EXHIBIT 10.3
SUBORDINATION AGREEMENT
THIS SUBORDINATION AGREEMENT ("Agreement") is made this 27 day of
August, 2002, by and among PRG-Schultz International, Inc., a Georgia
corporation ("PRGX"), and Berkshire Fund V, Limited Partnership, a Massachusetts
limited partnership and Berkshire Investors LLC, a Massachusetts limited
liability company (collectively with their permitted assignees, "Berkshire") and
Schultz PRG Liquidating Investments, Ltd., a Texas limited partnership ("LP").
W I T N E S S E T H:
WHEREAS, on the date hereof, LP granted to PRGX an option (the
"Option") to purchase 1,446,168 shares of Common Stock of PRGX ("Option Shares")
pursuant to that certain First Option Agreement of even date herewith ("Option
Agreement");
WHEREAS, on the date hereof, Berkshire loaned $12,610,584.96 to LP as
evidenced by secured promissory notes of even date herewith ("Notes") and, as
security for its payment obligations under the Notes, the LP has granted a
security interest in and pledged the Option Shares (hereafter, the "Pledged
Shares") to Berkshire, pursuant to Pledge Agreements of even date herewith
("Pledge Agreements");
WHEREAS, on the date hereof, the LP and its affiliates sold an
aggregate of 4,338,507 shares of PRGX Common Stock to affiliates of Berkshire;
WHEREAS, PRGX has granted registration rights to Berkshire with respect
to shares of PRGX Common Stock pursuant to a registration rights agreement,
without which Berkshire would not have acquired the 4,338,507 PRGX Shares
referred to above;
NOW THEREFORE, in consideration of the premises and other good and
valuable consideration, the receipt and adequacy of which are hereby
acknowledged, the parties hereto hereby agree as follows:
1. Berkshire's right to realize upon the Pledged Shares upon an Event
of Default under the Pledge Agreements and/or the Notes shall be subordinate to
the rights of PRGX to such Pledged Shares (but not to the proceeds thereof)
under the Option Agreement.
2. Berkshire hereby agrees (i) that until the expiration of the Option
Agreement it will take no action with respect to the Pledged Shares or any
portion thereof pursuant to the Pledge Agreements, nor will it take any action
against the LP to interfere with or impair PRGX's ability to obtain full right,
title, and interest in the Pledged Shares or any portion thereof pursuant to the
exercise of the Option Agreement and purchase of the Pledged Shares thereunder
and (ii) that, upon the full exercise of the Option under the Option Agreement,
the Pledge Agreements will be cancelled and terminated.
3. Upon repayment of the Notes in whole or in part by LP to Berkshire
in accordance with Section 3.1 of the Notes, Berkshire shall release the number
of Pledged Shares relating to such repayment to the LP, as agent on behalf of
the parties to deliver such shares to PRGX. In the event an Event of Default
occurs (as defined in the Notes) and is continuing, and notice
thereof is given to PRGX prior to payment under the Option Agreement, PRGX
shall, if it exercises the Option, hold the Purchase Price therefor in trust for
the benefit of Berkshire and/or LP in accordance with the terms of the Option
Agreement. The parties hereto hereby acknowledge that PRGX shall have no
liability to any party on account of its failure to disburse the Purchase Price
for the Pledged Shares in the event of any dispute as to whom is entitled to
receive such Purchase Price. In such event, PRGX shall have the right to retain
the funds and disburse them (a) in accordance with joint instructions from
Berkshire and LP, (b) in accordance with the final order of a court of competent
jurisdiction, or (c) by deposit by PRGX of the Purchase Price for the Pledged
Shares with said court, pending a final decision of such controversy. The
parties hereto further agree that PRGX shall not be liable for failure of the
depository and shall only be liable otherwise in the event of its gross
negligence or willful misconduct.
4. COLLECTION OF PROCEEDS. Nothing herein contained shall limit or
restrict the right of Berkshire to collect any proceeds paid to LP upon the
exercise of the Option Agreement.
5. MISCELLANEOUS.
(A) GOVERNING LAW. THIS AGREEMENT AND ALL RIGHTS AND OBLIGATIONS OF THE
PARTIES HERETO SHALL BE GOVERNED, CONSTRUED AND INTERPRETED IN ACCORDANCE WITH
THE LAWS OF THE STATE OF DELAWARE WITHOUT GIVING EFFECT TO PRINCIPLES OF
CONFLICTS OF LAW.
