FORBEARANCE AGREEMENT
This FORBEARANCE AGREEMENT (this "Agreement") is entered into as of
November 8, 2005, between and among PRG-SCHULTZ USA, INC., a Georgia corporation
(the "Borrower"), PRG-SCHULTZ INTERNATIONAL, INC., a Georgia corporation
("Parent"), each of the Domestic Subsidiaries of the Parent (such Domestic
Subsidiaries, together with the Parent, individually a "Guarantor" and
collectively the "Guarantors"), and BANK OF AMERICA, N.A. (the "Lender").
Capitalized terms used herein but not otherwise defined shall have the meanings
set forth, or incorporated, in the Credit Agreement (defined below).
RECITALS
A. The Borrower, the Parent, the Guarantors and the Lender are parties to
that certain Amended and Restated Credit Agreement dated as of November 30, 2004
(as amended and otherwise modified from time to time, the "Credit Agreement").
B. The Borrower has reported that (i) certain Events of Default exist under
the Credit Agreement arising from (a) the Borrower's failure to comply with the
financial covenants set forth in Section 7.11 of the Credit Agreement as of the
fiscal quarter ending September 30, 2005, (b) the Borrower's failure to provide
written notice to the Lender of the incorporation of PRG-Schultz Europe, Inc.
(the "New Subsidiary") within 45 days after such incorporation as required under
Section 7.12(a) of the Credit Agreement, (c) the Borrower's failure to cause the
New Subsidiary to execute a Joinder Agreement as required under Section 7.12(a)
of the Credit Agreement, (d) the Borrower's failure to cause 100% of the Capital
Stock of the New Subsidiary to be delivered and pledged to the lender as
required under Section 7.12(a) of the Credit Agreement, (e) the Borrower's
failure to deliver to the Lender copies of the changes to the articles of
incorporation of The Profit Recovery Group Switzerland, Inc. and PRG-Schultz
Norway, Inc. (collectively, the "Name Change Subsidiaries") as required under
Section 8.10 of the Credit Agreement and (f) the Borrower's default under
Section 9.1(d) of the Credit Agreement resulting from the Borrower's failure to
provide the notices required under the Security Agreement in connection with the
corporate activities described above (collectively, the "Existing Events of
Default"), and (ii) the Borrower anticipates certain additional Events of
Default may arise under the Credit Agreement or other Credit Documents as a
result of (a) the Borrower's failure to comply with the financial covenants set
forth in Section 7.11 of the Credit Agreement as of the fiscal quarter ending
December 31, 2005, and (b) the Parent's potential failure to make the interest
payment due in respect of the Subordinated Debt on November 28, 2005 (the
"Anticipated Defaults" and, together with the Existing Events of Default, the
"Acknowledged Events of Default").
C. The Borrower has reported that it may borrow up to $10,000,000 on a
subordinated basis (the "Subordinated Loan"), with a portion of the proceeds
thereof to be used to fund the payment of interest due in respect of the
Subordinated Debt on or about November 28, 2005 (the "November Interest
Payment") and the remaining proceeds to be used for general working capital
purposes.
D. The Borrower has requested that the Lender agree to (i) forbear from
exercising any rights and remedies arising from the Acknowledged Events of
Default until March 31, 2006 and (ii) consent to the incurrence of the
Subordinated Loan.
E. The Lender has agreed to do so, but only pursuant to the terms and
conditions set forth herein.
NOW, THEREFORE, in consideration of the promises and the mutual covenants
hereinafter contained, and for other good and valuable consideration, the
receipt and sufficiency of which are hereby acknowledged, the parties hereto,
intending to be legally bound, agree as follows:
1. Estoppel, Acknowledgement and Reaffirmation. As of November 2, 2005, the
total outstanding principal amount of Revolving Loans was not less than
$14,200,000, which constitutes a valid and subsisting obligation of the Credit
Parties under the Credit Documents that is not subject to any credits, offsets,
defenses, claims, counterclaims or adjustments of any kind. Each of the Credit
Parties hereby acknowledges its respective Credit Party Obligations under the
Credit Documents and reaffirms that each of the Liens and security interests
created and granted in or pursuant to the Credit Documents are valid and
subsisting and that this Agreement shall in no manner impair or otherwise
adversely affect such Credit Party Obligations, Liens or security interests.
2. Forbearance. Subject to the terms and conditions set forth herein, the
Lender agrees that from and after the Forbearance Effective Date (as defined
below) it shall, until the occurrence of a Forbearance Termination Event (as
defined below), forbear from exercising any right or remedy under the Credit
Documents (including without limitation the right to cease making Revolving
Loans) or applicable law, but only to the extent that such right or remedy
arises exclusively as a result of the occurrence of the Acknowledged Events of
Default; provided, however, that the foregoing shall not otherwise affect (i)
the Lender's right to effect a "Payment Blockage Period" (as defined in the
Indenture) with respect to the Subordinated Debt (except to the extent that the
November Interest Payment is funded entirely with proceeds of the Subordinated
Loan) or (ii) any other rights the Lender may have against the holder of the
Subordinated Debt; provided, further, that the Lender shall be free to exercise
any or all of its rights and remedies under the Credit Documents after the
occurrence of a Forbearance Termination Event.
