBOR Rate Option on the Effective
Date of the Rate Selection Notice. In the event that Holder shall have
determined that the dollar deposits in an amount approximately equal to the
Principal Amount are not available to Holder at such time in the interbank
eurodollar market, or that reasonable means within the customary operating
practices of Holder do not exist for ascertaining a LIBOR Rate, or if any change
in any law or regulation or in the interpretation thereof by any governmental
authority charged with the administration or interpretation thereof shall make
in unlawful for Holder to make or maintain LIBOR Rates with respect to the
principal balance hereof or to fund the principal advanced hereunder in the
interbank eurodollar market then, Holder shall promptly notify Maker and
thereafter such portion of the principal balance hereof shall bear interest at
the Floating Rate until such time, if any, as a LIBOR Rate loan can be made by
Holder to Maker, following which Holder shall be entitled to the selection of
the LIBOR Rate Options as provided in this Note.
(j) "Minimum Notice Period" means a period commencing no later than
10:00 a.m. Atlanta, Georgia time three (3) Business Days prior to the Effective
Date of a Fixed Rate Advance.
(k) "Prime Rate" shall be the per annum rate announced by Payee from
time to time as its Prime Rate and as one of the several interest rate bases
used by Payee. Payee lends at rates both above and below the Prime Rate and is
not represented or intended to be the lowest or most favorable rate of interest
offered by Payee. If, and to the extent and from time to time, the Prime Rate of
Payee increases or decreases, then the Prime Rate under this Note shall be
corresponding increased or decreased, such increase or decrease hereunder to be
effective as of the date on which such increase or decrease of the Prime Rate of
Payee occurs. The Prime Rate in effect at the end of each day shall be the Prime
Rate utilized for purposes of calculating interest under this Note for such day.
In the event that Payee shall abolish or abandon the practice of establishing
its Prime Rate, Holder shall designate a comparable reference rate which shall
be deemed to be the Prime Rate hereunder.
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<PAGE> 58
(l) "Principal Amount" means the principal amount outstanding from time
to time under this Note.
(m) "Rate Option" means the rate per annum equal to either (i) the
Floating Rate or (ii) the Eurodollar Rate.
(n) "Rate Selection Notice" means a written or telephonic notice (such
telephonic notice to be immediately confirmed by written or telefaxed notice)
providing irrevocable notice by the Maker to the Payee specifying (i) the
Eurodollar Interest Period which Maker desires to select, and (ii) the Effective
Date of each such Eurodollar Rate selection.
(o) "Regulation D" means Regulation D of the Board of Governors of the
Federal Reserve System from time to time in effect and shall include any
successor or other regulation or official interpretation of said Board of
Governors relating to Reserve Requirements applicable to member banks of the
Federal Reserve System.
(p) "Reserve Requirement" means, with respect to a Eurodollar Interest
Period, the maximum aggregate reserve requirement (including all basic,
supplemental, marginal and other reserves and taking into account any
transitional adjustments or scheduled changes in reserve requirements during
such Eurodollar Interest Period) which is imposed under Regulation D on
non-personal time deposits of $100,000.00 or more with a maturity date equal to
that on Eurocurrency liabilities.
3. FLOATING RATE BORROWING. Except as provided in Section 4 below, this
Note shall bear interest at the rate per annum equal to the Floating Rate and,
therefore, the initial rate of interest as of the date hereof, expressed in
simple interest terms, is____% per annum. If at any time or from time to time
the Floating Rate increases or decreases, then the rate of interest hereunder
shall be correspondingly increased or decreased effective on the date of which
such increase or decrease of such Floating Rate takes effect.
