-----BEGIN PRIVACY-ENHANCED MESSAGE----- Proc-Type: 2001,MIC-CLEAR Originator-Name: webmaster@www.sec.gov Originator-Key-Asymmetric: MFgwCgYEVQgBAQICAf8DSgAwRwJAW2sNKK9AVtBzYZmr6aGjlWyK3XmZv3dTINen TWSM7vrzLADbmYQaionwg5sDW3P6oaM5D3tdezXMm7z1T+B+twIDAQAB MIC-Info: RSA-MD5,RSA, UhVZjTvEQ3rRxfkHLp9LbWINGVv2zFsmaxeO8iayLw934azQVxQ2Hn2jgs09MCmh x8Z6X4dg9cYsiEH+thmbfw== 0000914062-06-000312.txt : 20060515 0000914062-06-000312.hdr.sgml : 20060515 20060515172846 ACCESSION NUMBER: 0000914062-06-000312 CONFORMED SUBMISSION TYPE: 10-Q PUBLIC DOCUMENT COUNT: 10 CONFORMED PERIOD OF REPORT: 20060331 FILED AS OF DATE: 20060515 DATE AS OF CHANGE: 20060515 FILER: COMPANY DATA: COMPANY CONFORMED NAME: PRG SCHULTZ INTERNATIONAL INC CENTRAL INDEX KEY: 0001007330 STANDARD INDUSTRIAL CLASSIFICATION: SERVICES-ENGINEERING, ACCOUNTING, RESEARCH, MANAGEMENT [8700] IRS NUMBER: 582213805 STATE OF INCORPORATION: GA FISCAL YEAR END: 1231 FILING VALUES: FORM TYPE: 10-Q SEC ACT: 1934 Act SEC FILE NUMBER: 000-28000 FILM NUMBER: 06843074 BUSINESS ADDRESS: STREET 1: 600 GALLERIA PARKWAY STREET 2: STE 100 CITY: ATLANTA STATE: GA ZIP: 30339-5949 BUSINESS PHONE: 7707793311 MAIL ADDRESS: STREET 1: 600 GALLERIA PARKWAY STREET 2: STE 100 CITY: ATLANTA STATE: GA ZIP: 30339-5949 FORMER COMPANY: FORMER CONFORMED NAME: PROFIT RECOVERY GROUP INTERNATIONAL INC DATE OF NAME CHANGE: 19960207 10-Q 1 prg10q33106.txt FORM 10-Q ================================================================================ UNITED STATES SECURITIES AND EXCHANGE COMMISSION WASHINGTON, D.C. 20549 ------------------- FORM 10-Q ------------------- (MARK ONE) [X] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(D) OF THE SECURITIES EXCHANGE ACT OF 1934 FOR THE QUARTERLY PERIOD ENDED MARCH 31, 2006 OR [ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(D) OF THE SECURITIES EXCHANGE ACT OF 1934 FOR THE TRANSITION PERIOD FROM __________ TO ____________ COMMISSION FILE NUMBER 0-28000 --------------- PRG-SCHULTZ INTERNATIONAL, INC. (Exact name of registrant as specified in its charter) GEORGIA 58-2213805 (State or other jurisdiction of (I.R.S. Employer incorporation or organization) Identification No.) 600 GALLERIA PARKWAY 30339-5986 SUITE 100 (Zip Code) ATLANTA, GEORGIA (Address of principal executive offices) REGISTRANT'S TELEPHONE NUMBER, INCLUDING AREA CODE: (770) 779-3900 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 [_] Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, or a non-accelerated filer. See definition of "accelerated filer and large accelerated filer" in Rule 12b-2 of the Exchange Act. (Check One): [_] Large accelerated filer [X] Accelerated filer [_] Non-accelerated filer Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Act). Yes |_| No |X| Common shares of the registrant outstanding at April 30, 2006 were 63,588,944. PRG-SCHULTZ INTERNATIONAL, INC. FORM 10-Q FOR THE QUARTER ENDED MARCH 31, 2006 INDEX
PAGE NO. PART I. Financial Information Item 1. Financial Statements (Unaudited).......................................................1 Condensed Consolidated Statements of Operations for the Three Months Ended 1 March 31, 2006 and 2005............................................................ Condensed Consolidated Balance Sheets as of March 31, 2006 and December 31, 2005.......2 Condensed Consolidated Statements of Cash Flows for the Three Months Ended 3 March 31, 2006 and 2005............................................................ Notes to Condensed Consolidated Financial Statements...................................4 Item 2. Management's Discussion and Analysis of Financial Condition and Results of 14 Operations......................................................................... Item 3. Quantitative and Qualitative Disclosures About Market Risk.............................28 Item 4. Controls and Procedures................................................................28 PART II. Other Information Item 1. Legal Proceedings......................................................................30 Item 1A. Risk Factors...........................................................................30 Item 2. Unregistered Sales of Equity Securities and Use of Proceeds............................30 Item 3. Defaults Upon Senior Securities........................................................30 Item 4. Submission of Matters to a Vote of Security Holders....................................30 Item 5. Other Information......................................................................30 Item 6. Exhibits...............................................................................31 Signatures....................................................................................................33
PART I. FINANCIAL INFORMATION ITEM 1. FINANCIAL STATEMENTS (UNAUDITED) PRG-SCHULTZ INTERNATIONAL, INC. AND SUBSIDIARIES CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS (UNAUDITED) (IN THOUSANDS, EXCEPT PER SHARE DATA)
THREE MONTHS ENDED MARCH 31, --------------------------------- 2006 2005 -------------- --------------- Revenues...................................................................... $ 65,538 $ 75,147 Cost of revenues.............................................................. 46,279 48,595 -------------- --------------- Gross margin........................................................... 19,259 26,552 Selling, general and administrative expenses.................................. 15,872 28,578 Operational restructuring expense (Note H) ................................... 408 -- -------------- --------------- Operating income (loss).................................................... 2,979 (2,026) -------------- --------------- Interest expense, net......................................................... (2,543) (1,810) Loss on financial restructuring (Note G)...................................... (10,129) -- -------------- --------------- Loss from continuing operations before income taxes and discontinued operations............................................................. (9,693) (3,836) Income taxes.................................................................. 650 687 -------------- --------------- Loss from continuing operations before discontinued operations.............................................................. (10,343) (4,523) Discontinued operations (Note B): Earnings (loss) from discontinued operations............................... 49 (373) -------------- --------------- Net loss............................................................. $ (10,294) $ (4,896) ============== =============== Basic and diluted earnings (loss) per share: Loss from continuing operations before discontinued operations............. $ (0.17) $ (0.07) Discontinued operations.................................................... -- (0.01) -------------- --------------- Net loss............................................................. $ (0.17) $ (0.08) ============== =============== Weighted-average shares outstanding: Basic...................................................................... 62,113 61,976 ============== =============== Diluted.................................................................... 62,113 61,976 ============== ===============
See accompanying Notes to Condensed Consolidated Financial Statements. 1 PRG-SCHULTZ INTERNATIONAL, INC. AND SUBSIDIARIES CONDENSED CONSOLIDATED BALANCE SHEETS (UNAUDITED) (IN THOUSANDS, EXCEPT PER SHARE DATA)
MARCH 31, DECEMBER 31, 2006 2005 ------------- --------------- ASSETS Current assets: Cash and cash equivalents (Note F)..................................................... $ 18,265 $ 11,848 Restricted cash ....................................................................... 3,495 3,096 Receivables: Contract receivables, less allowances of $2,297 in 2006 and $2,717 in 2005........... Billed.......................................................................... 32,852 43,591 Unbilled........................................................................ 9,193 9,608 ------------- --------------- 42,045 53,199 Employee advances and miscellaneous receivables, less allowances of $2,796 in 2006 and $2,974 in 2005................................................................. 2,400 2,737 ------------- --------------- Total receivables............................................................... 44,445 55,936 ------------- --------------- Funds held for client obligations...................................................... 31,701 32,479 Prepaid expenses and other current assets.............................................. 3,561 3,113 Deferred income taxes ................................................................. -- 67 ------------- --------------- Total current assets............................................................ 101,467 106,539 ------------- --------------- Property and equipment, at cost............................................................ 82,366 81,779 Less accumulated depreciation and amortization......................................... (67,055) (64,326) ------------- --------------- Property and equipment, net..................................................... 15,311 17,453 ------------- --------------- Goodwill................................................................................. 4,600 4,600 Intangible assets, less accumulated amortization of $5,800 in 2006 and $5,453 in 2005.... 24,100 24,447 Unbilled receivables..................................................................... 2,460 2,789 Deferred income taxes.................................................................... 534 530 Other assets............................................................................. 10,669 5,704 ------------- --------------- $ 159,141 $ 162,062 ============= =============== LIABILITIES AND SHAREHOLDERS' EQUITY (DEFICIT) Current liabilities: Obligations for client payables........................................................ $ 31,701 $ 32,479 Accounts payable and accrued expenses.................................................. 21,690 22,362 Accrued payroll and related expenses................................................... 35,058 44,031 Refund liabilities..................................................................... 10,981 11,741 Deferred revenue....................................................................... 4,958 4,583 Convertible notes, net of unamortized discount of $3 in 2006 and $4 in 2005 (Note G).............................................................................. 467 466 ------------- --------------- Total current liabilities....................................................... 104,855 115,662 Convertible notes, net of unamortized discount of $929 in 2005 (Note G)................... -- 123,601 Senior notes, including unamortized premium of $5,321 in 2006 (Note G)...................... 43,017 -- Senior convertible notes, net of unamortized discount of $9,076 in 2006 (Note G).......... 65,095 -- Other debt obligations (Note G)........................................................... 25,000 16,800 Deferred compensation..................................................................... 990 1,388 Refund liabilities........................................................................ 1,799 1,785 Other long-term liabilities............................................................... 5,135 5,191 ------------- --------------- Total liabilities...................................................................... 245,891 264,427 ------------- --------------- Mandatorily redeemable participating preferred stock (Note G)............................. 14,987 -- Shareholders' equity (deficit) (Notes C and G): Common stock, no par value; $.001 stated value per share. Authorized 200,000,000 shares; issued 67,895,844 shares in 2006 and 67,876,832 shares in 2005.............. 68 68 Additional paid-in capital............................................................. 505,675 494,826 Accumulated deficit.................................................................... (561,013) (550,719) Accumulated other comprehensive income................................................. 2,243 2,400 Treasury stock, at cost; 5,764,525 shares in 2006 and 2005............................. (48,710) (48,710) Unamortized portion of restricted stock compensation expense........................... -- (230) ------------- --------------- Total shareholders' equity (deficit)............................................. (101,737) (102,365) ------------- --------------- Commitments and contingencies (Note H)................................................... $ 159,141 $ 162,062 ============= ===============
See accompanying Notes to Condensed Consolidated Financial Statements. 2 PRG-SCHULTZ INTERNATIONAL, INC. AND SUBSIDIARIES CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS (UNAUDITED) (IN THOUSANDS)
THREE MONTHS ENDED MARCH 31, ------------------------------- 2006 2005 -------------- ------------- Cash flows from operating activities: Net loss...................................................................... $ (10,294) $ (4,896) (Earnings) loss from discontinued operations.................................. (49) 373 -------------- ------------- Loss from continuing operations............................................... (10,343) (4,523) Adjustments to reconcile loss from continuing operations to net cash provided by (used in) operating activities: Loss on financial restructuring............................................ 10,129 - Depreciation and amortization.............................................. 2,856 3,937 Amortization of stock and stock option compensation expense................ 367 69 Amortization of debt discounts and deferred costs.......................... 245 169 Gain on sale of property, plant and equipment.............................. (6) (3) Deferred income taxes...................................................... 63 - Income tax benefit relating to stock option exercises...................... - 1 Changes in assets and liabilities: Restricted cash.......................................................... (334) (27) Billed receivables....................................................... 11,298 12,582 Unbilled receivables..................................................... 744 834 Prepaid expenses and other current assets................................ (412) (1,535) Other assets............................................................. 1,556 (237) Accounts payable and accrued expenses.................................... 844 (2,618) Accrued payroll and related expenses..................................... (9,202) (6,808) Refund liability......................................................... (746) (1,000) Deferred revenue......................................................... 290 (1,910) Deferred compensation expense............................................ (398) (817) Other long-term liabilities.............................................. (57) (293) -------------- ------------- Net cash provided by (used in) operating activities.................. 6,894 (2,179) -------------- ------------- Cash flows from investing activities: Purchases of property and equipment, net of sale proceeds..................... (302) (1,906) -------------- ------------- Net cash used in investing activities................................ (302) (1,906) -------------- ------------- Cash flows from financing activities: Net borrowings of debt........................................................ 8,200 6,300 Issuance costs of preferred stock............................................. (1,281) - Payments for deferred loan cost............................................... (7,170) - Net proceeds from common stock issuances...................................... - 692 -------------- ------------- Net cash provided by (used in) financing activities.................. (251) 6,992 -------------- ------------- Cash flows from discontinued operations: Operating cash flows........................................................ (430) (471) Investing cash flows....................................................... 485 234 -------------- ------------- Net cash provided by (used in) discontinued operations......... 55 (237) -------------- ------------- Effect of exchange rates on cash and cash equivalents........................... 21 (649) -------------- ------------- Net increase in cash and cash equivalents............................ 6,417 2,021 Cash and cash equivalents at beginning of period................................ 11,848 12,596 -------------- ------------- Cash and cash equivalents at end of period...................................... $ 18,265 $ 14,617 ============== ============= Supplemental disclosure of cash flow information: Cash paid during the period for interest...................................... $ 310 $ 189 ============== ============= Cash paid during the period for income taxes, net of refunds.................. $ 386 $ 196 ============== =============
See accompanying Notes to Condensed Consolidated Financial Statements. 3 NOTE A - BASIS OF PRESENTATION The accompanying Condensed Consolidated Financial Statements (Unaudited) of PRG-Schultz International, Inc. and its wholly owned subsidiaries (the "Company") have been prepared in accordance with accounting principles generally accepted in the United States of America for interim financial information and with the instructions for Form 10-Q and Article 10 of Regulation S-X. Accordingly, they do not include all of the information and footnotes required by accounting principles generally accepted in the United States of America 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-month period ended March 31, 2006 are not necessarily indicative of the results that may be expected for the year ending December 31, 2006. Disclosures included herein pertain to the Company's continuing operations unless otherwise noted. For further information, refer to the Consolidated Financial Statements and Footnotes thereto included in the Company's Form 10-K for the year ended December 31, 2005. STOCK-BASED COMPENSATION In December 2004, the Financial Accounting Standards Board ("FASB") issued Statement of Financial Accounting Standards ("SFAS") No. 123(R), "Share-Based Payment." This pronouncement amended SFAS No. 123, "Accounting for Stock-Based Compensation," and superseded Accounting Principles Board ("APB") Opinion No. 25, "Accounting for Stock Issued to Employees." SFAS No. 123(R) requires that companies account for awards of equity instruments issued to employees under the fair value method of accounting and recognize such amounts in their statements of operations. The Company adopted SFAS No. 123(R) on January 1, 2006, using the modified prospective method and, accordingly, has not restated the consolidated statements of operations for periods prior to January 1, 2006. Under SFAS No. 123(R), the Company is required to measure compensation cost for all stock-based awards at fair value on the date of grant and recognize compensation expense in its consolidated statements of operations over the service period that the awards are expected to vest. The Company recognizes compensation expense over the indicated vesting periods using the straight-line method. Prior to January 1, 2006, the Company accounted for stock-based compensation, as permitted by SFAS No. 123, "Accounting for Stock-Based Compensation," under the intrinsic value method described in APB Opinion No. 25, "Accounting for Stock Issued to Employees," and related interpretations. Under the intrinsic value method, no stock-based employee compensation cost is recorded when the exercise price is equal to, or higher than, the market value of the underlying common stock on the date of grant. In accordance with APB Opinion No. 25 guidance, no stock-based compensation expense was recognized for three month period ended March 31, 2005 except for compensation amounts relating to grants of shares of non-vested stock (see Note C). 4 The following table illustrates the effect on net loss and net loss per share if the Company had applied the fair value recognition provisions of SFAS No. 123, "Accounting for Stock-Based Compensation," to stock-based employee compensation, using the straight-line method, for periods prior to January 1, 2006 (in thousands, except for pro forma net loss per share information):
THREE MONTHS ENDED MARCH 31, 2005 -------------------------- Net earnings (loss) before pro forma effect of compensation expense recognition provisions of SFAS No. 123.............................. $ (4,896) Pro forma effect of compensation expense recognition provisions of SFAS No. 123, net of income tax effect of $(650).................... (1,003) ----------- Pro forma net earnings (loss).......................................... $ (5,899) Net earnings (loss) per share: Basic and diluted - as reported..................................... $ (0.08) =========== Basic and diluted - pro forma....................................... $ (0.10) ===========
In applying the treasury stock method to determine the dilutive impact of common stock equivalents, the calculation is performed in steps with the impact of each type of dilutive security calculated separately. For the three-month period ended March 31, 2005, 16.1 million shares related to the convertible notes were excluded from the computation of pro forma diluted earnings per share calculated using the treasury stock method, due to their antidilutive effect. The fair value of all time-vested options is estimated as of the date of grant using the Black-Scholes option valuation model. The Black-Scholes option valuation model was developed for use in estimating the fair value of traded options that have no vesting restrictions and are fully transferable. The fair value of market condition options (also known as path-dependent options) are estimated as of their date of grant using more complex option valuation models such as binomial lattice and the Monte Carlo simulations. The Company chose to use the Monte Carlo simulations for its valuations. Option valuation models require the input of highly subjective assumptions, including the expected stock price volatility. Because the Company's employee stock options have characteristics significantly different from those of traded options and because changes in the subjective input assumptions can materially affect the fair value estimate, it is management's opinion that existing models do not necessarily provide a reliable single measure of the fair value of the Company's employee stock options. NOTE B - DISCONTINUED OPERATIONS On October 30, 2001, the Company consummated the sale of its Logistics Management Services business to Platinum Equity, a firm specializing in acquiring and operating technology organizations and technology-enabled service companies worldwide. The transaction yielded initial gross sale proceeds, as adjusted, of approximately $9.5 million with up to an additional $3.0 million payable in the form of a revenue-based royalty over four years, of which $2.2 million had been cumulatively received through March 31, 2006. During the first quarters of 2006 and 2005, the Company recognized a gain on the sale of discontinued operations of approximately $0.3 and $0.2 million, respectively, related to the receipt of a portion of the revenue-based royalty from the sale of the Logistics Management Services business in October 2001, as adjusted for certain expenses accrued as part of the estimated loss on the sale of that business. During the fourth quarter of 2005, the Company classified its Channel Revenue and Airline businesses, and the Accounts Payable Service business units in South Africa and Japan, as discontinued operations. The Company's Consolidated Financial Statements have been reclassified to reflect the results of these businesses as discontinued operations for all periods presented. The carrying values of the assets and liabilities relating to these business units are considered insignificant for all periods presented. 5 On January 11, 2006, the Company consummated the sale of Channel Revenue. Channel Revenue was sold for $0.4 million in cash to Outsource Recovery, Inc. Outsource Recovery also undertook to pay the Company an amount equal to 12% of gross revenues received by Outsource Recovery during each of the calendar years 2006, 2007, 2008 and 2009 with respect to Channel Revenue. The Company recognized a first quarter 2006 gain on disposal of approximately $0.3 million. The South Africa and Japan Accounts Payable Services business units were closed during 2005; the Airline business unit continues to be held for sale as of March 31, 2006. During the first quarter of 2006, the Company recognized a loss of $0.1 million relating to the anticipated sale of the Airline business unit. Earnings (loss) from discontinued operations for the three months ended March 31, 2006 and 2005 as reported in the accompanying Condensed Consolidated Statements of Operations includes the gains and losses related to the sales of discontinued business units as well as operating losses of $0.4 million and $0.6 million, respectively, related to the operations of these discontinued units. The net tax effect on earnings (loss) from discontinued operations is not significant. NOTE C - STOCK COMPENSATION PLANS Prior to January 1, 2006, the Company had two stock compensation plans: (1) the Stock Incentive Plan and (2) the HSA Acquisition Stock Option Plan; and an employee stock purchase plan. The Company's Stock Incentive Plan, as amended, authorized the grant of options or other stock based awards, with respect to up to 12,375,000 shares of the Company's common stock to key employees, directors, consultants and advisors. The majority of options granted through March 31, 2006 had 5-year terms and vested and became fully exercisable on a ratable basis over four or five years of continued employment. The Company's HSA Acquisition Stock Option Plan, as amended, authorized the grant of options to purchase 1,083,846 shares of the Company's common stock to certain key employees and advisors who were participants in the 1999 Howard Schultz & Associates International Stock Option Plan. The options had 5-year terms and vested upon and became fully exercisable upon issuance. No additional options can be issued under this plan. Effective May 15, 1997, the Company established an employee stock purchase plan (the "Plan") pursuant to Section 423 of the Internal Revenue Code of 1986, as amended. The Plan covered 2,625,000 shares of the Company's common stock, which could be authorized unissued shares, or shares reacquired through private purchase or purchases on the open market. Under the Plan, employees could contribute up to 10% of their compensation towards the semiannual purchase of stock. The employee's purchase price was 85 percent of the fair market price on the first business day of the purchase period. The Company was not required to recognize compensation expense related to this Plan. Effective December 31, 2005, the Company terminated the Plan. During 2005, the Company also made inducement option grants outside of its stock compensation plans to Mr. James B McCurry and Mr. David A. Cole. Mr. McCurry's options were granted in two traunches, the first of which, pertaining to 500,000 shares, vested in December 2005. The second traunche is subject to specific performance criteria and becomes exercisable in three tiers of 500,000 shares each, as follows: Tier 1 will become exercisable at any time after July 29, 2006, if the closing market price per share of the Company's Common Stock is $4.50 or higher for 45 consecutive trading days after July 29, 2006. Tier 2 will become exercisable at any time after July 29, 2007, if the closing market price per share of the Company's Common Stock is $6.50 or higher for 45 consecutive trading days after July 29, 2007. Tier 3 will become exercisable at any time after July 29, 2008, if the closing market price per share of the Company's Common Stock is $8.00 or higher for 45 consecutive trading days after July 29, 2008. These options expire July 29, 2012 and have an exercise price equal to the closing price of the common stock on NASDAQ on July 29, 2005. Mr. Cole also received a non-qualified option to purchase 450,000 shares of the common stock of the Company at an exercise price of $3.16 per share, equal to the closing price of the Company's common stock on the Nasdaq National Market on July 29, 2005. The terms of Mr. Cole's option grant are as follows: the time-vesting tranche of his option, representing the right to purchase 150,000 shares, will become exercisable on the earlier of the 2006 annual meeting of shareholders and June 30, 2006, and the performance-vesting tranche, representing the balance of his option, will be exercisable as follows: (a) Tier 1, representing the right to purchase 100,000 shares, will become exercisable at any time after the earlier of the 2006 annual meeting of shareholders and June 30, 2006 (the "2006 Vesting Date"), if the Company attains a specified target Common Stock trading price for 45 consecutive trading days after the 2006 Vesting Date; (b) Tier 2, representing the right to purchase an additional 100,000 shares, will become exercisable at any time after the 2006 Vesting Date, if the Company attains a specified target Common Stock trading price for 45 consecutive trading days after the 2006 Vesting Date; and (c) Tier 3, representing the right to purchase an additional 100,000 shares, will become exercisable at any time after the earlier of the 2007 annual meeting of shareholders and June 30, 2007 (the "2007 Vesting Date"), if the Company attains a specified target Common Stock trading price for 45 consecutive trading days after the 2007 Vesting Date. Unless sooner terminated, the option will expire on July 29, 2012. 6 On December 15, 2005, the Company's Compensation Committee of the Board of Directors authorized the immediate vesting of all outstanding unvested time-vesting options that had option prices that were out of the money as of such date (the "underwater" stock options). This action accelerated the vesting of 2,637,616 options as of November 30, 2005. The accelerated options had option prices that ranged from $3.16 per share to $17.25 per share and a weighted average option price per share of $4.97. The Compensation Committee's decision to accelerate the vesting of these "underwater" stock options was made primarily to avoid recognizing compensation expense associated with these stock options in future financial statements upon the Company's adoption of SFAS No. 123(R), "Share Based Payment." By adopting FAS 123(R) the Company estimates that the annual savings will be approximately $2.4 million, $1.2 million and $0.5 million in 2006, 2007, and 2008 respectively. During the three-month period ended March 31, 2006, the stock-based charge in connection with the expensing of stock options was $0.3 million. As of March 31, 2006, there was $2.8 million of unrecognized stock-based compensation cost related to stock options which is expected to be recognized over a weighted average period of 2.32 years. No forfeitures occurred during the three-month period ended March 31, 2006. The following table summarizes information about stock options outstanding at March 31, 2006:
NUMBER WEIGHTED- WEIGHTED- AGGREGATE OF SHARES AVERAGE AVERAGE INTRINSIC SUBJECT REMAINING EXERCISE VALUE TO OPTION LIFE PRICE (IN MILLIONS) -------------- -------------- -------------- --------------- Exercisable 6,896,803 2.21 years $ 8.60 $ -- Nonvested 2,300,000 6.39 years $ 2.53 $ 0.2 -------------- --------------- Total 9,196,803 3.26 years $ 7.08 $ 0.2 ============== ===============
The weighted-average grant date fair value of nonvested options outstanding as of March 31, 2006 was $1.62. Non-vested stock awards representing 240,000 shares in the aggregate of the Company's common stock were granted to six of the Company's officers in February 2005 and 25,000 shares were granted to a senior management employee in March 2005. The total 265,000 restricted shares granted were subject to service-based cliff vesting. The restricted awards vest three years following the date of the grant, subject to early vesting upon occurrence of certain events including a change of control, death, disability or involuntary termination of employment without cause. The restricted awards will be forfeited if the recipient voluntarily terminates his or her employment with the Company (or a subsidiary, affiliate or successor thereof) prior to vesting. The shares are generally nontransferable until vesting. During the vesting period, the award recipients will be entitled to receive dividends with respect to the escrowed shares and to vote the shares. As of March 31, 2006, former employees had cumulatively forfeited 200,000 shares of the restricted common stock. Over the remaining life of the remaining 65,000 restricted stock awards, the Company will recognize $203 thousand in compensation expense before any future forfeitures. The Company recognized $27 thousand of compensation expense related to these stock awards in 2005. NOTE D - OPERATING SEGMENTS AND RELATED INFORMATION The Company has two reportable operating segments, Accounts Payable Services (including the Channel Revenue business) and Meridian VAT Reclaim ("Meridian"). ACCOUNTS PAYABLE SERVICES The Accounts Payable Services segment consists of services that entail the review of client accounts payable disbursements to identify and recover overpayments. This operating segment includes accounts payable services provided to retailers and wholesale distributors (the Company's historical client base) and accounts payable services provided to various other types of business entities. The Accounts Payable Services segment conducts business in North America, Latin America, Europe, Australia and Asia. MERIDIAN VAT RECLAIM Meridian is based in Ireland and specializes in the recovery of value-added taxes ("VAT") paid on business expenses for corporate clients located throughout the world. Acting as an agent on behalf of its clients, Meridian submits claims for refunds of VAT paid on business expenses incurred primarily in European Union countries. Meridian provides a fully outsourced service dealing with all aspects of the VAT reclaim process, from the provision of audit and invoice retrieval services to the preparation and submission of VAT claims and the subsequent collection of refunds from the relevant VAT authorities. CORPORATE SUPPORT In addition to the segments noted above, the Company includes the unallocated portion of corporate selling, general and administrative expenses not specifically attributable to Accounts Payable Services or Meridian in the category referred to as corporate support. 7 The Company evaluates the performance of its operating segments based upon revenues and operating income. The Company does not have any inter-segment revenues. Segment information for the three months ended March 31, 2006 and 2005 is as follows (in thousands):
ACCOUNTS PAYABLE CORPORATE SERVICES MERIDIAN SUPPORT TOTAL ----------- ---------- ----------- ----------- THREE MONTHS ENDED MARCH 31, 2006 Revenues........................................... $ 55,715 $ 9,823 $ -- $ 65,538 Operating income (loss)......................... 6,962 1,468 5,451) 2,979 THREE MONTHS ENDED MARCH 31, 2005 Revenues........................................... $ 64,926 $ 10,221 $ -- $ 75,147 Operating income (loss)......................... 5,420 2,686 (10,132) (2,026)
NOTE E - COMPREHENSIVE INCOME The Company applies the provisions of SFAS No. 130, Reporting Comprehensive Income. This Statement establishes items that are required to be recognized under accounting standards as components of comprehensive income. SFAS No. 130 requires, among other things, that an enterprise report a total for comprehensive income in condensed financial statements of interim periods issued to shareholders. For the three-month periods ended March 31, 2006 and 2005, the Company's consolidated comprehensive income (loss) was $(10.7) million and $(4.9) million, respectively. The difference between consolidated comprehensive income (loss), as disclosed here, and traditionally determined consolidated net earnings, as set forth on the accompanying Condensed Consolidated Statements of Operations (Unaudited), results from foreign currency translation adjustments. NOTE F - CASH EQUIVALENTS Cash and cash equivalents include all cash balances and highly liquid investments with an initial maturity of three months or less. The Company places its temporary cash investments with high credit quality financial institutions. At times, certain investments may be in excess of the Federal Deposit Insurance Corporation insurance limit. At March 31, 2006 and December 31, 2005, the Company had cash and cash equivalents of $18.3 million and $11.8 million, respectively, of which cash equivalents represent approximately $1.0 million and $1.7 million, respectively. The Company did not have any cash equivalents at U.S. banks at March 31, 2006 or December 31, 2005. At March 31, 2006 and December 31, 2005, certain of the Company's international subsidiaries held $1.0 million and $1.7 million, respectively, in temporary investments, the majority of which were at banks in Latin America and the United Kingdom. NOTE G - FINANCIAL RESTRUCTURING EXCHANGE OF CONVERTIBLE NOTES On March 17, 2006, the Company completed an exchange offer for its $125 million of 4.75% Convertible Subordinated Notes due 2006. As a result of the Exchange Offer, virtually all of the outstanding convertible notes were exchanged for (a) $51.6 million in principal amount of 11.0% Senior Notes Due 2011, (b) $59.8 million in principal amount of 10.0% Senior Convertible Notes Due 2011, and (c) 124,530 shares, or $14.9 million liquidation preference, of 9.0% Senior Series A Convertible Participating Preferred Stock. 8 The material terms of these new securities include: o The new senior notes bear interest at 11%, payable semiannually in cash, and are callable at 104% of face in year 1, 102% in year 2, and at par in years 3 through 5. o The new senior convertible notes bear interest at 10%, payable semiannually in cash or in kind, at the option of the Company. The new senior convertible notes are convertible at the option of the holders, upon satisfaction of certain conditions, (and in certain circumstances, at the option of the Company) into shares of new series B preferred stock having a 10% annual dividend and a liquidation preference equal to the principal amount of notes converted. Dividends on the new series B preferred stock may be paid in cash or in kind, at the option of the Company. Each $1,000 of face amount of such notes is convertible into approximately 2.083 shares of new series B convertible preferred stock; provided that upon the occurrence of certain events, including approval by the shareholders of an amendment to the Company's Articles of Incorporation to allow sufficient additional shares of common stock to be issued for the conversion, they will be convertible only into common stock at a rate of approximately 1,538 shares per $1,000 principal amount. The new series B preferred stock will be convertible at the option of the holders into shares of common stock at the rate of $0.65 of liquidation preference per share of common stock, subject to certain conditions, including approval by the shareholders of an amendment to the Company's Articles of Incorporation to allow sufficient additional shares of common stock to be issued for the conversion. o The new series A preferred stock has a 9% dividend, payable in cash or in kind, at the option of the Company. The new series A preferred stock is convertible at the option of the holders into shares of common stock at the rate of $0.28405 of liquidation preference per share of common stock. o The series A and series B preferred stock votes with the Company's common stock on most matters requiring shareholder votes. The Company has the right to redeem the new senior convertible notes at par at any time after repayment of the new senior notes, subject to certain conditions, including approval by the shareholders of an amendment to the Company's Articles of Incorporation to allow sufficient additional shares of common stock to be issued for the conversion. The Company also has the right to redeem the new series A and series B preferred stock at the stated liquidation preference at any time after repayment of the new senior notes and the new senior convertible notes. o Both the new senior notes and the new senior convertible notes will mature on the fifth anniversary of issuance. The new series A and series B preferred stock must be redeemed on the fifth anniversary of issuance. The aggregate fair value of the new instruments issued exceeded the book value of the exchanged Convertible Subordinated Notes by $10.3 million. Such amount was recognized as a loss on financial restructuring in the first quarter of 2006. The Company incurred $1.9 million of costs related to the issuance of the new preferred stock. Such amount was charged to additional paid-in capital in the first quarter of 2006. The Company incurred costs of $4.6 million in connection with the issuance of the new senior notes and senior convertible notes. Such amount has been capitalized and will be amortized over the term of the notes. The excess of the fair value of the preferred stock over its stated liquidation (redemption) value was credited to additional paid-in capital. The excesses of the principal balances of the new senior notes and senior convertible notes over their fair values were recorded as note discounts and will be amortized on the interest method over the terms of the notes. NEW SENIOR INDEBTEDNESS On December 23, 2005, the Company entered into a Credit Agreement, Security Agreement and Pledge Agreement with Petrus Securities L.P. and Parkcentral Global Hub Limited (collectively, the "Petrus Entities") and Blum Strategic Partners II GmbH & Co. K.G. and Blum Strategic Partners II, L.P. (collectively, the "Blum Entities"). These agreements evidence a term loan to PRG-Schultz USA 9 Inc., a wholly owned subsidiary of the Company (the "Borrower"), in an aggregate principal amount of $10 million. This loan was repaid upon closing of the new senior credit facility on March 17, 2006. As a part of its financial restructuring, the Company entered into a new senior secured credit facility with Ableco LLC ("Ableco") and The CIT/Group/Business Credit, Inc., a portion of which is being syndicated to the Company's prior bridge financing lenders, the Petrus Entities and the Blum Entities. The new credit facility includes (1) a $25.0 million term loan, and (2) a revolving credit facility that provides for revolving loan borrowings of up to $20 million. No borrowings are currently outstanding under the revolving credit facility. The Borrower, is the primary user under the new senior secured credit facility, and the Company and each of its other existing and subsequent acquired or organized direct and indirect domestic wholly-owned subsidiaries have guaranteed the new facility. The Company's, the Borrower's and all of the Company's other subsidiaries' obligations under the new senior secured credit facility are secured by liens on substantially all of its assets (including the stock of the Company's domestic subsidiaries and two-thirds of the stock of certain of the Company's foreign subsidiaries). The new senior secured credit facility will expire on the fourth anniversary of the closing of the Exchange Offer. The term loan under the new senior secured credit facility will amortize with quarterly payments beginning on the first anniversary of the closing date of $250,000 per quarter for the second year of the facility, and $500,000 per quarter for the third and fourth years of the facility, with the balance due at maturity on the fourth anniversary of closing. The term loan under the new senior secured credit facility may be repaid at the Company's option at any time; provided, that any such pre-payment in the first year shall be subject to a prepayment penalty of 3.0% of the principal amount pre-paid, and pre-payments in the second year shall be subject to a pre-payment penalty of 2.0% of the principal amount pre-paid. The term loan may be pre-paid at any time following the 2nd anniversary of the closing date without penalty. The new senior secured credit facility also provides for certain mandatory repayments, including a portion of the Company's consolidated excess cash flow (which will be based on an adjusted EBITDA calculation), sales of assets and sales of certain debt and equity securities, in each case subject to certain exceptions and reinvestment rights. The Company's ability to borrow under the revolving credit portion of the new senior secured credit facility is limited to a borrowing base of a percentage of its eligible domestic receivables, subject to adjustments. Based on this borrowing base calculation, the Company had approximately $15.0 million of availability under the revolving credit facility at the closing of the exchange offer. The interest on the term loan is based on a floating rate equal to the reserve adjusted London inter-bank offered rate, or LIBOR, plus 8.5% (or, at the Company's option, a published prime lending rate plus 5.5%). The interest rate on outstanding revolving credit loans is based on LIBOR plus 3.75% (or, at the Company's option, a published prime lending rate plus 1.0%). The Company will also pay an unused commitment fee on the revolving credit facility of 0.5%. The new senior secured credit facility also required the payment of commitment fees, closing fees and additional expense reimbursements of approximately $1.1 million at closing. The new senior secured credit facility contains customary representations and warranties, covenants and conditions to borrowing. The new senior secured credit facility also contains a number of financial maintenance and restrictive covenants that are customary for a facility of this type, including without limitation (and subject to certain exceptions and qualifications): maximum capital expenditures (to be measured annually); maximum total debt to EBITDA (to be measured quarterly); minimum EBITDA (to be measured quarterly); minimum fixed charge coverage ratio (to be measured quarterly); provision of financial statements and other customary reporting; notices of litigation, defaults and un-matured defaults with respect to material agreements; compliance with laws, permits and licenses; inspection of properties, books and records; maintenance of insurance; limitations with respect to liens and encumbrances, dividends and retirement of capital stock, guarantees, sale and lease back transactions, consolidations and mergers, investments, capital expenditures, loans and advances, and indebtedness; compliance with pension, environmental and other laws, operating and capitalized leases, and limitations on transactions with affiliates and prepayment of other indebtedness. 10 The new senior secured credit facility contains customary events of default, including non-payment of principal, interest or fees, inaccuracy of representations or warranties in any material respect, failure to comply with covenants, cross-default to certain other indebtedness, loss of lien perfection or priority, material judgments, bankruptcy events and change of ownership or control. The Company incurred $2.6 million of costs related to the issuance of the term loan and revolving loan agreement. Such amount has been capitalized and will be amortized over the term of the indebtedness. NOTE H - COMMITMENTS AND CONTINGENCIES LEGAL PROCEEDINGS Beginning on June 6, 2000, three putative class action lawsuits were filed against the Company and certain of its present and former officers in the United States District Court for the Northern District of Georgia, Atlanta Division. These cases were subsequently consolidated into one proceeding styled: In re Profit Recovery Group International, Inc. Sec. Litig., Civil Action File No. 1:00-CV-1416-CC (the "Securities Class Action Litigation"). On February 8, 2005, the Company entered into a Stipulation of Settlement of the Securities Class Action Litigation. On February 10, 2005, the United States District Court for the Northern District of Georgia, Atlanta Division preliminarily approved the terms of the Settlement. On May 26, 2005, the Court approved the Stipulation of Settlement ("Settlement") entered into by the Company with the Plaintiff's counsel, on behalf of all putative class members, pursuant to which it agreed to settle the consolidated class action for $6.75 million, which payment was made by the insurance carrier for the Company. On April 1, 2003, Fleming Companies, one of the Company's larger U.S. Accounts Payable Services clients at that time, filed for Chapter 11 Bankruptcy Reorganization. During the quarter ended March 31, 2003, the Company received $5.5 million in payments on account from this client. On January 24, 2005, the Company received a demand for preference payments due from the trust representing the client. The demand stated that the trust's calculation of the Company's preferential payments was approximately $2.9 million. The Company disputed the claim. On March 30, 2005, the Company was sued by the Fleming Post-Confirmation Trust ("PCT") in a bankruptcy proceeding of the Fleming Companies in the U.S. Bankruptcy Court for the District of Delaware to recover approximately $5.5 million of alleged preferential payments. The PCT's claims were subsequently amended to add a claim for alleged fraudulent transfers representing approximately $2.0 million in commissions paid to the Company with respect to claims deducted from vendors that the client subsequently re-credited to the vendors. The Company believes that it has valid defenses to the PCT's claims in the proceeding. In December 2005, the PCT offered to settle the case for $2 million. The Company countered with an offer to waive its bankruptcy claim and to pay the PCT $250,000. The PCT rejected the Company's settlement offer, and the litigation is ongoing. In the normal course of business, the Company is involved in and subject to other claims, contractual disputes and other uncertainties. Management, after reviewing with legal counsel all of these actions and proceedings, believes that the aggregate losses, if any, will not have a material adverse effect on the Company's financial position or results of operations. INDEMNIFICATION AND CONSIDERATION CONCERNING CERTAIN FUTURE ASSET IMPAIRMENT ASSESSMENTS The Company's Meridian unit and an unrelated German concern named Deutscher Kraftverkehr Euro Service GmbH & Co. KG ("DKV") are each a 50% owner of a joint venture named Transporters VAT Reclaim Limited ("TVR"). Since neither owner, acting alone, has majority control over TVR, Meridian accounts for its ownership using the equity method of accounting. DKV provides European truck drivers with a credit card that facilitates their fuel purchases. DKV distinguishes itself from its competitors, in part, by providing its customers with an immediate advance refund of the value-added taxes ("VAT") they pay on their fuel purchases. DKV then recovers the VAT from the taxing authorities through the TVR joint venture. Meridian processes the VAT refund on behalf of TVR for which it receives a percentage fee. In April 2000, TVR entered into a financing facility with Barclays Bank plc ("Barclays"), whereby it sold the VAT refund claims to Barclays with full recourse. Effective August 2003, Barclays exercised its contractual rights and unilaterally imposed significantly stricter terms for the facility, including markedly higher costs and a series of stipulated cumulative 11 reductions to the facility's aggregate capacity. TVR repaid all amounts owing to Barclays during March 2004 and terminated the facility during June 2004. As a result of changes to the facility occurring during the second half of 2003, Meridian began experiencing a reduction in the processing fee revenues it derives from TVR as DKV previously transferred certain TVR clients to another VAT service provider. As of December 31, 2004, the transfer of all DKV customer contracts from TVR to another VAT service provider was completed. TVR will continue to process existing claims and collect receivables and pay these to Meridian and DKV in the manner agreed between the parties. Meridian agreed with DKV to commence an orderly and managed closeout of the TVR business. Therefore, Meridian's future revenues from TVR for processing TVR's VAT refunds, and the associated profits therefrom, ceased in October 2004. (Meridian's revenues from TVR were $0.5 million and $2.3 million for the years ended December 31, 2004 and 2003, respectively.) As TVR goes about the orderly wind-down of its business in future periods, it will be receiving VAT refunds from countries, and a portion of such refunds will be paid to Meridian in liquidation of its investment in TVR. If there is a marked deterioration in TVR's future financial condition from its inability to collect refunds from countries, Meridian may be unable to recover some or all of its long-term investment in TVR, which totaled $1.9 million at March 31, 2006 exchange rates and $1.9 million at December 31, 2005 exchange rates. This investment is included in Other Assets on the Company's accompanying Consolidated Balance Sheets. BANK GUARANTEE In July 2003, Meridian entered into a deposit guarantee (the "Guarantee") with Credit Commercial de France ("CCF") in the amount of 4.5 million Euros ($5.7 million at December 31, 2003 exchange rates). The Guarantee served as assurance to VAT authorities in France that Meridian will properly and expeditiously remit all French VAT refunds it receives in its capacity as intermediary and custodian to the appropriate client recipients. The Guarantee was secured by amounts on deposit with CCF equal to the amount of the Guarantee. The annual interest rate earned on this money is 1.0% for 2004. On November 30, 2004, the Guarantee was replaced with a 3.5 million Euro letter of credit. In May 2005, the Guarantee was reduced to 2.5 million Euros and on September 30, 2005 the standby letter of credit was replaced with a 2.5 million Euro ($3.1 million at March 31, 2006 exchange rates) cash deposit with CCF. INDUSTRIAL DEVELOPMENT AUTHORITY GRANTS During the period of May 1993 through September 1999, Meridian received grants from the Industrial Development Authority of Ireland ("IDA") in the sum of 1.4 million Euros ($1.6 million at March 31, 2006 exchange rates). The grants were paid primarily to stimulate the creation of 145 permanent jobs in Ireland. As a condition of the grants, if the number of permanently employed Meridian staff in Ireland falls below 145, then the grants are repayable in full. This contingency expires on September 23, 2007. Meridian currently employs 205 permanent employees in Dublin, Ireland. The European Union ("EU") has currently proposed legislation that will remove the need for suppliers to charge VAT on the supply of services to clients within the EU. The effective date of the proposed legislation is currently unknown. Management estimates that the proposed legislation, if enacted as currently drafted, would eventually have a material adverse impact on Meridian's results of operations from its value-added tax business. If Meridian's results of operations were to decline as a result of the enactment of the proposed legislation, it is possible that the number of permanent employees that Meridian employs in Ireland could fall below 145 prior to September 2007. Should such an event occur, the full amount of the grants previously received by Meridian will need to be repaid to IDA. However, management currently estimates that any impact on employment levels related to a possible change in the EU legislation will not be realized until after September 2007, if ever. As any potential liability related to these grants is not currently determinable, the Company's accompanying Consolidated Statements of Operations do not include any expense related to this matter. Management is monitoring this situation and if it appears probable Meridian's permanent staff in Ireland will fall below 145 and that grants will need to be repaid to IDA, Meridian will be required to recognize an expense at that time. This expense could be material to Meridian's results of operations. 12 RETIREMENT OBLIGATIONS The July 31, 2005 retirements of the Company's former Chairman, President and CEO, John M. Cook, and the Company's former Vice Chairman, John M. Toma, resulted in an obligation to pay retirement benefits of $7.6 million (present value basis) to be paid in monthly cash installments principally over a three-year period, beginning February 1, 2006. Charges of $3.9 million, $1.4 million and $2.3 million had been accrued in 2005, 2004 and 2003 and prior years, respectively, related to these retirement obligations. The March 16, 2006 amended severance agreements with the Company's former Chairman, President and CEO, John M. Cook, and the Company's former Vice Chairman, John M. Toma, call for total cash payments of $7.0 million. The cash payments to Mr. Cook began with a payment of $275,621 in April 2006 and will continue at $91,874 per month for 57 months. The cash payments to Mr. Toma began with a payment of $93,894 in April 2006 and will continue at $31,298 per month for 45 months. Additionally, under the amended separation agreements, beginning on or about February 1, 2007, the Company will reimburse Mr. Cook and Mr. Toma, until each reaches the age of 80, for the cost of health insurance for them and their respective spouses, provided that the reimbursement shall not exceed $25,000 per year (subject to CPI adjustment) for Mr. Cook and $20,000 per year (subject to CPI adjustment) for Mr. Toma. Finally, in April 2006, the Company reimbursed $150,000 to CT Investments, LLC, to defray the fees and expenses of the legal counsel and financial advisors to Messrs. Cook and Toma in connection with the negotiation of amendments to their respective severance agreements. The Company's entering into the amendments to the severance agreements with Messrs. Cook and Toma was a condition precedent to the closing of the Company's exchange offer restructuring its bondholder debt and the closing on its replacement credit facility, both of which took place on March 17, 2006. RESTRUCTURING OBLIGATIONS On August 19, 2005, the Company announced that it had taken the initial step in implementing an expense restructuring plan, necessitated by the Company's declining revenue trend over the previous two and one-half years. Revenues for the years 2002, 2003, 2004 and 2005 were $439.7 million, $367.4 million, $350.6 million and $292.2 million, respectively. With revenues decreasing in 2003, 2004 and 2005, the Company's selling, general and administrative expenses had increased as a percentage of revenue in each period (33.6%, 35.5% and 38.1%, respectively). The expense restructuring plan encompasses exit activities, including reducing the number of clients served, reducing the number of countries in which the Company operates, and terminating employees. On September 30, 2005, the Company's Board of Directors approved the completed restructuring plan and authorized implementation of the plan. The Company expects the operational plan to be fully implemented by June 30, 2006, and the implementation of the operational restructuring plan will result in severance related and other charges of approximately $14.6 million. As of December 31, 2005, the Company recorded an $11.6 million charge related to the restructuring, $10 million of which was for severance pay and benefits costs and $1.6 million of which related to early termination of operating leases. Accordingly, pursuant to SFAS No. 112, Employers' Accounting for Postemployment Benefits, and SFAS No. 88, Employers' Accounting for Settlements and Curtailments of Defined Benefit Pension Plans and for Termination Benefits, the Company recorded expense for severance pay and benefits of $2.0 million and $10.0 million in the three and twelve months ended December 31, 2005, respectively. As of December 31, 2005 the Company had paid out approximately $2.8 million of severance and as of March 31, 2006 a total of $5.6 million of severance had been paid. The Company anticipates that the majority of the remaining payments will be paid out during the remainder of 2006. The restructuring plan includes operating lease exit costs that the Company expects to be incurred. As of December 31, 2005, the Company accrued $1.2 million of early termination costs in accordance with SFAS No. 146, Accounting for Costs Associated with Exit or Disposal Activities. The Company also recorded leasehold improvement impairment charges of $0.4 million related to these leases. The Company did not record any new charges for either early termination costs or leasehold improvements as of March 31, 2006. The Company is presently evaluating which, if any, additional operating leases to exit as part of the restructuring plan. 13 Total ------------ Balance as of December 31, 2005 $ 8,216 Accruals during the year: Quarter ended March 31, 2006 404 Cash payments: Quarter ended March 31, 2006 (3,102) ------------ Non cash impairment charges -- Balance as of March 31, 2006 5,518 ============ ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS INTRODUCTION The Company's revenues are based on specific contracts with its clients. Such contracts generally specify: (a) time periods covered by the audit; (b) nature and extent of audit services to be provided by the Company; (c) the client's duties in assisting and cooperating with the Company; and (d) fees payable to the Company, generally expressed as a specified percentage of the amounts recovered by the client resulting from liability overpayment claims identified. In addition to contractual provisions, most clients also establish specific procedural guidelines that the Company must satisfy prior to submitting claims for client approval. These guidelines are unique to each client and impose specific requirements on the Company, such as adherence to vendor interaction protocols, provision of advance written notification to vendors of forthcoming claims, securing written claim validity concurrence from designated client personnel and, in limited cases, securing written claim validity concurrence from the involved vendors. Approved claims are processed by clients and are generally realized by a cash payment or by a reduction to the vendor's accounts payable balance. The Company generally recognizes revenue on the accrual basis except with respect to its Meridian VAT refunds business ("Meridian") and certain international Accounts Payable Services units where revenue is recognized on the cash basis in accordance with guidance issued by the Securities and Exchange Commission in Staff Accounting Bulletin ("SAB") No. 104, Revenue Recognition. Revenue is generally recognized for a contractually specified percentage of amounts recovered when it has been determined that the client has received economic value (generally through credits taken against existing accounts payable due to the involved vendors or refund checks received from those vendors), and when the following criteria are met: (a) persuasive evidence of an existing contractual arrangement between the Company and the client exists; (b) services have been rendered; (c) the fee billed to the client is fixed or determinable; and (d) collectability is reasonably assured. In certain limited circumstances, the Company will invoice a client prior to meeting all four of these criteria. In those instances, revenue is deferred until all of the criteria are met. Historically, there has been a certain amount of revenue that, even though meeting the requirements of the Company's revenue recognition policy, relates to underlying claims ultimately rejected by the Company's clients' vendors. In that case, the Company's clients may request a refund of such amount. The Company records such refunds as a reduction of revenue. The contingent fee based VAT Reclaim division of the Company's Meridian business, along with certain other international Accounts Payable Services units, recognize revenue on the cash basis in accordance with guidance issued by the Securities and Exchange Commission in Staff Accounting Bulletin ("SAB") No. 104, Revenue Recognition. Based on the guidance in SAB No. 104, Meridian defers recognition of contingent fee revenues to the accounting period in which cash is both received from the foreign governmental agencies reimbursing the value-added tax ("VAT") claims and transferred to Meridian's clients. The Company derives an insignificant amount of revenues on a "fee-for-service" basis where revenue is based upon a flat fee, or fee per hour, or fee per unit of usage. The Company recognizes revenue for these types of services as they are provided and invoiced and when the revenue recognition criteria described above in clauses (a) through (d) have been satisfied. AUDIT CONTRACT FOR STATE OF CALIFORNIA MEDICARE On March 29, 2005, the Company announced that the Centers for Medicare & Medicaid Services ("CMS"), the federal agency that administers the Medicare program, awarded the Company a contract to provide recovery audit services for the State of California's Medicare spending. The three-year contract was effective on March 28, 2005. To fully address the range of payment recovery opportunities, the Company has sub-contracted with Concentra Preferred Systems, the nation's largest provider of specialized cost containment services for the healthcare industry, which will add its clinical experience to the Company's expertise in recovery audit services. The contract was awarded as part of a demonstration program by CMS to recover overpayments through the use of recovery auditing. The Company began to incur capital expenditures and employee compensation costs related to this contract in 2005. Such capital expenditures and employee compensation costs will continue to be incurred in advance of the first revenues to be earned from the 14 contract, expected later in 2006. The Company believes this contract represents a large opportunity in the healthcare recovery audit sector and will be beneficial to the Company's future earnings. Recent progress on the Medicare claims project has been encouraging. OPERATIONAL RESTRUCTURING On August 19, 2005, the Company announced that it had taken the initial step in implementing an expense restructuring plan, necessitated by the Company's declining revenue trend over the previous two and one-half years. Revenues for the years 2002, 2003, 2004 and 2005 were $439.7 million, $367.4 million, $350.6 million and $292.2 million, respectively. With revenues decreasing in 2003, 2004 and 2005, the Company's selling, general and administrative expenses had increased as a percentage of revenue in each period (33.6%, 35.5% and 38.1%, respectively). The expense restructuring plan encompasses exit activities, including reducing the number of clients served, reducing the number of countries in which the Company operates, and terminating employees. On September 30, 2005, the Company's Board of Directors approved the completed restructuring plan and authorized implementation of the plan. Almost all of the planned savings are expected to come in the area of selling, general and administrative expenses and only a small percentage of the Company's auditor staff will be directly impacted by the reductions. The Company implemented the plan and for the year recorded an $11.6 million charge related to the restructuring, $10 million of which was for severance pay and benefits costs and $1.6 million of which related to early termination of operating leases. Accordingly, pursuant to SFAS No. 112, Employers' Accounting for Postemployment Benefits, and SFAS No. 88, Employers' Accounting for Settlements and Curtailments of Defined Benefit Pension Plans and for Termination Benefits, the Company recorded expense for severance pay and benefits of $2.0 million and $10.0 million in the three and twelve months ended December 31, 2005, respectively. As of December 31, 2005 the Company had paid out approximately $2.8 million of severance and as of March 31, 2006 a total of $5.6 million of severance had been paid. The Company anticipates that the majority of the remaining payments will be paid out during the remainder of 2006. The restructuring plan includes operating lease exit costs that the Company expects to be incurred. As of December 31, 2005 the Company accrued $1.2 million of early termination costs in accordance with SFAS No. 146, Accounting for Costs Associated with Exit or Disposal Activities. The Company also recorded leasehold improvement impairment charges of $0.4 million related to these leases. The Company did not record any new charges for either termination of leasehold improvements as of March 31, 2006. The Company is presently evaluating which, if any, additional operating leases to exit as part of the restructuring plan. FINANCIAL RESTRUCTURING On October 19, 2005 the Board of Directors of the Company formed a Special Restructuring Committee to oversee the efforts of the Company, with the assistance of its financial advisor, Rothschild Inc., to restructure the Company's financial obligations, including its obligations under its convertible notes due November 2006, and to improve the Company's liquidity. The Company successfully completed the financial restructuring on March 17, 2006. Pursuant to the financial restructuring, the Company exchanged: o $400 principal amount of its 11.0% Senior Notes Due 2011, plus an additional amount of principal equal to accrued and unpaid interest due on the existing notes held by the tendering holders; o $480 principal amount of its 10.0% Senior Convertible Notes Due 2011 convertible into new 10.0% Senior Series B Convertible Participating Preferred Stock and/or common stock; and o one share, $120 liquidation preference, of its 9.0% Senior Series A Convertible Participating Preferred Stock convertible into common stock; for each $1,000 principal amount of outstanding 4.75% Convertible Subordinated Notes due November 2006. Approximately 99.6% of the aggregate $125 million outstanding convertible notes were tendered for exchange and accepted by the Company. 15 The material terms of these new securities include: o The new senior notes bear interest at 11%, payable semiannually in cash, and are callable at 104% of face in year 1, 102% in year 2, and at par in years 3 through 5. o The new senior convertible notes bear interest at 10%, payable semiannually in cash or in kind, at the option of the Company. The new senior convertible notes are convertible at the option of the holders, upon satisfaction of certain conditions, (and in certain circumstances, at the option of the Company) into shares of new series B preferred stock having a 10% annual dividend and a liquidation preference equal to the principal amount of notes converted. Dividends on the new series B preferred stock may be paid in cash or in kind, at the option of the Company. Each $1,000 of face amount of such notes are convertible into approximately 2.083 shares of new series B convertible preferred stock; provided that upon the occurrence of certain events, including approval by the shareholders of an amendment to the Company's Articles of Incorporation to allow sufficient additional shares of common stock to be issued for the conversion, they will be convertible only into common stock at a rate of approximately 1,538 shares per $1,000 principal amount. The new series B preferred stock is convertible at the option of the holders into shares of common stock at the rate of $0.65 of liquidation preference per share of common stock, subject to certain conditions, including approval by the shareholders of an amendment to the Company's Articles of Incorporation to allow sufficient additional shares of common stock to be issued for the conversion. o The new series A preferred stock has a 9% dividend, payable in cash or in kind, at the option of the Company. The new series A preferred stock is convertible at the option of the holders into shares of common stock at the rate of $0.28405 of liquidation preference per share of common stock. o The series A and series B preferred stock have the right to vote with the Company's common stock on most matters requiring shareholder votes. The Company has the right to redeem the new senior convertible notes at par at any time after repayment of the new senior notes. The Company also has the right to redeem the new series A and series B preferred stock at the stated liquidation preference at any time after repayment of the new senior notes and the new senior convertible notes. o Both the new senior notes and the new senior convertible notes mature on the fifth anniversary of issuance. The new series A and series B preferred stock must be redeemed on the fifth anniversary of issuance. Immediately following the closing of the financial restructuring transactions, the existing common shareholders owned approximately 54% of the equity of the Company. If all the new senior convertible notes had converted into series B preferred stock immediately on completion of the financial restructuring, the existing common shareholders would have owned approximately 30% of the equity of the Company (excluding any potential future dilution from the Company's management incentive plan). As a part of its financial restructuring, the Company also entered into a new senior secured credit facility with Ableco LLC ("Ableco") and The CIT/Group/Business Credit, Inc., a portion of which is being syndicated to the Company's prior bridge financing lenders, Petrus Securities L.P. and Parkcentral Global Hub Limited (collectively, the "Petrus Entities") and Blum Strategic Partners II GmbH & Co. K.G. and Blum Strategic Partners II, L.P. (collectively, the "Blum Entities"). An affiliate of the Blum Entities was a member of the Ad Hoc Committee of holders of the Company's convertible notes due November 2006, with the right to designate one member of the Company's Board of Directors, and together with its affiliates, the Company's largest shareholder. The new credit facility includes (1) a $25.0 million term loan, and (2) a revolving credit facility that provides for revolving loan borrowings of up to $20 million. No borrowings are currently outstanding under the revolving credit facility. PRG-Schultz USA, Inc., the Company's direct wholly-owned subsidiary (the "borrower"), is the primary borrower under the new senior secured credit facility, and the Company and each of its other existing and subsequent acquired or organized direct and indirect domestic wholly-owned subsidiaries have guaranteed the new facility. The borrower's and all of the Company's other subsidiaries' obligations under the new senior secured credit facility are secured by liens on substantially all of the Company's assets (including the stock of our domestic subsidiaries and two-thirds of the stock of certain of our foreign subsidiaries). 16 The new senior secured credit facility will expire on the fourth anniversary of the closing of the exchange offering. The term loan under the new senior secured credit facility will amortize with quarterly payments beginning on the first anniversary of the closing date of $250,000 per quarter for the second year of the facility, and $500,000 per quarter for the third and fourth years of the facility, with the balance due at maturity on the fourth anniversary of closing. The term loan under the new senior secured credit facility may be repaid at the Company's option at any time; provided, that any such pre-payment in the first year shall be subject to a prepayment penalty of 3.0% of the principal amount pre-paid, and pre-payments in the second year shall be subject to a pre-payment penalty of 2.0% of the principal amount pre-paid. The term loan may be pre-paid at any time following the 2nd anniversary of the closing date without penalty. The new senior secured credit facility also provides for certain mandatory repayments, including a portion of our consolidated excess cash flow (which will be based on an adjusted EBITDA calculation), sales of assets and sales of certain debt and equity securities, in each case subject to certain exceptions and reinvestment rights. The Company's ability to borrow revolving loans under the new senior secured credit facility is limited to a borrowing base of a percentage of the Company's eligible domestic receivables, subject to adjustments. Based on this borrowing base calculation, the Company had approximately $15.0 million of availability under the revolving credit facility at March 31, 2006. The interest on the term loan is based on a floating rate equal to the reserve adjusted London inter-bank offered rate, or LIBOR, plus 8.5% (or, at the Company's option, a published prime lending rate plus 5.5%). The interest rate on outstanding revolving credit loans is based on LIBOR plus 3.75% (or, at the Company's option, a published prime lending rate plus 1.0%). The Company will also pay an unused commitment fee on its revolving credit facility of 0.5%. The new senior secured credit facility also required the payment of commitment fees, closing fees and additional expense reimbursements of approximately $1.1 million at closing. The new senior secured credit facility contains customary representations and warranties, covenants and conditions to borrowing. The new senior secured credit facility also contains a number of financial maintenance and restrictive covenants that are customary for a facility of this type, including without limitation (and subject to certain exceptions and qualifications): maximum capital expenditures (to be measured annually); maximum total debt to EBITDA (to be measured quarterly); minimum EBITDA (to be measured quarterly); minimum fixed charge coverage ratio (to be measured quarterly); provision of financial statements and other customary reporting; notices of litigation, defaults and un-matured defaults with respect to material agreements; compliance with laws, permits and licenses; inspection of properties, books and records; maintenance of insurance; limitations with respect to liens and encumbrances, dividends and retirement of capital stock, guarantees, sale and lease back transactions, consolidations and mergers, investments, capital expenditures, loans and advances, and indebtedness; compliance with pension, environmental and other laws, operating and capitalized leases, and limitations on transactions with affiliates and prepayment of other indebtedness. The new senior secured credit facility contains customary events of default, including non-payment of principal, interest or fees, inaccuracy of representations or warranties in any material respect, failure to comply with covenants, cross-default to certain other indebtedness, loss of lien perfection or priority, material judgments, bankruptcy events and change of ownership or control. TRANSACTION COSTS OF FINANCIAL RESTRUCTURING, INCLUDING EXCHANGE OFFER The Company's financial advisor, Rothschild Inc., was compensated with a monthly retainer of $0.1 million in addition to a fee of $1.5 million. In addition, the Company incurred significant legal fees as part of the financial restructuring. The Company paid certain expenses of the Ad Hoc Committee of noteholders, including a monthly retainer of $0.1 million to the Committee's financial advisor. The Company also paid the Ad Hoc Committee's legal fees and financial advisory fees of approximately $1.0 million. In total, the Company incurred approximately $9.7 million of transaction costs, including legal and financial advisory fees, in connection with the exchange offer and the financial restructuring, of which approximately $7.7 million was incurred in the first quarter of 2006. 17 $10 MILLION BRIDGE LOAN On December 23, 2005, the Company entered into a Credit Agreement, Security Agreement and Pledge Agreement with Petrus Securities L.P. and Parkcentral Global Hub Limited (collectively, the "Petrus Entities") and Blum Strategic Partners II GmbH & Co. K.G. and Blum Strategic Partners II, L.P. (collectively, the "Blum Entities"). These agreements evidence a term loan to PRG-Schultz USA Inc., a wholly owned subsidiary of the Company (the "Borrower"), in an aggregate principal amount of $10 million. This loan was repaid upon closing of the new senior credit facility on March 17, 2006. NEW SENIOR INDEBTEDNESS The Company's prior senior credit facility with Bank of America (the "Lender") provided for revolving credit loans up to a maximum amount of $30.0 million, limited by the Company's accounts receivable balances. The prior senior credit facility provided for the availability of Letters of Credit subject to a $10.0 million sub-limit. The prior senior credit facility was retired and replaced by a new senior credit facility on March 17, 2006, in connection with the closing the exchange offer. As a part of its financial restructuring, the Company entered into a new senior secured credit facility with Ableco LLC ("Ableco") and The CIT/Group/Business Credit, Inc., a portion of which is being syndicated to the Company's prior bridge financing lenders, Petrus Securities L.P. and Parkcentral Global Hub Limited (collectively, the "Petrus Entities") and Blum Strategic Partners II GmbH & Co. K.G. and Blum Strategic Partners II, L.P. (collectively, the "Blum Entities"). An affiliate of the Blum Entities was a member of the Ad Hoc Committee of holders of the Company's convertible notes due November 2006, with the right to designate one member of the Company's Board of Directors, and together with its affiliates, the Company's largest shareholder. The new credit facility includes (1) a $25.0 million term loan, and (2) a revolving credit facility that provides for revolving loan borrowings of up to $20 million. No borrowings are currently outstanding under the revolving credit facility. PRG-Schultz USA, Inc., the Company's direct wholly-owned subsidiary, is the primary borrower under the new senior secured credit facility, and it and each of the Company's other existing and subsequent acquired or organized direct and indirect domestic wholly-owned subsidiaries have guaranteed the new facility. The Company's, the borrower's and all of the Company's other subsidiaries' obligations under the new senior secured credit facility are secured by liens on substantially all of the Company's assets (including the stock of the Company's domestic subsidiaries and two-thirds of the stock of certain of the Company's foreign subsidiaries). The new senior secured credit facility will expire on the fourth anniversary of the closing of the exchange offering. The term loan under the new senior secured credit facility will amortize with quarterly payments beginning on the first anniversary of the closing date of $250,000 per quarter for the second year of the facility, and $500,000 per quarter for the third and fourth years of the facility, with the balance due at maturity on the fourth anniversary of closing. The term loan under the new senior secured credit facility may be repaid at our option at any time; provided, that any such pre-payment in the first year shall be subject to a prepayment penalty of 3.0% of the principal amount pre-paid, and pre-payments in the second year shall be subject to a pre-payment penalty of 2.0% of the principal amount pre-paid. The term loan may be pre-paid at any time following the 2nd anniversary of the closing date without penalty. The new senior secured credit facility also provides for certain mandatory repayments, including a portion of our consolidated excess cash flow (which will be based on an adjusted EBITDA calculation), sales of assets and sales of certain debt and equity securities, in each case subject to certain exceptions and reinvestment rights. The Company's ability to borrow revolving loans under the new senior secured credit facility is limited to a borrowing base of a percentage of its eligible domestic receivables, subject to adjustments. Based on this borrowing base calculation, the Company had approximately $15.0 million of availability under the revolving credit facility at the closing of the exchange offer. The interest on the term loan is based on a floating rate equal to the reserve adjusted London inter-bank offered rate, or LIBOR, plus 8.5% (or, at the Company's option, a published prime lending rate plus 5.5%). The interest rate on outstanding revolving credit loans is based on LIBOR plus 3.75% (or, at the Company's option, a published prime lending rate plus 1.0%). The Company will 18 also pay an unused commitment fee on the revolving credit facility of 0.5%. The new senior secured credit facility also required the payment of the lenders' commitment fees, closing fees and additional expense reimbursements of approximately $1.0 million at closing. The new senior secured credit facility contains customary representations and warranties, covenants and conditions to borrowing. The new senior secured credit facility also contains a number of financial maintenance and restrictive covenants that are customary for a facility of this type, including without limitation (and subject to certain exceptions and qualifications): maximum capital expenditures (to be measured annually); maximum total debt to EBITDA (to be measured quarterly); minimum EBITDA (to be measured quarterly); minimum fixed charge coverage ratio (to be measured quarterly); provision of financial statements and other customary reporting; notices of litigation, defaults and un-matured defaults with respect to material agreements; compliance with laws, permits and licenses; inspection of properties, books and records; maintenance of insurance; limitations with respect to liens and encumbrances, dividends and retirement of capital stock, guarantees, sale and lease back transactions, consolidations and mergers, investments, capital expenditures, loans and advances, and indebtedness; compliance with pension, environmental and other laws, operating and capitalized leases, and limitations on transactions with affiliates and prepayment of other indebtedness. The new senior secured credit facility contains customary events of default, including non-payment of principal, interest or fees, inaccuracy of representations or warranties in any material respect, failure to comply with covenants, cross-default to certain other indebtedness, loss of lien perfection or priority, material judgments, bankruptcy events and change of ownership or control. CRITICAL ACCOUNTING POLICIES Except as set forth below with respect to FAS 123(R), the Company's significant accounting policies have been fully described in Note 1 of Notes to Consolidated Financial Statements of the Company's Annual Report on Form 10-K for the year ended December 31, 2005. Certain of these accounting policies are considered "critical" to the portrayal of the Company's financial position and results of operations, as they require the application of significant judgment by management; as a result, they are subject to an inherent degree of uncertainty. These "critical" accounting policies are identified and discussed in the Management's Discussion and Analysis of Financial Condition and Results of Operations section of the Company's Annual Report on Form 10-K for the year ended December 31, 2005. Management bases its estimates and judgments on historical experience and on various other factors that are believed to be reasonable under the circumstances, the results of which form the basis for making judgments about the carrying values of assets and liabilities that are not readily apparent from other sources. Actual results may differ from these estimates under different assumptions or conditions. On an ongoing basis, management evaluates its estimates and judgments, including those considered "critical". The development, selection and evaluation of accounting estimates, including those deemed "critical," and the associated disclosures in this Form 10-Q have been discussed with the Audit Committee of the Board of Directors. In December 2004, the Financial Accounting Standards Board ("FASB") issued Statement of Financial Accounting Standards ("SFAS") No. 123(R), "Share-Based Payment." This pronouncement amended SFAS No. 123, "Accounting for Stock-Based Compensation," and superseded Accounting Principles Board ("APB") Opinion No. 25, "Accounting for Stock Issued to Employees." SFAS No. 123(R) requires that companies account for awards of equity instruments issued to employees under the fair value method of accounting and recognize such amounts in their statements of operations. The Company adopted SFAS No. 123(R) on January 1, 2006, using the modified prospective method and, accordingly, has not restated the consolidated statements of operations for periods prior to January 1, 2006. Under SFAS No. 123(R), the Company is required to measure compensation cost for all stock-based awards at fair value on the date of grant and recognize compensation expense in its consolidated statements of operations over the service period that the awards are expected to vest. The Company recognizes compensation expense over the indicated vesting periods using the straight-line method. Prior to January 1, 2006, the Company accounted for stock-based compensation, as permitted by SFAS No. 123, "Accounting for Stock-Based Compensation," under the intrinsic value method described in APB Opinion No. 25, "Accounting for Stock Issued to Employees," and related interpretations. Under the intrinsic value method, no stock-based employee compensation cost is 19 recorded when the exercise price is equal to, or higher than, the market value of the underlying common stock on the date of grant. In accordance with APB Opinion No. 25 guidance, no stock-based compensation expense was recognized for the three month period ended March 31, 2005 except for compensation amounts relating to grants of shares of restricted stock. The fair value of all time-vested options is estimated as of the date of grant using the Black-Scholes option valuation model. The Black-Scholes option valuation model was developed for use in estimating the fair value of traded options that have no vesting restrictions and are fully transferable. The fair value of market condition options (also known as path-dependent options) are estimated using the Monte Carlo simulations as of their date of grant. Option valuation models require the input of highly subjective assumptions, including the expected stock price volatility. Because the Company's employee stock options have characteristics significantly different from those of traded options and because changes in the subjective input assumptions can materially affect the fair value estimate, it is management's opinion that existing models do not necessarily provide a reliable single measure of the fair value of the Company's employee stock options. RESULTS OF OPERATIONS The following table sets forth the percentage of revenues represented by certain items in the Company's Condensed Consolidated Statements of Operations (Unaudited) for the periods indicated:
THREE MONTHS ENDED MARCH 31, ---------------------------- 2006 2005 ------------ ------------ Revenues............................................................... 100.0% 100.0% Cost of revenues....................................................... 70.6 64.7 ------------ ------------ Gross margin........................................................ 29.4 35.3 Selling, general and administrative expenses........................... 24.2 38.0 Operational restructuring expenses..................................... 0.6 -- ------------ ------------ Operating income (loss)............................................. 4.6 (2.7) Interest expense, net.................................................. (4.0) (2.4) Loss on financial restructuring....................................... (15.8) -- ------------ ------------ Loss from continuing operations before income taxes and discontinued operations...................................................... (15.2) (5.1) Income taxes........................................................... 1.0 0.9 ------------ ------------ Loss from continuing operations before discontinued operations...... (16.2) (6.0) Earnings (loss) from discontinued operations........................ 0.1 (0.5) ------------ ------------ Net earnings (loss)........................................... (16.1)% (6.5)% ============ ============
20 The Company has two reportable operating segments, the Accounts Payable Services segment and Meridian VAT Reclaim. QUARTER ENDED MARCH 31, 2006 COMPARED TO THE CORRESPONDING PERIOD OF THE PRIOR YEAR ACCOUNTS PAYABLE SERVICES Revenues. Accounts Payable Services revenues for the three months ended March 31, 2006 and 2005 were as follows (in millions):
2006 2005 ------------ ------------ Domestic Accounts Payable Services revenue: Retail............................................... $ 31.1 $ 35.5 Commercial........................................... 3.6 4.7 ------------ ------------ 34.7 40.2 International Accounts Payable Services revenue............ 21.0 24.7 ------------ ------------ Total Accounts Payable Services revenue.................. $ 55.7 $ 64.9 ============ ============
For the quarter ended March 31, 2006 compared to the quarter ended March 31, 2005, the Company experienced a decline in total Accounts Payable Services revenues of approximately 14.2%. This trend is consistent with what the Company has been experiencing over the past several years and was primarily attributable to a general reduction in revenue from certain large audits because fewer claims were processed as a result of improved client processes. Revenues decreased as the Company's clients developed and strengthened their own internal audit capabilities as a substitute for the Company's services. Further, the Company's clients made fewer transaction errors as a result of the training and methodologies provided by the Company as part of the Company's accounts payable recovery process. These trends are expected to continue for the foreseeable future, and as a result, revenues from the Accounts Payable Services are expected to continue to decline for the foreseeable future. Revenues from the Company's domestic commercial Accounts Payable Services clients also declined during the first quarter of 2006 compared to the same period of 2005. The Company believes the market for providing disbursement audit services (which typically entail acquisition from the client of limited purchase data and an audit focus on a select few recovery categories) to commercial entities in the United States is reaching maturity with fewer audit starts and lower fee rates due to increasing pricing pressures. In response to the decline in performance for the commercial business, the Company has begun to intentionally reduce the number of commercial clients serviced based on profitability, and this trend is expected to continue. As a result of the foregoing, revenues from domestic commercial Accounts Payable Services are expected to continue to decline for the foreseeable future. Cost of Revenues ("COR"). COR consists principally of commissions paid or payable to the Company's auditors based primarily upon the level of overpayment recoveries, and compensation paid to various types of hourly workers and salaried operational managers. Also included in COR are other direct costs incurred by these personnel, including rental of non-headquarters offices, travel and entertainment, telephone, utilities, maintenance and supplies and clerical assistance. A significant portion of the components comprising COR for the Company's domestic Accounts Payable Services operations are variable and will increase or decrease with increases and decreases in revenues. The COR support bases for domestic retail and domestic commercial operations are not separately distinguishable and are not evaluated by management individually. The Company's international Accounts Payable Services also have a portion of their COR, although less than domestic Accounts Payable Services, that will vary with revenues. The lower variability is due to the predominant use of salaried auditor compensation plans in most emerging-market countries. 21 Accounts Payable Services COR for the three months ended March 31, 2006 and 2005 were as follows (in millions):
2006 2005 ---------- ------------ Domestic Accounts Payable Services COR............ $ 22.9 $ 24.8 International Accounts Payable Services COR....... 16.0 17.5 ---------- ------------ Total Accounts Payable Services COR............ $ 38.9 $ 42.3 ========== ============
The dollar decrease in cost of revenues for the Accounts Payable Services was primarily due to lower revenues, during the first three months of 2006 when compared to the same period of the prior year. On a percentage basis, COR as a percentage of revenues from the Accounts Payable services increased to 69.8% for the three months ended March 31, 2006, up from 65.2% in 2005. The percentage variance is primarily related to the fixed versus variable expense components within this category. Selling, General, and Administrative Expenses ("SG&A"). SG&A expenses include the expenses of sales and marketing activities, information technology services and the corporate data center, human resources, legal, accounting, administration, currency translation, headquarters-related depreciation of property and equipment and amortization of intangibles with finite lives. The SG&A support bases for domestic retail and domestic commercial operations are not separately distinguishable and are not evaluated by management individually. Due to the relatively fixed nature of the Company's SG&A expenses, these expenses as a percentage of revenues can vary markedly period to period based on fluctuations in revenues. Accounts Payable Services SG&A for the three months ended March 31, 2006 and 2005 were as follows (in millions):
2006 2005 ---------- ----------- Domestic Accounts Payable Services SG&A........... $ 6.5 $ 9.4 International Accounts Payable Services SG&A...... 3.6 7.9 ---------- ----------- Total Accounts Payable Services SG&A........... $ 10.1 $ 17.3 ========== ===========
On a dollar basis, SG&A expenses decreased by $7.2 million or 41.6% for the Company's Accounts Payable Services operations, when compared to the same period of 2005. This reduction is primarily related to the Company's 2005 operational restructuring plan. When compared on a percentage basis to revenue, first quarter 2006 SG&A was 18.1% as compared to 26.7% in the first quarter of 2005. MERIDIAN Meridian's operating income for the three months ended March 31, 2006 and 2005 was as follows (in millions):
2006 2005 ----------- ----------- Revenues............................................. $ 9.8 $ 10.2 Cost of revenues..................................... 7.4 6.3 Selling, general and administrative expenses......... 0.9 1.2 ----------- ----------- Operating income.................................. $ 1.5 $ 2.7 =========== ===========
Revenues. Meridian recognizes revenue in its contingent fee based VAT reclaim operations on the cash basis in accordance with SAB No. 104. Based on the guidance in SAB No. 104, Meridian defers recognition of revenues to the accounting period in which cash is both received from the foreign governmental agencies reimbursing VAT claims and transferred to Meridian's clients. Since Meridian has minimal influence over when the foreign governmental agencies make their respective VAT reimbursement payments, Meridian's revenues can vary markedly from period to period. Revenue generated by Meridian decreased by $0.4 million for the three months ended March 31, 2006 when compared to the same period of 2005. The revenue amounts for the three months ended March 31, 2006 were negatively impacted by $0.9 million due to exchange rate fluctuations relating to the weakening of the Euro, Meridian's functional currency, against the US dollar. Meridian is in the process of developing a number of new business services such as fee for work basis, accounts payable and employee expense processing for 22 third parties, tax return processing for governmental departments, and Local Agent Services Division ("LASD") opportunities. The revenues from these services totalled $1.1 million for the quarter ended March 31, 2006 as compared to $0.8 million for the quarter ended March 31, 2005. Revenue from such new business services is expected to continue to increase throughout 2006. COR. COR consists principally of compensation paid to various types of hourly workers and salaried operational managers. Also included in COR are other direct costs incurred by these personnel, including rental of offices, travel and entertainment, telephone, utilities, maintenance and supplies and clerical assistance. COR for the Company's Meridian operations are largely fixed and, for the most part, will not vary significantly with changes in revenue. COR for the quarter ended March 31, 2006 were $7.4 million as compared to $6.3 million for the same period in the prior year. The increase is primarily related to increased headcount in the Dublin processing center, increases in commissions paid to joint venture partners, and consulting and IT costs related to Meridian's new business services. SG&A. Meridian's SG&A expenses include the expenses of marketing activities, administration, professional services, property rentals and currency translation. Due to the relatively fixed nature of Meridian's SG&A expenses, these expenses as a percentage of revenues can vary markedly period to period based on fluctuations in revenues. On a dollar basis, the decrease in Meridian's SG&A for the quarter ended March 31, 2006 compared to 2005 decreased by $0.3 million. This was primarily related to lower expenses for professional fees related to the new business development in 2006 as compared to 2005. CORPORATE SUPPORT SG&A. SG&A expenses include the expenses of sales and marketing activities, information technology services associated with the corporate data center, human resources, legal, accounting, administration, currency translation, headquarters-related depreciation of property and equipment and amortization of intangibles with finite lives. Due to the relatively fixed nature of the Company's Corporate Support SG&A expenses, these expenses as a percentage of revenues can vary markedly period to period based on fluctuations in revenues. Corporate support represents the unallocated portion of corporate SG&A expenses not specifically attributable to Accounts Payable Services or Meridian and totaled the following for the three months ended March 31, 2006 and 2005 (in millions):
2006 2005 ---------- ------------ Selling, general and administrative expenses......... $ 4.9 $ 10.1 ========== ============
On a dollar basis, Corporate Support SG&A expenses decreased by $5.2 million or 51.5% for the Corporate Support operations, when compared to the same period of 2005. This reduction is primarily related to the Company's 2005 operational restructuring plan. When compared on a percentage basis to consolidated revenue, for the quarter ended March 31, 2006, Corporate Support SG&A was 7.5% as compared to 13.4% for the quarter ended March 31, 2005. RESTRUCTURING EXPENSE On August 19, 2005, the Company announced that it had taken the initial step in implementing an expense restructuring plan, necessitated by the Company's declining revenue trend over the previous two and one-half years. Revenues for the years 2002, 2003, 2004 and 2005 were $439.7 million, $367.4 million, $350.6 million and $292.2 million, respectively. With revenues decreasing in 2003, 2004 and 2005, the Company's selling, general and administrative expenses had increased as a percentage of revenue in each period (33.6%, 35.5% and 38.1%, respectively). The expense restructuring plan encompasses exit activities, including reducing the number of clients served, reducing the number of countries in which the Company operates, and terminating employees. The restructuring expense for the period ending March 31, 2006 and 2005 was as follows (in millions):
2006 2005 ------------ ----------- Restructuring expense........................................... $ 0.4 $ --