3. Forbearance Termination Event. Nothing set forth herein or contemplated
hereby is intended to constitute an agreement by the Lender to forbear from
exercising any of the rights and remedies available to it under the Credit
Agreement, the other Credit Documents, or applicable law (all of which rights
and remedies are hereby expressly reserved by the Lender) upon or after the
occurrence of a Forbearance Termination Event. As used herein, a "Forbearance
Termination Event" shall mean the occurrence of any of the following: (a) any
Default or Event of Default under the Credit Documents other than the
Acknowledged Events of Default, (b) a breach by the Credit Parties of any of the
provisions of this Agreement, and (c) March 31, 2006.
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4. One-Time Overadvance. The Lender agrees, notwithstanding the definition
of Borrowing Base set forth in the Credit Agreement but subject to all other
terms and conditions of the Credit Agreement, that it shall, on any one occasion
prior to the occurrence of a Forbearance Termination Event, make Revolving Loans
to the Borrower in an amount up to $600,000 in excess of the Borrowing Base to
the extent such funds are necessary for general working capital purposes (an
"Overadvance"); provided, that the Borrower shall have delivered the UK
Receivables Documentation (as defined below) prior to the request for such
Overadvance. An Overadvance shall be available to the Borrower on only one
occasion and the Borrower shall repay such Overadvance within thirty (30) days
thereafter, so that at such time the Revolving Obligations outstanding at such
time do not exceed the Borrowing Base. The failure by the Borrower to repay such
Overadvance as and when required hereunder shall constitute an immediate Event
of Default, irrespective of any otherwise applicable grace period.
5. Consent to Subordinated Loan. The Lender agrees that neither (a) the
Borrower's incurrence of up to $10,000,000 of Indebtedness in connection with
the Subordinated Loan, nor (b) its failure to pay the Lender 100% of the Net
Cash Proceeds thereof as required under Section 3.3(b)(iv) of the Credit
Agreement shall constitute an Event of Default under the Credit Agreement;
provided, that (x) the proceeds of the Subordinated Loan are used to make the
November Interest Payment and for general working capital purposes, and (y) the
repayment of such Subordinated Loan is subordinated to repayment in full of the
Credit Party Obligations on terms and conditions acceptable to the Lender in its
sole discretion.
6. Interim Financial Covenants. The Borrower shall (a) cause Adjusted
Consolidated EBITDA for the fiscal quarter ending December 31, 2005 to be not
less than $1, and (b) deliver, on or before January 31, 2006, a certificate of
an Executive Officer certifying as to its Adjusted Consolidated EBITDA
(determined on an unaudited basis) for the fiscal quarter ending December 31,
2005 together with such supporting documentation as may be reasonably requested
by the Lender in connection therewith. For purposes of this covenant, "Adjusted
Consolidated EBITDA" shall mean for any period Consolidated EBITDA plus, to the
extent deducted in calculation Consolidated EBITDA, (i) all noncash,
nonrecurring charges incurred by the Parent and its Subsidiaries during such
period and (ii) all cash restructuring charges (an amount not to exceed
$1,800,000 in the aggregate) incurred by the Parent and its Subsidiaries during
such period.
7. Refinancing Loan. On or before December 23, 2005, the Borrower shall
deliver to the Lender a copy of a bona fide commitment letter, subject only to
customary terms and conditions, from a recognized institutional lender to make a
loan (a "Refinancing Loan") to the Borrower sufficient in amount as to fully
satisfy the Revolving Obligations on or before March 31, 2006. To the extent
such commitment for a Refinancing Loan requires the Borrower to obtain
additional capital or incur additional subordinated debt, the Borrower shall, on
or before December 23, 2005, supply the Lender with a copy of a bona fide
commitment letter, subject only to customary terms and conditions, from a third
party capable of performing, for the provision of such additional capital or
subordinated debt sufficient to satisfy such requirement.
8. Post-Closing Deliveries. On or before November 9, 2005, the Borrower
shall deliver to the Lender the following documents:
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(a) all deliveries required under Section 7.12(a) of the Credit
Agreement with respect to the New Subsidiary; and
(b) all deliveries required under Section 8.10 of the Credit Agreement
with respect to each Name Change Subsidiary.
9. Notice Prior to Payment of Subordinated Debt. The Borrower hereby agrees
to provide the Lender with not less than seven (7) Business Days' prior written
notice before making any payment with respect to the Subordinated Debt.