4. SELECTION OF FIXED RATE. Subject to the terms and conditions of this
Note, Maker may elect from time to time that interest accrue at a rate per annum
equal to the Eurodollar Rate rather than the rate per annum equal to the
Floating Rate, and for a Eurodollar Interest Period selected hereunder for all
(but not less than all) of the outstanding principal balance of this Note by
giving the Holder the appropriate Rate Selection Notice in not less than the
Minimum Notice Period applicable thereto. The Principal Amount shall bear
interest from and including the first day of the Eurodollar Interest Period
applicable thereto and during such Eurodollar Interest Period. Except in
accordance with Section 7 hereof, the Rate Option shall not be changed by the
Maker. Maker may select a new Eurodollar Interest Period and Eurodollar Rate to
apply to the Principal Amount, effective as of the last day of the existing
Eurodollar Interest Period, by giving a Rate Selection Notice in not less than
the Minimum Notice Period. If at the end of a Eurodollar Interest Period the
Maker fails to select a new Eurodollar Rate and new Eurodollar Interest Period,
then the Principal Amount shall accrue interest at the Floating Rate on and
after the last day of such existing Eurodollar Interest Period
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<PAGE> 59
until paid or until the Effective Date of a new Rate Option selected by the
Maker. The Maker may not select the Fixed Rate if, on the date of the Rate
Selection Notice or the Effective Date of such selection, there exists an Event
of Default.
5. RESTRICTIONS ON FIXED RATE. Notwithstanding anything in this Note to
the contrary, Maker may not select that this Note accrue at the Fixed Rate
unless the outstanding principal balance of this Note as of the date of such
election is equal to or greater than $500,000.00.
6. TELEPHONIC NOTICES. Maker hereby authorizes the Payee to effect Rate
Option selections based on telephonic notices made by any one of the following
(or such other persons as Borrower may designate in writing from time to time to
Lender):
Donald E. Ellis, Jr.
Michael Melton
The Maker agrees to deliver promptly to Payee a written confirmation of each
telephone notice signed by an authorized officer of Maker. If the written
confirmation differs in any material respect from the action taken by the Payee,
the records of the Payee shall govern absent manifest error.
7. YIELD PROTECTION. With respect only to interest calculated at the
Fixed Rate, if any existing or future law, governmental rule, policy, guideline,
regulation or directive, whether or not having the force of law, or compliance
of the Payee with such, (i) subjects the Payee to any tax, duty, charge or
withholding on or from payments due from the Maker (excluding U.S. taxation of
the overall net income of the Payee), or changes the basis of taxation of
payment to the Payee in respect of the Indebtedness, or (ii) imposes or
increases or deems applicable any reserve, assessment (other than reserves and
assessments included in the Reserve Requirement with respect to principal
accruing at the Fixed Rate), special deposit, insurance charge or similar
requirement against assets of, deposits with or for the account of, or credit
extended by, the Payee (other than reserves and assessments taken into account
in determining the Fixed Rate), or (iii) imposes any other condition the result
of which is to increase the cost to the Payee of making, funding or maintaining
U.S. dollar loans or reduces any amount receivable by the Payee in connection
with U.S. dollar loans, or requires the Payee to make any payment calculated by
reference to the amount of loans held or interest received by it, by an amount
deemed material by the Payee, or (iv) affects the amount of capital required or
expected to be maintained by the Payee or any corporation controlling the Payee
and the Payee determines that the amount of capital required is increased by or
based upon the existence of the Loan or any of the Loan Documents or its
obligation to make the Loan hereunder or of commitments of this type, then
within 15 days of demand by the Payee, Maker shall pay the Payee that portion of
such increased expense incurred (including, in the case of Paragraph 7(iv), any
reduction in the rate of return on capital to an amount below that which it
could have achieved but for such change in regulation after taking into account
Payee's policies as to capital adequacy) or the amount of reduction in an amount
received which the Payee
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<PAGE> 60
determines is attributable to making, funding and maintaining the Loan. A
certificate of Payee is to the amounts payable pursuant to this Paragraph 7
(which certificate shall reflect in reasonable detail the method and basis for
the calculation thereof) submitted to Maker shall, absent manifest error, be
final and binding upon all of the parties hereto. Payee will give Maker notice
that Payee has determined that amounts are due and payable pursuant to this
Paragraph 7 within a reasonable time after such determination by Payee. Payee
agrees that the determination of any such increased expense incurred or in the
amount of reduction in the amount received shall be consistent with such
determination made with respect to other loans of Payee which are similarly
structured, of a similar amount and for a similar purpose.