23 On September 30, 2005, the Company's Board of Directors approved the completed restructuring plan and authorized implementation of the plan. The Company expects the operational plan to be fully implemented by June 30, 2006, and the implementation of the operational restructuring plan will result in severance related and other charges of approximately $14.6 million. As of December 31, 2005, the Company recorded an $11.6 million charge related to the restructuring, $10 million of which was for severance pay and benefits costs and $1.6 million of which related to early termination of operating leases. Accordingly, pursuant to SFAS No. 112, Employers' Accounting for Postemployment Benefits, and SFAS No. 88, Employers' Accounting for Settlements and Curtailments of Defined Benefit Pension Plans and for Termination Benefits, the Company recorded expense for severance pay and benefits of $2.0 million and $10.0 million in the three and twelve months ended December 31, 2005, respectively. As of December 31, 2005 the Company had paid out approximately $2.8 million of severance and as of March 31, 2006 a total of $5.6 million of severance had been paid. The Company anticipates that the majority of the remaining payments will be paid out during the remainder of 2006. The restructuring plan includes operating lease exit costs that the Company expects to be incurred. As of December 31, 2005, the Company accrued $1.2 million of early termination costs in accordance with SFAS No. 146, Accounting for Costs Associated with Exit or Disposal Activities. The Company also recorded leasehold improvement impairment charges of $0.4 million related to these leases. The Company did not record any new charges for either early termination costs or leasehold improvements as of March 31, 2006. The Company is presently evaluating which, if any, additional operating leases to exit as part of the restructuring plan. DISCONTINUED OPERATIONS During the fourth quarter of 2005, the Company classified its Channel Revenue and Airline businesses, and the Accounts Payable Service business units in South Africa and Japan, as discontinued operations. There were no classification changes to discontinued operations during the first quarter of 2006. The Company's 2005 Consolidated Financial Statements included in Item 1 have been reclassified to reflect these businesses as discontinued operations. On January 11, 2006, the Company consummated the sale of Channel Revenue. Channel Revenue was sold for $0.4 million in cash to Outsource Recovery, Inc. Outsource Recovery also undertook to pay the Company an amount equal to 12% of gross revenues received by Outsource Recovery during each of the calendar years 2006, 2007, 2008 and 2009 with respective to Channel Revenue. The Company recognized a gain on disposal of approximately $0.3 million. Also during the first quarter of 2006 the Company received a payment of approximately $0.3 million related to the receipt of a portion of the revenue-based royalty from the sale of the Logistics Management Services business in October 2001, as adjusted for certain expenses accrued as part of the estimated loss on the sale of that business. Earnings (loss) from discontinued operations for the three months ended March 31, 2006 and 2005 as reported in the accompanying Condensed Consolidated Statements of Operations included in Item 1 includes the gains and losses related to the sales of discontinued business units as well as operating losses of $0.4 million and $0.6 million, respectively, related to the operations of these discontinued units. The net tax effect on earnings (loss) from discontinued operations is not significant. For the quarter ended March 31, 2006 the Company recognized net earnings (loss) from discontinued operations of $0.05 million, as compared to net earnings (loss) of $(0.4) million for the quarter ended March 31, 2005. OTHER ITEMS Debt Issuance Cost. In connection with the Company's completed financial restructuring and related transactions, the Company incurred professional fees and other transaction costs of approximately $9.7 million which will be capitalized and then amortized over the term of the new indebtedness. Interest Expense. Net interest expense was $2.6 million and $1.8 million for the three months ended March 31, 2006 and 2005, respectively. The Company's interest expense for the three months ended March 31, 2006 and 2005 was primarily comprised of interest expense and amortization of the discount related to the convertible notes and interest on borrowings outstanding under the senior bank credit facility. Net interest expense will increase significantly as a result of the Company's recently completed financial restructuring. The exchange of the convertible notes due November 2006 for the new senior convertible notes and new senior notes will initially result in additional annual interest expense of 24 approximately $7.7 million. Such amount will increase in time as a result of the amortization of note discounts. Also, the Company has the option to pay interest on the new senior convertible notes in cash or in kind. If paid in kind, further increases in interest expense will occur. The Company also expects to incur additional interest expense on its new senior secured credit facility. Income Tax Expense (Benefit). The provisions for income taxes for the quarters ended March 31, 2006 and 2005 consist of federal, state and foreign income taxes at the Company's effective tax rate. For the quarter ending March 31, 2006 the Company's tax expense was $0.7 million and $0.7million for the quarter ending March 31, 2005. The Company's effective tax rate approximated a negative 6.5% and a negative 17.9% for the three months ended March 31, 2006 and 2005, respectively. The change in the rate from 2006 as compared to 2005 is primarily related to the relative change in the income from operations. LIQUIDITY AND CAPITAL RESOURCES Net cash provided by (used in) operating activities was $7.5 million in the first quarter of 2006, compared to $(2.7) million in the first quarter of 2005. Cash provided by operating activities during the three months ended March 31, 2006 was primarily the result of the Company's operating loss being offset by the non-cash charge related to the financial restructuring and a focus on the working capital requirements. Net cash used in investing activities was $(0.3) million in the first quarter of 2006 and $(1.9) million in the first quarter of 2005. Cash used in investing activities during the first quarter of 2006 and 2005 were primarily related to capital purchases. Net cash provided by (used in) financing activities was $(0.8) million in the first quarter of 2006 versus $7.0 million in the first quarter of 2005. The net cash used in financing activities during the three months ended March 31, 2006 related to the refinancing of the 4.75% Subordinated Convertible Notes and the payoff of the Bridge Loan. The net cash provided in the three months ended March 31, 2005 related primarily to net borrowings on the Company's revolving credit facility. Net cash provided by (used in) discontinued operations was $0.05 million and $(0.2) million during the three months ended March 31, 2006 and 2005, respectively. Cash provided by discontinued operations during the quarter ended March 31, 2006 was due to a $0.4 million receipt of a payment related to the sale of the Channel Revenue business and a $0.3 million receipt of a payment related to a portion of the revenue-based royalty from the former Logistics Management Services segment that was sold in October 2001. Cash used in discontinued operations during the quarter ended March 31, 2005 was partially offset by the receipt of a payment related to a portion of the revenue-based royalty from the former Logistics Management Services segment that was sold in October 2001. As of March 31, 2006, the Company had cash and cash equivalents of $18.3 million, and no borrowings against the credit facility. For the quarter ending March 31, 2006, total debt included a $25.0 million variable rate term loan due 2010, $0.5 million of the 4.75% Subordinated Convertible Notes due 2006, $51.6 million in principal amount of 11.0% Senior Notes Due 2011, and $59.8 million in principal amount of 10.0% Senior Convertible Notes Due 2011. In addition, the Company had 124,485 shares of series A Convertible Preferred stock outstanding with an aggregate liquidation preference of $15.0 million that is due in 2011. Management believes that the Company will have sufficient borrowing capacity and cash generated from operations to fund its capital and operational needs for at least the next twelve months; however, current projections reflect that the Company's core accounts payable business will continue to decline and the Company's new senior secured credit facility requires the Company to comply with specific financial ratios and other performance covenants. Therefore, the Company must successfully implement management's cost reduction plan and grow its other business lines in order to stabilize and increase revenues and improve profitability. TRANSACTION COSTS OF FINANCIAL RESTRUCTURING, INCLUDING EXCHANGE OFFER The Company's financial advisor, Rothschild Inc., was compensated with a monthly retainer of $0.1 million in addition to a fee of $1.5 million. In addition, the Company incurred significant legal fees as part of the financial restructuring. The Company paid certain expenses of the Ad Hoc Committee of noteholders, including a monthly retainer of $0.1 million to the Committee's 25 financial advisor. The Company also paid the Ad Hoc Committee's legal fees and financial advisory fees of approximately $1.0 million. In total, the Company incurred approximately $9.7 million of transaction costs, including legal and financial advisory fees, in connection with the exchange offer and the financial restructuring, of which approximately $7.7 million was incurred in the first quarter of 2006. EXECUTIVE SEVERANCE PAYMENTS The March 16, 2006 amended severance agreements with the Company's former Chairman, President and CEO, John M. Cook, and the Company's former Vice Chairman, John M. Toma, call for total cash payments of $7.0 million. The cash payments to Mr. Cook began with a payment of $275,621 in April 2006 and will continue at $91,874 per month for 57 months. The cash payments to Mr. Toma began with a payment of $93,894 in April 2006 and will continue at $31,298 per month for 45 months. Additionally, under the amended separation agreements, beginning on or about February 1, 2007, the Company will reimburse Mr. Cook and Mr. Toma, until each reaches the age of 80, for the cost of health insurance for them and their respective spouses, provided that the reimbursement shall not exceed $25,000 (subject to CPI adjustment) for Mr. Cook and $20,000 (subject to CPI adjustment) for Mr. Toma. Finally, in April 2006, the Company reimbursed $150,000 to CT Investments, LLC, to defray the fees and expenses of the legal counsel and financial advisors to Messrs. Cook and Toma in connection with the negotiation of amendments to their respective severance agreements. The Company's entering into the amendments to the severance agreements with Messrs. Cook and Toma was a condition precedent to the closing of the Company's exchange offer restructuring its bondholder debt and the closing on its replacement credit facility, both of which took place on March 17, 2006. BANKRUPTCY LITIGATION On March 30, 2005, the Company was sued by the Fleming Post-Confirmation Trust ("PCT") in a bankruptcy proceeding of the Fleming Companies in the U.S. Bankruptcy Court for the District of Delaware to recover approximately $5.5 million of alleged preferential payments. The PCT's claims were subsequently amended to add a claim for alleged fraudulent transfers representing approximately $2.0 million in commissions paid to the Company with respect to claims deducted from vendors that the client subsequently re-credited to the vendors. The Company believes that it has valid defenses to the PCT's claims in the proceeding. In early December 2005, the PCT offered to settle the case for $2 million. The Company countered with an offer to waive its bankruptcy claim and to pay the PCT $250,000. The PCT rejected the Company's settlement offer and the litigation is ongoing. OPERATIONAL RESTRUCTURING On August 19, 2005, the Company announced that it had taken the initial step in implementing an expense restructuring plan, necessitated by the Company's declining revenue trend over the previous two and one-half years. Revenues for the years 2002, 2003, 2004 and 2005 were $439.7 million, $367.4 million, $350.6 million and $292.2 million, respectively. With revenues decreasing in 2003, 2004 and 2005, the Company's selling, general and administrative expenses had increased as a percentage of revenue in each period (33.6%, 35.5% and 38.1%, respectively). The expense restructuring plan encompasses exit activities, including reducing the number of clients served, reducing the number of countries in which the Company operates, and terminating employees. On September 30, 2005, the Company's Board of Directors approved the completed restructuring plan and authorized implementation of the plan. The Company expects the operational plan to be fully implemented by June 30, 2006, and the implementation of the operational restructuring plan will result in severance related and other charges of approximately $14.6 million. As of December 31, 2005, the Company recorded an $11.6 million charge related to the restructuring, $10 million of which was for severance pay and benefits costs and $1.6 million of which related to early termination of operating leases. Accordingly, pursuant to SFAS No. 112, Employers' Accounting for Postemployment Benefits, and SFAS No. 88, Employers' Accounting for Settlements and Curtailments of Defined Benefit Pension Plans and for Termination Benefits, the Company recorded expense for severance pay and benefits of $2.0 million and $10.0 million in the three and twelve months ended December 31, 2005, respectively. As of December 31, 2005 the Company had paid out approximately $2.8 million of severance and as of March 31, 2006 a total of $5.6 million of severance had been paid. The Company anticipates that the majority of the remaining payments will be paid out during the remainder of 2006. The restructuring plan includes operating lease exit costs that the Company expects to be incurred. As of December 31, 2005, the Company accrued $1.2 million of early termination costs in accordance with SFAS No. 146, Accounting for Costs Associated with Exit or Disposal Activities. The Company also recorded leasehold improvement impairment charges of $0.4 million related to these leases. The Company did not record any new charges for either early termination costs or leasehold improvements as of March 31, 2006. The Company is presently evaluating which, if any, additional operating leases to exit as part of the restructuring plan. 26 FRENCH TAXATION SERVICES SETTLEMENT On December 14, 2001, the Company consummated the sale of its French Taxation Services business ("ALMA"), as well as certain notes payable due to the Company, to Chequers Capital, a Paris-based private equity firm. In conjunction with this sale, the Company provided the buyer with certain warranties. Effective December 30, 2004, the Company, Meridian and ALMA (the "Parties") entered into a Settlement Agreement (the "Agreement") pursuant to which the Company paid a total of 3.4 million Euros on January 3, 2005 ($4.7 million at January 3, 2005 exchange rates), to resolve the buyer's warranty claims and a commission dispute with Meridian. CONTINGENT OBLIGATION TO REPAY INDUSTRIAL DEVELOPMENT AUTHORITY OF IRELAND GRANT During the period of May 1993 through September 1999, Meridian received grants from the Industrial Development Authority of Ireland ("IDA") in the sum of 1.4 million Euros ($1.6 million at September 30, 2005 exchange rates). The grants were paid primarily to stimulate the creation of 145 permanent jobs in Ireland. As a condition of the grants, if the number of permanently employed Meridian staff in Ireland falls below 145 prior to September 23, 2007, the date the contingency expires, then the grants are repayable in full. Meridian currently employs 229 permanent employees in Dublin, Ireland. The European Union ("EU") has currently proposed legislation that will remove the need for suppliers to charge VAT on the supply of goods and services to clients within the EU. The effective date of the proposed legislation is currently unknown. Management estimates that the proposed legislation, if enacted as currently drafted, would eventually have a material adverse impact on Meridian's results of operations from its value-added tax business. If Meridian's results of operations were to decline as a result of the enactment of the proposed legislation, it is possible that the number of permanent employees that Meridian employs in Ireland could fall below 145 prior to September 2007. Should such an event occur, the full amount of the grants previously received by Meridian will need to be repaid to IDA. However, management currently estimates that any impact on employment levels related to a possible change in the EU legislation will not be realized until after September 2007, if ever. POSSIBLE LIMITATION ON TAX LOSS AND CREDIT CARRYFORWARDS We have substantial tax loss and credit carryforwards for U.S. federal income tax purposes. As a result of the implementation of the exchange offer or certain changes in the composition of our shareholder population it is likely that our ability to use such carryforwards (and certain other tax benefits) to offset future income or tax liability will be severely limited. Based on our current projections, such a limitation would significantly increase our projected future tax liability if combined with the elimination of interest deductions with respect to the new senior convertible notes issued in the exchange offer. PRINCIPAL PAYMENTS ON 4.75% SUBORDINATED CONVERTIBLE NOTES On November 26, 2006 the Company will be required to pay in full the remaining outstanding principal amount of its 4.75% Subordinated Convertible Notes. That amount is approximately $0.5 million. INTEREST PAYMENTS ON 11% SENIOR NOTES On September 15, 2006, the Company will be required to pay approximately $2.8 million in interest on its 11% Senior Notes. FORWARD LOOKING STATEMENTS Some of the information in this Form 10-Q contains forward-looking statements which look forward in time and involve substantial risks and uncertainties including, without limitation, (1) statements that contain projections of the Company's future results of operations or of the Company's financial condition, (2) statements regarding the adequacy of the Company's current working capital and other available sources of funds, (3) statements 27 regarding goals and plans for the future, (4) statements regarding the potential impact and outcome of the Company's exploration of strategic alternatives, (5), expectations regarding future accounts payable and Meridian revenue trends, (6) statements regarding the impact of potential regulatory changes. All statements that cannot be assessed until the occurrence of a future event or events should be considered forward-looking. These statements are forward-looking statements within the meaning of the Private Securities Litigation Reform Act of 1995 and can be identified by the use of forward-looking words such as "may," "will," "expect," "anticipate," "believe," "estimate" and "continue" or similar words. Risks and uncertainties that may potentially impact these forward-looking statements include, without limitation, the following: o In four of the five annual periods ended December 31, 2005, we have incurred significant losses and we have not generated enough cash from operations to finance our business. o Our current projections reflect that our core accounts payable recovery audit business will continue to decline. o We depend on our largest clients for significant revenues, so losing a major client could adversely affect our revenues. o Client and client vendor bankruptcies and financial difficulties could reduce our earnings. o Our strategic business initiatives may not be successful. o Our failure to retain the services of key members of management and highly skilled personnel could adversely impact our continued success. o We rely on international operations for significant revenues. o The market for providing disbursement audit services to commercial clients in the U.S. is rapidly declining. o We may not be able to continue to compete successfully with other businesses offering recovery audit services, including client internal recovery audit departments. o We have significant indebtedness and fixed obligations, and our operating cash flow may not be sufficient to satisfy these obligations. o Our senior credit facility contains financial performance requirements, and there can be no guarantee that we will be able to satisfy those requirements. o Proposed legislation by the European Union, if enacted as currently drafted, will have a materially adverse impact on Meridian's operations. o Meridian's revenue recognition policy causes its revenues to vary markedly from period to period. o Other risk factors detailed in the Company's Securities and Exchange Commission filings, including the Company's Form 10-K for the year ended December 31, 2005, as filed with the Securities and Exchange Commission on March 16, 2005. There may be events in the future, however, that the Company cannot accurately predict or over which the Company has no control. The risks and uncertainties listed in this section, as well as any cautionary language in this Form 10-Q, provide examples of risks, uncertainties and events that may cause our actual results to differ materially from the expectations we describe in our forward-looking statements. You should be aware that the occurrence of any of the events denoted above as risks and uncertainties and elsewhere in this Form 10-Q could have a material adverse effect on our business, financial condition and results of operations ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK Foreign Currency Market Risk. Our functional currency is the U.S. dollar although we transact business in various foreign locations and currencies. As a result, our financial results could be significantly affected by factors such as changes in foreign currency exchange rates, or weak economic conditions in the foreign markets in which we provide services. Our operating results are exposed to changes in exchange rates between the U.S. dollar and the currencies of the other countries in which we operate. When the U.S. dollar strengthens against other currencies, the value of nonfunctional currency revenues decreases. When the U.S. dollar weakens, the functional currency amount of revenues increases. Overall, we are a net receiver of currencies other than the U.S. dollar and, as such, benefit from a weaker dollar. We are therefore adversely affected by a stronger dollar relative to major currencies worldwide. Interest Rate Risk. Our interest income and expense are most sensitive to changes in the general level of U.S. interest rates. In this regard, changes in U.S. interest rates affect the interest earned on our cash equivalents as well as interest paid on our debt. At March 31, 2006, we had a $25.0 million term 28 loan outstanding which is variable-rate debt. The interest on the term loan is based on a floating rate equal to the reserve adjusted London inter-bank offered rate, or LIBOR, plus 8.5% (or, at our option, a published prime lending rate plus 5.5%). A hypothetical 100 basis point change in interest rates would result in an approximate $0.3 million change in annual interest expense. As of March 31, 2006, the Company had $15.0 million available for revolving loans under the new senior credit facility. No borrowings were outstanding under this revolving portion of the new credit facility at March 31, 2006. The interest rate on any outstanding balances on the revolving credit loan is based on LIBOR plus 3.75% (or, at our option, a published prime lending rate plus 1.0%). Although there were no borrowings outstanding under the revolving portion of the credit facility at March 31, 2006, assuming $15.0 million of borrowings, a hypothetical 100 basis point change in interest rates would result in an approximate $0.2 million change in annual interest expense. Derivative Instruments. As a multi-national company, the Company faces risks related to foreign currency fluctuations on its foreign-denominated cash flows, net earnings, new investments and large foreign currency denominated transactions. The Company uses derivative financial instruments from time to time to manage foreign currency risks. The use of financial instruments modifies the exposure of these risks with the intent to reduce the risk to the Company. The Company does not use financial instruments for trading purposes, nor does it use leveraged financial instruments. The Company did not have any such derivative financial instruments outstanding as of March 31, 2006 and December 31, 2005. ITEM 4. CONTROLS AND PROCEDURES The Company's management conducted an evaluation, with the participation of its Chairman, President and Chief Executive Officer (CEO) and its Chief Financial Officer (CFO), of the effectiveness of the Company's disclosure controls and procedures (as defined in Rules 13a-15(e) and 15d-15(e) under the Securities Exchange Act of 1934 (the "Exchange Act")) as of the end of the period covered by this Quarterly Report on Form 10-Q. Based upon that evaluation, the CEO and CFO concluded that the Company's disclosure controls and procedures were not effective in reporting, on a timely basis, information required to be disclosed by the Company in the reports the Company files or submits under the Exchange Act, because of unremediated material weaknesses in its internal control over financial reporting, as described in Item 9A of the Company's Form 10-K for the year ended December 31, 2005. There were no changes in internal control over financial reporting during the quarter ended March 31, 2006 that have materially affected, or are reasonably likely to materially affect the Company's internal control over financial reporting. The material weaknesses reported in the Company's Annual Report on Form 10-K for the year ended December 31, 2005 related to ineffective internal controls over revenue recognition and company level controls, including the expertise of the accounting and finance staff. During the quarter ended March 31, 2006, management made some progress in remediating certain aspects of the weaknesses reported, specifically in the hiring and training of affected personnel. However, other aspects of the weaknesses reported are still in the remediation process and appear to continue to constitute material weaknesses. 29 PART II. OTHER INFORMATION ITEM 1. LEGAL PROCEEDINGS See Note H(1) of Notes to Condensed Consolidated Financial Statements (Unaudited) included in Part I. Item 1. of this Form 10-Q which is incorporated by reference. ITEM 1A. RISK FACTORS There have been no material changes in the risks facing the Company as described in the Company's Form 10-K for the year ended December 31, 2005. ITEM 2. UNREGISTERED SALES OF EQUITY SECURITIES AND USE OF PROCEEDS The Company's senior credit facility entered into on March 17, 2006 prohibits the payment of any cash dividends on the Company's capital stock. ITEM 3. DEFAULTS UPON SENIOR SECURITIES None. ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS None. ITEM 5. OTHER INFORMATION None. 30 ITEM 6. EXHIBITS EXHIBIT NUMBER DESCRIPTION 3.1 Restated Articles of Incorporation of the Registrant (incorporated by reference to Exhibit 3.1 to the Registrant's Form 10-Q for the quarterly period ended June 30, 2002). 3.2 Amendment to Articles of Incorporation, effective March 16, 2006, as corrected (Incorporated by reference to Exhibit 3.1 to the Registrant's Form 8-K filed on March 21, 2006). 3.3 Restated Bylaws of the Registrant (incorporated by reference to Exhibit 3.2 to the Registrant's Form 10-Q for the quarter ended September 30, 2005). 4.1 Specimen Common Stock Certificate (incorporated by reference to Exhibit 4.1 to the Registrant's Form 10-K for the year ended December 31, 2001). 4.2 See Restated Articles of Incorporation and Bylaws of the Registrant, filed as Exhibits 3.1 and 3.2, respectively. 4.3 Shareholder Protection Rights Agreement, dated as of August 9, 2000, between the Registrant and Rights Agent, effective May 1, 2002 (incorporated by reference to Exhibit 4.3 to the Registrant's Form 10-Q for the quarterly period ended June 30, 2002. 4.4 Indenture dated November 26, 2001 by and between Registrant and Sun Trust Bank (incorporated by reference to Exhibit 4.3 to Registrant's Registration Statement No. 333-76018 on Form S-3 filed December 27, 2001). 4.5 First Amendment to Shareholder Protection Rights Agreement, dated as of March 12, 2002, between the Registrant and Rights Agent (incorporated by reference to Exhibit 4.3 to the Registrant's Form 10-Q for the quarterly period ended September 30, 2002). 4.6 Second Amendment to Shareholder Protection Rights Agreement, dated as of August 16, 2002, between the Registrant and Rights Agent (incorporated by reference to Exhibit 4.3 to the Registrant's Form 10-Q for the quarterly period ended September 30, 2002). 4.7 Third Amendment to Shareholder Protection Rights Agreement, dated as of November 7, 2006, between the Registrant and Rights Agent (incorporated by reference to Exhibit 4.1 to the Registrant's Form 8-K filed on November 14, 2005). 4.8 Fourth Amendment to Shareholder Protection Rights Agreement, dated as of November 14, 2006, between the Registrant and Rights Agent (incorporated by reference to Exhibit 4.1 to the Registrant's Form 8-K filed on November 30, 2005). 4.9 Fifth Amendment to Shareholder Protection Rights Agreement, dated as of March 9, 2006, between the Registrant and Rights Agent (Incorporated by Reference to Exhibit 4.9 to the Registrant's Report on Form 10-K for the year ended December 31, 2005). 4.10 Indenture dated as of March 17, 2006 governing 10% Senior Convertible Notes due 2011, with Form of Note appended (incorporated by reference to Exhibit 4.1 to the registrant's Form 8-K filed on March 23, 2006). 31 4.11 Indenture dated as of March 17, 2006 governing 11% Senior Notes due 2011, with Form of Note appended (incorporated by reference to Exhibit 4.2 to the registrant's Form 8-K filed on March 23, 2006). 10.1 Amended and Restated Restructuring Support Agreement 10.2 Registration Rights Agreement dated March 17, 2006 10.3 Financing Agreement dated March 17, 2006 10.4 Security Agreement dated March 17, 2006 10.5* 2006 Performance Bonus Plan 10.6 First Amendment to Separation and Release Agreement with John M. Cook dated March 16, 2006 (incorporated by reference to Exhibit 99.1 to the registrant's Form 8-K filed on March 22, 2006). 10.7 First Amendment to Separation and Release Agreement with John M. Toma dated March 16, 2006 (incorporated by reference to Exhibit 99.2 to the registrant's Form 8-K filed on March 22, 2006). 10.8 Amendment to Investor Rights Agreement dated March 28, 2006 31.1 Certification of the Chief Executive Officer, pursuant to Rule 13a-14(a) or 15d-14(a), for the quarter ended March 31, 2006. 31.2 Certification of the Chief Financial Officer, pursuant to Rule 13a-14(a) or 15d-14(a), for the quarter ended March 31, 2006. 32.1 Certification of the Chief Executive Officer and Chief Financial Officer, pursuant to 18 U.S.C. Section 1350, for the quarter ended March 31, 2006. * Confidential treatment, pursuant to 17 CFR Secs. ss.ss. 200.80 and 240.24b-2, has been requested regarding certain portions of the indicated Exhibit, which portions have been filed separately with the Commission. 32 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. PRG-SCHULTZ INTERNATIONAL, INC. May 15, 2006 By: /s/ James B. McCurry ---------------------------------- James B. McCurry President, Chairman of the Board and Chief Executive Officer (Principal Executive Officer) May 15, 2006 By: /s/ PETER LIMERI ---------------------------------- Peter Limeri Chief Financial Officer and Treasurer (Principal Financial Officer) 33 EX-10.1 2 prg10q33106ex101.txt RESTRUCTURING SUPPORT AGMT. EXHIBIT 10.1 EXECUTION COPY AMENDED AND RESTATED RESTRUCTURING SUPPORT AGREEMENT This AMENDED AND RESTATED RESTRUCTURING SUPPORT AGREEMENT is made and entered into as of February 1, 2006 (the "Agreement") by and among PRG-Schultz International, Inc., a Georgia corporation ("PRG" or the "Company"), and (i) each of the undersigned beneficial owners (or investment managers or advisors for the beneficial owners) of the Notes (as defined below) and (ii) each other beneficial owner (or investment manager or advisor for such beneficial owner) of the Notes that executes a counterpart signature page to this Agreement after the date of this Agreement, as provided herein (each, a "Noteholder" and collectively, the "Noteholders"). RECITALS: A. PRG has issued and outstanding $125,000,000 aggregate principal amount of its 4-3/4% Convertible Subordinated Notes due 2006 (the "Notes") pursuant to that certain indenture, dated as of November 26, 2001 (the "Indenture"), between PRG (as successor in interest to The Profit Recovery Group International, Inc.) and SunTrust Bank, as trustee. B. The Noteholders are beneficial owners of the Notes (and/or are serving as the investment advisors or managers or in a similar capacity for the beneficial owners of such Notes, having the power to enter into this Agreement on behalf of such beneficial owners) in the respective aggregate principal amounts separately disclosed to PRG on a confidential basis (provided that the aggregate principal amount of the holdings of all the Noteholders shall not be deemed confidential). C. The Company and the Noteholders are currently parties to that certain Restructuring Support Agreement dated as of December 23, 2005 (the "Original RSA") setting forth the terms of a proposed financial restructuring of the Notes. D. The Company and the Noteholders desire to modify and amend the terms of the Original RSA as set forth herein. E. Exhibit A hereto (the "Term Sheet") and the provisions hereof set forth the basic terms of a financial restructuring of the Notes to be realized through an exchange offer (the "Exchange Offer" and, collectively with any transactions substantially as contemplated by the Term Sheet or this Agreement, the "Restructuring"). F. The parties have agreed to the terms of the Restructuring and the Noteholders each have agreed to support the Restructuring on the terms and conditions set forth herein. G. The Company intends to (i) conduct the Exchange Offer as soon as practicable and (ii) use commercially reasonable efforts to obtain acceptance of the Exchange Offer by the holders of 99% of the outstanding Notes. AGREEMENT: NOW, THEREFORE, in consideration of the premises and mutual covenants and agreements set forth herein, and for other good and valuable consideration, the receipt and sufficiency of which are hereby acknowledged, the parties hereto hereby agree as follows: Section 1. General. (a) The Company agrees and covenants that, subject to the conditions set forth on the Term Sheet, it will use its commercially reasonable best efforts to complete the Restructuring through the Exchange Offer. (b) The parties shall negotiate in good faith (i) the documentation regarding the Restructuring contemplated by the Term Sheet, (ii) the Exchange Offer, and (iii) the other documents contemplated hereby and thereby (collectively, the "Restructuring Documents"). (c) The parties hereto shall not (i) object to, delay, impede, or commence any proceeding pertaining to, or take any other action to interfere, directly or indirectly, in any material respect with the acceptance or implementation of, the Restructuring provided that the terms of the final Restructuring Documents are materially consistent with the Term Sheet and otherwise in form and substance satisfactory to the Company and the Noteholders in their reasonable discretion, (ii) encourage or support any person or entity to do any of the foregoing, (iii) in the case of the Noteholders, exercise any rights under any indenture or other agreement with the Company or instruct any trustee to exercise any such rights except as consistent with this Agreement, or (iv) seek or solicit, propose, file, support, encourage, vote for, consent to, instruct, or engage in discussions with any person or entity, other than PRG, concerning any restructuring, workout, plan of reorganization, dissolution, winding up, acquisition or liquidation of PRG and/or its affiliates, other than the Exchange Offer, provided that the Company may, upon one Business Day's notice to the other parties hereto, respond to and engage in discussions concerning unsolicited offers that the Company's board of directors believes in good faith will lead to an alternative transaction that would provide more value to the holders of the Notes and to PRG's current shareholders than the Restructuring. (d) The parties agree nothing in this Agreement shall limit, modify or otherwise effect any of the Lenders' rights under that certain Credit Agreement among PRG-Schultz USA, Inc as Borrower, PRG and certain of its other affiliates, as Guarantors and certain of the Noteholders, as Lenders, dated December 23, 2005 (the "Bridge Loan Credit Agreement"), or any documents related thereto (collectively, the "Bridge Loan Documents"). Section 2. Support for the Restructuring. (a) PRG agrees and covenants that it will use commercially reasonable best efforts to take or cause to be taken all actions commercially reasonably necessary and appropriate in furtherance of the Exchange Offer, including as promptly as practicable to: (1) prepare the solicitation materials relating to the Exchange Offer (the "Solicitation Materials") in form and substance consistent with the Term Sheet, except to the extent otherwise consented to by the Noteholders; 2 (2) commence the Exchange Offer and disseminate the Solicitation Materials in a manner customary for comparable transactions; (3) seek satisfaction of all conditions precedent to the Restructuring; (4) defend in good faith any suit or other legal or administrative proceeding seeking to interfere with, impair or impede the Restructuring; (5) promptly amend the Solicitation Materials, as necessary and as may be required by applicable law and provide a draft of such amended Solicitation Materials to the Ad Hoc Committee prior to the distribution of such materials to holders of the Notes; (6) not solicit or encourage others to formulate any other tender offer, settlement offer, or exchange offer for the Notes other than the Exchange Offer; (7) so long as this Agreement is effective and has not been terminated in accordance with Section 5 or 6, hereof, and except to the extent necessary for the fulfillment of the fiduciary duties of the Company's board of directors as referred to in Section 6(c) hereof, not object to, nor otherwise commence any proceeding to oppose, the Restructuring, it being understood and agreed that the Company shall not seek, solicit, support, consent to, participate in the formulation of, or encourage any other plan, sale, proposal, or offer of winding up, liquidation, reorganization, merger, consolidation, dissolution, or restructuring of the Company; (8) subject to the satisfaction or waiver of any conditions precedent to the Exchange Offer, consummate the Exchange Offer, including delivery of all securities required to be issued thereunder (within the time that is customary for transactions of this type) and the other transactions that are part of the Restructuring; and (9) prior to consummation of the Restructuring, take all action necessary to exempt, in a manner reasonably acceptable to the Noteholders, the proposed Restructuring transactions and the acquisition of New Securities (as defined in the Term Sheet) or common stock issuable on conversion thereof by any holder of Notes. (b) PRG agrees and covenants that it will not, and will cause each of its direct and indirect subsidiaries not to, sell, liquidate, or dispose of any assets, outside the ordinary course of business consistent with past practices, prior to the date on which the Exchange Offer closes other than as permitted by the Section 8.5 of the Bridge Loan Credit Agreement as in effect on the Closing Date (as defined under the Bridge Loan Credit Agreement), without the prior written consent of the holders of a majority of the Notes subject to this Agreement. (c) Each of the Noteholders agrees and covenants that it shall, as long as this Agreement is in effect: (1) no later than 15 days prior to the first date scheduled for the closing of the Exchange Offer, (i) tender all Notes beneficially owned by it and (ii) cause the beneficial owner of all Notes for which the Noteholder is the investment advisor or manager having the power to vote and dispose of such Notes on behalf of such beneficial owner, to tender all such Notes together with properly completed and duly executed letter or letters of transmittal with 3 respect to such Notes as required by the instructions to the letter of transmittal pursuant to and in accordance with the Exchange Offer; (2) not revoke any of the foregoing unless and until this Agreement is terminated in accordance with its terms; (3) not vote for, consent to, provide any support for, participate in the formulation of, or solicit or encourage others to formulate any other tender offer, settlement offer, or exchange offer for the Notes other than the Exchange Offer; and (4) so long as this Agreement is effective and has not been terminated in accordance with Section 5 or 6 hereof and the final Restructure Documents are materially consistent with the Term Sheet, not object to, nor otherwise commence any proceeding to oppose, the Restructuring, it being understood and agreed that each Noteholder shall not (i) directly or indirectly seek, solicit, support, or encourage any other plan, sale, proposal, or offer of winding up, liquidation, reorganization, merger, consolidation, dissolution, or restructuring of the Company or (ii) commence an involuntary bankruptcy case against the Company. Section 3. Representations and Warranties. (a) Each of the parties severally represents and warrants to each of the other parties that the following statements are true and correct as of the date hereof: (1) Power and Authority. It has all requisite power and authority to enter into this Agreement and to carry out the transactions contemplated by, and perform its respective obligations under, this Agreement. (2) Authorization. The execution and delivery of this Agreement and the performance of its obligations hereunder have been duly authorized by all necessary action on its part. (3) No Conflicts. The execution, delivery, and performance by it of this Agreement do not and shall not (i) violate any provision of law, rule, or regulation applicable to it or its certificate of incorporation or by-laws (or other organizational documents) or (ii) conflict with, result in a breach of, or constitute (with due notice or lapse of time or both) a default under any material contractual obligation to which it is a party or under its certificate of incorporation or by-laws (or other organizational documents), except, with respect to the Company, for any contractual obligation that would not have a material adverse effect on the business, assets, financial condition, or results of operations of PRG and its subsidiaries, taken as a whole. (4) Governmental Consents. The execution, delivery, and performance by it of this Agreement do not and shall not require any registration or filing with, consent or approval of, or notice to, or other action to, with, or by, any Federal, state, or other governmental authority or regulatory body, except (i) such filings as may be necessary and/or required for disclosure by the Securities and Exchange Commission and (ii) filings with NASDAQ in connection with the Restructuring. 4 (5) Binding Obligation. This Agreement is the legally valid and binding obligation of it, enforceable against it in accordance with its terms, except as enforcement may be limited by bankruptcy, insolvency, reorganization, moratorium, or other similar laws relating to or limiting creditors' rights generally or by equitable principles relating to enforceability. (6) Proceedings. No litigation or proceeding before any court, arbitrator, or administrative or governmental body is pending against it that would adversely affect its ability to enter into this Agreement or perform its obligations hereunder. (b) Each of the Noteholders represents and warrants, severally and not jointly, to each of the other parties that the following statements are true, correct, and complete as of the date hereof: (1) Ownership. It has disclosed to PRG on a confidential basis the aggregate principal amount of the Notes for which (i) it is the sole beneficial owner and (ii) it is the investment advisor or manager for the beneficial owners of such Notes, having the power to vote and dispose of such Notes on behalf of such beneficial owners. It is entitled (for its own account or for the account of other persons claiming through it) to all of the rights and economic benefits of such Notes. (2) Transfers. It has made no prior assignment, sale, participation, grant, conveyance, or other transfer of, and has not entered into any other agreement to assign, sell, participate, grant, or otherwise transfer, in whole or in part, any right, title, or interests in (or portion thereof) the Notes referred to in Subsection 3(b)(1), except as permitted by Section 4 hereto. (3) Laws. It (i) is a sophisticated investor with respect to the transactions described herein with knowledge and experience in financial and business matters sufficient to evaluate the merits and risks of owning and investing in securities similar to the Notes (including any securities that may be issued in connection with the Restructuring), making an informed decision with respect thereto, and evaluating properly the terms and conditions of this Agreement, and it has made its own analysis and decision to enter in this Agreement, (ii) is, and any person for which it is the investment advisor or manager and which is the beneficial owner of Notes is, an "accredited investor" within the meaning of Rule 501 of the Securities Act of 1933, as amended, and (iii) it has had the opportunity to meet with management of PRG and to ask questions and review information with respect to PRG's business, financial condition, results of operations and financial and operational outlook, and it has obtained all information it deems necessary or appropriate in order to enter into this agreement and make the investment decision contemplated hereby. Section 4. Restriction on the Sale of the Notes. Each Noteholder individually covenants that, from the date hereof until the termination of this Agreement, such party shall not, directly or indirectly, sell, pledge, hypothecate, or otherwise transfer any Notes or any option, right to acquire, or voting, participation, or other interest therein, except to a purchaser or other entity who executes and delivers to PRG, concurrently or prior to any binding commitment with respect to such transfer, an agreement in writing to be bound by all the terms of this Agreement with respect to the relevant Notes or other 5 interests being transferred to such purchaser (which agreement shall include the representations and warranties set forth in Section 3 hereof). This Agreement shall in no way be construed to preclude a party from acquiring additional Notes or other interests in PRG. All Notes held by a Noteholder, including Notes acquired after the date hereof, shall be subject to all the terms of this Agreement. Section 5. Termination by the Noteholders. This Agreement may be terminated by Noteholders that beneficially own or act as the investment advisor or manager with respect to at least a majority of the Notes subject to the terms of this Agreement on the occurrence of any of the following events (each a "Noteholder Termination Event"), by delivering written notice of the occurrence of such event in accordance with Section 13 below to the other parties: (a) the Exchange Offer has not been commenced by February 1, 2006 or completed by March 31, 2006; (b) after the date hereof there shall have occurred any event or circumstance that individually or in the aggregate reflect a material adverse change in the financial condition, business, or operations of the Company and its subsidiaries; (c) the failure to repay all obligations under the facility contemplated by the Bridge Loan Documents (the "Bridge Loan"), in full, in cash, concurrent with the closing of the Exchange Offer; (d) the exercise of any remedies under the Bridge Loan Documents following an Event of Default (as defined therein) arising from any the following: (i) the failure to make any scheduled payment of principal or interest as and when required under the Bridge Loan Documents; (ii) the failure by the Company to make any Mandatory Prepayments or Payment of Taxes; (iii) a default under any Other Indebtedness, unless otherwise permitted by the Bridge Loan Documents; (iv) the failure to maintain Insurance required by the Bridge Loan Documents; (v) the incurrence of any Debt or Indebtedness in excess of the limitations in the Bridge Loan Documents; (vi) any Consolidation, Dissolution or Merger in violation of the Bridge Loan Documents; (vii) making any Restricted Payments in violation of the Bridge Loan Documents; (viii) any Transactions with Affiliates in violation of the Bridge Loan Documents; (ix) taking any Restricted Action in violation of the Bridge Loan Documents; (x) making any Negative Pledge in violation of the Bridge Loan Documents; or (xi) occurrence of any Bankruptcy Event or Change of Control;(1) (e) the exercise of any remedies under that certain Amended and Restated Credit Agreement among PRG-Schulz USA, Inc., as Borrower, PRG, and certain of its other affiliates, as Guarantors, and Bank of America, N.A., dated as of November 30, 2004, and any documents related thereto; (f) the Restructuring or the final Restructuring Documents do not conform to the Term Sheet with respect to the treatment of the Notes, except as modified in any non-material respect or as approved by the Ad Hoc Committee of the Noteholders (the members of which are identified on the signature pages hereto); or ____________________ (1) All capitalized terms used in this Section 5(d) shall have the meaning given such terms in the Bridge Loan Credit Agreement. 6 (g) a material breach of this Agreement by the Company that is not, by its terms, curable or that is, by its terms, curable and is not cured by the fifth calendar day after notice of such breach (for the purposes of this Agreement, the term "material breach" includes a breach of the covenant in Section 2(b)). Section 6. Termination by the Company. The Company shall have the right to terminate this Agreement on the occurrence of any of the following events (each a "Company Termination Event") by giving written notice in accordance with Section 13 below to the other parties: (a) the exercise of any remedies under the Bridge Loan Documents; (b) a material breach of this Agreement by any of the Noteholders that is not, by its terms, curable or that is, by its terms, curable and is not cured by the fifth calendar day after notice of such breach; or (c) a good faith determination by the Company's board of directors (following consultation with its reputable outside legal counsel and its financial advisor of national recognized reputation) that such termination is required by its fiduciary duty to the Company, its then current shareholders, and its creditors in order to enter into an alternative transaction (whether in the form of a merger, consolidation or combination with a third party or the sale of all, substantially all, or a significant portion of, the assets or businesses of the Company) that will be at least as favorable to each of such parties but more favorable to the parties as a whole, from a financial perspective, than the Restructuring and is reasonably capable of being consummated, taking into account, among other things, all legal, financial, regulatory and other aspects of the alternative transaction and the person or group making such proposal (a "Superior Proposal"); provided that (i) the Bridge Loan has been paid in full, in accordance with the Bridge Loan Documents, (ii) the Company provides the Noteholders five (5) business days prior notice of the Company's intent to terminate this Agreement under this Section 6(c) and the terms and conditions of such Superior Proposal (including the identity of the person or group making such Superior Proposal), and (iii) the Company provides the Noteholders and their representatives a good faith opportunity during such five (5) business day notice period and prior to any such termination to revise the terms of the Restructuring. Section 7. Termination of Agreement. Notwithstanding anything to the contrary in this Agreement, the Term Sheet or any other agreement, this Agreement shall terminate on the earliest of (a) the occurrence of a Noteholder Termination Event, after expiration of any cure periods and satisfaction of any conditions set forth in Section 5 of this Agreement, (b) the occurrence of a Company Termination Event, after expiration of any cure periods and satisfaction of any conditions set forth in Section 6 of this Agreement, and (c) if the Restructuring has not been consummated prior to such date, 5:00 pm on June 15, 2006. Section 8. Effect of Termination and of Waiver of Termination Event. On the delivery of the written notice referred to in Sections 5 or 6 in connection with the valid termination of this Agreement, the obligations of each of the parties 7 hereunder shall thereupon terminate and be of no further force and effect. Prior to the delivery of such notice the Noteholders may waive the occurrence of a Noteholder Termination Event and PRG may waive the occurrence of a Company Termination Event. No such waiver shall affect any subsequent termination event or impair any right consequent thereon. Upon termination of this Agreement, no party shall have any continuing liability or obligation to the other parties hereunder; provided, however, that no such termination shall relieve any party from liability for its breach or non-performance of its obligations hereunder prior to the date of such termination. Section 9. Amendments. This Agreement may be modified, amended, or supplemented by a written agreement executed by the Company and the Noteholders that beneficially own or act as the investment advisors or managers with respect to at least a majority of the aggregate principal face amount of the Notes subject to this Agreement, provided, however, that in the event of a material change to the Term Sheet, or a change of any of the economic terms of the Term Sheet, any Noteholder that does not consent shall have no further obligations under the Agreement. Section 10. Further Assurances. Each of the parties to this Agreement hereby further covenants and agrees to cooperate in good faith to execute and deliver all further documents and agreements and take all further action that may be commercially reasonably necessary or desirable in order to enforce and effectively implement the terms and conditions of this Agreement. Each Noteholder agrees to advise the Company of any changes in the amount of Notes beneficially owned by it and the amount of Notes for which such Noteholder is the investment manager or advisor for beneficial owners. Section 11. Voting Agreement. As soon as reasonably practicable following the consummation of the Restructuring, the Company will call a meeting of shareholders at which it will seek approval of the Management Incentive Plan and the amendment of the Company's articles of incorporation to authorize 140 million shares of common stock in order to provide for conversion in full of the New Senior Convertible Notes, the New Senior Series A Convertible Participating Preferred Stock, and the New Senior Series B Convertible Participating Preferred Stock and the distribution of Company common stock under the Management Incentive Plan, as set forth in the Term Sheet. Each of the Noteholders hereby agrees to (i) attend (in person or by proxy) such shareholders meeting or meetings and (ii) cause all Company common stock and other Company capital stock entitled to vote on any such proposal that are beneficially owned by such Noteholder to be voted in favor of the approval of such proposal. Section 12. Governing Law; Jurisdiction. This Agreement shall be governed by, and construed in accordance with, the laws of the State of New York, regardless of the laws that might otherwise govern under applicable principles of conflict of laws of the State of New York. By its execution and delivery of this Agreement, each of the parties hereto hereby irrevocably and unconditionally agrees for itself that any legal action, suit, or proceeding against it with respect to any matter under or arising out of or in connection with this Agreement or for recognition or enforcement of any judgment rendered in any such action, suit, or proceeding, shall be brought in a federal court of competent jurisdiction in the Southern District of New York. By execution and delivery of this Agreement, each of the parties hereto hereby irrevocably accepts and submits to the jurisdiction of such court, generally and unconditionally, with respect to any such action, suit, or proceeding. 8 Section 13. Notices. All demands, notices, requests, consents, and communications hereunder shall be in writing and shall be deemed to have been duly given if delivered personally or by courier service, messenger, facsimile, telecopy, or if duly deposited in the mails, by certified or registered mail, postage prepaid-return receipt requested, and shall be deemed to have been duly given or made (i) upon delivery, if delivered personally or by courier service, or messenger, in each case with record of receipt, (ii) upon transmission with confirmed delivery, if sent by facsimile or telecopy, or (iii) two business days after being sent by certified or registered mail, postage pre-paid, return receipt requested, to the following addresses, or such other addresses as may be furnished hereafter by notice in writing, to the following parties: If to PRG, or any of its subsidiaries, to: PRG-Schultz International, Inc. 600 Galleria Parkway, Suite 600 Atlanta, GA 30339 Facsimile: (770) 779-3133 Attn: Clint McKellar, Esq. with a copy to: Weil, Gotshal & Manges LLP 767 Fifth Avenue New York, NY 10153 Facsimile: (212) 310-8007 Attn: Michael F. Walsh, Esq. If to the Noteholders, or any one Noteholder, to: Houlihan Lokey Howard & Zukin 685 Third Avenue, 15th Floor New York, NY 10017 Facsimile: (212) 497-3070 Attn: David Hilty with a copy to: Schulte Roth & Zabel LLP 919 Third Avenue New York, NY 10022 Facsimile: (212) 593-5955 Attn: Jeffrey S. Sabin, Esq. 9 Section 14. Entire Agreement. This Agreement constitutes the full and entire understanding and agreement among the parties with regard to the subject matter hereof, and supersedes all prior agreements with respect to the subject matter hereof, including the Original RSA. Section 15. Headings. The headings of the paragraphs and subparagraphs of this Agreement are inserted for convenience only and shall not affect the interpretation hereof. Section 16. Successors and Assigns. This Agreement is intended to bind and inure to the benefit of the parties and their respective permitted successors and assigns, provided, however, that nothing contained in this paragraph shall be deemed to permit sales, assignments, or transfers other than in accordance with Section 4. Section 17. Specific Performance. Each party hereto recognizes and acknowledges that a breach by it of any covenants or agreements contained in this Agreement will cause other parties to sustain damages for which such parties would not have an adequate remedy at law for money damages, and therefore each party hereto agrees that in the event of any such breach, such other parties shall be entitled to the remedy of specific performance of such covenants and agreements and injunctive and other equitable relief in addition to any other remedy to which such parties may be entitled, at law or in equity. Section 18. Several, Not Joint, Obligations. The agreements, representations, and obligations of the parties under this Agreement are, in all respects, several and not joint. Section 19. Remedies Cumulative. All rights, powers, and remedies provided under this Agreement or otherwise available in respect hereof at law or in equity shall be cumulative and not alternative, and the exercise of any right, power, or remedy thereof by any party shall not preclude the simultaneous or later exercise of any other such right, power, or remedy by such party. Section 20. No Waiver. The failure of any party hereto to exercise any right, power, or remedy provided under this Agreement or otherwise available in respect hereof at law or in equity, or to insist upon compliance by any other party hereto with its obligations hereunder, and any custom or practice of the parties at variance with the terms hereof, shall not constitute a waiver by such party of its right to exercise any such or other right, power, or remedy or to demand such compliance. Section 21. Counterparts. This Agreement may be executed in one or more counterparts, each of which shall be deemed an original and all of which shall constitute one and the same Agreement. Delivery of an executed signature page of this Agreement by telecopier or email shall be as effective as delivery of a manually executed signature page of this Agreement. Section 22. Severability. Any provision of this Agreement that is prohibited or unenforceable in any jurisdiction shall, as to such jurisdiction, be ineffective to the extent of such prohibition or unenforceability without invalidating the remaining provisions hereof or affecting the validity or enforceability of such provision in any other jurisdiction. 10 Section 23. No Third-Party Beneficiaries. Unless expressly stated herein, this Agreement shall be solely for the benefit of the parties, and no other person or entity shall be a third party beneficiary hereof. Section 24. Additional Parties. Without in any way limiting the provisions hereof, additional holders of Notes may elect to become parties by executing and delivering to PRG a counterpart hereof. Each such additional holder shall become a party to this Agreement as a Noteholder in accordance with the terms of this Agreement. Section 25. No Solicitation. This Agreement is not intended to be, and each signatory to this Agreement acknowledges that this Agreement is not, a solicitation with respect to the Exchange Offer or with respect to any other mechanism to accomplish a restructuring of the obligations under the Notes, whether such mechanism is to be accomplished in or outside a court. Section 26. Consideration. It is hereby acknowledged by the parties hereto that, other than the agreements, covenants, representations, and warranties set forth herein and in the Term Sheet, no consideration shall be due or paid to the Noteholders for their agreement to vote to accept the Exchange Offer in accordance with the terms and conditions of this Agreement. Section 27. Receipt of Adequate Information; Representation by Counsel. Each party acknowledges that it has received adequate information to enter into this Agreement and that it has been represented by counsel in connection with this Agreement and the transactions contemplated by this Agreement. Accordingly, any rule of law or any legal decision that would provide any party with a defense to the enforcement of the terms of this Agreement against such party shall have no application and is expressly waived. The provisions of the Agreement shall be interpreted in a reasonable manner to effect the intent of the parties. Section 28. Construction. To the extent that any ambiguity exists between the descriptions contained in the Offering Circular and the terms set forth in Exhibit A hereto, the descriptions in the Offering Circular shall control, except to the extent that any such term or description within the Offering Circular is inconsistent with the express provisions of this Agreement, in which case this Agreement shall control. [Signature Page Follows] 11 IN WITNESS WHEREOF, the parties hereto have duly executed and delivered this Agreement as of the date first above written. PRG-Schultz International, Inc. By: /s/ Clinton McKellar, Jr. ------------------------------------------ Name: Clinton McKellar, Jr. Title: Senior Vice President, General Counsel and Secretary [Signature Page to Amended and Restated Restructuring Support Agreement] NOTEHOLDERS: Blum Capital Partners, L.P. By: /s/ Jose S. Medeiros ------------------------------------------- Name: Jose S. Medeiros Title: Partner Address: 909 Montgomery St., Suite 400 San Francisco, CA 94133 Facsimile No.: 415-283-0601 Attn.: Jose S. Medeiros Parkcentral Global Hub Limited By: /s/ Steven Blasnik ------------------------------------------- Name: Steven Blasnik Title: President Address: 2300 West Plano Parkway Plano, TX 75075 Facsimile No.: 972-535-1997 Attn.: Steven Blasnik Petrus Securities L.P. By: /s/ Steven Blasnik ------------------------------------------- Name: Steven Blasnik Title: President of General Partner Address: 2300 West Plano Parkway Plano, TX 75075 Facsimile No.: 972-535-1997 Attn.: Steven Blasnik [Signature Page to Amended and Restated Restructuring Support Agreement] Tenor Opportunity Master Fund, Ltd. By: /s/ Robin Shah ------------------------------------------- Name: Robin Shah Title: Partner Address: 65 East 55th Street New York, NY 10022 Facsimile No.: 212-593-5955 Attn.: Thales Fund Management, LLC By: /s/ A. Aadel Shaaban ------------------------------------------- Name: A. Aadel Shaaban Title: Senior Analyst Address: 140 Broadway, 45th Floor New York, NY 10005 Facsimile No.: Attn.: [Signature Page to Amended and Restated Restructuring Support Agreement] EXHIBIT A TERM SHEET
- ---------------------------- ------------------------------------------------------------------------------------------ PROPOSED TRANSACTION: The following describes an agreement in principle between PRG-Schultz International, Inc. and its subsidiaries (collectively, the "Company") and the Ad Hoc Committee of Holders of the Company's 4.75% Convertible Subordinated Notes due 2006 (the "Ad Hoc Committee") and to restructure the financial obligations of the Company. The Transaction will involve the recapitalization of the Company through: (i) A Bridge Loan (as defined below) of $10 million to provide the Company with sufficient funds to pay the interest payment due on the Notes and additional working capital, pending the closing of the Recapitalization (as defined below); (ii) A credit facility or facilities, consisting of a minimum revolver of $20 million and total commitments of no more than $47.5 million, amending or refinancing (a) the Amended and Restated Credit Agreement, dated as of November 30, 2004, among (x) PRG-Schultz USA, Inc., the Company, and certain of the Company's subsidiaries and (y) Bank of America, N.A. (the "Existing Credit Facility"), and (b) the Bridge Loan; and (iii) A pro-rata exchange of the 4.75% Convertible Subordinated Notes due 2006 issued by the Company (the "Notes") for three new securities including: (1) New Senior Notes; (2) New Senior Convertible Notes; and (3) New Senior Series A Convertible Participating Preferred Stock (collectively the "Transaction Securities"). Points (i) through (iii), collectively, are defined as the "Recapitalization". - ---------------------------- ------------------------------------------------------------------------------------------ CREDIT FACILITIES: Bridge Loan $10 million second lien loan (the "Bridge Loan") to be provided by certain holders of the Notes (or their affiliates). The Bridge Loan will have the following terms: (i) Second lien on assets securing the Existing Credit Facility; (ii) 12% interest in cash, payable monthly; (iii) 50 bps closing fee; (iv) Maturity date: Earlier of closing of the Recapitalization or August 15, 2006; (v) Non-refundable commitment fee of 1.25% of $10 million, payable upon signing the Commitment Letter; an additional 1.75% Placement Fee of the amount borrowed, payable upon closing of the Bridge Loan; plus all out-of-pocket expenses; (vi) Proceeds will be used for general corporate purposes to eliminate risk of adverse customer actions, including paying the interest due on the existing Notes. Up to $2.5 million may be used to fund foreign operations, provided that, if requested by the Ad Hoc Committee, appropriate promissory note and - ---------------------------- ------------------------------------------------------------------------------------------
A-1
- ---------------------------- ------------------------------------------------------------------------------------------ other documentation evidences such inter-company transfers and lien is received on those promissory notes. Proceeds cannot be used to make severance or similar payments to John Cook and Jack Toma. Revolving Credit Facility/ New Second Lien Term Loan The Existing Credit Facility will be either amended with Bank of America or refinanced with a replacement lender to provide a minimum commitment of $20 million of senior secured financing. The Bridge Loan will be repaid upon completion of the refinancing of the Existing Credit Facility with a credit facility or facilities, consisting of a minimum revolver of $20 million and total commitments of no more than $47.5 million. - ---------------------------- ------------------------------------------------------------------------------------------ TRANSACTION SECURITIES: In exchange for the $125 million principal amount of Notes, the Noteholders will receive, upon the closing of the exchange offer (the "Closing Date"), their pro-rata share of the following securities with preference options for the different securities structured, if possible: (i) New Senior Notes in a principal amount of $50 million, plus an additional principal amount equal to accrued and unpaid interest on the Notes to, but not including, the Closing Date; (ii) New Senior Convertible Notes in a principal amount of $60 million; and (iii) New Senior Series A Convertible Participating Preferred Stock with an initial liquidation preference of $15 million. The interest payment due November 26, 2005 on the Notes will be paid in cash from the proceeds of the Bridge Loan during the 30 day grace period as soon as documentation is completed and Bank of America agrees to the terms of an Intercreditor and Subordination Agreement. - ---------------------------- ------------------------------------------------------------------------------------------ NEW SENIOR NOTES: Issuer: Company Face Amount: $50 million plus an additional principal amount equal to accrued and unpaid interest on the Notes to, but not including, the Closing Date - ---------------------------- ------------------------------------------------------------------------------------------
A-2
- ---------------------------- ------------------------------------------------------------------------------------------ Coupon: 11.0% cash, payable semi-annually starting six months after the Closing Date Maturity: 5 years from the Closing Date Call Protection: Callable at any time at 104 in year 1, 102 in year 2; par in year 3 until maturity plus all accrued interest thereon through the date of the prepayment Convertible: Not convertible Ranking: Senior to existing Notes Security: General unsecured obligations Covenants: See description thereof contained in the Offering Circular to be dated February 1, 2006 (the "Offering Circular") - ---------------------------- ------------------------------------------------------------------------------------------ NEW SENIOR CONVERTIBLE Issuer: Company NOTES: Face Amount: $60 million Coupon: 10% cash or PIK, at the option of the Company, payable semi-annually starting six months after the Closing Date Maturity: Five years from the Closing Date Redemption Rights: Callable at par plus accrued interest at any time after both (i) payment of the New Senior Notes in full and (ii) increase in the authorized Company common stock to provide for the conversion in full of the New Senior Convertible Notes, the New Senior Series A Convertible Participating Preferred Stock and the New Senior Series B Convertible Participating Preferred Stock (collectively, the "New Securities") and the distribution in full of Company common stock under the Management Incentive Plan and the effectiveness of a registration statement registering the resale of the New Securities by certain Company affiliates (the "new conversion rights date") Ranking: Pari passu with the New Senior Notes Security: General unsecured obligations - ---------------------------- ------------------------------------------------------------------------------------------
A-3
- ---------------------------- ------------------------------------------------------------------------------------------ Convertible: At the option of the holder, the New Senior Convertible Notes are convertible into New Senior Series B Convertible Participating Preferred Stock only at any time after August 15, 2006 but prior to the new conversion rights date, at a conversion price of $480 per share. At the option of the holder, the New Senior Convertible Notes are convertible into Company common stock only after the new conversion rights ate at a conversion price of $.65 per share. Covenants: See the description thereof contained in the Offering Circular - ---------------------------- ------------------------------------------------------------------------------------------ NEW SENIOR CONVERTIBLE THE NEW SENIOR SERIES B CONVERTIBLE PARTICIPATING PREFERRED STOCK SHALL HAVE THE NOTES (CONTINUED): FOLLOWING TERMS: Face Amount: Principal amount of New Senior Convertible Notes converted plus accrued and unpaid interest. Initial liquidation preference of $480 per share Dividend: 10% annual dividend rate payable semi-annually in cash or by accretion of the liquidation preference of the shares, at the option of the Company Maturity: Later of (i) five years after the Closing Date and (ii) 120th day following the new conversion rights date Convertible: At the option of the holder after the new conversion rights date, the New Senior Series B Convertible Participating Preferred Stock is convertible into common stock at $0.65 per share. Redemption: Optionally redeemable at face amount plus accrued dividends only after the new conversion rights date, subject to prior or simultaneous refinancing in full of the New Senior Notes and the New Senior Convertible Notes Put Rights: During the period from March 15, 2011 to the new conversion rights date, any holder of the New Senior Series B Convertible Participating Preferred Stock may require the Company to redeem such shares on any semi-annual dividend payment date by delivering 60 days prior written notice - ---------------------------- ------------------------------------------------------------------------------------------
A-4
- ---------------------------- ------------------------------------------------------------------------------------------ Voting: Votes with common stock on all issues on an as converted basis Form: Certificated security - ---------------------------- ------------------------------------------------------------------------------------------ NEW SENIOR SERIES A Issuer: Company CONVERTIBLE PARTICIPATING PREFERRED STOCK: Face Amount: $15 million. Initial liquidation preference of $120 per share. Dividend: 9% annual dividend rate payable semi-annually in cash or by accretion of the liquidation preference of the shares, at the option of the Company Maturity: 5 years from the Closing Date Convertible: Convertible into the common stock of the Company at any time at $0.28405 per share at the option of the holder Initial conversion implies 45.9% of the Common Stock of the Company prior to the conversion of the New Senior Convertible Notes into New Senior Series B Convertible Participating Preferred Stock or its conversion into common stock. Redemption: Redeemable at face amount plus accrued dividends only after the operative conversion date, subject to prior or simultaneous refinancing in full of the New Senior Notes and the outstanding New Senior Convertible Notes Votes with Common Stock on all issues on an as converted basis - ---------------------------- ------------------------------------------------------------------------------------------ EXISTING COMMON The Company's existing common shareholders will retain their existing shares SHAREHOLDERS: representing approximately 54.1% of the Common Stock following the initial dilution from the New Senior Series A Convertible Participating Preferred Stock (30% assuming the full and immediate conversion of the New Senior Convertible Notes into Common Stock). - ---------------------------- ------------------------------------------------------------------------------------------ GOVERNANCE: Board of Directors: The board will consist of seven members, four of whom will be designated by the Noteholders Committee, two of whom will be designed by the members of the current board, and one of whom shall be the Company's CEO. - ---------------------------- ------------------------------------------------------------------------------------------
A-5
- ---------------------------- ------------------------------------------------------------------------------------------ MANAGEMENT INCENTIVE PLAN: Shares Phantom shares representing 10% of the Common Stock Recordkeeping A notional account shall be established as to each participating executive to which the phantom shares awarded to such executive shall be credited ("Phantom Stock Account") Vesting 1/3 on the effective date of the Recapitalization ("Effective Date"), with the remainder vesting monthly over the two years following the Effective Date Vesting schedule for executives hired after the Effective Date will be as determined by Company compensation committee. 100% vesting on a change in control. Conversion of the New Senior Convertible Notes, the New Senior Series A Convertible Participating Preferred Stock, and/or the New Senior Series B Convertible Participating Preferred Stock into Common Stock is not a change in control. Allocation To be determined by the Compensation Committee of the new board of directors upon the recommendation of the CEO; provided, however, that the Company's CEO will receive a minimum of 40% of amount allocated to Management Incentive Plan Prior to the last distribution from the Phantom Stock Accounts under the Management Incentive Plan, the compensation committee, after consultation with the Company's CEO, will allocate any unallocated and/or forfeited phantom shares to one or more of the Management Incentive Plan participants. Anti-Dilution Provisions Standard anti-dilution provisions plus dilution protection against conversion of the New Senior Convertible Notes, the New Senior Series A Convertible Participating Preferred Stock, and/or the New Senior Series B Convertible Participating Preferred Stock into Common Stock will apply to the Phantom Stock Account, but will not apply to shares of Common Stock actually distributed to the executive from such account. - ---------------------------- ------------------------------------------------------------------------------------------
A-6
- ---------------------------- ------------------------------------------------------------------------------------------ Distribution Events Distribution of the Phantom Stock Account shall be made, at the individual election of each executive, not earlier than the dates and in the cumulative amounts set forth below. 2d anniversary of Effective Date 25% 3d anniversary of Effective Date 50% 4th anniversary of Effective Date 75% 5th anniversary of Effective Date 100% Distribution of the undistributed vested amount of an executive's Phantom Stock Account shall be made upon the executive's death, disability, or termination of employment, or a change in control (see "Vesting" above) of the Company. Form of Payment Following the consummation of the Restructuring, the Management Incentive Plan will be submitted to the Company shareholders for approval. In the event the Company shareholders decline to approve the Management Incentive Plan, the value of an executive's Phantom Stock Account will be distributed in cash based upon the cash payment formula set forth below. Following the receipt of such shareholder approval, the value of an executive's Phantom Stock Account will be distributed to the executive in cash to the extent required to satisfy any applicable taxes (based on the 30-day average trading price of the Common Stock at the time of distribution) and the balance in shares of Common Stock. Cash Payment Formula The distributable cash value of an executive's Phantom Stock Account shall be equal to (a) the number of shares of Common Stock that would have been distributed to such executive on the applicable distribution date multiplied by (b) the average closing price of the Common Stock for the 30-day period ending on such date. - ---------------------------- ------------------------------------------------------------------------------------------
A-7
- ---------------------------- ------------------------------------------------------------------------------------------ Other Incentive Payments This Management Incentive Plan is in addition to an annual cash bonus program based on EBITDA or other targets implemented by the Compensation Committee of the new board of directors. 409A The Management Incentive Plan shall comply with the requirements of Section 409A of the Tax Code, as applicable. - ---------------------------- ------------------------------------------------------------------------------------------ CONDITIONS: (i) Acceptance of the proposed exchange offer by a minimum amount of 99% of Notes; (ii) The Restructuring Documents are materially consistent herewith and are otherwise are in form and substance satisfactory to the Company and the Noteholders in their reasonable discretion; (iii) Renewal of the Company's D&O policy or the purchase of an extended claims' notice period for such policy, in either case, on terms reasonably satisfactory to the current board of directors of the Company; and (iv) Renegotiation or settlement of the severance agreements with John Cook and Jack Toma on terms reasonably satisfactory to the Noteholders. - ---------------------------- ------------------------------------------------------------------------------------------
A-8 EX-10.2 3 prg10q33106ex102.txt REGISTRATION RIGHTS AGMT. EXHIBIT 10.2 REGISTRATION RIGHTS AGREEMENT THIS REGISTRATION RIGHTS AGREEMENT (this "AGREEMENT"), is entered into as of March 17, 2006, by and among PRG-Schutlz International, Inc., a Georgia corporation (the "COMPANY"), and the holders listed on the Schedule of Holders attached hereto as Exhibit A (each, an "AFFILIATE HOLDER" and, collectively, the "AFFILIATE HOLDERS"). THE PARTIES TO THIS AGREEMENT enter into this agreement on the basis of the following facts, intentions and understanding: A. The Company and certain of the holders of 4 3/4% Convertible Subordinated Notes due 2006 of the Company (the "EXISTING NOTES") entered into that certain Restructuring Support Agreement, dated as of December 23, 2005 (the "RESTRUCTURING SUPPORT AGREEMENT"), and, upon the terms and subject to the conditions of the Restructuring Support Agreement, the Company has agreed to issue to the holders of the Existing Notes in exchange for the Existing Notes held by such holders (the "EXCHANGE") an aggregate of (A) Fifty Million Dollars ($50,000,000) of the Company's 11% Senior Notes due 2011, plus an additional principal amount equal to the aggregate accrued and unpaid interest on the Existing Notes (such 11% Senior Notes, as the same may be amended, modified or supplemented from time to time in accordance with the terms thereof (the "SENIOR NOTES")), (B) Sixty Million Dollars ($60,000,000) of the Company's 10% Senior Convertible Notes due 2011 (such 10% Senior Convertible Notes, as the same may be amended, modified or supplemented from time to time in accordance with the terms thereof (the "CONVERTIBLE NOTES" and, together with the Senior Notes, the "NOTES")), which shall be convertible into shares of Senior Series B Convertible Participating Preferred Stock (the "SERIES B PREFERRED STOCK") of the Company, which shall be convertible into shares of Common Stock, without par value (the "COMMON STOCK") of the Company, and (C) Fifteen Million Dollars ($15,000,000) of Senior Series A Convertible Participating Preferred Stock (the "SERIES A PREFERRED STOCK" and, together with the Series B Preferred Stock, the "PREFERRED Stock") of the Company, which shall be convertible into shares of Common Stock (such Common Stock, together with the Common Stock issued upon conversion of the Series B Preferred Stock, the "CONVERSION SHARES"). B. To induce the Affiliate Holders to consummate the Exchange, the Company has agreed to provide certain registration rights to the Affiliate Holders under the Securities Act of 1933, as amended, and the rules and regulations thereunder, or any similar successor statute (collectively, the "1933 Act"), and applicable state securities laws. NOW, THEREFORE, in consideration of the promises and the mutual covenants contained herein and other good and valuable consideration, the receipt and sufficiency of which are hereby acknowledged, the Company and each of the Affiliate Holders hereby agree as follows: Section 1. Definitions As used in this Agreement, the following terms shall have the following meanings: "AFFILIATE" means a person that directly or indirectly through one or more intermediaries, controls, is controlled by, or is under common control with, the Company. "BUSINESS DAY" means any day other than Saturday, Sunday or any other day on which commercial banks in The City of New York are required by law to remain closed. "CLOSING DATE" means the date upon which the Exchange has been completed. "COMMISSION" means the Securities and Exchange Commission. "INVESTOR" means each Affiliate Holder and any transferee or assignee thereof to whom an Affiliate Holder assigns its rights under this Agreement and who agrees to become bound by the provisions of this Agreement in accordance with Section 9 of this Agreement, and any subsequent transferee or assignee thereof to whom a transferee or assignee assigns its rights under this Agreement and who agrees to become bound by the provisions of this Agreement in accordance with Section 9 of this Agreement. "PERSON" means an individual, a limited liability company, a partnership, a joint venture, a corporation, a trust, an unincorporated organization or association and governmental or any department or agency thereof. "REGISTER," "REGISTERED," and "REGISTRATION" means a registration effected by preparing and filing one or more Registration Statements (as defined below) in compliance with the 1933 Act and pursuant to Rule 415 under the 1933 Act or any successor rule providing for offering securities on a continuous or delayed basis ("RULE 415"), and the declaration or ordering of effectiveness of such Registration Statements by the Commission. "REGISTRABLE SECURITIES" means (i) the Senior Notes, (ii) the Convertible Notes, (iii) the Series A Preferred Stock, (iv) the Series B Preferred stock, (v) the Conversion Shares issued or issuable upon conversion of the Convertible Notes, the Series A Preferred Stock and the Series B Preferred Stock, (vi) any shares of capital stock issued or issuable with respect to the Conversion Shares as a result of any stock split, stock dividend, recapitalization, exchange or similar event or otherwise, without regard to any limitations on conversions of the Series A Preferred Stock or the Series B Preferred Stock, and (vii) any shares of capital stock of any entity issued in respect of the capital stock referenced in the immediately preceding clauses (i), (ii), (iii), (iv), (v) and (vi) as a result of a merger, consolidation, sale of assets, sale or exchange of capital stock or other similar transaction; provided, that any Registrable Securities that (A) have been sold pursuant to a Registration Statement or Rule 144 promulgated under the 1933 Act or (B) are eligible to be sold without restriction under the 1933 Act, shall no longer be Registrable Securities. "REGISTRATION STATEMENT" means a registration statement or registration statements of the Company filed under the 1933 Act and covering all of the Registrable Securities. "REQUIRED HOLDERS" means the holders of a majority of the value of the outstanding Registrable Securities, which value, in the case of Registrable Securities that are shares of Common Stock, shall be determined by the last sale price of such Common Stock on the trading date prior to the date for which the Required Holders approval is relevant, and otherwise shall be determined as the outstanding principal or face amount of the Registrable Securities. 2 Section 2. Registration (a) Mandatory Registration. The Company shall prepare and not later than the earlier of 60 calendar days after the Closing Date or May 15, 2006 (assuming that the Closing Date has occurred) (the "FILING DEADLINE"), file with the Commission a Registration Statement on Form S-3 covering the resale of all of the Registrable Securities of the Affiliate Holders. In the event that Form S-3 is unavailable for such a registration, the Company shall comply with the provisions of Section 2(c) of this Agreement. The Registration Statement prepared pursuant hereto shall register all of the Registrable Securities for resale in accordance with the methods of distribution elected by the Required Holders. The Registration Statement shall contain (except if otherwise directed by the Required Holders) the "Selling Securityholders" and "Plan of Distribution" sections in the form and substance substantially similar to Exhibit B hereto. The Company shall use reasonable best efforts to have the Registration Statement declared effective by the Commission as soon as practicable, but not later than 150 calendar days after the Closing Date (the "EFFECTIVENESS DEADLINE"). (b) Legal Counsel. Subject to Section 5 of this Agreement, the Required Holders shall have the right to select one legal counsel to review and comment upon any registration pursuant to this Agreement (the "LEGAL COUNSEL"), which the Investors agree shall be Schulte Roth & Zabel LLP or such other counsel as thereafter designated in writing by the Required Holders. Schulte Roth & Zabel LLP, or any other counsel designated in writing by the Required Holders, shall not represent any Investor that sends such counsel written notice that such Investor does not wish such counsel to represent it in connection with the matters discussed in this Section 2(b). The Investors, other than any Investor that delivers the notice discussed in the preceding sentence, hereby waive any conflict of interest or potential conflict of interest that may arise as a result of the representation of such Investors by Schulte Roth & Zabel LLP in connection with the subject matter of this Agreement. (c) Ineligibility for Form S-3. If Form S-3 is not available for the registration of the resale of the Registrable Securities hereunder or the Company is not permitted by the 1933 Act or the Commission to use Form S-3, then the Company shall (i) register the resale of the Registrable Securities on another appropriate form reasonably acceptable to the Required Holders, and (ii) undertake to register the Registrable Securities on Form S-3 as soon as such form is available; provided, however, that the Company shall use reasonable best efforts to maintain the effectiveness of the Registration Statement then in effect until such time as a Registration Statement on Form S-3 covering all of the Registrable Securities has been declared effective by the Commission or, if earlier, until the end of the Registration Period (as defined in Section 3(a)). (d) Effect of Failure to File, Obtain, and Maintain Effectiveness of Registration Statement. Subject to any elections made pursuant to Section 4(b), if (i) a Registration Statement covering all the Registrable Securities is not filed with the Commission on or before the Filing Deadline or is not declared effective by the Commission on or before the Effectiveness Deadline, (ii) on any day after such Registration Statement has been declared effective by the Commission, sales of all of the Registrable Securities required to be included on such Registration Statement cannot be made as a matter of law (other than during an Allowable Grace Period (as defined in Section 3(m) of this Agreement) pursuant to such Registration Statement (including, without limitation, because of a failure to keep such Registration Statement effective, to disclose such information as is necessary for sales to be made pursuant to such Registration 3 Statement or to register a sufficient number of shares of Common Stock), or (iv) a Grace Period (as defined in Section 3(m) of this Agreement) exceeds the length of an Allowable Grace Period (each of the items described in clauses (i), (ii) and (iii) above shall be referred to as a "REGISTRATION DELAY"), then, as damages to any Affiliate Holder by reason of any such delay in or reduction of its ability to sell the Registrable Securities, then liquidated damages (the "REGISTRATION DELAY PAYMENTS") will accrue (with respect to each Affiliate Holder, based on the principal amount of the Notes or Convertible Notes or liquidation preference on the Preferred Stock or, in the event of Conversion Shares, the liquidation preference of the Preferred Stock from which the Conversion Shares were converted) on Registrable Securities (in addition to the stated interest or dividends on the Notes, Convertible Notes and Preferred Stock) from and including the date on which any such Registration Delay shall occur to but excluding the date on which all Registration Delays have been cured. During the continuation of a Registration Delay, Registration Delay Payments will accrue at a rate of 0.05% per month during the 90-day period immediately following the occurrence of such Registration Default and shall increase by 0.05% per month at the end of each subsequent 90-day period, but in no event shall such rate exceed 3.00% per annum. The Registration Delay Payments shall be due and payable (1) with respect to the Notes, on the next scheduled interest payment date, (2) with respect to Preferred Stock, upon the next scheduled dividend payment date and (3) with respect to Conversion Shares, on the 30th day following the Registration Delay (and, if such Registration Delay is continuing, each 30th day thereafter so long as any Registration Delay Payments remain due and payable. Following the cure of all Registration Delays, the accrual of Registration Delay Payments shall cease. The Registration Delay Payments under this Section 2(d) shall be the sole and exclusive remedy of the Affiliate Holders of Registrable Securities under this Agreement for a Registration Delay. Notwithstanding the foregoing, no Registration Delay Payments will be due hereunder to any Affiliate Holder with respect to any Notes, Preferred Stock or Conversion Shares that are not Registrable Securities. Section 3. Related Obligations At such time as the Company is obligated to file a Registration Statement with the Commission pursuant to Section 2 of this Agreement, the Company will use reasonable best efforts to effect the registration of all of the Registrable Securities in accordance with the intended method of disposition thereof and, pursuant thereto, the Company shall have the following obligations: (a) The Company shall promptly prepare and file with the Commission a Registration Statement with respect to all of the Registrable Securities (but in no event later than the applicable Filing Deadline) and use reasonable best efforts to cause such Registration Statement relating to all of the Registrable Securities required to be covered thereby to become effective as soon as practicable after such filing (but in no event later than the applicable Effectiveness Deadline). The Company shall submit to the Commission, within five (5) Business Days after the Company learns that no review of a particular Registration Statement will be made by the staff of the Commission or that the staff has no further comments on a particular Registration Statement, as the case may be, a request for acceleration of effectiveness of such Registration Statement to a time and date not later than 48 hours after the submission of such request. The Company shall, subject to the terms of this Agreement, keep each Registration Statement effective pursuant to Rule 415 at all times during 4 the period from the date it is initially declared effective until the earlier of (i) the fifth anniversary of the date such Registration Statement is declared effective, and (ii) the date as of which all of the Investors no longer hold Registrable Securities (the "REGISTRATION PERIOD"), which Registration Statement, as of its filing and effective dates (including all amendments or supplements thereto, as of their respective filing and effective dates), shall not contain any untrue statement of a material fact or omit to state a material fact required to be stated therein, or necessary to make the statements therein, not misleading, and the prospectus contained in such Registration Statement, as of its filing date (including all amendments and supplements thereto, as of their respective filing dates), shall not contain any untrue statement of a material fact or omit to state a material fact required to be stated thereon, or necessary to make the statements therein, in light of the circumstances in which they were made, not misleading. (b) Subject to Section 3(m) of this Agreement, the Company shall prepare and file with the Commission such amendments (including post-effective amendments) and supplements to the Registration Statement and the prospectus used in connection with such Registration Statement, which prospectus is to be filed pursuant to Rule 424 (or any successor rule thereto) promulgated under the 1933 Act, as may be necessary to keep such Registration Statement effective at all times during the Registration Period, and, during such period, comply with the provisions of the 1933 Act. In the case of amendments and supplements to a Registration Statement and the prospectus used in connection with such Registration Statement which are required to be filed pursuant to this Agreement (including pursuant to this Section 3(b)) by reason of the Company filing a report on Form 10-K, Form 10-Q or Form 8-K or any analogous report under the Securities Exchange Act of 1934, as amended, and the rules and regulations thereunder, or any similar successor statute (the "1934 ACT"), the Company shall have incorporated such report by reference into such Registration Statement, if applicable, or shall file such amendments or supplements with the Commission on the same day on which the 1934 Act report is filed which created the requirement for the Company to amend or supplement such Registration Statement and prospectus. (c) The Company shall permit Legal Counsel, or if no Legal Counsel shall have been chosen by the Investors, the Investors, to review and provide written comment upon each Registration Statement, prospectus and all amendments and supplements thereto at least three (3) Business Days prior to their filing with the Commission, except for any amendment or supplement or document (a copy of which has been previously furnished to the Investors and Legal Counsel) which counsel to the Company shall advise the Company is required to be filed sooner in order to comply with applicable law. The Company shall furnish to the Investors and Legal Counsel, without charge, (i) promptly after receipt of such correspondence, copies of all correspondence from the Commission or the staff of the Commission to the Company or its representatives relating to each Registration Statement, prospectus and all amendments and supplements thereto, (ii) promptly after the same is prepared and filed with the Commission, one (1) copy of each Registration Statement, prospectus and all amendments and supplements thereto, including all exhibits and financial statements related thereto, and (iii) promptly upon the effectiveness of each Registration Statement and each amendment and supplement thereto, one (1) copy of the prospectus included in each such Registration Statement and all amendments and supplements thereto. The Company agrees that it will, and it will cause its counsel to, consider in good faith any comments or objections from Legal 5 Counsel, or if no Legal Counsel shall have been selected, the Investors, as to the form or content of each Registration Statement, prospectus and all amendments or supplements thereto or any request for acceleration of the effectiveness of each Registration Statement, prospectus and all amendments or supplements thereto. (d) The Company shall furnish to each Investor whose Registrable Securities are included in any Registration Statement, without charge to such Investor, (i) upon the effectiveness of each Registration Statement, such number of copies of the prospectus included in such Registration Statement and all amendments and supplements thereto as such Investor may reasonably request, and (iii) such other documents, including copies of any preliminary or final prospectus, as such Investor may reasonably request from time to time in order to facilitate the disposition of the Registrable Securities. (e) Subject to Section 3(m) of this Agreement, and excluding any Registrable Securities held by Investors electing to exclude their Registrable Securities from the Registration Statement under Section 4(b), the Company shall use commercially reasonable efforts to (i) promptly register and qualify, unless an exemption from registration and qualification applies, the resale of the Registrable Securities under such other securities or "blue sky" laws of all applicable jurisdictions in the United States as any holder of Registrable Securities reasonably requests in writing, (ii) promptly prepare and file in those jurisdictions, such amendments (including post-effective amendments) and supplements to such registrations and qualifications as may be necessary to maintain the effectiveness thereof during the Registration Period, (iii) promptly take such other actions as may be reasonably necessary to maintain such registrations and qualifications in effect at all times during the Registration Period, and (iv) promptly take all other actions reasonably necessary or advisable to qualify the Registrable Securities for sale in such jurisdictions; provided, however, that the Company shall not be required in connection therewith or as a condition thereto to (A) file a general consent to service of process in any such jurisdiction, except in such jurisdictions where the Company is subject to service of process or (B) qualify generally to do business in any such jurisdiction, except in such jurisdictions where the Company would otherwise be required to qualify. The Company shall promptly notify each Investor who holds Registrable Securities and Legal Counsel of the receipt by the Company of any notification with respect to the suspension of the registration or qualification of any of the Registrable Securities for sale under the securities or "blue sky" laws of any jurisdiction in the United States or its receipt of notice of the initiation or threatening of any proceeding for such purpose. (f) Notwithstanding anything to the contrary set forth herein, as promptly as practicable after becoming aware of such event, the Company shall notify each Investor and Legal Counsel in writing of the happening of any event as a result of which (i) the Registration Statement or any amendment or supplement thereto, as then in effect, includes an untrue statement of a material fact or omission to state a material fact required to be stated therein or necessary to make the statements therein not misleading or (ii) the prospectus related to such Registration Statement or any amendment or supplement thereto includes an untrue statement of a material fact or omission to state a material fact required to be stated therein or necessary to make the statements therein, in light of the circumstances under which they were made, not misleading, and, subject to Section 3(m) of this Agreement, promptly prepare a supplement or amendment to such Registration Statement and prospectus to correct such untrue statement or omission, and deliver such number of copies of such supplement or amendment to each Investor and Legal Counsel as such Investor or Legal Counsel may reasonably request. The Company shall also promptly notify each Investor and Legal Counsel in writing (i) when a prospectus and each prospectus supplement or amendment thereto has been filed, and when a Registration Statement and each amendment 6 (including post-effective amendments) has been declared effective by the Commission (notification of such effectiveness shall be delivered to each Investor and Legal Counsel by facsimile on the same day of such effectiveness and by overnight mail), (ii) of any request by the Commission for amendments or supplements to a Registration Statement or related prospectus or related information, and (iii) of the Company's reasonable determination that an amendment (including any post-effective amendment) or supplement to a Registration Statement or prospectus would be appropriate (subject to Section 3(n) hereof). (g) Subject to Section 3(m) of this Agreement, the Company shall use reasonable best efforts to (i) prevent the issuance of any stop order or other suspension of effectiveness of a Registration Statement, or the suspension of the qualification of any of the Registrable Securities for sale in any jurisdiction, and (ii) if such an order or suspension is issued, obtain the withdrawal of such order or suspension at the earliest practicable moment and notify each holder of Registrable Securities and Legal Counsel of the issuance of such order and the resolution thereof or its receipt of notice of the initiation or threat of any proceeding for such purpose. (h) The Company shall use reasonable best efforts to cause all the Conversion Shares to be listed on each securities exchange or traded on each securities market on which securities of the same class or series issued by the Company are then listed or traded, as the case may be, if any, if the listing or trading of such Conversion Shares is then permitted under the rules of such exchange or market. The Company shall pay all fees and expenses in connection with satisfying its obligation under this Section 3(i). (i) In connection with