10. UK Receivables. As soon as practicable but in any event on or before
December 31, 2005, the Borrower shall (i) cause all accounts receivable arising
from the operations of the Borrower, its Subsidiaries or its Affiliate,
PRG-Schultz UK Ltd. in the United Kingdom (the "UK Receivables") to be pledged
to the Lender as collateral for the Credit Party Obligations pursuant to
documentation satisfactory to the Lender, (ii) execute such other documents or
instruments (including, without limitation, a guaranty by any such Subsidiaries
or Affiliate of the Credit Party Obligations, limited in amount to the value of
the UK Receivables) as may be reasonably requested by the Lender in connection
with such pledge to ensure that the Lender has a first priority perfected
security interest in such UK Receivables (collectively, the "UK Receivables
Documentation").
11. Forbearance Fee. In consideration of the Lender's willingness to enter
this Agreement, the Borrower shall pay to the Lender a nonrefundable fee in the
amount of $100,000 (the "Forbearance Fee"), which Forbearance Fee shall be due
and payable on the effective date of this Agreement.
12. Expenses. Upon demand therefor, the Borrower shall pay all reasonable
out-of-pocket expenses incurred by the Lender (including without limitation the
reasonable fees and out-of-pocket expenses of counsel) in connection with or
related to the negotiation, drafting, and execution of this Agreement and the
transactions contemplated hereby.
13. Conditions Precedent. As conditions precedent to the effectiveness of
this Agreement:
(a) the Lender shall have received counterparts of this Agreement duly
executed by the Credit Parties;
(b) the Lender shall have received the Forbearance Fee; and
(c) the Borrower shall have reimbursed the Lender for any unreimbursed
fees and expenses of its counsel, Moore & Van Allen PLLC incurred through
November 7, 2005 in the amount of $17,000.
The date on which each of the foregoing conditions precedent have been satisfied
being referred to herein as the "Forbearance Effective Date".
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14. No Waiver. Nothing herein is or shall be construed to be a waiver of
the Acknowledged Events of Default, or any other Default or Event of Default
that may exist under the Credit Documents. Except as expressly modified or
limited hereby, the terms and conditions of the Credit Documents remain in full
force and effect.
15. Representations and Warranties. Each of the Credit Parties hereby
represents and warrants to the Lender that:
(a) after giving effect to this Agreement, other than the Acknowledged
Events of Default, no Default or Event of Default exists under the Credit
Documents; and
(b) (i) the execution, delivery and performance by the Credit Parties
of this Agreement are within the Credit Parties' corporate powers and have
been duly authorized by all necessary corporate action on the part of the
Credit Parties, (ii) subject to the effect of bankruptcy, insolvency,
reorganization, arrangement, moratorium or other similar laws relating to
or affecting creditors' rights (including, without limitation, preference
and fraudulent conveyance or transfer laws), this Agreement constitutes a
legal, valid and binding obligation of the Credit Parties enforceable
against the Credit Parties in accordance with its terms and (iii) neither
this Agreement, nor the execution, delivery or performance by the Credit
Parties hereof (A) violates any law or regulation, or any order or decree
of any court or governmental authority, (B) conflicts with or results in
the breach or termination of, constitutes a default under or accelerates
any performance required by, any material indenture, mortgage, deed of
trust, lease, agreement or other instrument to which the Credit Parties are
a party or by which the Credit Parties or any of their property is bound,
or (C) results in the creation or imposition of any lien upon any of the
Collateral (as defined under the Security Agreement).
16. Release. In consideration of the willingness of the Lender to enter
into this Agreement, the Credit Parties hereby release the Lender and its
officers, employees, representatives, counsel, subsidiaries, affiliates,
trustees and directors, from any and all actions, causes of action, claims,
demands, damages and liabilities of whatever kind or nature, in law or in
equity, now known or unknown, suspected or unsuspected relating to or arising
under the Credit Documents, excluding any ongoing obligations the Lender may
have pursuant to the Credit Documents.
17. Further Assurances. The parties hereto each agree to execute and
deliver, or to cause to be executed and delivered, all such instruments as they
may reasonably request to effectuate the intent and purposes, and to carry out
the terms, of this Agreement.
18. Governing Law. THIS AGREEMENT AND THE RIGHTS AND OBLIGATIONS OF THE
PARTIES HEREUNDER SHALL BE GOVERNED BY, AND CONSTRUED IN ACCORDANCE WITH, THE
INTERNAL LAW OF THE STATE OF GEORGIA (WITHOUT REGARD TO CONFLICTS OF LAW
PROVISIONS THEREOF).
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19. Miscellaneous.