8. (a) AVAILABILITY OF INTEREST RATE. If the Payee determines that (i)
maintenance of the Fixed Rate would violate any applicable law, rule,
regulation, or directive, whether or not having the force of law, (ii) deposits
of a type and maturity appropriate to match fund a Fixed Rate loan are not
available, or (iii) a Eurodollar Rate does not accurately reflect the cost of
making or maintaining the Fixed Rate, then the Payee shall suspend the
availability of the affected LIBOR Rate Option and require that the Fixed Rate
under an affected LIBOR Rate Option to be converted to an unaffected Rate
Option. Subject to the terms and conditions of this Note, the Maker may select,
by giving a Rate Selection Notice in not less than the Minimum Notice Period,
any unaffected Rate Option to apply to this Note. If the Maker fails to select a
new Rate Option, this Note shall accrue interest at the Floating Rate.
(b) BANK CERTIFICATES; SURVIVAL OF INDEMNITY. A certificate of the
Payee as to the amount due under Section 7 shall be final, conclusive and
binding on the Maker in the absence of manifest error. Determination of amounts
payable under such Section 7 shall be calculated as though the Holder funded its
Fixed Rate loan through the purchase of a deposit of the type and maturity
corresponding to the deposit used as a reference in determining the Eurodollar
Rate applicable to such Fixed Rate loan, whether in fact that is the case or
not. Unless otherwise provided herein, the amount specified in the certificate
shall be payable on demand after receipt by the Maker of the certificate. The
obligations under Section 7 shall survive for a period of six (6) months
following repayment of the Loan.
9. PAYMENTS OF PRINCIPAL AND INTEREST. Commencing one (1) month from
the date of this Note and continuing on the same day of each calendar month
thereafter through and including [the day which is 12 months from the date of
the Note], there shall be due and payable monthly installments consisting only
of accrued and unpaid interest under this Note; thereafter, commencing one (1)
month after [the day which is 12 months from the date of the Note] and
continuing on the same day of each calendar month thereafter through and
including [the day which is 47 months from the date of the Note], there shall be
due and payable monthly installments consisting of (i) all accrued and unpaid
interest under this Note, and (ii) principal in the amount of [1/60 of the
original principal amount of the Note].
Interest shall be calculated on a 360 day year basis for the actual
number of days elapsed. If any payment of principal or interest hereunder would
become due and payable on a
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<PAGE> 61
day which is not a Business Day, then such payment shall be due and payable on
the next succeeding Business Day.
10. MATURITY DATE. If not sooner paid (subject to the restrictions on
prepayment contained in the Loan Documents) the entire outstanding principal
balance of this Note shall be due and payable in full 48 months from the date of
this Note.
11. APPLICATION OF PAYMENTS. If any permitted payments or prepayments
are received when no Event of Default exists hereunder or under any of the Loan
Documents, and if any such payments do not fully pay all sums evidenced by this
Note, then such payment first shall be applied to the payment of late charges
and other fees payable under this Note or the Loan Documents, then to accrued
and unpaid interest under this Note and, then, to the outstanding principal
balance of this Note. Following any partial prepayment of this Note, following
the date of such prepayment, monthly installments shall be due and payable
consisting of (i) all accrued and unpaid interest, and (ii) equal installments
of principal based upon an amortization of the outstanding principal balance of
the Note following such prepayment over the number of monthly installments
payable between such date and the maturity date of this Note.
12. FACILITY. The loan made pursuant to this Note is governed by the
terms of the Loan Agreement whereby the loan evidenced by this Note shall be
made pursuant to and subject to the Loan Agreement.
13. PREPAYMENT. Maker may, from time to time, pay all or any portion
this Note without prepayment premium or penalty provided that, at the time of
such prepayment, this Note is accruing interest at the Floating Rate. If a
prepayment of all or any portion of the outstanding amount of this Note is made
at the time that this Note is accruing interest at the Fixed Rate, then there
shall be due and payable as a condition to such prepayment a prepayment premium
equal to any loss or cost incurred by Holder resulting from such prepayment
including, without limitation, any loss or cost in liquidating or employing
deposits acquired to fund or maintain the fixed rate under this Note.