any sale or transfer of Registrable Securities pursuant to a Registration Statement, the Company shall cooperate with the Investors who hold Registrable Securities being offered and, to the extent applicable, facilitate the timely preparation and delivery of certificates (not bearing any restrictive legend) representing the Registrable Securities to be offered pursuant to a Registration Statement and enable such certificates to be in such denominations or amounts, as the case may be, as the Investors may reasonably request and, registered in such names as the Investors may request. (j) If requested by an Investor, the Company shall (i) as soon as practicable, incorporate in each prospectus supplement or post-effective amendment to the Registration Statement such information as an Investor provides in writing and reasonably requests to be included therein relating to the sale and distribution of the Registrable Securities, and (ii) as soon as practicable, make all required filings of such prospectus supplement or post-effective amendment after being notified of the matters to be incorporated in such prospectus supplement or post-effective amendment. (k) The Company shall comply with all applicable rules and regulations of the Commission in connection with any registration hereunder. (l) Within two (2) Business Days after a Registration Statement is ordered effective by the Commission, the Company will so notify the transfer agent for 7 the Registrable Securities and the Investors whose Registrable Securities are included in the Registration Statement. (m) Notwithstanding anything to the contrary herein, at any time after a Registration Statement has been declared effective by the Commission, the Company may delay the disclosure of material non-public information concerning the Company if the disclosure of such information at the time is not, in the good faith judgment of the Board of Directors of the Company, in the best interests of the Company (a "GRACE PERIOD"); provided, however, that the Company shall promptly (i) notify the Investors in writing of the existence of material non-public information giving rise to a Grace Period (provided that the Company shall not disclose the content of such material non-public information to the Investors) and the date on which the Grace Period will begin, and (ii) notify the Investors in writing of the date on which the Grace Period ends; provided further, that no single Grace Period shall exceed an aggregate of thirty (30) days in any three (3) month period, and during any three hundred sixty-five (365) day period, the aggregate of all of the Grace Periods shall not exceed an aggregate of ninety (90) days and the first day of any Grace Period must be at least five (5) trading days after the last day of any prior Grace Period (each Grace Period complying with this provision being an "ALLOWABLE GRACE PERIOD"). For purposes of determining the length of a Grace Period, the Grace Period shall be deemed to begin on and include the date the Investors receive the notice referred to in clause (i) above and shall end on and include the later of the date the Investors receive the notice referred to in clause (ii) above and the date referred to in such notice; provided, however, that no Grace Period shall be longer than an Allowable Grace Period. The provisions of Section 3(g) of this Agreement shall not be applicable during the period of any Allowable Grace Period. Upon expiration of the Grace Period, the Company shall again be bound by the first sentence of Section 3(f) of this Agreement. (n) The Company shall make generally available to its security holders as soon as practical, but not later than ninety (90) days after the close of the period covered thereby, an earnings statement (in form complying with, and in the manner provided by, the provisions of Rule 158 under the 1933 Act) covering a twelve-month period beginning not later than the first day of the Company's fiscal quarter next following the effective date of a Registration Statement, and which requirement will be deemed to be satisfied if the Company timely files complete and accurate information on Forms 10Q, 10-K and 8-K under the 1934 Act and otherwise complies with Rule 158 under the 1933 Act. Section 4. Obligations of the Investors (a) At least ten (10) Business Days prior to the first anticipated filing date of a Registration Statement, the Company shall notify each Investor in writing of the information the Company requires from each such Investor if such Investor elects to have any of such Investor's Registrable Securities included in such Registration Statement. It shall be a condition precedent to the obligations of the Company to complete the registration pursuant to this Agreement with respect to the Registrable Securities of a particular Investor that such Investor shall furnish to the Company promptly such information regarding itself, the Registrable Securities held by it and the intended method of disposition of the Registrable Securities held by it as shall be reasonably required to effect the effectiveness of the registration of such Registrable Securities and shall execute such documents in connection with such registration 8 as the Company may reasonably request. Each Investor shall promptly notify the Company of any material change with respect to such information previously provided to the Company by such Investor. No Investor shall be entitled to Registration Delay payments pursuant to Section 2(d) hereof unless and until such Investor shall have used its reasonable best efforts to provide all such reasonably requested information. (b) Each Investor agrees to cooperate with the Company as reasonably requested by the Company in connection with the preparation and filing of any Registration Statement hereunder, unless such Investor has notified the Company in writing of such Investor's election to exclude all of such Investor's Registrable Securities from such Registration Statement, in which case, such Investor does not need to cooperate with the Company until it notifies the Company of its desire to include one or more Registrable Securities in such Registration Statement. (c) Each Investor agrees that, upon receipt of any notice from the Company of the happening of any event of the kind described in Section 3(g) or 3(m) of this Agreement or the first sentence of Section 3(f) of this Agreement, such Investor will immediately discontinue disposition of Registrable Securities pursuant to any Registration Statements covering such Registrable Securities until such Investor's receipt of the copies of the amended or supplemented prospectus contemplated by Section 3(g) of this Agreement or the first sentence of Section 3(f) of this Agreement or receipt of notice that no amendment or supplement is required and, if so directed by the Company, such Investor shall deliver to the Company (at the expense of the Company) or destroy (and deliver to the Company a certificate of destruction) all copies of the prospectus covering such Registrable Securities current at the time of receipt of such notice (other than a single file copy, which such Investor may keep) in such Investor's possession. Section 5. Expenses of Registration All expenses, other than underwriting discounts and commissions, incurred in connection with registrations, filings or qualifications pursuant to Sections 2 and 3 of this Agreement, including, without limitation, all registration, listing and qualifications fees, printers and accounting fees, transfer agent fees and fees and disbursements of counsel for the Company, shall be paid by the Company. The Company shall pay all of the Investors' reasonable costs incurred in connection with the successful enforcement of the Investors' rights under this Agreement; provided, however, the Company shall be responsible for the reasonable fees and disbursements of not more than one counsel, who shall be Legal Counsel. Section 6. Indemnification In the event any Registrable Securities are included in a Registration Statement under this Agreement: (a) To the fullest extent permitted by law, the Company will, and hereby does, indemnify, hold harmless and defend each Investor, the directors, officers, members, partners, employees, agents, representatives of, and each Person, if any, who controls any Investor within the meaning of the 1933 Act or the 1934 Act (each, an "INDEMNIFIED PERSON"), against any losses, claims, damages, liabilities, judgments, fines, penalties, charges, costs, reasonable attorneys' fees, amounts paid in settlement or expenses, joint or several, (collectively, "CLAIMS") incurred in investigating, preparing or defending any 9 action, claim, suit, inquiry, proceeding, investigation or appeal taken from the foregoing by or before any court or governmental, administrative or other regulatory agency, body or the Commission, whether pending or threatened, whether or not an indemnified party is or may be a party thereto ("INDEMNIFIED DAMAGES"), to which any of them may become subject insofar as such Claims (or actions or proceedings, whether commenced or threatened, in respect thereof) arise out of or are based upon (i) any untrue statement or alleged untrue statement of a material fact in a Registration Statement or any amendment (including post-effective amendments) or supplement thereto, or the omission or alleged omission to state a material fact required to be stated therein or necessary to make the statements therein, in light of the circumstances under which they were made, not misleading, (ii) any untrue statement or alleged untrue statement of a material fact contained in any preliminary prospectus if authorized for use by the Company prior to the effective date of such Registration Statement, or contained in the final prospectus (as amended or supplemented, if any) or the omission or alleged omission to state therein any material fact necessary to make the statements made therein, in light of the circumstances under which the statements therein were made, not misleading, or (iii) any violation or alleged violation by the Company of the 1933 Act, the 1934 Act, any other federal law, any state or common law, or any rule or regulation promulgated thereunder in connection with a Registration Statement (the matters in the foregoing clauses (i) through (iii) being, collectively, "Violations"). Subject to Section 6(c) of this Agreement, the Company shall reimburse the Indemnified Persons promptly as such expenses are incurred and are due and payable, for any legal fees or other expenses reasonably incurred by them in connection with investigating or defending any such Claim. Notwithstanding anything to the contrary contained herein, the indemnification agreement contained in this Section 6(a): (i) shall not apply to a Claim by an Indemnified Person arising out of or based upon a Violation which occurs in reliance upon and in conformity with information furnished in writing to the Company by an Investor or its Legal Counsel expressly for use in connection with the preparation of the Registration Statement or any such amendment thereof or supplement thereto; (ii) shall not be available to the extent such Claim is based on a failure of the Investor to deliver or to cause to be delivered the prospectus made available by the Company, including a corrected prospectus, if such prospectus or corrected prospectus was timely made available by the Company pursuant to Section 3(d) of this Agreement; and (iii) shall not apply to amounts paid in settlement of any Claim if such settlement is effected without the prior written consent of the Company, which consent shall not be unreasonably withheld, conditioned or delayed. Such indemnity shall remain in full force and effect regardless of any investigation made by or on behalf of the Indemnified Person and shall survive the transfer of the Registrable Securities by the Investors pursuant to Section 9 of this Agreement. (b) In connection with any Registration Statement in which an Investor is participating, each such Investor agrees to severally and not jointly indemnify, hold harmless and defend, to the same extent and in the same manner as is set forth in Section 6(a) of this Agreement, the Company, each of its directors, officers, employees, agents, affiliates and each Person, if any, who controls, or is alleged to control, the Company within the meaning of the 1933 Act or the 1934 Act (each, an "INDEMNIFIED Party"), against any Claims or Indemnified Damages to which any of them may become subject, under the 1933 Act, the 1934 Act or otherwise, insofar as such Claims or Indemnified Damages arise out of or are based upon any Violation (including for purposes of this paragraph, a material violation of this Agreement by the Investor), in each case to the extent, and only to the extent, that such Violation occurs in reliance upon and in conformity with written information furnished to the Company by such Investor 10 or its Legal Counsel expressly for use in connection with such Registration Statement and, subject to Section 6(c) of this Agreement, such Investor will reimburse any legal or other expenses reasonably incurred by an Indemnified Party in connection with investigating or defending any such Claim; provided, however, that the indemnification agreement contained in this Section 6(b) and the agreement with respect to contribution contained in Section 7 of this Agreement shall not apply to amounts paid in settlement of any Claim if such settlement is effected without the prior written consent of such Investor, which consent shall not be unreasonably withheld or delayed; provided, further, that the Investor shall be liable under this Section 6(b) for only that amount of the Claims and Indemnified Damages as does not exceed the net proceeds to such Investors as a result of the sale of Registrable Securities pursuant to such Registration Statement. Such indemnification agreement shall remain in full force and effect regardless of any investigation made by or on behalf of such Indemnified Party and shall survive the transfer of the Registrable Securities by the Investors pursuant to Section 9 of this Agreement. Notwithstanding anything to the contrary contained herein, the indemnification agreement contained in this Section 6(b) shall not inure to the benefit of any Indemnified Party if the untrue statement or omission of material fact contained in the preliminary prospectus was corrected on a timely basis in the prospectus, as then amended or supplemented. (c) Promptly after an Indemnified Person or Indemnified Party under this Section 6 has knowledge of any Claim as to which such Indemnified Person or Indemnified Party reasonably believes indemnity may be sought or promptly after such Indemnified Person or Indemnified Party receives notice of the commencement of any action or proceeding (including any governmental action or proceeding) involving a Claim, such Indemnified Person or Indemnified Party shall, if a Claim in respect thereof is to be made against any indemnifying party under this Section 6, deliver to the indemnifying party a written notice of such Claim, and the indemnifying party shall have the right to participate in, and, to the extent the indemnifying party so desires, jointly with any other indemnifying party similarly noticed, to assume control of the defense thereof with counsel mutually satisfactory to the indemnifying party and the Indemnified Person or the Indemnified Party, as the case may be; provided, however, that an Indemnified Person or Indemnified Party shall have the right to retain its own counsel if, in the reasonable opinion of counsel retained by the indemnifying party, the representation by such counsel of the Indemnified Person or Indemnified Party and the indemnifying party would be inappropriate due to actual or potential differing interests between such Indemnified Person or Indemnified Party and any other party represented by such counsel in such proceeding; provided, further, that the indemnifying party shall not be responsible for the reasonable fees and expense of more than one (1) separate legal counsel for such Indemnified Person or Indemnified Party. In the case of an Indemnified Person, the legal counsel referred to in the immediately preceding sentence shall be selected by the Required Holders. The Indemnified Party or Indemnified Person shall cooperate fully with the indemnifying party in connection with any negotiation or defense of any such action or Claim by the indemnifying party and shall furnish to the indemnifying party all information reasonably available to the Indemnified Party or Indemnified Person which relates to such action or Claim. The indemnifying party shall keep the Indemnified Party or Indemnified Person fully apprised at all times as to the status of the defense or any settlement negotiations with respect thereto. No indemnifying party shall be liable for any settlement of any action, claim or proceeding effected without its prior written consent; provided, however, that the indemnifying party shall not unreasonably withhold, delay or condition its consent. No indemnifying party shall, without the prior written consent of the Indemnified Party or Indemnified Person, consent to entry of any judgment or enter into any settlement or other compromise which does not include as an unconditional term thereof the giving by the claimant or plaintiff to such 11 Indemnified Party or Indemnified Person of a full release from all liability in respect to such Claim and action and proceeding. After indemnification as provided for under this Agreement, the rights of the indemnifying party shall be subrogated to all rights of the Indemnified Party or Indemnified Person with respect to all third parties, firms or corporations relating to the matter for which indemnification has been made. The failure to deliver written notice to the indemnifying party as provided in this Agreement shall not relieve such indemnifying party of any liability to the Indemnified Person or Indemnified Party under this Section 6, except to the extent that the indemnifying party is prejudiced in its ability to defend such action. (d) No Person involved in the sale of Registrable Securities who is guilty of fraudulent misrepresentation (within the meaning of Section 11(f) of the 1933 Act) in connection with such sale shall be entitled to indemnification from any Person involved in such sale of Registrable Securities who is not guilty of fraudulent misrepresentation. (e) The indemnification required by this Section 6 shall be made by periodic payments of the amount thereof during the course of the investigation or defense, as and when bills are received or Indemnified Damages are incurred. (f) The indemnification agreements contained herein shall be in addition to (i) any cause of action or similar right of the Indemnified Party or Indemnified Person against the indemnifying party or others, and (ii) any liabilities the indemnifying party may be subject to pursuant to the law. Section 7. Contribution To the extent any indemnification by an indemnifying party is prohibited or limited by law, the indemnifying party agrees to make the maximum contribution with respect to any amounts for which it would otherwise be liable under Section 6 of this Agreement to the fullest extent permitted by law; provided, however, that: (i) no contribution shall be made under circumstances where the maker would not have been liable for indemnification under the fault standards set forth in Section 6 of this Agreement, (ii) no Person involved in the sale of Registrable Securities who is guilty of fraudulent misrepresentation (within the meaning of Section 11(f) of the 1933 Act) in connection with such sale shall be entitled to contribution from any Person involved in such sale of Registrable Securities who is not guilty of fraudulent misrepresentation, and (iii) contribution by any seller of Registrable Securities shall be limited in amount to the net amount of proceeds received by such seller from the sale of such Registrable Securities pursuant to such Registration Statement. The provisions of this Section 7 shall remain in full force and effect, regardless of the investigation made by or on behalf of the beneficiaries of this Section 7 and shall survive the transfer of Registrable Securities by the Investors pursuant to Section 9 of this Agreement. Section 8. Reporting. (a) Reports Under The 1934 Act. With a view to making available to the Investors the benefits of Rule 144 promulgated under the 1933 Act or any other similar rule or regulation of the Commission that may at any time permit the 12 Investors to sell securities of the Company to the public without registration ("RULE 144"), the Company shall use reasonable best efforts to: (1) make and keep public information available, as those terms are understood and defined in Rule 144; (2) file with the Commission in a timely manner all reports and other documents required of the Company under the 1933 Act and the 1934 Act; and (3) furnish to each Investor, so long as such Investor owns Registrable Securities, promptly upon request, (A) a written statement by the Company, if true, that it has complied with the applicable reporting requirements of Rule 144, the 1933 Act and the 1934 Act, (B) a copy of the most recent annual or quarterly report of the Company and copies of such other reports and documents so filed by the Company, and (C) such other information as may be reasonably requested to permit the Investors to sell such securities pursuant to Rule 144 without registration. (b) Rule 144A Information. The Company shall, upon request of any Investor, make available to such Investor the information required by Rule 144A(d)(4) (or any successor rule) under the 1933 Act. Section 9. Assignment of Registration Rights The rights under this Agreement shall be assignable by an Investor to which the Registrable Securities are transferable (other than pursuant to a Registration Statement or Rule 144 under the 1933 Act); provided that, if and to the extent that such Notes, Preferred Stock or Conversion Shares remain Registrable Securities following such transfer: (i) the Investor agrees in writing with the transferee or assignee to assign such rights, and a copy of such agreement is furnished to the Company within a reasonable time after such assignment; (ii) the Company is, within a reasonable time after such transfer or assignment, furnished with written notice of (a) the name and address of such transferee or assignee, and (b) the securities with respect to which such rights are being transferred or assigned; (iii) at or before the time the Company receives the written notice contemplated by clause (ii) of this sentence, the transferee or assignee agrees in writing with the Company to be bound by all of the obligations of an Investor under this Agreement; and (iv) such transfer shall have been conducted in accordance with all applicable federal and state securities laws. 13 Section 10. Amendment of Registration Rights Any provision of this Agreement may be amended and the observance of any provision of this Agreement may be waived (either generally or in a particular instance and either retroactively or prospectively), only with the written consent of the Company and the Required Holders. Any amendment or waiver affected in accordance with this Section 10 shall be binding upon each Investor and the Company. No such amendment shall be effective to the extent that it does not apply to all of the holders of the Registrable Securities. No consideration shall be offered or paid to any Person to amend or consent to a waiver or modification of any provision of any of this Agreement unless the same consideration also is offered to all of the parties to this Agreement. Section 11. Miscellaneous (a) A Person is deemed to be a holder of Registrable Securities whenever such Person owns or is deemed to own of record such Registrable Securities. If the Company receives conflicting instructions, notices or elections from two or more Persons with respect to the same Registrable Securities, the Company shall act upon the basis of instructions, notice or election received from such record owner of such Registrable Securities. (b) Any notices, consents, waivers or other communications required or permitted to be given under the terms of this Agreement must be in writing and will be deemed to have been delivered: (i) upon receipt, when delivered personally; (ii) upon receipt, when sent by facsimile (evidenced by mechanically or electronically generated receipt by the sender's facsimile machine); or (iii) one (1) Business Day after deposit with a nationally recognized overnight delivery service, in each case properly addressed to the party to receive the same. The addresses and facsimile numbers for such communications shall be: If to the Company: PRG-Schultz International, Inc. 600 Galleria Parkway, Suite 600 Atlanta, GA 30239 Facsimile: (770) 779-3133 Attention: Clinton McKellar, Jr., Esq. with an additional copy to: Weil, Gotshal & Manges LLP 200 Crescent Court, Suite 300 Dallas, TX 75201 Facsimile: (214) 746-7777 Attention: W. Stuart Ogg, Esq. with an additional copy to: Arnall Golden Gregory LLP 171 17th Street NW, Suite 2100 Atlanta, GA 30363 14 Facsimile: (404) 873-8501 Attention: Joseph Alley, Jr., Esq. If to Legal Counsel: Schulte Roth & Zabel LLP 919 Third Avenue New York, NY 10022 Facsimile: (212) 593-5955 Attention: Andre Weiss, Esq. If to an Affiliate Holder, to its address and facsimile number set forth on the Schedule of Affiliate Holders attached hereto as Exhibit A, with copies to such Affiliate Holder's representatives as set forth on the Schedule of Affiliate Holders, or to such other address and/or facsimile number and/or to the attention of such other Person as the recipient party has specified by written notice given to each other party. Failure to transmit notice or communication to an Affiliate Holder or any defect in it shall not affect its sufficiency with respect to other Affiliate Holders. If a notice or communication is given or made in the manner provided above, it is duly given, whether or not the addressee receives it. (c) Failure of any party to exercise any right or remedy under this Agreement or otherwise, or delay by a party in exercising such right or remedy, shall not operate as a waiver thereof. (d) All questions concerning the construction, validity, enforcement and interpretation of this Agreement shall be governed by the internal laws of the State of New York, without giving effect to any choice of law or conflict of law provision or rule (whether of the State of New York or any other jurisdictions) that would cause the application of the laws of any jurisdictions other than the State of New York. Each party hereby irrevocably submits to the non-exclusive jurisdiction of the state and federal courts sitting the City of New York, Borough of Manhattan, for the adjudication of any dispute hereunder or in connection herewith or with any transaction contemplated hereby or discussed herein, and hereby irrevocably waives, and agrees not to assert in any suit, action or proceeding, any claim that it is not personally subject to the jurisdiction of any such court, that such suit, action or proceeding is brought in an inconvenient forum or that the venue of such suit, action or proceeding is improper. Each party hereby irrevocably waives personal service of process and consents to process being served in any such suit, action or proceeding by mailing a copy thereof to such party at the address for such notices to it under this Agreement and agrees that such service shall constitute good and sufficient service of process and notice thereof. Nothing contained herein shall be deemed to limit in any way any right to serve process in any manner permitted by law. If any provision of this Agreement shall be invalid or unenforceable in any jurisdiction, such invalidity or unenforceability shall not affect the validity or enforceability of the remainder of this Agreement in that jurisdiction or the validity or enforceability of any provision of this Agreement in any other 15 jurisdiction. EACH PARTY HEREBY IRREVOCABLY WAIVES ANY RIGHT IT MAY HAVE, AND AGREES NOT TO REQUEST, A JURY TRIAL FOR THE ADJUDICATION OF ANY DISPUTE HEREUNDER OR IN CONNECTION HEREWITH OR ARISING OUT OF THIS AGREEMENT OR ANY TRANSACTION CONTEMPLATED HEREBY. (e) This Agreement, the Restructuring Support Agreement, the Senior Notes, the Convertible Notes, the Preferred Stock and the documents referenced herein and therein (the "TRANSACTION DOCUMENTS") constitute the entire agreement among the parties hereto with respect to the subject matter hereof and thereof. There are no restrictions, promises, warranties or undertakings, other than those set forth or referred to herein and therein. The Transaction Documents supersede all prior agreements and understandings among the parties hereto with respect to the subject matter hereof and thereof. (f) Subject to the requirements of Section 9 of this Agreement, this Agreement shall inure to the benefit of and be binding upon the permitted successors and assigns of each of the parties hereto. (g) The headings in this Agreement are for convenience of reference only and shall not limit or otherwise affect the meaning hereof. (h) This Agreement may be executed in identical counterparts, each of which shall be deemed an original but all of which shall constitute one and the same agreement. This Agreement, once executed by a party, may be delivered to the other parties hereto by facsimile transmission of a copy of this Agreement bearing the signature of the party so delivering this Agreement. (i) Each party shall do and perform, or cause to be done and performed, all such further acts and things, and shall execute and deliver all such other agreements, certificates, instruments and documents, as the other party may reasonably request in order to carry out the intent and accomplish the purposes of this Agreement and the consummation of the transactions contemplated hereby. (j) All consents and other determinations made by the Investors pursuant to this Agreement shall be made, unless otherwise specified in this Agreement, by the Required Holders. (k) This Agreement is intended for the benefit of the parties hereto and their respective permitted successors and assigns, and is not for the benefit of, nor may any provision hereof be enforced by, any other Person. (l) The obligations of each Affiliate Holder under any Transaction Document are several and not joint with the obligations of any other Affiliate Holder, and no Affiliate Holder shall be responsible in any way for the performance of the obligations of any other Affiliate Holder under any Transaction Document. Nothing contained herein or in any other Transaction Document, and no action taken by any Affiliate Holder pursuant hereto or thereto, shall be deemed to constitute the Affiliate Holders as a partnership, an association, a joint venture or any other kind of entity, or create a presumption that the Affiliate Holders are in any way acting in concert or as a group with respect to such obligations or the transactions contemplated by the Transaction Documents. Each Affiliate Holder confirms that it has independently participated in the negotiation of the transaction contemplated hereby with the advice of its own counsel and advisors. Each Affiliate Holder shall be entitled to independently protect and enforce its rights, including, without limitation, the rights arising out of this Agreement or out of any other Transaction Documents, and it shall not be necessary for any other Affiliate Holder to be joined as an additional party in any proceeding for such purpose. 16 IN WITNESS WHEREOF, the parties have caused this Registration Rights Agreement to be duly executed as of day and year first above written. COMPANY PRG-SCHULTZ INTERNATIONAL, INC. By: /s/ James B. McCurry -------------------------------------- Name: Title: [Signatures of Affiliate Holders on Following Page] [SIGNATURE PAGE TO REGISTRATION RIGHTS AGREEMENT] BLUM STRATEGIC PARTNERS II, L.P. By: /s/ Jose Medeiros -------------------------------------- Name: Jose Medeiros Title: Partner BLUM STRATEGIC PARTNERS II GMBH & CO. KG By: /s/ Jose Medeiros -------------------------------------- Name: Jose Medeiros Title: Partner BLUM CAPITAL PARTNERS, L.P. By: /s/ Jose Medeiros -------------------------------------- Name: Jose Medeiros Title: Partner STINSON CAPITAL PARTNERS, L.P. By: /s/ Jose Medeiros -------------------------------------- Name: Jose Medeiros Title: Partner STINSON CAPITAL PARTNERS II, L.P. By: /s/ Jose Medeiros -------------------------------------- Name: Jose Medeiros Title: Partner STINSON CAPITAL PARTNERS QP, L.P. By: /s/ Jose Medeiros -------------------------------------- Name: Jose Medeiros Title: Partner STINSON CAPITAL PARTNERS S, L.P. By: /s/ Jose Medeiros -------------------------------------- Name: Jose Medeiros Title: Partner PARKCENTRAL GLOBAL HUB LIMITED By: /s/ Steven Blasnik -------------------------------------- Name: Steven Blasnick Title: President PETRUS SECURITIES, L.P. By: /s/ Steven Blasnik -------------------------------------- Name: Steven Blasnick Title: President of General Partner EXHIBIT A
EXHIBIT A TO REGISTRATION RIGHTS AGREEMENT SCHEDULE OF HOLDERS PRINCIPAL AMOUNT PRINCIPAL AMOUNT OF CONVERTIBLE NUMBER OF SERIES A NUMBER OF SERIES B NAME OF HOLDERS OF SENIOR NOTES(1) NOTES PREFERRED SHARES PREFERRED SHARES (2) - -------------------------------- ------------------ ------------------ ------------------ -------------------- 1. Blum Strategic Partners II, $[6,094,050] $7,054,560 14,697 [14,694.65] L.P. 909 Montgomery Street, Suite 400 San Francisco, CA 94133 Facsimile: (415) 283-0601 2. Blum Strategic Partners II $[125,638] $145,440 303 [302.95] GmbH & Co. KG 909 Montgomery Street, Suite 400 San Francisco, CA 94133 Facsimile: (415) 283-0601 3. Blum Capital Partners, L.P. $[2488] $2880 6 [6] 909 Montgomery Street, Suite 400 San Francisco, CA 94133 Facsimile: (415) 283-0601 4. Stinson Capital Partners, $[3,046,402] $3,526,560 7,347 [7,345.82] L.P. 909 Montgomery Street, Suite 400 San Francisco, CA 94133 Facsimile: (415) 283-0601 5. Stinson Capital Partners $[2,710,540] $3,137,760 6,537 [6535.95] (QP), L.P. 909 Montgomery Street, Suite 400 San Francisco, CA 94133 Facsimile: (415) 283-0601 6. Stinson Capital Partners $[2,487,875] $2,880,000 6,000 [5999.04] II, L.P. 909 Montgomery Street, Suite 400 San Francisco, CA 94133 Facsimile: (415) 283-0601 7. Stinson Capital Partners S, $[462,745] $535,680 1,116 [1,115.82] L.P. 909 Montgomery Street, Suite 400 San Francisco, CA 94133 Facsimile: (415) 283-0601 8. Parkcentral Global Hub $[8,311576] $9,621,600 20,045 [20,041.79] Limited 2300 West Plano Parkway Plano, TX 75075 Facsimile: (972) 535-1997 9. Petrus Securities, L.P. $[1,617,119] $1,872,000 3,900 [3,899.37] 2300 West Plano Parkway Plano, TX 75075 Facsimile: (972) 535-1997
- ------------------ (1) The principal amount of the Senior Notes was calculated by issuing $414.64583333 per $1,000 of existing notes surrendered. Please note that the numbers listed in Exhibit A may not be exact due to rounding. (2) No shares of Series B Preferred Shares are currently issued. This number assumes full conversion of the Senior Convertible Notes. EXHIBIT B EX-10.3 4 prg10q33106ex103.txt FINANCING AGMT. EXHIBIT 10.3 FINANCING AGREEMENT Financing Agreement, dated as of March 17, 2006, by and among PRG-SCHULTZ INTERNATIONAL, INC., a Georgia corporation (the "Parent"), PRG-SCHULTZ USA, INC., a Georgia corporation (the "Borrower"), each subsidiary of the Parent listed as a "Guarantor" on the signature pages hereto (together with the Parent, each a "Guarantor" and collectively, jointly and severally, the "Guarantors"), the lenders, from time to time, party hereto (each a "Lender" and collectively, the "Lenders"), ABLECO FINANCE LLC, a Delaware limited liability company ("Ableco"), as collateral agent for the Lenders (in such capacity, together with any successor collateral agent, the "Collateral Agent"), and THE CIT GROUP/BUSINESS CREDIT, INC., a New York corporation ("CIT"), as administrative agent for the Lenders (in such capacity, together with any successor administrative agent, the "Administrative Agent" and together with the Collateral Agent, each an "Agent" and collectively, the "Agents"). RECITALS The Borrower has asked the Lenders to extend credit to the Borrower consisting of (a) a term loan in the aggregate principal amount of $25,000,000 and (b) a revolving credit facility in an aggregate principal amount not to exceed $20,000,000 at any time outstanding, which will include a subfacility for the issuance of letters of credit. The proceeds of the term loan and the loans made under the revolving credit facility shall be used to refinance existing senior indebtedness of the Borrower, for general working capital purposes of the Borrower and to pay fees and expenses related to this Agreement and the Exchange Offer Transaction (as defined below). The letters of credit will be used for general working capital purposes of the Borrower. The Lenders are severally, and not jointly, willing to extend such credit to the Borrower subject to the terms and conditions hereinafter set forth. In consideration of the premises and the covenants and agreements contained herein, the parties hereto agree as follows: ARTICLE I DEFINITIONS; CERTAIN TERMS Section 1.01 Definitions. As used in this Agreement, the following terms shall have the respective meanings indicated below, such meanings to be applicable equally to both the singular and plural forms of such terms: "Ableco" has the meaning specified therefor in the preamble hereto and shall include its permitted assigns and successors. "Account Debtor" means any Person who is or who may become obligated under, with respect to, or on account of, an Account Receivable, chattel paper, or a general intangible. "Account Receivable" means, with respect to any Person, all of such Person's now owned or hereafter acquired right, title, and interest with respect to "accounts" (as that term is defined in Article 9 of the Code), and any and all "supporting obligations" (as that term is defined in the Code) in respect thereof. "Action" has the meaning specified therefor in Section 12.12. "additional amount" has the meaning specified therefor in Section 2.08(a). "Administrative Agent" has the meaning specified therefor in the preamble hereto. "Administrative Agent's Account" means an account at a bank designated by the Administrative Agent from time to time as the account into which the Borrower shall make all payments to the Administrative Agent for the benefit of the Agents and the Lenders under this Agreement and the other Loan Documents. "Affiliate" means, with respect to any Person, any other Person that directly or indirectly through one or more intermediaries, controls, is controlled by, or is under common control with, such Person. For purposes of this definition, "control" of a Person means the power, directly or indirectly, either to (i) vote 10% or more of the Capital Stock having ordinary voting power for the election of directors of such Person or (ii) direct or cause the direction of the management and policies of such Person whether by contract or otherwise. Notwithstanding anything herein to the contrary, in no event shall any Agent or any Lender be considered an "Affiliate" of any Loan Party. "After Acquired Property" means any fee-owned interest in real property acquired by the Parent or any of its Subsidiaries after the date hereof with a Current Value in excess of $200,000. "Agent" and "Agents" have the respective meanings specified therefor in the preamble hereto. "Agent Advances" has the meaning specified therefor in Section 10.08(a). "Agreement" means this Financing Agreement, including all amendments, modifications and supplements and any exhibits or schedules to any of the foregoing, and shall refer to the Agreement as the same may be in effect at the time such reference becomes operative. "Albertsons Receivables" means Accounts Receivable owing from Albertsons, Inc. with a due date no later than 60 days after the invoice date. 2 "Articles of Amendment" means the articles of amendment adopted by resolution of the board of directors of the Parent on March 15, 2006 regarding the Series A Preferred Stock and the Series B Preferred Stock. "Assignment and Acceptance" means an assignment and acceptance entered into by an assigning Lender and an assignee, in accordance with Section 12.07 hereof and substantially in the form of Exhibit A-1 hereto or such other form acceptable to the Agents. "Authorized Officer" means, with respect to any Person, the chief executive officer, chief financial officer, president or executive vice president of such Person. "Availability" means, at any time, the sum of (a) the difference between (i) the lesser of (A) the Borrowing Base, and (B) the Total Revolving Credit Commitment, and (ii) the sum of (A) the aggregate outstanding principal amount of all Revolving Loans, (B) all Letter of Credit Obligations, and (C) the excess of (x) the aggregate amount, if any, of all trade payables of the Borrower and the Domestic Guarantors which are past due by more than 30 days and are not in dispute, over (y) 10% of trade payables of the Borrower and the Domestic Guarantors at such time, and (b) Qualified Cash. "Bankruptcy Code" means the United States Bankruptcy Code (11 U.S.C. ss. 101, et seq.), the Bankruptcy and Insolvency Act (Canada), and the Companies' Creditors Arrangement Act (Canada), each as amended, and any successor statutes. "Base LIBOR Rate" means the rate per annum, determined by Administrative Agent in accordance with its customary procedures, and utilizing such electronic or other quotation sources as it considers appropriate (rounded upwards, if necessary, to the next 1/16%), on the basis of the rates at which Dollar deposits are offered to major banks in the London interbank market on or about 11:00 a.m. (New York time) 3 Business Days prior to the commencement of the applicable Interest Period, for a term and in amounts comparable to the Interest Period and amount of the LIBOR Rate Loan requested by the Borrower in accordance with this Agreement, which determination shall be conclusive in the absence of manifest error. "Board" means the Board of Governors of the Federal Reserve System of the United States. "Borrower" has the meaning specified therefor in the preamble hereto. "Borrowing Base" means, as of any date of determination, an amount determined by the Administrative Agent in the exercise of its Permitted Discretion, with reference to the most recent Borrowing Base Certificate, equal to the difference between (a) the sum of (i) up to 85% of the value of the Net Amount of Eligible Accounts Receivable, less the amount, if any, of the Dilution Reserve, plus (ii) the lesser of (A) up to 20% of the Eligible Backlog, and (B) 50% of the amount determined under clause (a)(i) of this definition, and (b) without duplication, the sum of (i) the Preliminary Reserve, plus (ii) such reserves as the Administrative Agent may deem appropriate in the exercise of its Permitted Discretion. 3 "Borrowing Base Certificate" means a certificate signed by an Authorized Officer of the Borrower and setting forth the calculation of the Borrowing Base in compliance with Section 7.01(a)(vii), substantially in the form of Exhibit B-1. "Brazilian Pledge Agreement" has the meaning specified therefore in Section 5.03(a). "Business Day" means any day that is not a Saturday, Sunday, or other day on which banks are authorized or required to close in the State of New York, except that, if a determination of a Business Day shall relate to a LIBOR Rate Loan, the term "Business Day" also shall exclude any day on which banks are closed for dealings in U.S. Dollar deposits in the London interbank market. "Canadian Employee Benefit Laws" shall mean the Canada Pension Plan (Canada), the Income Tax Act (Canada), the Pension Benefits Standards Act 1985 (Canada), the Employment Insurance Act (Canada), the Pension Benefits Act (Nova Scotia), the Workers' Compensation Act (Nova Scotia), the Labour Standards Code (Nova Scotia), the Occupational Health and Safety Act (Nova Scotia), the Health and Sciences Insurance Act (Nova Scotia) and any federal, provincial or local counterparts or equivalents, in each case, as amended from time to time. "Canadian Guarantee" means the general and continuing guarantee executed and delivered by the Canadian Guarantor in favor of Collateral Agent, for the benefit of the Agents, and Lenders, in form and substance reasonably satisfactory to the Agents. "Canadian Guarantor" means PRG-Schultz Canada Corp., a Nova Scotia unlimited liability company. "Canadian Pledge Agreement" means the share pledge agreement executed and delivered by PRG-Schultz Canada, Inc., a Georgia corporation, in favor of Collateral Agent, for the benefit of the Agents and Lenders, in form and substance reasonably satisfactory to the Agents. "Canadian Security Agreement" means the general security agreement executed and delivered by the Canadian Guarantor, in favor of Collateral Agent, for the benefit of the Agents and Lenders, in form and substance reasonably satisfactory to the Agents. "Capital Expenditures" means, with respect to any Person for any period, the sum of (i) the aggregate of all expenditures by such Person and its Subsidiaries during such period that in accordance with GAAP are or should be included in "property, plant and equipment" or in a similar fixed asset account on its balance sheet, whether such expenditures are paid in cash or financed and including all Capitalized Lease Obligations paid or payable during such period, and (ii) to the extent not covered by clause (i) above, the aggregate of all expenditures by such Person and its Subsidiaries during such period to acquire by purchase or otherwise the business or fixed assets of, or the Capital Stock of, any other Person. "Capital Guideline" means any law, rule, regulation, policy, guideline or directive (whether or not having the force of law and whether or not the failure to comply therewith would be unlawful) (i) regarding capital adequacy, capital 4 ratios, capital requirements, the calculation of a bank's capital or similar matters, or (ii) affecting the amount of capital required to be obtained or maintained by any Lender, any Person controlling any Lender, or the L/C Issuer or the manner in which any Lender, any Person controlling any Lender, or the L/C Issuer allocates capital to any of its contingent liabilities (including letters of credit), advances, acceptances, commitments, assets or liabilities. "Capitalized Lease" means, with respect to any Person, any lease of real or personal property by such Person as lessee which is required under GAAP to be capitalized on the balance sheet of such Person. "Capitalized Lease Obligations" means, with respect to any Person, obligations of such Person and its Subsidiaries under Capitalized Leases, and, for purposes hereof, the amount of any such obligation shall be the capitalized amount thereof determined in accordance with GAAP. "Capital Stock" means (i) with respect to any Person that is a corporation, any and all shares, interests, participations or other equivalents (however designated and whether or not voting) of corporate stock, and (ii) with respect to any Person that is not a corporation, any and all partnership, membership or other equity interests of such Person. "Cash Equivalents" means (i) marketable direct obligations issued or unconditionally guaranteed by the United States Government or issued by any agency or instrumentality thereof and backed by the full faith and credit of the United States, in each case, maturing within six months from the date of acquisition thereof; (ii) commercial paper, maturing not more than 270 days after the date of issue rated P-1 by Moody's or A-1 by S & P; (iii) certificates of deposit maturing not more than 270 days after the date of issue, issued by commercial banking institutions and money market or demand deposit accounts maintained at commercial banking institutions, each of which is a member of the Federal Reserve System and has a combined capital and surplus and undivided profits of not less than $500,000,000; (iv) repurchase agreements having maturities of not more than 90 days from the date of acquisition which are entered into with banks included in the commercial banking institutions described in clause (iii) above and which are secured by marketable direct obligations of the United States Government or any agency thereof, (v) money market accounts maintained with mutual funds having assets in excess of $2,500,000,000; (vi) tax exempt securities rated A or better by Moody's or A+ or better by S&P, and (vii) with respect to Foreign Subsidiaries, investments which are comparable in term and credit quality to those described in the foregoing clauses (i) - (vi). "CFC" means a controlled foreign corporation (as that term is defined in the IRC). "Change in Law" has the meaning specified therefor in Section 4.05(a). "Change of Control" means each occurrence of any of the following: (a) the acquisition by any person, including any syndicate or group deemed to be a "person" under Section 13(d)(3) of the Exchange Act, of beneficial ownership, directly or indirectly, through a purchase, merger or other acquisition transaction or series of transactions, of shares of the Capital Stock of the Parent entitling that person to exercise 50% or more of the total 5 voting power of all shares of such Capital Stock entitled to vote generally in elections of directors, other than any acquisition by the Parent, any of its Subsidiaries or any employee benefit plans of the Parent, (b) the Parent ceases to own and control, directly or indirectly, 100% of the shares of the Capital Stock of the Borrower, (c) during any consecutive two-year period, individuals who at the beginning of that two-year period constituted the board of directors of the Parent (together with any new directors whose election to the board of directors of the Parent, or whose nomination for election by the shareholders of the Parent, was approved by a vote of a majority of the directors then still in office who were either directors at the beginning of such period or whose election or nomination for election were previously so approved) cease for any reason to constitute a majority of the board of directors then in office, or (d) the occurrence of an Indenture Change of Control. "CIT" has the meaning specified therefor in the preamble hereto and shall include its permitted successors and assigns. "Claims Management System" means the database repository of the Parent and its Subsidiaries which tracks all claims of clients of the Parent and its Subsidiaries through the claim life cycle from prospective claim to work-in-process to approved for invoicing. "Code" means the New York Uniform Commercial Code, as in effect from time to time; provided, however, that in the event that, by reason of mandatory provisions of law, any or all of the attachment, perfection, priority, or remedies with respect to Collateral Agent's Liens on any Collateral is governed by the Uniform Commercial Code as enacted and in effect in a jurisdiction other than the State of New York, the term "Code" shall mean the Uniform Commercial Code as enacted and in effect in such other jurisdiction solely for purposes of the provisions thereof relating to such attachment, perfection, priority, or remedies. "Collateral" means all of the property and assets and all interests therein and proceeds thereof now owned or hereafter acquired by any Person upon which a Lien is granted or purported to be granted by such Person as security for all or any part of the Obligations pursuant to the Loan Documents. "Collateral Agent" has the meaning specified therefor in the preamble hereto. "Collection Account" and "Collection Accounts" have the meanings specified therefor in Section 8.01(a). "Collections" means all cash, checks, notes, instruments, and other items of payment (including insurance proceeds, proceeds of cash sales, rental proceeds, and tax refunds). "Commitments" means, with respect to each Lender, such Lender's Revolving Credit Commitment and Term Loan Commitment. 6 "Consolidated EBITDA" means, with respect to any Person for any period, the Consolidated Net Income of such Person and its Subsidiaries for such period, plus without duplication, the sum of the following amounts of such Person and its Subsidiaries for such period and to the extent deducted in determining Consolidated Net Income of such Person and its Subsidiaries for such period: (a) Consolidated Net Interest Expense, (b) net income tax expense, (c) depreciation expense, (d) amortization expense, and (e) to the extent actually paid during such period, fees and expenses related to the consummation of the transactions contemplated to be closed on or about the Effective Date under this Agreement (including the Exchange Offer Transaction). "Consolidated Net Income" means, with respect to any Person for any period, the net income (loss) of such Person and its Subsidiaries for such period, determined on a consolidated basis and in accordance with GAAP, but excluding from the determination of Consolidated Net Income (without duplication) (a) any non-cash extraordinary or non-recurring gains or losses or any non-cash gains or losses solely to the extent that they will not result in cash charges in any future period, (b) restructuring charges in an aggregate amount not to exceed $1,250,000 in any Fiscal Year or $5,000,000 in the aggregate during the term of this Agreement; provided if the actual amount of the restructuring charges excluded from Consolidated Net Income is less than $1,250,000 in any Fiscal Year, then the unused portion may be carried forward to subsequent Fiscal Years and excluded from Consolidated Net Income in such subsequent Fiscal Years so long as the aggregate amount excluded from Consolidated Net Income during the term of this Agreement does not exceed $5,000,000, (c) effects of discontinued operations, (d) interest that is paid-in-kind, (e) interest income, and (f) any tax refunds, net operating losses or other net tax benefits received during such period on account of any prior period. "Consolidated Net Interest Expense" means, with respect to any Person for any period, gross cash interest expense of such Person and its Subsidiaries for such period determined on a consolidated basis and in accordance with GAAP (including interest expense paid to Affiliates of such Person), less (i) the sum of (A) interest income for such period and (B) gains for such period on Hedging Agreements (to the extent not included in interest income above and to the extent not deducted in the calculation of gross interest expense), plus (ii) the sum of (A) losses for such period on Hedging Agreements (to the extent not included in such gross interest expense) and (B) the upfront costs or fees for such period associated with Hedging Agreements (to the extent not included in such gross interest expense), in each case, determined on a consolidated basis and in accordance with GAAP. "Consolidated Senior Debt" means, as of any date of determination, the aggregate principal amount of all Revolving Loans and the aggregate principal amount of the Term Loan. "Contingent Obligation" means, with respect to any Person, any obligation of such Person guaranteeing or intended to guarantee any Indebtedness, leases, dividends or other obligations ("primary obligations") of any other Person (the "primary obligor") in any manner, whether directly or indirectly, including (i) the direct or indirect guaranty, endorsement (other than for collection or deposit in the ordinary course of business), co-making, discounting with recourse or sale with recourse by such Person of the obligation of a primary obligor, (ii) the obligation to make take-or-pay or similar payments, if required, regardless of nonperformance by any other party or parties to an agreement, (iii) any obligation of such Person, whether or not contingent, (A) 7 to purchase any such primary obligation or any property constituting direct or indirect security therefor, (B) to advance or supply funds (1) for the purchase or payment of any such primary obligation or (2) to maintain working capital or equity capital of the primary obligor or otherwise to maintain the net worth or solvency of the primary obligor, (C) to purchase property, assets, securities or services primarily for the purpose of assuring the owner of any such primary obligation of the ability of the primary obligor to make payment of such primary obligation or (D) otherwise to assure or hold harmless the holder of such primary obligation against loss in respect thereof; provided, however, that the term "Contingent Obligation" shall not include any product warranties extended in the ordinary course of business. The amount of any Contingent Obligation shall be deemed to be an amount equal to the stated or determinable amount of the primary obligation with respect to which such Contingent Obligation is made (or, if less, the maximum amount of such primary obligation for which such Person may be liable pursuant to the terms of the instrument evidencing such Contingent Obligation) or, if not stated or determinable, the maximum reasonably anticipated liability with respect thereto (assuming such Person is required to perform thereunder), as determined by such Person in good faith. "Control Agreement" means a control agreement, in form and substance reasonably satisfactory to the Agents, executed and delivered by the Parent or one of its Subsidiaries, Collateral Agent, Administrative Agent, and the applicable securities intermediary or commodities intermediary (with respect to a Securities Account) or bank (with respect to a Deposit Account). "Current Value" has the meaning specified therefor in Section 7.01(o). "Default" means an event which, with the giving of notice or the lapse of time or both, would constitute an Event of Default. "Deposit Account" means any deposit account (as that term is defined in the Code). "Dilution" means, as of any date of determination, a percentage, based upon the experience of the immediately prior 12 months, that is the result of dividing the Dollar amount of (a) bad debt write-downs, discounts, advertising allowances, credits, or other dilutive items with respect to the Borrower's and the Domestic Guarantors' Account Receivables during such period, by (b) the Borrower's and the Domestic Guarantors' billings with respect to Account Receivables during such period (excluding extraordinary items). "Dilution Reserve" means, as of any date of determination, an amount sufficient to reduce the advance rate against Eligible Accounts Receivable by one percentage point for each percentage point by which Dilution is in excess of 5%. "Disposition" means any transaction, or series of related transactions, pursuant to which any Person or any of its Subsidiaries sells, assigns, transfers or otherwise disposes of any property or assets (whether now owned or hereafter acquired) to any other Person, in each case, whether or not the 8 consideration therefor consists of cash, securities or other assets owned by the acquiring Person. "Dissolved Subsidiaries" means PRGRS, Inc., a Delaware corporation, PRGLS, Inc., a Delaware corporation, Cost Recovery Professionals PTY, Ltd., an Australian proprietary company, Profit Recovery Professionals PTY, Ltd, an Australian proprietary company, PRG Holding Co. (France) No. 1, LLC, a Delaware limited liability company, and PRG Holding Co. (France) No. 2, LLC, a Delaware limited liability company. "Dollar," "Dollars" and the symbol "$" each means lawful money of the United States of America. "Domestic Guarantor" means any Guarantor organized under the laws of the United States or the District of Columbia (including the PR Partnership). "Domestic Loan Party" means any Loan Party that is organized under the laws of the United States or the District of Columbia (including the PR Partnership). "Domestic Subsidiary" means any Subsidiary of the Parent that is organized under the laws of the United States or the District of Columbia (including the PR Partnership). "Effective Date" means the date, on or before March 31, 2006, on which all of the conditions precedent set forth in Section 5.01 are first satisfied or waived. "Eligible Accounts Receivable" means the Accounts Receivable of the Borrower and the Domestic Guarantors (other than the PR Partnership) which are, and at all times continue to be, acceptable to the Administrative Agent in its Permitted Discretion. In general, an Account Receivable may, in the Permitted Discretion of the Administrative Agent, be deemed to be eligible if: (a) delivery of the merchandise or the rendition of the services has been completed with respect to such Account Receivable and the Account Receivable has not resulted from a transaction wherein goods are placed on consignment or are sold pursuant to a guaranteed sale, a sale or return, a sale on approval, a bill and hold, or any other terms by reason of which the payment by the Account Debtor may be conditional; (b) no return, rejection, repossession or dispute has occurred with respect to such Account Receivable, the Account Debtor has not asserted any setoff, defense or counterclaim with respect to such Account Receivable, and there has not occurred any extension of the time for payment with respect to such Account Receivable without the consent of the Administrative Agent, provided that, in the case of any dispute, setoff, defense or counterclaim with respect to an Account Receivable, the portion of such Account Receivable not subject to such dispute, setoff, defense or counterclaim will not be ineligible solely by reason of this clause (b); (c) such Account Receivable is lawfully owned by the Borrower or one of the Domestic Guarantors (other than the PR Partnership) free and clear of any Lien other than in favor of the Collateral Agent for the benefit of the Agents and 9 the Lenders and otherwise continues to be in full conformity with all representations and warranties made by the Borrower and the other Domestic Guarantors (other than the PR Partnership) to the Agents and the Lenders with respect thereto in the Loan Documents; (d) such Account Receivable is unconditionally payable in Dollars within 30 days from the invoice date (other than with respect to Albertsons Receivables, Meijer Receivables, Supervalu Receivables, Toys R Us Receivables, and Wal Mart Holdback Receivables) and is not evidenced by a promissory note, chattel paper or any other instrument or other document unless such promissory note, chattel paper or other instrument or document, together with an appropriate instrument of transfer executed in blank by the Borrower, has been delivered to and is in the possession of the Collateral Agent; (e) no more than 60 days have elapsed from the invoice due date and no more than 90 days have elapsed from the invoice date with respect to such Account Receivable; provided that (i) in the case of Albertsons Receivables, no more than 90 days have elapsed from the invoice due date and no more than 120 days have elapsed from the invoice date with respect to such Accounts Receivable, (ii) in the case of Meijer Receivables, no more than 75 days have elapsed from the invoice due date and no more than 135 days have elapsed from the invoice date with respect to such Accounts Receivable, (iii) in the case of Supervalu Receivables, no more than 120 days have elapsed from the invoice due date and no more than 150 days have elapsed from the invoice date with respect to such Accounts Receivable, (iv) in the case of Toys R Us Receivables, no more than 75 days have elapsed from the invoice due date and no more than 135 days have elapsed from the invoice date with respect to such Accounts Receivable, and (v) Wal Mart Holdback Receivables will not be ineligible under this clause (e); (f) such Account Receivable is not due from an Affiliate of the Borrower or its Subsidiaries; (g) such Account Receivable does not constitute an obligation of the United States or any other Governmental Authority (unless all steps required by the Administrative Agent in connection therewith, including notice to the United States Government under the Federal Assignment of Claims Act or any action under any state statute comparable to the Federal Assignment of Claims Act, have been duly taken in a manner satisfactory to the Administrative Agent; provided that from the Effective Date through and including the date that is 120 days after the Effective Date, Accounts Receivable owing from the Army & Air Force Exchange in an aggregate amount not to exceed $250,000 (when aggregated with any U.S. Retail Key Client WIP of the Army & Air Force Exchange that is not ineligible because of clause (b) of the proviso in the definition of "U.S. Retail Key Client WIP") will not be ineligible under this clause (g) regardless of whether all steps required by the Administrative Agent to be taken under the Federal Assignment of Claims Act or any state statute comparable to the Federal Assignment of Claims Act have been taken); (h) the Account Debtor (or the applicable office of the Account Debtor) with respect to such Account Receivable is located in the continental United States, unless such Account Receivable is supported by a letter of credit or other similar obligation satisfactory to the Administrative Agent in its Permitted Discretion; 10 (i) the Account Debtor with respect to such Account Receivable is not a supplier to or creditor of the Borrower or the Domestic Guarantors (other than the PR Partnership) of goods or services in excess of $50,000; provided, however, that in the event that an Account Debtor is a supplier to or creditor of the Borrower or one of the Domestic Guarantors (other than the PR Partnership) such Account Receivable will be eligible under this clause if the Account Debtor has executed a non-offset letter satisfactory to the Administrative Agent in its Permitted Discretion; provided further, however, that if such an Account Debtor has not executed a non-offset agreement, Administrative Agent, in its discretion, may include as eligible the net amount due from such Account Debtor to the Borrower or such Domestic Guarantors (other than the PR Partnership); (j) not more than 50% of the aggregate amount of all Accounts Receivable of the Account Debtor with respect to such Account Receivable have remained unpaid 60 days past the invoice due date or 90 days past the invoice date; provided that (i) in the case of Albertsons Receivables, not more than 50% of the aggregate amount of all Albertsons Receivable have remained unpaid 90 days past the invoice due date or 120 days past the invoice date, (ii) in the case of Meijer Receivables, not more than 50% of the aggregate amount of all Meijer Receivable have remained unpaid 75 days past the invoice due date or 135 days past the invoice date, (iii) in the case of Supervalu Receivables, not more than 50% of the aggregate amount of all Supervalu Receivable have remained unpaid 120 days past the invoice due date or 150 days past the invoice date, or (iv) in the case of Toys R Us Receivables, not more than 50% of the aggregate amount of all Toys R Us Receivables have remained unpaid 75 days past the invoice due date or 135 days past the invoice date; (k) (i) the Account Debtor with respect to such Account Receivable has not filed a petition for bankruptcy or any other relief under the Bankruptcy Code or any other law relating to bankruptcy, insolvency, reorganization or relief of debtors, made an assignment for the benefit of creditors, had filed against it any petition or other application for relief under the Bankruptcy Code or any such other law, (ii) has not failed, suspended business operations, or called a meeting of its creditors for the purpose of obtaining any financial concession or accommodation, or (iii) has not had or suffered to be appointed a receiver or a trustee for all or a significant portion of its assets or affairs; (l) in the case of an Account Debtor who is an individual, is not an employee of the Borrower or the Domestic Guarantors (other than the PR Partnership) or any of their respective Affiliates and has not died or been declared incompetent; (m) the Administrative Agent is, and continues to be, satisfied with the credit standing of the Account Debtor in relation to the amount of credit extended and the Administrative Agent believes, in its Permitted Discretion, that the prospect of collection of such Account Receivable is not impaired for any reason; and (n) the Account Receivable does not represent the right to receive progress payments, installment billings (other than Milestone Accounts), bill and hold invoices, retainage invoices, or other advance billings that are due prior to the completion of performance by the Borrower or one of the Domestic Guarantors (other than the PR Partnership) of the subject contract for goods or services. 11 "Eligible Backlog" means as of any date of determination and without duplication, (a) the U.S. Retail Key Client WIP as of the most recent fiscal quarter end multiplied by (b) the lesser of (i) the U.S. Retail Key Client Effective Fee Rate and (ii) 20 percent, multiplied by (c) the U.S. Retail Key Client Claim Retention Rate. "Employee Plan" means an employee benefit plan (other than a Multiemployer Plan) covered by Title IV of ERISA and maintained (or that was maintained at any time during the six (6) calendar years preceding the date of any borrowing hereunder) for employees of any Loan Party or any of its ERISA Affiliates. "Environmental Actions" means any complaint, summons, citation, notice, directive, order, claim, litigation, investigation, judicial or administrative proceeding, judgment, letter or other communication from any Governmental Authority involving violations of Environmental Laws or Releases of Hazardous Materials (i) from any assets, properties or businesses of any Loan Party or any of its Subsidiaries or any predecessor in interest; (ii) from adjoining properties or businesses; or (iii) onto any facilities which received Hazardous Materials generated by any Loan Party or any of its Subsidiaries or any predecessor in interest. "Environmental Laws" means the Comprehensive Environmental Response, Compensation and Liability Act (42 U.S.C. ss. 9601, et seq.), the Hazardous Materials Transportation Act (49 U.S.C. ss. 1801, et seq.), the Resource Conservation and Recovery Act (42 U.S.C. ss. 6901, et seq.), the Federal Clean Water Act (33 U.S.C. ss. 1251 et seq.), the Clean Air Act (42 U.S.C. ss. 7401 et seq.), the Toxic Substances Control Act (15 U.S.C. ss. 2601 et seq.), as such laws may be amended or otherwise modified from time to time, and any other present or future applicable federal (including the federal government of Canada), state, provincial, local or foreign statute, ordinance, rule, regulation, order, judgment, decree, permit, license or other legally binding determination of any Governmental Authority imposing liability or establishing standards of conduct for protection of the environment or other government restrictions relating to the protection of the environment or the release, emission, deposit, discharge, leaching, migration or spill of any Hazardous Materials into the environment. "Environmental Liabilities and Costs" means all liabilities, monetary obligations, Remedial Actions, losses, damages, punitive damages, consequential damages, treble damages, costs and expenses (including all reasonable fees, disbursements and expenses of counsel, experts and consultants and costs of investigations and feasibility studies), fines, penalties, sanctions and interest incurred as a result of any claim or demand by any Governmental Authority or any third party, and which relate to the liability or potential liability of any Loan Party with respect to any environmental condition or a Release of Hazardous Materials from or onto (i) any property currently or formerly owned by any Loan Party or any of its Subsidiaries or (ii) any Real Property which received Hazardous Materials generated by any Loan Party or any of its Subsidiaries. "Environmental Lien" means any Lien in favor of any Governmental Authority for Environmental Liabilities and Costs. "ERISA" means the Employee Retirement Income Security Act of 1974, as amended, and any successor statute of similar import, and regulations thereunder, in each case, as in effect from time to time. References to sections of ERISA shall be construed also to refer to any successor sections. 12 "ERISA Affiliate" means, with respect to any Person, any trade or business (whether or not incorporated) which is a member of a group of which such Person is a member and which would be deemed to be a "controlled group" within the meaning of Sections 414(b), (c), (m) and (o) of the IRC. "Event of Default" means any of the events set forth in Section 9.01. "Excess Cash Flow" means, with respect to any Person for any period, (i) Consolidated Net Income of such Person and its Subsidiaries for such period, plus (ii) all non-cash items of such Person and its Subsidiaries deducted in determining Consolidated Net Income for such period, less (iii) the sum of (A) all non-cash gains of such Person and its Subsidiaries included in determining Consolidated Net Income for such period, (B) all cash principal payments on Indebtedness (other than voluntary prepayments of the Term Loan made pursuant to Section 2.05(b)(ii)) of such Person and its Subsidiaries made during such period (but in the case of the Revolving Loans or other revolving credit facilities, only to the extent there is an equivalent permanent reduction of the Total Revolving Credit Commitment or the commitment to provide such other revolving credit facility) to the extent such Indebtedness is permitted to be incurred, and such payments are permitted to be made, under this Agreement, (C) cash payments of taxes by such Person and its Subsidiaries during such period, (D) loan servicing fees paid in cash during such period on Indebtedness permitted to be incurred under this Agreement, (E) the cash portion of Capital Expenditures made by such Person and its Subsidiaries during such period to the extent permitted to be made under this Agreement, (F) the excess, if any, of Working Investment at the end of such period over Working Investment at the beginning of such period (or, if the difference results in an amount that is less than zero, minus the excess, if any, of Working Investment at the beginning of such period over Working Investment at the end of such period), and (G) cash restructuring charges of such Person and its Subsidiaries whether accrued in such period or a prior period. "Exchange Act" means the Securities Exchange Act of 1934, as amended. "Exchange Offer Transaction" has the meaning specified therefor in Section 5.01(k). "Exchange Offer Transaction Documents" means the Indenture for the 10% Senior Convertible Notes, the Indenture for the 11% Senior Notes, the Senior Notes, the Senior Convertible Notes, the Articles of Amendment, and the other agreements and documents executed or delivered in connection therewith, as amended or modified in accordance with the terms hereof and thereof. "Existing Bridge Facility" means the credit facility evidenced by that certain Credit Agreement, dated as of December 23, 2005, by and among the Parent, certain Subsidiaries of the Parent signatory thereto, the lenders signatory thereto, and the Existing Bridge Facility Agent, and the agreements related thereto. "Existing Bridge Facility Agent" means Blum Strategic Partners II, L.P. 13 "Existing Bridge Facility Lenders" means the lenders party to the Existing Bridge Facility. "Existing Credit Facility" means the credit facility evidenced by that certain Amended and Restated Credit Agreement, dated as of November 30, 2004, by and among the Parent, certain Subsidiaries of the Parent signatory thereto, and the Existing Credit Facility Lender, and the agreements related thereto. "Existing Credit Facility Lender" means Bank of America, N.A. "Existing Indenture" means that certain Indenture dated as of November 26, 2001 between the Parent and SunTrust Bank, as trustee, as amended or modified in accordance with the terms hereof and thereof. "Existing Notes" means the 4.75% Convertible Subordinated Notes due 2006 issued by the Parent pursuant to the Existing Indenture. "Extraordinary Receipts" means any cash received by the Parent or any of its Subsidiaries not in the ordinary course of business (and not consisting of proceeds of Dispositions or Indebtedness or any foreign, United States, state or local tax refunds), including (i) pension plan reversions, (ii) proceeds of insurance (other than the proceeds of business interruption insurance), (iii) judgments, proceeds of settlements or other consideration of any kind in connection with any cause of action, (iv) condemnation awards (and payments in lieu thereof), (v) indemnity payments, and (vi) any purchase price adjustment received in connection with any purchase agreement and any amounts received from escrow arrangements in connection with any purchase agreement. "Federal Funds Rate" means, for any period, a fluctuating interest rate per annum equal to, for each day during such period, the weighted average of the rates on overnight Federal funds transactions with members of the Federal Reserve System arranged by Federal funds brokers, as published on the next succeeding Business Day by the Federal Reserve Bank of New York, or, if such rate is not so published for any day which is a Business Day, the average of the quotations for such day on such transactions received by the Administrative Agent from three Federal funds brokers of recognized standing selected by it. "Fee Letter" means that certain fee letter, dated as of even date herewith, among the Borrower and the Administrative Agent. "Field Survey and Audit" means a field survey and audit of the Loan Parties and an appraisal of the Collateral performed by auditors, examiners, or appraisers selected by the Administrative Agent, at the sole cost and expense of the Borrower. "Filing Authorization Letter" means a letter duly executed by each Loan Party authorizing the Collateral Agent to file financing statements in such office or offices as may be necessary or, in the opinion of the Agents, desirable to perfect the security interests purported to be created by each Security Agreement. 14 "Final Maturity Date" means March 17, 2010, or such earlier date on which (a) the Total Revolving Credit Commitment is terminated for any reason or (b) all or any portion of the Obligations shall become due and payable pursuant to the terms of Section 9.01. "Financial Statements" means (i) the audited consolidated balance sheet of the Borrower and its Subsidiaries for the Fiscal Year ended December 31, 2004, and the related consolidated statement of operations, shareholders' equity and cash flows for the Fiscal Year then ended, and (ii) the unaudited consolidated balance sheet of the Borrower and its Subsidiaries for the 12 months ended December 31, 2005, and the related consolidated statement of operations, shareholder's equity and cash flows for the 12 months then ended. "First Test Period" means the period ended on the last day of the applicable Person's first fiscal quarter ended after the Effective Date. "Fiscal Year" means the fiscal year of the Parent (or, prior to the Effective Date, the Borrower) and its Subsidiaries ending on December 31st of each year. "Fixed Charge Coverage Ratio" means, with respect to any Person for any period, the ratio of (a) the Consolidated EBITDA of such Person and its Subsidiaries for such period, to (b) the sum of (i) all principal of Indebtedness of such Person and its Subsidiaries scheduled to be paid or prepaid during such period, plus (ii) gross cash interest expense on the Consolidated Senior Debt during such period, plus (iii) all income tax liabilities of such Person and its Subsidiaries that accrued during such period, to the extent that the amount of such liabilities is greater than zero, plus (iv) cash dividends or distributions paid by such Person and its Subsidiaries (other than, in the case of the Parent, dividends or distributions paid to the Parent or its wholly-owned Subsidiaries) during such period, plus (v) Capital Expenditures made by such Person and its Subsidiaries during such period; provided that (A) for the Fiscal Year 2007, the principal paid on the Term Loan in each fiscal quarter shall be deemed to be $1,000,000, and (B) for the Fiscal Year 2008 and the Fiscal Year 2009, the principal paid on the Term Loan in each fiscal quarter shall be deemed to be $2,000,000. In determining the Fixed Charge Coverage Ratio for a particular period, the calculation of the income tax liabilities of such Person and its Subsidiaries described in clause (ii)(C) of the immediately preceding sentence shall be made without giving effect to any tax refunds, tax receivables, net operating losses or other net tax benefits that were received or receivable during such period on account of any prior periods. "Foreign Guarantor" means any Guarantor that is not organized under the laws of any state of the United States or the District of Columbia. "Foreign Subsidiary" means any Subsidiary of the Parent that is not organized under the laws of any state of the United States or the District of Columbia. "Funding Losses" has the meaning specified therefor in Section 2.04(f)(ii)(B). "Funds Flow Agreement" means that certain Funds Flow Agreement, dated of even date herewith, by and among the Administrative Agent, the Collateral Agent, the Lenders, and each Loan Party. 15 "GAAP" means generally accepted accounting principles in effect from time to time in the United States, provided that for the purpose of Section 7.03 hereof and the definitions used therein, "GAAP" shall mean generally accepted accounting principles in effect on the date hereof and consistent with those used in the preparation of the Financial Statements, provided, further, that if there occurs after the date of this Agreement any change in GAAP or in the methodologies used thereunder that affects in any respect the calculation of any covenant contained in Section 7.03 hereof, the Agents and the Borrower shall negotiate in good faith amendments to the provisions of this Agreement that relate to the calculation of such covenant with the intent of having the respective positions of the Lenders and the Borrower after such change in GAAP conform as nearly as possible to their respective positions as of the date of this Agreement and, until any such amendments have been agreed upon, the covenants in Section 7.03 hereof shall be calculated as if no such change in GAAP had occurred. "German Guarantor" means PRG-Schultz (Deutschland) GmbH, a company incorporated under the laws of Germany registered in commercial register of Neuss under registered number HRB 12404. "German Pledge Agreement" has the meaning specified therefor in Section 5.03(b). "German Security Agreement" has the meaning specified therefor in Section 5.03(b). "Governmental Authority" means any nation or government, any Federal, (including the federal government of Canada) state, province, city, town, municipality, county, local or other political subdivision thereof or thereto and any department, commission, board, bureau, instrumentality, agency or other entity exercising executive, legislative, judicial, taxing, regulatory or administrative powers or functions of or pertaining to government. "Guaranteed Obligations" has the meaning specified therefor in Section 11.01. "Guarantor" (i) has the meaning specified therefor in the preamble to this Agreement, and (ii) means each other Person which guarantees, pursuant to the requirements of Section 7.01(b) or otherwise, all or any part of the Obligations. "Guaranty" means (i) the guaranty of each Guarantor party hereto contained in Article XI hereof, and (ii) each other guaranty made by any other Guarantor in favor of the Collateral Agent for the benefit of the Agents and the Lenders pursuant to the requirements of Section 7.01(b) or otherwise. "Hazardous Materials" means (a) any element, compound or chemical that is defined, listed or otherwise classified as a contaminant, pollutant, toxic pollutant, toxic or hazardous substance, extremely hazardous substance or extremely hazardous chemical, hazardous waste, or special waste under Environmental Laws, including any pollutant, contaminant, waste, hazardous waste, toxic substance or dangerous good which is defined or identified as such in any Environmental Law and which is present in the environment in such quantity or state that it contravenes any Environmental Law; (b) petroleum and its refined products; (c) polychlorinated biphenyls; (d) any substance exhibiting a hazardous waste characteristic, including corrosivity, 16 ignitability, toxicity or reactivity as well as any radioactive or explosive materials; and (e) any raw materials or building components containing hazardous substances (including asbestos-containing materials) listed or classified as such under Environmental Laws. "Hedging Agreement" means any interest rate, foreign currency, commodity or equity swap, collar, cap, floor or forward rate agreement, or other agreement or arrangement designed to protect against fluctuations in interest rates or currency, commodity or equity values (including any option with respect to any of the foregoing and any combination of the foregoing agreements or arrangements), and any confirmation executed in connection with any such agreement or arrangement. "Highest Lawful Rate" means, with respect to any Agent or any Lender, the maximum non-usurious interest rate, if any, that at any time or from time to time may be contracted for, taken, reserved, charged or received on the Obligations under laws applicable to such Agent or such Lender which are currently in effect or, to the extent allowed by law, under such applicable laws which may hereafter be in effect and which allow a higher maximum non-usurious interest rate than applicable laws now allow. "Inactive Subsidiaries" means PRG USA, Inc., a Georgia corporation, PRG-Schultz Insurance Limited, a Bermuda company, Howard Schultz & Associates (Asia) Limited, a company organized under the laws of Singapore, HS&A International PTE LTD, a company organized under the laws of Hong Kong, PRG-Schultz (Thailand) Co., Limited, a company organized under the laws of Thailand, PRGDS, LLC, a Georgia limited liability company, and Howard Schultz de Mexico, S.A. de C.V., a company organized in Mexico. "Indebtedness" means, with respect to any Person, without duplication, (i) all indebtedness of such Person for borrowed money; (ii) all obligations of such Person for the deferred purchase price of property or services (other than trade payables or other accounts payable incurred in the ordinary course of such Person's business and not outstanding for more than 90 days after the date such payable was created); (iii) all obligations of such Person evidenced by bonds, debentures, notes or other similar instruments or upon which interest payments are customarily made; (iv) all reimbursement, payment or other obligations and liabilities of such Person created or arising under any conditional sales or other title retention agreement with respect to property used or acquired by such Person, even though the rights and remedies of the lessor, seller or lender thereunder may be limited to repossession or sale of such property; (v) all Capitalized Lease Obligations of such Person; (vi) all obligations and liabilities, contingent or otherwise, of such Person, in respect of letters of credit, acceptances and similar facilities; (vii) all obligations and liabilities, calculated in accordance with accepted practice, of such Person under Hedging Agreements; (viii) all Contingent Obligations; (ix) all monetary obligations under any receivables factoring, receivable sales or similar transactions and all monetary obligations under any synthetic lease, tax ownership/operating lease, off-balance sheet financing or similar financing; and (x) all obligations referred to in clauses (i) through (ix) of this definition of another Person secured by (or for which the holder of such Indebtedness has an existing right, contingent or otherwise, to be secured by) a Lien upon property owned by such Person, even though such Person has not assumed or become 17 liable for the payment of such Indebtedness. The Indebtedness of any Person shall include the Indebtedness of any partnership or joint venture in which such Person is a general partner or a joint venturer. "Indemnified Matters" has the meaning specified therefor in Section 12.15. "Indemnitees" has the meaning specified therefor in Section 12.15. "Indenture Change of Control" has the meaning ascribed to a "Change in Control" in the Indenture for the 10% Senior Convertible Notes or the Indenture for the 11% Senior Notes, as applicable. "Indenture for the 10% Senior Convertible Notes" means that certain Indenture dated as of March 17, 2006 between the Parent and U.S. Bank, National Association, as trustee, as amended or modified in accordance with the terms hereof and thereof. "Indenture for the 11% Senior Notes" means that certain Indenture dated as of March 17, 2006 between the Parent and U.S. Bank, National Association, as trustee, as amended or modified in accordance with the terms hereof and thereof. "Insolvency Proceeding" means any proceeding commenced by or against any Person under any provision of the Bankruptcy Code or under any other bankruptcy or insolvency law, assignments for the benefit of creditors, formal or informal moratoria, compositions, or extensions generally with creditors, or proceedings seeking reorganization, arrangement, or other similar relief. "Intercompany Subordination Agreement" means the Intercompany Subordination Agreement, dated as of the Effective Date, duly executed by each of the Loan Parties, substantially in the form of Exhibit I-1. "Interest Period" means, with respect to each LIBOR Rate Loan, a period commencing on the date of the making of such LIBOR Rate Loan and ending 1, 2, or 3 month(s) thereafter; provided, however, that (a) if any Interest Period would end on a day that is not a Business Day, such Interest Period shall be extended (subject to clauses (c)-(e) below) to the next succeeding Business Day, (b) interest shall accrue at the applicable rate based upon the LIBOR Rate from and including the first day of each Interest Period to, but excluding, the day on which any Interest Period expires, (c) any Interest Period that would end on a day that is not a Business Day shall be extended to the next succeeding Business Day unless such Business Day falls in another calendar month, in which case such Interest Period shall end on the next preceding Business Day, (d) with respect to an Interest Period that begins on the last Business Day of a calendar month (or on a day for which there is no numerically corresponding day in the calendar month at the end of such Interest Period), the Interest Period shall end on the last Business Day of the calendar month that is 1, 2, or 3 month(s) after the date on which the Interest Period began, and (e) Borrower may not elect an Interest Period which will end after the Final Maturity Date. "IRC" means the Internal Revenue Code of 1986, as amended (or any successor statute thereto) and the regulations thereunder. 18 "L/C Issuer" means such bank as the Administrative Agent may select in its sole and absolute discretion. "L/C Subfacility" means that portion of the Total Revolving Credit Commitment equal to $5,000,000. "Lease" means any lease of real property to which any Loan Party or any of its Subsidiaries is a party as lessor or lessee. "Lender" has the meaning specified therefor in the preamble hereto. "Letter of Credit" has the meaning specified therefor in Section 3.01(a). "Letter of Credit Application" has the meaning specified therefor in Section 3.01(a). "Letter of Credit Collateral Account" has the meaning specified therefor in Section 3.01(b). "Letter of Credit Fees" has the meaning specified therefor in Section 3.03(b). "Letter of Credit Guaranty" means one or more guaranties by the Administrative Agent in favor of the L/C Issuer guaranteeing the Borrower's obligations to the L/C Issuer under a reimbursement agreement, Letter of Credit Application or other like document in respect of any Letter of Credit. "Letter of Credit Obligations" means, at any time and without duplication, the sum of (i) the Reimbursement Obligations at such time, plus (ii) the aggregate maximum amount available for drawing under the Letters of Credit outstanding at such time, plus (iii) all amounts for which the Administrative Agent may be liable to the L/C Issuer pursuant to any Letter of Credit Guaranty. "Liabilities" has the meaning specified therefor in Section 2.07. "LIBOR Deadline" has the meaning set forth in Section 2.04(f)(ii)(A). "LIBOR Notice" means a written notice in the form of Exhibit L-1. "LIBOR Option" has the meaning specified therefor in Section 2.04(f)(i). "LIBOR Rate" means, for each Interest Period for each LIBOR Rate Loan, the rate per annum determined by Administrative Agent (rounded upwards, if necessary, to the next 1/16%) by dividing (a) the Base LIBOR Rate for such Interest Period, by (b) 100% minus the Reserve Percentage; provided, however, that the LIBOR Rate shall be subject to a minimum rate of 4.25 percentage points per annum, and, accordingly, to the extent that the LIBOR Rate on any day would be less than the foregoing minimum rate, the LIBOR Rate hereunder for such day automatically shall be deemed increased to such minimum rate. Subject to the 19 minimum rate for the LIBOR Rate described in this definition, the LIBOR Rate shall be adjusted on and as of the effective day of any change in the Reserve Percentage. "LIBOR Rate Loan" means each portion of a Loan that bears interest at a rate determined by reference to the LIBOR Rate. "Lien" means any mortgage, deed of trust, pledge, lien (statutory or otherwise), security interest, charge or other encumbrance or security or preferential arrangement of any nature, including any conditional sale or title retention arrangement, any Capitalized Lease and any assignment, deposit arrangement or financing lease intended as, or having the effect of, security. "Loan" means the Term Loan or any Revolving Loan made by an Agent or a Lender to the Borrower pursuant to Article II hereof. "Loan Account" means an account maintained hereunder by the Administrative Agent on its books of account at the Payment Office, and with respect to the Borrower, in which the Borrower will be charged with all Loans made to, all Letters of Credit issued for the benefit of or at the request of, and all other Obligations incurred by, the Borrower. "Loan Document" means this Agreement, the Funds Flow Agreement, the Intercompany Subordination Agreement, any Guaranty, any Security Agreement, any Mortgage, any Letter of Credit Application, any Filing Authorization Letter, the Fee Letter, the Brazilian Pledge Agreement, the Canadian Guarantee, the Canadian Security Agreement, the Canadian Pledge Agreement, the German Security Agreement, the German Pledge Agreement, the Meridian Pledge Agreements, and any other agreement, instrument, and other document executed and delivered pursuant hereto or thereto or otherwise evidencing or securing any Loan, any Letter of Credit Obligation or any other Obligation; provided that Loan Documents shall not include any Hedging Agreement. "Loan Party" means the Borrower or any Guarantor. "Lockbox Bank" has the meaning specified therefor in Section 8.01(a). "Lockboxes" has the meaning specified therefor in Section 8.01(a). "Material Adverse Effect" means a material adverse effect on any of (i) the operations, business, assets, properties, or financial condition of the Domestic Loan Parties taken as a whole or the Loan Parties taken as a whole, (ii) the ability of any Loan Party to perform any of its obligations under any Loan Document to which it is a party, (iii) the legality, validity or enforceability of this Agreement or any other Loan Document, or (iv) the rights and remedies of any Agent or any Lender under any Loan Document. "Material Contract" means, with respect to the Parent and its Subsidiaries, (i) the contracts or agreements involving the top 15 customers based on revenues of the Parent and its Subsidiaries for the most recent Fiscal Year, and (ii) all other contracts or agreements the loss of which could reasonably be expected to result in a Material Adverse Effect to the Loan Parties taken as a whole. 20 "Meijer Receivables" means Accounts Receivable owing from Meijer Great Lakes Limited Partnership with a due date no later than 75 days after the invoice date. "Meridian" means Meridian Corporation Limited (formerly known as Meridian VAT Corporation Limited), a company incorporated in the Isle of Jersey. "Meridian Intercompany Payable" means the approximately $4,700,000 intercompany payable owed by Meridian and the UK Subsidiaries to the Parent or its Subsidiaries as of the date hereof, as adjusted from time to time for additional transfer pricing and payments thereon. "Meridian Pledge Agreements" means the security interest agreements executed and delivered by each of the Parent and HS&A Acquisition - UK, Inc., a Texas corporation, in favor of Collateral Agent, for the benefit of the Agents and Lenders, each in form and substance reasonably satisfactory to the Agents. "Meridian Subsidiaries" means Meridian and each of its direct and indirect Subsidiaries. "Milestone Accounts" shall mean Accounts Receivable which satisfy each of the following criteria: (i) they arise out of a contract between Borrower or a Domestic Guarantor and a customer of Borrower or such Domestic Guarantor, which contract provides for services to be performed by such Borrower or Domestic Guarantor to be divided into "units" or "milestones" and such Borrower or Domestic Guarantor shall be entitled to collect and enforce payment in full from the customer for such Account Receivable despite other "units" or "milestones" under the contract being not yet completed; (ii) the applicable Borrower or Domestic Guarantor shall have delivered an invoice for such Account Receivable and the customer shall have accepted such invoice; and (iii) such Account Receivable shall not be subject to any offset, setoff or right of recoupment on the part of the customer. "Moody's" means Moody's Investors Service, Inc. and any successor thereto. "Mortgage" means a mortgage, deed of trust or deed to secure debt, in form and substance reasonably satisfactory to the Agents, made by a Loan Party in favor of the Collateral Agent for the benefit of the Agents and the Lenders, securing the Obligations and delivered to the Collateral Agent pursuant to the provisions hereof or otherwise. "Multiemployer Plan" means a "multiemployer plan" as defined in Section 4001(a)(3) of ERISA to which any Loan Party or any of its ERISA Affiliates has contributed to, or has been obligated to contribute, at any time during the preceding six (6) years. "Net Amount of Eligible Accounts Receivable" means the aggregate unpaid invoice amount of Eligible Accounts Receivable less, without duplication, sales, excise or similar taxes, returns, discounts, chargebacks, claims, advance payments, credits and allowances of any nature at any time issued, owing, granted, outstanding, available or claimed with respect to such Eligible Accounts Receivable. 