(a) This Agreement shall be binding on and shall inure to the benefit
of the Borrower, the Guarantors, the Lender and their respective successors
and permitted assigns. The terms and provisions of this Agreement are for
the purpose of defining the relative rights and obligations of the
Borrower, the Guarantors and the Lender with respect to the transactions
contemplated hereby and there shall be no third party beneficiaries of any
of the terms and provisions of this Agreement.
(b) Section headings in this Agreement are included herein for
convenience of reference only and shall not constitute a part of this
Agreement for any other purpose.
(c) Wherever possible, each provision of this Agreement shall be
interpreted in such a manner as to be effective and valid under applicable
law, but if any provision of this Agreement shall be prohibited by or
invalid under applicable law, such provision shall be ineffective to the
extent of such prohibition or invalidity, without invalidating the
remainder of such provision or the remaining provisions of this Agreement.
(d) Except as otherwise provided in this Agreement, if any provision
contained in this Agreement is in conflict with, or inconsistent with, any
provision in the Credit Documents, the provision contained in this
Agreement shall govern and control.
(e) This Agreement may be executed in any number of separate
counterparts, each of which shall collectively and separately constitute
one agreement. Delivery of an executed counterpart of this Agreement by
telecopy shall be effective as an original and shall constitute a
representation that an original shall be delivered to the Lender.
(f) This Agreement and the documents executed in connection herewith
shall be deemed Credit Documents executed pursuant to the Credit Agreement
and the other Credit Documents and shall (unless otherwise expressly
indicated therein) be construed, administered and applied in accordance
with the terms and provisions of the Credit Agreement and the other Credit
Documents.
20. Entirety. This Agreement and the Credit Documents embody the entire
agreement between the parties and supersede all prior agreements and
understandings, if any, relating to the subject matter hereof. This Agreement
and the Credit Documents represent the final agreement between the parties and
may not be contradicted by evidence of prior, contemporaneous or subsequent oral
agreements of the parties.
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IN WITNESS WHEREOF, this Agreement has been duly executed as of the date
first written above.
BORROWER: PRG-SCHULTZ USA, INC.,
a Georgia corporation
By: /s/
----------------------------------------
Name: James E. Moylan, Jr.
Title: Executive Vice President - Finance,
Chief Financial Officer and Treasurer
GUARANTORS: PRG-SCHULTZ INTERNATIONAL, INC.,
a Georgia corporation
By: /s/
----------------------------------------
Name: James E. Moylan, Jr.
Title: Executive Vice President - Finance,
Chief Financial Officer and Treasurer
PRGFS, INC.,
PRGLS, INC.,
each a Delaware corporation
By: /s/
----------------------------------------
Name: James E. Moylan, Jr.
Title: Executive Vice President - Finance
PRGRS, INC., a Delaware corporation
By: /s/
----------------------------------------
Name: James E. Moylan, Jr.
Title: E.V.P.- Finance
GUARANTORS: THE PROFIT RECOVERY GROUP ASIA, INC.,
PRG-SCHULTZ CANADA, INC.,
THE PROFIT RECOVERY GROUP NEW ZEALAND,
INC.,
THE PROFIT RECOVERY GROUP NETHERLANDS,
INC.,
THE PROFIT RECOVERY GROUP MEXICO, INC.,
PRG-SCHULTZ FRANCE, INC.,
PRG-SCHULTZ AUSTRALIA, INC.,
PRG-SCHULTZ BELGIUM, INC.,
PRG-SCHULTZ CHILE, INC.,
THE PROFIT RECOVERY GROUP GERMANY, INC.,
PRG INTERNATIONAL, INC.,
PRG-SCHULTZ SWITZERLAND, INC.,
THE PROFIT RECOVERY GROUP SOUTH AFRICA,
INC.,
THE PROFIT RECOVERY GROUP SPAIN, INC.,
THE PROFIT RECOVERY GROUP ITALY, INC.,
PRG-SCHULTZ SCANDINAVIA, INC.,
PRG-SCHULTZ PORTUGAL, INC.,
PRG-SCHULTZ JAPAN, INC.,
THE PROFIT RECOVERY GROUP COSTA RICA,
INC.,
PRG-SCHULTZ PUERTO RICO, INC.,
PRG USA, INC.,
PRG-SCHULTZ EUROPE, INC.,
each a Georgia corporation
By: /s/
--------------------------------------
Name: James E. Moylan, Jr.
Title: Executive Vice President - Finance,
Chief Financial Officer and
Treasurer
HS&A ACQUISITION - UK, INC.,
a Texas corporation
By: /s/
--------------------------------------
Name: James E. Moylan, Jr.
Title: Executive Vice President - Finance,
Chief Financial Officer and
Treasurer
LENDER: BANK OF AMERICA, N.A.
By: /s/
------------------------------------
Name: Joseph M. Martens
Title: Senior Vice President