14. LATE CHARGE. A late charge shall be due and payable in the amount
of five percent (5%) of the amount of any installment or payment of interest
and/or principal not paid within ten (10) days of the date on which such
installment or payment was due. Holder shall have no obligation to accept any
such delinquent payment of principal and/or interest without the accompanying
late charge, and the acceptance by Holder of such delinquent payment without the
accompanying late charge shall not constitute a waiver by Holder of the right to
enforce and collect such late charge. Maker acknowledges and agrees that the
late charge herein provided is not a charge in the nature of interest imposed
for the use of money advanced under this Note; rather, the late charge is
imposed to compensate Holder for the expense, inconvenience and economic
frustration experienced by Holder as a result of Maker's failure to make timely
payments due hereunder, and is a reasonable forecast and estimate of Holder's
actual damages and loss on account of such delinquent payment.
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<PAGE> 62
15. DEFAULT AND ACCELERATION. It is hereby expressly agreed that should
default occur in any payment of principal or interest stipulated, or should any
other Event of Default occur, then, and in any such event, the outstanding
principal balance of the indebtedness evidenced hereby, and any other sums
advanced hereunder or under the Loan Documents (hereinafter defined), together
with all accrued and unpaid interest, at the option of Holder and without notice
to Maker except as otherwise provided herein or in the Loan Documents, shall at
once become due and payable and may be collected forthwith, regardless of the
stipulated date of maturity. Interest shall accrue at the applicable Default
Rate from maturity, or sooner following the occurrence of a default hereunder
and after the expiration date of any period provided for the curing of such
default and for so long as such default continues, regardless of whether or not
there has been an acceleration of the indebtedness evidenced hereby as set forth
herein. All such interest at the Default Rate shall be paid at the time of and
as a condition precedent to the curing of any such default should Maker have the
right to cure such default. Time is of the essence of this Note. In the event
this Note, or any part thereof, is collected by or through an attorney-at-law,
Maker agrees to pay all costs of collection including, but not limited to,
reasonable attorneys' fees actually incurred.
16. WAIVERS.
(a) Except as expressly required herein or in the Loan Documents,
presentment for payment, demand, protest and notice of demand, protest and
non-payment and all other notices, except for such notices (if any) of default
provided to be given hereunder or under any of the Loan Documents, are hereby
waived by Maker. No failure to accelerate the debt evidenced hereby by reason of
default hereunder, acceptance of a past due installment, or indulgences granted
from time to time shall be construed (i) as a novation of this Note or as a
reinstatement of the indebtedness evidenced hereby or as a waiver of such right
of acceleration or of the right of Holder thereafter to insist upon strict
compliance with the terms of this Note, or (ii) to prevent the exercise of such
right of acceleration or any other right granted hereunder or by the laws of the
State of Georgia; and Maker hereby expressly waives the benefit of any statute
or rule of law or equity now provided, or which may hereafter be provided, which
would produce a result contrary to or in conflict with the foregoing. No
extension of the time for the payment of this Note or any installment due
hereunder, made by agreement with any person now or hereafter liable for the
payment of this Note, shall operate to release, discharge, modify, change or
affect the original liability of Maker under this Note, either in whole or in
part, unless Holder agrees otherwise in writing. This Note may not be changed
orally, but only by an agreement in writing signed by the party against whom
enforcement of any waiver, change, modification or discharge is sought.
(b) Maker hereby waives and renounces for itself, its heirs, successors
and assigns, all rights to the benefit of any statute of limitations and any
moratorium, reinstatement, marshalling, forbearance, valuation, stay, extension,
redemption, appraisement, exemption and homestead now provided, or which may
hereafter be provided by the Constitution and laws of the United States of
America and of any state thereof, both as to itself and in and to all of its
property, real and personal, against the enforcement and collection of the
obligations evidenced
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by this Note. Maker hereby transfers, conveys and assigns to Holder a sufficient
amount of such homestead or exemption as may be set apart in bankruptcy, to pay
this Note in full, with all costs of collection, and does hereby direct any
trustee in bankruptcy having possession of such homestead or exemption to
deliver to Holder a sufficient amount of property or money set apart as exempt
to pay the indebtedness evidenced hereby, or any renewal thereof, and does
hereby appoint Holder the attorney-in-fact for Maker to claim any and all
homestead exemptions allowed by law.
17. GOVERNING LAW. This Note is intended as a contract under and shall
be construed and enforceable in accordance with the laws of the State of
Georgia.
18. DEFINITIONS. As used herein, the terms "Maker" and "Holder" shall
be deemed to include their respective heirs, successors, legal representatives
and assigns, whether by voluntary action of the parties or by operation of law.