21 "Net Cash Proceeds" means, (i) with respect to any Disposition by any Person or any of its Subsidiaries, the amount of cash received (directly or indirectly) from time to time (whether as initial consideration or through the payment or disposition of deferred consideration) by or on behalf of such Person or such Subsidiary, in connection therewith after deducting therefrom only (A) the amount of any Indebtedness secured by any Permitted Lien on any asset (other than Indebtedness assumed by the purchaser of such asset) which is required to be, and is, repaid in connection with such Disposition (other than Indebtedness under this Agreement), (B) reasonable expenses related thereto incurred by such Person or such Subsidiary in connection therewith, (C) transfer taxes paid to any taxing authorities by such Person or such Subsidiary in connection therewith, and (D) net income taxes to be paid in connection with such Disposition (after taking into account any tax credits or deductions and any tax sharing arrangements) and (ii) with respect to the issuance or incurrence of any Indebtedness by any Person or any of its Subsidiaries, or the sale or issuance by any Person or any of its Subsidiaries of any shares of its Capital Stock, the aggregate amount of cash received (directly or indirectly) from time to time (whether as initial consideration or through the payment or disposition of deferred consideration) by or on behalf of such Person or such Subsidiary in connection therewith, after deducting therefrom only (A) reasonable expenses related thereto incurred by such Person or such Subsidiary in connection therewith, (B) transfer taxes paid by such Person or such Subsidiary in connection therewith and (C) net income taxes to be paid in connection therewith (after taking into account any tax credits or deductions and any tax sharing arrangements); in each case of clause (i) and (ii) to the extent, but only to the extent, that the amounts so deducted are (x) actually paid to a Person that, except in the case of reasonable out-of-pocket expenses, is not an Affiliate of such Person or any of its Subsidiaries and (y) properly attributable to such transaction or to the asset that is the subject thereof. "New Lending Office" has the meaning specified therefor in Section 2.08(d). "Non-U.S. Lender" has the meaning specified therefor in Section 2.08(d). "North American Excess Cash Flow" means, with respect to any Person for any period, (i) North American Consolidated Net Income of such Person and its North American Subsidiaries for such period, plus (ii) all non-cash items of such Person and its North American Subsidiaries deducted in determining North American Consolidated Net Income for such period, less (iii) the sum of (A) all non-cash gains of such Person and its Subsidiaries included in determining North American Consolidated Net Income for such period, (B) all cash principal payments on Indebtedness (other than voluntary prepayments of the Term Loan made pursuant to Section 2.05(b)(ii)) of such Person and its North American Subsidiaries made during such period (but in the case of the Revolving Loans or other revolving credit facilities, only to the extent there is an equivalent permanent reduction of the Total Revolving Credit Commitment or the commitment to provide such other revolving credit facility) to the extent such Indebtedness is permitted to be incurred, and such payments are permitted to be made, under this Agreement, (C) payments of taxes made in cash by such Person and its North American Subsidiaries during such period, (D) loan servicing fees paid in cash during such period on Indebtedness permitted to be incurred under this Agreement, (E) the cash portion of Capital Expenditures made by such Person and its North American Subsidiaries during such period to the extent permitted to be made under this Agreement, (F) the excess, if any, of North American Working 22 Investment at the end of such period over North American Working Investment at the beginning of such period (or, if the difference results in an amount that is less than zero, minus the excess, if any, of North American Working Investment at the beginning of such period over North American Working Investment at the end of such period), and (G) cash restructuring charges of such Person and its North American Subsidiaries whether accrued in such period or a prior period. "North American Consolidated Net Income" means, with respect to any Person for any period, the net income (loss) of such Person and its North American Subsidiaries for such period, determined on a consolidated basis and in accordance with GAAP, but excluding from the determination of North American Consolidated Net Income (without duplication) (a) any non-cash extraordinary or non-recurring gains or losses or any non-cash gains or losses solely to the extent that they will not result in cash charges in any future period, (b) restructuring charges in an aggregate amount not to exceed $1,250,000 in any Fiscal Year or $5,000,000 in the aggregate during the term of this Agreement; provided if the actual amount of the restructuring charges excluded from North American Consolidated Net Income is less than $1,250,000 in any Fiscal Year, then the unused portion may be carried forward to subsequent Fiscal Years and excluded from North American Consolidated Net Income in such subsequent Fiscal Years so long as the aggregate amount excluded from North American Consolidated Net Income during the term of this Agreement does not exceed $5,000,000, (c) effects of discontinued operations, (d) interest that is paid-in-kind, (e) interest income, and (f) any tax refunds, net operating losses or other net tax benefits received during such period on account of any prior period "North American Subsidiary" means any Subsidiary of a Person that is organized under the laws of the United States, the District of Columbia, or Canada. "North American Working Investment" means, at any date of determination thereof, (i) the sum, for any Person and its North American Subsidiaries, of (A) the unpaid face amount of all Accounts Receivable of such Person and its North American Subsidiaries as at such date of determination, plus (B) the aggregate amount of prepaid expenses of such Person and its North American Subsidiaries as at such date of determination, minus (ii) the sum, for such Person and its North American Subsidiaries, of (A) the unpaid amount of all accounts payable of such Person and its North American Subsidiaries as at such date of determination, plus (B) the aggregate amount of all accrued expenses of such Person and its North American Subsidiaries as at such date of determination (including deferred compensation, but, excluding from accounts payable and accrued expenses, the current portion of long-term debt and all accrued interest and taxes). "Notice of Borrowing" has the meaning specified therefor in Section 2.02(a). "Obligations" means all present and future indebtedness, obligations, and liabilities of each Loan Party to the Agents and the Lenders, or any of them, under the Loan Documents, whether or not the right of payment in respect of such claim is reduced to judgment, liquidated, unliquidated, fixed, contingent, matured, disputed, undisputed, legal, equitable, secured, unsecured, and whether or not such claim is discharged, stayed or otherwise affected by any proceeding referred to in Section 9.01. Without limiting the generality of the foregoing, the Obligations of each Loan Party under the Loan Documents include (a) the obligation (irrespective of whether a claim therefor is allowed in any Insolvency Proceeding) to pay principal, interest, charges, expenses, fees, 23 reasonable attorneys fees and disbursements, indemnities and other amounts payable by such Person under the Loan Documents, and (b) the obligation of such Person to reimburse any amount in respect of any of the foregoing that any Agent or any Lender (in its sole discretion) may elect to pay or advance on behalf of such Person. "Other Taxes" has the meaning specified therefor in Section 2.08(b). "Parent" has the meaning specified therefor in the preamble hereto. "Participant Register" has the meaning specified therefor in Section 12.07(g). "Payment Office" means the Administrative Agent's office located at 1211 Avenue of the Americas, New York, New York or at such other office or offices of the Administrative Agent as may be designated in writing from time to time by the Administrative Agent to the Collateral Agent and the Borrower. "PBGC" means the Pension Benefit Guaranty Corporation or any successor thereto. "Permits" has the meaning specified therefor in Section 6.01(n). "Permitted Discretion" means a determination made in the exercise of reasonable (from the perspective of a secured asset-based lender) business judgment. "Permitted Dispositions" means (a) Dispositions of obsolete, worn-out, or surplus equipment in the ordinary course of business, (b) Dispositions of other property or assets for cash in an aggregate amount not less than the fair market value of such property or assets, provided that the Net Cash Proceeds of such Dispositions in the case of clauses (a) and (b) do not exceed $1,000,000 in the aggregate, (c) the use or transfer of cash and Cash Equivalents by the Parent and its Subsidiaries in a manner that is not prohibited by the terms of this Agreement or the other Loan Documents, (d) the licensing or sublicensing by the Parent and its Subsidiaries, (i) on a non-exclusive basis, of patents, trademarks, copyrights, and other intellectual property rights in the ordinary course of business, or (ii) on a non-exclusive or exclusive basis, patents, trademarks, copyrights, and other intellectual property rights in connection with a Disposition permitted under clause (q) of this definition, (e) the granting of leases or subleases to other Persons not materially interfering with the conduct of business of any of the Loan Parties, (f) the abandonment or other Disposition of patents, trademarks, copyrights or other intellectual property rights that are neither necessary nor economically desirable in the operation of the Loan Parties' business, (g) the Disposition of Accounts Receivable in connection with the collection or compromise thereof in the ordinary course of business and in a manner not inconsistent with the provisions of this Agreement (excluding any securitization or factoring or similar transactions), (h) the sale or issuance of (i) the Capital Stock of any Subsidiary of the Parent to the Borrower (so long as such sale or issuance is made subject to Collateral Agent's Liens on such Capital Stock), (ii) the Borrower's Capital Stock to the Parent (so long as such sale or issuance is made subject to Collateral Agent's Liens on such Capital Stock), or (iii) the Parent's Capital Stock to any Person (so long as a Change of Control would not result therefrom), (i) sales or other Dispositions of assets from the Parent or any of its Subsidiaries (other than the Borrower) to the Borrower, to any Domestic Guarantor (other than the Parent), or to the Canadian Guarantor, (j) so long as no Event of Default has 24 occurred and is continuing or would result therefrom, sales or other Dispositions of assets from any Foreign Subsidiary (other than the Canadian Guarantor) to any Foreign Guarantor, (k) sales or other Dispositions of assets from any Subsidiary of the Parent that is not the Borrower or a Guarantor to the Parent or any of its Subsidiaries, (l) transfers of property subject to a casualty event upon receipt of the net cash proceeds of such casualty event and application of such net cash proceeds to the Obligations to the extent required under Section 2.05(c), (m) Liens expressly permitted under Section 7.02(a) to the extent constituting Dispositions, (n) investments expressly permitted under Section 7.02(e) to the extent constituting Dispositions, (o) Dispositions expressly permitted under Section 7.02(c)(ii), (p) voluntary terminations of Hedging Agreements, and (q) Dispositions set forth in that certain letter agreement regarding Dispositions dated as of the date hereof between the Agents and Borrower. "Permitted Indebtedness" means: (a) any Indebtedness owing to any Agent and any Lender under this Agreement and the other Loan Documents; (b) Indebtedness listed on Schedule 7.02(b), and any Permitted Refinancing thereof; (c) Indebtedness evidenced by Capitalized Lease Obligations entered into in order to finance Capital Expenditures made by the Loan Parties in accordance with the provisions of Section 7.03(d), which Indebtedness, when aggregated with the principal amount of all Indebtedness incurred under this clause (c) and clause (d) of this definition, does not exceed $2,000,000 at any time outstanding; (d) purchase money Indebtedness incurred to enable a Loan Party to acquire equipment in the ordinary course of its business, and any Permitted Refinancing thereof, which Indebtedness, when aggregated with the principal amount of all Indebtedness incurred under this clause (c) and clause (d) of this definition, does not exceed $2,000,000 at any time outstanding; (e) Indebtedness of Meridian or any of its Subsidiaries in respect of Meridian's or any of its Subsidiaries' obligations to the French VAT authorities; provided that such Indebtedness shall not have a cross-default to the Indebtedness arising under this Agreement and the other Loan Documents; (f) Indebtedness of the Parent or any of its Subsidiaries under any Hedging Agreement so long as such Hedging Agreements are used solely as a part of its normal business operations as a risk management strategy or hedge against changes resulting from market operations and not as a means to speculate for investment purposes on trends and shifts in financial or commodities markets; (g) Indebtedness owed by any Subsidiary of the Parent to the Parent or any of its Subsidiaries so long as the making of the investment by the Parent or such Subsidiary that is acting as the lender is a Permitted Intercompany Investment; 25 (h) solely for the period from and after the Effective Date to and including November 26, 2006, Indebtedness of the Parent evidenced by the Existing Notes in an aggregate principal amount not to exceed $6,250,000; (i) Indebtedness of the Parent evidenced by the Senior Notes in an aggregate principal amount not to exceed $50,000,000 plus the amount of interest that has accrued as of the Effective Date on the Existing Notes exchanged pursuant to the Exchange Offer Transaction, and any Permitted Refinancing thereof; (j) Indebtedness of the Parent evidenced by the Senior Convertible Notes in an aggregate principal amount not to exceed $60,000,000 (not including any paid-in-kind interest on such Indebtedness pursuant to the terms of the Indenture for the 10% Senior Convertible Notes as of the date hereof), and any Permitted Refinancing thereof; (k) Subordinated Debt and any Permitted Refinancing thereof; (l) unsecured Indebtedness in an aggregate amount not to exceed $1,000,000 at any time outstanding; (m) Indebtedness arising from the honoring by a bank or other financial institution of a check, draft or similar instrument and consisting of obligations in respect of cash management or pooling or netting services, overdraft protections and similar arrangements in each case in connection with cash management and deposit accounts arising in the ordinary course of business; (n) Indebtedness arising in connection with endorsement of instruments for deposit in the ordinary course of business; (o) Indebtedness incurred in connection with the financing of insurance premiums in the ordinary course of business in an aggregate amount not to exceed $1,500,000 at any time outstanding; (p) Indebtedness securing Liens expressly permitted by clause (f) of the definition of "Permitted Liens"; (q) Indebtedness incurred in connection with a Permitted Disposition solely to the extent arising under agreements providing for customary indemnification, adjustments of the purchase price, or similar adjustments; and (r) Contingent Obligations of the Parent in respect of Indebtedness permitted to be incurred pursuant to clauses (a) - (f) or (m) - (q) of this definition. "Permitted Intercompany Investments" means (a) investments consisting of loans (or, solely if required by applicable law or thin capitalization rules, contributions) by any Domestic Loan Party or the Canadian Guarantor to any Foreign Guarantor (other than the Canadian Guarantor) so long as (i) all parties to such transaction are party to the Intercompany Subordination Agreement, and (ii) the aggregate amount of such investments outstanding at any time (net of 26 any repayment thereof) does not exceed $3,000,000, (b) investments consisting of loans (or, solely if required by applicable law or thin capitalization rules, contributions) by any Loan Party to any Foreign Subsidiary (other than any Foreign Guarantor or the Meridian Subsidiaries) so long as the aggregate amount of such investments outstanding at any time (net of any repayment thereof) does not exceed $5,000,000, (c) investments consisting of loans (or, solely if required by applicable law or thin capitalization rules, contributions) by any Loan Party to any Meridian Subsidiary so long as the aggregate amount of such investments outstanding at any time (net of any repayment thereof) does not exceed $6,000,000, (d) solely for the first 90 days following the Effective Date (or such longer period as the Collateral Agent shall reasonably agree), investments consisting of loans by any Subsidiary of the Parent to the Parent (for the avoidance of doubt, it being understood and agreed that the proceeds of such loans (other than loans made by the Borrower to the Parent as expressly permitted by Section 7.02(h)) shall be sent by the Parent to the Borrower for deposit in the Collection Account in accordance with Section 8.01(b)), (e) investments consisting of loans (or, solely if required by applicable law or thin capitalization rules, contributions) by the Parent to any Domestic Loan Party or the Canadian Guarantor, and (f) investments consisting of loans (or, solely if required by applicable law or thin capitalization rules, contributions) by any Subsidiary of the Parent that is not the Borrower or a Guarantor to any other Subsidiary of the Parent that is not the Borrower or a Guarantor. "Permitted Investments" means (a) investments in cash and Cash Equivalents, (b) Permitted Intercompany Investments, (c) Permitted Reorganization Transactions, (d) Hedging Agreements so long as such Hedging Agreements are used solely as a part of normal business operations as a risk management strategy or hedge against changes resulting from market operations and not as a means to speculate for investment purposes on trends and shifts in financial or commodities markets, (e) loans to one or more directors, officers or other employees of the Parent or its Subsidiaries in connection with any such director's, officer's or employee's acquisition of shares of Capital Stock of the Parent in an amount not greater than the purchase price paid by such director, officer or employee for such shares of Capital Stock and in an aggregate amount not to exceed $250,000 at any time outstanding, (f) investments received by the Parent or any of its Subsidiaries pursuant to any plan of reorganization or liquidation or other similar arrangement that has gone effective in an Insolvency Proceeding of any Person, (g) the endorsement of negotiable instruments held for collection in the ordinary course of business, (h) deposits made in the ordinary course of business to secure the performance of leases or to obtain utilities, (i) advances to employees of the Parent or its Subsidiaries made in the ordinary course of business; provided that the aggregate amount of such advances at any time outstanding shall not exceed $250,000, (j) the acquisition by the Borrower or any Domestic Guarantor of Accounts Receivable held by the Parent or any of its Subsidiaries; provided that (i) any such acquisition is in the ordinary course of business, and (ii) the acquired Accounts Receivable are payable or dischargeable in accordance with customary terms, (k) Indebtedness expressly permitted by clause (g) of the definition of "Permitted Indebtedness" (without duplication of any other clause in this definition) or clause (r) of the definition of "Permitted Indebtedness", in each case, solely to the extent constituting investments, (l) Liens expressly permitted by clause (f) of the definition of "Permitted Liens" or clause (q) of the definition of "Permitted Liens", in each case, solely to the extent constituting investments, (m) investments expressly permitted under Section 7.02(h), (n) investments made by the Borrower or any of its Subsidiaries in the form of non-cash consideration received in connection with a Disposition described in clauses (c) - (p) of the definition of "Permitted Dispositions", and (o) other investments in an aggregate amount not to exceed $250,000 outstanding at any time. 27 "Permitted Liens" means: (a) Liens securing the Obligations; (b) Liens for taxes, assessments, levies, or governmental charges the payment of which is not overdue by more than 30 days and, if overdue by more than 30 days (i) such taxes, assessments, levies, or governmental are being contested in good faith by appropriate proceedings for which adequate reserves have been established in accordance with GAAP, or (ii) secure taxes, assessments, levies, or governmental charges in an aggregate amount not to exceed $50,000. (c) Liens imposed by law such as carriers', warehousemen's, mechanics', materialmen's and other similar Liens arising in the ordinary course of business and securing obligations (other than Indebtedness for borrowed money) that are not overdue by more than 30 days and, if overdue by more than 30 days (i) are being contested in good faith and by appropriate proceedings promptly initiated and diligently conducted, and a reserve or other appropriate provision, if any, as shall be required by GAAP shall have been made therefor, or (ii) secure obligations in an aggregate amount not to exceed $50,000; (d) Liens described on Schedule 7.02(a), and any Lien granted as a modification, renewal, extension, replacement, or substitute therefor so long as such modification, renewal, extension, replacement, or substitute therefor does not extend coverage thereof to other property or assets; (e) Liens arising under Capitalized Leases or securing purchase money Indebtedness permitted under the definition of Permitted Indebtedness; provided, however, that (A) no such Lien shall extend to or cover any other property of any Loan Party or any of its Subsidiaries (other than the proceeds and products of the property that is the subject of the Capitalized Lease or purchase money Indebtedness and accessions thereto), and (B) the principal amount of the Indebtedness secured by any such Lien shall not exceed the lesser the fair market value or the cost of the property so held or acquired and customary fees incurred in connection therewith; (f) deposits and pledges of cash securing (i) obligations incurred in respect of workers' compensation, unemployment insurance or other forms of governmental insurance or benefits, (ii) the performance of bids, tenders, leases, contracts (other than for the payment of money) and statutory obligations, (iii) obligations on surety or appeal bonds, but only to the extent such deposits or pledges are made or otherwise arise in the ordinary course of business and secure obligations not past due, or (iv) letters of credit or bank guarantees to support payment of items set forth in this clause (f); (g) easements, zoning restrictions and similar encumbrances on real property and minor irregularities in the title thereto that do not (i) secure obligations for the payment of money or (ii) materially impair the value of such property or its use by any Loan Party or any of its Subsidiaries in the normal conduct of such Person's business; 28 (h) leases or subleases granted to other Persons not materially interfering with the conduct of the business of the Parent or any of its Subsidiaries; (i) (i) non-exclusive licenses or sub-licenses by the Parent or any of its Subsidiaries of patents, trademarks, copyrights, or other intellectual property rights in the ordinary course of business and not interfering in any material respect with the ordinary conduct of the business of the Parent or any of its Subsidiaries, or (ii) exclusive or non-exclusive licenses or sub-licenses by the Parent or any of its Subsidiaries of patents, trademarks, copyrights, or other intellectual property rights in connection with a Disposition expressly permitted by clause (q) of the definition of "Permitted Dispositions"; (j) precautionary financing statement filings regarding operating leases or consignments of goods; (k) Liens arising out of the existence of judgments or awards not giving rise to an Event of Default; (l) statutory and common law landlords' liens under leases to which the Parent or any of its Subsidiaries is a party; (m) Liens securing refinancing Indebtedness permitted to be incurred under clauses (b), (c), or (d) of the definition of "Permitted Indebtedness"; provided, that such Liens do not extend to any property or assets other than the property or assets that served as collateral for the refinanced Indebtedness; (n) bankers' Liens, rights of setoff and other similar Liens existing solely with respect to Cash and Cash Equivalents on deposit in one or more accounts maintained by Parent or any of its Subsidiaries, in each case granted in the ordinary course of business of such Person in favor of the bank or banks with which such accounts are maintained, securing amounts owing to such bank or its affiliates with respect to cash management and operating account arrangements, including those involving pooled accounts and netting arrangements; provided that in no case shall any such Liens secure (either directly or indirectly) the repayment of any Indebtedness for borrowed money; (o) Liens (i) on advances of Cash or Cash Equivalents or Permitted Investments in favor of the seller of any property to be acquired in an investment permitted hereunder, (ii) on any earnest money deposits made by the Parent or any of its Subsidiaries in connection with any letter of intent or purchase agreement permitted hereunder, and (iii) consisting of any agreement to dispose of property in a Disposition permitted under Section 7.02(c); (q) deposits and pledges of Cash and Cash Equivalents securing Indebtedness permitted by clause (e) of the definition of "Permitted Indebtedness"; provided that the amount of such deposits and pledges outstanding at any time shall not exceed 10% of the gross value added tax refunds received by Meridian from France calculated on a rolling 12 month basis; 29 (r) Liens securing Indebtedness in an aggregate amount not to exceed $100,000 arising out of conditional sale, title retention, consignment or similar arrangements for the sale of goods entered into by the Parent or its Subsidiaries in the ordinary course of business; and (s) other Liens securing Indebtedness in an aggregate amount not to exceed $200,000. "Permitted Merger" means (a) the merger of a Domestic Subsidiary (other than the Borrower) or the Canadian Guarantor with and into the Borrower or a Domestic Guarantor, (b) the merger of a Foreign Subsidiary (other than the Canadian Guarantor) with and into a Foreign Guarantor (other than the Canadian Guarantor), and (c) the merger of any Subsidiary of the Borrower that is not a Guarantor with and into the Borrower or another Subsidiary of the Borrower, in the case of each of clauses (a), (b), and (c), so long as (i) no Event of Default shall have occurred or be continuing either before or after giving effect to such merger, (ii) the Borrower gives the Agents at least 15 days prior written notice of such merger, (iii) (A) in the case of a merger involving the Borrower, the Borrower is the continuing or surviving Person, (B) in the case of a merger involving a Domestic Guarantor (other than a merger involving Borrower), such Domestic Guarantor is the continuing or surviving Person, (C) in the case of a merger involving a Foreign Guarantor, such Foreign Guarantor is the continuing or surviving Person, and (v) the Agents' and Lenders' Lien in all or any portion of the Collateral, including without limitation, the existence, perfection, and priority of any Lien thereon, are not adversely affected by such merger. "Permitted Preferred Stock" means and refers to (a) any Preferred Stock issued by the Parent (and not by one or more of its Subsidiaries) that is not Prohibited Preferred Stock, (b) the Series A Preferred Stock, or (c) the Series B Preferred Stock. "Permitted Refinancing" means any extension, refinancing, or modification of any Indebtedness; provided that (i) such extension, refinancing or modification is pursuant to terms that are not less favorable to the Loan Parties and the Lenders than the terms of the Indebtedness being extended, refinanced or modified, (ii) after giving effect to such extension, refinancing or modification, the amount of such Indebtedness is not greater than the amount of Indebtedness outstanding immediately prior to such extension, refinancing or modification plus accrued interest thereon and the fees incurred in connection with the extension, refinancing, or modification, (iii) such extension, refinancing or modification does not result in an increase in the interest rate with respect to the Indebtedness so extended, refinanced, or modified, (iv) such extension, refinancing or modification does not result in a shortening of the average weighted maturity of the Indebtedness so extended, refinanced, or modified, (v) if the Indebtedness that is extended, refinanced, or modified was subordinated in right of payment to the Obligations, then the terms and conditions of the extension, refinancing, or modification must include subordination terms and conditions that are at least as favorable to the Agents and the Lenders as those that were applicable to the extended, refinanced, or modified Indebtedness, (vi) the covenants and events of default of the Indebtedness that is extended, refinanced or modified are not less favorable to the Loan Parties, the Agents or the Lenders than the terms and conditions of the Indebtedness being extended, refinanced, or modified, and (vii) the Indebtedness that is extended, refinanced, or modified is not recourse to any Person that is liable on account of the Obligations other than those Persons which were obligated with respect to the Indebtedness that was extended, refinanced, or modified. 30 "Permitted Reorganization Transaction" means (a) the dissolution, liquidation, or winding-up of any Domestic Subsidiary (other than the Borrower) or the Canadian Guarantor so long as (i) the assets (if any) of such Domestic Subsidiary or the Canadian Guarantor are transferred to a Domestic Loan Party, (ii) no Event of Default shall have occurred and be continuing either immediately before or after giving effect to such transaction, (iii) the Agents' and Lenders' Lien in any Collateral, including, without limitation, the existence, perfection and priority of any Lien thereon, are not adversely affected by such dissolution or winding-up, and (vi) such Domestic Loan Party shall have executed and delivered or authorized, as applicable, any and all security agreements, financing statements, fixture filings, and other documentation reasonably requested by any Agent in order to include the transferred assets within the Collateral, or (b) the dissolution, liquidation, or winding-up of any Foreign Subsidiary (other than the Canadian Guarantor) so long as (i) the assets of such Foreign Subsidiary are transferred to a Foreign Guarantor (other than the Canadian Guarantor) or its parent (other than with respect to any Foreign Subsidiary that is a Subsidiary of the Parent), (ii) no Event of Default shall have occurred and be continuing either immediately before or after giving effect to such transaction, (iii) the Agents' and Lenders' Liens in any Collateral, including, without limitation, the existence, perfection and priority of any Lien thereon, are not adversely affected by such dissolution or winding-up, and (iv) the applicable Foreign Guarantor shall have executed and delivered or authorized, as applicable, any and all security agreements, financing statements, fixture filings, and other documentation reasonably requested by any Agent in order to include the transferred assets within the Collateral. "Person" means an individual, corporation, limited liability company, partnership, association, joint-stock company, trust, unincorporated organization, joint venture or other enterprise or entity or Governmental Authority. "Post-Default Rate" means a rate of interest per annum equal to the rate of interest otherwise in effect from time to time pursuant to the terms of this Agreement plus 2.0 percentage points, or, if a rate of interest is not otherwise in effect, interest at the highest rate specified herein for any Loan (or in the case of the Letter of Credit Fee, the highest Letter of Credit Fee specified herein) prior to the Event of Default plus 2.0 percentage points. "PPSA" means the Personal Property Security Act of the applicable Canadian province or provinces in respect of the Canadian Guarantor, each as amended from time to time. "PR Partnership" means PRG-Schultz Puerto Rico, a foreign partnership organized under the laws of Puerto Rico. "Preferred Stock" means, as applied to the Capital Stock of any Person, the Capital Stock of any class or classes (however designated) that is preferred with respect to the payment of dividends, or as to the distribution of assets upon any voluntary or involuntary liquidation or dissolution of such Person, over shares of Capital Stock of any other class of such Person. 31 "Preliminary Reserve" means (a) during the period from and including the Effective Date through and including the date that the Borrower delivers to the Agents and Lenders the financial statements required to be delivered pursuant to Section 7.01(a)(i) for the fiscal quarter ending March 31, 2006 (the "First Period Financial Statements"), a reserve in the amount of $5,000,000, (b) during the period from but excluding the date that the Borrower delivers the First Period Financial Statements through and including the date that the Borrower delivers to Agents and Lenders the financial statements required to be delivered pursuant to Section 7.01(a)(i) for the fiscal quarter ending June 30, 2006 (the "Second Period Financial Statements"), (A) a reserve in the amount of $3,500,000 if Consolidated EBITDA during the period covered by the First Period Financial Statements was greater than or equal to $2,400,000, or (B) a reserve in the amount of $5,000,000 if Consolidated EBITDA of the Parent and its Subsidiaries during the period covered by the First Period Financial Statements was less than $2,400,000, and (c) during the period from but excluding the date that the Borrower delivers the Second Period Financial Statements through and including the Final Maturity Date, $0; provided that if the Borrower is not in compliance with the financial covenants set forth in Section 7.03 on the date that it delivers the Second Period Financial Statements, the amount of the "Preliminary Reserve" will be the amount of the reserve set forth in clause (b) of this definition until the first date that the Borrower delivers to the Agents and Lenders a certified calculation of the financial covenants set forth in Section 7.03 pursuant to Section 7.01(a)(v) which shows that the Borrower is in compliance with such financial covenants. "Prohibited Preferred Stock" means any Preferred Stock that by its terms is mandatorily redeemable or subject to any other payment obligation (including any obligation to pay dividends, other than dividends of shares of Preferred Stock of the same class and series payable in kind or dividends of shares of common stock) on or before a date that is less than 6 months after the Final Maturity Date, or, on or before the date that is less than 6 months after the Final Maturity Date, is redeemable at the option of the holder thereof for cash or assets or securities (other than distributions in kind of shares of Preferred Stock of the same class and series or of shares of common stock). "property" means any right or interest in or to property of any kind whatsoever, whether real, personal or mixed and whether tangible or intangible. "Pro Rata Share" means: (a) with respect to a Lender's obligation to make Revolving Loans, to participate in Letters of Credit, and to reimburse the L/C Issuer with respect to Letters of Credit, and right to receive payments of interest, fees, and principal with respect thereto, the percentage obtained by dividing (i) such Lender's Revolving Credit Commitment, by (ii) the Total Revolving Credit Commitment, provided, that, if the Total Revolving Credit Commitment has been reduced to zero, the numerator shall be the aggregate unpaid principal amount of such Lender's Revolving Loans and its interest in the Letter of Credit Obligations and the denominator shall be the aggregate unpaid principal amount of all Revolving Loans and Letter of Credit Obligations, (b) with respect to a Lender's obligation to make the Term Loan and right to receive payments of interest, fees, and principal with respect thereto, the percentage obtained by dividing (i) such Lender's Term Loan Commitment, by (ii) 32 the Total Term Loan Commitment, provided that if the Total Term Loan Commitment has been reduced to zero, the numerator shall be the aggregate unpaid principal amount of such Lender's portion of the Term Loan and the denominator shall be the aggregate unpaid principal amount of the Term Loan, and (c) with respect to all other matters (including the indemnification obligations arising under Section 10.05), the percentage obtained by dividing (i) the sum of such Lender's Revolving Credit Commitment and the unpaid principal amount of such Lender's portion of the Term Loan, by (ii) the sum of the Total Revolving Credit Commitment and the aggregate unpaid principal amount of the Term Loan, provided, that, if such Lender's Revolving Credit Commitment shall have been reduced to zero, such Lender's Revolving Credit Commitment shall be deemed to be the aggregate unpaid principal amount of such Lender's Revolving Loans and its interest in the Letter of Credit Obligations and if the Total Revolving Credit Commitment shall have been reduced to zero, the Total Revolving Credit Commitment shall be deemed to be the aggregate unpaid principal amount of all Revolving Loans and Letter of Credit Obligations. "Qualified Cash" means, as of any date of determination, the amount of unrestricted cash and Cash Equivalents of the Borrower and its Subsidiaries that is subject to a control agreement in favor of Collateral Agent, upon which the Collateral Agent has a perfected first priority Lien, and that is on deposit with banks, or in securities accounts with securities intermediaries, or any combination thereof. "Rating Agencies" has the meaning specified therefor in Section 2.07. "Reference Bank" means JPMorgan Chase Bank, N.A., its successors or any other commercial bank designated by the Administrative Agent to the Borrower from time to time. "Reference Rate" means the rate of interest publicly announced by the Reference Bank in New York, New York from time to time as its reference rate, base rate or prime rate; provided, however, that the Reference Rate shall be subject to a minimum rate of 7.0 percentage points per annum, and, accordingly, to the extent that the Reference Rate on any day would be less than the foregoing minimum rate, the Reference Rate hereunder for such day automatically shall be deemed increased to such minimum rate. The reference rate, base rate or prime rate is determined from time to time by the Reference Bank as a means of pricing some loans to its Borrower and neither is tied to any external rate of interest or index nor necessarily reflects the lowest rate of interest actually charged by the Reference Bank to any particular class or category of customers. Subject to the minimum rate for the Reference Rate described in this definition, each change in the Reference Rate shall be effective from and including the date such change is publicly announced as being effective. "Reference Rate Loan" means a Loan that bears interest at a rate determined by reference to the Reference Rate. "Register" has the meaning specified therefor in Section 12.07(d). "Registered Loan" has the meaning specified therefore in Section 12.07(d). 33 "Regulation T", "Regulation U" and "Regulation X" mean, respectively, Regulations T, U and X of the Board or any successor, as the same may be amended or supplemented from time to time. "Reimbursement Obligations" means the obligation of the Borrower to reimburse the Administrative Agent or any Lender for amounts payable by the Administrative Agent or any Lender under a Letter of Credit Guaranty in respect of any drawing made under any Letter of Credit, together with interest thereon as provided in Section 2.04. "Reinvestment Eligible Funds" means (a) Net Cash Proceeds which, but for the application of Section 2.05(d)(iv), would be required to be used to prepay the Loans pursuant to Section 2.05(c)(vi) or (b) Extraordinary Receipts consisting of insurance or condemnation proceeds paid as the result of loss, destruction, casualty, condemnation or expropriation which, but for the application of Section 2.05(d)(iv), would be required to be used to prepay the Loans pursuant to Section 2.05(c)(viii). "Reinvestment Notice" has the meaning specified therefore in Section 2.05(d). "Related Fund" means a fund, money market account, investment account or other account managed by a Lender or an Affiliate of such Lender or its investment manager. "Related Party Assignment" has the meaning specified therefor in Section 12.07(b). "Related Party Register" has the meaning specified therefore in Section 12.07(d). "Release" means any spilling, leaking, pumping, pouring, emitting, emptying, discharging, injecting, escaping, leaching, seeping, migrating, dumping or disposing of any Hazardous Material (including the abandonment or discarding of barrels, containers and other closed receptacles containing any Hazardous Material) into the indoor or outdoor environment, including the movement of Hazardous Materials through or in the ambient air, soil, surface or ground water, or property. "Remedial Action" means, with respect to the presence of Hazardous Materials at concentrations exceeding those allowed by Environmental Laws, all actions taken to (i) clean up, remove, remediate, contain, treat, monitor, assess, evaluate or in any other way address Hazardous Materials in the environment; (ii) prevent or minimize a Release or threatened Release of Hazardous Materials so they do not migrate or endanger or threaten to endanger public health or welfare or the environment; (iii) perform pre-remedial studies and investigations and post-remedial operation and maintenance activities; or (iv) any other actions authorized by 42 U.S.C. ss. 9601. "Reportable Event" means an event described in Section 4043 of ERISA (other than an event not subject to the provision for 30-day notice to the PBGC under the regulations promulgated under such Section). "Required Lenders" means collectively, (a) the Required Revolving Lenders and (b) the Required Term Loan Lenders. 34 "Required Revolving Lenders" means Lenders whose Pro Rata Shares (calculated under clause (a) of the definition thereof) aggregate more than 50%. "Required Term Loan Lenders" means Lenders whose Pro Rata Shares (calculated under clause (b) of the definition thereof) aggregate more than 50%. "Reserve Percentage" means, on any day, for any Lender, the maximum percentage prescribed by the Board (or any successor Governmental Authority) for determining the reserve requirements (including any basic, supplemental, marginal, or emergency reserves) that are in effect on such date with respect to eurocurrency funding (currently referred to as "eurocurrency liabilities") of that Lender. "Revolving Credit Commitment" means, with respect to each Lender, the commitment of such Lender to make Revolving Loans to the Borrower in the amount set forth opposite such Lender's name in Schedule R-1 hereto, as such amount may be terminated or reduced from time to time in accordance with the terms of this Agreement. "Revolving Loan" and "Revolving Loans" have the meaning specified therefor in Section 2.01(a)(i). "Revolving Loan Lender" means a Lender with a Revolving Credit Commitment. "Revolving Loan Obligations" means any Obligations with respect to the Revolving Loans (including the principal thereof, the interest thereon, and the fees and expenses specifically related thereto). "SEC" means the Securities and Exchange Commission or any other similar or successor agency of the Federal government administering the Securities Act. "Second Test Period" means the period ended on the last day of the applicable Person's second fiscal quarter ended after the Effective Date. "Securities Act" means the Securities Act of 1933, as amended, or any similar Federal statute, and the rules and regulations of the SEC thereunder, all as the same shall be in effect from time to time. "Securities Account" means a securities account (as that term is defined in the Code). "Securitization" has the meaning specified therefor in Section 2.07. "Securitization Parties" has the meaning specified therefor in Section 2.07. "Security Agreement" means a Security Agreement, in form and substance reasonably satisfactory to the Agents, made by a Loan Party in favor of the Collateral Agent for the benefit of the Agents and the Lenders, securing the Obligations and delivered to the Collateral Agent. 35 "Senior Convertible Notes" means the 10% Senior Convertible Notes due 2011 issued by the Parent pursuant to the Indenture for the 10% Senior Convertible Notes. "Senior Notes" means the 11% Senior Notes due 2011 issued by the Parent pursuant to the Indenture for the 11% Senior Notes. "Series A Preferred Stock" means the 9% senior series A convertible participating Preferred Stock of the Parent. "Series B Preferred Stock" means the 10% senior series B convertible participating Preferred Stock of the Parent. "Settlement Period" has the meaning specified therefor in Section 2.02(d)(i) hereof. "Solvent" means, with respect to any Person on a particular date, that on such date (a) such Person is able to realize upon its assets and pay its debts and other liabilities, contingent obligations and other commitments as they mature in the normal course of business, (b) such Person does not intend to, and does not believe that it will, incur debts or liabilities beyond such Person's ability to pay as such debts and liabilities mature, and (c) such Person is not engaged in business or a transaction, and is not about to engage in business or a transaction, for which such Person's property would constitute unreasonably small capital. "Standard & Poor's" means Standard & Poor's Ratings Services, a division of The McGraw Hill Companies, Inc. and any successor thereto. "Subordinated Debt" means Indebtedness of the Parent that is on terms and conditions (including payment terms, interest rates, covenants, remedies, defaults and other material terms) reasonably satisfactory to the Agents and which has been expressly subordinated in right of payment to all Indebtedness of the Parent under the Loan Documents by the execution and delivery of a subordination agreement, in form and substance reasonably satisfactory to the Agents. "Subsidiary" means, with respect to any Person at any date, any corporation, limited or general partnership, limited liability company, trust, estate, association, joint venture or other business entity (i) the accounts of which would be consolidated with those of such Person in such Person's consolidated financial statements if such financial statements were prepared in accordance with GAAP or (ii) of which more than 50% of (A) the outstanding Capital Stock having (in the absence of contingencies) ordinary voting power to elect a majority of the board of directors or other managing body of such Person, (B) in the case of a partnership or limited liability company, the interest in the capital or profits of such partnership or limited liability company, or (C) in the case of a trust, estate, association, joint venture or other entity, the beneficial interest in such trust, estate, association or other entity business is, at the time of determination, owned or controlled directly or indirectly through one or more intermediaries, by such Person. "Supervalu Receivables" means Accounts Receivables owing from Supervalu Inc. with a due date no later than 120 days after the invoice date. 36 "Taxes" has the meaning specified therefor in Section 2.08(a). "Term Loan" has the meaning specified therefor in Section 2.01(a)(ii). "Term Loan Commitment" means, with respect to each Lender, the commitment of such Lender to make its portion of the Term Loan to the Borrower in the amount set forth in Schedule R-1 hereto, as the same may be terminated or reduced from time to time in accordance with the terms of this Agreement. "Term Loan Lender" means a Lender with a Term Loan Commitment. "Term Loan Obligations" means any Obligations with respect to the Term Loan (including the principal thereof, the interest thereon, and the fees and expenses specifically related thereto). "Termination Event" means (i) a Reportable Event with respect to any Employee Plan, (ii) any event that causes any Loan Party or any of its ERISA Affiliates to incur liability under Section 409, 502(i), 502(l), 515, 4062, 4063, 4064, 4069, 4201, 4204 or 4212 of ERISA or Section 4971 or 4975 of the IRC, (iii) the filing of a notice of intent to terminate an Employee Plan or the treatment of an Employee Plan amendment as a termination under Section 4041 of ERISA, (iv) the institution of proceedings by the PBGC to terminate an Employee Plan, or (v) any other event or condition which might constitute grounds under Section 4042 of ERISA for the termination of, or the appointment of a trustee to administer, any Employee Plan. "Third Test Period" means the period ended on the last day of the applicable Person's third fiscal quarter ended after the Effective Date. "Title Insurance Policy" means a mortgagee's loan policy, in form and substance satisfactory to the Collateral Agent, together with all endorsements made from time to time thereto, issued by or on behalf of a title insurance company satisfactory to the Collateral Agent, insuring the Lien created by a Mortgage in an amount and on terms satisfactory to the Agents, delivered to the Collateral Agent. "Total Commitment" means the sum of the Total Revolving Credit Commitment and the Total Term Loan Commitment. "Total Revolving Credit Commitment" means the sum of the amounts of the Lenders' Revolving Credit Commitments, which amount is $20,000,000 as of the Effective Date. "Total Term Loan Commitment" means the sum of the amounts of the Lenders' Term Loan Commitments, which amount is $25,000,000 as of the Effective Date. "Toys R Us Receivables" means Accounts Receivables owing from Toys R Us, Inc. with a due date no later than 75 days after the invoice date. "Transferee" has the meaning specified therefor in Section 2.08(a). 37 "TTM EBITDA" means, as of any date of determination and with respect to a Person, the Consolidated EBITDA of such Person and its Subsidiaries for the 12 month period most recently ended; provided, however, that (a) in the case of the First Test Period, TTM EBITDA shall be calculated as the Consolidated EBITDA of such Person and its Subsidiaries for the period from and after January 1, 2006 up to and including the last day of the First Test Period, times 4, (b) in the case of the Second Test Period, TTM EBITDA shall be calculated as the Consolidated EBITDA of such Person and its Subsidiaries for the period from and after January 1, 2006 up to and including the last day of the Second Test Period, times 2, (c) in the case of the Third Test Period, TTM EBITDA shall be calculated as the Consolidated EBITDA of such Person and its Subsidiaries for the period from and after January 1, 2006 up to and including the last day of the Third Test Period, times 1.3333. "UK Subsidiaries" means Tamebond Limited, a company organized under the laws of the United Kingdom and PRG-Schultz UK Ltd, a company organized under the laws of the United Kingdom. "U.S. Retail Key Client Claim Retention Rate" means the sum of (a) the net-approved claims of U.S. Retail Key Clients that are in the Claims Management System as of most recent fiscal quarter and (b) changes to work-in-process for U.S. Retail Key Clients for such fiscal quarter, divided by the gross claims of U.S. Retail Key Clients that are in the Claims Management System produced during such fiscal quarter. "U.S. Retail Key Client Effective Fee Rate" means, as of any date of determination, the revenue of the Borrower and the Domestic Guarantors (other than the PR Partnership) from the U.S. Retail Key Clients for the most recent fiscal quarter as determined in accordance with GAAP divided by net-approved claims of U.S. Retail Key Clients that are in the Claims Management System for such fiscal quarter. "U.S. Retail Key Client WIP" means the claims of U.S. Retail Key Clients that are in the Claims Management System not yet approved for invoicing, but presented to the client or vendor awaiting approval; provided that U.S. Retail Key Client WIP shall not include any claim (a) that is more than 6 months old (determined from the date that the payment giving rise to the claim was made), (b) that is in an amount less than $1,000. "U.S. Retail Key Clients" means, as of any date of determination, the top 40 United States retail clients of the Borrower and the Domestic Guarantors (other than the PR Partnership) based on revenue recognized by the Borrower and the Domestic Guarantors (other than the PR Partnership) for the 12 months most recently ended (not including (a) any client that has filed a petition for bankruptcy or any other relief under the Bankruptcy Code or any other law relating to bankruptcy, insolvency, reorganization or relief of debtors, made an assignment for the benefit of creditors, had filed again it any petition or other application for relief under the Bankruptcy Code or any such other law, or (b) clients that are the United States or any other Governmental Authority (unless all steps required by the Administrative Agent in connection therewith, including notice to the United States Government under the Federal Assignment of Claims Act or any action under any state statute comparable to the Federal Assignment of Claims Act, have been duly taken in a manner satisfactory to the Administrative Agent; provided that from the Effective Date through and including the date that is 120 days after the Effective Date, U.S. Retail Key 38 Client WIP of the Army & Air Force Exchange in an aggregate amount not to exceed $250,000 (when aggregated with any Accounts Receivable of the Army & Air Force Exchange that are not ineligible because of the proviso in clause (g) of the definition of "Eligible Accounts Receivable") shall not be ineligible under this clause (b) regardless of whether all steps required by the Administrative Agent to be taken under the Federal Assignment of Claims Act or any state statute comparable to the Federal Assignment of Claims Act have been taken). "Wal Mart Holdback Receivables" means Accounts Receivable owing from Wal-Mart Stores, Inc. equal to $217,000 due in the fiscal quarter ending September 30, 2006 and $24,000 due in the fiscal quarter ending September 30, 2007. "WARN" has the meaning specified therefor in Section 6.01(z). "Working Investment" means, at any date of determination thereof, (i) the sum, for any Person and its Subsidiaries, of (A) the unpaid face amount of all Accounts Receivable of such Person and its Subsidiaries as at such date of determination, plus (B) the aggregate amount of prepaid expenses of such Person and its Subsidiaries as at such date of determination, minus (ii) the sum, for such Person and its Subsidiaries, of (A) the unpaid amount of all accounts payable of such Person and its Subsidiaries as at such date of determination, plus (B) the aggregate amount of all accrued expenses of such Person and its Subsidiaries as at such date of determination (including deferred compensation, but, excluding from accounts payable and accrued expenses, the current portion of long-term debt and all accrued interest and taxes). Section 1.02 Terms Generally. The definitions of terms herein shall apply equally to the singular and plural forms of the terms defined. Whenever the context may require, any pronoun shall include the corresponding masculine, feminine and neuter forms. The words "include," "includes" and "including" shall be deemed to be followed by the phrase "without limitation," whether or not so expressly stated in each such instance and the term "or" has, except where otherwise indicated, the inclusive meaning represented by the phrase "and/or." The word "will" shall be construed to have the same meaning and effect as the word "shall." Unless the context requires otherwise, (a) any definition of or reference to any agreement, instrument or other document herein shall be construed as referring to such agreement, instrument or other document as from time to time amended, restated, supplemented or otherwise modified (subject to any restrictions on such amendments, restatements, supplements or modifications set forth herein), (b) any reference herein to any Person shall be construed to include such Person's successors and assigns, (c) the words "herein," "hereof" and "hereunder," and words of similar import, shall be construed to refer to this Agreement in its entirety and not to any particular provision hereof, (d) all references herein to Articles, Sections, Exhibits and Schedules shall be construed to refer to Articles and Sections of, and Exhibits and Schedules to, this Agreement and (e) the words "asset" and "property" shall be construed to have the same meaning and effect and to refer to any and all tangible and intangible assets and properties, including cash, securities, accounts and contract rights. References in this Agreement to "determination" by any Agent include estimates honestly made by such Agent (in the case of quantitative determinations) and beliefs honestly held by such Agent (in the case of qualitative determinations). 39 Section 1.03 Accounting and Other Terms. Unless otherwise expressly provided herein, each accounting term used herein shall have the meaning given it under GAAP. All terms used in this Agreement which are defined in Article 8 or Article 9 of the Code and which are not otherwise defined herein shall have the same meanings herein as set forth therein. Section 1.04 Time References. Unless otherwise indicated herein, all references to time of day refer to Eastern Standard Time or Eastern daylight saving time, as in effect in New York City on such day. For purposes of the computation of a period of time from a specified date to a later specified date, the word "from" means "from and including" and the words "to" and "until" each means "to but excluding," provided, however, that with respect to a computation of fees or interest payable to any Agent, any Lender or the L/C Issuer, such period shall in any event consist of at least one full day. When the payment of any obligation or the performance of any covenant, duty or obligation is stated to be due on a day that is not a Business Day or delivery of any notice, document, certificate or other writing is stated to be required on a day that is not a Business Day, the date of such payment (other than as described in the definition of "Interest Period"), performance or delivery shall extend to the immediately succeeding Business Day. ARTICLE II THE LOANS Section 2.01 Commitments. (a) Subject to the terms and conditions and relying upon the representations and warranties herein set forth: (i) each Revolving Loan Lender severally agrees to make loans (each, a "Revolving Loan" and, collectively, the "Revolving Loans") to the Borrower at any time and from time to time from the Effective Date to the Final Maturity Date, or until the earlier reduction of its Revolving Credit Commitment to zero in accordance with the terms hereof, in an aggregate principal amount of Revolving Loans at any time outstanding not to exceed the lesser of (A) the amount of such Lender's Revolving Credit Commitment, and (B) the amount of such Lender's Pro Rata Share of the then extant Borrowing Base; and (ii) each Term Loan Lender severally agrees to make a term loan (collectively, the "Term Loan") to the Borrower on the Effective Date, in an aggregate principal amount equal to the amount of such Lender's Term Loan Commitment. (b) Notwithstanding the foregoing: (i) The aggregate principal amount of Revolving Loans outstanding at any time to the Borrower shall not exceed the lower of (A) the difference between (x) the Total Revolving Credit Commitment and (y) the aggregate Letter of Credit Obligations and (B) the difference between (x) the then current Borrowing Base and (y) the aggregate Letter of Credit Obligations. The Revolving Credit Commitment of each Lender shall automatically and permanently be reduced to zero on the Final Maturity Date. Within the foregoing limits, the Borrower may borrow, repay and reborrow the Revolving Loans, on or after the Effective Date and prior to the Final Maturity Date, subject to the terms, provisions and limitations set forth herein. 40 (ii) The aggregate principal amount of the Term Loan made on the Effective Date shall not exceed the Total Term Loan Commitment. Any principal amount of the Term Loan that is repaid or prepaid may not be reborrowed. Section 2.02 Making the Loans. (a) The Borrower shall give the Administrative Agent prior telephonic notice (immediately confirmed in writing, in substantially the form of Exhibit 2.01(b)(ii) hereto (a "Notice of Borrowing")), (i) in the case of a LIBOR Rate Loan, not later than 12:00 noon (New York City time) on the date that is 3 Business Days prior to the date of the proposed Loan (or such shorter period as the Administrative Agent is willing, in its sole discretion, to accommodate from time to time), or (ii) in the case of a Reference Rate Loan, not later than 12:00 noon (New York City time) on the of the proposed Loan (or such shorter period as the Administrative Agent is willing, in its sole discretion, to accommodate from time to time). Such Notice of Borrowing shall specify (A) the principal amount of the proposed Loan, and (B) the proposed borrowing date, which must be a Business Day, and, with respect to the Term Loan, must be the Effective Date, (C) whether the proposed Loan is to be a Reference Rate Loan or a LIBOR Rate Loan, and (D) in the case of a LIBOR Rate Loan, the initial Interest Period to be applicable thereto, which shall be a period contemplated by the definition of the term "Interest Period". If no election as to the type of Loan is specified, then the requested Loan shall be a Reference Rate Loan. If no Interest Period is specified with respect to any requested LIBOR Rate Loan, then the Borrower shall be deemed to have selected an Interest Period of one month's duration. The Administrative Agent and the Lenders may act without liability upon the basis of written, telecopied or telephonic notice believed by the Administrative Agent in good faith to be from the Borrower (or from any Authorized Officer thereof designated in writing purportedly from the Borrower to the Administrative Agent). The Borrower hereby waives the right to dispute the Administrative Agent's record of the terms of any such telephonic Notice of Borrowing. The Administrative Agent and each Lender shall be entitled to rely conclusively on any Authorized Officer's authority to request a Loan on behalf of the Borrower until the Administrative Agent receives written notice to the contrary. The Administrative Agent and the Lenders shall have no duty to verify the authenticity of the signature appearing on any written Notice of Borrowing. (b) Each Notice of Borrowing pursuant to this Section 2.02 shall be irrevocable and the Borrower shall be bound to make a borrowing in accordance therewith. Except for Revolving Loans deemed made pursuant to Section 3.01(c), each Revolving Loan shall be made in a minimum amount of $100,000 and shall be in integral multiples of $100,000 in excess thereof. (c) (i) Except as otherwise provided in this Section 2.02(c), all Loans under this Agreement shall be made by the Lenders simultaneously and proportionately to their Pro Rata Shares of the Total Revolving Credit Commitment and the Total Term Loan Commitment, as the case may be, it being understood that no Lender shall be responsible for any default by any other Lender in that other Lender's obligations to make a Loan requested hereunder, 41 nor shall the Commitment of any Lender be increased or decreased as a result of the default by any other Lender in that other Lender's obligation to make a Loan requested hereunder, and each Lender shall be obligated to make the Loans required to be made by it by the terms of this Agreement regardless of the failure by any other Lender. (ii) Notwithstanding any other provision of this Agreement, and in order to reduce the number of fund transfers among the Borrower, the Agents and the Lenders, the Borrower, the Agents and the Lenders agree that the Administrative Agent may (but shall not be obligated to), and the Borrower and the Lenders hereby irrevocably authorize the Administrative Agent to, fund, on behalf of the Lenders with a Revolving Credit Commitment, Revolving Loans pursuant to Section 2.01, subject to the procedures for settlement set forth in Section 2.02(d); provided, however, that (a) the Administrative Agent shall in no event fund any such Revolving Loans if the Administrative Agent shall have received written notice from the Collateral Agent or the Required Lenders prior to the time of the proposed Revolving Loan that one or more of the conditions precedent contained in Section 5.02 will not be satisfied at the time of the proposed Revolving Loan, and (b) the Administrative Agent shall not otherwise be required to determine that, or take notice whether, the conditions precedent in Section 5.02 have been satisfied. If the Borrower gives a Notice of Borrowing requesting a Revolving Loan and the Administrative Agent elects not to fund such Revolving Loan on behalf of the Revolving Loan Lenders, then promptly after receipt of the Notice of Borrowing requesting such Revolving Loan, the Administrative Agent shall notify each Revolving Loan Lender of the specifics of the requested Revolving Loan and that it will not fund the requested Revolving Loan on behalf of the Revolving Loan Lenders. If the Administrative Agent notifies the Revolving Loan Lenders that it will not fund a requested Revolving Loan on behalf of such Revolving Loan Lenders, each Revolving Loan Lender shall make its Pro Rata Share of the Revolving Loan available to the Administrative Agent, in immediately available funds, at the Payment Office no later than 3:00 p.m. (New York City time) (provided that the Administrative Agent requests payment from such Revolving Loan Lender not later than 1:00 p.m. (New York City time)) on the date of the proposed Revolving Loan. The Administrative Agent will make the proceeds of such Revolving Loans available to the Borrower on the day of the proposed Revolving Loan by causing an amount, in immediately available funds, equal to the proceeds of all such Revolving Loans received by the Administrative Agent at the Payment Office or the amount funded by the Administrative Agent on behalf of the Revolving Loan Lenders to be deposited in an account designated by the Borrower. (iii) If the Administrative Agent has notified the Revolving Loan Lenders that the Administrative Agent, on behalf of such Revolving Loan Lenders, will fund a particular Revolving Loan pursuant to Section 2.02(c)(ii), the Administrative Agent may assume that each such Revolving Loan Lender has made such amount available to the Administrative Agent on such day and the Administrative Agent, in its sole discretion, may, but shall not be obligated to, cause a corresponding amount to be made available to the Borrower on such day. If the Administrative Agent makes such corresponding amount available to the Borrower and such corresponding amount is not in fact made available to the Administrative Agent by any such Revolving Loan Lender, the Administrative Agent shall be entitled to recover such corresponding amount on demand from such Revolving Loan Lender together with interest thereon, for each day from the date such payment was due until the date such amount is paid to the Administrative Agent, at the Federal Funds Rate for 3 Business Days and thereafter at the 42 Reference Rate. During the period in which such Revolving Loan Lender has not paid such corresponding amount to the Administrative Agent, notwithstanding anything to the contrary contained in this Agreement or any other Loan Document, the amount so advanced by the Administrative Agent to the Borrower shall, for all purposes hereof, be a Revolving Loan made by the Administrative Agent for its own account. Upon any such failure by a Revolving Loan Lender to pay the Administrative Agent, the Administrative Agent shall promptly thereafter notify the Borrower of such failure and the Borrower shall immediately pay such corresponding amount to the Administrative Agent for its own account. (iv) Nothing in this Section 2.02(c) shall be deemed to relieve any Revolving Loan Lender from its obligations to fulfill its Revolving Credit Commitment hereunder or to prejudice any rights that the Administrative Agent or the Borrower may have against any Revolving Loan Lender as a result of any default by such Revolving Loan Lender hereunder. (d) (i) With respect to all periods for which the Administrative Agent has funded Revolving Loans pursuant to Section 2.02(c), on Wednesday of each week, or if the applicable Wednesday is not a Business Day, then on the following Business Day, or such shorter period as the Administrative Agent may from time to time select (any such week or shorter period being herein called a "Settlement Period"), the Administrative Agent shall notify each Revolving Loan Lender of the unpaid principal amount of the Revolving Loans outstanding as of the last day of each such Settlement Period. In the event that such amount is greater than the unpaid principal amount of the Revolving Loans outstanding on the last day of the Settlement Period immediately preceding such Settlement Period (or, if there has been no preceding Settlement Period, the amount of the Revolving Loans made on the date of such Revolving Loan Lender's initial funding), each Revolving Loan Lender shall promptly (and in any event not later than 2:00 p.m. (New York City time) if the Administrative Agent requests payment from such Lender not later than 12:00 noon (New York City time) on such day) make available to the Administrative Agent its Pro Rata Share of the difference in immediately available funds. In the event that such amount is less than such unpaid principal amount, the Administrative Agent shall promptly pay over to each Revolving Loan Lender its Pro Rata Share of the difference in immediately available funds. In addition, if the Administrative Agent shall so request at any time when a Default or an Event of Default shall have occurred and be continuing, or any other event shall have occurred as a result of which the Administrative Agent shall determine that it is desirable to present claims against the Borrower for repayment, each Revolving Loan Lender shall promptly remit to the Administrative Agent or, as the case may be, the Administrative Agent shall promptly remit to each Revolving Loan Lender, sufficient funds to adjust the interests of the Revolving Loan Lenders in the then outstanding Revolving Loans to such an extent that, after giving effect to such adjustment, each such Revolving Loan Lender's interest in the then outstanding Revolving Loans will be equal to its Pro Rata Share thereof. The obligations of the Administrative Agent and each Revolving Loan Lender under this Section 2.02(d) shall be absolute and unconditional. Each Revolving Loan Lender shall only be entitled to receive interest on its Pro Rata Share of the Revolving Loans which have been funded by such Revolving Loan Lender. (ii) In the event that any Revolving Loan Lender fails to make any payment required to be made by it pursuant to Section 2.02(d)(i), the Administrative Agent shall be entitled to recover such corresponding amount on demand from such Revolving Loan Lender together with interest thereon, for each day from the date such payment was due until the date such amount is paid to the Administrative 43 Agent, at the Federal Funds Rate for 3 Business Days and thereafter at the Reference Rate. During the period in which such Revolving Loan Lender has not paid such corresponding amount to the Administrative Agent, notwithstanding anything to the contrary contained in this Agreement or any other Loan Document, the amount so advanced by the Administrative Agent to the Borrower shall, for all purposes hereof, be a Revolving Loan made by the Administrative Agent for its own account. Upon any such failure by a Revolving Loan Lender to pay the Administrative Agent, the Administrative Agent shall promptly thereafter notify the Borrower of such failure and the Borrower shall immediately pay such corresponding amount to the Administrative Agent for its own account. Nothing in this Section 2.02(d)(ii) shall be deemed to relieve any Revolving Loan Lender from its obligation to fulfill its Revolving Credit Commitment hereunder or to prejudice any rights that the Administrative Agent or the Borrower may have against any Revolving Loan Lender as a result of any default by such Revolving Loan Lender hereunder. Section 2.03 Repayment of Loans; Evidence of Debt. (a) The outstanding principal of all Revolving Loans shall be due and payable on the Final Maturity Date. (b) The outstanding principal of the Term Loan shall be repayable in consecutive quarterly installments, on the first day of each January, April, July, and October commencing on April 1, 2007 and ending on the Final Maturity Date, as follows: PAYMENT DATE AMOUNT ---------------------------- ---------------------- April 1, 2007 $250,000 ---------------------------- ---------------------- July 1, 2007 $250,000 ---------------------------- ---------------------- October 1, 2007 $250,000 ---------------------------- ---------------------- January 1, 2008 $250,000 ---------------------------- ---------------------- April 1, 2008 $500,000 ---------------------------- ---------------------- July 1, 2008 $500,000 ---------------------------- ---------------------- October 1, 2008 $500,000 ---------------------------- ---------------------- January 1, 2009 $500,000 ---------------------------- ---------------------- April 1, 2009 $500,000 ---------------------------- ---------------------- July 1, 2009 $500,000 ---------------------------- ---------------------- October 1, 2009 $500,000 ---------------------------- ---------------------- January 1, 2010 $500,000 ---------------------------- ---------------------- 44 ; provided, however, that the last such installment shall be in the amount necessary to repay in full the unpaid principal amount of the Term Loan. The outstanding principal of the Term Loan shall be repaid in full on the earlier of (i) the termination of the Total Revolving Credit Commitment and (ii) the Final Maturity Date. (c) Each Lender shall maintain in accordance with its usual practice an account or accounts evidencing the Indebtedness of the Borrower to such Lender resulting from each Loan made by such Lender, including the amounts of principal and interest payable and paid to such Lender from time to time hereunder. (d) The Administrative Agent shall maintain accounts in which it shall record (i) the amount of each Loan made hereunder, (ii) the amount of any principal or interest due and payable or to become due and payable from the Borrower to each Lender hereunder and (iii) the amount of any sum received by the Administrative Agent hereunder for the account of the Lenders and each Lender's share thereof. (e) The entries made in the accounts maintained pursuant to paragraphs (c) or (d) of this Section 2.03 shall be prima facie evidence of the existence and amounts of the obligations recorded therein; provided that the failure of any Lender or the Administrative Agent to maintain such accounts or any error therein shall not in any manner affect the obligation of the Borrower to repay the Loans in accordance with the terms of this Agreement. (f) Any Lender may request that Loans made by it be evidenced by a promissory note. In such event, the Borrower shall execute and deliver to such Lender a promissory note payable to such Lender (or, if requested by such Lender, to such Lender and its registered assigns) in a form furnished by the Collateral Agent and reasonably satisfactory to the Borrower. Thereafter, the Loans evidenced by such promissory note and interest thereon shall at all times (including after assignment pursuant to Section 12.07) be represented by one or more promissory notes in such form payable to the payee named therein (or, if such promissory note is a registered note, to such payee and its registered assigns). Section 2.04 Interest. (a) Revolving Loans. Each Revolving Loan shall bear interest on the principal amount thereof from time to time outstanding, from the date of such Loan until such principal is repaid, as follows: (i) if the relevant Revolving Loan is a LIBOR Rate Loan, at a rate per annum equal to the LIBOR Rate plus 3.75 percentage points, and (ii) otherwise, at a rate per annum equal to the Reference Rate plus 1.0 percentage point. (b) Term Loan. The Term Loan shall bear interest on the principal amount thereof from time to time outstanding, from the date of the making of the Term Loan until such principal amount is repaid, as follows: (i) if the relevant portion of the Term Loan is a LIBOR Rate Loan, at a rate per annum equal to the LIBOR Rate plus 8.50 percentage points, and (ii) otherwise, at a rate per annum equal to the Reference Rate plus 5.50 percentage points. (c) Default Interest and Fees. To the extent permitted by law, upon the occurrence and during the continuance of an Event of Default, (i) at the election of the Required Revolving Lenders (and written notice of such election shall be given by such Lenders to each Agent), the principal of, and unpaid interest on, all Revolving Loans shall bear interest, from the date such Event of Default occurred until the date such Event of Default is cured or waived in 45 writing in accordance herewith, at all times during such period at a rate per annum equal to the Post-Default Rate with respect to the Revolving Loans, (ii) at the election of the Required Term Loan Lenders (and written notice of such election shall be given by such Lenders to each Agent), the principal of, and unpaid interest on, the Term Loan shall bear interest, from the date such Event of Default occurred until the date such Event of Default is cured or waived in writing in accordance herewith, at all times during such period at a rate per annum equal to the Post-Default Rate with respect to the Term Loan, and (iii) at the election of the Required Revolving Lenders (and written notice of such election shall be given by such Lenders to each Agent), the Letter of Credit Fees shall be increased by 2.0 percentage points above the per annum rate otherwise applicable hereunder. (d) Interest Payment Dates. Interest on each Reference Rate Loan shall be payable monthly, in arrears, on the first day of each month, commencing on the first day of the month following the month in which such Loan is made and at maturity (whether upon demand, by acceleration or otherwise). Interest on LIBOR Rate Loans shall be payable on the earliest of (i) the last day of the Interest Period applicable thereto, (ii) the occurrence of an Event of Default in consequence of which the Required Lenders or Collateral Agent on behalf thereof elect to accelerate the maturity of all or any portion of the Obligations, or (iii) termination of this Agreement pursuant to the terms hereof. Interest at the Post-Default Rate shall be payable on demand. The Borrower hereby authorizes the Administrative Agent to, and the Administrative Agent may, from time to time, charge the Loan Account pursuant to Section 4.02 with the amount of any interest payment due hereunder. (e) General. All interest shall be computed on the basis of a year of 360 days for the actual number of days, including the first day but excluding the last day, elapsed. (f) LIBOR Option. (i) LIBOR Election. In lieu of having interest charged at the rate based upon the Reference Rate, the Borrower shall have the option (the "LIBOR Option") to have interest on all or a portion of the Loans be charged at a rate of interest based upon the LIBOR Rate. On the last day of each applicable Interest Period, unless the Borrower properly has exercised the LIBOR Option with respect thereto, the interest rate applicable to such LIBOR Rate Loan automatically shall convert to the rate of interest then applicable to Reference Rate Loans of the same type hereunder. At any time that an Event of Default has occurred and is continuing, the Borrower no longer shall have the option to request that Loans bear interest at the LIBOR Rate and Administrative Agent shall have the right to convert the interest rate on all outstanding LIBOR Rate Loans to the rate then applicable to Reference Rate Loans hereunder. (A) The Borrower may, at any time and from time to time, so long as no Event of Default has occurred and is continuing, elect to exercise the LIBOR Option by notifying Administrative Agent prior to 12:00 noon (New York time) at least 3 Business Days prior to the commencement of the proposed Interest Period (the "LIBOR Deadline"). Notice of the Borrower's election of the LIBOR Option for a permitted portion of the Loans and an Interest Period pursuant to this 46 Section shall be made by delivery to Administrative Agent of a LIBOR Notice received by Administrative Agent before the LIBOR Deadline. Promptly upon its receipt of each such LIBOR Notice, Administrative Agent shall provide a copy thereof to each of the Lenders having a Commitment of the type to which such LIBOR Notice relates. (B) Each LIBOR Notice shall be irrevocable and binding on the Borrower. In connection with each LIBOR Rate Loan, the Borrower shall indemnify, defend, and hold Administrative Agent and the Lenders harmless against any loss, cost, or expense incurred by Administrative Agent or any Lender as a result of (1) the payment of any principal of any LIBOR Rate Loan other than on the last day of an Interest Period applicable thereto (including as a result of an Event of Default), (2) the conversion of any LIBOR Rate Loan other than on the last day of the Interest Period applicable thereto, or (3) the failure to borrow, convert, continue or prepay any LIBOR Rate Loan on the date specified in any LIBOR Notice delivered pursuant hereto (such losses, costs, and expenses, collectively, "Funding Losses"). Funding Losses shall, with respect to Administrative Agent or any Lender, be deemed to equal the amount determined by Administrative Agent or such Lender to be the excess, if any, of (x) the amount of interest that would have accrued on the principal amount of such LIBOR Rate Loan had such event not occurred, at the LIBOR Rate that would have been applicable thereto, for the period from the date of such event to the last day of the then current Interest Period therefor (or, in the case of a failure to borrow, convert or continue, for the period that would have been the Interest Period therefor), minus (y) the amount of interest that would accrue on such principal amount for such period at the interest rate which Administrative Agent or such Lender would be offered were it to be offered, at the commencement of such period, Dollar deposits of a comparable amount and period in the London interbank market. A certificate of Administrative Agent or a Lender delivered to the Borrower setting forth any amount or amounts that Administrative Agent or such Lender is entitled to receive pursuant to this Section shall be conclusive absent manifest error. (C) The Borrower shall have not more than 5 LIBOR Rate Loans in effect at any given time. The Borrower only may exercise the LIBOR Option for LIBOR Rate Loans of at least $500,000 and integral multiples of $100,000 in excess thereof. (ii) Prepayments. The Borrower may prepay LIBOR Rate Loans at any time; provided, however, that in the event that LIBOR Rate Loans are prepaid on any date that is not the last day of the Interest Period applicable thereto, including as a result of any automatic prepayment through the required application by Administrative Agent of proceeds of Collections in accordance with Section 4.04 or for any other reason, including early termination of the term of this Agreement or acceleration of all or any portion of the Obligations pursuant to the terms hereof, the Borrower shall indemnify, defend, and hold Administrative Agent and the Lenders and their participants harmless against any and all Funding Losses in accordance with subsection (ii) above. 47 (iii) Special Provisions Applicable to LIBOR Rate. (A) The LIBOR Rate may be adjusted by Administrative Agent with respect to any Lender on a prospective basis to take into account any additional or increased costs to such Lender of maintaining or obtaining any eurodollar deposits or increased costs due to changes in applicable law occurring subsequent to the commencement of the then applicable Interest Period, including changes in tax laws (except changes of general applicability in corporate income tax laws) and changes in the reserve requirements imposed by the Board of Governors of the Federal Reserve System (or any successor), excluding the Reserve Percentage, which additional or increased costs would increase the cost of funding loans bearing interest at the LIBOR Rate. In any such event, the affected Lender shall give the Borrower and Administrative Agent notice of such a determination and adjustment and Administrative Agent promptly shall transmit the notice to each other Lender and, upon its receipt of the notice from the affected Lender, the Borrower may, by notice to such affected Lender (1) require such Lender to furnish to the Borrower a statement setting forth the basis for adjusting such LIBOR Rate and the method for determining the amount of such adjustment, or (2) repay the LIBOR Rate Loans with respect to which such adjustment is made (together with any amounts due under subsection (ii)(B) above). (B) In the event that any change in market conditions or any law, regulation, treaty, or directive, or any change therein or in the interpretation of application thereof, shall at any time after the date hereof, in the reasonable opinion of any Lender, make it unlawful or impractical for such Lender to fund or maintain LIBOR Rate Loans or to continue such funding or maintaining, or to determine or charge interest rates at the LIBOR Rate, such Lender shall give notice of such changed circumstances to Administrative Agent and the Borrower and Administrative Agent promptly shall transmit the notice to each other Lender and (1) in the case of any LIBOR Rate Loans of such Lender that are outstanding, the date specified in such Lender's notice shall be deemed to be the last day of the Interest Period of such LIBOR Rate Loans, and interest upon the LIBOR Rate Loans of such Lender thereafter shall accrue interest at the rate then applicable to Reference Rate Loans, and (2) the Borrower shall not be entitled to elect the LIBOR Option until such Lender determines that it would no longer be unlawful or impractical to do so. (iv) No Requirement of Matched Funding. Anything to the contrary contained herein notwithstanding, neither Administrative Agent, nor any Lender, nor any of their participants, is required actually to acquire eurodollar deposits to fund or otherwise match fund any Obligation as to which interest accrues at the LIBOR Rate. The provisions of this Section shall apply as if each Lender or its participants had match funded any Obligation as to which interest is accruing at the LIBOR Rate by acquiring eurodollar deposits for each Interest Period in the amount of the LIBOR Rate Loans. Section 2.05 Reduction of Commitment; Prepayment of Loans. (a) Reduction of Commitments. (i) Revolving Credit Commitments. The Total Revolving Credit Commitment shall terminate on the Final Maturity Date. On or after the first anniversary of the Effective Date, the Borrower may, without premium or penalty, reduce the Total Revolving Credit Commitment to an amount (which may be zero) not less than the sum of (A) the aggregate unpaid principal amount of all Revolving Loans then outstanding, (B) the aggregate principal amount of all Revolving Loans not yet made as to which a Notice of Borrowing has been given by the Borrower under Section 2.02, (C) the Letter of Credit Obligations at such time and (D) the stated amount of all Letters of Credit not yet issued as to which a request has been made and not withdrawn. Each such reduction shall be in an amount which is an integral multiple of $1,000,000 (unless the Total Revolving Credit Commitment in effect immediately prior to such reduction is less than $1,000,000), shall be made by providing not less than 3 Business Days prior written notice to the Administrative Agent and shall be irrevocable; provided that, a notice of termination of the Commitments delivered by the Borrower may state that such notice is conditioned upon the consummation of financing that will refinance the Indebtedness under this Agreement, in which case such notice may be revoked by the Borrower if such condition is not satisfied (by notice to the Administrative Agent on or prior to the specified effective date), and if such notice is revoked then, anything to the contrary contained herein notwithstanding, the failure to terminate the Commitments on the date specified in such notice shall not constitute an Event of Default. Once reduced, the Total Revolving Credit Commitment may not be increased. Each such reduction of the Total Revolving Credit Commitment shall reduce the Revolving Credit Commitment of each Lender proportionately in accordance with its Pro Rata Share thereof. (ii) Term Loan. The Total Term Loan Commitment shall terminate upon the making of the Term Loan on the Effective Date. (b) Optional Prepayment. (i) Revolving Loans. The Borrower may prepay without penalty or premium the principal of any Revolving Loan, in whole or in part. (ii) Term Loan. On or after the first anniversary of the Effective Date, so long as (A) no Default or Event of Default shall have occurred and be continuing, and (B) Availability is greater than or equal to $10,000,000 after giving effect to such payment, the Borrower may, upon at least 3 Business Days prior written notice to the Administrative Agent, prepay the principal of the Term Loan, in whole or in part. Each prepayment made pursuant to this Section 2.05(b)(ii) shall be accompanied by (A) the payment of accrued interest to the date of such payment on the amount prepaid, and (B) the prepayment premium as set forth in the Fee Letter. Each such prepayment shall be applied against the remaining installments of principal due on the Term Loan in the inverse order of maturity. (c) Mandatory Prepayment. (i) The Borrower will immediately prepay the Revolving Loans within 1 Business Day at any time that the aggregate principal amount of all Revolving Loans plus the outstanding amount of all Letter of Credit Obligations exceeds the lesser of (A) the Total Revolving Credit Commitment, and (B) the Borrowing Base, to the full extent of any such excess. On each day that any Revolving 48 Loans or Letter of Credit Obligations are outstanding, the Borrower shall hereby be deemed to represent and warrant to the Agents and the Lenders that the Borrowing Base calculated as of such day equals or exceeds the aggregate principal amount of all Revolving Loans and Letter of Credit Obligations outstanding on such day. If at any time after the Borrower has complied with the first sentence of this Section 2.05(c)(i), the aggregate Letter of Credit Obligations is greater than the lesser of (x) the Total Revolving Credit Commitment, and (y) the then current Borrowing Base, the Borrower shall provide cash collateral to the Administrative Agent in an amount equal to 105% of such excess, which cash collateral shall be deposited in the Letter of Credit Collateral Account and, provided that no Event of Default shall have occurred and be continuing, returned to the Borrower, at such time as the aggregate Letter of Credit Obligations plus the aggregate principal amount of all outstanding Revolving Loans no longer exceeds the then current Borrowing Base. (ii) The Borrower will immediately prepay the outstanding principal amount of the Term Loan in the event that the Total Revolving Credit Commitment is terminated for any reason. (iii) The Administrative Agent shall on each Business Day apply all funds transferred to or deposited in the Administrative Agent's Account, to the payment, in whole or in part, of the outstanding principal amount of the Revolving Loans. (iv) Within 10 days of delivery to the Agents and the Lenders of audited annual financial statements pursuant to Section 7.01(a)(iii), commencing with the delivery to the Agents and the Lenders of the financial statements for the Fiscal Year ended December 31, 2006 or, if such financial statements are not delivered to the Agents and the Lenders on the date such statements are required to be delivered pursuant to Section 7.01(a)(iii), 10 days after the date such statements are required to be delivered to the Agents and the Lenders pursuant to Section 7.01(a)(iii), the Borrower shall prepay the outstanding principal amount of the Loans in an amount equal to (A) the greater of (x) 50% of Excess Cash Flow of the Parent and its Subsidiaries for such Fiscal Year, and (y) 50% of North American Excess Cash Flow of the Parent and its North American Subsidiaries for such Fiscal Year, minus (B) the amount of all voluntary prepayments of the Term Loan made during such period pursuant to Section 2.05(b)(ii). (v) Within 1 Business Day of delivery to the Agents and the Lenders of the Borrowing Base Certificate pursuant to Section 7.01(a), the Borrower will immediately prepay the outstanding principal amount of the Loans to the extent that the outstanding principal amount of the Term Loan, plus the aggregate outstanding principal amount of all Revolving Loans, plus the aggregate outstanding amount of all Letter of Credit Obligations exceeds the aggregate amount of Collections from Accounts Receivable of the Borrower and the Domestic Guarantors during the 150 days immediately preceding such date, to the full extent of any such excess. (vi) Within 1 Business Day of the receipt of any proceeds of any Disposition by the Parent or any of its Domestic Subsidiaries and within 3 Business Days of the receipt of any proceeds of any Disposition by any Foreign 49 Subsidiary of the Parent, in each case other than a Permitted Disposition (other than a Permitted Disposition of the type described in clauses (a), (b), and (q) of the definition of Permitted Dispositions), the Borrower shall prepay the outstanding principal amount of the Loans in an amount equal to 100% of the Net Cash Proceeds received by such Person in connection with such Disposition to the extent that the aggregate amount of Net Cash Proceeds received by all Loan Parties and their Subsidiaries (and not paid to the Administrative Agent as a prepayment of the Loans) shall exceed $250,000 for all such Dispositions in any Fiscal Year. Nothing contained in this subsection (vi) shall permit any Loan Party or any of its Subsidiaries to make a Disposition of any property other than a Permitted Disposition. (vii) Within 1 Business Day of the receipt of any proceeds of any issuance or incurrence by the Parent or any of its Domestic Subsidiaries of any Indebtedness and within 3 Business Days of the receipt of any proceeds of any issuance or incurrence by any Foreign Subsidiary of any Indebtedness (in each case, other than Indebtedness referred to in clauses (a) - (j) and (m) - (r) of the definition of Permitted Indebtedness), the Borrower shall prepay the Loans in an amount equal to 100% of the Net Cash Proceeds received by such Person in connection therewith. The provisions of this subsection (vii) shall not be deemed to be implied consent to any such issuance or incurrence otherwise prohibited by the terms and conditions of this Agreement. (viii) Within 1 Business Day of the sale or issuance by the Parent or any of its Domestic Subsidiaries of any shares of its Capital Stock and within 3 Business Days of the sale or issuance by any Foreign Subsidiary of any shares of its Capital Stock (in each case, other than issuances of (A) common Capital Stock by any Subsidiary of the Parent to its parent, (B) the Series A Preferred Stock or the Series B Preferred Stock, or (C) common Capital Stock of the Parent issued upon conversion of the Senior Convertible Notes in accordance with the Indenture for the 10% Senior Convertible Notes), the Borrower shall prepay the Loans in an amount equal to 100% of the Net Cash Proceeds received by such Person in connection therewith. The provisions of this subsection (viii) shall not be deemed to be implied consent to any such sale or issuance otherwise prohibited by the terms and conditions of this Agreement. (ix) Within 1 Business Day of the receipt by the Parent or any of its Domestic Subsidiaries of any Extraordinary Receipts and within 3 Business Days of the receipt by any Foreign Subsidiary of the Parent of any Extraordinary Receipts, the Borrower shall prepay the outstanding principal of the Loans in an amount equal to 100% of such Extraordinary Receipts, net of any reasonable expenses incurred in collecting such Extraordinary Receipts, to the extent that the aggregate amount of Extraordinary Receipts received by all Loan Parties and their Subsidiaries (and not paid to the Administrative Agent as a prepayment of the Loans) shall exceed $250,000 for all such Extraordinary Receipts in any Fiscal Year. (d) Application of Payments. (i) Except as set forth in Section 2.05(d)(iii) below, each prepayment made pursuant to subsections (c)(iv), (c)(vi), (c)(vii), (c)(viii), and (c)(ix) above shall be applied, first, to the Term Loan, until paid in full, second, to the Revolving Loans, until paid in full, and third, to cash collateralization of the Letters of Credit in an amount up to 105% of the undrawn amount of all outstanding Letters of Credit, until such Letters of Credit are cash 50 collateralized in an amount equal to 105% of the greatest amount for which such Letters of Credit may be drawn. Each such prepayment of the Term Loan shall be applied against the remaining installments of principal of the Term Loan in the inverse order of their maturity. (ii) Each prepayment made pursuant to subsection (c)(v) above shall be applied, first, to the Revolving Loans, until paid in full, second, to cash collateralization of the Letters of Credit in an amount up to 105% of the undrawn amount of all outstanding Letters of Credit, until such Letters of Credit are cash collateralized in an amount equal to 105% of the greatest amount for which such Letters of Credit may be drawn, and third to the Term Loan, until paid in full. Each such prepayment of the Term Loan shall be applied against the remaining installments of principal of the Term Loan in the inverse order of their maturity. (iii) Each prepayment pursuant to Section 2.05(c)(vi), with respect to proceeds resulting from the Disposition of Accounts Receivable or the Disposition of all or substantially all of the assets or Capital Stock of any Person, which Disposition includes Accounts Receivable and other assets, or pursuant to Section 2.05(c)(ix), with respect to insurance proceeds, condemnation awards, or payments in lieu thereof related to a casualty or other loss which includes the loss of Accounts Receivable, in each case, shall be applied as follows: (A) an amount up to the book value of such Accounts Receivable (determined at the time of such Disposition or event resulting in such insurance proceeds or condemnation award) shall be applied, (1) first, to the outstanding principal amount of the Revolving Loans, until paid in full, (2) second, to cash collateralization of the Letters of Credit in an amount up to 105% of the undrawn amount of all outstanding Letters of Credit, until such Letters of Credit are cash collateralized in an amount equal to 105% of the greatest amount for which such Letters of Credit may be drawn, and (3) third, to the outstanding principal amount of the Term Loan, until paid in full, and (B) any remaining proceeds shall be applied, (1) first, to the outstanding principal amount of the Term Loan, until paid in full, (2) second, to the outstanding principal amount of the Revolving Loans, until paid in full, and (3) third, to cash collateralization of the Letters of Credit in an amount up to 105% of the undrawn amount of all outstanding Letters of Credit, until such Letters of Credit are cash collateralized in an amount equal to 105% of the greatest amount for which such Letters of Credit may be drawn. (iv) The foregoing to the contrary notwithstanding, Borrower shall not be required to make a prepayment otherwise required pursuant to Section 2.05(c)(vi) or Section 2.05(c)(ix) with Reinvestment Eligible Funds so long as: (A) no Default or Event of Default has occurred and is continuing on the date such Person receives such Reinvestment Eligible Funds or on the date such amounts are to be released to Borrower pursuant to this paragraph (iv), (B) the Borrower delivers a notice (a "Reinvestment Notice") on or prior to the date that the applicable Person is required to apply the monies constituting such Reinvestment Eligible Funds notifying the Agents of the intent of the applicable Person to use such Reinvestment Eligible Funds (1) to repair, restore, or replace the assets that were the subject of the Disposition, casualty or condemnation giving rise to such amounts with assets of equal or greater fair market value which will be useful in the conduct of their business in the ordinary course of 51 business, (2) within the period specified in such notice, which period shall not to exceed the earlier of (x) 180 days after the receipt of such Reinvestment Eligible Funds by the applicable Loan Party or its Subsidiary and (y) the Final Maturity Date, and (C) pending the reinvestment described in clause (B)(1) above, such Reinvestment Eligible Amounts are deposited in a cash collateral account over which Collateral Agent (on behalf of the Lenders) has a perfected first-priority Lien. If all or any portion of such Reinvestment Eligible Funds are not used in accordance with the preceding sentence within the period specified in the Reinvestment Notice, the remaining portion shall be applied to the Loans in accordance with Section 2.05(d) on the last day of such specified period. (e) Interest and Fees. Any prepayment made pursuant to this Section 2.05 (other than prepayments made pursuant to subsections (c)(i), (c)(ii), (c)(iii), (c)(iv), and (c)(v) of this Section 2.05) shall be accompanied by the payment of accrued interest on the principal amount being prepaid to the date of prepayment, and if such prepayment would reduce the amount of the outstanding Loans to zero at a time when the Total Revolving Credit Commitment has been terminated, such prepayment shall be accompanied by the payment of all fees accrued to such date pursuant to Section 2.06. (f) Cumulative Prepayments. Except as otherwise expressly provided in this Section 2.05, payments with respect to any subsection of this Section 2.05 are in addition to payments made or required to be made under any other subsection of this Section 2.05. Section 2.06 Fees. In addition to the fees set forth in this Agreement, the Borrower shall pay to the Administrative Agent the fees set forth in the Fee Letter in the amounts and on the dates set forth in the Fee Letter. Section 2.07 Securitization. The Borrower hereby acknowledges that the Lenders and their Affiliates may sell or securitize the Loans (a "Securitization") through the pledge of the Loans as collateral security for loans to the Lenders or their Affiliates or through the sale of the Loans or the issuance of direct or indirect interests in the Loans, which loans to the Lenders or their Affiliates or direct or indirect interests will be rated by Moody's, Standard & Poor's or one or more other rating agencies (the "Rating Agencies"). The Borrower shall cooperate with the Lenders and their Affiliates to effect the Securitization including by (a) amending this Agreement and the other Loan Documents, and executing such additional documents, as reasonably requested by the Lenders in connection with the Securitization, provided that (i) any such amendment or additional documentation does not impose material additional costs on the Borrower and (ii) any such amendment or additional documentation does not materially adversely affect the rights, or materially increase the obligations, of the Borrower under the Loan Documents or change or affect in a manner adverse to the Borrower the financial terms of the Loans, (b) providing such information as may be reasonably requested by the Lenders in connection with the rating of the Loans or the Securitization, and (c) providing in connection with any rating of the Loans a certificate (i) agreeing to indemnify the Lenders and their Affiliates, any of the Rating Agencies, or any party providing credit support or otherwise participating in the Securitization (collectively, the "Securitization Parties") for any losses, claims, damages or liabilities (the "Liabilities") to which the Lenders, their Affiliates or such Securitization Parties may become subject insofar as the Liabilities arise out of or are based upon any untrue statement or alleged untrue statement of any material fact contained in any Loan Document or in any writing delivered by or 52 on behalf of any Loan Party to any Agent or Lender in connection with any Loan Document or arise out of or are based upon the omission or alleged omission to state therein a material fact required to be stated therein, or necessary in order to make the statements therein, in light of the circumstances under which they were made, not misleading, and such indemnity shall survive any transfer by the Lenders or their successors or assigns of the Loans and (ii) agreeing to reimburse the Agents, the Lenders and their Affiliates for any legal or other expenses reasonably incurred by such Persons in connection with defending the Liabilities. Section 2.08 Taxes. (a) Except as otherwise provided in this Section, any and all payments by any Loan Party hereunder or under any other Loan Document shall be made free and clear of and without deduction for any and all present or future taxes, levies, imposts, deductions, charges or withholdings, and all liabilities with respect thereto, excluding (i) taxes imposed on (or measured by) the net income of any Agent, any Lender or the L/C Issuer (or any transferee or assignee thereof, including a participation holder (any such entity, a "Transferee")) as a result of a present or former connection between such Person and the jurisdiction of the Governmental Authority imposing the tax (other than any such connection arising solely from such recipient having executed, delivered or performed its obligations or received a payment under, or enforced, any of the Loan Documents), (ii) any branch profit taxes imposed by the United States, or (iii) by the jurisdiction in which such Person is organized or has its principal lending office (all such nonexcluded taxes, levies, imposts, deductions, charges withholdings and liabilities, collectively or individually, "Taxes"). If any Loan Party shall be required to deduct any Taxes from or in respect of any sum payable hereunder to any Agent, any Lender or the L/C Issuer (or any Transferee), (A) the sum payable shall be increased by the amount (an "additional amount") necessary so that after making all required deductions (including deductions applicable to additional sums payable under this Section 2.08) such Agent, such Lender or the L/C Issuer (or such Transferee) shall receive an amount equal to the sum it would have received had no such deductions been made, (B) such Loan Party shall make such deductions, and (C) such Loan Party shall pay the full amount deducted to the relevant Governmental Authority in accordance with applicable law. (b) In addition, each Loan Party agrees to pay to the relevant Governmental Authority in accordance with applicable law any present or future stamp or documentary taxes or any other excise or property taxes, charges or similar levies that arise from any payment made hereunder or from the execution, delivery or registration of, or otherwise with respect to, this Agreement or any other Loan Document ("Other Taxes"). Each Loan Party shall deliver to each Agent, each Lender and the L/C Issuer official receipts in respect of any Taxes or Other Taxes payable hereunder promptly after payment of such Taxes or Other Taxes. (c) The Loan Parties hereby jointly and severally indemnify and agree to hold each Agent, each Lender and the L/C Issuer harmless from and against Taxes and Other Taxes (including Taxes and Other Taxes imposed on any amounts payable under this Section 2.08) paid by such Person, whether or not such Taxes or Other Taxes were correctly or legally asserted. Such indemnification shall be paid within 10 days from the date on which any such Person makes written demand therefore specifying in reasonable detail the nature and amount of such Taxes or Other Taxes. 