(B) MODIFICATIONS. No modification of or amendment to this Agreement,
nor any waiver or any rights under this Agreement, shall be effective unless in
writing signed by all of the parties to this Agreement. The failure by any party
to enforce any rights under this Agreement shall not be construed as a waiver of
any rights of such party.
(C) NOTICES. All notices, requests, claims, demands and other
communications hereunder shall be in writing and shall be deemed to have been
duly given if delivered personally, telecopied (with confirmation of receipt),
delivered by nationally-recognized overnight express service or sent by
registered or certified mail (postage prepaid, return receipt requested) to the
parties at the following addresses:
If to Berkshire, to:
Berkshire Partners LLC
One Boston Place
Boston, MA 02108-4401
Telephone: (617) 227-0050
Telecopy: (617) 227-6105
Attention: Ross M. Jones
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With a copy to:
Ropes & Gray
One International Place
Boston, MA 02110
Telephone: (617) 951-7000
Telecopy: (617) 951-7050
Attention: David C. Chapin, Esq.
Jane D. Goldstein, Esq.
If to the PRGX, to:
PRG-Schultz International, Inc.
2300 Windy Ridge Parkway
Suite 100 North
Atlanta, GA 30339-8426
Telephone: (770) 779-3051
Telecopy: (770) 779-3034
Attention: Clinton McKellar, Jr.
Senior Vice President and General Counsel
With a copy to:
Arnall Golden Gregory LLP
1201 W. Peachtree Street, Suite 2800
Atlanta, GA 30309-3400
Telephone: 404 (873)-8700
Telecopy: 404 (873)-8701
Attention: Jonathan Golden
If to LP: Schultz PRG Liquidating Investments, Ltd
9241 LBJ Freeway
Dallas, Texas 75243
Attention: Howard Schultz
Telefax: (972) 690-7564
With a copy to:
Malouf, Lynch, Jackson & Swinson
600 Preston Commons East
8115 Preston Road
Dallas, Texas 75225
Attention: Curtis Swinson, Esq.
Telefax: (214) 273-0567
or to such other address as the person to whom notice is to be given may have
previously furnished to the other in writing in the manner set forth above,
provided that notice of a change of address shall be deemed given only upon
receipt.
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(D) COUNTERPARTS. This Agreement may be executed in two or more
counterparts, each of which shall be deemed an original and all of which
together shall constitute one instrument.
(E) SUCCESSORS AND ASSIGNS. The rights and benefits of this Agreement
shall inure to the benefit of, and be enforceable by PRGX's and Berkshire's
respective successors and assigns and any assignee of the Notes held by
Berkshire shall be bound by this Agreement.
(F) SPECIFIC PERFORMANCE. Without limiting the rights of each party
hereto to pursue all other legal and equitable rights available to such party
for the other parties' failure to perform their obligations under this
Agreement, the parties hereto acknowledge and agree that the remedy at law for
any failure to perform their obligations hereunder would be inadequate and that
each of them, respectively, shall be entitled to specific performance,
injunctive relief or other equitable remedies in the event of any such failure.
(G) FURTHER ASSURANCES. PRGX and Berkshire agree to execute and deliver
such other documents, certificates, agreements and other writings and to take
such other actions as may be reasonably necessary or desirable in order to
implement the transactions contemplated by this Agreement and the transfer of
any shares of PRGX Common Stock under that certain Agreement dated as of the
date hereof between Berkshire and Blum Strategic Partners II, LP.
(H) TERMINATION. This Agreement will terminate upon the earlier of the
expiration of the Option Agreement or indefeasible payment of the Notes by LP in
accordance with the terms thereof.
(I) CAPITALIZED TERMS. Capitalized terms defined in the Note and not
otherwise defined herein shall have the meanings set forth in the Note.
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IN WITNESS WHEREOF, the parties have executed this Agreement as of the
day and year first above written.
PRG-SCHULTZ INTERNATIONAL, INC.
By: /s/ Clinton McKellar, Jr.
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Name: Clinton McKellar, Jr.
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Its: General Counsel and Secretary
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BERKSHIRE FUND V, LIMITED PARTNERSHIP
By: Fifth Berkshire
Associates LLC
Its: General Partner
By: /s/ Ross M. Jones
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Name: Ross M. Jones
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Its: Managing Director
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BERKSHIRE INVESTORS LLC
By: /s/ Ross M. Jones
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Name: Ross M. Jones
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Its: Managing Director
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SCHULTZ PRG LIQUIDATING
INVESTMENTS, LTD.
By: SCHULTZ PRG LIQUIDATING
INVESTMENTS GP, LLC
Its: General Partner
By: /s/ Andy Schultz
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Name: Andy Schultz, Vice President
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