In the event that more than one person, firm or entity is a Maker hereunder,
then all references to "Maker" shall be deemed to refer equally to each of said
persons, firms, or entities, all of whom shall be jointly and severally liable
for all of the obligations of Maker hereunder.
19. LEGAL LIMITATIONS. It is the express intent hereof that the
undersigned not pay and the Holder not receive, directly or indirectly in any
manner whatsoever, interest in excess of that which may be legally paid by the
undersigned under applicable law. In no event, whether by reason of demand for
payment or acceleration of the maturity of the Note or otherwise, shall the
interest contracted for, charged or received by Holder hereunder or otherwise
exceed the maximum amount permissible under applicable law. If, from any
circumstance whatsoever, interest would otherwise be payable to Holder in excess
of the maximum lawful amount permitted under applicable law, the interest
payable to Holder shall be reduced automatically to the maximum amount permitted
under applicable law. If Holder shall ever receive anything of value deemed
interest under applicable law which would apart from this provision be in excess
of the maximum lawful amount, an amount equal to any amount which would have
been excessive interest shall be applied to the reduction of the principal
amount owing on the Note in the inverse order of its maturity and not to the
payment of interest, or if such amount which would have been excessive interest
exceeds the unpaid principal balance of the Note, such excess shall be refunded
to Maker. 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 stated term (including any renewal or extension) of such
indebtedness so that the amount of interest on account of such indebtedness does
not exceed the maximum permitted by applicable law. The provisions of this
paragraph shall control all existing and future agreements between Maker and
Holder.
20. ARBITRATION. Any controversy or claim between or among the parties
hereto including but not limited to those arising out of or relating to this
Note or any related agreements or instruments, including any claim based on or
arising from an alleged tort, shall be determined by binding arbitration in
accordance with the Federal Arbitration Act (or if not applicable, the
applicable state law), the Rules of Practice and Procedure for the Arbitration
of
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Commercial Disputes or Judicial Arbitration and Mediation Services, Inc.
("J.A.M.S."), and the "Special Rules" set forth below. In the event of any
inconsistency, the Special Rules shall control. Judgment upon any arbitration
award may be entered in any court having jurisdiction. Any party to this Note
may bring an action, including a summary or expedited proceeding, to compel
arbitration of any controversy or claim in which this Note applies in any court
having jurisdiction over such action.
21. SPECIAL RULES. The arbitration shall be conducted in the city of
Maker's domicile at the time of this Note's execution and administered by
J.A.M.S., who will appoint an arbitrator; if J.A.M.S. is unable or legally
precluded from administering the arbitration, then the American Arbitration
Association will serve. All arbitration hearings will be commenced within ninety
(90) days of the demand for arbitration; further the arbitrator shall only, upon
a showing of cause, be permitted to extend the commencement of such hearing for
an additional sixty (60) days.
22. RESERVATION OF RIGHTS. Nothing in this Note shall be deemed to (i)
limit the applicability of any otherwise applicable statutes of limitation or
repose and any waivers contained in this Note; or (ii) be a waiver by the Holder
of the protection afforded to it by 12 U.S.C. Section 91 or any substantially
equivalent state law; or (iii) limit the right of the Holder hereto (a) to
exercise self help remedies such as (but not limited to) setoff, or (b) to
foreclose against any real or personal property collateral, or (c) to obtain
from a court provisional or ancillary remedies such as (but not limited to)
injunctive relief, writ of possession or the appointment of a receiver. The
Holder may exercise such self help rights, foreclosure upon such property, or
obtain such provisional or ancillary remedies before, during or after the
pendency of any arbitration proceeding brought pursuant to this Note. Neither
the exercise or self help remedies nor the institution or maintenance of an
action for foreclosure or provisional or ancillary remedies shall constitute a
waiver of the right of any party, including the claimant in such action, to
arbitrate the merits of the controversy or claim occasioning resort to such
remedies. Nothing in this Note shall be deemed to limit the right of Maker to
seek injunctive relief.
23. TITLES. The titles of sections or paragraphs herein are used for
the convenience of the parties only and neither amplify, modify or alter in any
way the provisions of this instrument.