53 (d) Each Lender that is organized under the laws of a jurisdiction outside the United States (a "Non-U.S. Lender") agrees that it shall, no later than the Effective Date (or, in the case of a Lender which becomes a party hereto pursuant to Section 12.07 hereof after the Effective Date, promptly after the date upon which such Lender becomes a party hereto) deliver to the Agents (or, in the case of an assignee of a Lender which (x) is an Affiliate of such Lender or a Related Fund of such Lender and (y) does not deliver an Assignment and Acceptance to the Administrative Agent pursuant to the last sentence of Section 12.07(b) for recordation pursuant to Section 12.07(c), to the assigning Lender only, and in the case of a participant, to the Lender granting the participation only) a properly completed and duly executed copy of either U.S. Internal Revenue Service Form W-8BEN, W-8ECI or W-8IMY or any subsequent versions thereof or successors thereto, in each case claiming complete exemption from U.S. Federal withholding tax and payments of interest hereunder. In addition, in the case of a Non-U.S. Lender claiming exemption from U.S. Federal withholding tax under Section 871(h) or 881(c) of the Internal Revenue Code, such Non-U.S. Lender hereby represents to the Agents and the Borrower that such Non-U.S. Lender is not a bank for purposes of Section 881(c) of the Internal Revenue Code, is not a 10-percent shareholder (within the meaning of Section 871(h)(3)(B) of the Internal Revenue Code) of the Parent and is not a controlled foreign corporation related to the Parent (within the meaning of Section 864(d)(4) of the Internal Revenue Code), and such Non-U.S. Lender agrees that it shall promptly notify the Agents in the event any such representation is no longer accurate. Such forms shall be delivered by each Non-U.S. Lender on or before the date it becomes a party to this Agreement (or, in the case of a Lender which becomes a party hereto pursuant to Section 12.07 hereof after the Effective Date, promptly after the date upon which such Lender becomes a party hereto) and on or before the date, if any, such Non-U.S. Lender changes its applicable lending office by designating a different lending office (a "New Lending Office"). In addition, such Non-U.S. Lender shall deliver such forms within 20 days after receipt of a written request therefor from any Agent, the assigning Lender or the Lender granting a participation, as applicable. Notwithstanding any other provision of this Section 2.08, a Non-U.S. Lender shall not be required to deliver any form pursuant to this Section 2.08(d) that such Non-U.S. Lender is not legally able to deliver. (e) The Loan Parties shall not be required to indemnify any Non-U.S. Lender, or pay any additional amounts to any Non-U.S. Lender, in respect of United States Federal withholding tax pursuant to this Agreement to the extent that (i) the obligation to withhold amounts with respect to United States Federal withholding tax existed on the date such Non-U.S. Lender became a party to this Agreement (or, in the case of a Transferee that is a participation holder, on the date such participation holder became a Transferee hereunder) or, with respect to payments to a New Lending Office, the date such Non-U.S. Lender designated such New Lending Office with respect to a Loan; provided, however, that this clause (i) shall not apply to the extent the indemnity payment or additional amounts any Transferee, or Lender (or Transferee) through a New Lending Office, would be entitled to receive (without regard to this clause (i)) do not exceed the indemnity payment or additional amounts that the Person making the assignment, participation or transfer to such Transferee, or Lender (or Transferee) making the designation of such New Lending Office, would have been entitled to receive in the absence of such assignment, participation, transfer or designation, or (ii) the obligation to pay such additional amounts would not have arisen but for a failure by such Non-U.S. Lender to comply with the provisions of clause (d) above. 54 (f) The obligations of the Loan Parties under this Section 2.08 shall survive the termination of this Agreement and the payment of the Loans and all other amounts payable hereunder. (g) If any Loan Party is required to pay additional amounts to any Lender or any Governmental Authority for the account of any Lender as a result of a change of law occurring after the date hereof, then such Lender shall use reasonable efforts (consistent with legal and regulatory restrictions) to file or provide to Agent any certificate or document reasonably requested in writing by the Agent to change the jurisdiction of its applicable lending office if the making of such a filing or change would avoid the need for or reduce the amount of any such indemnity payment or additional amount that may thereafter accrue, would not require such Lender to disclose any information such Lender deems confidential and would not, in the sole determination of such Lender, be otherwise disadvantageous to such Lender; provided that the mere existence of fees, charges, costs or expenses that such Loan Party has offered and agreed to pay on behalf of the Lender shall not be deemed to be disadvantageous to the Lender. (h) If any additional amount payable by any Loan Party is made to or for the account of any Lender on account of Taxes then, if any Lender receives a refund of such Taxes, such Lender shall reimburse to the Borrower such refund, net of all out-of-pocket expenses of such Lender that are related to such refund; provided that (i) such Lender shall not be obligated to disclose to the Borrower any information regarding its tax affairs and computations, and (ii) nothing herein shall be construed so as to interfere with the right of such Lender to arrange its tax affairs as it deems appropriate; provided further that any Loan Party, upon request of any Agent or Lender, agrees to repay the amount paid over to the Loan Party (plus any penalties, interest, or other charges imposed by the relevant Governmental Authority) to such Agent or Lender in the event such Agent or Lender is required to repay such refund to the relevant Governmental Authority. ARTICLE III LETTERS OF CREDIT Section 3.01 Letter of Credit Guaranty. (a) In order to assist the Borrower in establishing or opening standby letters of credit, which shall not have expiration dates that exceed 12 months from the date of issuance (although, subject to the terms and conditions hereof, any such standby letter of credit may be extendable for successive periods of up to 12 months on terms and conditions reasonably satisfactory to the Administrative Agent and subject to the conditions set forth in Article V) (each a "Letter of Credit"), with the L/C Issuer, the Borrower has requested the Administrative Agent to join in the applications for such Letters of Credit, or guarantee payment or performance of such Letters of Credit and any drafts thereunder through the issuance of a Letter of Credit Guaranty, thereby lending the Administrative Agent's credit to that of the Borrower, and the Administrative Agent has agreed to do so. These arrangements shall be coordinated by the Administrative Agent, subject to the terms and conditions set forth below. The Administrative Agent shall not be required to be the issuer of any Letter of Credit. The Borrower will be the account party for the application for each Letter of Credit, which shall be on a computer transmission system 55 approved by the Administrative Agent and the L/C Issuer, or such other written form or computer transmission system as may from time to time be approved by the Administrative Agent and the L/C Issuer, and shall be duly completed in a manner reasonably satisfactory to the Administrative Agent, together with such other certificates, agreements, documents and other papers and information as the Administrative Agent and the L/C Issuer may reasonably request (the "Letter of Credit Application"). In the event of any conflict between the terms of any Letter of Credit Application and this Agreement, for purposes of this Agreement, the terms of this Agreement shall control. (b) The aggregate Letter of Credit Obligations shall not exceed the lowest of (i) the difference between (A) the Total Revolving Credit Commitment and (B) the aggregate principal amount of all Revolving Loans then outstanding, (ii) the difference between (A) the Borrowing Base and (B) the aggregate principal amount of all Revolving Loans then outstanding, and (iii) the L/C Subfacility. In addition, the terms and conditions of all Letters of Credit and all changes or modifications thereof by the Borrower or the L/C Issuer shall in all respects be subject to the prior approval of the Administrative Agent in the reasonable exercise of its sole and absolute discretion; provided, however, that (i) the expiry date of all Letters of Credit shall be no later than 5 days prior to the Final Maturity Date unless, on or prior to 5 days prior to the Final Maturity Date either (A) such Letters of Credit shall be cash collateralized in an amount equal to 105% of the face amount of such Letters of Credit by deposit of cash in such amount in an account under the sole and exclusive control of the Administrative Agent for the benefit of the Administrative Agent or the L/C Issuer (the "Letter of Credit Collateral Account") or (B) the Borrower shall provide the Administrative Agent and the Revolving Loan Lenders with an indemnification, in form and substance reasonably satisfactory to the Administrative Agent, from a commercial bank or other financial institution acceptable to the Agents for any Letter of Credit Obligations with respect to such Letters of Credit and (ii) the Letters of Credit and all documentation in connection therewith shall be in form and substance reasonably satisfactory to the Administrative Agent and the L/C Issuer. (c) The Administrative Agent shall have the right, without notice to the Borrower, to charge the Loan Account with the amount of any and all Indebtedness, liabilities and obligations of any kind (including indemnification for breakage costs, capital adequacy and reserve requirement charges) incurred by the Agents or the Revolving Loan Lenders under the Letter of Credit Guaranty or incurred by the L/C Issuer with respect to a Letter of Credit at the earlier of (i) payment by the Administrative Agent or the Revolving Loan Lenders under the Letter of Credit Guaranty or (ii) the occurrence of any Default or Event of Default. Any amount charged to the Loan Account shall be deemed a Revolving Loan hereunder made by the Revolving Loan Lenders to the Borrower, funded by the Administrative Agent on behalf of the Revolving Loan Lenders and subject to Section 2.02 of this Agreement. Any charges, fees, commissions, costs and expenses charged to the Administrative Agent for the Borrower's account by the L/C Issuer in connection with or arising out of Letters of Credit or transactions relating thereto will be charged to the Loan Account in full when charged to or paid by the Administrative Agent and, when charged, shall be conclusive on the Borrower absent manifest error. Each of the Revolving Loan Lenders and the Borrower agrees that the Administrative Agent shall have the right to make such charges regardless of whether any Default or Event of Default shall have occurred and be continuing or whether any of the conditions precedent in Section 5.02 have been satisfied. 56 (d) The Borrower unconditionally indemnifies each Agent and each Lender and holds each Agent and each Lender harmless from any and all loss, claim or liability incurred by any Agent or any Lender arising from any transactions or occurrences relating to Letters of Credit, any drafts or acceptances thereunder, the Collateral relating thereto, and all Obligations in respect thereof, including any such loss or claim due to any action taken by the L/C Issuer, other than for any such loss, claim or liability arising out of the gross negligence or willful misconduct of the L/C Issuer, any Agent or any Lender as determined by a final non-appealable judgment of a court of competent jurisdiction. The Borrower further agrees to jointly and severally hold each Agent and each Lender harmless from any errors or omission, negligence or misconduct by the L/C Issuer; provided that the foregoing shall not excuse any Agent or any Lender from any liability to the Borrower to the extent of any direct damages suffered by the Borrower that are caused by such Agent's or such Lender's gross negligence or willful misconduct as determined by a final non-appealable judgment of a court of competent jurisdiction. The Borrower's unconditional obligations to each Agent, each Lender and the L/C Issuer with respect to Letters of Credit hereunder shall not be modified or diminished for any reason or in any manner whatsoever, other than as a result of such Agent's, such Lender's or the L/C Issuer's gross negligence or willful misconduct as determined by a final non-appealable judgment of a court of competent jurisdiction. The Borrower agrees that any charges incurred by the Administrative Agent or the L/C Issuer for the Borrower's account hereunder may be charged to the Loan Account. (e) Upon any payments made to the L/C Issuer under the Letter of Credit Guaranty, the Agents or the Revolving Loan Lenders, as the case may be, shall, without prejudice to their rights under this Agreement (including that such unreimbursed amounts shall constitute Loans hereunder), acquire by subrogation, any rights, remedies, duties or obligations granted or undertaken by the Borrower in favor of the L/C Issuer in any application for Letters of Credit, any standing agreement relating to Letters of Credit or otherwise, all of which shall be deemed to have been granted to the Agents and the Revolving Loan Lenders and apply in all respects to the Agents and the Revolving Loan Lenders and shall be in addition to any rights, remedies, duties or obligations contained herein. Section 3.02 Participations. (a) Purchase of Participations. Immediately upon issuance by the L/C Issuer of any Letter of Credit pursuant to this Agreement, each Revolving Loan Lender shall be deemed to have irrevocably and unconditionally purchased and received from the Administrative Agent, without recourse or warranty, an undivided interest and participation, to the extent of such Revolving Loan Lender's Pro Rata Share, in all obligations of the Administrative Agent in such Letter of Credit (including all Reimbursement Obligations of the Borrower with respect thereto pursuant to the Letter of Credit Guaranty or otherwise). (b) Sharing of Payments. In the event that the Administrative Agent makes any payment in respect of the Letter of Credit Guaranty and the Borrower shall not have repaid such amount to the Administrative Agent, the Administrative Agent shall charge the Loan Account in the amount of the Reimbursement Obligation, in accordance with Sections 3.01(c) and 4.02 of this Agreement. 57 (c) Obligations Irrevocable. The obligations of a Revolving Loan Lender to make payments to the Administrative Agent for the account of the Agents, the Revolving Loan Lenders or the L/C Issuer with respect to a Letter of Credit shall be irrevocable, without any qualification or exception whatsoever and shall be made in accordance with the terms and conditions of this Agreement under all circumstances, including any of the following circumstances: (i) any lack of validity or enforceability of this Agreement or any of the other Loan Documents; (ii) the existence of any claim, setoff, defense or other right which the Borrower may have at any time against a beneficiary named in such Letter of Credit or any transferee of such Letter of Credit (or any Person for whom any such transferee may be acting), any Agent, any Lender, or any other Person, whether in connection with this Agreement, such Letter of Credit, the transactions contemplated herein or any unrelated transactions (including any underlying transactions between the Borrower or any other party and the beneficiary named in such Letter of Credit); (iii) any draft, certificate or any other document presented under such Letter of Credit proving to be forged, fraudulent, invalid or insufficient in any respect or any statement therein being untrue or inaccurate in any respect; (iv) the surrender or impairment of any security for the performance or observance of any of the terms of any of the Loan Documents; (v) any failure by any Agent to provide any notices required pursuant to this Agreement relating to such Letter of Credit; (vi) any payment by the L/C Issuer under such Letter of Credit against presentation of a draft or certificate which does not comply with the terms of such Letter of Credit; or (vii) the occurrence of any Default or Event of Default. Section 3.03 Letters of Credit. (a) Request for Issuance. The Borrower may, upon notice not later than 12:00 noon, New York City time, at least 2 Business Days in advance of the issuance thereof, request the Administrative Agent to assist the Borrower in establishing or opening a Letter of Credit by delivering to the Administrative Agent, with a copy to the L/C Issuer, a Letter of Credit Application, together with any necessary related documents. The Administrative Agent shall not provide support, pursuant to the Letter of Credit Guaranty, if the Administrative Agent shall have received written notice from the Collateral Agent or the Required Lenders on the Business Day immediately preceding the proposed issuance date for such Letter of Credit that one or more of the conditions precedent in Section 5.02 will not have been satisfied on such date, and the Administrative Agent shall not otherwise be required to determine that, or take notice whether, the conditions precedent set forth in Section 5.02 have been satisfied. 58 (b) Letter of Credit Fees. The Borrower shall pay to the Administrative Agent for the account of the Revolving Loan Lenders, in accordance with the Revolving Loan Lenders' Pro Rata Shares (x) for any Letter of Credit issued hereunder, a non-refundable fee equal to 3.75 percentage points per annum of the stated amount of such Letter of Credit, payable on the date such Letter of Credit is issued or extended and (y) for any amendment to an existing Letter of Credit that increases the stated amount of such Letter of Credit, a non-refundable fee equal to 3.75 percentage points per annum of the increase in the stated amount of such Letter of Credit, payable on the date of such increase (the "Letter of Credit Fees"). (c) L/C Issuer Charges. The Borrower shall pay to the Administrative Agent the standard charges assessed by the L/C Issuer in connection with the issuance, administration, amendment, payment or cancellation of Letters of Credit. (d) Charges to the Loan Account. The Borrower hereby authorizes the Administrative Agent to, and the Administrative Agent may, from time to time, charge the Loan Account pursuant to Sections 3.01(c) and 4.02 of this Agreement with the amount of any Letter of Credit Fees or charges due under this Section 3.03. ARTICLE IV FEES, PAYMENTS AND OTHER COMPENSATION Section 4.01 [Intentionally Omitted]. Section 4.02 Payments; Computations and Statements. (a) The Borrower will make each payment under this Agreement not later than 12:00 noon (New York City time) on the day when due, in lawful money of the United States of America and in immediately available funds, to the Administrative Agent's Account. All payments received by the Administrative Agent after 12:00 noon (New York City time) on any Business Day will be credited to the Loan Account on the next succeeding Business Day. All payments shall be made by the Borrower without set-off, counterclaim, deduction or other defense to the Agents and the Lenders. Except as provided in Section 2.02, after receipt, the Administrative Agent will promptly thereafter cause to be distributed like funds relating to the payment of principal ratably to the Lenders in accordance with their Pro Rata Shares and like funds relating to the payment of any other amount payable to any Lender to such Lender, in each case to be applied in accordance with the terms of this Agreement, provided that the Administrative Agent will cause to be distributed all interest and fees received from or for the account of the Borrower not less than once each month and in any event promptly after receipt thereof. The Lenders and the Borrower hereby authorize the Administrative Agent to, and the Administrative Agent may charge the Loan Account of the Borrower with any amount due and payable by the Borrower under any Loan Document. Each of the Lenders and the Borrower agrees that the Administrative Agent shall have the right to make such charges whether or not any Default or Event of Default shall have occurred and be continuing or whether any of the conditions precedent in Section 5.02 have been satisfied. Any amount charged to the Loan Account of the Borrower shall be deemed a Revolving Loan hereunder made by the Revolving Loan Lenders to the Borrower, funded by the Administrative Agent on behalf of the Revolving Loan Lenders and subject to Section 2.02 of this Agreement; provided, however, that without limiting the Administrative Agent's obligation to charge items to the Loan Account (including pursuant to the proviso of the next sentence), the foregoing shall not obligate the Administrative Agent to make Revolving Loans if all of the conditions to funding under this Agreement (including those set forth in Section 2.01 and Article V) have not been satisfied or waived. The Lenders and the Borrowers 59 confirm that any charges which the Administrative Agent may so make to the Loan Account of the Borrowers as herein provided will be made as an accommodation to the Borrowers and solely at the Administrative Agent's discretion, provided that the Administrative Agent shall from time to time upon the request of the Collateral Agent, charge the Loan Account of the Borrowers with any amount due and payable under any Loan Document. Whenever any payment to be made under any such Loan Document shall be stated to be due on a day other than a Business Day, such payment shall be made on the next succeeding Business Day and such extension of time shall in such case be included in the computation of interest or fees, as the case may be. All computations of fees shall be made by the Administrative Agent on the basis of a year of 360 days for the actual number of days (including the first day but excluding the last day) occurring in the period for which such fees are payable. Each determination by the Administrative Agent of an interest rate or fees hereunder shall be conclusive and binding for all purposes in the absence of manifest error. (b) The Administrative Agent shall provide the Borrower, promptly after the end of each calendar month, a summary statement (in the form from time to time used by the Administrative Agent) of the opening and closing daily balances in the Loan Account of the Borrower during such month, the amounts and dates of all Loans made to the Borrower during such month, the amounts and dates of all payments on account of the Loans to the Borrower during such month and the Loans to which such payments were applied, the amount of interest accrued on the Loans to the Borrower during such month, any Letters of Credit issued by the L/C Issuer for the account of the Borrower during such month, specifying the face amount thereof and the amount of charges to the Loan Account or Loans made to the Borrower during such month to reimburse the Revolving Loan Lenders for drawings made under Letters of Credit, and the amount and nature of any charges to the Loan Account made during such month on account of fees, commissions, expenses and other Obligations. All entries on any such statement shall be presumed to be correct and, 30 days after the same is sent, shall be final and conclusive absent manifest error. Section 4.03 Sharing of Payments, Etc. Except as provided in Section 2.02 hereof, if any Lender shall obtain any payment (whether voluntary, involuntary, through the exercise of any right of set-off, or otherwise) on account of any Obligation in excess of its ratable share of payments on account of similar obligations obtained by all the Lenders, such Lender shall forthwith purchase from the other Lenders such participations in such similar obligations held by them as shall be necessary to cause such purchasing Lender to share the excess payment ratably with each of them; provided, however, that if all or any portion of such excess payment is thereafter recovered from such purchasing Lender, such purchase from each Lender shall be rescinded and such Lender shall repay to the purchasing Lender the purchase price to the extent of such recovery together with an amount equal to such Lender's ratable share (according to the proportion of (i) the amount of such Lender's required repayment to (ii) the total amount so recovered from the purchasing Lender of any interest or other amount paid by 60 the purchasing Lender in respect of the total amount so recovered). The Borrower agrees that any Lender so purchasing a participation from another Lender pursuant to this Section 4.03 may, to the fullest extent permitted by law, exercise all of its rights (including the Lender's right of set-off) with respect to such participation as fully as if such Lender were the direct creditor of the Borrower in the amount of such participation. Section 4.04 Apportionment of Payments. Subject to Section 2.02 hereof and to any written agreement among the Agents or the Lenders: (a) All payments of principal and interest in respect of outstanding Loans, all payments in respect of the Reimbursement Obligations, all payments of fees (other than the fees with respect to Letters of Credit provided for in Section 3.03(b)(ii) and the audit and collateral monitoring fees provided for in Section 4.01) and all other payments in respect of any other Obligations, shall be allocated by the Administrative Agent among such of the Lenders as are entitled thereto, in proportion to their respective Pro Rata Shares or otherwise as provided herein or, in respect of payments not made on account of Loans or Letter of Credit Obligations, as designated by the Person making payment when the payment is made. (b) After the occurrence and during the continuance of an Event of Default, the Administrative Agent may, and upon the direction of the Required Lenders shall, apply all payments in respect of any Obligations and all proceeds of the Collateral, subject to the provisions of this Agreement, (i) first, ratably to pay the Obligations in respect of any fees, expense reimbursements, indemnities and other amounts then due to the Agents or the L/C Issuer until paid in full; (ii) second, ratably to pay interest due in respect of the Agent Advances until paid in full, (iii) third, ratably to pay principal of Agent Advances until paid in full, (iv) fourth, ratably to pay any fees, expense reimbursements, and indemnities then due to the Revolving Loan Lenders until paid in full; (v) fifth, ratably to pay interest due in respect of the Revolving Loans and Reimbursement Obligations until paid in full; (vi) sixth, ratably to pay principal of the Revolving Loans and Letter of Credit Obligations (or, to the extent such Obligations are contingent, to provide cash collateral in respect of such Obligations (it being understood and agreed that with respect to any Letter of Credit, the amount of such cash collateral must be equal to 105% of the greatest amount for which such Letter of Credit may be drawn) until paid in full; (vii) seventh, ratably to pay any fees, expense reimbursements, and indemnities then due to the Term Loan Lenders until paid in full; (viii) eighth, ratably to pay interest due in respect of the Term Loan until paid in full; (ix) ninth, ratably to pay principal of the Term Loan until paid in full, and (x) tenth, to the ratable payment of all other Obligations then due and payable. (c) In each instance, so long as no Event of Default has occurred and is continuing, Section 4.04(b) shall not be deemed to apply to any payment by the Borrower specified by the Borrower to the Administrative Agent to be for the payment of Term Loan Obligations then due and payable under any provision of this Agreement or the prepayment of all or part of the principal of the Term Loan in accordance with the terms and conditions of Section 2.05. (d) For purposes of Section 4.04(b), (other than clause (viii) thereof) "paid in full" means with respect to any Obligations, payment in cash of all amounts owing under the Loan Documents in respect of such Obligations, including fees, interest, default interest, interest on interest, expense reimbursements and indemnities, specifically including in each case any of the foregoing which would accrue after the commencement of any Insolvency Proceeding irrespective of whether a claim is allowable in such Insolvency Proceeding, except to the extent 61 that default or overdue interest (but not any other interest) and fees, each arising from or related to a default, are disallowed in any Insolvency Proceeding; provided, however, that for purposes of such clause (viii), "paid in full" means with respect to any Obligations, payment in cash of all amounts owing under the Loan Documents in respect of such Obligations, including fees, interest, default interest, interest on interest, expense reimbursements and indemnities, specifically including in each case any of the foregoing which would accrue after the commencement of any Insolvency Proceeding irrespective of whether a claim is allowable in such Insolvency Proceeding. (e) In the event of a direct conflict between the priority provisions of this Section 4.04 and other provisions contained in any other Loan Document, it is the intention of the parties hereto that both such priority provisions in such documents shall be read together and construed, to the fullest extent possible, to be in concert with each other. In the event of any actual, irreconcilable conflict that cannot be resolved as aforesaid, the terms and provisions of this Section 4.04 shall control and govern. Section 4.05 Increased Costs and Reduced Return. (a) If any Lender, any Agent or the L/C Issuer shall have determined that the adoption or implementation of, or any change in, any law, rule, treaty or regulation, or any policy, guideline or directive of, or any change in, the interpretation or administration thereof by, any court, central bank or other administrative or Governmental Authority, or compliance by any Lender, any Agent or the L/C Issuer or any Person controlling any such Lender, any such Agent or the L/C Issuer with any directive of, or guideline from, any central bank or other Governmental Authority or the introduction of, or change in, any accounting principles applicable to any Lender, any Agent or the L/C Issuer or any Person controlling any such Lender, any such Agent or the L/C Issuer (in each case, whether or not having the force of law) (each, a "Change in Law"), shall (i) subject any Lender, any Agent or the L/C Issuer, or any Person controlling any such Lender, any such Agent or the L/C Issuer to any tax, duty or other charge with respect to this Agreement or any Loan made by such Lender or such Agent or any Letter of Credit issued by the L/C Issuer, or change the basis of taxation of payments to any Lender, any Agent or the L/C Issuer or any Person controlling any such Lender, any such Agent or the L/C Issuer of any amounts payable hereunder (except for taxes on the overall net income of any Lender, any Agent or the L/C Issuer or any Person controlling any such Lender, any such Agent or the L/C Issuer), (ii) impose, modify or deem applicable any reserve, special deposit or similar requirement against any Loan, any Letter of Credit or against assets of or held by, or deposits with or for the account of, or credit extended by, any Lender, any Agent or the L/C Issuer or any Person controlling any such Lender, any such Agent or the L/C Issuer or (iii) impose on any Lender, any Agent or the L/C Issuer or any Person controlling any such Lender, any such Agent or the L/C Issuer any other condition regarding this Agreement or any Loan or Letter of Credit, and the result of any event referred to in clauses (i), (ii), or (iii) above shall be to increase the cost to any Lender, any Agent or the L/C Issuer of making any Loan, issuing, guaranteeing or participating in any Letter of Credit, or agreeing to make any Loan or issue, 62 guaranty or participate in any Letter of Credit, or to reduce any amount received or receivable by any Lender, any Agent or the L/C Issuer hereunder, then, upon demand by any such Lender, any such Agent or the L/C Issuer, the Borrower shall pay to such Lender, such Agent or the L/C Issuer such additional amounts as will compensate such Lender, such Agent or the L/C Issuer for such increased costs or reductions in amount. (b) If any Lender, any Agent or the L/C Issuer shall have determined that any Change in Law either (i) affects or would affect the amount of capital required or expected to be maintained by any Lender, any Agent or the L/C Issuer or any Person controlling such Lender, such Agent or the L/C Issuer, and any Lender, any Agent or the L/C Issuer determines that the amount of such capital is increased as a direct or indirect consequence of any Loans made or maintained, Letters of Credit issued or any guaranty or participation with respect thereto, any Lender's, any Agent's or the L/C Issuer's or any such other controlling Person's other obligations hereunder, or (ii) has or would have the effect of reducing the rate of return on any Lender's, any Agent's or the L/C Issuer's any such other controlling Person's capital to a level below that which such Lender, such Agent or the L/C Issuer or such controlling Person could have achieved but for such circumstances as a consequence of any Loans made or maintained, Letters of Credit issued, or any guaranty or participation with respect thereto or any agreement to make Loans, to issue Letters of Credit or such Lender's, such Agent's or the L/C Issuer's or such other controlling Person's other obligations hereunder (in each case, taking into consideration, such Lender's, such Agent's or the L/C Issuer's or such other controlling Person's policies with respect to capital adequacy), then, upon demand by any Lender, any Agent or the L/C Issuer, the Borrower shall pay to such Lender, such Agent or the L/C Issuer from time to time such additional amounts as will compensate such Lender, such Agent or the L/C Issuer for such cost of maintaining such increased capital or such reduction in the rate of return on such Lender's, such Agent's or the L/C Issuer's or such other controlling Person's capital. (c) All amounts payable under this Section 4.05 shall bear interest from the date that is 10 days after the date of demand by any Lender, any Agent or the L/C Issuer until payment in full to such Lender, such Agent or the L/C Issuer at the Reference Rate. A certificate of such Lender, such Agent or the L/C Issuer claiming compensation under this Section 4.05, specifying the event herein above described and the nature of such event shall be submitted by such Lender, such Agent or the L/C Issuer to the Borrower, setting forth the additional amount due and an explanation of the calculation thereof, and such Lender's, such Agent's or the L/C Issuer's reasons for invoking the provisions of this Section 4.05, and shall be final and conclusive absent manifest error. ARTICLE V CONDITIONS TO LOANS Section 5.01 Conditions Precedent. The obligation of any Lender to make the initial Loans (or any other Person to otherwise to extend any credit provided for hereunder), is subject to the fulfillment, to the satisfaction or waiver of the Agents (the making of such initial extension of credit by any Lender being conclusively deemed to be its satisfaction or waiver of the following), of each of the conditions precedent set forth below: (a) Payment of Fees, Etc. The Borrower shall have paid all fees, costs, expenses and taxes then payable pursuant to Sections 2.06 or 12.04. 63 (b) Representations and Warranties; No Event of Default. The following statements shall be true and correct: (i) the representations and warranties contained in Article VI and in each other Loan Document or certificate delivered to any Agent or any Lender pursuant hereto or thereto on or prior to the Effective Date are true and correct in all material respects (except that such materiality qualifier shall not be applicable to any representations and warranties that already are qualified or modified by materiality in the text thereof) on and as of the Effective Date as though made on and as of such date (it being understood and agreed that any representation or warranty which by its terms is made as of a specified date shall be required to be true and correct in all material respects only as of such specified date) and (ii) no Default or Event of Default shall have occurred and be continuing on the Effective Date. (c) [Intentionally Omitted]. (d) Delivery of Documents. The Collateral Agent shall have received on or before the Effective Date the following, each in form and substance satisfactory to the Agents and, unless indicated otherwise, dated the Effective Date: (i) the Canadian Guarantee, duly executed by the Canadian Guarantor; (ii) the Canadian Security Agreement, duly executed by the Canadian Guarantor; (iii) the Canadian Pledge Agreement, duly executed by PRG-Schultz Canada, Inc., a Georgia corporation, together with the original stock certificates (if any) representing all of the stock of the Canadian Guarantor, accompanied by proper instruments of transfer; (iv) the Fee Letter, duly executed by the Borrower; (v) the Funds Flow Agreement, duly executed by each Loan Party; (vi) the Intercompany Subordination Agreement, duly executed by each Loan Party; (vii) the Meridian Pledge Agreements, duly executed by each of the Parent and HS&A Acquisition - UK, Inc., a Texas corporation, together with the original stock certificates (if any) representing all of the stock of Meridian, accompanied by proper instruments of transfer; (viii) the Security Agreement, duly executed by each Loan Party, together with the original stock certificates representing all of the stock of such Loan Party's Subsidiaries and all intercompany promissory notes of such Loan Parties required to be delivered pursuant to the terms of the Security Agreement, accompanied by undated stock powers executed in blank and other proper instruments of transfer; (ix) a Filing Authorization Letter, duly executed by each Loan Party, together with appropriate financing statements and PPSA registration statements 64 duly filed in such office or offices as may be necessary or, in the opinion of the Collateral Agent, desirable to perfect the security interests purported to be created by each Security Agreement; (x) certified copies of all effective financing statements and PPSA registration statements which name as debtor any Loan Party and which are filed in the offices referred to in clause (xii) above, together with copies of such financing statements and PPSA registration statements and the results of searches for any tax Lien and judgment Lien filed against such Person or its property; (xi) a termination and release agreement with respect to the Existing Credit Facility, duly executed by the Loan Parties and the Existing Credit Facility Lender, together with termination statements for all financing statements and PPSA registration statements filed by the Existing Lender and covering any portion of the Collateral and releases for all intellectual property security agreements or assignments filed in favor of the Existing Lender and covering any portion of the Collateral; (xii) a termination and release agreement with respect to the Existing Bridge Facility, duly executed by the Loan Parties, the Existing Bridge Facility Lenders, and the Existing Bridge Facility Agent, together with termination statements for all financing statements and PPSA registration statements filed by the Existing Bridge Facility Agent and covering any portion of the Collateral and releases for all intellectual property security agreements or assignments filed in favor of the Existing Bridge Facility Agent and covering any portion of the Collateral; (xiii) a copy of the resolutions of each Loan Party, certified as of the Effective Date by a secretary or assistant secretary thereof, authorizing (A) the transactions contemplated by the Loan Documents to which such Loan Party is or will be a party, and (B) the execution, delivery and performance by such Loan Party of each Loan Document to which such Loan Party is or will be a party and the execution and delivery of the other documents to be delivered by such Person in connection herewith and therewith; (xiv) a certificate of a secretary or assistant secretary of each Loan Party, certifying the names and true signatures of the representatives of such Loan Party authorized to sign each Loan Document to which such Loan Party is or will be a party and the other documents to be executed and delivered by such Loan Party in connection herewith and therewith, together with evidence of the incumbency of such authorized officers; (xv) a certificate of the appropriate official(s) of the state of organization and each state of foreign qualification of each Loan Party certifying as to the subsistence in good standing of, and the payment of taxes by, such Loan Party in such states (except, in the case of the states of foreign qualification, where the failure to be so qualified or in good standing, or to pay such taxes, individually or in the aggregate, could not reasonably be expected to result in a Material Adverse Effect); (xvi) a true and complete copy of the charter, certificate of formation, certificate of limited partnership or other publicly filed organizational document of each Loan Party, certified (A) as of a recent date prior to the Effective Date by an appropriate official of the state of organization of such Loan Party, and (B) by a secretary or assistant secretary of such Loan Party as 65 being a true and complete copy of the publicly filed organizational document for such Loan Party, which shall set forth the same complete name of such Loan Party as is set forth herein and the organizational number of such Loan Party, if an organized number is issued in such jurisdiction; (xvii) a copy of the charter and by-laws, limited liability company agreement, operating agreement, agreement of limited partnership or other organizational document of each Loan Party, together with all amendments thereto, certified as of the Effective Date by a secretary or assistant secretary of such Loan Party; (xviii) an opinion of (a) (i) Weil, Gotshal & Manges LLP, and (ii) Arnall Golden Gregory LLP, counsel to the Loan Parties, (b) Stikeman Elliott LLP, counsel to the Canadian Guarantor, (c) Stewart McKelvey Stirling Scales, Nova Scotia counsel to the Canadian Guarantor, and (c) McConnell Valdes, Puerto Rican counsel to the Collateral Agent, each substantially in the form of Exhibit 5.01(d) and as to such other matters as the Agents may reasonably request; (xix) a certificate of an Authorized Officer of the Borrower, certifying as to the matters set forth in Section 5.01(b); (xx) a copy of the Financial Statements; (xxi) a copy of the financial projections described in Section 6.01(g)(ii) hereof; (xxii) a solvency certificate of the chief financial officer of the Borrower in the form of Exhibit S-1; (xxiii) evidence of the insurance coverage required by Section 7.01 and the terms of each Security Agreement, with such endorsements as to the named insureds or lender loss payees thereunder as the Agents may request and providing that such policy may be terminated or canceled (by the insurer or the insured thereunder) only upon 30 days prior written notice to the Collateral Agent and each such named insured or loss payee; (xxiv) a certificate of an Authorized Officer of the Borrower, certifying the names and true signatures of the persons that are authorized to provide Notices of Borrowing, Letter of Credit Applications and all other notices under this Agreement and the other Loan Documents; (xxv) a landlord waiver, in form and substance satisfactory to the Agents and which may be included as a provision contained in the relevant Lease, executed by each landlord with respect to each of the following locations: 600 Galleria Parkway, Atlanta, GA 30339; (xxvi) the Loan Parties shall have received all material licenses, approvals or evidence of other actions required by any Governmental Authority in connection with the execution and delivery by the Loan Parties of the Exchange 66 Offer Transaction Documents and with the consummation of the transactions contemplated thereby; (xxvii) a certificate of an Authorized Officer of the Parent, certifying that attached thereto are complete and correct copies of the Exchange Offer Transaction Documents; (xxviii) such depository account, blocked account, lockbox account and similar agreements and other documents, each in form and substance satisfactory to the Agents, as the Agents may request with respect to the Borrower's cash management system; and (xxviii) such other agreements, instruments, approvals, opinions and other documents, each satisfactory to the Agents in form and substance, as the Agents may reasonably request. (e) Material Adverse Effect. The Agents shall have determined, in their sole judgment, that no event or development shall have occurred since December 31, 2005 which could reasonably be expected to result in a Material Adverse Effect. (f) Proceedings. No claim, action, suit, investigation, litigation or proceeding is pending or threatened in any court or before any Governmental Authority which relates to the transactions contemplated hereby or which could reasonably be expected to result in a Material Adverse Effect. (g) Management Reference Checks. The Agents shall have received satisfactory reference checks for key management of each Loan Party. (h) Due Diligence. The Agents shall have completed their legal due diligence with respect to each Loan Party and the results thereof shall be acceptable to the Agents, in their sole and absolute discretion. The Administrative Agent shall have received a Field Survey and Audit, dated not earlier than 30 days prior to the Effective Date, and such Field Survey and Audit and the results thereof shall be acceptable to the Administrative Agent, in its sole and absolute discretion. (i) Availability. After giving effect to all Loans to be made on the Effective Date and the Letters of Credit to be issued on the Effective Date, the Availability shall not be less than $11,500,000 (calculated without regard to any reserves imposed by the Administrative Agent). The Borrower shall deliver to the Agents a certificate of the chief financial officer of the Borrower certifying as to the calculation of Availability. (j) Revolving Loans and Letters of Credit on Effective Date. The aggregate amount of all Revolving Loans to be made and Letters of Credit to be issued on the Effective Date shall not exceed $5,000,000. (k) Exchange Offer Transaction. The Agents shall have received evidence reasonably satisfactory to them, including a certificate of an Authorized Officer of the Parent certifying, that concurrent with the making of the initial Loans or Letter of Credit, the Parent will simultaneously consummate the exchange (the "Exchange Offer Transaction") of not less than $118,750,000 of the Existing Notes for (i) a ratable portion of up to $50,000,000 (as such principal amount may be increased by the amount of accrued interest on the Existing Notes 67 that have been exchanged) of Senior Notes, (ii) a ratable portion of up to $60,000,000 of Senior Convertible Notes, and (iii) a ratable portion of the Series A Preferred Stock in accordance with the terms and conditions of the Exchange Offer Transaction Documents. Section 5.02 Conditions Precedent to All Loans and Letters of Credit. The obligation of any Agent or any Lender to make any Loan or of the Administrative Agent to assist the Borrower in establishing or opening any Letter of Credit is subject to the fulfillment of each of the following conditions precedent: (a) Representations and Warranties; No Event of Default. The following statements shall be true and correct, and the submission by the Borrower to the Administrative Agent of a Notice of Borrowing with respect to each such Loan, and the Borrower's acceptance of the proceeds of such Loan, or the submission by the Borrower of a Letter of Credit Application with respect to a Letter of Credit, and the issuance of such Letter of Credit, shall each be deemed to be a representation and warranty by each Loan Party on the date of such Loan or the date of issuance of such Letter of Credit that: (i) the representations and warranties contained in Article VI and in each other Loan Document, certificate or other writing delivered any Agent or any Lender pursuant hereto or thereto on or prior to the date of such Loan or such Letter of Credit are true and correct in all material respects (except that such materiality qualifier shall not be applicable to any representations and warranties that already are qualified or modified by materiality in the text thereof) on and as of such date as though made on and as of such date (except to the extent that any such representations or warranties expressly relate solely to an earlier date), and (ii) at the time of and after giving effect to the making of such Loan and the application of the proceeds thereof or at the time of issuance of such Letter of Credit, no Default or Event of Default has occurred and is continuing or would result from the making of the Loan to be made, or the issuance of such Letter of Credit to be issued, on such date. (b) Notices. The Administrative Agent shall have received (i) a Notice of Borrowing pursuant to Section 2.02 hereof or (ii) a Letter of Credit Application pursuant to Section 3.03 hereof, as applicable. Section 5.03 Conditions Subsequent to All Loans. The Loan Parties agree to fulfill, on or before the date applicable thereto, each of the following conditions subsequent (the failure by the Loan Parties to so perform or cause to be performed any of the following to constitute an immediate Event of Default hereunder): (a) One or before the date that is 1 Business Days after the Effective Date, the Collateral Agent shall have received a Control Agreement, in form and substance satisfactory to the Agents, regarding the Borrower's securities account located at Merrill Lynch. (b) On or before the date that is 2 Business Days after the Effective Date, the Collateral Agent shall have received the opinion of Carey Olsen, Isle of Jersey counsel to the Collateral Agent, regarding the Meridian Pledge Agreement. (c) On or before the date that is 5 Business Days after the Effective Date, the Collateral Agent shall have received stock pledge agreement with respect to the Capital Stock of Profit Recovery Brasil Ltda., a company organized under the laws of Brazil (the "Brazilian Pledge Agreement"), which stock pledge agreement 68 shall be in form and substance reasonably satisfactory to the Agents (including being governed by the laws of the jurisdiction of organization of Profit Recovery Brasil Ltda., a company organized under the laws of Brazil), together with (i) appropriate certificates and instruments of transfer with respect to such Capital Stock (to the extent such Capital Stock is certificated), and (ii) all other documentation, including one or more opinions of counsel reasonably satisfactory to the Agents, that is, in the opinion of the Agents, appropriate with respect to the execution and delivery of such stock pledge agreement. (d) On or before the date that is 5 Business Days after the Effective Date, the Collateral Agent shall have received (i) an account pledge agreement with respect to the Accounts Receivable and Deposit Account of the German Guarantor (the "German Security Agreement"), which account pledge agreement shall be in form and substance reasonably satisfactory to the Agents (including being governed by the laws of the jurisdiction of organization of the German Guarantor), (ii) a share pledge agreement with respect to the Capital Stock of the German Guarantor (the "German Pledge Agreement"), which share pledge agreement shall be in form and substance reasonably satisfactory to the Agents (including being governed by the laws of the jurisdiction of organization of the German Guarantor), together with appropriate certificates and instruments of transfer with respect to such Capital Stock (to the extent such Capital Stock is certificated), and (iii) all other documentation, including one or more opinions of counsel reasonably satisfactory to the Agents, that is, in the opinion of the Agents, appropriate with respect to the execution and delivery of such account pledge agreement and share pledge agreement. (e) On or before the date that is 10 Business Days after the Effective Date, the the Agents shall have received a Control Agreement for the Loan Parties' Deposit Account located at the Royal Bank of Canada, in form and substance reasonably satisfactory to the Agents. (f) On or before the date that is 30 days after the Effective Date, the Agents shall have received certified copies of the policies of insurance of the Parent and its Subsidiaries. (g) As soon as reasonably practicable, but in any event on or before the date that is 90 days after the Effective Date (or such longer period (not to exceed 180 days) as the Collateral Agent may reasonably agree), the Borrower and the Domestic Guarantors shall have (i) moved the Lockboxes and Collection Account from the Lockbox Bank listed on Schedule 8.01 to a financial institution acceptable to the Agents, (ii) established a cash management system reasonably satisfactory to Collateral Agent, (iii) delivered to the Agents an updated form of Schedule 6.01(v) and an updated form of Schedule 8.01, each in form and substance satisfactory to the Agents, which schedules, upon delivery to and approval by the Agent, shall, without any further action by any party hereto, update and replace Schedule 6.01(v) and Schedule 8.01, respectively, attached hereto, and (iv) delivered to the Agents such depository account, blocked account, lockbox account, or other similar agreements, each in form and substance satisfactory to the Agents, in respect of the Lockboxes and Collection Account at such new financial institution. 69 (h) The Loan Parties shall have used commercially reasonable efforts to deliver to the Collateral Agent, on or before the date that is 90 days after the Effective Date, landlord waivers, in form and substance reasonably satisfactory to the Agents and which may be included as a provision contained in the relevant Lease, executed by the landlords for the Loan Parties' premises listed on Schedule 5.03(b). (i) On or before the date that is 90 days after the Effective Date, the Canadian Guarantor shall deliver to the Collateral Agent the results of the Canadian statutory lien searches, which shall be satisfactory to Agents. ARTICLE VI REPRESENTATIONS AND WARRANTIES Section 6.01 Representations and Warranties. Each Loan Party hereby represents and warrants to the Agents, the Lenders and the L/C Issuer as follows: (a) Organization, Good Standing, Etc. Each Loan Party (i) is a corporation, limited liability company or limited partnership duly organized, validly existing and in good standing (in each jurisdiction where to be so has legal significance) under the laws of the state or jurisdiction of its organization, (ii) has all requisite power and authority to conduct its business as now conducted and as currently contemplated and, in the case of the Borrower, to make the borrowings hereunder, and to execute and deliver each Loan Document to which it is a party, and to consummate the transactions contemplated thereby, and (iii) is duly qualified to do business and is in good standing in each jurisdiction in which the character of the properties owned or leased by it or in which the transaction of its business makes such qualification necessary, except, in the case of jurisdictions of foreign qualification, where the failure to be so qualified or in good standing, individually or in the aggregate, could not reasonably be expected to result in a Material Adverse Effect. (b) Authorization, Etc. The execution, delivery and performance by each Loan Party of each Loan Document to which it is or will be a party, (i) have been duly authorized by all necessary action, (ii) do not and will not contravene its charter or by-laws, its limited liability company or operating agreement or its certificate of partnership or partnership agreement, as applicable, (iii) do not violate any applicable law or any contractual restriction binding on or otherwise affecting it or any of its properties, except where any violation could not reasonably be expected to result in a Material Adverse Effect, (iv) do not and will not result in or require the creation of any Lien (other than Permitted Liens) upon or with respect to any of its properties, and (v) do not and will not result in any default, noncompliance, suspension, revocation, impairment, forfeiture or nonrenewal of any permit, license, authorization or approval applicable to its operations or any of its properties, except where any such default, noncompliance, suspension, revocation, impairment, forfeiture or nonrenewal could not reasonably be expected to result in a Material Adverse Effect. (c) Governmental Approvals. No authorization or approval or other action by, and no notice to or filing with, any Governmental Authority is required in connection with the due execution, delivery and performance by any Loan Party of 70 any Loan Document to which it is or will be a party except (i) such as have been obtained or made and are in full force and effect, (ii) filings necessary to perfect Liens created by the Loan Documents, and (iii) authorizations, approvals or actions the failure to obtain or perform individually or in the aggregate, could not reasonably be expected to result in a Material Adverse Effect. (d) Enforceability of Loan Documents. This Agreement is, and each other Loan Document to which any Loan Party is or will be a party, when delivered hereunder, will be, a legal, valid and binding obligation of such Person, enforceable against such Person in accordance with its terms, except as may be limited by applicable bankruptcy, insolvency, reorganization, moratorium or other similar laws and subject to general principles of equity, regardless of whether considered in a proceeding in equity or at law. (e) Subsidiaries. Schedule 6.01(e) is a complete and correct description of the name, jurisdiction of incorporation and ownership of the outstanding Capital Stock of each Subsidiary of the Parent as of the Effective Date. All of the issued and outstanding shares of Capital Stock of such Subsidiaries have been validly issued and are fully paid and nonassessable, and the holders thereof are not entitled to any preemptive, first refusal or other similar rights. Except as indicated on such Schedule, all such Capital Stock is owned by the Parent or one or more of its wholly-owned Subsidiaries, free and clear of all Liens, except nonconsensual Permitted Liens. Except as indicated on Section 6.01(e) as of the Effective Date, there are no outstanding equity securities of the Parent or any of its Subsidiaries and no outstanding obligations of the Parent or any of its Subsidiaries convertible into or exchangeable for, or warrants, options or other rights for the purchase or acquisition from the Parent or any of its Subsidiaries, or other obligations of any Subsidiary to issue, directly or indirectly, any shares of Capital Stock of any Subsidiary of the Parent. (f) Litigation; Commercial Tort Claims. Except as set forth in Schedule 6.01(f), (i) there is no pending or, to the knowledge of any Loan Party, threatened action, suit or proceeding affecting any Loan Party before any court or other Governmental Authority or any arbitrator that (A) could reasonably be expected to result in a Material Adverse Effect or (B) as of the Effective Date, calls into question the validity or enforceability of, or otherwise seeks to invalidate, this Agreement or any other Loan Document, and (ii) except as set forth on Schedule 6.01(f), as of the Effective Date, none of the Loan Parties holds any commercial tort claims in respect of which a claim has been filed in a court of law or a written notice by an attorney has been given to a potential defendant. (g) Financial Condition. (i) The Financial Statements, copies of which have been delivered to each Agent and each Lender, fairly present, in all material respects, the consolidated financial condition of the Parent and its Subsidiaries as at the respective dates thereof and the consolidated results of operations of the Parent and its Subsidiaries for the fiscal periods ended on such respective dates, all in accordance with GAAP, and since December 31, 2005 no event or development has occurred that has had or could reasonably be expected to result in a Material Adverse Effect. 71 (ii) The Parent has heretofore furnished to each Agent and each Lender (A) projected monthly balance sheets, income statements and statements of cash flows of the Parent and its Subsidiaries for the period from December 31, 2005, through December 31, 2006, and (B) projected annual balance sheets, income statements and statements of cash flows of the Parent and its Subsidiaries for the Fiscal Years ending in 2006 through 2008, which projected financial statements shall be updated from time to time pursuant to Section 7.01(a)(x). Such projections, as so updated, are believed by the Parent at the time furnished to be reasonable, have been prepared on a reasonable basis and in good faith by the Parent, and have been based on assumptions believed by the Parent to be reasonable at the time made and upon the best information then reasonably available to the Parent (it being understood that actual results may vary from such projections and that such variations may be material). (h) Compliance with Law, Etc. No Loan Party is in violation of its organizational documents, any law, rule, regulation, judgment or order of any Governmental Authority applicable to it or any of its property or assets, or any material term of any agreement or instrument (including any Material Contract) binding on or otherwise affecting it or any of its properties where such violation could reasonably be expected to result in a Material Adverse Effect, and no Default or Event of Default has occurred and is continuing. (i) ERISA. Except as set forth on Schedule 6.01(i), (i) each Employee Plan is in substantial compliance with ERISA and the IRC, (ii) no Termination Event has occurred nor is reasonably expected to occur with respect to any Employee Plan, (iii) the most recent annual report (Form 5500 Series) with respect to each Employee Plan, including any required Schedule B (Actuarial Information) thereto, copies of which have been filed with the Internal Revenue Service and delivered to the Agents, is complete and correct in all material respects and fairly presents the funding status of such Employee Plan, and since the date of such report there has been no material adverse change in such funding status, (iv) copies of each agreement entered into with the PBGC, the U.S. Department of Labor or the Internal Revenue Service with respect to any Employee Plan have been delivered to the Agents, (v) no Employee Plan had an accumulated or waived funding deficiency or permitted decrease which would create a deficiency in its funding standard account or has applied for an extension of any amortization period within the meaning of Section 412 of the IRC at any time during the previous 60 months, and (vi) no Lien imposed under the IRC or ERISA exists or is likely to arise on account of any Employee Plan within the meaning of Section 412 of the IRC. Except as set forth on Schedule 6.01(i), no Loan Party or any of its ERISA Affiliates has incurred any withdrawal liability under ERISA with respect to any Multiemployer Plan, or is aware of any facts indicating that it or any of its ERISA Affiliates may in the future incur any such withdrawal liability. Except as set forth on Schedule 6.01(i), no Loan Party or any of its ERISA Affiliates nor any fiduciary of any Employee Plan has (A) engaged in a nonexempt prohibited transaction described in Sections 406 of ERISA or 4975 of the IRC, (B) failed to pay any required installment or other payment required under Section 412 of the IRC on or before the due date for such required installment or payment, (C) engaged in a transaction within the meaning of Section 4069 of ERISA or (D) incurred any liability to the PBGC which remains outstanding other than the payment of premiums, and there are no premium payments which have become due which are unpaid. Except as set forth on Schedule 6.01(i), there are no pending or, to the knowledge of any Loan Party, threatened claims, actions, proceedings or lawsuits (other than claims for benefits in the normal course) asserted or instituted against (1) any Employee Plan or its 72 assets, (2) any fiduciary with respect to any Employee Plan, or (3) any Loan Party or any of its ERISA Affiliates with respect to any Employee Plan. Except as required by Section 4980B of the Internal Revenue Code or as set forth on Schedule 6.01(i), no Loan Party or any of its ERISA Affiliates maintains an employee welfare benefit plan (as defined in Section 3(1) of ERISA) which provides health or life insurance benefits (through the purchase of insurance or otherwise) for any retired or former employee of any Loan Party or any of its ERISA Affiliates or coverage after a participant's termination of employment. (j) Taxes, Etc. (i) All Federal (including the federal government of Canada) and all material state, provincial, and local tax returns and other reports required by applicable law to be filed by any Loan Party have been filed, or extensions have been obtained, and (ii) all taxes, assessments and other governmental charges imposed upon any Loan Party or any property of any Loan Party and which have become due and payable have been paid, except (A) taxes, assessments or other governmental charges contested in good faith by proper proceedings which stay the enforcement of any Lien resulting from the non-payment thereof and with respect to which adequate reserves have been set aside for the payment thereof in accordance with GAAP, or (B) taxes, assessments or other governmental charges in an aggregate amount not to exceed $50,000. (k) Regulations T, U and X. No Loan Party is or will be engaged in the business of extending credit for the purpose of purchasing or carrying margin stock (within the meaning of Regulation T, U or X), and no proceeds of any Loan will be used to purchase or carry any margin stock or to extend credit to others for the purpose of purchasing or carrying any margin stock. (l) [Intentionally Omitted] (m) [Intentionally Omitted] (n) Permits, Etc. Each Loan Party has, and is in compliance with, all permits, licenses, authorizations, approvals, entitlements and accreditations required for such Person lawfully to own, lease, manage or operate, or to acquire, each business currently owned, leased, managed or operated, or to be acquired, by such Person, except to the extent such failure to obtain or noncompliance could not reasonably be expected to result in a Material Adverse Effect. No condition exists or event has occurred which, in itself or with the giving of notice or lapse of time or both, would result in the suspension, revocation, impairment, forfeiture or non-renewal of any such permit, license, authorization, approval, entitlement or accreditation, and there is no claim that any thereof is not in full force and effect, except to the extent such suspension, revocation, impairment, forfeiture or non-renewal could not reasonably be expected to result in a Material Adverse Effect. (o) Properties. (i) Each Loan Party has good and marketable title to, valid leasehold interests in, or valid licenses to use, all property and assets material to its business, free and clear of all Liens, except Permitted Liens and minor irregularities or deficiencies in title that, individually or in the aggregate, do not interfere with its ability to conduct its business as currently conducted or to utilize such property for its intended purpose. Except as could not reasonably be expected to result in a Material Adverse Effect, all such properties and assets are in good working order and condition, ordinary 73 wear and tear excepted. Schedule 6.01(o) sets forth a complete and accurate list, as of the Effective Date, of the location, by state and street address, of all real property owned or leased by each Loan Party. As of the Effective Date, each Loan Party has valid leasehold interests in the Leases described on Schedule 6.01(o) to which it is a party. (ii) Schedule 6.01(o) sets forth as of the Effective Date with respect to each such Lease located in the United States, the commencement date and termination date. Each such Lease is valid and enforceable in accordance with its terms in all material respects and is in full force and effect, except to the extent that the failure of such Lease to be valid and enforceable or in full force and effect could not reasonably be expected to result in a Material Adverse Change. No consent or approval of any landlord or other third party in connection with any such Lease is necessary for any Loan Party to enter into and execute the Loan Documents to which it is a party, except as set forth on Schedule 6.01(o) or except to the extent that the failure to obtain any consent or approval of any landlord could not reasonably be expected to result in a Material Adverse Effect. (p) Full Disclosure. Each Loan Party has disclosed to the Agents all agreements, instruments and corporate or other restrictions to which it is subject, and all other matters known to it, that, individually or in the aggregate, could reasonably be expected to result in a Material Adverse Effect. None of the other reports, financial statements, certificates or other information (other than to the extent comprised of projections and other forward looking statements) furnished by or on behalf of any Loan Party to the Agents in connection with the negotiation of this Agreement or delivered hereunder (as modified or supplemented by other information so furnished) contains any material misstatement of fact or omits to state any material fact necessary to make the statements therein, in the light of the circumstances under which it was made, not materially misleading as of the date such information is dated or certified; provided that, with respect to projected financial information and other forward looking statements, each Loan Party represents only that such information was prepared in good faith based upon assumptions believed to be reasonable at the time (it being understood that actual results may vary from such projections and forward looking statements and such variances may be material). As of the Effective Date, to the Borrower's knowledge there is no contingent liability or fact that could reasonably be expected to result in a Material Adverse Effect which has not been set forth in a footnote included in the Financial Statements or a Schedule hereto. (q) [Intentionally Omitted]. (r) Environmental Matters. Except as set forth on Schedule 6.01(r), (i) the operations of each Loan Party are in compliance in all material respects with all Environmental Laws; (ii) there has been no Release at any of the properties owned or operated by any Loan Party or a predecessor in interest whose liabilities the Borrower is legally responsible, or at any disposal or treatment facility which received Hazardous Materials generated by any Loan Party or any predecessor in interest which could reasonably be expected to result in a Material Adverse Effect; (iii) no Environmental Action has been asserted against any Loan Party or any predecessor in interest whose liabilities the Borrower is legally responsible nor does any Loan Party have knowledge or notice of any threatened or pending Environmental Action against any Loan Party or any predecessor in interest which could reasonably be expected to result in a Material Adverse Effect; (iv) no Environmental Actions have been asserted against any facilities that may have received Hazardous Materials generated by 74 any Loan Party or any predecessor in interest which could reasonably be expected to result in a Material Adverse Effect; (v) no property now or formerly owned or occupied by a Loan Party has been used as a treatment or disposal site for any Hazardous Material; (vi) no Loan Party has failed to report to the proper Governmental Authority the occurrence of any Release which is required to be so reported by any Environmental Laws which could reasonably be expected to result in a Material Adverse Effect; (vii) each Loan Party holds all licenses, permits and approvals required under any Environmental Laws in connection with the operation of the business carried on by it, except for such licenses, permits and approvals as to which a Loan Party's failure to maintain or comply with could not reasonably be expected to result in a Material Adverse Effect; and (viii) no Loan Party has received any notification pursuant to any Environmental Laws that (A) any work, repairs, construction or Capital Expenditures are required to be made as a condition of continued compliance with any Environmental Laws, or any license, permit or approval issued pursuant thereto or (B) any license, permit or approval referred to above is about to be reviewed, made subject to limitations or conditions, revoked, withdrawn or terminated, in each case, except as could not reasonably be expected to result in a Material Adverse Effect. (s) Insurance. Each Loan Party keeps its property adequately insured in accordance with the insurance requirements set forth in Section 7.01(h). Schedule 6.01(s) sets forth a list of all insurance maintained by each Loan Party on the Effective Date. (t) Use of Proceeds. The proceeds of the Loans shall be used to (a) refinance existing Indebtedness of the Borrower owed under the Existing Credit Facility to the Existing Facility Lender and under the Existing Bridge Facility to the Existing Bridge Facility Lenders, (b) pay fees and expenses in connection with the transactions contemplated hereby and the Exchange Offer Transaction, and (c) fund working capital of the Borrower. (u) Solvency. After giving effect to the transactions contemplated by this Agreement and before and after giving effect to each Loan and Letter of Credit, the Loan Parties taken as a whole on a consolidated basis are Solvent. (v) Location of Bank Accounts. Schedule 6.01(v) sets forth a complete and accurate list as of the Effective Date of all deposit, checking and other bank accounts, all securities and other accounts maintained with any broker dealer and all other similar accounts maintained by each Loan Party, together with a description thereof (i.e., the bank or broker dealer at which such deposit or other account is maintained and the account number and the purpose thereof). (w) Intellectual Property. Except as set forth on Schedule 6.01(w), each Loan Party owns or licenses or otherwise has the right to use all material licenses, permits, patents, patent applications, trademarks, trademark applications, service marks, tradenames, copyrights, copyright applications, franchises, authorizations, non-governmental licenses and permits and other intellectual property rights that are necessary for the operation of its business, without infringement upon or conflict with the rights of any other Person with respect thereto, except, in each case, which, individually or in the aggregate, could not reasonably be expected to result in a Material Adverse Effect. Set forth on Schedule 6.01(w) is a complete and accurate list as of the Effective Date of all such material licenses, permits, patents, patent applications, trademarks, trademark applications, service marks, tradenames, copyrights, copyright applications, franchises, authorizations, non-governmental licenses and permits and other intellectual property rights of each Loan Party. No slogan or other advertising device, product, process, method, substance, part 75 or other material now employed, or now contemplated to be employed, by any Loan Party infringes upon or conflicts with any rights owned by any other Person, and no claim or litigation regarding any of the foregoing is pending or threatened, except for such infringements and conflicts which could not reasonably be expected to result in, individually or in the aggregate, a Material Adverse Effect. To the knowledge of each Loan Party, no patent, invention, device, application, principle or any statute, law, rule, regulation, standard or code is pending or proposed, which, individually or in the aggregate, could reasonably be expected to result in a Material Adverse Effect. (x) Material Contracts. Set forth on Schedule 6.01(x) is a complete and accurate list as of the Effective Date of all Material Contracts of each Loan Party, showing the parties and subject matter thereof. Each such Material Contract (i) is in full force and effect and is binding upon and enforceable against each Loan Party that is a party thereto and, to the knowledge of such Loan Party, all other parties thereto in accordance with its terms, except to the extent that failure of such Material Contract to be in full force and effect or binding upon and enforceable against the parties thereto could not reasonably be expected to result in a Material Adverse Effect, (ii) has not been otherwise amended or modified, except for amendments or modifications which could not reasonably be expected to result in a Material Adverse Effect, and (iii) is not in default due to the action of any Loan Party or, to the knowledge of any Loan Party, any other party thereto, except to the extent that any such default could not reasonably be expected to result in a Material Adverse Effect. (y) Holding Company and Investment Company Acts. None of the Loan Parties is (i) a "holding company" or a "subsidiary company" of a "holding company" or an "affiliate" of a "holding company", as such terms are defined in the Public Utility Holding Company Act of 1935, as amended, or (ii) an "investment company" or an "affiliated person" or "promoter" of, or "principal underwriter" of or for, an "investment company", as such terms are defined in the Investment Company Act of 1940, as amended. (z) Employee and Labor Matters. Except as could not, individually or in the aggregate, reasonably to be expected to result in a Material Adverse Effect, there is (i) no unfair labor practice complaint pending or, to the knowledge of any Loan Party, threatened against any Loan Party before any Governmental Authority and no grievance or arbitration proceeding pending or threatened against any Loan Party which arises out of or under any collective bargaining agreement, (ii) no strike, labor dispute, slowdown, stoppage or similar action or grievance pending or threatened against any Loan Party or (iii) to the knowledge of any Loan Party, no union representation question existing with respect to the employees of any Loan Party and no union organizing activity taking place with respect to any of the employees of any Loan Party. No Loan Party or any of its ERISA Affiliates has incurred any liability or obligation under the Worker Adjustment and Retraining Notification Act ("WARN") or similar state law, which remains unpaid or unsatisfied. The hours worked and payments made to employees of any Loan Party have not been in violation of the Fair Labor 76 Standards Act or any other applicable legal requirements, except to the extent such violations could not, individually or in the aggregate, reasonably be expected to result in a Material Adverse Effect. All material payments due from any Loan Party on account of wages and employee health and welfare insurance and other benefits have been paid or accrued as a liability on the books of such Loan Party, except where the failure to do so could not, individually or in the aggregate, reasonably be expected to result in a Material Adverse Effect. (aa) [Intentionally Omitted] (bb) No Bankruptcy Filing. No board of directors of any Loan Party has taken any action to authorize the filing of a petition by it under any state, provincial, federal (including the federal government of Canada) or foreign bankruptcy or insolvency laws or the liquidation (except as expressly permitted by Section 7.02(c)) of all or a major portion of such Loan Party's assets or property. (cc) Separate Existence. (i) All customary formalities regarding the separate existence of the Parent on the one hand and each other Loan Party on the other hand have been at all times since its formation observed. (ii) The Parent has not at any time since its formation commingled its assets with those of any of its Affiliates or any other Person (other than the cash pooling account at Bank Mendes Gans). The Parent has at all times since its formation accurately maintained its own bank accounts (other than the cash pooling account at Bank Mendes Gans) and separate books of account. (iii) The Parent has at all times since its formation identified itself in all dealings with the public, under its own name and as a separate and distinct Person. The Parent has not at any time since its formation identified itself as being a division or a part of any other Person. (dd) Name; Jurisdiction of Organization; Organizational ID Number; Chief Place of Business; Chief Executive Office; FEIN. Schedule 6.01(dd) sets forth a complete and accurate list as of the date hereof of (i) the exact legal name of each Loan Party, (ii) the jurisdiction of organization of each Loan Party, (iii) the organizational identification number of each Loan Party (or indicates that such Loan Party has no organizational identification number), (iv) each place of business of each Loan Party, (v) the chief executive office of each Loan Party and (vi) the federal employer identification number of each Loan Party (or, in the case of the Canadian Guarantor, the Canada Customs and Revenue Agency business number). (ee) [Intentionally Omitted] (ff) Locations of Collateral. There is no location at which any Loan Party has any Collateral other than (i) those locations listed on Schedule 6.01(ff) and (ii) any other locations approved in writing by the Agents from time to time or otherwise permitted under Section 7.01(l). Schedule 6.01(ff) hereto contains a true, correct and complete list, as of the Effective Date, of the legal names and addresses of each warehouse at which Collateral of each Loan Party is stored. None of the receipts received by any Loan Party from any warehouse states that the goods covered thereby are to be delivered to bearer or to the order of a named Person or to a named Person and such named Person's assigns. 77 (gg) Security Interests. Each Security Agreement creates in favor of the Collateral Agent, for the benefit of the Agents and the Lenders, a legal, valid and enforceable security interest in the Collateral covered thereby (except as enforcement may be limited by equitable principles or by bankruptcy, insolvency, reorganization, moratorium, or similar laws relating to or limiting creditors' rights generally). Upon (i) the filing of the financing statements described in Section 5.01(d)(v), (ii) the filings in the United States Patent and Trademark Office and United States Copyright Office, and (iii) taking of possession or control by the Collateral Agent of the Collateral with respect to which a security interest may be perfected only by possession or control (which possession or control shall be given to the Collateral Agent to the extent possession or control by the Collateral Agent is required herein or in the Security Agreement), such security interests in and Liens on the Collateral granted thereby shall be perfected, first priority security interests (subject to Permitted Liens), and no further recordings or filings are or will be required in connection with the creation, perfection or enforcement of such security interests and Liens. (hh) [Intentionally Omitted]. (ii) [Intentionally Omitted]. (jj) Exchange Offer Transaction Documents. As of the Effective Date, the Borrower has delivered to the Agents a complete and correct copy of the material Exchange Offer Transaction Documents (including all schedules, exhibits, amendments, supplements, modifications, and assignments). As of the Effective Date, no Loan Party that is a party thereto is in default in the performance or compliance with any provisions thereof. The Exchange Offer Transaction Documents comply in all material respects with, and the Exchange Offer Transaction has been consummated in accordance with, in all material respects, all applicable laws. As of the Effective Date, the Exchange Offer Transaction Documents are in full force and effect and have not been terminated, rescinded or withdrawn. The execution, delivery and performance of the Exchange Offer Transaction Documents do not and will not require any registration with, consent, or approval of, or notice to, or other action with or by, any Governmental Authority, other than consents or approvals that have been obtained and that are still in full force and effect. To the best of the Loan Parties' knowledge, as of the Effective Date, none of the representations or warranties of any other Person in any Exchange Offer Transaction Document are untrue. (kk) Canadian Withholdings and Remittances. Each applicable Loan Party has withheld from each payment made to any of their present or former employees, officers and directors, and to all persons who are non-residents of Canada for the purposes of the Income Tax Act (Canada) all material amounts required by law to be withheld, including all payroll deductions required to be withheld, and furthermore, remitted such withheld amounts within the prescribed periods to the appropriate Governmental Authority, except to the extent that failure to do so could not reasonably be expected to result in a Material Adverse Effect. Each applicable Loan Party has remitted all material contributions required pursuant to the Canada Pension Plan (Canada), provincial pension plan contributions, 78 workers compensation assessments, employment insurance premiums, employer health taxes, municipal real estate taxes and other taxes and obligations payable under the applicable law by it and has remitted such amounts to the proper Governmental Authority within the time required under the applicable law, except to the extent that failure to do so could not reasonably be expected to result in a Material Adverse Effect. (ll) Dissolved Subsidiaries. Each Dissolved Subsidiary has been legally dissolved. No Dissolved Subsidiary owns any material assets, has any material liabilities, or engages in any business activity. (mm) Inactive Subsidiaries. No Inactive Subsidiary owns any assets (other than assets of de minimis value), has any liabilities (other than de minimis liabilities), or engages in any business activity. ARTICLE VII COVENANTS OF THE LOAN PARTIES Section 7.01 Affirmative Covenants. So long as any principal of or interest on any Loan, Reimbursement Obligation, Letter of Credit Obligation or any other Obligation (whether or not due) (other than unasserted contingent indemnification Obligations) shall remain unpaid or any Lender shall have any Commitment hereunder, each Loan Party will and will cause each of its Subsidiaries to: (a) Reporting Requirements. Furnish to each Agent and each Lender: (i) as soon as available and in any event within 47 days (or 62 days if an extension has been obtained for the filing of an equivalent periodic report under Rule 12b-25 of the General Rules and Regulations under the Exchange Act) after the end of the first 3 fiscal quarters of each Fiscal Year of the Parent and its Subsidiaries, consolidated balance sheets, consolidated and consolidating statements of operations and consolidated statements of cash flows of the Parent and its Subsidiaries as at the end of such quarter, and for the period commencing at the end of the immediately preceding Fiscal Year and ending with the end of such quarter, setting forth in each case in comparative form the figures for the corresponding date or period of the immediately preceding Fiscal Year, all in reasonable detail and certified by an Authorized Officer of the Parent as fairly presenting, in all material respects, the financial position of the Parent and its Subsidiaries as of the end of such quarter and the results of operations and cash flows of the Parent and its Subsidiaries for such quarter, in accordance with GAAP applied in a manner consistent with that of the most recent audited financial statements of the Parent and its Subsidiaries furnished to the Agents and the Lenders, subject to normal year-end audit adjustments and the absence of footnotes; (ii) as soon as available, and in any event within 45 days after the end of the last fiscal quarter of each Fiscal Year of the Parent and its Subsidiaries, internally prepared consolidated balance sheets and consolidating statements of operations as at the end of such fiscal month, and for the period commencing at the end of the immediately preceding Fiscal Year and ending with the end of such fiscal month, all in reasonable detail and certified by an Authorized Officer of the Parent as fairly presenting, in all material respects, the financial 79 position of the Parent and its Subsidiaries as at the end of such fiscal month and the results of operations, of the Parent and its Subsidiaries for such fiscal month, in accordance with GAAP applied in a manner consistent with that of the most recent audited financial statements furnished to the Agents and the Lenders, subject to normal year-end audit adjustments and the absence of footnotes; (iii) as soon as available, and in any event within 90 days (or 105 days if an extension has been obtained for the filing of an equivalent periodic report under Rule 12b-25 of the General Rules and Regulations under the Exchange Act) after the end of each Fiscal Year of the Parent and its Subsidiaries, consolidated balance sheets, consolidated and consolidating statements of operations and retained earnings and consolidated and consolidating statements of cash flows of the Parent and its Subsidiaries as at the end of such Fiscal Year, setting forth in each case in comparative form the corresponding figures for the immediately preceding Fiscal Year, all in reasonable detail and prepared in accordance with GAAP, and accompanied by a report and an opinion, prepared in accordance with generally accepted auditing standards, of independent certified public accountants of recognized standing selected by the Parent and reasonably satisfactory to the Agents (which opinion shall be without (A) a "going concern" or like qualification or exception (other than the "going concern" exception in the opinion delivered with the audited consolidated balance sheet of the Borrower and its Subsidiaries for the Fiscal Year ended December 31, 2005), (B) any qualification or exception as to the scope of such audit, or (C) any qualification which relates to the treatment or classification of any item and which, as a condition to the removal of such qualification, would require an adjustment to such item, the effect of which would be to cause any noncompliance with the provisions of Section 7.03, together with a written statement of such accountants (1) to the effect that, in making the examination necessary for their audit of such financial statements, they have not obtained any knowledge of the existence of an Event of Default or a Default under Section 7.03 and (2) if such accountants shall have obtained any knowledge of the existence of an Event of Default or such Default under Section 7.03, describing the nature thereof; (iv) as soon as available, and in any event within 30 days after the end of the first two fiscal months in each fiscal quarter of the Parent and its Subsidiaries, internally prepared consolidated balance sheets, consolidating statements of operations as at the end of such fiscal month, and for the period commencing at the end of the immediately preceding Fiscal Year and ending with the end of such fiscal month, all in reasonable detail and certified by an Authorized Officer of the Parent as fairly presenting, in all material respects, the financial position of the Parent and its Subsidiaries as at the end of such fiscal month and the results of operations of the Parent and its Subsidiaries for such fiscal month, in accordance with GAAP applied in a manner consistent with that of the most recent audited financial statements furnished to the Agents and the Lenders, subject to normal year-end audit adjustments and the absence of footnotes; (v) simultaneously with the delivery of the financial statements of the Parent and its Subsidiaries required by clauses (i), (ii), and (iii) of this Section 7.01(a), a certificate of an Authorized Officer of the Parent (A) stating that such Authorized Officer has reviewed the provisions of this Agreement and the other Loan Documents and has made or caused to be made under his or her supervision a review of the condition and operations of the Parent and its Subsidiaries during the period covered by such financial statements with a view to determining whether the Parent and its Subsidiaries were in compliance with all of the provisions of this Agreement and such Loan Documents at the 80 times such compliance is required hereby and thereby, and that such review has not disclosed, and such Authorized Officer has no knowledge of, the existence during such period of an Event of Default or Default or, if an Event of Default or Default existed, describing the nature and period of existence thereof and the action which the Parent and its Subsidiaries propose to take or have taken with respect thereto and (B) attaching a schedule showing the calculation of the financial covenants specified in Section 7.03; (vi) as soon as available and in any event within 15 days after the end of each fiscal month of the Parent and its Subsidiaries, reports in form and detail satisfactory to the Agents (A) listing all Accounts Receivable of the Borrower and the Domestic Guarantors in the United States, Canada, and the United Kingdom as of the end of such fiscal month, which shall include the amount and age of each Account Receivable, showing separately those which are more than 30, 60, 90 and 120 days old and a description of all Liens, set-offs, defenses and counterclaims with respect thereto, and such other information as any Agent may reasonably request, (B) setting forth the amount of the Collections from Accounts Receivable of the Borrower and the Domestic Guarantors during such fiscal month and during the 150 days immediately preceding the last day of such fiscal month, and (C) detailing the 6 month U.S. Retail Key Client WIP as of the end of such fiscal month; (vii) as soon as available and in any event within 15 days after the end of each fiscal month of the Parent and its Subsidiaries, a Borrowing Base Certificate certified by an Authorized Officer of the Borrower as being accurate and complete, current as of the close of business as of the end of such fiscal month, supported by schedules showing the derivation thereof and containing such detail and other information as any Agent may reasonably request from time to time, provided that (A) the Borrowing Base set forth in the Borrowing Base Certificate shall be effective from and including the date such Borrowing Base Certificate is duly received by the Agents to but not including the date on which a subsequent Borrowing Base Certificate is received by the Agents, unless any Agent disputes the eligibility of any property included in the calculation of the Borrowing Base or the valuation thereof or any other information contained therein by notice of such dispute to the Borrower, and (B) in the event of any dispute about the eligibility of any property included in the calculation of the Borrowing Base or the valuation thereof, such Agent's Permitted Discretion shall control or any other information contained therein; (viii) simultaneously with the delivery of the financial statements of the Parent and its Subsidiaries required by clauses (i) and (ii) of this Section 7.01(a), reports in form and detail reasonably satisfactory to the Agents setting forth (A) the U.S. Retail Key Client Effective Fee Rate for such fiscal quarter, and (B) the U.S. Retail Key Client Claim Retention Rate for such fiscal quarter. (ix) as soon as available and in any event within 30 days after the end of each fiscal month of the Parent and its Subsidiaries, reports in form and detail reasonably satisfactory to the Agents and certified by an Authorized Officer of the Parent setting forth (A) the intercompany receivables of the Parent and its Subsidiaries, (B) accounts payable of the Borrower and the Domestic Guarantors 81 as of the end of such fiscal month which shall include the amount and age of each account payable, and such other information as any Agent may reasonably request, and (C) the general ledger reconciliation for the United States; (x) no later than 30 days after the commencement of each Fiscal Year, financial projections, supplementing and superseding the financial projections for the period referred to in Section 6.01(g)(ii)(A), displayed on a month by month basis for such Fiscal Year for the Parent and its Subsidiaries, all such financial projections to be prepared on a reasonable basis and in good faith, and to be based on assumptions believed by the Parent to be reasonable at the time made and from the best information then available to the Parent; (xi) promptly after any Loan Party knows that it is being investigated by a Governmental Authority (other than routine inquiries), notice of such investigation and, thereafter, prompt reporting of any information relative to such investigation requested by either of the Agents; provided that if such Loan Party is prohibited under applicable law, rule, or regulation from disclosing such investigation to the Agents, then it shall not be obligated to provide such notice and reporting to the Agents; (xii) as soon as possible, and in any event within 3 Business Days of an Authorized Officer's knowledge of an Event of Default or Default or the occurrence of any event or development that could reasonably be expected to result in a Material Adverse Effect, the written statement of an Authorized Officer of the Parent setting forth the details of such Event of Default or Default or other event or development having a Material Adverse Effect and the action which the affected Loan Party proposes to take with respect thereto; (xiii) (A) as soon as possible and in any event within 10 days after any Loan Party or any ERISA Affiliate thereof knows or has reason to know that (1) any Reportable Event with respect to any Employee Plan has occurred, (2) any Termination Event with respect to any Employee Plan has occurred, or (3) an accumulated funding deficiency has been incurred or an application has been made to the Secretary of the Treasury for a waiver or modification of the minimum funding standard (including installment payments) or an extension of any amortization period under Section 412 of the IRC with respect to an Employee Plan, a statement of an Authorized Officer of the Borrower setting forth the details of such occurrence and the action, if any, which such Loan Party or such ERISA Affiliate proposes to take with respect thereto, (B) promptly and in any event within 3 days after receipt thereof, or the obtaining of knowledge thereof, by any Authorized Officer of any Loan Party or any ERISA Affiliate thereof from the PBGC, copies of each notice received by any Loan Party or any ERISA Affiliate thereof of the PBGC's intention to terminate any Plan or to have a trustee appointed to administer any Plan, (C) promptly and in any event within 10 days after the filing thereof with the Internal Revenue Service if requested by any Agent, copies of each Schedule B (Actuarial Information) to the annual report (Form 5500 Series) with respect to each Employee Plan and Multiemployer Plan (in the case of Multiemployer Plans, as soon as commercially reasonably possible, but in no event later than 30 days following such request), (D) promptly and in any event within 10 days after any Loan Party or any ERISA Affiliate thereof knows or has reason to know that a required installment within the meaning of Section 412 of the IRC has not been made when due with respect to an Employee Plan, (E) promptly and in any event within 3 days after receipt thereof by any Loan Party or any ERISA Affiliate thereof from a sponsor of a 82 Multiemployer Plan or from the PBGC, a copy of each notice received by any Loan Party or any ERISA Affiliate thereof concerning the imposition or amount of withdrawal liability under Section 4202 of ERISA or indicating that such Multiemployer Plan may enter reorganization status under Section 4241 of ERISA, and (F) promptly and in any event within 10 days after any Loan Party or any ERISA Affiliate thereof sends notice of a plant closing or mass layoff (as defined in WARN) to employees, copies of each such notice sent by such Loan Party or such ERISA Affiliate thereof; (xiv) promptly after the commencement thereof but in any event not later than 10 Business Days after service of process with respect thereto on, or the obtaining of knowledge thereof by, any Authorized Officer of any Loan Party, notice of each action, suit or proceeding before any court or other Governmental Authority or other regulatory body or any arbitrator which could reasonably be expected to result in a Material Adverse Effect; (xv) as soon as possible and in any event within 5 Business Days after execution, receipt or delivery thereof, (A) copies of any material notices that an Authorized Officer of any Loan Party executes or receives (or obtains knowledge of) in connection with any Material Contract, and (B) copies of any default notices with respect to the Parent's lease for the premises located at 600 Galleria Parkway, Atlanta, GA 30339; (xvi) promptly after the sending or filing thereof, copies of all statements, reports and other information any Loan Party sends to any holders of its Indebtedness or its securities or files with the SEC or any national (domestic or foreign) securities exchange; (xvii) promptly upon receipt thereof, copies of any "final" management letters submitted to any Loan Party by its auditors in connection with any annual or interim audit of the books thereof; and (xviii) promptly upon request, such other information concerning the condition or operations, financial or otherwise, of any Loan Party as any Agent may from time to time may reasonably request. (b) Additional Guaranties and Collateral Security. Cause: (i) each Subsidiary of any Loan Party (the "New Subsidiary") to execute and deliver to the Collateral Agent promptly and in any event within 20 days (or such longer period (which longer period shall not exceed 15 days) as the Collateral Agent is willing, in its Permitted Discretion, to accommodate from time to time) after the formation or acquisition thereof (A) a Guaranty guaranteeing the Obligations, (B) a Security Agreement, together with (x) if such New Subsidiary has any Domestic Subsidiaries, (I) certificates (if any) evidencing all of the Capital Stock of such Subsidiary owned by such New Subsidiary, (II) undated stock powers executed in blank, and (III) such opinions of counsel and such approving certificate of such Subsidiary as either Agent may reasonably request in respect of complying with any legend on any such certificate or any other matter relating to such shares, and (y) if such New Subsidiary has any first-tier Subsidiaries that are CFCs, (I) certificates (if any) evidencing all (or, 65% of the outstanding voting Capital Stock of such Subsidiary if pledging or hypothecating more than 65% of the total outstanding voting Capital Stock of such Subsidiary reasonably could be expected to result in material adverse tax consequences as determined by the Agents in consultation with the Loan Parties) of the outstanding voting Capital Stock of such Subsidiary, (II) undated stock powers executed in blank with signature guaranteed, and (III) such opinions of counsel and such approving certificate of such Subsidiary as either Agent may reasonably request in respect of complying with any legend on any such certificate or any other matter relating to such shares, (C) if such New Subsidiary has a fee interest in any real property that would constitute After Acquired Real Property if it were acquired by a Loan Party, one or more Mortgages creating on such real property a perfected, first priority Lien on such real property, a Title Insurance Policy covering such real property, a current ALTA survey of such real property and a surveyor's certificate, a Phase I Environmental Site Assessment with respect to such real property, certified to the Collateral Agent by a company reasonably satisfactory 83 to the Collateral Agent, each in form and substance reasonably satisfactory to the Agents, together with such other agreements, instruments and documents as the either Agent may reasonably require whether comparable to the documents required under Section 7.01(o) or otherwise; provided that the Agents shall not require a Mortgage and other documents for any parcel of real property if the mortgage recording tax associated therewith is material (in the reasonable judgment of the Agents) in relation to the Current Value of such real property, and (D) such other agreements, instruments, approvals, legal opinions, or other documents reasonably requested by either Agent in order to create, perfect, establish the first priority of or otherwise protect any Lien purported to be covered by any such Security Agreement or Mortgage, or otherwise to effect the intent that such New Subsidiary shall become bound by all of the terms, covenants and agreements contained in the Loan Documents and that all property and assets of such New Subsidiary shall become Collateral for the Obligations; provided that the foregoing Guaranty and Security Agreement shall not be required to be provided to the Collateral Agent with respect to any New Subsidiary of a Loan Party that is a CFC if providing such documents would result in material adverse tax consequences as determined by the Agents in consultation with the Loan Parties; and (ii) each Loan Party that is the owner of the Capital Stock of such New Subsidiary to execute and deliver promptly and in any event within 20 days (or such longer period (which longer period shall not exceed 15 days) as the Collateral Agent is willing, in its Permitted Discretion, to accommodate from time to time) after the formation or acquisition of such New Subsidiary a joinder to the Security Agreement (if it is not already a party thereto), together with (A) if such New Subsidiary is not a CFC or is a CFC and the pledge of 100% of the voting Capital Stock of such CFC would not result in material adverse tax consequences as determined by the Agents in consultation with the Loan Parties, (w) certificates (if any) evidencing all of the Capital Stock of such New Subsidiary, (x) undated stock powers or other appropriate instruments or assignment executed in blank with signature guaranteed, (y) such opinions of counsel and such approving certificate of such New Subsidiary as the Agents may reasonably request in respect of complying with any legend on any such certificate or any other matter relating to such shares, and (z) such other agreements, instruments, approvals, legal opinions, or other documents, or (B) if such New Subsidiary is a CFC and the granting of a pledge of more than 65% of the voting Capital Stock of such CFC would result in material adverse tax consequences as determined by the Agents in consultation with the Loan Parties, (w) certificates (if any) evidencing 65% of the outstanding voting Capital Stock of such New Subsidiary, (x) undated stock powers or other appropriate instruments or assignment executed in blank with signature guarantee, (y) such opinions of counsel and such approving certificate of such New Subsidiary as the Agents may reasonably request in respect of complying with any legend on any such certificate or any other matter relating to such shares, and (z) such other agreements, instruments, approvals, legal opinions, or other documents reasonably requested by either Agent. 