10
<PAGE> 65
IN WITNESS WHEREOF, Maker has executed this Note under seal on the date
first above written.
MAKER:
THE PROFIT RECOVERY GROUP
INTERNATIONAL, INC., a Georgia
corporation
By:
-------------------------------------
Donald E. Ellis, Jr., Senior
Vice President
Attest:
---------------------------------
Clinton McKellar, Jr., Secretary
(CORPORATE SEAL)
11
<PAGE> 1
EXHIBIT 11.1
THE PROFIT RECOVERY GROUP INTERNATIONAL, INC. AND SUBSIDIARIES
STATEMENT RE: COMPUTATION OF NET EARNINGS PER SHARE(1)
(AMOUNTS IN THOUSANDS, EXCEPT PER SHARE DATA)
<TABLE>
<CAPTION>
THREE MONTHS ENDED NINE MONTHS ENDED
SEPTEMBER 30, SEPTEMBER 30,
------------------- -----------------
1997 1996 1997 1996
-------- -------- ------- -------
<S> <C> <C> <C> <C>
Net earnings (pro forma net earnings for nine months ended
September 30, 1996)..................................... $ 3,758 $ 2,742 $ 6,918 $ 4,581
Interest accrued on convertible debt, net of income
taxes(2)................................................ -- -- -- 97
------- ------- ------- -------
Adjusted net earnings (pro forma net
earnings)..................................... $ 3,758 $ 2,742 $ 6,918 $ 4,678
======= ======= ======= =======
Weighted average number of shares outstanding(3).......... 18,278 17,621 18,185 15,810
Weighted average number of common equivalent shares
(computed using the treasury stock method).............. 632 665 535 562
Common shares from convertible debt(2).................... -- -- -- 719
Common equivalent shares from the distribution payable
$(4,875,576) divided by the initial public offering
price of $11.00 per share (and weighted since the
initial public offering)................................ -- -- -- 140
------- ------- ------- -------
Weighted average number of common and common
equivalent shares............................. 18,910 18,286 18,720 17,231
======= ======= ======= =======
Net earnings (pro forma net earnings for nine months ended
September 30, 1996) per common and common equivalent
share................................................... $ .20 $ .15 $ .37 $ .27
======= ======= ======= =======
</TABLE>
- ---------------
(1) All share and per share data has been adjusted to reflect the effect of the
2-for-1 stock split (effected in the form of a stock dividend) at the time
of the March 1996 initial public offering.
(2) Assumes convertible debentures were converted, as a component of the initial
public offering-related reorganization, as of the beginning of the period
and the related interest expense, net of income taxes, is added back to pro
forma net earnings.
(3) Assumes number of shares outstanding, after giving effect to the initial
public offering-related reorganization, as of the beginning of the period.
<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND>
THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM THE
FINANCIAL STATEMENTS OF THE PROFIT RECOVERY GROUP INTERNATIONAL, INC. FOR THE
NINE MONTH PERIOD ENDED SEPTEMBER 30, 1997 AND IS QUALIFIED IN ITS ENTIRETY BY
REFERENCE TO SUCH FINANCIAL STATEMENTS.
</LEGEND>
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> 9-MOS
<FISCAL-YEAR-END> DEC-31-1997
<PERIOD-START> JAN-01-1997
<PERIOD-END> SEP-30-1997
<CASH> 12,231
<SECURITIES> 0
<RECEIVABLES> 47,461
<ALLOWANCES> 0
<INVENTORY> 0
<CURRENT-ASSETS> 60,984
<PP&E> 12,895
<DEPRECIATION> 4,314
<TOTAL-ASSETS> 81,246
<CURRENT-LIABILITIES> 27,197
<BONDS> 707
0
0
<COMMON> 18
<OTHER-SE> 51,061
<TOTAL-LIABILITY-AND-EQUITY> 81,246
<SALES> 0
<TOTAL-REVENUES> 76,445
<CGS> 0
<TOTAL-COSTS> 39,553
<OTHER-EXPENSES> 25,709
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> (132)
<INCOME-PRETAX> 11,315
<INCOME-TAX> 4,397
<INCOME-CONTINUING> 6,918
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 6,918
<EPS-PRIMARY> .37
<EPS-DILUTED> .37
</TABLE>