84 (c) Compliance with Laws, Etc. Comply, and cause each of its Subsidiaries to comply, in all material respects with all applicable laws, rules, regulations, orders, judgments and awards (including any settlement of any claim that, if breached, could give rise to any of the foregoing) (except, in each case, to the extent that non-compliance could not, individually or in the aggregate, reasonably be expected to result in a Material Adverse Effect), such compliance to include (i) paying before the same become delinquent all taxes, assessments and governmental charges or levies (other than those that are in de minimis amounts) imposed upon it or upon its income or profits or upon any of its properties, and (ii) paying all other lawful claims which if unpaid might become a Lien or charge upon any of its properties, except, in each case, (A) to the extent contested in good faith by proper proceedings which stay the enforcement of any Lien resulting from the non-payment thereof and with respect to which adequate reserves have been set aside for the payment thereof in accordance with GAAP, or (B) taxes, assessments and governmental charges or levies or any other such lawful claims in an aggregate amount not to exceed $50,000. (d) Preservation of Existence, Etc. Other than as expressly set forth in Section 7.02(c), maintain and preserve, and cause each of its Subsidiaries to maintain and preserve, its existence, rights and privileges, and become or remain, and cause each of its Subsidiaries to become or remain, duly qualified and in good standing in each jurisdiction in which the character of the properties owned or leased by it or in which the transaction of its business makes such qualification necessary, except to the extent failure to do so, individually or in the aggregate, could not reasonably be expected to result in a Material Adverse Effect; provided that nothing in this Section 7.01(d) shall prevent the withdrawal by the Parent or any Subsidiary of the Parent of its qualification as a foreign corporation in any jurisdiction where such withdrawal, individually or in the aggregate, could not reasonably be expected to result in a Material Adverse Effect. (e) Keeping of Records and Books of Account. Keep, and cause each of its Subsidiaries to keep, adequate records and books of account, with complete entries, in all material respects, made to permit the preparation of financial statements in accordance with GAAP. (f) Inspection Rights. Permit, and cause each of its Subsidiaries to permit, the agents and representatives of any Agent at any time and from time to time during normal business hours and, so long as no Default or Event of Default shall have occurred and be continuing, upon reasonable advance notice to the Borrower, at the expense of the Borrower, to examine and make copies of and abstracts from its records and books of account, to visit and inspect its properties, to verify leases, notes, accounts receivable, deposit accounts and its other assets, to conduct audits, physical counts, valuations, appraisals, Phase I Environmental Site Assessments (and, (i) if an Event of Default shall have occurred and be continuing and if requested by the Collateral Agent based upon the results of any such Phase I Environmental Site Assessment, or (ii) in the event a Governmental Authority so orders and the Borrower does not timely respond, a Phase II Environmental Site Assessment of any real property owned by the Borrower), field examinations, or enterprise valuations and to discuss its 85 affairs, finances and accounts with any of its directors, officers, managerial employees, independent accountants or any of its other representatives; provided that the Borrower shall be given the opportunity to be present in any discussions with the Borrower's independent accountants. The Borrower shall pay (i) $1,500 per day per examiner plus the examiner's out-of-pocket costs and reasonable expenses incurred in connection with all such visits, audits, inspections, valuations, and field examinations, and (ii) the cost of all audits, appraisals and business valuations (including enterprise valuation appraisals) conducted by third party auditors or appraisers on behalf of the Agents; provided that so long as no Default or Event of Default shall have occurred and be continuing, the Borrower shall not be obligated to pay for more than 3 such audits and 1 such business or enterprise valuation in any Fiscal Year. (g) Maintenance of Properties, Etc. (i) Maintain and preserve, and cause each of its Subsidiaries to maintain and preserve, all of its properties which are necessary or useful in the proper conduct of its business in good working order and condition, ordinary wear and tear excepted, and (ii) comply, and cause each of its Subsidiaries to comply, at all times with the provisions of all leases to which it is a party as lessee or under which it occupies property, so as to prevent any loss or forfeiture thereof or thereunder, in each case, except to the extent that failure to do so, individually or in the aggregate, could not reasonably be expected to result in a Material Adverse Effect; provided that nothing in this Section 7.01(g) shall prevent Permitted Dispositions or liquidations, dissolutions, consolidations, or mergers that are expressly permitted by, and effected in accordance with, Section 7.02(c). (h) Maintenance of Insurance. Maintain, and cause each of its Subsidiaries to maintain, insurance with responsible and reputable insurance companies or associations (including comprehensive general liability, hazard, and business interruption insurance) with respect to its properties and business, in such amounts and covering such risks as is required by any Governmental Authority having jurisdiction with respect thereto or as is carried generally in accordance with sound business practice by companies in similar businesses similarly situated and in any event in amount, adequacy and scope reasonably satisfactory to the Collateral Agent. All policies covering the Collateral are to be made payable to the Collateral Agent for the benefit of the Agents and the Lenders, as its interests may appear, in case of loss, under a standard non contributory "lender" or "secured party" clause and are to contain such other provisions as the Collateral Agent may require to fully protect the Lenders' interest in the Collateral and to any payments to be made under such policies. All certificates of insurance are to be delivered to the Collateral Agent and the policies are to be premium prepaid, with the loss payable and additional insured endorsement in favor of the Collateral Agent and such other Persons as the Collateral Agent may designate from time to time, and shall provide for not less than 30 days prior written notice to the Collateral Agent of the exercise of any right of cancellation. If any Loan Party or any of its Subsidiaries fails to maintain such insurance, the Collateral Agent may arrange for such insurance, but at the Borrower's expense and without any responsibility on the Collateral Agent's part for obtaining the insurance, the solvency of the insurance companies, the adequacy of the coverage, or the collection of claims. Upon the occurrence and during the continuance of an Event of Default, the Collateral Agent shall have the sole right, in the name of the Lenders, any Loan Party and its Subsidiaries, to file claims under any insurance policies, to receive, receipt and give acquittance for any payments that may be payable thereunder, and to execute any and all endorsements, receipts, releases, assignments, reassignments or other documents that may be necessary to effect the collection, compromise or settlement of any claims under any such insurance policies. 86 (i) Obtaining of Permits, Etc. Obtain, maintain and preserve, and cause each of its Subsidiaries to obtain, maintain and preserve, and take all necessary action to timely renew, all permits, licenses, authorizations, approvals, entitlements and accreditations which are necessary or useful in the proper conduct of its business, except to the extent failure to do so could not reasonably be expected to result in a Material Adverse Effect. (j) Environmental. (i) Keep any property either owned or operated by it or any of its Subsidiaries free of any Environmental Liens; (ii) comply, and cause each of its Subsidiaries to comply, in all material respects with Environmental Laws; (iii) provide the Agents written notice within 10 Business Days after any Release of a Hazardous Material in excess of any reportable quantity under Environmental Laws from or onto property owned or operated by it or any of its Subsidiaries and take any Remedial Actions required to abate said Release; (iv) provide the Agents with written notice within 10 Business Days after the receipt of any of the following: (A) notice that an Environmental Lien has been filed against any owned property of any Loan Party or any of its Subsidiaries; (B) commencement of an Environmental Action or notice that an Environmental Action will be filed against any Loan Party or any of its Subsidiaries; and (C) notice of a violation, citation or other administrative order which could reasonably be expected to result in a Material Adverse Effect and (v) defend, indemnify and hold harmless the Agents and the Lenders and their transferees, and their respective employees, agents, officers and directors, from and against any claims, demands, penalties, fines, liabilities, settlements, damages, costs or expenses (including attorney and consultant fees, investigation and laboratory fees, court costs and litigation expenses) incurred by or asserted against such Person to the extent arising out of (A) the presence, disposal, release or threatened release of any Hazardous Materials on any property at any time owned or occupied by any Loan Party or any of its Subsidiaries (or its predecessors in interest or title), (B) any personal injury (including wrongful death) or property damage (real or personal) arising out of or related to such Hazardous Materials, (C) any investigation, lawsuit brought or threatened, settlement reached or government order relating to such Hazardous Materials, (D) any violation of any Environmental Law or (E) any Environmental Action filed against any Agent or any Lender; provided that no Loan Party shall have any obligation under clause (v) to the extent that the condition arises out of or relates to the gross negligence or willful misconduct of any indemnified party or its agents or representatives or results in a violation of Environmental Laws or the presence or release of Hazardous Materials that first occur at a particular property after that property has been transferred to any indemnified party or their successors or assigns. (k) Further Assurances. Take such action and execute, acknowledge and deliver, and cause each of its Subsidiaries to take such action and execute, acknowledge and deliver, at its sole cost and expense, such agreements, instruments or other documents as any Agent may reasonably require from time to time in order (i) to carry out more effectively the purposes of this Agreement and the other Loan Documents, (ii) to subject to valid and perfected first priority Liens (subject to Permitted Liens) any of the Collateral or any other property of any Loan Party and its Subsidiaries, (iii) to establish and maintain the validity and effectiveness of any of the Loan Documents and the validity, perfection and priority of the Liens intended to be created thereby, and (iv) to better assure, convey, grant, assign, transfer and confirm unto each Agent, each Lender and the L/C Issuer the rights now or hereafter intended to be granted to it under this Agreement or any other Loan Document. In furtherance of the 87 foregoing, to the maximum extent permitted by applicable law, each Loan Party (A) authorizes each Agent to execute any such agreements, instruments or other documents in such Loan Party's name and to file such agreements, instruments or other documents in any appropriate filing office, (B) authorizes each Agent to file any financing statement required hereunder or under any other Loan Document, and any continuation statement or amendment with respect thereto, in any appropriate filing office without the signature of such Loan Party, and (C) ratifies the filing of any financing statement, and any continuation statement or amendment with respect thereto, filed without the signature of such Loan Party prior to the date hereof. (l) Change in Collateral; Collateral Records. (i) Give the Agents not less than 10 days prior written notice of any change in the location of any material portion Collateral, other than to (or in-transit between) locations set forth on Schedule 6.01(ff) and with respect to which the Collateral Agent has filed financing statements and otherwise fully perfected its Liens thereon, and (ii) execute and deliver, and cause each of its Subsidiaries to execute and deliver, to the Agents for the benefit of the Agents and the Lenders from time to time, solely for the Agents' convenience in maintaining a record of Collateral, such written statements and schedules as the Agents may reasonably request, designating, identifying or describing the Collateral. (m) Landlord Waivers; Collateral Access Agreements. (i) At any time any Collateral related to the Borrowing Base is located on any real property of the Borrower or any other Loan Party (whether such real property is now existing or acquired after the Effective Date) which is not owned by the Borrower or any other Loan Party, use commercially reasonable efforts to obtain written subordinations or waivers, in form and substance reasonably satisfactory to the Agents, of all present and future Liens to which the owner or lessor of such premises may be entitled to assert against the Collateral located at such premises; provided, that in the event the Loan Parties are unable to obtain any such written subordination or waiver the Administrative Agent may, in its reasonable discretion, establish such reserves as it deems necessary with respect to any such Collateral; and (ii) Use commercially reasonable efforts to obtain written access agreements, in form and substance reasonably satisfactory to the Agents, providing access to Collateral related to the Borrowing Base located on any premises not owned by the Borrower or any other Loan Party in order to remove such Collateral or books and records from such premises during an Event of Default; provided, that in the event the Loan Parties are unable to obtain any such written access agreements, the Administrative Agent may, in its reasonable discretion, establish such reserves as it deems necessary with respect to any such Collateral. (n) Subordination. Cause all Indebtedness and other obligations now or hereafter owed by any Loan Party to Parent or any of its Subsidiaries, to be subordinated in right of payment and security to the Indebtedness and other Obligations owing to the Agents and the Lenders in accordance with a subordination agreement in form and substance satisfactory to the Agents. 88 (o) After Acquired Property. Upon the acquisition by it or any of its Subsidiaries of any After Acquired Property, immediately so notify the Agents, setting forth with specificity a description of the interest acquired, the location of the real property, any structures or improvements thereon and either an appraisal or such Loan Party's good-faith estimate of the current value of such real property (for purposes of this Section, the "Current Value"). The Collateral Agent shall notify such Loan Party whether it intends to require a Mortgage and the other documents referred to below. Upon receipt of such notice requesting a Mortgage, the Person which has acquired such After Acquired Property shall as promptly as practicable furnish to the Collateral Agent the following, each in form and substance reasonably satisfactory to the Collateral Agent: (i) a Mortgage with respect to such real property and related assets located at the After Acquired Property, each duly executed by such Person and in recordable form; (ii) evidence of the recording of the Mortgage referred to in clause (i) above in such office or offices as may be necessary or, in the opinion of the Collateral Agent, desirable to create and perfect a valid and enforceable first priority lien on the property purported to be covered thereby or to otherwise protect the rights of the Agents and the Lenders thereunder, (iii) a Title Insurance Policy, (iv) a survey of such real property, certified to the Collateral Agent and to the issuer of the Title Insurance Policy by a licensed professional surveyor reasonably satisfactory to the Collateral Agent, (v) Phase I Environmental Site Assessments with respect to such real property, certified to the Collateral Agent by a company reasonably satisfactory to the Collateral Agent, , and (vi) such other documents or instruments (including guarantees and opinions of counsel) as the Collateral Agent may reasonably require. The Borrower shall pay all fees and expenses, including reasonable attorneys fees and expenses, and all title insurance charges and premiums, in connection with each Loan Party's obligations under this Section 7.01(o). Anything to the contrary contained herein notwithstanding, the Collateral Agent shall not require (A) a Mortgage on any leased real property, or (B) a Mortgage on any real property owned in fee if the mortgage recording tax associated therewith is material (in the reasonable judgment of the Agents) in relation to the Current Value (p) Fiscal Year. Cause the Fiscal Year of the Parent and its Subsidiaries to end on December 31st of each calendar year unless the Agents consent to a change in such fiscal year of Parent and its Subsidiaries (and appropriate related changes to this Agreement). (q) Meridian Subsidiaries. Cause (i) the UK Subsidiaries to make payments to Meridian in the amount of their excess cash flow (the "UK Excess Cash Flow Payments"), and (ii) Meridian to make payments to the Parent or its relevant Subsidiary in the amount of the UK Excess Cash Flow Payments until payment in full by Meridian and the UK Subsidiaries of all outstanding amounts under the Meridian Intercompany Payable. Upon payment in full of the Meridian Intercompany Payable, the Parent shall cause the UK Subsidiaries to deliver to the Collateral Agent (A) a pledge agreement, in form and substance reasonably satisfactory to the Agents, with respect to the Accounts Receivable of the UK Subsidiaries (other than the Accounts Receivable for auditing services performed by third party agents pursuant to associate agreements with the Parent), and (B) all other documentation that is, in the reasonable opinion of the Agents, appropriate for such pledge agreement. Section 7.02 Negative Covenants. So long as any principal of or interest on any Loan, Reimbursement Obligation, Letter of Credit Obligation or any other Obligation (whether or not due) (other than unasserted contingent indemnification Obligations) shall remain unpaid or any Lender shall have any Commitment hereunder, each Loan Party shall not and shall not permit any of its Subsidiaries to: 89 (a) Liens, Etc. Create, incur, assume or suffer to exist, or permit any of its Subsidiaries to create, incur, assume or suffer to exist, any Lien upon or with respect to any of its properties, whether now owned or hereafter acquired; file or suffer to exist under the Uniform Commercial Code or any similar law or statute of any jurisdiction, a financing statement (or the equivalent thereof) that names it or any of its Subsidiaries as debtor; sign or suffer to exist any security agreement authorizing any secured party thereunder to file such financing statement (or the equivalent thereof); sell any of its property or assets subject to an understanding or agreement, contingent or otherwise, to repurchase such property or assets (including sales of accounts receivable) with recourse to it or any of its Subsidiaries or assign or otherwise transfer, or permit any of its Subsidiaries to assign or otherwise transfer, any account or other right to receive income; other than, as to all of the above, Permitted Liens. (b) Indebtedness. Create, incur, assume, guarantee or suffer to exist, or otherwise become or remain liable with respect to, or permit any of its Subsidiaries to create, incur, assume, guarantee or suffer to exist or otherwise become or remain liable with respect to, any Indebtedness other than Permitted Indebtedness. (c) Fundamental Changes; Dispositions. Wind-up, liquidate or dissolve, or merge, consolidate or amalgamate with any Person, or convey, sell, lease or sublease, transfer or otherwise dispose of, whether in one transaction or a series of related transactions, all or any part of its business, property or assets, whether now owned or hereafter acquired, or purchase or otherwise acquire, whether in one transaction or a series of related transactions, all or substantially all of the assets of any Person (or any division thereof), or permit any of its Subsidiaries to do any of the foregoing; provided, however, that (i) the Parent and its Subsidiaries may enter into Permitted Mergers; (ii) the Parent and its Subsidiaries may enter into Permitted Reorganization Transactions; and (iii) the Parent and its Subsidiaries may make Permitted Dispositions. (d) Change in Nature of Business; Change in Independent Certified Public Accountant. Make, or permit any of its Subsidiaries to make, any change in the nature of its business described on Schedule 7.02(d) or acquire any properties or assets that are not reasonably related to the conduct of such business activities or ancillary thereto. Make any change in its independent certified public accountant without the prior written consent (which consent shall not be unreasonably withheld) of the Agents. (e) Loans, Advances, Investments, Etc. Make any loan, advance, guarantee of obligations, other extension of credit or capital contributions to, or hold or invest in, or purchase or otherwise acquire any shares of the Capital Stock, bonds, notes, debentures or other securities of, or make any other investment in, any other Person, or purchase or own any futures contract or otherwise become liable for the purchase or sale of currency or other commodities at a future date in the nature of a futures contract, or permit any of its Subsidiaries to do any of the foregoing (including any guarantee by such 90 Subsidiaries of the Parent's obligations under the Existing Notes, the Senior Notes, or the Senior Convertible Notes), except for: (i) investments existing on the date hereof, as set forth on Schedule 7.02(e) hereto, but not any increase in the amount thereof as set forth in such Schedule or any other modification of the terms thereof, and (ii) Permitted Investments. (f) Lease Obligations. Create, incur or suffer to exist, or permit any of its Subsidiaries to create, incur or suffer to exist, any obligations as lessee for the payment of rent for any real or personal property in connection with any sale and leaseback transaction. (g) [Intentionally Omitted] (h) Restricted Payments. (i) Declare or pay any dividend or other distribution, direct or indirect, on account of any Capital Stock of any Loan Party or any of its Subsidiaries, now or hereafter outstanding, (ii) make any repurchase, redemption, retirement, defeasance, sinking fund or similar payment, purchase or other acquisition for value, direct or indirect, of any Capital Stock of any Loan Party or any direct or indirect parent of any Loan Party, now or hereafter outstanding, (iii) make any payment to retire, or to obtain the surrender of, any outstanding warrants, options or other rights for the purchase or acquisition of shares of any class of Capital Stock of any Loan Party, now or hereafter outstanding, or (iv) pay any management fees or any other fees or expenses (including the reimbursement thereof by any Loan Party or any of its Subsidiaries) pursuant to any management agreement to any Affiliate of any Loan Party or any Subsidiary of an Affiliate of a Loan Party; provided, however, that (A) the Borrower may pay dividends or make loans or advances to the Parent (1) in amounts necessary to enable the Parent to pay customary expenses that it has incurred in the ordinary course of its business solely as a result of its ownership and operation of the Borrower and its Subsidiaries (including (x) salaries, bonuses, other benefits and related reasonable and customary expenses incurred by directors, officers, employees of the Parent, (y) reasonable and necessary expenses (including reasonable professional fees and expenses) incurred by the Parent to comply with reporting obligations under federal or state laws or under this Agreement or any of the other Loan Documents, and (z) indemnification claims made by the senior officers of the Parent to the extent permitted by Section 7.02(j)), (2) in amounts necessary to enable the Parent to pay taxes when due and owing solely as a result of its ownership of the Borrower and its Subsidiaries, and (3) in amounts necessary to enable the Parent to pay out-of-pocket legal, accounting, and filing costs and other expenses in the nature of overhead in the ordinary course of business, (B) any Subsidiary of the Parent (other than the Borrower) may pay dividends to its shareholders; provided that the proceeds of any dividends paid to the Parent shall be sent no later than the next Business Day after receipt thereof to the Borrower for deposit into the Collection Account, (C) the Parent may pay dividends in the form of common Capital Stock, and (D) common Capital Stock of the Parent may be issued upon the conversion of the Senior Convertible Notes in accordance with the Indenture for the 10% Senior Convertible Notes and the Series A Preferred Stock and the Series B Preferred Stock may be issued; provided further, however, that so long as no Event of Default has occurred and is continuing or would result therefrom, the Borrower may pay dividends or make loans and advances to the Parent in amounts necessary to (I) enable the Parent to pay the semi-annual interest payments that are due and payable in cash to the holders of the Senior Notes or the holders of the Senior Convertible Notes, and (II) enable the Parent to pay the interest payment that is due and payable to the holders of the Existing Notes on or about May 26, 2006; provided further, however, that so long as no Event of Default has occurred and is continuing and Availability after giving effect to such payment for the 13 week period immediately succeeding such payment is equal to or greater than $5,000,000 (it being understood and agreed 91 that (a) the projections showing Availability after giving effect to such payment for the 13 week period immediately succeeding such payment shall be in form and satisfactory to the Agents, and (b) the Agents shall have the right to retain, at the Loan Parties' expense, a third party consultant to verify such projections), the Borrower may pay dividends or make loans and advances to the Parent in amounts necessary to enable the Parent to pay the aggregate outstanding principal amount of the Existing Notes to the holders thereof on the maturity date of such Existing Notes. (i) Federal Reserve Regulations. Permit any Loan or the proceeds of any Loan under this Agreement to be used for any purpose that would cause such Loan to be a margin loan under the provisions of Regulation T, U or X of the Board. (j) Transactions with Affiliates. Enter into, renew, extend or be a party to, or permit any of its Subsidiaries to enter into, renew, extend or be a party to, any transaction or series of related transactions (including the purchase, sale, lease, transfer or exchange of property or assets of any kind or the rendering of services of any kind) with any Affiliate, except (i) in the ordinary course of business and necessary or desirable for the prudent operation of its business, for fair consideration and on terms no less favorable to it or its Subsidiaries than would be obtainable in a comparable arm's length transaction with a Person that is not an Affiliate thereof, (ii) transactions with another Loan Party, (iii) the payment of reasonable and customary fees and out-of-pocket expenses of the members of the board of directors or officers of the Parent or any of its Subsidiaries, (iv) reasonable and customary director, officer and employee compensation (including bonuses) and other benefits (including retirement, health, stock option, severance and other benefit plans) and, in the case of senior officers, indemnification arrangements approved in good faith by the board of directors of the Parent, (iv) employment and severance arrangements between the Parent and its Subsidiaries and their respective directors, officers and employees, to the extent approved in good faith by the board of directors of the Parent, and (v) transactions permitted by Section 7.02(e) or (h). (k) Limitations on Dividends and Other Payment Restrictions Affecting Subsidiaries. Create or otherwise cause, incur, assume, suffer or permit to exist or become effective any consensual encumbrance or restriction of any kind on the ability of any Subsidiary of any Loan Party (i) to pay dividends or to make any other distribution on any shares of Capital Stock of such Subsidiary owned by any Loan Party or any of its Subsidiaries, (ii) to pay or prepay or to subordinate any Indebtedness owed to any Loan Party or any of its Subsidiaries, (iii) to make loans or advances to any Loan Party or any of its Subsidiaries or (iv) to transfer any of its property or assets to any Loan Party or any of its Subsidiaries, or permit any of its Subsidiaries to do any of the foregoing; provided, however, that nothing in any of clauses (i) through (iv) of this Section 7.02(k) shall prohibit or restrict compliance with: (A) this Agreement and the other Loan Documents; (B) the Indenture for the 11% Notes; 92 (C) any agreements in effect on the date of this Agreement and described on Schedule 7.02(k); (D) any applicable law, rule or regulation (including applicable currency control laws and applicable state corporate statutes restricting the payment of dividends in certain circumstances); (E) in the case of clause (iv), any agreement setting forth customary restrictions on the subletting, assignment or transfer of any property or asset that is leased or licensed; (F) in the case of clause (iv), any agreement, instrument or other document evidencing a Permitted Lien that restricts, on customary terms, the transfer of any property or assets subject thereto; (G) encumbrances or restrictions imposed by any Permitted Refinancing that is otherwise permitted by the Loan Documents; provided that the encumbrances or restrictions in the Indebtedness as extended, refinanced or modified are not materially more restrictive than those that existed prior to such extension, refinancing, or modification; (H) customary restrictions and conditions contained in any agreement relating to the sale of any property permitted under Section 7.02(c) pending consummation of such sale; (I) customary restrictions related to deposits or net worth imposed by suppliers or landlords under contracts entered into in the ordinary course of business; or (J) agreements evidencing Permitted Indebtedness incurred by a Subsidiary that is not a Loan Party. (l) Limitation on Issuance of Preferred Stock. Except for the issuance or sale of Permitted Preferred Stock by the Parent, issue or sell or enter into any agreement or arrangement for the issuance and sale of, or permit any of its Subsidiaries to issue or sell or enter into any agreement or arrangement for the issuance and sale of, any shares of Prohibited Preferred Stock, any securities convertible into or exchangeable for Prohibited Preferred Stock or any warrants. (m) Modifications of Indebtedness, Organizational Documents and Certain Other Agreements; Etc. (i) Amend, modify or otherwise change (or permit the amendment, modification or other change in any manner of) any of the provisions of the Indebtedness evidenced by the Existing Notes, the Senior Notes, or the Senior Convertible Notes if such amendment, modification or change (A) would alter Section 6.11 of the Indenture for the 10% Senior Convertible Notes or Section 6.11 of the Indenture for the 11% Senior Convertible Notes, (B) would shorten the fixed maturity or increase the principal amount of, or increase the rate or shorten the time of payment of interest on, or increase the amount or shorten the time of payment of any principal or premium payable whether at maturity, at a date fixed for prepayment or by acceleration or otherwise or increases the amount of, or accelerate the time of payment of, any fees or other amounts payable in connection therewith, (C) relates to any material affirmative or negative covenants or any events of default or remedies thereunder and the effect of which is to subject the Parent or any of its Subsidiaries to any more 93 onerous or more restrictive provisions, or (D) otherwise adversely affects the interests of the Agents or Lenders under this Agreement or any other Loan Document in any material respect; (ii) amend, modify or otherwise change (or permit the amendment, modification or other change in any manner of) its or any of its Subsidiaries' Subordinated Debt or of any instrument or agreement (including any purchase agreement, indenture, loan agreement or security agreement) relating to any such Subordinated Debt if such amendment, modification or change would shorten the final maturity or average life to maturity of, or require any payment to be made earlier than the date originally scheduled on, such Subordinated Debt, would increase the interest rate applicable to such Subordinated Debt, would change the subordination provisions of such Subordinated Debt, or would otherwise be adverse to the Lenders or the issuer of such Subordinated Debt in any material respect, (iii) except for the Obligations, make any voluntary or optional payment, prepayment, redemption, defeasance, sinking fund payment, repurchase or other acquisition for value of any of its or its Subsidiaries' Indebtedness described in clauses (h) - (l) of the definition of "Permitted Indebtedness" (including by way of depositing money or securities with the trustee therefor before the date required for the purpose of paying any portion of such Indebtedness when due), or refund, refinance, replace or exchange any other Indebtedness for any such Indebtedness (except to the extent such refunded, refinanced, replaced, or exchanged Indebtedness is otherwise expressly permitted by the definition of "Permitted Indebtedness"), or make any payment, prepayment, redemption, defeasance, sinking fund payment or repurchase of any such Indebtedness as a result of any asset sale, change of control, issuance and sale of debt or equity securities or similar event, or give any notice with respect to any of the foregoing, (iv) except as permitted by Section 7.02(c), amend, modify or otherwise change its name, jurisdiction of organization, organizational identification number or FEIN, or (v) amend, modify or otherwise change its certificate of incorporation or bylaws (or other similar organizational documents), including by the filing or modification of any certificate of designation, or any agreement or arrangement entered into by it, with respect to any of its Capital Stock (including any shareholders' agreement), or enter into any new agreement with respect to any of its Capital Stock, except any such amendments, modifications or changes or any such new agreements or arrangements pursuant to this clause (v) that either individually or in the aggregate, could not reasonably be expected to result in a Material Adverse Effect. (n) Investment Company Act of 1940. Engage in any business, enter into any transaction, use any securities or take any other action or permit any of its Subsidiaries to do any of the foregoing, that would cause it or any of its Subsidiaries to become subject to the registration requirements of the Investment Company Act of 1940, as amended, by virtue of being an "investment company" or a company "controlled" by an "investment company" not entitled to an exemption within the meaning of such Act. (o) Compromise of Accounts Receivable. Compromise or adjust any Account Receivable (or extend the time of payment thereof) or grant any discounts, allowances or credits or permit any of its Subsidiaries to do so other than, provided no Default or Event of Default has occurred and is continuing, in the ordinary course of its business; provided, however, in no event shall any such discount, allowance or credit exceed $200,000 in the aggregate and no such extension of the time for payment extend beyond 60 days from the original due date thereof. 94 (p) ERISA. (i) Engage, or permit any ERISA Affiliate to engage, in any transaction described in Section 4069 of ERISA; (ii) engage, or permit any ERISA Affiliate to engage, in any prohibited transaction described in Section 406 of ERISA or 4975 of the IRC for which a statutory or class exemption is not available or a private exemption has not previously been obtained from the U.S. Department of Labor; (iii) adopt or permit any ERISA Affiliate to adopt any employee welfare benefit plan within the meaning of Section 3(1) of ERISA which provides health or life insurance benefits to employees after termination of employment other than as required by Section 601 of ERISA or applicable law; (iv) fail to make any contribution or payment to any Multiemployer Plan which it or any ERISA Affiliate may be required to make under any agreement relating to such Multiemployer Plan, or any law pertaining thereto; or (v) fail, or permit any ERISA Affiliate to fail, to pay any required installment or any other payment required under Section 412 of the IRC on or before the due date for such installment or other payment. (q) Environmental. Permit the use, handling, generation, storage, treatment, release or disposal of Hazardous Materials at any property owned or leased by it or any of its Subsidiaries, except in compliance with Environmental Laws and so long as such use, handling, generation, storage, treatment, release or disposal of Hazardous Materials does not result in a Material Adverse Effect. (r) Certain Agreements. Agree to any material amendment or other material change to or material waiver of any of its rights under any Material Contract, in each case that could reasonably be expected to result in a Material Adverse Effect. (s) Canadian Employee Benefits. Incur any material liability or obligation under the Canadian Employee Benefit Laws or establish any pension plan, deferred compensation plan, retirement income plan, stock option or stock purchase plan, profit sharing plan, bonus plan or policy, employee group insurance plan, program, policy or practice, formal or informal, with respect to their respective employees in Canada, that in any such case, is equivalent or substantially equivalent to a "defined benefit plan" (as defined in Section 3(35) of ERISA). (t) Inactive Subsidiaries. Permit any of the Inactive Subsidiaries to own any assets (other than assets with a de minimis value), incur any liabilities (other than de minimis liabilities), or engage in any business activity. Section 7.03 Financial Covenants. So long as any principal of or interest on any Loan, Reimbursement Obligation, Letter of Credit Obligation or any other Obligation (whether or not due) (other than unasserted contingent indemnification Obligations) shall remain unpaid or any Lender shall have any Commitment hereunder, each Loan Party shall not: (a) Leverage Ratio. Permit the ratio of Consolidated Senior Debt of the Parent and its Subsidiaries as of the last day of each period set forth below to TTM EBITDA of the Parent and its Subsidiaries for such period to be greater than the applicable ratio set forth opposite such period: 95 APPLICABLE PERIOD LEVERAGE RATIO ------------------------------------ ------------------------- For the 12 month period 5.75:1.00 ending March 31, 2006 ------------------------------------ ------------------------- For the 12 month period 4.00:1.00 ending June 30, 2006 ------------------------------------ ------------------------- For the 12 month period 2.75:1.00 ending September 30, 2006 ------------------------------------ ------------------------- For the 12 month period 2.50:1.00 ending December 31, 2006 ------------------------------------ ------------------------- For the 12 month period 2.00:1.00 ending March 31, 2007 ------------------------------------ ------------------------- For the 12 month period 2.00:1.00 ending June 30, 2007 ------------------------------------ ------------------------- For the 12 month period 2.00:1.00 ending September 30, 2007 ------------------------------------ ------------------------- For the 12 month period 2.00:1.00 ending December 31, 2007 ------------------------------------ ------------------------- For the 12 month period 2.00:1.00 ending March 31, 2008 ------------------------------------ ------------------------- For the 12 month period 2.00:1.00 ending June 30, 2008 ------------------------------------ ------------------------- For the 12 month period 2.00:1.00 ending September 30, 2008 ------------------------------------ ------------------------- For the 12 month period 2.00:1.00 ending December 31, 2008 ------------------------------------ ------------------------- For the 12 month period 2.00:1.00 ending March 31, 2009 ------------------------------------ ------------------------- For the 12 month period 2.00:1.00 ending June 30, 2009 ------------------------------------ ------------------------- For the 12 month period 2.00:1.00 ending September 30, 2009 ------------------------------------ ------------------------- For the 12 month period 2.00:1.00 ending December 31, 2009 ------------------------------------ ------------------------- (b) Fixed Charge Coverage Ratio. Permit the Fixed Charge Coverage Ratio of the Parent and its Subsidiaries for the period set forth below to be less than the applicable ratio set forth opposite such period: APPLICABLE PERIOD FIXED CHARGE COVERAGE RATIO ----------------------------------- --------------------------- For the 3 month period 1.20:1.00 ending June 30, 2006 ----------------------------------- --------------------------- For the 6 month period 1.30:1.00 ending September 30, 2006 ----------------------------------- --------------------------- 96 For the 9 month period 1.70:1.00 ending December 31, 2006 ----------------------------------- --------------------------- For the 12 month period 1.60:1.00 ending March 31, 2007 ----------------------------------- --------------------------- For the 12 month period 1.90:1.00 ending June 30, 2007 ----------------------------------- --------------------------- For the 12 month period 2.20:1.00 ending September 30, 2007 ----------------------------------- --------------------------- For the 12 month period 2.30:1.00 ending December 31, 2007 ----------------------------------- --------------------------- For the 12 month period 2.40:1.00 ending March 31, 2008 ----------------------------------- --------------------------- For the 12 month period 2.40:1.00 ending June 30, 2008 ----------------------------------- --------------------------- For the 12 month period 2.40:1.00 ending September 30, 2008 ----------------------------------- --------------------------- For the 12 month period 2.40:1.00 ending December 31, 2008 ----------------------------------- --------------------------- For the 12 month period 2.40:1.00 ending March 31, 2009 ----------------------------------- --------------------------- For the 12 month period 2.40:1.00 ending June 30, 2009 ----------------------------------- --------------------------- For the 12 month period 2.40:1.00 ending September 30, 2009 ----------------------------------- --------------------------- For the 12 month period 2.40:1.00 ending December 31, 2009 ----------------------------------- --------------------------- (c) Consolidated EBITDA. Permit Consolidated EBITDA of the Parent and its Subsidiaries for the period set forth below to be less than the applicable amount set forth opposite such period: APPLICABLE PERIOD CONSOLIDATED EBITDA ------------------------------------- ------------------------ For the 3 month period $1,226,000 ending March 31, 2006 ------------------------------------- ------------------------ For the 6 month period $3,917,000 ending June 30, 2006 ------------------------------------- ------------------------ For the 9 month period $7,540,000 ending September 30, 2006 ------------------------------------- ------------------------ For the 12 month period $14,045,000 ending December 31, 2006 ------------------------------------- ------------------------ For the 12 month period $15,957,000 ending March 31, 2007 ------------------------------------- ------------------------ 97 For the 12 month period $18,525,000 ending June 30, 2007 ------------------------------------- ------------------------ For the 12 month period $20,909,000 ending September 30, 2007 ------------------------------------- ------------------------ For the 12 month period $20,020,000 ending December 31, 2007 ------------------------------------- ------------------------ For the 12 month period $20,036,000 ending March 31, 2008 ------------------------------------- ------------------------ For the 12 month period $20,036,000 ending June 30, 2008 ------------------------------------- ------------------------ For the 12 month period $20,036,000 ending September 30, 2008 ------------------------------------- ------------------------ For the 12 month period $20,036,000 ending December 31, 2008 ------------------------------------- ------------------------ For the 12 month period $20,036,000 ending March 31, 2009 ------------------------------------- ------------------------ For the 12 month period $20,036,000 ending June 30, 2009 ------------------------------------- ------------------------ For the 12 month period $20,036,000 ending September 30, 2009 ------------------------------------- ------------------------ For the 12 month period $20,036,000 ending December 31, 2009 ------------------------------------- ------------------------ (d) Capital Expenditures. Make Capital Expenditures in any Fiscal Year in excess of the amount set forth in the following table for the applicable period: Fiscal Year 2006 $6,000,000 - ------------------------------------ ------------------------------------------ Fiscal Year 2007 $6,000,000 - ------------------------------------ ------------------------------------------ Fiscal Year 2008 $6,000,000 - ------------------------------------ ------------------------------------------ Fiscal Year 2009 $6,000,000 - ------------------------------------ ------------------------------------------ Fiscal Year 2010 $6,000,000 - ------------------------------------ ------------------------------------------ ARTICLE VIII MANAGEMENT, COLLECTION AND STATUS OF ACCOUNTS RECEIVABLE AND OTHER COLLATERAL Section 8.01 Collection of Accounts Receivable; Management of Collateral. (a) On or prior to the Effective Date, the Borrower and the Domestic Guarantors shall assist the Administrative Agent in (i) establishing, and, during the term of this Agreement, maintaining one or more lockboxes identified on Schedule 8.01 hereto (collectively, the "Lockboxes") with the financial institutions set forth on Schedule 8.01 hereto or such other financial institutions selected by the Borrower and approved by the Administrative Agent (which approval shall not be unreasonably withheld) (each being referred to as a "Lockbox Bank"), and (ii) establishing, and during the term of this Agreement, maintaining an account (the "Collection Account") with each Lockbox Bank as set forth on Schedule 8.01. The Borrower and the Domestic Guarantors shall 98 irrevocably instruct their Account Debtors, with respect to Accounts Receivable of the Borrower and the Domestic Guarantors, to remit all payments to be made by checks or other drafts to the Lockboxes and to remit all payments to be made by wire transfer or by Automated Clearing House, Inc. payment as directed by the Administrative Agent and shall instruct each Lockbox Bank to deposit all amounts received in its Lockbox to the Collection Account at such Lockbox Bank on the day received or, if such day is not a Business Day, on the next succeeding Business Day. Until the Administrative Agent has advised the Borrower to the contrary after the occurrence and during the continuance of an Event of Default, the Borrower and the Domestic Guarantors may and will enforce, collect and receive all amounts owing on the Accounts Receivable of the Borrower and such Domestic Guarantors for the Administrative Agent's benefit and on the Administrative Agent's behalf, but at the Borrower's expense; such privilege shall terminate, at the election of any Agent, upon the occurrence and during the continuance of an Event of Default. All checks, drafts, notes, money orders, acceptances, cash and other evidences of Indebtedness received directly by the Borrower or any Domestic Guarantor from any Account Debtor, as proceeds from Accounts Receivable of the Borrower or such Domestic Guarantor, or as proceeds of any other Collateral, shall be held by the Borrower or such Domestic Guarantor in trust for the Agents and the Lenders and upon receipt be deposited by the Borrower or such Domestic Guarantor in original form and no later than the next Business Day after receipt thereof into a Collection Account. Neither the Borrower nor any Domestic Guarantor shall commingle such collections with the Borrower's or such Domestic Guarantor's (as the case may be) own funds or the funds of any Subsidiary or Affiliate of the Borrower or such Domestic Guarantor (as the case may be) or with the proceeds of any assets not included in the Collateral, in each case other than with respect to the funds sent to the Borrower pursuant to Section 8.01(b) and other than the funds in the Deposit Accounts of the Borrower that will perform the cash management functions currently performed by Bank Mendes Gans. All funds received in the Collection Account shall be sent by wire transfer or Automated Clearing House, Inc. payment to the Payment Office to be credited to the Administrative Agent's Account for application at the end of each Business Day to reduce the then principal balance of the Revolving Loans, conditional upon final payment to the Administrative Agent. No checks, drafts or other instruments received by the Administrative Agent shall constitute final payment to the Administrative Agent unless and until such checks, drafts or instruments have actually been collected. (b) All funds (other the proceeds of dividends, loans, or advances that are permitted to be made by the Borrower to the Parent pursuant to the express provisions of Section 7.02(h)), received by the Parent in its Deposit Account at Bank Mendes Gans shall be sent no later than the next Business Day after receipt thereof to the Borrower for deposit into the Collection Account. On or before the date that is 90 days after the Effective Date (or such longer period as the Collateral Agent shall reasonably agree), the Parent shall have closed its Deposit Account at Bank Mendes Gans and shall have transferred all cash management functions performed by Bank Mendes Gans to one or more Deposit Accounts of the Borrower that are subject to Control Agreements in favor of the Collateral Agent. (c) After the occurrence and during the continuance of an Event of Default, the Collateral Agent may, and at the request of the Administrative Agent or the Required Lenders, the Collateral Agent shall, send a notice of assignment or notice of the Lenders' security interest to any and all Account Debtors and, thereafter, the Collateral Agent shall have the sole right to collect the Accounts Receivable and payment intangibles of the Borrower and the Domestic Guarantors or take possession of the Collateral and the books and records 99 relating thereto. After the occurrence and during the continuation of an Event of Default, the Borrower and the Domestic Guarantors shall not, without prior written consent of the Agents, grant any extension of time of payment of any Account Receivable or payment intangible, compromise or settle any Account Receivable or payment intangible for less than the full amount thereof, release, in whole or in part, any Person or property liable for the payment thereof, or allow any credit or discount whatsoever thereon. (d) The Borrower and each Domestic Guarantor hereby appoints each Agent or its designee on behalf of such Agent as the Borrower's and such Domestic Guarantor's attorney-in-fact provided that each Agent agrees not to exercise such power except upon the occurrence and during the continuance of an Event of Default to (i) endorse the Borrower's or such Domestic Guarantor's name upon any notes, acceptances, checks, drafts, money orders or other evidences of payment relating to the Accounts Receivable or payment intangibles of the Borrower or such Domestic Guarantor, (ii) sign the Borrower's or such Domestic Guarantor's name on any invoice or bill of lading relating to any of the Accounts Receivable or payment intangibles of the Borrower or such Domestic Guarantor, drafts against Account Debtors with respect to Accounts Receivable or payment intangibles of the Borrower or such Domestic Guarantor, assignments and verifications of Accounts Receivable or payment intangibles and notices to Account Debtors with respect to Accounts Receivable or payment intangibles of the Borrower or such Domestic Guarantor, (iii) send verification of Accounts Receivable of the Borrower or such Domestic Guarantor, and (iv) notify the Postal Service authorities to change the address for delivery of mail addressed to the Borrower or such Domestic Guarantor to such address as such Agent may designate and to do all other acts and things necessary to carry out this Agreement; provided that such Agent or designees shall use reasonable efforts to simultaneously provide a copy of such notification to the Borrower or such Domestic Guarantor (it being understood that failure of such Agent or designee to provide such notice to the Borrower shall not result in liability to such Agent or designee hereunder). All acts of said attorney or designee are hereby ratified and approved, and said attorney or designee shall not be liable for any acts of omission or commission (other than acts of omission or commission constituting gross negligence or willful misconduct as determined by a final non-appealable judgment of a court of competent jurisdiction), or for any error of judgment or mistake of fact or law; this power being coupled with an interest is irrevocable until all of the Loans and other Obligations under the Loan Documents are paid in full and all of the Commitments are terminated. (e) Nothing herein contained shall be construed to constitute any Agent as agent of the Borrower or any Domestic Guarantor for any purpose whatsoever, and the Agents shall not be responsible or liable for any shortage, discrepancy, damage, loss or destruction of any part of the Collateral wherever the same may be located and regardless of the cause thereof (other than from acts of omission or commission constituting gross negligence or willful misconduct as determined by a final non-appealable judgment of a court of competent jurisdiction). The Agents shall not, under any circumstance or in any event whatsoever, have any liability for any error or omission or delay of any kind occurring in the settlement, collection or payment of any of the Accounts Receivable of the 100 Borrower or the Domestic Guarantors or any instrument received in payment thereof or for any damage resulting therefrom (other than acts of omission or commission constituting gross negligence or willful misconduct as determined by a final non-appealable judgment of a court of competent jurisdiction). The Agents, by anything herein or in any assignment or otherwise, do not assume any of the obligations under any contract or agreement assigned to any Agent and shall not be responsible in any way for the performance by the Borrower or any Domestic Guarantor of any of the terms and conditions thereof. (f) If any Account Receivable of the Borrower or any Domestic Guarantor includes a charge for any tax payable to any Governmental Authority, each Agent is hereby authorized (but in no event obligated) in its discretion to pay the amount thereof to the proper taxing authority for the Borrower's account and to charge the Borrower therefor. The Borrower and the Domestic Guarantors shall notify the Agents if any Account Receivable of the Borrower or the Domestic Guarantors includes any taxes due to any such Governmental Authority and, in the absence of such notice, the Agents shall have the right to retain the full proceeds of such Account Receivable and shall not be liable for any taxes that may be due by reason of the sale and delivery creating such Account Receivable. (g) Notwithstanding any other terms set forth in the Loan Documents, the rights and remedies of the Agents and the Lenders herein provided, and the obligations of the Loan Parties set forth herein, are cumulative of, may be exercised singly or concurrently with, and are not exclusive of, any other rights, remedies or obligations set forth in any other Loan Document or as provided by law. Section 8.02 Accounts Receivable Documentation. The Borrower and the Domestic Guarantors will at such intervals as the Administrative Agent may require, execute and deliver confirmatory written assignments of the Accounts Receivable to the Administrative Agent and furnish such further schedules or information as the Administrative Agent may reasonably request relating to the Accounts Receivable, including sales invoices or the equivalent, credit memos issued, remittance advices, reports and copies of deposit slips and copies of original shipping or delivery receipts for all merchandise sold. In addition, the Borrower and the Domestic Guarantors shall notify the Administrative Agent of any non compliance in respect of the representations, warranties and covenants contained in Section 8.03. The items to be provided under this Section 8.02 are to be in form reasonably satisfactory to the Administrative Agent and are to be executed and delivered to the Administrative Agent from time to time solely for their convenience in maintaining records of the Collateral. The Borrower's or any Domestic Guarantor's failure to give any of such items to the Administrative Agent shall not affect, terminate, modify or otherwise limit the Collateral Agent's Lien on the Collateral. Neither the Borrower nor any Domestic Guarantor shall re-date any invoice or sale or make sales on extended dating beyond that customary in the Borrower's or such Domestic Guarantor's industry, and shall not re-bill any Accounts Receivable without promptly disclosing the same to the Administrative Agent and providing the Administrative Agent with a copy of such re-billing, identifying the same as such. If the Borrower or any Domestic Guarantor becomes aware of anything materially detrimental to any of the Borrower's or any Domestic Guarantor's customers' credit, the Borrower or such Domestic Guarantor will promptly advise the Administrative Agent thereof. 101 Section 8.03 Status of Accounts Receivable. With respect to Accounts Receivable of any Loan Party at the time the Accounts Receivable becomes subject to the Collateral Agent's Lien, each Loan Party covenants, represents and warrants: (a) such Loan Party shall be the sole owner, free and clear of all Liens (except for the Liens granted in the favor of the Collateral Agent for the benefit of the Agents and the Lenders and Permitted Liens); (b) unless otherwise indicated in writing to the Administrative Agent, each Account Receivable identified by Borrower as an Eligible Account Receivable in a Borrowing Base report submitted to either Agent shall be a good and valid account representing a bona fide indebtedness incurred by the Account Debtor therein named, for a fixed sum as set forth in the invoice relating thereto; (c) no Eligible Account Receivable identified by the Borrower or a Domestic Guarantor as an Eligible Account Receivable in a Borrowing Base report submitted to either Agent shall be subject to any defense, offset, counterclaim, discount or allowance except as may be stated in the invoice relating thereto, discounts and allowances as may be customary in such Loan Party's business and as otherwise disclosed to the Agents; (d) none of the transactions underlying or giving rise to any Account Receivable identified by the Borrower or a Domestic Guarantor as an Eligible Account Receivable in a Borrowing Base report submitted to either Agent shall violate any applicable state or federal laws or regulations, and all documents relating thereto shall be legally sufficient under such laws or regulations and shall be legally enforceable in accordance with their terms; (e) no agreement under which any deduction or offset of any kind, other than normal trade discounts, may be granted or shall have been made by such Loan Party at or before the time any Account Receivable identified by the Borrower or a Domestic Guarantor as an Eligible Account Receivable in a Borrowing Base report submitted to either Agent is created; (f) all agreements, instruments and other documents relating to any Account Receivable identified by the Borrower or a Domestic Guarantor as an Eligible Account Receivable in a Borrowing Base report submitted to either Agent shall be true and correct in all material respects and in all material respects what they purport to be; (g) to such Loan Party's knowledge, all signatures and endorsements that appear on all material agreements, instruments and other documents relating to any Account Receivable identified by the Borrower or a Domestic Guarantor as an Eligible Account Receivable in a Borrowing Base report submitted to either Agent shall be genuine and all signatories and endorsers shall have full capacity to contract; (h) such Loan Party shall maintain books and records pertaining to said Collateral in such detail, form and scope as the Agents shall reasonably require; (i) such Loan Party shall promptly (and in any event within 5 Business Days) notify the Agents if any Account Receivable identified by the Borrower or any Domestic Guarantor as an Eligible Account Receivable in a Borrowing Base report submitted to either Agent arises out of contracts with any Governmental Authority, and will execute any instruments and take any steps required by the Agents in order that all monies due or to become due under any such contract shall be assigned to the Collateral Agent and notice thereof given to such Governmental Authority under the Federal Assignment of Claims Act or any similar state or local law; (j) such Loan Party will, immediately upon learning thereof, report to the Agents any material loss or destruction of, or substantial damage to, any of the Collateral, and any demand, notice, document or other information received by it that question or calls into doubt the validity, enforceability or collectability of any of the Eligible Accounts Receivable; (k) if any amount payable under or in connection with any Account Receivable is evidenced by a promissory note or other instrument, such promissory note or instrument shall be immediately pledged, endorsed, assigned and delivered to the Collateral Agent for the benefit of the Agents and the Lenders as additional Collateral; (l) such Loan Party shall not re-date any invoice or sale or make sales on extended dating beyond that which is customary in the ordinary course of its business and in the industry; and (m) such Loan Party is not and shall not be entitled to pledge any Agent's or any Lender's credit on any purchases or for any purpose whatsoever. 102 Section 8.04 Collateral Custodian. Upon the occurrence and during the continuance of any Event of Default, the Collateral Agent may, and at the request of the Administrative Agent or the Required Lenders, the Collateral Agent shall, at any time and from time to time employ and maintain on the premises of any Loan Party a custodian selected by the Collateral Agent who shall have full authority to do all acts necessary to protect the Agents' and the Lenders' interests. Each Loan Party hereby agrees to, and to cause its Subsidiaries to, cooperate with any such custodian and to do whatever the Collateral Agent may reasonably request to preserve the Collateral. All costs and expenses incurred by the Collateral Agent by reason of the employment of the custodian shall be the responsibility of the Borrower and charged to the Loan Account in accordance with Section 4.02(a). ARTICLE IX EVENTS OF DEFAULT Section 9.01 Events of Default. If any of the following Events of Default shall occur and be continuing: (a) the Borrower shall fail to pay (i) any principal of any Loan when due (whether by scheduled maturity, required prepayment, acceleration, demand or otherwise), or (ii) any interest on any Loan, any Collateral Agent Advance, any Reimbursement Obligation, or any fee, indemnity or other amount payable under this Agreement or any other Loan Document when due (whether by scheduled maturity, required prepayment, acceleration, demand or otherwise); (b) any representation or warranty made or deemed made by or on behalf of any Loan Party or by any officer of the foregoing under or in connection with any Loan Document or under or in connection with any report, certificate, or other document delivered to any Agent, any Lender or the L/C Issuer pursuant to any Loan Document shall have been incorrect in any material respect when made or deemed made; (c) any Loan Party shall fail to perform or comply with any covenant or agreement contained in Section 7.01(a), Sections 7.02(a) - (m), Section 7.02(o), Section 7.02(r), Section 7.03, Section 8.01(a), or Section 8.01(b); (d) any Loan Party shall fail to perform or comply with any other term, covenant or agreement contained in any Loan Document to be performed or observed by it and, except as set forth in subsections (a), (b), and (c), of this Section 9.01, such failure, if capable of being remedied, shall remain unremedied for 20 days after the earlier of the date a senior officer of any Loan Party becomes aware of such failure and the date written notice of such default shall have been given by any Agent to such Loan Party; (e) the Parent or any of its Subsidiaries shall fail to pay any principal of or interest or premium on any of its Indebtedness (excluding the Obligations) to the extent that the aggregate principal amount of all such Indebtedness 103 exceeds $1,000,000 when due (whether by scheduled maturity, required prepayment, acceleration, demand or otherwise) and such failure shall continue after the applicable grace period, if any, specified in the agreement or instrument relating to such Indebtedness, or any other default under any agreement or instrument relating to any such Indebtedness, or any other event, shall occur and shall continue after the applicable grace period, if any, specified in such agreement or instrument, if the effect of such default or event is to accelerate, or to permit the acceleration of, the maturity of such Indebtedness; or any such Indebtedness shall be declared to be due and payable, or required to be prepaid (other than by a regularly scheduled required prepayment), redeemed, purchased or defeased or an offer to prepay, redeem, purchase or defease such Indebtedness shall be required to be made, in each case, prior to the stated maturity thereof; (f) the Parent or any of its Subsidiaries (i) shall institute any proceeding or voluntary case seeking to adjudicate it a bankrupt or insolvent, or seeking dissolution, liquidation, winding up, reorganization, arrangement, adjustment, protection, relief or composition of it or its debts under any law relating to bankruptcy, insolvency, reorganization or relief of debtors, or seeking the entry of an order for relief or the appointment of a receiver, trustee, custodian or other similar official for any such Person or for any substantial part of its property, (ii) shall be generally not paying its debts as such debts become due or shall admit in writing its inability to pay its debts generally, (iii) shall make a general assignment for the benefit of creditors, or (iv) shall take any action to authorize or effect any of the actions set forth above in this subsection (f); (g) any proceeding shall be instituted against the Parent or any of its Subsidiaries seeking to adjudicate it a bankrupt or insolvent, or seeking dissolution, liquidation, winding up, reorganization, arrangement, adjustment, protection, relief of debtors, or seeking the entry of an order for relief or the appointment of a receiver, trustee, custodian or other similar official for any such Person or for any substantial part of its property, and either such proceeding shall remain undismissed or unstayed for a period of 30 days or any of the actions sought in such proceeding (including the entry of an order for relief against any such Person or the appointment of a receiver, trustee, custodian or other similar official for it or for any substantial part of its property) shall occur; (h) any provision of any Loan Document shall at any time for any reason (other than pursuant to the express terms thereof) cease to be valid and binding on or enforceable against any Loan Party intended to be a party thereto, or the validity or enforceability thereof shall be contested by any party thereto, or a proceeding shall be commenced by any Loan Party or any Governmental Authority having jurisdiction over any of them, seeking to establish the invalidity or unenforceability thereof, or any Loan Party shall deny in writing that it has any liability or obligation purported to be created under any Loan Document; (i) any Security Agreement, any Mortgage or any other security document, after delivery thereof pursuant hereto, shall for any reason fail or cease to create a valid and perfected and, except to the extent permitted by the terms hereof or thereof, first priority Lien in favor of the Collateral Agent for the benefit of the Agents and the Lenders on any Collateral purported to be covered thereby (other than Collateral with an aggregate fair market value not in excess of $500,000); 104 (j) any bank at which any deposit account, blocked account, or lockbox account of any Loan Party is maintained shall fail to comply with any of the terms of any deposit account, blocked account, lockbox account or similar agreement to which such bank is a party or any securities intermediary, commodity intermediary or other financial institution at any time in custody, control or possession of any investment property of any Loan Party shall fail to comply with any of the terms of any investment property control agreement to which such Person is a party, and such Loan Party fails to move the funds in such deposit account, blocked account, or lockbox account or the investment property in control of such securities intermediary, commodity intermediary or other financial institution (as the case may be) as soon as possible (but in no event later than 30 days) after the date that any Agent or any Lender informs such Loan Party of such failure to comply; (k) one or more judgments, awards, or orders (or any settlement of any claim that, if breached, could result in a judgment, order, or award) for the payment of money exceeding $1,000,000 in the aggregate shall be rendered against Parent or any of its Subsidiaries and remain unsatisfied, or the Parent or any of its Subsidiaries shall agree to the settlement of any one or more pending or threatened actions, suits, or proceedings affecting any Loan Party before any court or other Governmental Authority or any arbitrator or mediator, providing for the payment of money exceeding $1,000,000 in the aggregate, and in the case of any such judgment, order, award or settlement either (i) enforcement proceedings shall have been commenced by any creditor upon any such judgment, order, award or settlement, or (ii) there shall be a period of 10 consecutive days after entry thereof during which a stay of enforcement of any such judgment, order, award or settlement, by reason of a pending appeal or otherwise, shall not be in effect; provided, however, that any such judgment, order, award or settlement shall not give rise to an Event of Default under this subsection if and for so long as (A) the amount of such judgment, order, award or settlement is covered by a valid and binding policy of insurance between the defendant and the insurer covering full payment thereof and (B) such insurer has been notified, and has not disputed the claim made for payment, of the amount of such judgment, order, award or settlement; (l) the Parent or any of its Subsidiaries is enjoined, restrained or in any way prevented by the order of any court or any Governmental Authority from conducting all or any material part of the business of the Loan Parties taken as a whole for more than 30 consecutive days; (m) any cessation of a substantial part of the business of any Loan Party for a period of more than 30 consecutive days which materially and adversely affects the ability of any Loan Party to continue its business on a profitable basis; (n) the indictment of the Parent or any of its Subsidiaries under any criminal statute, or commencement of criminal or civil proceedings against any Loan Party, pursuant to which statute or proceedings the penalties or remedies sought or available include forfeiture to any Governmental Authority of any material portion of the property of such Person, in each case, that could reasonably be expected to result in a Material Adverse Effect; (o) any Loan Party or any of its ERISA Affiliates shall have made a complete or partial withdrawal from a Multiemployer Plan, and, as a result of such complete or partial withdrawal, any Loan Party or any of its ERISA 105 Affiliates incurs a withdrawal liability in an annual amount exceeding $1,000,000; or a Multiemployer Plan enters reorganization status under Section 4241 of ERISA, and, as a result thereof any Loan Party's or any of its ERISA Affiliates' annual contribution requirements with respect to such Multiemployer Plan increases in an annual amount exceeding $1,000,000; (p) any Termination Event with respect to any Employee Plan shall have occurred, and, 30 days after notice thereof shall have been given to any Loan Party by any Agent, (i) such Termination Event (if correctable) shall not have been corrected, and (ii) the then current value of such Employee Plan's vested benefits exceeds the then current value of assets allocable to such benefits in such Employee Plan by more than $1,000,000 (or, in the case of a Termination Event involving liability under Section 409, 502(i), 502(l), 515, 4062, 4063, 4064, 4069, 4201, 4204 or 4212 of ERISA or Section 4971 or 4975 of the IRC, the liability is in excess of such amount); (q) the Parent or any of its Subsidiaries shall be liable for any Environmental Liabilities and Costs the payment of which could reasonably be expected to result in a Material Adverse Effect; or (r) a Change of Control shall have occurred; then, and in any such event, the Collateral Agent may, and shall at the request of the Required Lenders, by notice to the Borrower, (i) terminate or reduce all Commitments, whereupon all Commitments shall immediately be so terminated or reduced, (ii) declare all or any portion of the Loans and Reimbursement Obligations then outstanding to be due and payable, whereupon all or such portion of the aggregate principal of all Loans and Reimbursement Obligations, all accrued and unpaid interest thereon, all fees and all other amounts payable under this Agreement and the other Loan Documents shall become due and payable immediately, without presentment, demand, protest or further notice of any kind, all of which are hereby expressly waived by each Loan Party, and (iii) exercise any and all of its other rights and remedies under applicable law, hereunder and under the other Loan Documents; provided, however, that upon the occurrence of any Event of Default described in subsection (f) or (g) of this Section 9.01, without any notice to any Loan Party or any other Person or any act by any Agent or any Lender, all Commitments shall automatically terminate and all Loans and Reimbursement Obligations then outstanding, together with all accrued and unpaid interest thereon, all fees and all other amounts due under this Agreement and the other Loan Documents shall become due and payable automatically and immediately, without presentment, demand, protest or notice of any kind, all of which are expressly waived by each Loan Party. Upon demand by the Administrative Agent after the occurrence and during the continuation of any Event of Default, the Borrower shall deposit with the Administrative Agent with respect to each Letter of Credit then outstanding cash in an amount equal to 105% of the greatest amount for which such Letter of Credit may be drawn. Such deposits shall be held by the Administrative Agent in the Letter of Credit Collateral Account as security for, and to provide for the payment of, the Letter of Credit Obligations. 106 ARTICLE X AGENTS Section 10.01 Appointment. Each Lender (and each subsequent maker of any Loan by its making thereof) hereby irrevocably appoints and authorizes the Administrative Agent and the Collateral Agent to perform the duties of each such Agent as set forth in this Agreement including: (i) to receive on behalf of each Lender any payment of principal of or interest on the Loans outstanding hereunder and all other amounts accrued hereunder for the account of the Lenders and paid to such Agent, and, subject to Section 2.02 of this Agreement, to distribute promptly to each Lender its Pro Rata Share of all payments so received; (ii) to distribute to each Lender copies of all material notices and agreements received by such Agent and not required to be delivered to each Lender pursuant to the terms of this Agreement, provided that the Agents shall not have any liability to the Lenders for any Agent's inadvertent failure to distribute any such notices or agreements to the Lenders; (iii) to maintain, in accordance with its customary business practices, ledgers and records reflecting the status of the Obligations, the Loans, and related matters and to maintain, in accordance with its customary business practices, ledgers and records reflecting the status of the Collateral and related matters; (iv) to execute or file any and all financing or similar statements or notices, amendments, renewals, supplements, documents, instruments, proofs of claim, notices and other written agreements with respect to this Agreement or any other Loan Document; (v) to make the Loans and Agent Advances, for such Agent or on behalf of the applicable Lenders as provided in this Agreement or any other Loan Document; (vi) to perform, exercise, and enforce any and all other rights and remedies of the Lenders with respect to the Loan Parties, the Obligations, or otherwise related to any of same to the extent reasonably incidental to the exercise by such Agent of the rights and remedies specifically authorized to be exercised by such Agent by the terms of this Agreement or any other Loan Document; (vii) to incur and pay such fees necessary or appropriate for the performance and fulfillment of its functions and powers pursuant to this Agreement or any other Loan Document; and (viii) subject to Section 10.03 of this Agreement, to take such action as such Agent deems appropriate on its behalf to administer the Loans and the Loan Documents and to exercise such other powers delegated to such Agent by the terms hereof or the other Loan Documents (including the power to give or to refuse to give notices, waivers, consents, approvals and instructions and the power to make or to refuse to make determinations and calculations) together with such powers as are reasonably incidental thereto to carry out the purposes hereof and thereof. As to any matters not expressly provided for by this Agreement and the other Loan Documents (including enforcement or collection of the Loans), the Agents shall not be required to exercise any discretion or take any action, but shall be required to act or to refrain from acting (and shall be fully protected in so acting or refraining from acting) upon the instructions of the Required Lenders, and such instructions of the Required Lenders shall be binding upon all Lenders and all makers of Loans; provided, however, that the L/C Issuer shall not be required to refuse to honor a drawing under any Letter of Credit and the Agents shall not be required to take any action which, in the reasonable opinion of any Agent, exposes such Agent to liability or which is contrary to this Agreement or any other Loan Document or applicable law. Section 10.02 Nature of Duties. The Agents shall have no duties or responsibilities except those expressly set forth in this Agreement or in the other Loan Documents. The duties of the Agents shall be mechanical and 107 administrative in nature. The Agents shall not have by reason of this Agreement or any other Loan Document a fiduciary relationship in respect of any Lender. Nothing in this Agreement or any other Loan Document, express or implied, is intended to or shall be construed to impose upon the Agents any obligations in respect of this Agreement or any other Loan Document except as expressly set forth herein or therein. Each Lender shall make its own independent investigation of the financial condition and affairs of the Loan Parties in connection with the making and the continuance of the Loans hereunder and shall make its own appraisal of the creditworthiness of the Loan Parties and the value of the Collateral, and the Agents shall have no duty or responsibility, either initially or on a continuing basis, to provide any Lender with any credit or other information with respect thereto, whether coming into their possession before the initial Loan hereunder or at any time or times thereafter, provided that, upon the reasonable request of a Lender, each Agent shall provide to such Lender any documents or reports delivered to such Agent by the Loan Parties pursuant to the terms of this Agreement or any other Loan Document. If any Agent seeks the consent or approval of the Required Lenders to the taking or refraining from taking any action hereunder, such Agent shall send notice thereof to each Lender. Each Agent shall promptly notify each Lender any time that the Required Lenders have instructed such Agent to act or refrain from acting pursuant hereto. Section 10.03 Rights, Exculpation, Etc. The Agents and their directors, officers, agents or employees shall not be liable for any action taken or omitted to be taken by them under or in connection with this Agreement or the other Loan Documents, except for their own gross negligence or willful misconduct as determined by a final non-appealable judgment of a court of competent jurisdiction. Without limiting the generality of the foregoing, the Agents (i) may treat the payee of any Loan as the owner thereof until the Collateral Agent receives written notice of the assignment or transfer thereof, pursuant to Section 12.07 hereof, signed by such payee and in form satisfactory to the Collateral Agent; (ii) may consult with legal counsel (including counsel to any Agent or counsel to the Loan Parties), independent public accountants, and other experts selected by any of them and shall not be liable for any action taken or omitted to be taken in good faith by any of them in accordance with the advice of such counsel or experts; (iii) make no warranty or representation to any Lender and shall not be responsible to any Lender for any statements, certificates, warranties or representations made in or in connection with this Agreement or the other Loan Documents; (iv) shall not have any duty to ascertain or to inquire as to the performance or observance of any of the terms, covenants or conditions of this Agreement or the other Loan Documents on the part of any Person, the existence or possible existence of any Default or Event of Default, or to inspect the Collateral or other property (including the books and records) of any Person; (v) shall not be responsible to any Lender for the due execution, legality, validity, enforceability, genuineness, sufficiency or value of this Agreement or the other Loan Documents or any other instrument or document furnished pursuant hereto or thereto; and (vi) shall not be deemed to have made any representation or warranty regarding the existence, value or collectability of the Collateral, the existence, priority or perfection of the Collateral Agent's Lien thereon, or any certificate prepared by any Loan Party in connection therewith, nor shall the Agents be responsible or liable to the Lenders for any failure to monitor or maintain any portion of the Collateral. The provisions of this Section 10.03 are subject to, and shall not limit in any respect, the provisions of Section 12.07. The Agents shall not be liable for any apportionment or distribution of payments made in good faith pursuant to Section 4.04, and if any such apportionment or distribution is subsequently determined to have been made in error the sole recourse of any Lender to whom payment was due but not made, shall be to recover from other Lenders any payment in excess of the amount which they are determined to be entitled. The Agents may at any 108 time request instructions from the Lenders with respect to any actions or approvals which by the terms of this Agreement or of any of the other Loan Documents the Agents are permitted or required to take or to grant, and if such instructions are promptly requested, the Agents shall be absolutely entitled to refrain from taking any action or to withhold any approval under any of the Loan Documents until they shall have received such instructions from the Required Lenders. Without limiting the foregoing, no Lender shall have any right of action whatsoever against any Agent as a result of such Agent acting or refraining from acting under this Agreement or any of the other Loan Documents in accordance with the instructions of the Required Lenders. Section 10.04 Reliance. Each Agent shall be entitled to rely upon any written notices, statements, certificates, orders or other documents or any telephone message believed by it in good faith to be genuine and correct and to have been signed, sent or made by the proper Person, and with respect to all matters pertaining to this Agreement or any of the other Loan Documents and its duties hereunder or thereunder, upon advice of counsel selected by it. Section 10.05 Indemnification. To the extent that any Agent or the L/C Issuer is not reimbursed and indemnified by any Loan Party, the Lenders will reimburse and indemnify such Agent and the L/C Issuer from and against any and all liabilities, obligations, losses, damages, penalties, actions, judgments, suits, costs, expenses, advances or disbursements of any kind or nature whatsoever which may be imposed on, incurred by, or asserted against such Agent or the L/C Issuer in any way relating to or arising out of this Agreement or any of the other Loan Documents or any action taken or omitted by such Agent or the L/C Issuer under this Agreement or any of the other Loan Documents, in proportion to each Lender's Pro Rata Share, including advances and disbursements made pursuant to Section 10.08; provided, however, that no Lender shall be liable for any portion of such liabilities, obligations, losses, damages, penalties, actions, judgments, suits, costs, expenses, advances or disbursements for which there has been a final judicial determination that such liability resulted from such Agent's or the L/C Issuer's gross negligence or willful misconduct. The obligations of the Lenders under this Section 10.05 shall survive the payment in full of the Loans and the termination of this Agreement. Section 10.06 Agents Individually. With respect to its Pro Rata Share of the Total Commitment hereunder and the Loans made by it, each Agent shall have and may exercise the same rights and powers hereunder and is subject to the same obligations and liabilities as and to the extent set forth herein for any other Lender or maker of a Loan. The terms "Lenders" or "Required Lenders" or any similar terms shall, unless the context clearly otherwise indicates, include each Agent in its individual capacity as a Lender or one of the Required Lenders. Each Agent and its Affiliates may accept deposits from, lend money to, and generally engage in any kind of banking, trust or other business with the Borrower as if it were not acting as an Agent pursuant hereto without any duty to account to the other Lenders. Section 10.07 Successor Agent. (a) Each Agent may resign from the performance of all its functions and duties hereunder and under the other Loan Documents at any time by giving at 109 least 30 Business Days prior written notice to the Borrower and each Lender. Such resignation shall take effect upon the acceptance by a successor Agent of appointment pursuant to clauses (b) and (c) below or as otherwise provided below. (b) Upon any such notice of resignation, the Required Lenders shall appoint a successor Agent which successor Agent shall, so long as no Event of Default shall have occurred and be continuing, be reasonably acceptable to the Borrower (which consent shall not be unreasonably withheld, delayed, or conditioned). Upon the acceptance of any appointment as Agent hereunder by a successor Agent, such successor Agent shall thereupon succeed to and become vested with all the rights, powers, privileges and duties of the retiring Agent, and the retiring Agent shall be discharged from its duties and obligations under this Agreement and the other Loan Documents. After any Agent's resignation hereunder as an Agent, the provisions of this Article X shall inure to its benefit as to any actions taken or omitted to be taken by it while it was an Agent under this Agreement and the other Loan Documents. (c) If a successor Agent shall not have been so appointed within said thirty (30) Business Day period, the retiring Agent, with the consent (which consent shall not be unreasonably withheld, delayed, or conditioned) of the other Agent shall then appoint a successor Agent who shall serve as an Agent until such time, if any, as the Required Lenders, with the consent of the other Agent, appoint a successor Agent as provided above. Section 10.08 Collateral Matters. (a) Either Agent may from time to time make such disbursements and advances ("Agent Advances") which such Agent, in its sole discretion, deems necessary or desirable to preserve, protect, prepare for sale or lease or dispose of the Collateral or any portion thereof, to enhance the likelihood or maximize the amount of repayment by the Borrower of the Loans, reimbursement obligations with respect to the Letters of Credit, and other Obligations or to pay any other amount chargeable to the Borrower pursuant to the terms of this Agreement, including costs, fees and expenses as described in Section 12.04; provided, however, that (i) the Agents shall not make any Agent Advance that would cause the aggregate principal amount of all Agent Advances outstanding at such time to exceed the lesser of (A) $2,000,000, and (B) an amount equal to 10% of the Borrowing Base then in effect, without the prior consent of the Required Lenders, (ii) the Administrative Agent shall not make any Agent Advance that would cause the aggregate principal amount of all Agent Advances made by the Administrative Agent outstanding at such time to exceed the lesser of (A) $1,000,000, and (B) an amount equal to 5% of the Borrowing Base then in effect, without the prior consent of the Collateral Agent, (iii) the Collateral Agent shall not make any Agent Advance that would cause the aggregate principal amount of all Agent Advances made by the Collateral Agent outstanding at such time to exceed the lesser of (A) $1,000,000, and (B) an amount equal to 5% of the Borrowing Base then in effect, without the prior consent of the Administrative Agent. The Agent Advances shall be repayable on demand and be secured by the Collateral. The Agent Advances shall constitute Obligations hereunder which may be charged to the Loan Account in accordance with Section 4.02. The Agent making such Agent Advance shall notify each Lender and the Borrower in writing of each such Agent Advance, which notice shall include a description of the purpose of such Agent Advance. 110 (b) The Administrative Agent shall not make any Revolving Loans or provide any Letters of Credit or Letter of Credit Guaranties to the Borrower intentionally and with actual knowledge that such Revolving Loans, Letters of Credit, or Letter of Credit Guaranties (as the case may be) would cause the aggregate amount of the total outstanding Revolving Loans and Letter of Credit Obligations to exceed the Borrowing Base, without the prior consent of all Lenders, except that the Administrative Agent may make such additional Revolving Loans or provide such additional Letters of Credit or Letter of Credit Guaranties, intentionally and with actual knowledge that such Revolving Loans, Letters of Credit, or Letter of Credit Guaranties (as the case may be) will cause the total outstanding Revolving Loans and Letter of Credit Obligations to exceed the Borrowing Base, as the Administrative Agent may deem necessary or advisable in its discretion; provided, however: (i) the total principal amount of the additional Revolving Loans, Letters of Credit, or Letter of Credit Guaranties (as the case may be) which the Administrative Agent may make or provide after obtaining such actual knowledge that the aggregate principal amount of the Revolving Loans and Letter of Credit Obligations equal or exceed the Borrowing Base shall not (A) exceed, when taken together with Agent Advances made by the Administrative Agent, the lesser of (x) $1,000,000, and (y) an amount equal to 5% of the Borrowing Base, and (B) cause the total principal amount of the Revolving Loans and Letter of Credit Obligations to exceed the Total Revolving Credit Commitment, and (ii) no such additional Revolving Loans, Letters of Credit, or Letter of Credit Guaranties (as the case may be) shall be outstanding more than ninety (90) days from the date such additional Revolving Loan, Letter of Credit, or Letter of Credit Guaranty was made or issued (as the case may be), except as the Required Lenders may otherwise agree. Without limiting its obligations under Section 10.05, each Revolving Loan Lender agrees that it shall make available to the Administrative Agent, upon the Administrative Agent's demand, in Dollars in immediately available funds, an amount equal to such Revolving Lender's Pro Rata Share of each such Revolving Loan or obligation of the Administrative Agent in respect of each such Letter of Credit or Letter of Credit Guaranty (as the case may be). If such funds are not made available to the Administrative Agent by such Revolving Loan Lender, the Administrative Agent shall be entitled to recover such funds on demand from such Revolving Loan Lender, together with interest thereon for each day from the date such payment was due until the date such amount is paid to the Administrative Agent, at the Federal Funds Rate for 3 Business Days and thereafter at the Reference Rate. For the avoidance of doubt, it is understood that, subject to the limitation set forth in clause (i)(A) above, this Section 10.08(b) shall not restrict the Administrative Agent's ability to make Agent Advances. (c) The Lenders hereby irrevocably authorize the Collateral Agent, at its option and in its discretion, to release any Lien granted to or held by the Collateral Agent upon any Collateral upon termination of the Total Commitment and payment in full in cash of all Obligations; or constituting property being sold or disposed of in compliance with the terms of this Agreement and the other Loan Documents; or constituting property in which the Loan Parties owned no interest at the time the Lien was granted or at any time thereafter; or if approved, authorized or ratified in writing by the Lenders. Upon request by the Collateral Agent at any time, the Lenders will confirm in writing the Collateral Agent's authority to release particular types or items of Collateral pursuant to this Section 10.08(c). (d) Without in any manner limiting the Collateral Agent's authority to act without any specific or further authorization or consent by the Lenders (as set forth in Section 10.08(c)), each Lender agrees to confirm in writing, upon request by the Collateral Agent, the authority to release Collateral conferred 111 upon the Collateral Agent under Section 10.08(c). Upon receipt by the Collateral Agent of confirmation from the Lenders of its authority to release any particular item or types of Collateral, and upon prior written request by any Loan Party, the Collateral Agent shall (and is hereby irrevocably authorized by the Lenders to) execute such documents as may be necessary to evidence the release of the Liens granted to the Collateral Agent for the benefit of the Agents and the Lenders upon such Collateral; provided, however, that (i) the Collateral Agent shall not be required to execute any such document on terms which, in the Collateral Agent's opinion, would expose the Collateral Agent to liability or create any obligations or entail any consequence other than the release of such Liens without recourse or warranty, and (ii) such release shall not in any manner discharge, affect or impair the Obligations or any Lien upon (or obligations of any Loan Party in respect of) all interests in the Collateral retained by any Loan Party. (e) The Collateral Agent shall have no obligation whatsoever to any Lender to assure that the Collateral exists or is owned by the Loan Parties or is cared for, protected or insured or has been encumbered or that the Lien granted to the Collateral Agent pursuant to this Agreement or any other Loan Document has been properly or sufficiently or lawfully created, perfected, protected or enforced or is entitled to any particular priority, or to exercise at all or in any particular manner or under any duty of care, disclosure or fidelity, or to continue exercising, any of the rights, authorities and powers granted or available to the Collateral Agent in this Section 10.08 or in any other Loan Document, it being understood and agreed that in respect of the Collateral, or any act, omission or event related thereto, the Collateral Agent may act in any manner it may deem appropriate, in its sole discretion, given the Collateral Agent's own interest in the Collateral as one of the Lenders and that the Collateral Agent shall have no duty or liability whatsoever to any other Lender, except as otherwise provided herein. Section 10.09 Agency for Perfection. Each Lender hereby appoints each Agent and each other Lender as agent and bailee for the purpose of perfecting the security interests in and liens upon the Collateral in assets which, in accordance with Article 9 of the Code, can be perfected only by possession or control (or where the security interest of a secured party with possession or control has priority over the security interest of another secured party) and each Agent and each Lender hereby acknowledges that it holds possession or control of any such Collateral for the benefit of the Collateral Agent as secured party. Should any Lender obtain possession or control of any such Collateral, such Lender shall notify the Collateral Agent thereof, and, promptly upon the Collateral Agent's request therefor shall deliver possession or control of such Collateral to the Collateral Agent or in accordance with the Collateral Agent's instructions. Each Loan Party by its execution and delivery of this Agreement hereby consents to the foregoing. ARTICLE XI GUARANTY Section 11.01 Guaranty. Each Guarantor hereby jointly and severally unconditionally and irrevocably guarantees the punctual payment when due, whether at stated maturity, by acceleration or otherwise, of all Obligations of the Borrower now or hereafter existing under any Loan Document, whether for principal, interest (including all interest that accrues after the commencement of any Insolvency Proceeding irrespective of whether a claim therefor is allowed 112 in such case or proceeding), fees, expenses or otherwise (such obligations, to the extent not paid by the Borrower, being the "Guaranteed Obligations"), and agrees to pay any and all expenses (including reasonable counsel fees and expenses of one primary counsel and any local counsel for the Collateral Agent and one primary counsel and any local counsel for the Administrative Agent) incurred by the Agents, the Lenders and the L/C Issuer (or any of them) in enforcing any rights under the guaranty set forth in this Article. Without limiting the generality of the foregoing, each Guarantor's liability shall extend to all amounts that constitute part of the Guaranteed Obligations and would be owed by the Borrower to the Agents, the Lenders and the L/C Issuer under any Loan Document but for the fact that they are unenforceable or not allowable due to the existence of a bankruptcy, reorganization or similar proceeding involving any Loan Party. Section 11.02 Guaranty Absolute. Each Guarantor jointly and severally guarantees that the Guaranteed Obligations will be paid strictly in accordance with the terms of the Loan Documents, regardless of any law, regulation or order now or hereafter in effect in any jurisdiction affecting any of such terms or the rights of the Agents, the Lenders or the L/C Issuer with respect thereto. Each Guarantor agrees that this Article constitutes a guaranty of payment when due and not of collection and waives any right to require that any resort be made by any Agent or any Lender to any Collateral. The obligations of each Guarantor under this Article are independent of the Guaranteed Obligations, and a separate action or actions may be brought and prosecuted against each Guarantor to enforce such obligations, irrespective of whether any action is brought against any Loan Party or whether any Loan Party is joined in any such action or actions. The liability of each Guarantor under this Article shall be irrevocable, absolute and unconditional irrespective of, and, to the extent permitted by law, each Guarantor hereby irrevocably waives any defenses it may now or hereafter have in any way relating to, any or all of the following: (a) any lack of validity or enforceability of any Loan Document or any agreement or instrument relating thereto; (b) any change in the time, manner or place of payment of, or in any other term of, all or any of the Guaranteed Obligations, or any other amendment or waiver of or any consent to departure from any Loan Document, including any increase in the Guaranteed Obligations resulting from the extension of additional credit to any Loan Party or otherwise; (c) any taking, exchange, release or non-perfection of any Collateral, or any taking, release or amendment or waiver of or consent to departure from any other guaranty, for all or any of the Guaranteed Obligations; (d) the existence of any claim, set-off, defense or other right that any Guarantor may have at any time against any Person, including, without limitation, any Agent, any Lender or the L/C Issuer; (e) any change, restructuring or termination of the corporate, limited liability company or partnership structure or existence of any Loan Party; or 113 (f) any other circumstance (including any statute of limitations) or any existence of or reliance on any representation by the Agents, the Lenders or the L/C Issuer that might otherwise constitute a defense available to, or a discharge of, any Loan Party or any other guarantor or surety. This Article shall continue to be effective or be reinstated, as the case may be, if at any time any payment of any of the Guaranteed Obligations is rescinded or must otherwise be returned by the Agents, the Lenders, the L/C Issuer or any other Person upon the insolvency, bankruptcy or reorganization of the Borrower or otherwise, all as though such payment had not been made. Section 11.03 Waiver. To the extent permitted by law, each Guarantor hereby waives (i) promptness and diligence, (ii) notice of acceptance and any other notice with respect to any of the Guaranteed Obligations and this Article and any requirement that the Agents, the Lenders or the L/C Issuer exhaust any right or take any action against any Loan Party or any other Person or any Collateral, (iii) any right to compel or direct any Agent, any Lender or the L/C Issuer to seek payment or recovery of any amounts owed under this Article from any one particular fund or source or to exhaust any right or take any action against any other Loan Party, any other Person or any Collateral, (iv) any requirement that any Agent, any Lender or the L/C Issuer protect, secure, perfect or insure any security interest or Lien on any property subject thereto or exhaust any right to take any action against any Loan Party, any other Person or any Collateral, and (v) any other defense available to any Guarantor. Each Guarantor agrees that the Agents, the Lenders and the L/C Issuer shall have no obligation to marshal any assets in favor of any Guarantor or against, or in payment of, any or all of the Obligations. Each Guarantor acknowledges that it will receive direct and indirect benefits from the financing arrangements contemplated herein and that the waiver set forth in this Section 11.03 is knowingly made in contemplation of such benefits. To the extent permitted by law, each Guarantor hereby waives any right to revoke this Article, and acknowledges that this Article is continuing in nature and applies to all Guaranteed Obligations, whether existing now or in the future. Section 11.04 Continuing Guaranty; Assignments. This Article is a continuing guaranty and shall (a) remain in full force and effect until the later of (i) the cash payment in full of the Guaranteed Obligations (other than indemnification obligations as to which no claim has been made) and all other amounts payable under this Article and (ii) the Final Maturity Date, (b) be binding upon each Guarantor, its successors and assigns and (c) inure to the benefit of and be enforceable by the Agents, the Lenders and the L/C Issuer and their successors, pledgees, transferees and assigns. Without limiting the generality of the foregoing clause (c), any Lender may pledge, assign or otherwise transfer all or any portion of its rights and obligations under this Agreement (including all or any portion of its Commitments, its Loans, the Reimbursement Obligations and the Letter of Credit Obligations owing to it) to any other Person, and such other Person shall thereupon become vested with all the benefits in respect thereof granted such Lender herein or otherwise, in each case as provided in Section 12.07. Section 11.05 Subrogation. No Guarantor will exercise any rights that it may now or hereafter acquire against any Loan Party or any other guarantor that arise from the existence, payment, performance or enforcement of such Guarantor's obligations under this Article, including any right of subrogation, reimbursement, exoneration, contribution or indemnification and any right to participate in any claim or remedy of the Agents and the Lenders against any Loan Party or any other guarantor or any Collateral, whether or not such claim, remedy or right arises in equity or under contract, statute or common law, 114 including the right to take or receive from any Loan Party or any other guarantor, directly or indirectly, in cash or other property or by set-off or in any other manner, payment or security solely on account of such claim, remedy or right, unless and until all of the Guaranteed Obligations and all other amounts payable under this Article shall have been paid in full in cash and the Final Maturity Date shall have occurred. If any amount shall be paid to any Guarantor in violation of the immediately preceding sentence at any time prior to the later of the payment in full in cash of the Guaranteed Obligations and all other amounts payable under this Article and the Final Maturity Date, such amount shall be held in trust for the benefit of the Agents and the Lenders and shall forthwith be paid to the Agents and the Lenders to be credited and applied to the Guaranteed Obligations and all other amounts payable under this Article, whether matured or unmatured, in accordance with the terms of this Agreement, or to be held as Collateral for any Guaranteed Obligations or other amounts payable under this Article thereafter arising. If (i) any Guarantor shall make payment to the Agents and the Lenders of all or any part of the Guaranteed Obligations, (ii) all of the Guaranteed Obligations and all other amounts payable under this Article shall be paid in full in cash and (iii) all Commitments have been terminated, the Agents and the Lenders will, at such Guarantor's request and expense, execute and deliver to such Guarantor appropriate documents, without recourse and without representation or warranty, necessary to evidence the transfer by subrogation to such Guarantor of an interest in the Guaranteed Obligations resulting from such payment by such Guarantor. Section 11.06 German Guarantor. (a) Each Agent and each Lender agrees to restrict the enforcement of any guarantee or indemnity granted by a Guarantor which is organized under the laws of Germany and constituted in the form of a German limited liability company "Gesellschaft mit beschrankter Haftung - GmbH" (each, a "Relevant German Guarantor") only if and only to the extent (sofern und soweit) that (i) such guarantee or indemnity secures the liabilities of an Affiliate other than the liabilities of any Subsidiary of a Relevant German Guarantor and - for the avoidance of doubt - the liabilities of such Relevant German Guarantor and (ii) the payment under such guarantee or indemnity towards the secured obligation would otherwise cause the Relevant German Guarantor's net assets, taking into account good will and other hidden reserves in its assets, to fall not only temporarily below its registered share capital "Stammkapital". For the purposes of the calculation of any sums to be enforced, loans or other liabilities incurred in violation of the provisions of the Loan Documents shall be disregarded. (b) In a situation where a Relevant German Guarantor does not have sufficient assets to maintain its registered share capital as described in clause (a) above, such Relevant German Guarantor shall, to the extent permitted by the applicable Insolvency Laws, dispose, in consultation with the Agents, of all assets which are not necessary for its business "nicht betriebsnotwendig" on market terms where the relevant assets are shown in the balance sheet of such Relevant German Guarantor with a book value which is lower than the market value of such assets. 115 (c) The limitation pursuant to this Section 11.06 shall not apply if following the call of guarantee obligations "Inanspruchnahme" or the enforcement of security interests by an Agent or a Lender, the Relevant German Guarantor does not provide conclusive evidence to such Agent or Lender, in particular by submitting interim financial statements for the last completed month within 10 Business Days following receipt of such call of guarantee obligations or enforcement of security interests, or, following receipt of interim financial statements, by submitting audited financial statements up to the same month within 25 Business Days following a further request by an Agent or a Lender. ARTICLE XII MISCELLANEOUS Section 12.01 Notices, Etc. All notices and other communications provided for hereunder shall be in writing and shall be mailed, telecopied or delivered, if to any Loan Party, at the following address: PRG-SCHULTZ USA, INC. 600 Galleria Parkway, Suite 100 Atlanta, GA 30339 Attention: Peter Limeri; Vic Allums Telephone: 770-779-3243; 770-779-6610 Telecopier: 770-779-3034 with a copy to: WEIL, GOTSHAL & MANGES LLP 200 Crescent Court Suite 300 Dallas, TX 75201 Telephone: 214-746-7700 Telecopier: 214-746-7777 Attention: Angela L. Fontana, Esq. if to the Administrative Agent, to it at the following address: THE CIT GROUP/BUSINESS CREDIT, INC. 900 Ashwood Parkway, Suite 610 Atlanta, GA 30338 Telephone: 770-522-7681 Telecopier: 770-522-7673 Attention: Regional Credit Manager with a copy to: 116 HAHN & HESSEN LLP 488 Madison Avenue New York, NY 10022 Attention: Leonard Lee Podair, Esq. Telephone: 212-478-7200 Telecopier: 212-478-7400 if to the Collateral Agent, to it at the following address: ABLECO FINANCE LLC 299 Park Avenue, 23rd Floor New York, New York 10171 Attention: Eric Miller Telephone: 212-891-1549 Telecopier: 212-891-1541 with a copy to: PAUL, HASTINGS, JANOFSKY & WALKER LLP 515 South Flower Street Los Angeles, CA 90071 Attention: John Francis Hilson, Esq. Telephone: 213-683-6300 Telecopier: 213-996-3300 or, as to each party, at such other address as shall be designated by such party in a written notice to the other parties complying as to delivery with the terms of this Section 12.01. All such notices and other communications shall be effective, (i) if mailed, when received or 3 days after deposited in the mails, whichever occurs first, (ii) if telecopied, when transmitted and confirmation received, or (iii) if delivered, upon delivery, except that notices to any Agent or the L/C Issuer pursuant to Articles II and III shall not be effective until received by such Agent or the L/C Issuer, as the case may be. Section 12.02 Amendments, Etc. Except for actions expressly permitted by the terms of this Agreement to be taken by an Agent, no amendment or waiver of any provision of this Agreement or any other Loan Document, no consent to any departure by any Loan Party therefrom, and no release of Collateral (except as otherwise expressly provided in this Agreement and the other Loan Documents) shall in any event be effective unless the same shall be in writing and signed by the Required Lenders or by the Collateral Agent with the consent of the Required Lenders, and then such amendment, waiver, consent, or release shall be effective only in the specific instance and for the specific purpose for which given, provided, however, that no amendment, waiver, consent, or release shall (i) increase the Commitment of any Lender, reduce the principal of, or interest on, the Loans or the Reimbursement Obligations payable to any Lender, reduce the amount of any fee payable for the account of any Lender, or postpone or extend any date fixed for any payment of principal of, or interest or fees on, the 117 Loans or Letter of Credit Obligations payable to any Lender, in each case without the written consent of any Lender affected thereby, (ii) increase the Total Commitment without the written consent of each Lender, (iii) change the percentage of the Commitments or of the aggregate unpaid principal amount of the Loans that is required for the Lenders or any of them to take any action hereunder without the written consent of each Lender, (iv) amend the definitions of "Required Lenders" or "Pro Rata Share" without the written consent of each Lender, (v) release all or a substantial portion of the Collateral (except as otherwise provided in this Agreement and the other Loan Documents), subordinate any Lien granted in favor of the Collateral Agent for the benefit of the Agents and the Lenders, or release the Borrower or any Guarantor without the written consent of each Lender, (vi) amend, modify or waive Section 4.04 or this Section 12.02 of this Agreement without the written consent of each Lender, or (vii) amend the definitions of "Borrowing Base", "Eligible Accounts Receivable", "Eligible Backlog", or "Net Amount of Eligible Accounts Receivable", in each case, in a manner that increases the borrowing availability of the Borrower, without the written consent of each Lender. Notwithstanding the foregoing, no amendment, modification, waiver or consent shall, unless in writing and signed by an Agent, affect the rights or duties of such Agent (but not in its capacity as a Lender) under this Agreement or the other Loan Documents. Section 12.03 No Waiver; Remedies, Etc. No failure on the part of any Agent or any Lender to exercise, and no delay in exercising, any right hereunder or under any other Loan Document shall operate as a waiver thereof; nor shall any single or partial exercise of any right under any Loan Document preclude any other or further exercise thereof or the exercise of any other right. The rights and remedies of the Agents and the Lenders provided herein and in the other Loan Documents are cumulative and are in addition to, and not exclusive of, any rights or remedies provided by law. The rights of the Agents and the Lenders under any Loan Document against any party thereto are not conditional or contingent on any attempt by the Agents and the Lenders to exercise any of their rights under any other Loan Document against such party or against any other Person. Section 12.04 Expenses; Taxes; Attorneys Fees. The Borrower will pay on demand, all reasonable out-of-pocket costs and expenses incurred by or on behalf of each Agent (and, in the case of clauses (b) through (m) below, each Lender), regardless of whether the transactions contemplated hereby are consummated, including reasonable out-of-pocket fees, costs, client charges and expenses of one primary counsel and any local counsel for the Collateral Agent and one primary counsel and any local counsel for the Administrative Agent, accounting, due diligence, periodic field audits, physical counts, valuations, investigations, searches and filings, monitoring of assets, appraisals of Collateral, title searches and reviewing environmental assessments, miscellaneous disbursements, examination, travel, lodging and meals, arising from or relating to: (a) the negotiation, preparation, execution, delivery, performance and administration of this Agreement and the other Loan Documents (including the preparation of any additional Loan Documents pursuant to Section 7.01(b) or the review of any of the agreements, instruments and documents referred to in Section 7.01(f)), (b) any requested amendments, waivers or consents to this Agreement or the other Loan Documents whether or not such documents become effective or are given, (c) the preservation and protection of any of the Lenders' rights under this Agreement or the other Loan Documents, (d) the defense of any claim or action asserted or brought against any Agent or any Lender by any Person that arises from or relates to this Agreement, any other Loan Document, the Agents' or the Lenders' claims against any Loan Party, or any and all matters in connection therewith, (e) the commencement or defense of, or intervention in, any court proceeding arising from or related to this Agreement or any other Loan Document, (f) the filing of any petition, complaint, answer, motion or other pleading by any Agent or any Lender, or the taking of any action in respect of the Collateral or other security, in connection with this 118 Agreement or any other Loan Document, (g) the protection, collection, lease, sale, taking possession of or liquidation of, any Collateral or other security in connection with this Agreement or any other Loan Document, (h) any attempt to enforce any Lien or security interest in any Collateral or other security in connection with this Agreement or any other Loan Document, (i) any attempt to collect from any Loan Party, (j) all liabilities and costs arising from or in connection with the past, present or future operations of any Loan Party involving any damage to real or personal property or natural resources or harm or injury alleged to have resulted from any Release of Hazardous Materials on, upon or into such property, (k) any Environmental Liabilities and Costs incurred in connection with the investigation, removal, cleanup or remediation of any Hazardous Materials present or arising out of the operations of any facility owned or operated by any Loan Party, (l) any Environmental Liabilities and Costs incurred in connection with any Environmental Lien, or (m) the receipt by any Agent or any Lender of any advice from professionals with respect to any of the foregoing. Without limitation of the foregoing or any other provision of any Loan Document: (x) the Borrower agrees to pay all stamp, document, transfer, recording or filing taxes or fees and similar impositions now or hereafter determined by any Agent or any Lender to be payable in connection with this Agreement or any other Loan Document, and the Borrower agrees to save each Agent and each Lender harmless from and against any and all present or future claims, liabilities or losses with respect to or resulting from any omission to pay or delay in paying any such taxes, fees or impositions, (y) the Borrower agrees to pay all broker fees that may become due in connection with the transactions contemplated by this Agreement and the other Loan Documents, and (z) if the Borrower fails to perform any covenant or agreement contained herein or in any other Loan Document, any Agent may itself perform or cause performance of such covenant or agreement, and the expenses of such Agent incurred in connection therewith shall be reimbursed on demand by the Borrower. Section 12.05 Right of Set-off. (a) Each of the Lenders agrees that it shall not, without the express written consent of the Agents, and that it shall, to the extent it is lawfully entitled to do so, upon the written request of either Agent, set off against the Obligations, any amounts owing by such Lender to Borrower or any deposit accounts of Borrower now or hereafter maintained with such Lender. Each of the Lenders further agrees that it shall not, unless specifically requested to do so in writing by either Agent, take or cause to be taken any action, including, the commencement of any legal or equitable proceedings, to foreclose any Lien on, or otherwise enforce any security interest in, any of the Collateral. (b) If, at any time or times any Lender shall receive (i) by payment, foreclosure, setoff, or otherwise, any proceeds of Collateral or any payments with respect to the Obligations, except for any such proceeds or payments received by such Lender from Administrative Agent pursuant to the terms of this Agreement, or (ii) payments from Administrative Agent in excess of such Lender's ratable portion of all such distributions by Administrative Agent, such Lender promptly shall (1) turn the same over to Administrative Agent, in kind, and with such endorsements as may be required to negotiate the same to Administrative Agent, or in immediately available funds, as applicable, for the account of all of the Lenders and for application to the Obligations in accordance with the applicable provisions of this Agreement, or (2) purchase, without recourse or 119 warranty, an undivided interest and participation in the Obligations owed to the other Lenders so that such excess payment received shall be applied ratably as among the Lenders in accordance with their Pro Rata Shares; provided, however, that to the extent that such excess payment received by the purchasing party is thereafter recovered from it, those purchases of participations shall be rescinded in whole or in part, as applicable, and the applicable portion of the purchase price paid therefor shall be returned to such purchasing party, but without interest except to the extent that such purchasing party is required to pay interest in connection with the recovery of the excess payment. Section 12.06 Severability. Any provision of this Agreement which is prohibited or unenforceable in any jurisdiction shall, as to such jurisdiction, be ineffective to the extent of such prohibition or unenforceability without invalidating the remaining portions hereof or affecting the validity or enforceability of such provision in any other jurisdiction. Section 12.07 Assignments and Participations. (a) This Agreement and the other Loan Documents shall be binding upon and inure to the benefit of each Loan Party and each Agent and each Lender and their respective successors and permitted assigns; provided, however, that none of the Loan Parties may assign or transfer any of its rights hereunder or under the other Loan Documents without the prior written consent of each Lender and any such assignment without the Lenders' prior written consent shall be null and void. (b) Each Lender may (x) with the written consent of the Collateral Agent (which consent shall not be unreasonably withheld, conditioned or delayed), assign to one or more other lenders or other entities all or a portion of its rights and obligations under this Agreement with respect to all or a portion of its Term Loan Commitment and any Term Loan made by it and (y) with the written consent of each Agent (which consent shall not be unreasonably withheld, conditioned or delayed), assign to one or more other lenders or other entities all or a portion of its rights and obligations under this Agreement with respect to all or a portion of its Revolving Credit Commitment and the Revolving Loans made by it; provided, however, that (i) such assignment is in an amount which is at least $5,000,000 or a multiple of $1,000,000 in excess thereof (or the remainder of such Lender's Commitment) (except such minimum amount shall not apply to an assignment by a Lender to (x) an Affiliate of such Lender or a Related Fund of such Lender or (y) a group of new Lenders, each of whom is an Affiliate or Related Fund of each other of each other to the extent the aggregate amount to be assigned to all such new Lenders is at least $5,000,000 or a multiple of $1,000,000 in excess thereof), (ii) except as provided in the last sentence of this Section 12.07(b), the parties to each such assignment shall execute and deliver to the Collateral Agent (and the Administrative Agent, if applicable), for its acceptance, an Assignment and Acceptance, together with any promissory note subject to such assignment and such parties shall deliver to the Collateral Agent, for the benefit of the Collateral Agent, a processing and recordation fee of $5,000 (except the payment of such fee shall not be required (y) in connection with an assignment by a Lender to an Affiliate of such Lender or to a Related Fund of such Lender or (z) if Collateral Agent, in its sole discretion, waives payment of such fee) and (iii) no written consent of the Collateral Agent or the Administrative Agent shall be required (1) in connection with any assignment by a Lender to an Affiliate of such Lender or a Related Fund 120 of such Lender or (2) if such assignment is in connection with any merger, consolidation, sale, transfer, or other disposition of all or any substantial portion of the business or loan portfolio of such Lender. Upon such execution, delivery and acceptance, from and after the effective date specified in each Assignment and Acceptance, which effective date shall be at least 3 Business Days after the delivery thereof to the Collateral Agent (or such shorter period as shall be agreed to by the Collateral Agent and the parties to such assignment), (A) the assignee thereunder shall become a "Lender" hereunder and, in addition to the rights and obligations hereunder held by it immediately prior to such effective date, have the rights and obligations hereunder that have been assigned to it pursuant to such Assignment and Acceptance and (B) the assigning Lender thereunder shall, to the extent that rights and obligations hereunder have been assigned by it pursuant to such Assignment and Acceptance, relinquish its rights and be released from its obligations under this Agreement (and, in the case of an Assignment and Acceptance covering all or the remaining portion of an assigning Lender's rights and obligations under this Agreement, such Lender shall cease to be a party hereto). Notwithstanding anything to the contrary contained in this Section 12.07(b), a Lender may assign any or all of its rights under the Loan Documents to an Affiliate of such Lender or a Related Fund of such Lender without delivering an Assignment and Acceptance to the Agents or to any other Person (a "Related Party Assignment"); provided, however, that (I) the Borrower and the Administrative Agent may continue to deal solely and directly with such assigning Lender until an Assignment and Acceptance has been delivered to the Administrative Agent for recordation on the Register, (II) the Collateral Agent may continue to deal solely and directly with such assigning Lender until receipt by the Collateral Agent of a copy of the fully executed Assignment and Acceptance pursuant to Section 12.07(e), (III) the failure of such assigning Lender to deliver an Assignment and Acceptance to the Agents shall not affect the legality, validity, or binding effect of such assignment, and (IV) an Assignment and Acceptance between the assigning Lender and an Affiliate of such Lender or a Related Fund of such Lender shall be effective as of the date specified in such Assignment and Acceptance and recorded on the Related Party Register (as such term is defined in Section 12.07(d) herein). (c) By executing and delivering an Assignment and Acceptance, the assigning Lender and the assignee thereunder confirm to and agree with each other and the other parties hereto as follows: (i) other than as provided in such Assignment and Acceptance, the assigning Lender makes no representation or warranty and assumes no responsibility with respect to any statements, warranties or representations made in or in connection with this Agreement or any other Loan Document or the execution, legality, validity, enforceability, genuineness, sufficiency or value of this Agreement or any other Loan Document furnished pursuant hereto; (ii) the assigning Lender makes no representation or warranty and assumes no responsibility with respect to the financial condition of any Loan Party or any of its Subsidiaries or the performance or observance by any Loan Party of any of its obligations under this Agreement or any other Loan Document furnished pursuant hereto; (iii) such assignee confirms that it has received a copy of this Agreement and the other Loan Documents, together with such other documents and information it has deemed appropriate to make its own credit analysis and decision to enter into such Assignment and Acceptance; (iv) such assignee will, independently and without reliance upon the assigning Lender, any Agent or any Lender and based on such documents and information as it shall deem appropriate at the time, continue to make its own credit decisions in taking or not taking action under this Agreement and the other Loan Documents; (v) such assignee appoints and authorizes the Agents to take such action as agents on its behalf and to exercise such powers under this Agreement 121 and the other Loan Documents as are delegated to the Agents by the terms hereof and thereof, together with such powers as are reasonably incidental hereto and thereto; and (vi) such assignee agrees that it will perform in accordance with their terms all of the obligations which by the terms of this Agreement and the other Loan Documents are required to be performed by it as a Lender. (d) The Administrative Agent shall, acting solely for this purpose as a non-fiduciary agent of the Borrower, maintain, or cause to be maintained at the Payment Office, a copy of each Assignment and Acceptance delivered to and accepted by it and a register (the "Register") for the recordation of the names and addresses of the Lenders and the Commitments of, and the principal amount of the Loans (and stated interest thereon) (the "Registered Loans") and Letter of Credit Obligations owing to each Lender from time to time. Subject to the last sentence of this Section 12.07(d), the entries in the Register shall be conclusive and binding for all purposes, absent manifest error, and the Borrower, the Agents and the Lenders may treat each Person whose name is recorded in the Register as a Lender hereunder for all purposes of this Agreement. The Register shall be available for inspection by the Borrower and any Lender at any reasonable time and from time to time upon reasonable prior notice. In the case of an assignment pursuant to the last sentence of Section 12.07(b) as to which an Assignment and Acceptance is not delivered to the Administrative Agent, the assigning Lender shall, acting solely for this purpose as a non-fiduciary agent of the Borrower, maintain a register (the "Related Party Register") comparable to the Register on behalf of the Borrower. Any such Related Party Register shall be available for inspection by the Borrower, any Agent and any Lender at any reasonable time and from time to time upon reasonable prior notice. (e) Upon receipt by the Administrative Agent of an Assignment and Acceptance, and subject to any consent required from the Administrative Agent or the Collateral Agent pursuant to Section 12.07(b) (which consent of the Collateral Agent must be evidenced by the Collateral Agent's execution of an acceptance to such Assignment and Acceptance), the Administrative Agent shall accept such assignment, record the information contained therein in the Register and provide to the Collateral Agent a copy of the fully executed Assignment and Acceptance. (f) A Registered Loan (and the registered note, if any, evidencing the same) may be assigned or sold in whole or in part only by registration of such assignment or sale on the Register or the Related Party Register (and each registered note shall expressly so provide). Any assignment or sale of all or part of such Registered Loan (and the registered note, if any, evidencing the same) may be effected only by registration of such assignment or sale on the Register or the Related Party Register, together with the surrender of the registered note, if any, evidencing the same duly endorsed by (or accompanied by a written instrument of assignment or sale duly executed by) the holder of such registered note, whereupon, at the request of the designated assignee(s) or transferee(s), one or more new registered notes in the same aggregate principal amount shall be issued to the designated assignee(s) or transferee(s). Prior to the registration of assignment or sale of any Registered Loan (and the registered note, if any, evidencing the same), the Agents shall treat the Person in whose name such Registered Loan (and the registered note, if any, evidencing the same) is registered as the owner thereof for the purpose of receiving all payments thereon, notwithstanding notice to the contrary. 122 (g) In the event that any Lender sells participations in a Registered Loan, such Lender shall maintain a register for this purpose as a non-fiduciary agent of the Borrower on which it enters the name of all participants in the Registered Loans held by it and the principal amount (and stated interest thereon) of the portion of the Registered Loan that is the subject of the participation (the "Participant Register"). A Registered Loan (and the registered note, if any, evidencing the same) may be participated in whole or in part only by registration of such participation on the Participant Register (and each registered note shall expressly so provide). Any participation of such Registered Loan (and the registered note, if any, evidencing the same) may be effected only by the registration of such participation on the Participant Register. Any such Participant Register shall be available for inspection by the Borrower, any Agent and any Lender at any reasonable time and from time to time upon reasonable prior notice. (h) Any Non-U.S. Lender who is assigned an interest in any portion of such Registered Loan pursuant to an Assignment and Acceptance shall comply with Section 2.08(d). (i) Each Lender may sell participations to one or more banks or other entities in or to all or a portion of its rights and obligations under this Agreement and the other Loan Documents (including, all or a portion of its Commitments, the Loans made by it, and its Pro Rata Share of the Letter of Credit Obligations); provided, that (i) such Lender's obligations under this Agreement (including without limitation, its Commitments hereunder) and the other Loan Documents shall remain unchanged; (ii) such Lender shall remain solely responsible to the other parties hereto for the performance of such obligations, and the Borrower, the Agents and the other Lenders shall continue to deal solely and directly with such Lender in connection with such Lender's rights and obligations under this Agreement and the other Loan Documents; and (iii) a participant shall not be entitled to require such Lender to take or omit to take any action hereunder except (A) action directly effecting an extension of the maturity dates or decrease in the principal amount of the Loans or the Letter of Credit Obligations, (B) action directly effecting an extension of the due dates or a decrease in the rate of interest payable on the Loans or the fees payable under this Agreement, or (C) actions directly effecting a release of all or a substantial portion of the Collateral or any Loan Party (except as set forth in Section 10.08 of this Agreement or any other Loan Document). The Loan Parties agree that each participant shall be entitled to the benefits of Section 2.08 and Section 4.05 of this Agreement with respect to its participation in any portion of the Commitments and the Loans as if it was a Lender. Section 12.08 Counterparts. This Agreement may be executed in any number of counterparts and by different parties hereto in separate counterparts, each of which shall be deemed to be an original, but all of which taken together shall constitute one and the same agreement. Delivery of an executed counterpart of this Agreement by telefacsimile shall be equally as effective as delivery of an original executed counterpart of this Agreement. Any party delivering an executed counterpart of this Agreement by telefacsimile also shall deliver an original executed counterpart of this Agreement but the failure to deliver an original executed counterpart shall not affect the validity, enforceability, and binding effect of this Agreement. The foregoing shall apply to each other Loan Document mutatis mutandis. 123 Section 12.09 GOVERNING LAW. THIS AGREEMENT AND THE OTHER LOAN DOCUMENTS (UNLESS EXPRESSLY PROVIDED TO THE CONTRARY IN ANOTHER LOAN DOCUMENT IN RESPECT OF SUCH OTHER LOAN DOCUMENT) SHALL BE GOVERNED BY, AND CONSTRUED IN ACCORDANCE WITH, THE LAW OF THE STATE OF NEW YORK APPLICABLE TO CONTRACTS MADE AND TO BE PERFORMED IN THE STATE OF NEW YORK. Section 12.10 CONSENT TO JURISDICTION; SERVICE OF PROCESS AND VENUE. EACH OF THE PARTIES HERETO AGREE THAT ANY LEGAL ACTION OR PROCEEDING WITH RESPECT TO THIS AGREEMENT OR ANY OTHER LOAN DOCUMENT SHALL BE BROUGHT IN THE COURTS OF THE STATE OF NEW YORK IN THE COUNTY OF NEW YORK OR OF THE UNITED STATES DISTRICT COURT FOR THE SOUTHERN DISTRICT OF NEW YORK, AND, BY EXECUTION AND DELIVERY OF THIS AGREEMENT, EACH PARTY HERETO HEREBY IRREVOCABLY ACCEPTS IN RESPECT OF ITS PROPERTY, GENERALLY AND UNCONDITIONALLY, THE JURISDICTION OF THE AFORESAID COURTS; PROVIDED, HOWEVER, THAT ANY SUIT SEEKING ENFORCEMENT AGAINST ANY COLLATERAL OR OTHER PROPERTY MAY BE BROUGHT, AT COLLATERAL AGENT'S OPTION, IN THE COURTS OF ANY JURISDICTION WHERE COLLATERAL AGENT ELECTS TO BRING SUCH ACTION OR WHERE SUCH COLLATERAL OR OTHER PROPERTY MAY BE FOUND. EACH PARTY HERETO HEREBY IRREVOCABLY CONSENTS TO THE SERVICE OF ANY AND ALL LEGAL PROCESS, SUMMONS, NOTICES, AND DOCUMENTS IN ANY SUIT, ACTION, OR PROCEEDING BROUGHT IN THE UNITED STATES OF AMERICA ARISING OUT OF OR IN CONNECTION WITH THIS AGREEMENT OR ANY OF THE OTHER LOAN DOCUMENTS BY THE MAILING (BY REGISTERED MAIL OR CERTIFIED MAIL, POSTAGE PREPAID) OR DELIVERING OF A COPY OF SUCH PROCESS TO (i) WITH RESPECT TO LOAN PARTIES, C/O THE BORROWER, AT THE BORROWER'S ADDRESS FOR NOTICES AS SET FORTH IN SECTION 12.01, AND (ii) WITH RESPECT TO OTHER PARTIES HERETO AT THE ADDRESS FOR NOTICES FOR SUCH PARTY SET FORTH IN SECTION 12.01. THE PARTIES HERETO AGREE THAT A FINAL JUDGMENT IN ANY SUCH ACTION OR PROCEEDING SHALL BE CONCLUSIVE AND MAY BE ENFORCED IN OTHER JURISDICTIONS BY SUIT ON THE JUDGMENT OR IN ANY OTHER MANNER PROVIDED BY LAW. NOTHING HEREIN SHALL AFFECT THE RIGHT OF ANY PARTY HERETO TO SERVE PROCESS IN ANY OTHER MANNER PERMITTED BY LAW OR TO COMMENCE LEGAL PROCEEDINGS OR OTHERWISE PROCEED AGAINST ANY PARTY HERETO IN ANY OTHER JURISDICTION. EACH PARTY HERETO HEREBY EXPRESSLY AND IRREVOCABLY WAIVES, TO THE FULLEST EXTENT PERMITTED BY LAW, ANY OBJECTION WHICH IT MAY NOW OR HEREAFTER HAVE TO THE JURISDICTION OR LAYING OF VENUE OF ANY SUCH LITIGATION BROUGHT IN ANY SUCH COURT REFERRED TO ABOVE AND ANY CLAIM THAT ANY SUCH LITIGATION HAS BEEN BROUGHT IN AN INCONVENIENT FORUM. TO THE EXTENT THAT ANY PARTY HERETO HAS OR HEREAFTER MAY ACQUIRE ANY IMMUNITY FROM JURISDICTION OF ANY COURT OR FROM ANY LEGAL PROCESS (WHETHER THROUGH SERVICE OR NOTICE, ATTACHMENT PRIOR TO JUDGMENT, ATTACHMENT IN AID OF EXECUTION OR OTHERWISE) WITH RESPECT TO ITSELF OR ITS PROPERTY, EACH PARTY HERETO HEREBY IRREVOCABLY WAIVES SUCH IMMUNITY IN RESPECT OF ITS OBLIGATIONS UNDER THIS AGREEMENT AND THE OTHER LOAN DOCUMENTS. 124 Section 12.11 WAIVER OF JURY TRIAL, ETC. EACH LOAN PARTY, EACH AGENT AND EACH LENDER HEREBY WAIVES ANY RIGHT TO A TRIAL BY JURY IN ANY ACTION, PROCEEDING OR COUNTERCLAIM CONCERNING ANY RIGHTS UNDER THIS AGREEMENT OR THE OTHER LOAN DOCUMENTS, OR UNDER ANY AMENDMENT, WAIVER, CONSENT, INSTRUMENT, DOCUMENT OR OTHER AGREEMENT DELIVERED OR WHICH IN THE FUTURE MAY BE DELIVERED IN CONNECTION THEREWITH, OR ARISING FROM ANY FINANCING RELATIONSHIP EXISTING IN CONNECTION WITH THIS AGREEMENT, AND AGREES THAT ANY SUCH ACTION, PROCEEDINGS OR COUNTERCLAIM SHALL BE TRIED BEFORE A COURT AND NOT BEFORE A JURY. EACH LOAN PARTY CERTIFIES THAT NO OFFICER, REPRESENTATIVE, AGENT OR ATTORNEY OF ANY AGENT OR ANY LENDER HAS REPRESENTED, EXPRESSLY OR OTHERWISE, THAT ANY AGENT OR ANY LENDER WOULD NOT, IN THE EVENT OF ANY ACTION, PROCEEDING OR COUNTERCLAIM, SEEK TO ENFORCE THE FOREGOING WAIVERS. EACH LOAN PARTY HEREBY ACKNOWLEDGES THAT THIS PROVISION IS A MATERIAL INDUCEMENT FOR THE AGENTS AND THE LENDERS ENTERING INTO THIS AGREEMENT. Section 12.12 Consent by the Agents and Lenders. Except as otherwise expressly set forth herein to the contrary, if the consent, approval, satisfaction, determination, judgment, acceptance or similar action (an "Action") of any Agent or any Lender shall be permitted or required pursuant to any provision hereof or any provision of any other agreement to which any Loan Party is a party and to which any Agent or any Lender has succeeded thereto, such Action shall be required to be in writing and may be withheld or denied by such Agent or such Lender, in its sole discretion, with or without any reason, and without being subject to question or challenge on the grounds that such Action was not taken in good faith. Section 12.13 No Party Deemed Drafter. Each of the parties hereto agrees that no party hereto shall be deemed to be the drafter of this Agreement. Section 12.14 Reinstatement; Certain Payments. If any claim is ever made upon any Agent, any Lender or the L/C Issuer for repayment or recovery of any amount or amounts received by such Agent, such Lender or the L/C Issuer in payment or on account of any of the Obligations, such Agent, such Lender or the L/C Issuer shall give prompt notice of such claim to each other Agent and Lender and the Borrower, and if such Agent, such Lender or the L/C Issuer repays all or part of such amount by reason of (i) any judgment, decree or order of any court or administrative body having jurisdiction over such Agent, such Lender or the L/C Issuer or any of its property, or (ii) any good faith settlement or compromise of any such claim effected by such Agent, such Lender or the L/C Issuer with any such claimant, then and in such event each Loan Party agrees that (A) any such judgment, decree, order, settlement or compromise shall be binding upon it notwithstanding the cancellation of any Indebtedness hereunder or under the other Loan Documents or the termination of this Agreement or the other Loan Documents, and (B) it shall be and remain liable to such Agent, such Lender or the L/C Issuer hereunder for the amount so repaid or recovered to the same extent as if such amount had never originally been received by such Agent, such Lender or the L/C Issuer. 125 Section 12.15 Indemnification. In addition to each Loan Party's other Obligations under this Agreement, each Loan Party agrees to, jointly and severally, defend, protect, indemnify and hold harmless each Agent, each Lender and the L/C Issuer and all of their respective officers, directors, employees, attorneys, consultants and agents (collectively called the "Indemnitees") from and against any and all losses, damages, liabilities, obligations, penalties, fees, reasonable out-of-pocket costs and expenses (including reasonable out-of-pocket attorneys fees, costs and expenses of one primary counsel and any local counsel for the Collateral Agent and one primary counsel and any local counsel for the Administrative Agent) incurred by such Indemnitees, whether prior to or from and after the Effective Date, whether direct, indirect or consequential, as a result of or arising from or relating to or in connection with any of the following: (i) the negotiation, preparation, execution or performance or enforcement of this Agreement, any other Loan Document or of any other document executed in connection with the transactions contemplated by this Agreement, (ii) any Agent's or any Lender's furnishing of funds to the Borrower or the L/C Issuer's issuing of Letters of Credit for the account of the Borrower under this Agreement or the other Loan Documents, including the management of any such Loans, the Reimbursement Obligations or the Letter of Credit Obligations, (iii) any matter relating to the financing transactions contemplated by this Agreement or the other Loan Documents or by any document executed in connection with the transactions contemplated by this Agreement or the other Loan Documents, or (iv) any claim, litigation, investigation or proceeding relating to any of the foregoing, whether or not any Indemnitee is a party thereto (collectively, the "Indemnified Matters"); provided, however, that the Loan Parties shall not have any obligation to any Indemnitee under this Section 12.15 for any Indemnified Matter caused by the gross negligence or willful misconduct of such Indemnitee, as determined by a final non-appealable judgment of a court of competent jurisdiction or caused by a breach of such Indemnitee's obligations hereunder or under any Loan Document. Such indemnification for all of the foregoing losses, damages, fees, costs and expenses of the Indemnitees are chargeable against the Loan Account. To the extent that the undertaking to indemnify, pay and hold harmless set forth in this Section 12.15 may be unenforceable because it is violative of any law or public policy, each Loan Party shall, jointly and severally, contribute the maximum portion which it is permitted to pay and satisfy under applicable law, to the payment and satisfaction of all Indemnified Matters incurred by the Indemnitees. This Indemnity shall survive the repayment of the Obligations and the discharge of the Liens granted under the Loan Documents. Section 12.16 Records. The unpaid principal of and interest on the Loans, the interest rate or rates applicable to such unpaid principal and interest, the duration of such applicability, the Commitments, and the accrued and unpaid fees payable pursuant to Sections 2.06 or 3.03 hereof, shall at all times be ascertained from the records of the Agents, which shall be conclusive and binding absent manifest error. Section 12.17 Binding Effect. This Agreement shall become effective when it shall have been executed by each Loan Party, each Agent and each Lender and thereafter shall be binding upon and inure to the benefit of each Loan Party, each Agent and each Lender, and their respective successors and permitted assigns, except that the Loan Parties shall not have the right to assign their rights hereunder or any interest herein without the prior written consent of each Lender, and any assignment by any Lender shall be governed by Section 12.07 hereof. 126 Section 12.18 Interest. It is the intention of the parties hereto that each Agent and each Lender shall conform strictly to usury laws applicable to it. Accordingly, if the transactions contemplated hereby or by any other Loan Document would be usurious as to any Agent or any Lender under laws applicable to it (including the laws of the United States of America and the State of New York or any other jurisdiction whose laws may be mandatorily applicable to such Agent or such Lender notwithstanding the other provisions of this Agreement), then, in that event, notwithstanding anything to the contrary in this Agreement or any other Loan Document or any agreement entered into in connection with or as security for the Obligations, it is agreed as follows: (i) the aggregate of all consideration which constitutes interest under law applicable to any Agent or any Lender that is contracted for, taken, reserved, charged or received by such Agent or such Lender under this Agreement or any other Loan Document or agreements or otherwise in connection with the Obligations shall under no circumstances exceed the maximum amount allowed by such applicable law, any excess shall be canceled automatically and if theretofore paid shall be credited by such Agent or such Lender on the principal amount of the Obligations (or, to the extent that the principal amount of the Obligations shall have been or would thereby be paid in full, refunded by such Agent or such Lender, as applicable, to the Borrower); and (ii) in the event that the maturity of the Obligations is accelerated by reason of any Event of Default under this Agreement or otherwise, or in the event of any required or permitted prepayment, then such consideration that constitutes interest under law applicable to any Agent or any Lender may never include more than the maximum amount allowed by such applicable law, and excess interest, if any, provided for in this Agreement or otherwise shall be canceled automatically by such Agent or such Lender, as applicable, as of the date of such acceleration or prepayment and, if theretofore paid, shall be credited by such Agent or such Lender, as applicable, on the principal amount of the Obligations (or, to the extent that the principal amount of the Obligations shall have been or would thereby be paid in full, refunded by such Agent or such Lender to the Borrower). All sums paid or agreed to be paid to any Agent or any Lender for the use, forbearance or detention of sums due hereunder shall, to the extent permitted by law applicable to such Agent or such Lender, be amortized, prorated, allocated and spread throughout the full term of the Loans until payment in full so that the rate or amount of interest on account of any Loans hereunder does not exceed the maximum amount allowed by such applicable law. If at an time and from time to time (i) the amount of interest payable to any Agent or any Lender on any date shall be computed at the Highest Lawful Rate applicable to such Agent or such Lender pursuant to this Section 12.18 and (ii) in respect of any subsequent interest computation period the amount of interest otherwise payable to such Agent or such Lender would be less than the amount of interest payable to such Agent or such Lender computed at the Highest Lawful Rate applicable to such Agent or such Lender, then the amount of interest payable to such Agent or such Lender in respect of such subsequent interest computation period shall continue to be computed at the Highest Lawful Rate applicable to such Agent or such Lender until the total amount of interest payable to such Agent or such Lender shall equal the total amount of interest which would have been payable to such Agent or such Lender if the total amount of interest had been computed without giving effect to this Section 12.18. 127 For purposes of this Section 12.18, the term "applicable law" shall mean that law in effect from time to time and applicable to the loan transaction between the Borrower, on the one hand, and the Agents and the Lenders, on the other, that lawfully permits the charging and collection of the highest permissible, lawful non-usurious rate of interest on such loan transaction and this Agreement, including laws of the State of New York and, to the extent controlling, laws of the United States of America. The right to accelerate the maturity of the Obligations does not include the right to accelerate any interest that has not accrued as of the date of acceleration. Section 12.19 Confidentiality. Each Agent and each Lender agrees (on behalf of itself and each of its affiliates, directors, officers, employees and representatives) to keep confidential, in accordance with its customary procedures for handling confidential information of this nature and in accordance with safe and sound practices of comparable companies, any material non-public information supplied to it by the Loan Parties pursuant to this Agreement or the other Loan Documents (and which at the time is not, and does not thereafter become, publicly available or available to such Person from another source not known to be subject to a confidentiality obligation to such Person not to disclose such information), provided that nothing herein shall limit the disclosure of any such information (i) to the extent required by statute, rule, regulation or judicial process, (ii) to counsel for any Agent or any Lender (it being understood that the person to whom such disclosure is made will be informed of the confidential nature of such information and instructed to keep such information confidential), (iii) to examiners, auditors, accountants or Securitization Parties (it being understood that the person to whom such disclosure is made will be informed of the confidential nature of such information and instructed to keep such information confidential), (iv) in connection with any litigation to which any Agent or any Lender is a party or (v) to any assignee or participant (or prospective assignee or participant) so long as such assignee or participant (or prospective assignee or participant) first agrees, in writing, to be bound by confidentiality provisions similar in substance to this Section 12.19. Each Agent and each Lender agrees that, upon receipt of a request or identification of the requirement for disclosure pursuant to clause (iv) hereof, it will make reasonable efforts to keep the Loan Parties informed of such request or identification; provided that each Loan Party acknowledges that each Agent and each Lender may make disclosure as required or requested by any Governmental Authority or representative thereof and that each Agent and each Lender may be subject to review by Securitization Parties or other regulatory agencies and may be required to provide to, or otherwise make available for review by, the representatives of such parties or agencies any such non-public information. Section 12.20 Section Headings. Headings and numbers have been set forth herein for convenience only. Unless the contrary is compelled by the context, everything contained in each Section applies equally to this entire Agreement. Section 12.21 Integration. This Agreement, together with the other Loan Documents, reflects the entire understanding of the parties with respect to the transactions contemplated hereby and shall not be contradicted or qualified by any other agreement, oral or written, before the date hereof. 128 Section 12.22 Release of Security Interest or Guaranty. Upon the sale or other disposition of any Collateral that is expressly permitted by this Agreement or which has been expressly consented to in accordance with the terms hereof, or the sale or other disposition of all of the Capital Stock of a Guarantor that is permitted by this Agreement or to which has been consented to in accordance with the terms hereof, for which a Loan Party desires to obtain a release, such Loan Party shall deliver to the Agents a certificate of an Authorized Officer (a) stating that the Collateral or the Capital Stock subject to such disposition is being sold or otherwise disposed of in compliance with the terms hereof and (b) specifying the Collateral or Capital Stock being sold or otherwise disposed of in the proposed transaction. Upon the receipt of such certificate the Collateral Agent shall, at such Loan Party's expense, so long as the Collateral Agent (i) has no reason to believe that the facts stated in such certificate are not true and correct, and (ii) shall have received evidence satisfactory to it that arrangements reasonably satisfactory to it have been made for delivery of the Net Cash Proceeds if and as required by Section 2.05(c), execute and deliver such releases as may be reasonably requested by such Loan Party. Upon payment in full in cash of the Obligations in accordance with the provisions of this Agreement and the expiration or termination of the Commitments, the Liens granted by any Loan Document shall terminate and all rights to the Collateral shall revert to the Loan Parties or any other Person entitled thereto. At such time, Collateral Agent will execute and deliver such documents and termination statements to terminate such Liens as any Loan Party reasonably requests to evidence such termination. IN WITNESS WHEREOF, the parties hereto have caused this Agreement to be executed by their respective officers thereunto duly authorized, as of the date first above written. 129 BORROWER: PRG-SCHULTZ USA, INC., a Georgia corporation By: /s/ C. McKellar, Jr. ------------------------------------- Name: Clinton McKellar, Jr. Title: Senior Vice President, General Counsel & Secretary GUARANTORS: PRG-SCHULTZ INTERNATIONAL, INC., a Georgia corporation By: /s/ C. McKellar, Jr. ------------------------------------- Name: Clinton McKellar, Jr. Title: Senior Vice President, General Counsel & Secretary PRG-SCHULTZ CANADA, INC., a Georgia corporation By: /s/ C. McKellar, Jr. ------------------------------------- Name: Clinton McKellar, Jr. Title: Senior Vice President, General Counsel & Secretary THE PROFIT RECOVERY GROUP MEXICO, INC., a Georgia corporation By: /s/ C. McKellar, Jr. ------------------------------------- Name: Clinton McKellar, Jr. Title: Senior Vice President, General Counsel & Secretary PRG-SCHULTZ PUERTO RICO, INC., a Georgia corporation By: /s/ C. McKellar, Jr. ------------------------------------- Name: Clinton McKellar, Jr. Title: Senior Vice President, General Counsel & Secretary THE PROFIT RECOVERY GROUP COSTA RICA, INC., a Georgia corporation By: /s/ C. McKellar, Jr. ------------------------------------- Name: Clinton McKellar, Jr. Title: Senior Vice President, General Counsel & Secretary GUARANTORS: PRG-SCHULTZ CHILE, INC., a Georgia corporation By: /s/ C. McKellar, Jr. ------------------------------------- Name: Clinton McKellar, Jr. Title: Senior Vice President, General Counsel & Secretary PRG INTERNATIONAL, INC., a Georgia corporation By: /s/ C. McKellar, Jr. ------------------------------------- Name: Clinton McKellar, Jr. Title: Senior Vice President, General Counsel & Secretary PRGFS, INC., a Delaware corporation By: /s/ C. McKellar, Jr. ------------------------------------- Name: Clinton McKellar, Jr. Title: Senior Vice President, General Counsel & Secretary PRGTS, LLC, a Georgia limited liability company By: /s/ C. McKellar, Jr. ------------------------------------- Name: Clinton McKellar, Jr. Title: Senior Vice President, General Counsel & Secretary GUARANTORS: HS&A ACQUISITION - UK, INC., a Texas corporation By: /s/ C. McKellar, Jr. ------------------------------------- Name: Clinton McKellar, Jr. Title: Senior Vice President, General Counsel & Secretary PRG-SCHULTZ AUSTRALIA, INC., a Georgia corporation By: /s/ C. McKellar, Jr. ------------------------------------- Name: Clinton McKellar, Jr. Title: Senior Vice President, General Counsel & Secretary PRG-SCHULTZ BELGIUM, INC., a Georgia corporation By: /s/ C. McKellar, Jr. ------------------------------------- Name: Clinton McKellar, Jr. Title: Senior Vice President, General Counsel & Secretary PRG-SCHULTZ EUROPE, INC., a Georgia corporation By: /s/ C. McKellar, Jr. ------------------------------------- Name: Clinton McKellar, Jr. Title: Senior Vice President, General Counsel & Secretary THE PROFIT RECOVERY GROUP GERMANY, INC., a Georgia corporation By: /s/ C. McKellar, Jr. ------------------------------------- Name: Clinton McKellar, Jr. Title: Senior Vice President, General Counsel & Secretary GUARANTORS: PRG-SCHULTZ FRANCE, INC., a Georgia corporation By: /s/ C. McKellar, Jr. ------------------------------------- Name: Clinton McKellar, Jr. Title: Senior Vice President, General Counsel & Secretary THE PROFIT RECOVERY GROUP NETHERLANDS, INC., a Georgia corporation By: /s/ C. McKellar, Jr. ------------------------------------- Name: Clinton McKellar, Jr. Title: Senior Vice President, General Counsel & Secretary THE PROFIT RECOVERY GROUP NEW ZEALAND, INC., a Georgia corporation By: /s/ C. McKellar, Jr. ------------------------------------- Name: Clinton McKellar, Jr. Title: Senior Vice President, General Counsel & Secretary PRG-SCHULTZ SCANDINAVIA, INC., a Georgia corporation By: /s/ C. McKellar, Jr. ------------------------------------- Name: Clinton McKellar, Jr. Title: Senior Vice President, General Counsel & Secretary PRG-SCHULTZ PORTUGAL, INC., a Georgia corporation By: /s/ C. McKellar, Jr. ------------------------------------- Name: Clinton McKellar, Jr. Title: Senior Vice President, General Counsel & Secretary GUARANTORS: PRG-SCHULTZ SWITZERLAND, INC., a Georgia corporation By: /s/ C. McKellar, Jr. ------------------------------------- Name: Clinton McKellar, Jr. Title: Senior Vice President, General Counsel & Secretary THE PROFIT RECOVERY GROUP ITALY, INC., a Georgia corporation By: /s/ C. McKellar, Jr. ------------------------------------- Name: Clinton McKellar, Jr. Title: Senior Vice President, General Counsel & Secretary THE PROFIT RECOVERY GROUP SPAIN, INC., a Georgia corporation By: /s/ C. McKellar, Jr. ------------------------------------- Name: Clinton McKellar, Jr. Title: Senior Vice President, General Counsel & Secretary THE PROFIT RECOVERY GROUP ASIA, INC., a Georgia corporation By: /s/ C. McKellar, Jr. ------------------------------------- Name: Clinton McKellar, Jr. Title: Senior Vice President, General Counsel & Secretary THE PROFIT RECOVERY GROUP SOUTH AFRICA, INC., a Georgia corporation By: /s/ C. McKellar, Jr. ------------------------------------- Name: Clinton McKellar, Jr. Title: Senior Vice President, General Counsel & Secretary GUARANTORS: PRG-SCHULTZ JAPAN, INC., a Georgia corporation By: /s/ C. McKellar, Jr. ------------------------------------- Name: Clinton McKellar, Jr. Title: Senior Vice President, General Counsel & Secretary PRG-SCHULTZ PUERTO RICO, a Puerto Rico partnership By: /s/ C. McKellar, Jr. ------------------------------------- Name: Clinton McKellar, Jr. Title: Senior Vice President, General Counsel & Secretary GUARANTORS: PRG-SCHULTZ DEUTSCHLAND GMBH, a company incorporated in Neuss, Germany By: /s/ Kia Zadegan ------------------------------------- Name: Kia Zadegan Title: Managing Director COLLATERAL AGENT AND LENDER: ABLECO FINANCE LLC, a Delaware limited liability company By: /s/ Eric Miller ------------------------------------- Name: Eric Miller Title: Senior Vice President ADMINISTRATIVE AGENT AND LENDER: THE CIT GROUP/BUSINESS CREDIT, INC., a New York corporation By: /s/ Veronica Lubczenko ------------------------------------- Name: Veronica Lubczenko Title: SVP LENDERS: BLUM STRATEGIC PARTNERS II, L.P. By: Blum Strategic GP II, L.L.C., its general partner By: /s/ Gregory Hitchan --------------------------------- Name: Gregory Hitchan Title: Member BLUM STRATEGIC PARTNERS II, GMBH & CO. KG By: Blum Strategic GP II, L.L.C., its managing limited partner By: /s/ Gregory Hitchan --------------------------------- Name: Gregory Hitchan Title: Member and General Counsel PARKCENTRAL GLOBAL HUB LIMITED By: /s/ Steven Blasnik ------------------------------------- Name: Steven Blasnik Title: President PETRUS SECURITIES, LP By: Perot Investments, Inc., its general partner By: /s/ Steven Blasnik --------------------------------- Name: Steven Blasnik Title: President FINANCING AGREEMENT DATED AS OF MARCH 17, 2006 BY AND AMONG PRG-SCHULTZ INTERNATIONAL, INC., AS PARENT THE SUBSIDIARIES OF PARENT PARTY HERETO, THE LENDERS FROM TIME TO TIME PARTY HERETO, ABLECO FINANCE LLC, AS COLLATERAL AGENT, AND THE CIT GROUP/BUSINESS CREDIT, INC., AS ADMINISTRATIVE AGENT
TABLE OF CONTENTS Page ARTICLE I DEFINITIONS; CERTAIN TERMS.................................................................1 Section 1.01 Definitions.......................................................................1 Section 1.02 Terms Generally..................................................................38 Section 1.03 Accounting and Other Terms.......................................................38 Section 1.04 Time References..................................................................38 ARTICLE II THE LOANS.................................................................................39 Section 2.01 Commitments......................................................................39 Section 2.02 Making the Loans.................................................................39 Section 2.03 Repayment of Loans; Evidence of Debt.............................................43 Section 2.04 Interest.........................................................................44 Section 2.05 Reduction of Commitment; Prepayment of Loans.....................................47 Section 2.06 Fees.............................................................................51 Section 2.07 Securitization...................................................................51 Section 2.08 Taxes............................................................................52 ARTICLE III LETTERS OF CREDIT.........................................................................54 Section 3.01 Letter of Credit Guaranty........................................................54 Section 3.02 Participations...................................................................56 Section 3.03 Letters of Credit................................................................57 ARTICLE IV FEES, PAYMENTS AND OTHER COMPENSATION.....................................................58 Section 4.01 Audit and Collateral Monitoring Fees.............................................58 Section 4.02 Payments; Computations and Statements............................................59 Section 4.03 Sharing of Payments, Etc.........................................................60 Section 4.04 Apportionment of Payments........................................................60 Section 4.05 Increased Costs and Reduced Return...............................................61 ARTICLE V CONDITIONS TO LOANS.......................................................................63 Section 5.01 Conditions Precedent.............................................................63 Section 5.02 Conditions Precedent to All Loans and Letters of Credit..........................67 Section 5.03 Conditions Subsequent to All Loans...............................................68 ARTICLE VI REPRESENTATIONS AND WARRANTIES............................................................68 Section 6.01 Representations and Warranties...................................................68 ARTICLE VII COVENANTS OF THE LOAN PARTIES.............................................................77 Section 7.01 Affirmative Covenants............................................................77 Section 7.02 Negative Covenants...............................................................87 Section 7.03 Financial Covenants..............................................................92 ARTICLE VIII MANAGEMENT, COLLECTION AND STATUS OF ACCOUNTS RECEIVABLE AND OTHER COLLATERAL.............93 Section 8.01 Collection of Accounts Receivable; Management of Collateral......................93 Section 8.02 Accounts Receivable Documentation................................................95 Section 8.03 Status of Accounts Receivable and Other Collateral...............................96 Section 8.04 Collateral Custodian.............................................................97
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TABLE OF CONTENTS (continued) Page ARTICLE IX EVENTS OF DEFAULT.........................................................................97 Section 9.01 Events of Default................................................................97 ARTICLE X AGENTS...................................................................................101 Section 10.01 Appointment.....................................................................101 Section 10.02 Nature of Duties................................................................102 Section 10.03 Rights, Exculpation, Etc........................................................102 Section 10.04 Reliance........................................................................103 Section 10.05 Indemnification.................................................................103 Section 10.06 Agents Individually.............................................................103 Section 10.07 Successor Agent.................................................................104 Section 10.08 Collateral Matters..............................................................104 Section 10.09 Agency for Perfection...........................................................105 ARTICLE XI GUARANTY.................................................................................106 Section 11.01 Guaranty........................................................................106 Section 11.02 Guaranty Absolute...............................................................106 Section 11.03 Waiver..........................................................................107 Section 11.04 Continuing Guaranty; Assignments................................................108 Section 11.05 Subrogation.....................................................................108 ARTICLE XII MISCELLANEOUS............................................................................109 Section 12.01 Notices, Etc....................................................................109 Section 12.02 Amendments, Etc.................................................................110 Section 12.03 No Waiver; Remedies, Etc........................................................111 Section 12.04 Expenses; Taxes; Attorneys Fees.................................................111 Section 12.05 Right of Set-off................................................................112 Section 12.06 Severability....................................................................113 Section 12.07 Assignments and Participations..................................................113 Section 12.08 Counterparts....................................................................116 Section 12.09 GOVERNING LAW...................................................................116 Section 12.10 CONSENT TO JURISDICTION; SERVICE OF PROCESS AND VENUE...........................117 Section 12.11 WAIVER OF JURY TRIAL, ETC.......................................................117 Section 12.12 Consent by the Agents and Lenders...............................................118 Section 12.13 No Party Deemed Drafter.........................................................118 Section 12.14 Reinstatement; Certain Payments.................................................118 Section 12.15 Indemnification.................................................................118 Section 12.16 Records.........................................................................119 Section 12.17 Binding Effect..................................................................119 Section 12.18 Interest........................................................................120 Section 12.19 Confidentiality.................................................................121 Section 12.20 Section Headings................................................................121 Section 12.21 Integration.....................................................................121 Section 12.22 Release of Security Interest or Guaranty........................................121
-ii- SCHEDULE AND EXHIBITS Schedule R-1 Lenders and Lenders' Commitments Schedule 5.03(b) Postclosing Landlord Waivers Schedule 6.01(e) Subsidiaries Schedule 6.01(f) Litigation; Commercial Tort Claims Schedule 6.01(i) ERISA Schedule 6.01(o) Real Property Schedule 6.01(r) Environmental Matters Schedule 6.01(s) Insurance Schedule 6.01(v) Bank Accounts Schedule 6.01(w) Intellectual Property Schedule 6.01(x) Material Contracts Schedule 6.01(dd) Name; Jurisdiction of Organization; Organizational ID Number; Chief Place of Business; Chief Executive Office; FEIN Schedule 6.01(ff) Collateral Locations Schedule 7.02(a) Existing Liens Schedule 7.02(b) Existing Indebtedness Schedule 7.02(e) Existing Investments Schedule 7.02(d) Nature of Business Schedule 7.02(k) Limitations on Dividends and Other Payment Restrictions Schedule 8.01 Lockbox Banks and Lockbox Accounts Exhibit A-1 Form of Assignment and Acceptance Exhibit B-1 Form of Borrowing Base Certificate Exhibit I-1 Form of Intercompany Subordination Agreement Exhibit L-1 Form of LIBOR Notice Exhibit S-1 Form of Solvency Certificate Exhibit 2.01(b)(ii) Form of Notice of Borrowing Exhibit 5.01(d) Forms of Opinions of Counsel -iii- EX-10.4 5 prg10q33106ex104.txt SECURITY AGMT. EXHIBIT 10.4 SECURITY AGREEMENT This SECURITY AGREEMENT (this "Agreement") is made this 17th day of March, 2006, among Grantors listed on the signature pages hereof and those additional entities that hereafter become parties hereto by executing the form of Supplement attached hereto as Annex 1 (collectively, jointly and severally, "Grantors" and each individually "Grantor"), and ABLECO FINANCE LLC, a Delaware limited liability company, in its capacity as collateral agent for the below-defined Lender Group (together with its successors and assigns, "Collateral Agent"). W I T N E S S E T H: WHEREAS, pursuant to that certain Financing Agreement of even date herewith (as amended, restated, supplemented or otherwise modified from time to time, including all schedules thereto, the "Financing Agreement") among PRG-SCHULTZ INTERNATIONAL, INC., a Georgia corporation ("Parent"), PRG-SCHULTZ USA, INC., a Georgia corporation (the "Borrower"), each Subsidiary of Parent listed as a "Guarantor" on the signatures pages thereto (such Subsidiaries, together with the Parent, each individually a "Guarantor", and individually and collectively, jointly and severally, the "Guarantors"), the lenders that are from time to time parties thereto (each a "Lender" and, collectively, the "Lenders"), Collateral Agent, and The CIT Group/Business Credit, Inc., a New York corporation, as administrative agent for the Lender Group, the Lender Group is willing to make certain financial accommodations available to Borrower from time to time pursuant to the terms and conditions thereof, and WHEREAS, Collateral Agent has agreed to act as collateral agent for the benefit of the Lender Group in connection with the transactions contemplated by this Agreement, and WHEREAS, in order to induce the Lender Group to enter into the Financing Agreement and the other Loan Documents and to induce the Lender Group to make financial accommodations to Borrower as provided for in the Financing Agreement, Grantors have agreed to grant a continuing security interest in and to the Collateral in order to secure the prompt and complete payment, observance and performance of, (a) all of the present and future obligations of each of the Grantors arising from this Agreement, the Financing Agreement, or any of the other Loan Documents, including under any Guaranty, and (b) all Obligations of Borrower (clauses (a) and (b) being hereinafter referred to as the "Secured Obligations"), and NOW, THEREFORE, for and in consideration of the recitals made above and other good and valuable consideration, the receipt, sufficiency and adequacy of which are hereby acknowledged, the parties hereto agree as follows: 1. Defined Terms. All capitalized terms used herein (including in the preamble and recitals hereof) without definition shall have the meanings ascribed thereto in the Financing Agreement. Any terms used in this Agreement that are defined in the Code shall be construed and defined as set forth in the Code unless otherwise defined herein or in the Financing Agreement; provided, however, that to the extent that the Code is used to define any term herein and such term is defined differently in different Articles of the Code, the definition of such term contained in Article 9 of the Code shall govern. In addition to those terms defined elsewhere in this Agreement, as used in this Agreement, the following terms shall have the following meanings: (a) "Account" means an account (as that term is defined in the Code). (b) "Account Debtor" means any Person who is obligated on an Account, Chattel Paper, or a General Intangible. (c) "Agreement" has the meaning specified therefor in the preamble hereto. (d) "Books" means books and records (including each Grantor's Records indicating, summarizing, or evidencing such Grantor's assets (including the Collateral) or liabilities, each Grantor's Records relating to such Grantor's business operations or financial condition, and each Grantor's goods or General Intangibles related to such information). (e) "Borrower" has the meaning specified therefor in the recitals to this Agreement. (f) "Capital Stock" has the meaning specified therefor in the Financing Agreement (g) "Cash Equivalents" has the meaning specified therefor in the Financing Agreement. (h) "Chattel Paper" means chattel paper (as that term is defined in the Code) and includes tangible chattel paper and electronic chattel paper. (i) "Code" means the New York Uniform Commercial Code, as in effect from time to time; provided, however, that in the event that, by reason of mandatory provisions of law, any or all of the attachment, perfection, priority, or remedies with respect to Collateral Agent's Lien on any Collateral is governed by the Uniform Commercial Code as enacted and in effect in a jurisdiction other than the State of New York, the term "Code" shall mean the Uniform Commercial Code as enacted and in effect in such other jurisdiction solely for purposes of the provisions thereof relating to such attachment, perfection, priority, or remedies. (j) "Collateral" has the meaning specified therefor in Section 2. (k) "Collateral Agent" has the meaning specified therefor in the preamble to this Agreement. (l) "Commercial Tort Claims" means commercial tort claims (as that term is defined in the Code), and includes those commercial tort claims listed on Schedule 1 attached hereto and made a part hereof. (m) "Copyrights" means copyrights and copyright registrations, including the copyright registrations and recordings thereof and all applications in connection therewith listed on Schedule 6.01(w) of the Financing Agreement and made a part hereof, and (i) all reissues, continuations, extensions or renewals thereof, (ii) all income, royalties, damages and payments now and hereafter due or payable under and with respect thereto, including payments under all licenses entered into in connection therewith and damages and payments for past or future infringements or dilutions thereof, (iii) the right to sue for past, present and future infringements and dilutions thereof, (iv) the goodwill of each Grantor's business symbolized by the foregoing and connected therewith, and (v) all of each Grantor's rights corresponding thereto throughout the world. (n) "Copyright Security Agreement" means each Copyright Security Agreement among Grantors, or any of them, and Collateral Agent, for the benefit of the Lender Group, in substantially the form of Exhibit A attached hereto, pursuant to which Grantors have granted to Collateral Agent, for the benefit of the Lender Group, a security interest in all their respective Copyrights. (o) "Deposit Account" means any deposit account (as that term is defined in the Code). (p) "Equipment" means equipment (as that term is defined in the Code). 2 (q) "Event of Default" has the meaning specified therefor in Article IX of the Financing Agreement. (r) "Financing Agreement" has the meaning specified therefor in the recitals to this Agreement. (s) "Fixtures" means fixtures (as that term is defined in the Code). (t) "General Intangibles" means general intangibles (as that term is defined in the Code) and, in any event, including payment intangibles, contract rights, rights to payment, rights arising under common law, statutes, or regulations, choses or things in action, goodwill (including the goodwill associated with any Trademark, Patent, or Copyright), Patents, Trademarks, Copyrights, URLs and domain names, industrial designs, other industrial or Intellectual Property or rights therein or applications therefor, whether under license or otherwise, programs, programming materials, blueprints, drawings, purchase orders, customer lists, monies due or recoverable from pension funds, route lists, rights to payment and other rights under any royalty or licensing agreements, including Intellectual Property Licenses, infringement claims, computer programs, information contained on computer disks or tapes, software, literature, reports, catalogs, pension plan refunds, pension plan refund claims, insurance premium rebates, tax refunds, and tax refund claims, uncertificated securities, and any other personal property other than Commercial Tort Claims, money, Accounts, Chattel Paper, Deposit Accounts, goods, Investment Related Property, Negotiable Collateral, and oil, gas, or other minerals before extraction. (u) "Grantor" and "Grantors" have the respective meanings specified therefor in the preamble to this Agreement. (v) "Guarantor" and "Guarantors" have the respective meanings specified therefor in the recitals to this Agreement. (w) "Guaranty" has the meaning specified therefor in the Financing Agreement. (x) "Insolvency Proceeding" has the meaning specified therefor in the Financing Agreement. (y) "Intellectual Property" means any and all Intellectual Property Licenses, Patents, Copyrights, Trademarks, the goodwill associated with such Trademarks, trade secrets and customer lists. (z) "Intellectual Property Licenses" means rights under or interest in any Patent, Trademark, Copyright or other intellectual property, including software license agreements with any other party, whether the applicable Grantor is a licensee or licensor under any such license agreement, including the license agreements listed on Schedule 6.01(w) of the Financing Agreement (but excluding any off-the-shelf software license agreement) and made a part hereof, and the right to use the foregoing in connection with the enforcement of the Lender Group's rights under the Loan Documents, subject in each case, to the terms of such license agreement, and including the right to prepare for sale and sell any and all Inventory and Equipment now or hereafter owned by any Grantor and now or hereafter covered by such licenses. (aa) "Inventory" means inventory (as that term is defined in the Code). (bb) "Investment Related Property" means (i) investment property (as that term is defined in the Code), and (ii) all of the following regardless of whether classified as investment property under the Code: all Pledged Interests, Pledged Operating Agreements, and Pledged Partnership Agreements. (cc) "Lender" and "Lenders" have the respective meanings specified therefor in the recitals to this Agreement. 3 (dd) "Lender Group" means Collateral Agent, Administrative Agent, and the Lenders. (ee) "Loan Document" has the meaning specified therefor in the Financing Agreement. (ff) "Motor Vehicles" shall mean all trucks, trailers, tractors, service vehicles, automobiles and other registered mobile equipment, in each case, to the extent that Section 9-311 of the Code provides that a perfected security interest may not be obtained therein through the filing of a financing statement. (gg) "Negotiable Collateral" means letters of credit, letter of credit rights, instruments, promissory notes, drafts and documents (as that term is defined in the Code). (hh) "Obligations" has the meaning specified therefor in the Financing Agreement. (ii) "Parent" has the meaning specified therefor in the preamble to this Agreement. (jj) "Patents" means patents and patent applications, including the patents and patent applications listed on Schedule 6.01(w) of the Financing Agreement and made a part hereof, and (i) all renewals thereof, (ii) all income, royalties, damages and payments now and hereafter due or payable under and with respect thereto, including payments under all licenses entered into in connection therewith and damages and payments for past or future infringements or dilutions thereof, (iii) the right to sue for past, present and future infringements and dilutions thereof, and (iv) all of each Grantor's rights corresponding thereto throughout the world. (kk) "Patent Security Agreement" means each Patent Security Agreement among Grantors, or any of them, and Collateral Agent, for the benefit of the Lender Group, in substantially the form of Exhibit B attached hereto, pursuant to which Grantors have granted to Collateral Agent, for the benefit of the Lender Group, a security interest in all their respective Patents. (ll) "Permitted Liens" has the meaning specified therefor in the Financing Agreement. (mm) "Person" has the meaning specified therefor in the Financing Agreement. (nn) "Pledged Companies" means, each Person listed on Schedule 2 hereto as a "Pledged Company", together with each other Person, all or a portion of whose Capital Stock, is acquired or otherwise owned by a Grantor after the Effective Date. (oo) "Pledged Interests" means all of each Grantor's right, title and interest in and to all of the Capital Stock now or hereafter owned by such Grantor, regardless of class or designation, including, in each of the Pledged Companies, and all substitutions therefor and replacements thereof, all proceeds thereof and all rights relating thereto, including any certificates representing the Capital Stock, the right to request after the occurrence and during the continuation of an Event of Default that such Capital Stock be registered in the name of Collateral Agent or any of its nominees, the right to receive any certificates representing any of the Capital Stock and the right to require that such certificates be delivered to Collateral Agent together with undated powers or assignments of investment securities with respect thereto, duly endorsed in blank by such Grantor, all warrants, options, share appreciation rights and other rights, contractual or otherwise, in respect thereof and of all dividends, distributions of income, profits, surplus, or other compensation by way of income or liquidating distributions, in cash or in kind, and cash, instruments, and other property from time to time received, receivable, or otherwise distributed in respect of or in addition to, in substitution of, on account of, or in exchange for any or all of the foregoing. (pp) "Pledged Interests Addendum" means a Pledged Interests Addendum substantially in the form of Exhibit C to this Agreement. 4 (qq) "Pledged Operating Agreements" means all of each Grantor's rights, powers, and remedies under the limited liability company operating agreements of each of the Pledged Companies that are limited liability companies. (rr) "Pledged Partnership Agreements" means all of each Grantor's rights, powers, and remedies under the partnership agreements of each of the Pledged Companies that are partnerships. (ss) "Proceeds" has the meaning specified therefor in Section 2. (tt) "Real Property" means any estates or interests in real property now owned or hereafter acquired by any Grantor and the improvements thereto. (uu) "Records" means information that is inscribed on a tangible medium or which is stored in an electronic or other medium and is retrievable in perceivable form. (vv) "Security Interest" has the meaning specified therefor in Section 2. (ww) "Secured Obligations" has the meaning specified in the recitals to this Agreement. (xx) "Securities Account" means a securities account (as that term is defined in the Code). (yy) "Supporting Obligations" means supporting obligations (as such term is defined in the Code), and includes letters of credit and guaranties issued in support of Accounts, Chattel Paper, documents, General Intangibles, instruments, or Investment Related Property. (zz) "Trademarks" means trademarks, trade names, registered trademarks, trademark applications, service marks, registered service marks and service mark applications, including the trade names, registered trademarks, trademark applications, registered service marks and service mark applications listed on Schedule 6.01(w) of the Financing Agreement and made a part hereof, and (i) all renewals thereof, (ii) all income, royalties, damages and payments now and hereafter due or payable under and with respect thereto, including payments under all licenses entered into in connection therewith and damages and payments for past or future infringements or dilutions thereof, (iii) the right to sue for past, present and future infringements and dilutions thereof, (iv) the goodwill of each Grantor's business symbolized by the foregoing and connected therewith, and (v) all of each Grantor's rights corresponding thereto throughout the world. (aaa) "Trademark Security Agreement" means each Trademark Security Agreement among Grantors, or any of them, and Collateral Agent, for the benefit of the Lender Group, in substantially the form of Exhibit D attached hereto, pursuant to which Grantors have granted to Collateral Agent, for the benefit of the Lender Group, a security interest in all their respective Trademarks. (bbb) "URL" means "uniform resource locator," an internet web address. 2. Grant of Security. (a) Each Grantor, in order to secure the prompt payment of all of the Secured Obligations (other than the Term Loan Obligations), hereby unconditionally, grants, assigns and pledges to Collateral Agent, for the benefit of the Revolving Loan Lenders, Collateral Agent, and Administrative Agent, a continuing security interest in all personal property of such Grantor whether now owned or hereafter acquired or arising and wherever located, including such Grantor's right, title, and interest in and to the following, whether now owned or hereafter acquired or arising and wherever located (the "Collateral"): (i) all of such Grantor's Accounts; 5 (ii) all of such Grantor's Books; (iii) all of such Grantor's Chattel Paper; (iv) all of such Grantor's interest with respect to any Deposit Account; (v) all of such Grantor's Equipment and Fixtures; (vi) All of such Grantor's General Intangibles; (vii) all of such Grantor's Inventory; (viii) all of such Grantor's Investment Related Property; (ix) all of such Grantor's Negotiable Collateral; (x) all of such Grantor's rights in respect of Supporting Obligations; (xi) all of such Grantor's interest with respect to any Commercial Tort Claims; (xii) all of such Grantor's money, cash and Cash Equivalents, or other assets of each such Grantor that now or hereafter come into the possession, custody, or control of Collateral Agent or any other member of the Lender Group; (xiii) all of the proceeds and products, whether tangible or intangible, of any of the foregoing, including proceeds of insurance or Commercial Tort Claims covering or relating to any or all of the foregoing, and any and all Accounts, Books, Chattel Paper, Deposit Accounts, Equipment, General Intangibles, Inventory, Investment Related Property, Negotiable Collateral, Supporting Obligations, money, or other tangible or intangible property resulting from the sale, lease, license, exchange, collection, or other disposition of any of the foregoing, the proceeds of any award in condemnation with respect to any of the property of Grantors, any rebates or refunds, whether for taxes or otherwise, and all proceeds of any such proceeds, or any portion thereof or interest therein, and the proceeds thereof, and all proceeds of any loss of, damage to, or destruction of the above, whether insured or not insured, and, to the extent not otherwise included, any indemnity, warranty, or guaranty payable by reason of loss or damage to, or otherwise with respect to any of the foregoing Collateral (the "Proceeds"). Without limiting the generality of the foregoing, the term "Proceeds" includes whatever is receivable or received when Investment Related Property or proceeds are sold, exchanged, collected, or otherwise disposed of, whether such disposition is voluntary or involuntary, and includes proceeds of any indemnity or guaranty payable to any Grantor or Collateral Agent from time to time with respect to any of the Investment Related Property. Anything contained in this Agreement to the contrary notwithstanding, the term "Collateral" (and any defined term used therein) shall not include: (A) any contract, lease, permit, license, charter, or license agreement covering real or personal property of any Grantor if (x) under the terms of such contract, lease, permit, license, charter, or license agreement, or applicable law with respect thereto, the grant of a security interest or Lien therein or collateral assignment of rights, warranties or interests therein, requires the consent of the other party to such contract, lease, permit, license, charter or license agreement or is prohibited as a matter of law or under the terms of such contract, lease, permit, license, charter, or license agreement, and (y) such prohibition has not been waived or the consent thereto of the other party to such contract, lease, permit, license, charter, or license agreement has not been obtained; provided, that the foregoing exclusion (1) shall not apply if any described prohibition is unenforceable under Section 9-406, 9-407, or 9-408 of the Code or other applicable law, (2) shall not apply when such prohibition is no longer in effect, and (3) shall not limit, impair, or otherwise affect 6 Collateral Agent's continuing security interests in and Liens upon any rights or interests of any Grantor in or to (I) monies due or to become due under any described contract, lease, permit, license, charter, or license agreement (including any Accounts), or (II) any proceeds from the sale, license, lease, or other disposition of any such contract, lease, permit, license, charter, or license agreement; (B) any property (and any accessions, fixtures, and attachments thereto) that is purchased or acquired with proceeds of, and subject to a Lien in favor of the provider of, purchase money Indebtedness permitted to be incurred under the Financing Agreement or Capitalized Lease Obligations permitted to be incurred under the Financing Agreement, to the extent that (x) the contract evidencing such purchase money Indebtedness or Capitalized Lease Obligations, as the case may be, expressly prohibits the grant of a security interest or Lien (other than the security interest or Lien securing such purchase money Indebtedness or Capitalized Lease Obligations) on such property (and any accessions, fixtures, and attachments thereto), and (y) such prohibition has not been waived or the consent of the provider of such purchase money Indebtedness or Capitalized Lease Obligations has not been obtained; provided, that the foregoing exclusion (1) shall not apply when such prohibition is no longer in effect, and (2) shall not limit, impair, or otherwise affect the Collateral Agent's continuing security interests in and Liens upon any rights or interests of any Grantor in or to any proceeds, substitutions, or replacements of such goods (and any accessions, fixtures, and attachments thereto), to the extent not covered, or to the extent permitted if covered, by the Lien securing such purchase money Indebtedness or Capitalized Lease Obligations; (C) any "intent to use" trademark or service mark application contained in General Intangibles if granting a security interest therein is deemed to invalidate, void, cancel, or abandon such application; provided, that the foregoing exclusion (x) shall not apply when the granting of a security interest in such application is no longer deemed to invalidate, void, cancel, or abandon such application, and (y) shall not limit, impair, or otherwise affect Collateral Agent's continuing security interests in and Liens upon any rights or interests of any Grantor in or to any proceeds from the sale, license, lease, or other dispositions of any such application; (D) voting Capital Stock of any Subsidiary of a Grantor that is a CFC, solely to the extent that (x) such Capital Stock represents more than 65% of the outstanding voting Capital Stock of such Subsidiary, and (y) hypothecating more than 65% of the total outstanding voting Capital Stock of such Subsidiary could reasonably be expected to result in material adverse tax consequences; provided, that (1) immediately upon the amendment of the IRC to allow for the pledge of a greater percentage of voting Capital Stock in such Subsidiary without material adverse tax consequences, such pledge shall include such greater percentage of voting Stock of such Subsidiary from that time forward, and (2) the foregoing exclusion shall in no way be construed to limit, impair, or otherwise affect Agent's continuing security interests in and Liens upon any rights or interests of any Grantor in or to any proceeds from the sale or other disposition of any such Capital Stock; or (E) any Deposit Accounts (and the funds on deposit from time to time therein) that are zero balance employee benefit, payroll, fiduciary or trust accounts; or (F) Motor Vehicles. (b) Each Grantor, in order to secure the prompt payment of all of the Secured Obligations (other than the Revolving Loan Obligations), hereby grants to Collateral Agent, for the benefit of the Term Loan Lenders, Collateral Agent, and Administrative Agent, a continuing security interest in all personal property of such Grantor whether now owned or hereafter acquired or arising and wherever located, including such Grantor's right, title, and interest in and to the Collateral, whether now owned or hereafter acquired or arising and wherever located. (c) This Agreement secures the payment of all amounts which constitute part of the Secured Obligations and would be owed by Grantors, or any of them, to Collateral Agent, the Lender Group, or any of them, but for the fact that they 7 are unenforceable or not allowable due to the existence of an Insolvency Proceeding involving any Grantor. 3. Grantors Remain Liable. Anything herein to the contrary notwithstanding, (a) each of the Grantors shall remain liable under the contracts and agreements included in the Collateral to perform all of the duties and obligations thereunder to the same extent as if this Agreement had not been executed, (b) the exercise by Collateral Agent or any other member of the Lender Group of any of the rights hereunder shall not release any Grantor from any of its duties or obligations under such contracts and agreements included in the Collateral, and (c) none of the members of the Lender Group shall have any obligation or liability under such contracts and agreements included in the Collateral by reason of this Agreement, nor shall any of the members of the Lender Group be obligated to perform any of the obligations or duties of any Grantors thereunder or to take any action to collect or enforce any claim for payment assigned hereunder. Until an Event of Default shall occur and be continuing, except as otherwise provided in this Agreement, the Financing Agreement, or other Loan Documents, Grantors shall have the right to possession and enjoyment of the Collateral for the purpose of conducting the ordinary course of their respective businesses, subject to and upon the terms hereof and of the Financing Agreement and the other Loan Documents. Without limiting the generality of the foregoing, it is the intention of the parties hereto that record and beneficial ownership of the Pledged Interests, including all voting, consensual, and dividend rights, shall remain in the applicable Grantor until the occurrence of an Event of Default and until Collateral Agent shall notify the applicable Grantor of Collateral Agent's exercise of voting, consensual, or dividend rights with respect to the Pledged Interests pursuant to Section 15 hereof. 4. Representations and Warranties. Each Grantor hereby represents and warrants as follows: (a) As of the Effective Date, the exact legal name of each of the Grantors is set forth on the signature pages of this Agreement. (b) Schedule 6.01(o) of the Financing Agreement sets forth all Real Property owned by Grantors as of the Effective Date. (c) As of the Effective Date, no Grantor has any interest in, or title to, any registered Copyrights, Intellectual Property Licenses, material Patents, or material Trademarks except as set forth on Schedule 6.01(w) of the Financing Agreement. This Agreement is effective to create a valid and continuing Lien on such United States Copyrights, Intellectual Property Licenses, United States Patents and United States Trademarks and, upon filing of the Copyright Security Agreement with the United States Copyright Office and filing of the Patent Security Agreement and the Trademark Security Agreement with the United States Patent and Trademark Office, and the filing of appropriate financing statements in the jurisdictions listed on Schedule 3 hereto, all action necessary or desirable to protect and perfect the Collateral Agent's Liens on each Grantor's United States Patents, United States Trademarks, or United States Copyrights has been taken and such perfected Liens are enforceable as such as against any and all creditors of and purchasers from any Grantor. (d) This Agreement creates a valid security interest in favor of the Collateral Agent, for the benefit of the Lender Group, in the Collateral of each of Grantors, to the extent a security interest therein can be created under the Code, securing the payment of the Secured Obligations. Except to the extent a security interest in the Collateral cannot be perfected by the filing of a financing statement under the Code, all filings and other actions necessary or desirable to perfect and protect such security interest have been duly taken or will have been taken upon the filing of financing statements listing each applicable Grantor, as a debtor, and Collateral Agent, as secured party, in the jurisdictions listed next to such Grantor's name on Schedule 3 attached hereto. Upon the making of such filings, Collateral Agent shall have a first priority (subject to Permitted Liens) perfected security interest in the Collateral of each Grantor to the extent such security interest can be perfected by the filing of a financing statement. 8 (e) (i) Except for the Liens created hereby, each Grantor is and will at all times be, subject to the right to dispose of the same in accordance with the terms of the Financing Agreement, the sole holder of record and the legal and beneficial owner, free and clear of all Liens other than Permitted Liens, of the Pledged Interests indicated on Schedule 2 as being owned by such Grantor and, when acquired by such Grantor, any Pledged Interests acquired after the Effective Date; (ii) all of the Pledged Interests are duly authorized, validly issued, fully paid and nonassessable and the Pledged Interests constitute or will constitute the percentage of the issued and outstanding Capital Stock of the Pledged Companies of such Grantor identified on Schedule 2 hereto as supplemented or modified by any Pledged Interests Addendum or any Supplement to this Agreement; (iii) such Grantor has the right and requisite authority to pledge, the Investment Related Property pledged by such Grantor to Collateral Agent as provided herein; (iv) all actions necessary or desirable to perfect, establish the first priority (subject to Permitted Liens) of, or otherwise protect, Collateral Agent's Liens in the Investment Related Collateral, and the proceeds thereof, have been duly taken, (A) upon the execution and delivery of this Agreement; (B) upon the taking of possession by Collateral Agent of any certificates constituting the Pledged Interests, to the extent such Pledged Interests are represented by certificates, together with undated powers endorsed in blank by the applicable Grantor; (C) upon the filing of financing statements in the applicable jurisdiction set forth on Schedule 3 attached hereto for such Grantor with respect to the Pledged Interests of such Grantor that are not represented by certificates, and/or (D) with respect to any Securities Accounts, upon the delivery of Control Agreements with respect thereto; and (iv) each Grantor has delivered to and deposited with Collateral Agent (or, with respect to any Pledged Interests created or obtained after the Effective Date, will deliver and deposit in accordance with Sections 6 and 8 hereof) all certificates representing the Pledged Interests owned by such Grantor to the extent such Pledged Interests are represented by certificates, and undated powers endorsed in blank with respect to such certificates. None of the Pledged Interests owned or held by such Grantor has been issued or transferred in violation of any securities registration, securities disclosure or similar laws of any jurisdiction to which such issuance or transfer may be subject. (f) No consent, approval, authorization, or other order or other action by, and no notice to or filing with, any Governmental Authority or any other Person is required (i) for the grant of a Lien by such Grantor on the Collateral pursuant to this Agreement or for the execution, delivery, or performance of this Agreement by such Grantor except (x) as have been obtained or made and are in full force and effect, (y) filings necessary to perfect the Liens created hereby, and (z) those the failure to obtain, individually or in the aggregate, could not reasonably be expected to result in a Material Adverse Effect, or (ii) for the exercise by Collateral Agent of the voting or other rights provided for in this Agreement with respect to the Investment Related Property or the remedies in respect of the Collateral pursuant to this Agreement, except as may be required in connection with such disposition of Investment Related Property by laws affecting the offering and sale of securities generally. 5. [Intentionally Omitted] 6. Covenants. Each Grantor, jointly and severally, covenants and agrees with Collateral Agent and the Lender Group that from and after the date of this Agreement and until the date of termination of this Agreement in accordance with Section 22 hereof: (a) Possession of Collateral. In the event that any Collateral, including proceeds, is evidenced by or consists of Negotiable Collateral, Investment Related Property, or Chattel Paper, and if and to the extent that perfection or priority of Collateral Agent's Liens is dependent on or enhanced by possession, the applicable Grantor, immediately upon the request of Collateral Agent and in accordance with Section 8 hereof, shall execute such other documents and instruments as shall be requested by Collateral Agent or, if applicable (subject to any limitations on delivery set forth in any other subclause of this Section 6), endorse and deliver physical possession of such Negotiable Collateral, Investment Related Property, or Chattel Paper to Collateral Agent, together with such undated powers endorsed in blank as shall be requested by Collateral Agent; 9 (b) Chattel Paper. (i) Each Grantor shall take all steps reasonably necessary to grant Collateral Agent control of all electronic Chattel Paper in accordance with the Code and all "transferable records" as that term is defined in Section 16 of the Uniform Electronic Transaction Act and Section 201 of the federal Electronic Signatures in Global and National Commerce Act as in effect in any relevant jurisdiction; provided that Grantors shall have no obligation to comply with this Section 6(b)(i) until the aggregate value of electronic Chattel Paper in which Grantors have an interest exceeds $50,000; (ii) If any Grantor retains possession of any Chattel Paper or instruments (which retention of possession shall be subject to the extent permitted hereby and by the Financing Agreement), promptly upon the request of Collateral Agent, such Chattel Paper and instruments shall be marked with the following legend: "This writing and the obligations evidenced or secured hereby are subject to the Liens of Ableco Finance LLC, as Collateral Agent for the benefit of the Lender Group "; provided that Grantors shall have no obligation to comply with this Section 6(b)(ii) or to deliver Chattel Paper or instruments to Collateral Agent until the aggregate value of Chattel Paper or instruments in which Grantors have an interest exceeds $50,000; (c) Control Agreements. (i) Except to the extent otherwise permitted by the Financing Agreement, each Grantor shall obtain an authenticated Control Agreement, from each bank holding a Deposit Account for such Grantor; (ii) Except to the extent otherwise permitted by the Financing Agreement, each Grantor shall obtain authenticated Control Agreements, from each issuer of uncertificated securities, securities intermediary, or commodities intermediary issuing or holding any financial assets or commodities to or for any Grantor; provided that anything to the contrary contained herein or in the other Loan Documents notwithstanding, (A) the Grantors need not deliver Control Agreements with respect to Deposit Accounts of the type described in Section 2(a)(E); (B) the Grantors need not deliver Control Agreements for Deposit Accounts of any Grantor maintained as of the date hereof in any jurisdiction other than the United States (or any state or other political subdivision thereof) other than (x) the Deposit Account of the German Guarantor with account number 396695900 located at Deutsche Bank; and (y) the Deposit Account(s) of the Canadian Guarantor with account numbers 1029263 and 4006433 located at the Royal Bank of Canada (the "RBC Operating Accounts"); (B) with respect to the Securities Account with account number 2583439844 located at Merrill Lynch, the Collateral Agent shall not give any instructions directing the disposition of funds from time to time credited to such account or withhold any withdrawal rights from such Grantor with respect to such funds from time to time credited to such Securities Account or give any notice of sole or exclusive control over such Securities Account unless an Event of Default shall have occurred and be continuing; (C) with respect to the RBC Operating Accounts, all funds in excess of $3,000,000 therein shall be sent by wire transfer or Automated Clearing House, Inc. payment to the Payment Office to be credited to the Administrative Agent's Account for application at the end of each Business Day to reduce the then principal balance of the Revolving Loans, conditional upon final payment to the Administrative Agent. (d) Letter of Credit Rights. Each Grantor that is or becomes the beneficiary of a letter of credit shall promptly (and in any event within 15 days after becoming a beneficiary), notify Collateral Agent thereof and, upon the reasonable request by Collateral Agent, use its commercially reasonable efforts to into a tri-party agreement with Collateral Agent and the issuer or confirmation bank with respect to letter-of-credit rights (as that term is defined in the Code) assigning such letter-of-credit rights to Collateral Agent and directing all payments thereunder to Collateral Agent's Account, all in form and substance reasonably satisfactory to Collateral Agent; provided that no 10 Grantors shall have no obligation to comply with this Section 6(d) until the aggregate face amount of all letters of credit for which any Grantor is or becomes a beneficiary of exceeds $50,000; (e) Commercial Tort Claims. Each Grantor shall promptly (and in any event within 15 days of receipt thereof), notify Collateral Agent in writing upon incurring or otherwise obtaining a Commercial Tort Claim involving a claim in excess of $250,000 after the date hereof against any third party and, upon request of Collateral Agent, promptly amend Schedule 1 to this Agreement, authorize the filing of additional financing statements or amendments to existing financing statements and do such other acts or things deemed necessary or desirable by Collateral Agent to give Collateral Agent a first priority (subject to Permitted Liens), perfected security interest in any such Commercial Tort Claim; (f) Government Contracts. If any Account or Chattel Paper arises out of a contract or contracts with the United States of America or any department, agency, or instrumentality thereof, Grantors shall promptly (and in any event within 15 days of the creation thereof) notify Collateral Agent thereof in writing and execute any instruments or take any steps reasonably required by Collateral Agent in order that all moneys due or to become due under such contract or contracts shall be assigned to Collateral Agent, for the benefit of the Lender Group, and notice thereof given under the Assignment of Claims Act or other applicable law; provided that Grantors shall not be required to comply with this Section 6(f) with respect to any contract if the aggregate annual revenue arising thereunder during the most recently ended Fiscal Year of the Parent was less than $50,000; (g) Intellectual Property. (i) Upon the reasonable request of Collateral Agent, in order to facilitate filings with the United States Patent and Trademark Office and the United States Copyright Office, each Grantor shall execute and deliver to Collateral Agent one or more Copyright Security Agreements, Trademark Security Agreements, or Patent Security Agreements to evidence Collateral Agent's Lien on such Grantor's Patents, Trademarks, or Copyrights, and the General Intangibles of such Grantor relating thereto or represented thereby; (ii) Each Grantor shall have the duty, to the extent necessary or economically desirable in the operation of such Grantor's business, (A) to promptly sue for infringement, misappropriation, or dilution and to recover any and all damages for such infringement, misappropriation, or dilution, (B) to prosecute diligently any trademark application or service mark application that is part of the material Trademarks pending as of the date hereof or hereafter until the termination of this Agreement, (C) to prosecute diligently any patent application that is part of the material Patents pending as of the date hereof or hereafter until the termination of this Agreement, and (D) to take all reasonable and necessary action to preserve and maintain all of such Grantor's material Copyrights, Intellectual Property Licenses, material Trademarks, and material Patents, and its rights therein, including the filing of applications for renewal, affidavits of use, affidavits of noncontestability and opposition and interference and cancellation proceedings. Any expenses incurred in connection with the foregoing shall be borne by the appropriate Grantor in accordance with Section 12.04 of the Financing Agreement. Each Grantor further agrees not to abandon any Trademark, Patent, Copyright, or Intellectual Property License that is necessary or economically desirable in the operation of such Grantor's business without the prior written consent of Collateral Agent; (iii) Grantors acknowledge and agree that the Lender Group shall have no duties with respect to the Trademarks, Patents, Copyrights, or Intellectual Property Licenses. Without limiting the generality of this Section 6(g), Grantors acknowledge and agree that no member of the Lender Group shall be under any obligation to take any steps necessary to preserve rights in the Trademarks, Patents, Copyrights, or Intellectual Property Licenses against any other Person, but any member of the Lender Group may do so at its option from and after the 11 occurrence and during the continuance of an Event of Default, and all expenses incurred in connection therewith (including reasonable fees and expenses of attorneys and other professionals) shall be for the sole account of Borrower and shall be chargeable to the Loan Account pursuant to Section 4.02 of the Financing Agreement; (iv) In no event shall such Grantor, either itself or through any agent, employee, licensee, or designee, file an application for the registration of any Copyright with the United States Copyright Office without giving Collateral Agent prior written notice thereof or any Patent or Trademark with the United States Patent and Trademark Office without giving Collateral Agent written notice thereof promptly thereafter. Promptly upon any such filing, each Grantor shall comply with Section 6(g)(i) hereof; (h) Investment Related Property. (i) If any Grantor shall receive or become entitled to receive any Pledged Interests after the Effective Date, it shall promptly (and in any event within 15 days of receipt thereof) deliver to Collateral Agent a duly executed Pledged Interests Addendum identifying such Pledged Interests; (ii) All sums of money and property paid or distributed in respect of the Investment Related Property which are received by any Grantor shall be held by the Grantors in trust for the benefit of Collateral Agent segregated from such Grantor's other property, and such Grantor shall deliver it forthwith to Collateral Agent in the exact form received; (iii) [intentionally omitted]; (iv) Such Grantor shall not make or consent to any amendment or other modification or waiver with respect to any Pledged Interests, Pledged Operating Agreement, or Pledged Partnership Agreement, or enter into any agreement or permit to exist any restriction with respect to any Pledged Interests, in each case, that would materially adversely affect the rights of Collateral Agent and the other members of the Lender Group or the value of the applicable Collateral other than pursuant to the Loan Documents; (v) Each Grantor agrees that it will use commercially reasonable efforts upon the reasonable request of the Collateral Agent in obtaining all necessary approvals and making all necessary filings under federal, state, local, or foreign law in connection with the Collateral Agent's Liens on the Investment Related Property or any sale or transfer thereof; (vi) As to all limited liability company or partnership interests, issued under any Pledged Operating Agreement or Pledged Partnership Agreement, each Grantor hereby represents, warrants and covenants that the Pledged Interests issued pursuant to such agreement (A) are not and shall not be dealt in or traded on securities exchanges or in securities markets, (B) do not and will not constitute investment company securities, and (C) are not and will not be held by such Grantor in a securities account unless simultaneously therewith the securities intermediary and such Grantor shall have executed and delivered a Control Agreement in favor of the Collateral Agent. In addition, none of the Pledged Operating Agreements, the Pledged Partnership Agreements, or any other agreements governing any of the Pledged Interests issued under any Pledged Operating Agreement or Pledged Partnership Agreement, provide or shall provide that such Pledged Interests are securities governed by Article 8 of the Uniform Commercial Code as in effect in any relevant jurisdiction; (i) [Intentionally Omitted]; (j) [Intentionally Omitted]; and (k) Other Actions as to Any and All Collateral. Each Grantor shall promptly (and in any event within 15 days of acquiring or obtaining such Collateral) notify Collateral Agent in writing upon (i) acquiring or otherwise obtaining any Collateral after the date hereof consisting of Trademarks, Patents, Copyrights, Intellectual Property Licenses, Investment Related Property, Chattel Paper (electronic, tangible or otherwise), documents (as defined in Article 9 of the 12 Code), promissory notes (as defined in the Code), or instruments (as defined in the Code), or (ii) any amount in excess of $50,000 payable under or in connection with any of the Collateral being or becoming evidenced after the date hereof by any Chattel Paper, documents, promissory notes, or instruments, and, in each such case upon the request of Agent and in accordance with Section 8 hereof, promptly execute such other documents, or if applicable, deliver such Chattel Paper, other documents, promissory notes, or instruments in accordance with Section 6 hereof, or do such other acts or things deemed necessary or desirable by Collateral Agent to protect Collateral Agent's Liens therein. 7. Relation to Other Security Documents. The provisions of this Agreement shall be read and construed with the other Loan Documents referred to below in the manner so indicated. (a) Financing Agreement. In the event of any conflict between any provision in this Agreement and a provision in the Financing Agreement, such provision of the Financing Agreement shall control. (b) Patent, Trademark, Copyright Security Agreements. The provisions of the Copyright Security Agreements, Trademark Security Agreements, and Patent Security Agreements are supplemental to the provisions of this Agreement, and nothing contained in the Copyright Security Agreements, Trademark Security Agreements, or the Patent Security Agreements shall limit any of the rights or remedies of Collateral Agent hereunder. 8. Further Assurances. (a) Each Grantor agrees that from time to time, at its own expense, such Grantor will promptly execute and deliver all further instruments and documents, and take all further action, that may be necessary or that Collateral Agent may reasonably request, in order to perfect and protect Collateral Agent's Liens granted or purported to be granted hereby or to enable Collateral Agent to exercise and enforce its rights and remedies hereunder with respect to any of the Collateral. (b) Each Grantor authorizes the filing by Collateral Agent of such financing or continuation statements, or amendments thereto, and such Grantor will execute and deliver to Collateral Agent such other instruments or notices, as may be necessary or as Collateral Agent may reasonably request, in order to perfect and preserve the Liens granted or purported to be granted hereby. (c) Each Grantor authorizes Collateral Agent at any time and from time to time to file, transmit, or communicate, as applicable, financing statements and amendments (i) describing the Collateral as "all personal property of debtor" or "all assets of debtor" or words of similar effect, (ii) describing the Collateral as being of equal or lesser scope or with greater detail, or (iii) that contain any information required by part 5 of Article 9 of the Code for the sufficiency or filing office acceptance. Each Grantor also hereby ratifies any and all financing statements or amendments previously filed by Collateral Agent in any jurisdiction. The Collateral Agent agree to, upon the reasonable request of the Borrower, furnish copies of such filings to the extent available. (d) Each Grantor hereby further authorizes Collateral Agent to make filings with the United States Patent and Trademark Office or United States Copyright Office (or any successor office or any similar office in any other country) or other documents for the purpose of perfecting, confirming, continuing, enforcing or protecting the security interest granted by such Grantor hereunder, without the signature of such Grantor, and naming such Grantor, as debtor, and Collateral Agent, as secured party. Collateral Agent agrees to, upon the reasonable request of the Borrower, furnish copies of such filings to the extent available. (e) Each Grantor acknowledges that it is not authorized to file any financing statement or amendment or termination statement with respect to any financing statement filed in connection with this Agreement without the prior 13 written consent of Collateral Agent, subject to such Grantor's rights under Section 9-509(d)(2) of the Code. 9. Collateral Agent's Right to Perform Contracts. Upon the occurrence and during the continuance of an Event of Default, Collateral Agent (or its designee) may proceed to perform any and all of the obligations of any Grantor contained in any contract, lease, or other agreement and exercise any and all rights of any Grantor therein contained as fully as such Grantor itself could. The reasonable expenses of Collateral Agent incurred in connection therewith shall be payable, jointly and severally, by Grantors. 10. Collateral Agent Appointed Attorney-in-Fact. Each Grantor hereby irrevocably appoints Collateral Agent its attorney-in-fact, with full authority in the place and stead of such Grantor and in the name of such Grantor or otherwise, at such time as an Event of Default has occurred and is continuing under the Financing Agreement, to take any action and to execute any instrument which Collateral Agent may reasonably deem necessary or advisable to accomplish the purposes of this Agreement, including: (a) to ask, demand, collect, sue for, recover, compromise, receive and give acquittance and receipts for moneys due and to become due under or in connection with the Accounts or any other Collateral of such Grantor; (b) to receive and open all mail addressed to such Grantor and to notify postal authorities to change the address for the delivery of mail to such Grantor to that of Collateral Agent; (c) to receive, indorse, and collect any drafts or other instruments, documents, Negotiable Collateral or Chattel Paper; (d) to file any claims or take any action or institute any proceedings which Collateral Agent may deem necessary or desirable for the collection of any of the Collateral of such Grantor or otherwise to enforce the rights of Collateral Agent with respect to any of the Collateral; (e) to repair, alter, or supply goods, if any, necessary to fulfill in whole or in part the purchase order of any Person obligated to such Grantor in respect of any Account of such Grantor; (f) subject to pre-existing rights and licenses, to use any labels, Patents, Trademarks, trade names, URLs, domain names, industrial designs, Copyrights, advertising matter or other industrial or intellectual property rights, in advertising for sale and selling Inventory and other Collateral; and (g) subject to pre-existing rights and licenses, Collateral Agent on behalf of the Lender Group shall have the right, but shall not be obligated, to bring suit in its own name to enforce the Trademarks, Patents, Copyrights and Intellectual Property Licenses and, if Collateral Agent shall commence any such suit, the appropriate Grantor shall, at the request of Collateral Agent, do any and all lawful acts and execute any and all proper documents reasonably required by Collateral Agent in aid of such enforcement. To the extent permitted by law, each Grantor hereby ratifies all that such attorney-in-fact shall lawfully do or cause to be done by virtue hereof. This power of attorney is coupled with an interest and shall be irrevocable until this Agreement is terminated. 11. Collateral Agent May Perform. If any of Grantors fails to perform any agreement contained herein, Collateral Agent may itself perform, or cause performance of, such agreement, and the reasonable expenses of Collateral Agent incurred in connection therewith shall be payable, jointly and severally, by Grantors. 12. Collateral Agent's Duties. The powers conferred on Collateral Agent hereunder are solely to protect Collateral Agent's interest in the Collateral, for the benefit of the Lender Group, and shall not impose any duty upon Collateral Agent to exercise any such powers. Except for the safe custody of any 14 Collateral in its actual possession and the accounting for moneys actually received by it hereunder, Collateral Agent shall have no duty as to any Collateral or as to the taking of any necessary steps to preserve rights against prior parties or any other rights pertaining to any Collateral. Collateral Agent shall be deemed to have exercised reasonable care in the custody and preservation of any Collateral in its actual possession if such Collateral is accorded treatment substantially equal to that which Collateral Agent accords its own property. 13. Collection of Accounts, General Intangibles and Negotiable Collateral. At any time upon the occurrence and during the continuation of an Event of Default, Collateral Agent or Collateral Agent's designee may (a) notify Account Debtors of any Grantor that the Accounts, General Intangibles, Chattel Paper or Negotiable Collateral have been assigned to Collateral Agent, for the benefit of the Lender Group, or that Collateral Agent has a security interest therein, and (b) collect the Accounts, General Intangibles and Negotiable Collateral directly, and any collection costs and expenses shall constitute part of such Grantor's Secured Obligations under the Loan Documents. 14. Disposition of Pledged Interests by Collateral Agent. None of the Pledged Interests existing as of the date of this Agreement are, and none of the Pledged Interests hereafter acquired on the date of acquisition thereof will be, registered or qualified under the various federal or state securities laws of the United States and disposition thereof after an Event of Default may be restricted to one or more private (instead of public) sales in view of the lack of such registration. Each Grantor understands that in connection with such disposition, Collateral Agent may approach only a restricted number of potential purchasers and further understands that a sale under such circumstances may yield a lower price for the Pledged Interests than if the Pledged Interests were registered and qualified pursuant to federal and state securities laws and sold on the open market. Each Grantor, therefore, agrees that: (a) if Collateral Agent shall, pursuant to the terms of this Agreement, sell or cause the Pledged Interests or any portion thereof to be sold at a private sale, Collateral Agent shall have the right to rely upon the advice and opinion of any nationally recognized brokerage or investment firm (but shall not be obligated to seek such advice and the failure to do so shall not be considered in determining the commercial reasonableness of such action) as to the best manner in which to offer the Pledged Interest or any portion thereof for sale and as to the best price reasonably obtainable at the private sale thereof; and (b) such reliance shall be conclusive evidence that Collateral Agent has handled the disposition in a commercially reasonable manner. 15. Voting Rights. (a) Upon the occurrence and during the continuation of an Event of Default, (i) Collateral Agent may, at its option, and with 2 Business Days prior notice to any Grantor, and in addition to all rights and remedies available to Collateral Agent under any other agreement, at law, in equity, or otherwise, exercise all voting rights, and all other ownership or consensual rights in respect of the Pledged Interests owned by such Grantor, but under no circumstances is Collateral Agent obligated by the terms of this Agreement to exercise such rights, and (ii) if Collateral Agent duly exercises its right to vote any of such Pledged Interests, each Grantor hereby appoints Collateral Agent, such Grantor's true and lawful attorney-in-fact and IRREVOCABLE PROXY to vote such Pledged Interests in any manner Collateral Agent deems advisable for or against all matters submitted or which may be submitted to a vote of shareholders, partners or members, as the case may be. The power-of-attorney granted hereby is coupled with an interest and shall be irrevocable until this Agreement is terminated. (b) For so long as any Grantor shall have the right to vote the Pledged Interests owned by it, such Grantor covenants and agrees that it will not, without the prior written consent of Collateral Agent, vote or take any consensual action with respect to such Pledged Interests which would materially adversely affect the rights of Collateral Agent and the other members of the Lender Group, the value of the Pledged Interests, or that would be inconsistent with or result in any violation of any provision of the Financing Agreement or any other Loan Document. 15 16. Remedies. Upon the occurrence and during the continuance of an Event of Default: (a) Collateral Agent may exercise in respect of the Collateral, in addition to other rights and remedies provided for herein, in the other Loan Documents, or otherwise available to it, all the rights and remedies of a secured party on default under the Code or any other applicable law. Without limiting the generality of the foregoing, each Grantor expressly agrees that, in any such event, Collateral Agent without demand of performance or other demand, advertisement or notice of any kind (except a notice specified below of time and place of public or private sale) to or upon any of Grantors or any other Person (all and each of which demands, advertisements and notices are hereby expressly waived to the maximum extent permitted by the Code or any other applicable law), may take immediate possession of all or any portion of the Collateral and (i) require Grantors to, and each Grantor hereby agrees that it will at its own expense and upon request of Collateral Agent forthwith, assemble all or part of the Collateral as directed by Collateral Agent and make it available to Collateral Agent at one or more locations where such Grantor regularly maintains Inventory, and (ii) without notice except as specified below, sell the Collateral or any part thereof in one or more parcels at public or private sale, at any of Collateral Agent's offices or elsewhere, for cash, on credit, and upon such other terms as Collateral Agent may deem commercially reasonable. Each Grantor agrees that, to the extent notice of sale shall be required by law, at least 10 days notice to any of Grantors of the time and place of any public sale or the time after which any private sale is to be made shall constitute reasonable notification and specifically such notice shall constitute a reasonable "authenticated notification of disposition" within the meaning of Section 9-611 of the Code. Collateral Agent shall not be obligated to make any sale of Collateral regardless of notice of sale having been given. Collateral Agent may adjourn any public or private sale from time to time by announcement at the time and place fixed therefor, and such sale may, without further notice, be made at the time and place to which it was so adjourned. (b) Subject to pre-existing rights and licenses that are permitted under the Financing Agreement, Collateral Agent is hereby granted a non-exclusive license or other right to use, without liability for royalties or any other charge, each Grantor's labels, Patents, Copyrights, rights of use of any name, trade secrets, trade names, Trademarks, service marks and advertising matter, URLs, domain names, industrial designs, other industrial or intellectual property or any property of a similar nature, whether owned by any of Grantors or with respect to which any of Grantors have rights under license, sublicense, or other agreements, as it pertains to the Collateral, in preparing for sale, advertising for sale and selling any Collateral, and each Grantor's rights under all licenses and all franchise agreements shall inure to the benefit of Collateral Agent. (c) Any cash held by Collateral Agent as Collateral and all cash proceeds received by Collateral Agent in respect of any sale of, collection from, or other realization upon all or any part of the Collateral shall be applied against the Secured Obligations in the order set forth in the Financing Agreement. In the event the proceeds of Collateral are insufficient to satisfy all of the Secured Obligations in full, each Grantor shall remain jointly and severally liable for any such deficiency. (d) Each Grantor hereby acknowledges that the Secured Obligations arose out of a commercial transaction, and agrees that if an Event of Default shall occur and be continuing Collateral Agent shall have the right to an immediate writ of possession without notice of a hearing. Collateral Agent shall have the right to the appointment of a receiver for the properties and assets of each of Grantors, and each Grantor hereby consents to such rights and such appointment and hereby waives any objection such Grantors may have thereto or the right to have a bond or other security posted by Collateral Agent. 17. Remedies Cumulative. Each right, power, and remedy of Collateral Agent as provided for in this Agreement or in the other Loan Documents or now or hereafter existing at law or in equity or by statute or otherwise shall be cumulative and concurrent and shall be in addition to every other right, power, or remedy provided for in this Agreement or in the other Loan Documents or now or hereafter existing at law or in equity or by statute or otherwise, and the exercise or beginning of the exercise by Collateral Agent, of any one or more of such rights, powers, or remedies shall not preclude the simultaneous or later exercise by Collateral Agent of any or all such other rights, powers, or remedies. 16 18. Marshaling. Collateral Agent shall not be required to marshal any present or future collateral security (including but not limited to the Collateral) for, or other assurances of payment of, the Secured Obligations or any of them or to resort to such collateral security or other assurances of payment in any particular order, and all of its rights and remedies hereunder and in respect of such collateral security and other assurances of payment shall be cumulative and in addition to all other rights and remedies, however existing or arising. To the extent that it lawfully may, each Grantor hereby agrees that it will not invoke any law relating to the marshaling of collateral which might cause delay in or impede the enforcement of Collateral Agent's rights and remedies under this Agreement or under any other instrument creating or evidencing any of the Secured Obligations or under which any of the Secured Obligations is outstanding or by which any of the Secured Obligations is secured or payment thereof is otherwise assured, and, to the extent that it lawfully may, each Grantor hereby irrevocably waives the benefits of all such laws. 19. [Intentionally Omitted] 20. Merger, Amendments; Etc. THIS WRITTEN AGREEMENT, TOGETHER WITH THE OTHER LOAN DOCUMENTS, REPRESENTS THE FINAL AGREEMENT BETWEEN THE PARTIES AND MAY NOT BE CONTRADICTED BY EVIDENCE OF PRIOR, CONTEMPORANEOUS OR SUBSEQUENT ORAL AGREEMENTS OF THE PARTIES. THERE ARE NO UNWRITTEN AGREEMENTS BETWEEN THE PARTIES. No waiver of any provision of this Agreement, and no consent to any departure by any of Grantors herefrom, shall in any event be effective unless the same shall be in writing and signed by Collateral Agent, and then such waiver or consent shall be effective only in the specific instance and for the specific purpose for which given. No amendment of any provision of this Agreement shall be effective unless the same shall be in writing and signed by Collateral Agent and each of Grantors to which such amendment applies. 21. Addresses for Notices. All notices and other communications provided for hereunder shall be given in the form and manner and delivered to Collateral Agent at its address specified in Section 12.01 of the Financing Agreement, and to any of the Grantors at their respective addresses specified in the Financing Agreement or Guaranty, as applicable, or, as to any party, at such other address as shall be designated by such party in a written notice to the other party. 22. Continuing Security Interest: Assignments under Financing Agreement. This Agreement shall create a continuing security interest in the Collateral and shall (a) remain in full force and effect until the Obligations have been paid in full in cash in accordance with the provisions of the Financing Agreement and the Commitments have expired or have been terminated, (b) be binding upon each of Grantors, and their respective successors and assigns, and (c) inure to the benefit of, and be enforceable by, Collateral Agent, and its successors, transferees and permitted assigns. Without limiting the generality of the foregoing clause (c), any the Lender may, in accordance with the provisions of Section 12.07 of the Financing Agreement, assign or otherwise transfer all or any portion of its rights and obligations under the Financing Agreement to any other Person, and such other Person shall thereupon become vested with all the benefits in respect thereof granted to such the Lender herein or otherwise. Upon payment in full in cash of the Obligations in accordance with the provisions of the Financing Agreement and the expiration or termination of the Commitments, the Liens granted hereby shall terminate and all rights to the Collateral shall revert to Grantors or any other Person entitled thereto. At such time, Collateral Agent will execute and deliver such documents and termination statements to terminate such Liens as such Grantor reasonably requests to evidence such termination. No transfer or renewal, extension, assignment, or termination of this Agreement or of the Financing Agreement, any other Loan Document, or any other instrument or document executed and delivered by any Grantor to Collateral Agent nor any additional Advances or other loans made by any the Lender to Borrower, nor the taking of further security, nor the retaking or re-delivery of the Collateral to Grantors, or any of them, by Collateral Agent, nor any other act of the Lender Group, or any of them, shall release any of Grantors from any obligation, except a release or discharge executed in writing by Collateral Agent in accordance with the provisions of the Financing Agreement. Collateral Agent shall not by any act, delay, omission or otherwise, 17 be deemed to have waived any of its rights or remedies hereunder, unless such waiver is in writing and signed by Collateral Agent and then only to the extent therein set forth. A waiver by Collateral Agent of any right or remedy on any occasion shall not be construed as a bar to the exercise of any such right or remedy which Collateral Agent would otherwise have had on any other occasion. 23. GOVERNING LAW; CONSENT TO JURISDICTION; SERVICE OF PROCESS AND VENUE; WAIVER OF JURY TRIAL, ETC. (a) THIS AGREEMENT AND THE OTHER LOAN DOCUMENTS (UNLESS EXPRESSLY PROVIDED TO THE CONTRARY IN ANOTHER LOAN DOCUMENT IN RESPECT OF SUCH OTHER LOAN DOCUMENT), SHALL BE GOVERNED BY, AND CONSTRUED IN ACCORDANCE WITH THE LAWS OF THE STATE OF NEW YORK APPLICABLE TO CONTRACTS MADE AND TO BE PERFORMED IN THE STATE OF NEW YORK. (b) ANY LEGAL ACTION OR PROCEEDING WITH RESPECT TO THIS AGREEMENT OR ANY OTHER LOAN DOCUMENT MAY BE BROUGHT IN THE COURTS OF THE STATE OF NEW YORK IN THE COUNTY OF NEW YORK OR OF THE UNITED STATES DISTRICT COURT FOR THE SOUTHERN DISTRICT OF NEW YORK, AND, BY EXECUTION AND DELIVERY OF THIS AGREEMENT, EACH PARTY HERETO HEREBY IRREVOCABLY ACCEPTS IN RESPECT OF ITS PROPERTY, GENERALLY AND UNCONDITIONALLY, THE JURISDICTION OF THE AFORESAID COURTS. EACH PARTY HERETO HEREBY IRREVOCABLY CONSENTS TO THE SERVICE OF ANY AND ALL LEGAL PROCESS, SUMMONS, NOTICES, AND DOCUMENTS IN ANY SUIT, ACTION, OR PROCEEDING BROUGHT IN THE UNITED STATES OF AMERICA ARISING OUT OF OR IN CONNECTION WITH THIS AGREEMENT OR ANY OF THE OTHER LOAN DOCUMENTS BY THE MAILING (BY REGISTERED MAIL OR CERTIFIED MAIL, POSTAGE PREPAID) OR DELIVERING OF A COPY OF SUCH PROCESS TO SUCH PARTY, AT SUCH PARTY'S ADDRESS FOR NOTICES AS SET FORTH IN SECTION 12.01 OF THE FINANCING AGREEMENT. THE PARTIES HERETO AGREE THAT A FINAL NON-APPEALABLE JUDGMENT IN ANY SUCH ACTION OR PROCEEDING SHALL BE CONCLUSIVE AND MAY BE ENFORCED IN OTHER JURISDICTIONS BY SUIT ON THE JUDGMENT OR IN ANY OTHER MANNER PROVIDED BY LAW. NOTHING HEREIN SHALL AFFECT THE RIGHT ANY PARTY TO SERVE PROCESS IN ANY OTHER MANNER PERMITTED BY LAW OR TO COMMENCE LEGAL PROCEEDINGS OR OTHERWISE PROCEED AGAINST SUCH PARTY IN ANY OTHER JURISDICTION. EACH PARTY HERETO HEREBY EXPRESSLY AND IRREVOCABLY WAIVES, TO THE FULLEST EXTENT PERMITTED BY LAW, ANY OBJECTION WHICH IT MAY NOW OR HEREAFTER HAVE TO THE JURISDICTION OR LAYING OF VENUE OF ANY SUCH LITIGATION BROUGHT IN ANY SUCH COURT REFERRED TO ABOVE AND ANY CLAIM THAT ANY SUCH LITIGATION HAS BEEN BROUGHT IN AN INCONVENIENT FORUM. TO THE EXTENT THAT PARTY HERETO HAS OR HEREAFTER MAY ACQUIRE ANY IMMUNITY FROM JURISDICTION OF ANY COURT OR FROM ANY LEGAL PROCESS (WHETHER THROUGH SERVICE OR NOTICE, ATTACHMENT PRIOR TO JUDGMENT, ATTACHMENT IN AID OF EXECUTION OR OTHERWISE) WITH RESPECT TO ITSELF OR ITS PROPERTY, EACH PARTY HERETO HEREBY IRREVOCABLY WAIVES SUCH IMMUNITY IN RESPECT OF ITS OBLIGATIONS UNDER THIS AGREEMENT AND THE OTHER LOAN DOCUMENTS. (c) EACH GRANTOR, EACH AGENT AND EACH LENDER HEREBY WAIVES ANY RIGHT TO A TRIAL BY JURY IN ANY ACTION, PROCEEDING OR COUNTERCLAIM CONCERNING ANY RIGHTS UNDER THIS AGREEMENT OR THE OTHER LOAN DOCUMENTS, OR UNDER ANY AMENDMENT, WAIVER, CONSENT, INSTRUMENT, DOCUMENT OR OTHER AGREEMENT DELIVERED OR WHICH IN THE FUTURE MAY BE DELIVERED IN CONNECTION THEREWITH, OR ARISING FROM ANY FINANCING RELATIONSHIP EXISTING IN CONNECTION WITH THIS AGREEMENT, AND AGREES THAT ANY SUCH ACTION, PROCEEDINGS OR COUNTERCLAIM SHALL BE TRIED BEFORE A COURT AND NOT BEFORE A JURY. EACH GRANTOR CERTIFIES THAT NO OFFICER, REPRESENTATIVE, AGENT OR ATTORNEY OF ANY AGENT OR ANY LENDER HAS REPRESENTED, EXPRESSLY OR OTHERWISE, THAT ANY AGENT OR ANY LENDER WOULD NOT, IN THE EVENT OF ANY ACTION, 18 PROCEEDING OR COUNTERCLAIM, SEEK TO ENFORCE THE FOREGOING WAIVERS. EACH GRANTOR HEREBY ACKNOWLEDGES THAT THIS PROVISION IS A MATERIAL INDUCEMENT FOR THE AGENTS AND THE LENDERS ENTERING INTO THIS AGREEMENT. 24. New Subsidiaries. Pursuant to Section 7.01(b) of the Financing Agreement, any new direct or indirect Subsidiary (whether by acquisition or creation) of Grantor is required to enter into this Agreement by executing and delivering in favor of Collateral Agent a supplement to this Agreement in the form of Annex 1 attached hereto. Upon the execution and delivery of Annex 1 by such new Subsidiary, such Subsidiary shall become a Grantor hereunder with the same force and effect as if originally named as a Grantor herein. The execution and delivery of any instrument adding an additional Grantor as a party to this Agreement shall not require the consent of any Grantor hereunder. The rights and obligations of each Grantor hereunder shall remain in full force and effect notwithstanding the addition of any new Grantor hereunder. 25. Collateral Agent. Each reference herein to any right granted to, benefit conferred upon or power exercisable by the "Collateral Agent" shall be a reference to Collateral Agent, for the benefit of the Lender Group. 26. Miscellaneous. (a) This Agreement may be executed in any number of counterparts and by different parties on separate counterparts, each of which, when executed and delivered, shall be deemed to be an original, and all of which, when taken together, shall constitute but one and the same Agreement. Delivery of an executed counterpart of this Agreement by telefacsimile or other electronic method of transmission shall be equally as effective as delivery of an original executed counterpart of this Agreement. Any party delivering an executed counterpart of this Agreement by telefacsimile or other electronic method of transmission also shall deliver an original executed counterpart of this Agreement but the failure to deliver an original executed counterpart shall not affect the validity, enforceability, and binding effect of this Agreement. The foregoing shall apply to each other Loan Document mutatis mutandis. (b) Any provision of this Agreement which is prohibited or unenforceable shall be ineffective to the extent of such prohibition or unenforceability without invalidating the remaining provisions hereof in that jurisdiction or affecting the validity or enforceability of such provision in any other jurisdiction. (c) Headings used in this Agreement are for convenience only and shall not be used in connection with the interpretation of any provision hereof. (d) The pronouns used herein shall include, when appropriate, either gender and both singular and plural, and the grammatical construction of sentences shall conform thereto. (e) Unless the context of this Agreement or any other Loan Document clearly requires otherwise, references to the plural include the singular, references to the singular include the plural, the terms "includes" and "including" are not limiting, and the term "or" has, except where otherwise indicated, the inclusive meaning represented by the phrase "and/or." The words "hereof," "herein," "hereby," "hereunder," and similar terms in this Agreement or any other Loan Document refer to this Agreement or such other Loan Document, as the case may be, as a whole and not to any particular provision of this Agreement or such other Loan Document, as the case may be. Section, subsection, clause, schedule, and exhibit references herein are to this Agreement unless otherwise specified. Any reference in this Agreement or in any other Loan Document to any agreement, instrument, or document shall include all alterations, amendments, changes, extensions, modifications, renewals, replacements, substitutions, joinders, and supplements, thereto and thereof, as applicable (subject to any restrictions on such alterations, amendments, changes, extensions, modifications, renewals, replacements, substitutions, joinders, and supplements set forth herein). Any reference herein or in any other Loan Document to the satisfaction or repayment in full of the Obligations shall mean the repayment in full in cash (or cash collateralization in accordance with the terms hereof) of all Obligations other than unasserted contingent indemnification Obligations. Any reference herein to any Person shall be construed to include such Person's successors and permitted assigns. Any requirement of a writing contained herein or in any other Loan Document shall be satisfied by the transmission of a Record and any Record so transmitted shall constitute a representation and warranty as to the accuracy and completeness of the information contained therein. 19 IN WITNESS WHEREOF, the undersigned parties hereto have executed this Agreement by and through their duly authorized officers, as of the day and year first above written. GRANTORS: PRG-SCHULTZ INTERNATIONAL, INC., a Georgia corporation By: /s/ C. McKellar, Jr. --------------------------------------- Name: Clinton McKellar, Jr. Title: Senior Vice President, General Counsel & Secretary PRG-SCHULTZ USA, INC., a Georgia corporation By: /s/ C. McKellar, Jr. --------------------------------------- Name: Clinton McKellar, Jr. Title: Senior Vice President, General Counsel & Secretary PRG-SCHULTZ CANADA, INC., a Georgia corporation By: /s/ C. McKellar, Jr. --------------------------------------- Name: Clinton McKellar, Jr. Title: Senior Vice President, General Counsel & Secretary THE PROFIT RECOVERY GROUP MEXICO, INC., a Georgia corporation By: /s/ C. McKellar, Jr. --------------------------------------- Name: Clinton McKellar, Jr. Title: Senior Vice President, General Counsel & Secretary PRG-SCHULTZ PUERTO RICO, INC., a Georgia corporation By: /s/ C. McKellar, Jr. --------------------------------------- Name: Clinton McKellar, Jr. Title: Senior Vice President, General Counsel & Secretary THE PROFIT RECOVERY GROUP COSTA RICA, INC., a Georgia corporation By: /s/ C. McKellar, Jr. --------------------------------------- Name: Clinton McKellar, Jr. Title: Senior Vice President, General Counsel & Secretary GRANTORS: PRG-SCHULTZ CHILE, INC., a Georgia corporation By: /s/ C. McKellar, Jr. --------------------------------------- Name: Clinton McKellar, Jr. Title: Senior Vice President, General Counsel & Secretary PRG INTERNATIONAL, INC., a Georgia corporation By: /s/ C. McKellar, Jr. --------------------------------------- Name: Clinton McKellar, Jr. Title: Senior Vice President, General Counsel & Secretary PRGFS, INC., a Delaware corporation By: /s/ C. McKellar, Jr. --------------------------------------- Name: Clinton McKellar, Jr. Title: Senior Vice President, General Counsel & Secretary PRGTS, LLC, a Georgia limited liability company By: /s/ C. McKellar, Jr. --------------------------------------- Name: Clinton McKellar, Jr. Title: Senior Vice President, General Counsel & Secretary HS&A ACQUISITION - UK, INC., a Texas corporation By: /s/ C. McKellar, Jr. --------------------------------------- Name: Clinton McKellar, Jr. Title: Senior Vice President, General Counsel & Secretary PRG-SCHULTZ AUSTRALIA, INC., a Georgia corporation By: /s/ C. McKellar, Jr. --------------------------------------- Name: Clinton McKellar, Jr. Title: Senior Vice President, General Counsel & Secretary GRANTORS: PRG-SCHULTZ BELGIUM, INC., a Georgia corporation By: /s/ C. McKellar, Jr. --------------------------------------- Name: Clinton McKellar, Jr. Title: Senior Vice President, General Counsel & Secretary THE PROFIT RECOVERY GROUP GERMANY, INC., a Georgia corporation By: /s/ C. McKellar, Jr. --------------------------------------- Name: Clinton McKellar, Jr. Title: Senior Vice President, General Counsel & Secretary PRG-SCHULTZ FRANCE, INC., a Georgia corporation By: /s/ C. McKellar, Jr. --------------------------------------- Name: Clinton McKellar, Jr. Title: Senior Vice President, General Counsel & Secretary THE PROFIT RECOVERY GROUP NETHERLANDS, INC., a Georgia corporation By: /s/ C. McKellar, Jr. --------------------------------------- Name: Clinton McKellar, Jr. Title: Senior Vice President, General Counsel & Secretary THE PROFIT RECOVERY GROUP NEW ZEALAND, INC., a Georgia corporation By: /s/ C. McKellar, Jr. --------------------------------------- Name: Clinton McKellar, Jr. Title: Senior Vice President, General Counsel & Secretary PRG-SCHULTZ SCANDINAVIA, INC., a Georgia corporation By: /s/ C. McKellar, Jr. --------------------------------------- Name: Clinton McKellar, Jr. Title: Senior Vice President, General Counsel & Secretary GRANTORS: PRG-SCHULTZ PORTUGAL, INC., a Georgia corporation By: /s/ C. McKellar, Jr. --------------------------------------- Name: Clinton McKellar, Jr. Title: Senior Vice President, General Counsel & Secretary PRG-SCHULTZ SWITZERLAND, INC., a Georgia corporation By: /s/ C. McKellar, Jr. --------------------------------------- Name: Clinton McKellar, Jr. Title: Senior Vice President, General Counsel & Secretary THE PROFIT RECOVERY GROUP ITALY, INC., a Georgia corporation By: /s/ C. McKellar, Jr. --------------------------------------- Name: Clinton McKellar, Jr. Title: Senior Vice President, General Counsel & Secretary THE PROFIT RECOVERY GROUP SPAIN, INC., a Georgia corporation By: /s/ C. McKellar, Jr. --------------------------------------- Name: Clinton McKellar, Jr. Title: Senior Vice President, General Counsel & Secretary THE PROFIT RECOVERY GROUP ASIA, INC., a Georgia corporation By: /s/ C. McKellar, Jr. --------------------------------------- Name: Clinton McKellar, Jr. Title: Senior Vice President, General Counsel & Secretary THE PROFIT RECOVERY GROUP SOUTH AFRICA, INC., a Georgia corporation By: /s/ C. McKellar, Jr. --------------------------------------- Name: Clinton McKellar, Jr. Title: Senior Vice President, General Counsel & Secretary PRG-SCHULTZ JAPAN, INC., a Georgia corporation By: /s/ C. McKellar, Jr. --------------------------------------- Name: Clinton McKellar, Jr. Title: Senior Vice President, General Counsel & Secretary GRANTORS: PRG-SCHULTZ EUROPE, INC., a Georgia corporation By: /s/ C. McKellar, Jr. --------------------------------------- Name: Clinton McKellar, Jr. Title: Senior Vice President, General Counsel & Secretary PRG-SCHULTZ PUERTO RICO, a Puerto Rico partnership By: /s/ C. McKellar, Jr. --------------------------------------- Name: Clinton McKellar, Jr. Title: Senior Vice President, General Counsel & Secretary COLLATERAL AGENT: ABLECO FINANCE LLC, a Delaware limited liability company, as Collateral Agent By: /s/ Eric Miller --------------------------------------- Name: Eric Miller Title: Senior Vice President SCHEDULE 1 COMMERCIAL TORT CLAIMS [include specific case caption or description per Official Code Comment 5 to Section 9-108 of the Code] SCHEDULE 1 PLEDGED COMPANIES
- -------------------------------- ------------------------------- ------------------ --------------- ----------------- -------------- NUMBER OF CLASS OF PERCENTAGE OF CERTIFICATE NAME OF PLEDGOR NAME OF PLEDGED COMPANY SHARES/UNITS INTERESTS CLASS OWNED NOS. - -------------------------------- ------------------------------- ------------------ --------------- ----------------- --------------
SCHEDULE 3 LIST OF UNIFORM COMMERCIAL CODE FILING JURISDICTIONS Grantor Jurisdictions ANNEX 1 TO SECURITY AGREEMENT FORM OF SUPPLEMENT Supplement No. ____ (this "Supplement") dated as of _______________, 200__, to the Security Agreement dated as of March 17, 2006 (as amended, restated, supplemented or otherwise modified from time to time, the "Security Agreement") by each of the parties listed on the signature pages thereto and those additional entities that thereafter become parties thereto (collectively, jointly and severally, "Grantors" and each individually "Grantor") and ABLECO FINANCE LLC, in its capacity as Collateral Agent for the Lender Group (together with its successors, "Collateral Agent"). W I T N E S S E T H: WHEREAS, pursuant to that certain Financing Agreement dated as of March 17, 2006 (as amended, restated, supplemented or otherwise modified from time to time, including all schedules thereto, the "Financing Agreement") among PRG-SCHULTZ INTERNATIONAL, INC., a Georgia corporation ("Parent"), PRG-SCHULTZ USA, INC., a Georgia corporation (the "Borrower"), each Subsidiary of Parent listed as a "Guarantor" on the signatures pages thereto (such Subsidiaries, together with the Parent, each individually a "Guarantor", and individually and collectively, jointly and severally, the "Guarantors"), the lenders that are from time to time parties thereto (each a "Lender" and, collectively, the "Lenders"), Collateral Agent, and The CIT Group/Business Credit, Inc., a New York corporation, as administrative agent for the Lender Group, the Lender Group is willing to make certain financial accommodations available to Borrower from time to time pursuant to the terms and conditions thereof; WHEREAS, capitalized terms used herein and not otherwise defined herein shall have the meanings assigned to such terms in the Security Agreement or the Financing Agreement; and WHEREAS, Grantors have entered into the Security Agreement in order to induce the Lender Group to make certain financial accommodations to Borrower; and WHEREAS, pursuant to Section 7.01(b) of the Financing Agreement, new direct or indirect Subsidiaries of Borrower, must execute and deliver certain Loan Documents, including the Security Agreement, and the execution of the Security Agreement by the undersigned new Grantor or Grantors (collectively, the "New Grantors") may be accomplished by the execution of this Supplement in favor of Collateral Agent, for the benefit of the Lender Group; NOW, THEREFORE, for and in consideration of the foregoing and other good and valuable consideration, the receipt and sufficiency of which are hereby acknowledged, each New Grantor hereby agrees as follows: 1. In accordance with Section 24 of the Security Agreement, each New Grantor, by its signature below, becomes a "Grantor" under the Security Agreement with the same force and effect as if originally named therein as a "Grantor" and each New Grantor hereby (a) agrees to all of the terms and provisions of the Security Agreement applicable to it as a "Grantor" thereunder and (b) represents and warrants that the representations and warranties made by it as a "Grantor" thereunder are true and correct on and as of the date hereof. In furtherance of the foregoing, (i) each New Grantor, as security for the payment and performance in full of the Secured Obligations (other than the Term Loan Obligations), does hereby grant, assign, and pledge to Collateral Agent, for the benefit of the Revolving Loan Lenders, Collateral Agent, and Administrative Agent, a security interest in and security title to all assets of such New Grantor including, all property of the type described in Section 2 of the Security Agreement to secure the full and prompt payment of such Secured Obligations, and (ii) each New Grantor, as security for the payment and performance in full of the Secured Obligations (other than the Revolving Loan Obligations), does hereby grant, assign, and pledge to Collateral Agent, for the benefit of the Term Loan Lenders, Collateral Agent, and Administrative Agent, a security interest in and security title to all assets of such New Grantor including, all property of the type described in Section 2 of the Security Agreement to secure the full and prompt payment of such Secured Obligations. Schedule 6.01(w), "Intellectual Property", attached hereto shall be made a part of the Security Agreement for all purposes of the Security Agreement. Schedule 1, "Commercial Tort Claims", Schedule 2, "Pledged Companies" and Schedule 3, "List of Uniform Commercial Code Filing Jurisdictions", attached hereto supplement Schedule 1, Schedule 2, and Schedule 3 respectively, to the Security Agreement and shall be deemed a part thereof for all purposes of the Security Agreement. Each reference to a "Grantor" in the Security Agreement shall be deemed to include each New Grantor. The Security Agreement is incorporated herein by reference. 2. Each New Grantor represents and warrants to Collateral Agent and the Lender Group that this Supplement has been duly executed and delivered by such New Grantor and constitutes its legal, valid and binding obligation, enforceable against it in accordance with its terms, except as enforceability thereof may be limited by bankruptcy, insolvency, reorganization, fraudulent transfer, moratorium or other similar laws affecting creditors' rights generally and general principles of equity (regardless of whether such enforceability is considered in a proceeding at law or in equity). 3. This Supplement may be executed in multiple counterparts, each of which shall be deemed to be an original, but all such separate counterparts shall together constitute but one and the same instrument. Delivery of a counterpart hereof by facsimile transmission or by e-mail transmission shall be as effective as delivery of a manually executed counterpart hereof. 4. Except as expressly supplemented hereby, the Security Agreement shall remain in full force and effect. 5. This Supplement shall be construed in accordance with and governed by the laws of the State of New York, without regard to the conflict of laws principles thereof. [REMAINDER OF THIS PAGE INTENTIONALLY LEFT BLANK] IN WITNESS WHEREOF, each New Grantor and Collateral Agent have duly executed this Supplement to the Security Agreement as of the day and year first above written. NEW GRANTORS: [NAME OF NEW GRANTOR] By: --------------------------------------- Name: ------------------------------------- Title: ------------------------------------ [NAME OF NEW GRANTOR] By: --------------------------------------- Name: ------------------------------------- Title: ------------------------------------ AGENT: ABLECO FINANCE LLC, a Delaware limited liability company, as Collateral Agent By: --------------------------------------- Name: ------------------------------------- Title: ------------------------------------ EXHIBIT A COPYRIGHT SECURITY AGREEMENT This COPYRIGHT SECURITY AGREEMENT (this "Copyright Security Agreement") is made this ___ day of ___________, 200__, among Grantors listed on the signature pages hereof (collectively, jointly and severally, "Grantors" and each individually "Grantor"), and ABLECO FINANCE LLC, a Delaware limited liability company, in its capacity as Collateral Agent for the Lender Group (together with its successors, the "Collateral Agent"). W I T N E S S E T H: - - - - - - - - - - WHEREAS, pursuant to that certain Financing Agreement dated as of March 17, 2006 (as amended, restated, supplemented or otherwise modified from time to time, including all schedules thereto, the "Financing Agreement") among PRG-SCHULTZ INTERNATIONAL, INC., a Georgia corporation ("Parent"), PRG-SCHULTZ USA, INC., a Georgia corporation (the "Borrower"), each Subsidiary of Parent listed as a "Guarantor" on the signatures pages thereto (such Subsidiaries, together with the Parent, each individually a "Guarantor", and individually and collectively, jointly and severally, the "Guarantors"), the lenders that are from time to time parties thereto (each a "Lender" and, collectively, the "Lenders"), Collateral Agent, and The CIT Group/Business Credit, Inc., a New York corporation, as administrative agent for the Lender Group, the Lender Group is willing to make certain financial accommodations available to Borrower from time to time pursuant to the terms and conditions thereof; WHEREAS, the members of the Lender Group are willing to make the financial accommodations to Borrower as provided for in the Financing Agreement, but only upon the condition, among others, that Grantors shall have executed and delivered to Collateral Agent, for the benefit of the Lender Group, that certain Security Agreement of even date herewith (including all annexes, exhibits or schedules thereto, as from time to time amended, restated, supplemented or otherwise modified, the "Security Agreement"); and WHEREAS, pursuant to the Security Agreement, Grantors are required to execute and deliver to Collateral Agent, for the benefit of the Lender Group, this Copyright Security Agreement; NOW, THEREFORE, in consideration of the premises and mutual covenants herein contained and for other good and valuable consideration, the receipt and sufficiency of which are hereby acknowledged, Grantors hereby agree as follows: 1. DEFINED TERMS. All capitalized terms used but not otherwise defined herein have the meanings given to them in the Security Agreement or the Financing Agreement. 2. GRANT OF SECURITY INTEREST IN COPYRIGHT COLLATERAL. (a) Each Grantor, in order to secure the prompt payment of all of the Secured Obligations (other than the Term Loan Obligations), hereby grants to Collateral Agent, for the benefit of the Revolving Loan Lenders, Collateral Agent, and Administrative Agent, a continuing first priority security interest in all of such Grantor's right, title and interest in, to and under the following, whether presently existing or hereafter created or acquired (collectively, the "Copyright Collateral"): (i) all of such Grantor's Copyrights and Intellectual Property Licenses relating to Copyrights to which it is a party including those referred to on Schedule I hereto; (ii) all reissues, continuations or extensions of the foregoing; and (iii) all products and proceeds of the foregoing, including any claim by such Grantor against third parties for past, present or future infringement or dilution of any Copyright or any Copyright licensed under any Intellectual Property License. (b) Each Grantor, in order to secure the prompt payment of all of the Secured Obligations (other than the Revolving Loan Obligations), hereby grants to Collateral Agent, for the benefit of the Term Loan Lenders, Collateral Agent, and Administrative Agent, a continuing first priority security interest in all of such Grantor's right, title and interest in, to and under the Copyright Collateral, whether presently existing or hereafter created or acquired. (c) This Copyright Security Agreement secures the payment of all amounts which constitute part of the Secured Obligations and would be owed by Grantors, or any of them, to Collateral Agent, the Lender Group, or any of them, whether or not they are unenforceable or not allowable due to the existence of an Insolvency Proceeding involving any Grantor. 3. SECURITY AGREEMENT. The security interests granted pursuant to this Copyright Security Agreement are granted in conjunction with the security interests granted to Collateral Agent, for the benefit of the Lender Group, pursuant to the Security Agreement. Each Grantor hereby acknowledges and affirms that the rights and remedies of Collateral Agent with respect to the security interest in the Copyright Collateral made and granted hereby are more fully set forth in the Security Agreement, the terms and provisions of which are incorporated by reference herein as if fully set forth herein. 4. AUTHORIZATION TO SUPPLEMENT. Grantors shall give Collateral Agent prompt notice in writing of any additional United States copyright registrations or applications therefor as provided in the Security Agreement. Grantors hereby authorize Collateral Agent unilaterally to modify this Agreement by amending Schedule I to include any future United States registered copyrights or applications therefor of Grantors. Notwithstanding the foregoing, no failure to so modify this Copyright Security Agreement or amend Schedule I shall in any way affect, invalidate or detract from Collateral Agent's continuing security interest in all Collateral, whether or not listed on Schedule I. 5. COUNTERPARTS. This Copyright Security Agreement may be executed in any number of counterparts, each of which shall be deemed to be an original, but all such separate counterparts shall together constitute but one and the same instrument. In proving this Copyright Security Agreement or any other Loan Document in any judicial proceedings, it shall not be necessary to produce or account for more than one such counterpart signed by the party against whom such enforcement is sought. Any signatures delivered by a party by facsimile transmission or by e-mail transmission shall be deemed an original signature hereto. 6. CONSTRUCTION. Unless the context of this Copyright Security Agreement or any other Loan Document clearly requires otherwise, references to the plural include the singular, references to the singular include the plural, the terms "includes" and "including" are not limiting, and the term "or" has, except where otherwise indicated, the inclusive meaning represented by the phrase "and/or." The words "hereof," "herein," "hereby," "hereunder," and similar terms in this Copyright Security Agreement or any other Loan Document refer to this Copyright Security Agreement or such other Loan Document, as the case may be, as a whole and not to any particular provision of this Copyright Security Agreement or such other Loan Document, as the case may be. Section, subsection, clause, schedule, and exhibit references herein are to this Copyright Security Agreement unless otherwise specified. Any reference in this Copyright Security Agreement or in any other Loan Document to any agreement, instrument, or document shall include all alterations, amendments, changes, extensions, modifications, renewals, replacements, substitutions, joinders, and supplements, thereto and thereof, as applicable (subject to any restrictions on such alterations, amendments, changes, extensions, modifications, renewals, replacements, substitutions, joinders, and supplements set forth herein). Any reference herein or in any other Loan Document to the satisfaction or repayment in full of the Obligations shall mean the repayment in full in cash (or cash collateralization in accordance with the terms hereof) of all Obligations other than unasserted contingent indemnification Obligations. Any reference herein to any Person shall be construed to include such Person's successors and permitted assigns. Any requirement of a writing contained herein or in any other Loan Document shall be satisfied by the transmission of a Record and any Record so transmitted shall constitute a representation and warranty as to the accuracy and completeness of the information contained therein. [SIGNATURE PAGE FOLLOWS] IN WITNESS WHEREOF, each Grantor has caused this Copyright Security Agreement to be executed and delivered by its duly authorized officer as of the date first set forth above. ------------------------------------------ By: --------------------------------------- Name: --------------------------------------- Title: --------------------------------------- ------------------------------------------ By: --------------------------------------- Name: --------------------------------------- Title: --------------------------------------- ACCEPTED AND ACKNOWLEDGED BY: ABLECO FINANCE LLC, a Delaware limited liability company, as Collateral Agent By: --------------------------------------- Name: --------------------------------------- Title: --------------------------------------- SCHEDULE I TO COPYRIGHT SECURITY AGREEMENT COPYRIGHT REGISTRATIONS
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COPYRIGHT LICENSES EXHIBIT B PATENT SECURITY AGREEMENT This PATENT SECURITY AGREEMENT (this "Patent Security Agreement") is made this ___ day of ___________, 200__, among the Grantors listed on the signature pages hereof (collectively, jointly and severally, "Grantors" and each individually "Grantor"), and ABLECO FINANCE LLC, a Delaware limited liability company, in its capacity as collateral agent for the Lender Group (together with its successors, "Collateral Agent"). W I T N E S S E T H: - - - - - - - - - - WHEREAS, pursuant to that certain Financing Agreement dated as of March 17, 2006 (as amended, restated, supplemented or otherwise modified from time to time, including all schedules thereto, the "Financing Agreement") among PRG-SCHULTZ INTERNATIONAL, INC., a Georgia corporation ("Parent"), PRG-SCHULTZ USA, INC., a Georgia corporation (the "Borrower"), each Subsidiary of Parent listed as a "Guarantor" on the signatures pages thereto (such Subsidiaries, together with the Parent, each individually a "Guarantor", and individually and collectively, jointly and severally, the "Guarantors"), the lenders that are from time to time parties thereto (each a "Lender" and, collectively, the "Lenders"), Collateral Agent, and The CIT Group/Business Credit, Inc., a New York corporation, as administrative agent for the Lender Group, the Lender Group is willing to make certain financial accommodations available to Borrower from time to time pursuant to the terms and conditions thereof; WHEREAS, the members of Lender Group are willing to make the financial accommodations to Borrower as provided for in the Financing Agreement, but only upon the condition, among others, that the Grantors shall have executed and delivered to Collateral Agent, for the benefit of the Lender Group, that certain Security Agreement of even date herewith (including all annexes, exhibits or schedules thereto, as from time to time amended, restated, supplemented or otherwise modified, the "Security Agreement"); and WHEREAS, pursuant to the Security Agreement, Grantors are required to execute and deliver to Collateral Agent, for the benefit of the Lender Group, this Patent Security Agreement; NOW, THEREFORE, in consideration of the premises and mutual covenants herein contained and for other good and valuable consideration, the receipt and sufficiency of which are hereby acknowledged, each Grantor hereby agrees as follows: 1. DEFINED TERMS. All capitalized terms used but not otherwise defined herein have the meanings given to them in the Security Agreement or the Financing Agreement. 2. GRANT OF SECURITY INTEREST IN PATENT COLLATERAL. (a) Each Grantor, in order to secure the prompt payment of all of the Secured Obligations (other than the Term Loan Obligations), hereby grants to Collateral Agent, for the benefit of the Revolving Loan Lenders, Collateral Agent, and Administrative Agent, a continuing first priority security interest in all of such Grantor's right, title and interest in, to and under the following, whether presently existing or hereafter created or acquired (collectively, the "Patent Collateral"): (i) all of its Patents and Intellectual Property Licenses relating to Patents to which it is a party including those referred to on Schedule I hereto; (ii) all reissues, continuations or extensions of the foregoing; and (iii) all products and proceeds of the foregoing, including any claim by such Grantor against third parties for past, present or future infringement or dilution of any Patent or any Patent licensed under any Intellectual Property License. (b) Each Grantor, in order to secure the prompt payment of all of the Secured Obligations (other than the Revolving Loan Obligations), hereby grants to Collateral Agent, for the benefit of the Term Loan Lenders, Collateral Agent, and Administrative Agent, a continuing first priority security interest in all of such Grantor's right, title and interest in, to and under the Patent Collateral, whether presently existing or hereafter created or acquired. (c) This Patent Security Agreement secures the payment of all amounts which constitute part of the Obligations and would be owed by Grantors, or any of them, to Collateral Agent, the Lender Group, or any of them, whether or not they are unenforceable or not allowable due to the existence of an Insolvency Proceeding involving any Grantor. 3. SECURITY AGREEMENT. The security interests granted pursuant to this Patent Security Agreement are granted in conjunction with the security interests granted to Collateral Agent, for the benefit of the Lender Group, pursuant to the Security Agreement. Each Grantor hereby acknowledges and affirms that the rights and remedies of Collateral Agent with respect to the security interest in the Patent Collateral made and granted hereby are more fully set forth in the Security Agreement, the terms and provisions of which are incorporated by reference herein as if fully set forth herein. 4. AUTHORIZATION TO SUPPLEMENT. If any Grantor shall obtain rights to any new patentable inventions or become entitled to the benefit of any patent application or patent for any reissue, division, or continuation, of any patent, the provisions of this Patent Security Agreement shall automatically apply thereto. Grantors shall give prompt notice in writing to Collateral Agent with respect to any such new patent rights as provided in the Security Agreement. Without limiting Grantors' obligations under this Section 5, Grantors hereby authorize Collateral Agent unilaterally to modify this Agreement by amending Schedule I to include any such new patent rights of Grantors. Notwithstanding the foregoing, no failure to so modify this Patent Security Agreement or amend Schedule I shall in any way affect, invalidate or detract from Collateral Agent's continuing security interest in all Collateral, whether or not listed on Schedule I. 5. COUNTERPARTS. This Patent Security Agreement may be executed in any number of counterparts, each of which shall be deemed to be an original, but all such separate counterparts shall together constitute but one and the same instrument. In proving this Patent Security Agreement or any other Loan Document in any judicial proceedings, it shall not be necessary to produce or account for more than one such counterpart signed by the party against whom such enforcement is sought. Any signatures delivered by a party by facsimile transmission or by e-mail transmission shall be deemed an original signature hereto. 6. CONSTRUCTION. Unless the context of this Patent Security Agreement or any other Loan Document clearly requires otherwise, references to the plural include the singular, references to the singular include the plural, the terms "includes" and "including" are not limiting, and the term "or" has, except where otherwise indicated, the inclusive meaning represented by the phrase "and/or." The words "hereof," "herein," "hereby," "hereunder," and similar terms in this Patent Security Agreement or any other Loan Document refer to this Patent Security Agreement or such other Loan Document, as the case may be, as a whole and not to any particular provision of this Patent Security Agreement or such other Loan Document, as the case may be. Section, subsection, clause, schedule, and exhibit references herein are to this Patent Security Agreement unless otherwise specified. Any reference in this Patent Security Agreement or in any other Loan Document to any agreement, instrument, or document shall include all alterations, amendments, changes, extensions, modifications, renewals, replacements, substitutions, joinders, and supplements, thereto and thereof, as applicable (subject to any restrictions on such alterations, amendments, changes, extensions, modifications, renewals, replacements, substitutions, joinders, and supplements set forth herein). Any reference herein or in any other Loan Document to the satisfaction or repayment in full of the Obligations shall mean the repayment in full in cash (or cash collateralization in accordance with the terms hereof) of all Obligations other than unasserted contingent indemnification Obligations. Any reference herein to any Person shall be construed to include such Person's successors and permitted assigns. Any requirement of a writing contained herein or in any other Loan Document shall be satisfied by the transmission of a Record and any Record so transmitted shall constitute a representation and warranty as to the accuracy and completeness of the information contained therein. [SIGNATURE PAGE FOLLOWS] IN WITNESS WHEREOF, each Grantor has caused this Patent Security Agreement to be executed and delivered by its duly authorized officer as of the date first set forth above. ------------------------------------------ By: --------------------------------------- Name: --------------------------------------- Title: --------------------------------------- ------------------------------------------ By: --------------------------------------- Name: --------------------------------------- Title: --------------------------------------- ACCEPTED AND ACKNOWLEDGED BY: ABLECO FINANCE LLC, a Delaware limited liability, as Collateral Agent By: --------------------------------------- Name: --------------------------------------- Title: --------------------------------------- EXHIBIT C PLEDGED INTERESTS ADDENDUM This Pledged Interests Addendum, dated as of _________ ___, 20___, is delivered pursuant to Section 6 of the Security Agreement referred to below. The undersigned hereby agrees that this Pledged Interests Addendum may be attached to that certain Security Agreement, dated as of March 17, 2006 (as amended, restated, supplemented or otherwise modified from time to time, the "Security Agreement"), made by the undersigned, together with the other Grantors named therein, to Ableco Finance LLC, a Delaware limited liability company, as Collateral Agent. Initially capitalized terms used but not defined herein shall have the meaning ascribed to such terms in the Security Agreement. The undersigned hereby agrees that the additional interests listed on this Pledged Interests Addendum as set forth below shall be and become part of the Pledged Interests pledged by the undersigned to the Collateral Agent in the Security Agreement and any pledged company set forth on this Pledged Interests Addendum as set forth below shall be and become a "Pledged Company" under the Security Agreement, each with the same force and effect as if originally named therein. The undersigned hereby certifies that the representations and warranties set forth in Section 4 of the Security Agreement of the undersigned are true and correct as to the Pledged Interests listed herein on and as of the date hereof. ------------------------------------------ By: --------------------------------------- Name: --------------------------------------- Title: ---------------------------------------
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EXHIBIT D TRADEMARK SECURITY AGREEMENT This TRADEMARK SECURITY AGREEMENT (this "Trademark Security Agreement") is made this ___ day of ___________, 200__, among Grantors listed on the signature pages hereof (collectively, jointly and severally, "Grantors" and each individually "Grantor"), and ABLECO FINANCE LLC, a Delaware limited liability company, in its capacity as Collateral Agent for the Lender Group (together with its successors, "Collateral Agent"). W I T N E S S E T H: WHEREAS, pursuant to that certain Financing Agreement dated as of March 17, 2006 (as amended, restated, supplemented or otherwise modified from time to time, including all schedules thereto, the "Financing Agreement") among PRG-SCHULTZ INTERNATIONAL, INC., a Georgia corporation ("Parent"), PRG-SCHULTZ USA, INC., a Georgia corporation (the "Borrower"), each Subsidiary of Parent listed as a "Guarantor" on the signatures pages thereto (such Subsidiaries, together with the Parent, each individually a "Guarantor", and individually and collectively, jointly and severally, the "Guarantors"), the lenders that are from time to time parties thereto (each a "Lender" and, collectively, the "Lenders"), Collateral Agent, and The CIT Group/Business Credit, Inc., a New York corporation, as administrative agent for the Lender Group, the Lender Group is willing to make certain financial accommodations available to Borrower from time to time pursuant to the terms and conditions thereof; WHEREAS, the members of the Lender Group are willing to make the financial accommodations to Borrower as provided for in the Financing Agreement, but only upon the condition, among others, that Grantors shall have executed and delivered to Collateral Agent, for the benefit of Lender Group, that certain Security Agreement dated of even date herewith (including all annexes, exhibits or schedules thereto, as from time to time amended, restated, supplemented or otherwise modified, the "Security Agreement"); and WHEREAS, pursuant to the Security Agreement, Grantors are required to execute and deliver to Collateral Agent, for the benefit of Lender Group, this Trademark Security Agreement; NOW, THEREFORE, in consideration of the premises and mutual covenants herein contained and for other good and valuable consideration, the receipt and sufficiency of which are hereby acknowledged, each Grantor hereby agrees as follows: 1. DEFINED TERMS. All capitalized terms used but not otherwise defined herein have the meanings given to them in the Security Agreement or the Financing Agreement. 2. GRANT OF SECURITY INTEREST IN TRADEMARK COLLATERAL. (a) Each Grantor, in order to secure the prompt payment of all of the Secured Obligations (other than the Term Loan Obligations), hereby grants to Collateral Agent, for the benefit of the Revolving Loan Lenders, Collateral Agent, and Administrative Agent, a continuing first priority security interest in all of such Grantor's right, title and interest in, to and under the following, whether presently existing or hereafter created or acquired (collectively, the "Trademark Collateral"): (i) all of its Trademarks and Intellectual Property Licenses relating to Trademarks to which it is a party including those referred to on Schedule I hereto; (ii) all reissues, continuations or extensions of the foregoing; and (iii) all products and proceeds of the foregoing, including any claim by such Grantor against third parties for past, present or future (i) infringement or dilution of any Trademark or any Trademark licensed under any Intellectual Property License or (ii) injury to the goodwill associated with any Trademark or any Trademark licensed under any Intellectual Property License. (b) Each Grantor, in order to secure the prompt payment of all of the Secured Obligations (other than the Revolving Loan Obligations), hereby grants to Collateral Agent, for the benefit of the Term Loan Lenders, Collateral Agent, and Administrative Agent, a continuing first priority security interest in all of such Grantor's right, title and interest in, to and under the Trademark Collateral, whether presently existing or hereafter created or acquired. (c) Without limiting the generality of the foregoing, this Trademark Security Agreement secures the payment of all amounts which constitute part of the Obligations and would be owed by Grantors, or any of them, to Collateral Agent, the Lender Group, or any of them, whether or not they are unenforceable or not allowable due to the existence of an Insolvency Proceeding involving any Grantor. 3. SECURITY AGREEMENT. The security interests granted pursuant to this Trademark Security Agreement are granted in conjunction with the security interests granted to Collateral Agent, for the benefit of the Lender Group, pursuant to the Security Agreement. Each Grantor hereby acknowledges and affirms that the rights and remedies of Collateral Agent with respect to the security interest in the Trademark Collateral made and granted hereby are more fully set forth in the Security Agreement, the terms and provisions of which are incorporated by reference herein as if fully set forth herein. 4. AUTHORIZATION TO SUPPLEMENT. If any Grantor shall obtain rights to any new trademarks, the provisions of this Trademark Security Agreement shall automatically apply thereto. Grantors shall give prompt notice in writing to Collateral Agent with respect to any such new trademarks or renewal or extension of any trademark registration as provided in the Security Agreement. Without limiting Grantors' obligations under this Section 5, Grantors hereby authorize Collateral Agent unilaterally to modify this Agreement by amending Schedule I to include any such new trademark rights of Grantors. Notwithstanding the foregoing, no failure to so modify this Trademark Security Agreement or amend Schedule I shall in any way affect, invalidate or detract from Collateral Agent's continuing security interest in all Collateral, whether or not listed on Schedule I. 5. COUNTERPARTS. This Trademark Security Agreement may be executed in any number of counterparts, each of which shall be deemed to be an original, but all such separate counterparts shall together constitute but one and the same instrument. In proving this Trademark Security Agreement or any other Loan Document in any judicial proceedings, it shall not be necessary to produce or account for more than one such counterpart signed by the party against whom such enforcement is sought. Any signatures delivered by a party by facsimile transmission or by e-mail transmission shall be deemed an original signature hereto. 6. CONSTRUCTION. Unless the context of this Trademark Security Agreement or any other Loan Document clearly requires otherwise, references to the plural include the singular, references to the singular include the plural, the terms "includes" and "including" are not limiting, and the term "or" has, except where otherwise indicated, the inclusive meaning represented by the phrase "and/or." The words "hereof," "herein," "hereby," "hereunder," and similar terms in this Trademark Security Agreement or any other Loan Document refer to this Trademark Security Agreement or such other Loan Document, as the case may be, as a whole and not to any particular provision of this Trademark Security Agreement or such other Loan Document, as the case may be. Section, subsection, clause, schedule, and exhibit references herein are to this Agreement unless otherwise specified. Any reference in this Trademark Security Agreement or in any other Loan Document to any agreement, instrument, or document shall include all alterations, amendments, changes, extensions, modifications, renewals, replacements, substitutions, joinders, and supplements, thereto and thereof, as applicable (subject to any restrictions on such alterations, amendments, changes, extensions, modifications, renewals, replacements, substitutions, joinders, and supplements set forth herein). Any reference herein or in any other Loan Document to the satisfaction or repayment in full of the Obligations shall mean the repayment in full in cash (or cash collateralization in accordance with the terms hereof) of all Obligations other than unasserted contingent indemnification Obligations. Any reference herein to any Person shall be construed to include such Person's successors and permitted assigns. Any requirement of a writing contained herein or in any other Loan Document shall be satisfied by the transmission of a Record and any Record so transmitted shall constitute a representation and warranty as to the accuracy and completeness of the information contained therein. [signature page follows] IN WITNESS WHEREOF, each Grantor has caused this Trademark Security Agreement to be executed and delivered by its duly authorized officer as of the date first set forth above. ------------------------------------------ By: --------------------------------------- Name: --------------------------------------- Title: --------------------------------------- ------------------------------------------ By: --------------------------------------- Name: --------------------------------------- Title: --------------------------------------- ACCEPTED AND ACKNOWLEDGED BY: ABLECO FINANCE LLC, a Delaware limited liability company, as Collateral Agent By: --------------------------------------- Name: --------------------------------------- Title: --------------------------------------- SCHEDULE I to TRADEMARK SECURITY AGREEMENT TRADEMARK REGISTRATIONS/APPLICATIONS
- ------------------------- ---------------------- ----------------------- ---------------------- ---------------------- APPLICATION/ GRANTOR COUNTRY MARK REGISTRATION NO. APP/REG DATE - ------------------------- ---------------------- ----------------------- ---------------------- ----------------------
TRADE NAMES COMMON LAW TRADEMARKS TRADEMARKS NOT CURRENTLY IN USE TRADEMARK LICENSES EX-10.5 6 prg10q33106ex105.txt PERFORMANCE BONUS PLAN CONFIDENTIAL TREATMENT REQUESTED Confidential Portions of This Agreement Which Have Been Redacted Are Marked With Brackets ("[***]"). The Omitted Material Has Been Filed Separately With The United States Securities and Exchange Commission. PRG-Schultz Performance Bonus Plan Effective January 2006 [COMPANY LOGO] Please note that information contained in this document is proprietary and confidential, as defined in your employment agreement and/or *PRG-Schultz Employee Handbook. Employees are reminded that confidential, sensitive or proprietary information concerning PRG-Schultz must not be used in any manner that is unauthorized or detrimental to the best interests of PRG-Schultz. No unauthorized distribution is permitted. PRG-Schultz Performance Bonus Plan - -------------------------------------------------------------------------------- I. PLAN OVERVIEW..........................................................3 A. Philosophy.........................................................3 B. Plan Objectives....................................................3 C. Effective Period...................................................3 D. Eligibility........................................................3 II. PLAN DESCRIPTION......................................................3-7 A. Target Bonus and Maximum Bonus......................................3 B. Actual Bonus to be Paid: The Concept...............................4 C. Calculation of Total Bonus Pool.....................................4 D. Calculation of Operating Group Bonus Pools..........................5 E. Allocation to Bonus Eligible Employees of Amounts up to the Target Bonus Pool..............................................6 F. Allocation of any Excess Pool to Bonus Eligible Employees ..........6 G. Qualification for and Payment of Bonus .............................7 III. PLAN INTERPRETATION AND ADMINISTRATION..................................8 IV. PLAN ACKNOWLEDGEMENT FORM...............................................9 CONFIDENTIAL 2 PRG-Schultz Performance Bonus Plan - -------------------------------------------------------------------------------- I. PLAN OVERVIEW A. PHILOSOPHY PRG-Schultz, as an organization of professionals, believes that its senior leaders should have common objectives and should share together in the profits created by their combined efforts as a team. In addition, the company wants to encourage its leadership to achieve desired results and to strive for excellence through exemplary behaviors, creativity, innovation and teamwork. B. PLAN OBJECTIVES The PRG-Schultz Performance Bonus Plan (the Plan) promotes the following: o Achievement of PRG-Schultz business and financial objectives o Collaboration throughout the organization o Customer/client relations o Development of PRG-Schultz leaders C. EFFECTIVE PERIOD The Plan is effective from January 1 through December 31, 2006. D. ELIGIBILITY Full-time, salaried PRG-Schultz employees whose positions are assigned a Level 14E or higher in the PRG-Schultz U.S. salary grade structure and employees that hold positions of a comparable level in PRG-Schultz's non-U.S. operations (excluding Meridian) are eligible to participate in the Plan (Bonus Eligible Employees). The term "Bonus Eligible Positions" refers to the positions described in this paragraph. II. PLAN DESCRIPTION The Plan provides for a bonus payment in 2007 to Bonus Eligible Employees upon the achievement of by the company of certain 2006 financial objectives, subject to the more detailed Plan description below. A. TARGET BONUS AND MAXIMUM BONUS Each Bonus Eligible Position has associated with it a specific target bonus (Target Bonus) and maximum bonus (Maximum Bonus). The sum of the Target Bonuses for all Bonus Eligible Positions is the "Target Bonus Pool" for the company as a whole. The sum of the Maximum Bonuses for all Bonus Eligible Positions in the plan is the "Maximum Bonus Pool" for the company as a whole. CONFIDENTIAL 3 PRG-Schultz Performance Bonus Plan - -------------------------------------------------------------------------------- B. ACTUAL BONUS TO BE PAID: THE CONCEPT The actual bonus to be paid to any Bonus Eligible Employee will be a function of three things: o The Total Bonus Pool (described below) earned by the company as a whole. o The portion of the Total Bonus Pool allocated to the Operating Group within the company to which the Bonus Eligible Position is assigned (the Operating Group Bonus Pool). For purposes of this Plan there are four Operating Groups: o Corporate o United States o Europe o APLAC o The portion of the Operating Group Bonus Pool allocated to each Bonus Eligible Employee within the Operating Group. C. CALCULATION OF TOTAL BONUS POOL The Total Bonus Pool begins to accumulate once EBITDAOT exceeds $[******]. For purposes of this Plan the term "EBITDAOT" means the company's earnings before (1) interest, taxes, depreciation and amortization, (2) one time charges such as severance expenses and expenses associated with dark leases, and (3) bonuses payable under this Plan. All EBITDAOT in excess of $[******] will go into the Total Bonus Pool until the Total Bonus Pool reaches the Target Bonus Pool (calculated at $[******] based on the Target Bonuses of all currently employed Bonus Eligible Employees). Once the Total Bonus Pool equals the Target Bonus Pool, half of all additional EBITDAOT (in excess of the sum of $[******] and the amount of the Target Bonus Pool) will go into the Total Bonus Pool until it reaches the Maximum Bonus Pool, (calculated at $[******], based on the Maximum Bonuses of all currently employed Bonus Eligible Employees). [***] - CONFIDENTIAL PORTIONS OF THIS AGREEMENT WHICH HAVE BEEN REDACTED ARE MARKED WITH BRACKETS ("[***]"). THE OMITTED MATERIAL HAS BEEN FILED SEPARATELY WITH THE UNITED STATES SECURITIES AND EXCHANGE COMMISSION. CONFIDENTIAL 4 PRG-Schultz Performance Bonus Plan - -------------------------------------------------------------------------------- The Total Bonus Pool will, therefore, be a function of the company's total EBITDAOT. If EBITDAOT is $[******] or less, the Total Bonus Pool available for payment of bonuses under this Plan will be zero. Based on Target Bonuses of currently employed Bonus Eligible Employees, (1) if EBITDAOT equals $[******], then the Total Bonus Pool will be equal to the Target Bonus Pool, (2) if EBITDAOT is $[******], then the Total Bonus Pool will be half of the Target Bonus Pool or $[******]; and (3) if EBITDAOT is $[******], then the Total Bonus Pool will be 1.5 times the Target Bonus Pool or $[******] (100% of EBITDAOT in excess of $[******] until the Total Bonus Pool equals $[******], plus 50% of EBITDAOT in excess of $[******]). D. CALCULATION OF OPERATING GROUP BONUS POOLS All of the Total Bonus Pool up to the company's Target Bonus Pool will be allocated to the Operating Group Pools, pro rata, based on the relationship that the sum of all Target Bonuses of all Bonus Eligible Employees within each Operating Group bears to the Target Bonus Pool. For example, if the sum of the Target Bonuses of all Bonus Eligible Employees within an Operating Group was 25% of the Target Bonus Pool, that Operating Group will receive an allocation of 25% of that portion of the Total Bonus Pool that is less than or equal to the Target Bonus Pool. If the company's Total Bonus Pool is greater than the Target Bonus Pool, then the amount by which the Total Bonus Pool exceeds the Target Bonus Pool (the Excess Pool) will be allocated among the Operating Groups as follows: o The Corporate Operating Group will be allocated its pro rata portion of the Excess Pool, based on the relationship of the sum of all Maximum Bonuses of all Bonus Eligible Employees within the Corporate Group to the Maximum Bonus Pool. o Each Operating Group other than Corporate will get an allocation of the remainder of the Excess Pool, based on the relationship between that Operating Group's dollar contribution to the Excess Pool and the total Excess Pool. For example, assume the company's Total Bonus Pool was $[******] and all of the Excess Pool was generated by Europe, i.e. [***] - CONFIDENTIAL PORTIONS OF THIS AGREEMENT WHICH HAVE BEEN REDACTED ARE MARKED WITH BRACKETS ("[***]"). THE OMITTED MATERIAL HAS BEEN FILED SEPARATELY WITH THE UNITED STATES SECURITIES AND EXCHANGE COMMISSION. CONFIDENTIAL 5 PRG-Schultz Performance Bonus Plan - -------------------------------------------------------------------------------- United States and APLAC made their EBITDAOT budget while Europe exceeded their EBITDAOT budget by $2 million. In this case, the $2 million of Excess Pool would be allocated as follows: o The Corporate Operating Group would get a portion of the Excess Pool equal to its pro rata portion (based on the relationship of aggregate Maximum Bonuses of the Corporate Group's Bonus Eligible Employees to the Maximum Bonus Pool as described above) of the Excess Pool. o The entire remainder of the Excess Pool would then be allocated to the Europe Operating Group. E. ALLOCATION TO BONUS ELIGIBLE EMPLOYEES OF AMOUNTS UP TO THE TARGET BONUS POOL For amounts in the Total Bonus Pool up to the Target Bonus Pool, the allocation of the Operating Group Bonus Pools to Bonus Eligible Employees within each Operating Group will be based on the each Bonus Eligible Employee's pro rata portion of the Operating Group Bonus Pool (based on the relationship between the Bonus Eligible Employee's Target Bonus and the sum of all Target Bonuses for all Bonus Eligible Employees in that Operating Group). For example, if the Operating Group Bonus Pool for the U.S. Operating Group is $1,000,000 and the Target Bonus for the Bonus Eligible Employee is 2% of the sum of the Target Bonuses of all Bonus Eligible Employees in the U.S. Operating Group, then this Bonus Eligible Employee should generally expect a bonus of $20,000. At the discretion of the head of the Operating Group, some Bonus Eligible Employees within the Operating Group could be paid a bonus somewhat higher, or somewhat lower, than their pro rata portion of the Operating Group Bonus Pool. These exceptions will be based on individual performance and must be approved in advance by the company's SVP-Human Resources and CEO. Since the Operating Group Bonus Pool will be a fixed amount, if any Bonus Eligible Employee receives more than a pro rata portion (based on Target Bonuses as described in the first paragraph of this subsection), one or more other Bonus Eligible Employees must receive less than their pro rata amount. Exceptions to the pro rata allocation of Operating Group Bonus Pools less than or equal to the Target Bonus Pool are expected to be rare, and more detailed guidelines will be developed during the course of the year to guide Operating Group heads in determining whether an exception should be made to the pro rata allocation in a particular circumstance. CONFIDENTIAL 6 PRG-Schultz Performance Bonus Plan - -------------------------------------------------------------------------------- F. ALLOCATION OF ANY EXCESS POOL TO BONUS ELIGIBLE EMPLOYEES Any portion of any Excess Pool allocated to an Operating Group as described above (Operating Group Excess Pool) will be allocated within the Operating Group to Bonus Eligible Employees only after the allocation to Bonus Eligible Employees of the Target Bonus Pool as described in the Plan subsection immediately above. The allocation of excess Operating Group Excess Pool will be made based on the recommendation of the head of the Operating Group and approved by the company's SVP- Human Resources and CEO. More detailed guidelines for the allocation of Operating Group Excess Pool will be developed and communicated during the course of the year. In general, these guidelines will give emphasis to EBITDAOT contribution of the Bonus Eligible Employee's work unit and the Bonus Eligible Employee's individual performance, and will follow the pool concept on which this Plan is based. For example, if Europe has an Operating Group Excess Pool of $1,500,000 which was generated entirely by EBITDAOT over budget in Southern Europe, it is likely that Bonus Eligible Employees in Southern Europe will get than more than their pro rata portion of the $1,500,000, while Bonus Eligible Employees in Northern Europe and the U.K. will get less than their pro rata portion. In this example, most Northern Europe and U.K. Bonus Eligible Employees will receive their Target Bonuses. Most Bonus Eligible Employees in Southern Europe, however, will receive their Target Bonus plus some or all of the difference between their Maximum Bonus and Target Bonus. G. QUALIFICATION FOR AND PAYMENT OF BONUSES Bonus Eligible Employees must have at least a satisfactory performance rating during the Plan year and at the time bonus payments are made to be eligible to receive a bonus payment under this Plan. Bonuses will be paid annually, and in most cases within thirty (30) days after completion of the annual audit of the company's 2006 results. Bonus Eligible Employees must be actively employed by PRG-Schultz at the time of the payment in order to receive a bonus. Exceptions to this requirement may be made in connection with terminations due to retirement, disability or death. If an employee becomes eligible to participate in the PRG-Schultz Performance Bonus Plan after January 1st (by beginning work in a Bonus Eligible Position), he/she may be eligible for a prorated payout based on the date of entry into the Plan, but may not enter the plan after November 1st. CONFIDENTIAL 7 PRG-Schultz Performance Bonus Plan - -------------------------------------------------------------------------------- III. PLAN INTERPRETATION AND ADMINISTRATION Overall responsibility for the administration of the Plan resides with the SVP-Human Resources. All bonus payments are subject to the approval of the company's SVP-Human Resources, CEO, and the Compensation Committee of the company's Board of Directors. The company reserves the right to discontinue or amend the Plan. Such changes could include, for instance, the revision of the company's financial targets in the event of business or organizational changes, including acquisitions and divestitures, deemed to warrant such action. This Plan is a discretionary bonus plan and confers no rights to Bonus Eligible Employees or other employees. Authority and responsibility for interpretation and application of the Plan rest solely with the company's SVP-Human Resources, CEO and the Compensation Committee of the company's Board of Directors. [This space intentionally left blank.] CONFIDENTIAL 8 PRG-Schultz Performance Bonus Plan - -------------------------------------------------------------------------------- IV. PLAN ACKNOWLEDGEMENT FORM I have received and reviewed the terms of the 2006 PRG-Schultz Performance Bonus Plan. I understand and agree that this Plan does not create a contract of employment between the PRG-Schultz and me. Position: ________________________________ 2006 Target Bonus: _______________ 2006 Maximum Bonus: _______________ - -------------------------------------------------------------------------------- Employee's Signature Date - -------------------------------------------------------------------------------- Employee's Name (typed or printed) PLEASE FORWARD THE COMPLETED EMPLOYEE ACKNOWLEDGMENT FORM TO MONIKA THORNTON IN HUMAN RESOURCES IN ATLANTA. CONFIDENTIAL 9 EX-10.8 7 prg10q33106ex108.txt INVESTOR RIGHTS AGMT. EXHIBIT 10.8 FIRST AMENDMENT TO INVESTOR RIGHTS AGREEMENT THIS FIRST AMENDMENT TO INVESTOR RIGHTS AGREEMENT is made and entered in as of March 30, 2006 by and among PRG-Schultz International, Inc., a Georgia corporation (the "Company"), Berkshire Fund V, Limited Partnership, a Massachusetts limited partnership, Berkshire Investors LLC, a Massachusetts limited liability company, and Blum Strategic Partners II, L.P., a Delaware limited partnership. WHEREAS, Garth H. Greimann has resigned as a director of the Company effective on March 30, 2006; and WHEREAS, Berkshire Fund V, Limited Partnership and Berkshire Investors LLC (collectively, "Berkshire") are willing to waive and relinquish (i) all existing and future rights pursuant to Section 1 of the Investor Rights Agreement dated August 27, 2002 (the "Investor Rights Agreement") between the Company, Berkshire and Blum Strategic Partners II, L.P. ("Blum") to require the Company to cause its Board of Directors to designate Ross M. Jones or another person designated by Berkshire as a nominee for election to the Company's Board, (ii) all existing and future observer rights of Berkshire pursuant to Section 3 of the Investor Rights Agreement, and (iii) any and all other existing and future rights that Berkshire may have pursuant the Investor Rights Agreement; and WHEREAS, Blum is also willing to waive and relinquish any existing or future rights it may have under Sections 1 and 3 of the Investor Rights Agreement; NOW THERFORE, in consideration of $10.00 and the mutual promises set forth below, the parties agree as follows: 1. Effective March 30, 2006, the Investor Rights Agreement is hereby amended by deleting Sections 1 and 3 in their entirety. 2. Effective March 30, 2006, Berkshire hereby waives and relinquishes any other rights Berkshire may have pursuant to the Investor Rights Agreement and shall no longer be parties to the Investor Rights Agreement as amended hereby. 3. Blum hereby waives and relinquishes any existing or future right it may have pursuant to Sections 1 and 3 of the Investor Rights Agreement. 4. Except as specifically modified by this First Amendment to Investor Rights Agreement, the remaining provisions of the Investor Rights Agreement remain in full force and effect. This amendment may be executed in one or more counterparts, each of which when so executed and delivered shall be an original, but all of which shall constitute one and the same amendment. IN WITNESS WHEREOF, the parties have caused this First Amendment to Investor Rights Agreement to be duly executed as of the date first above written. PRG-SCHULTZ INTERNATIONAL, INC. By: /s/ C. McKellar, Jr. ---------------------------------- Title: S.V.P. BERKSHIRE FUND V, LIMITED PARTNERSHIP By: Fifth Berkshire Associates LLC, its General Partner By: /s/ Garth H. Greimann ---------------------------------- Title: Advisory Director BERKSHIRE INVESTORS, LLC By: /s/ Garth H. Greimann ---------------------------------- Title: Advisory Director BLUM STRATEGIC PARTNERS II, L.P. By: Blum Strategic GP II, L.L.C., its General Partner By: /s/ Gregory Hitchan ---------------------------------- Title: Member & General Counsel EX-31.1 8 prg10q33106ex311.txt CERTIFICATION EXHIBIT 31.1 CERTIFICATION I, James B. McCurry, certify that: 1. I have reviewed this Form 10-Q of PRG-Schultz International, Inc.; 2. Based on my knowledge, this report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this report; 3. Based on my knowledge, the financial statements, and other financial information included in this report, fairly present in all material respects the financial condition, results of operations and cash flows of the registrant as of, and for, the periods presented in this report; 4. The registrant's other certifying officer and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-15(e) and 15d-15(e)) and internal control over financial reporting (as defined in Exchange Act Rules 13a-15(f) and 15d-15(f)) for the registrant and have: (a) Designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under our supervision, to ensure that material information relating to the registrant, including its consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which this report is being prepared; (b) Designed such internal control over financial reporting, or caused such internal control over financial reporting to be designed under our supervision, to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles; (c) Evaluated the effectiveness of the registrant's disclosure controls and procedures and presented in this report our conclusions about the effectiveness of the disclosure controls and procedures, as of the end of the period covered by this report based on such evaluation; and (d) Disclosed in this report any change in the registrant's internal control over financial reporting that occurred during the registrant's most recent fiscal quarter (the registrant's fourth fiscal quarter in the case of an annual report) that has materially affected, or is reasonably likely to materially affect, the registrant's internal control over financial reporting; and 5. The registrant's other certifying officer and I have disclosed, based on our most recent evaluation of internal control over financial reporting, to the registrant's auditors and the audit committee of the registrant's board of directors: (a) All significant deficiencies and material weaknesses in the design or operation of internal control over financial reporting which are reasonably likely to adversely affect the registrant's ability to record, process, summarize and report financial information; and (b) Any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant's internal control over financial reporting. May 15, 2006 By: /s/ James B. McCurry ---------------------------------- James B. McCurry President, Chairman of the Board and Chief Executive Officer (Principal Executive Officer) EX-31.2 9 prg10q33106ex312.txt CERTIFICATION EXHIBIT 31.2 CERTIFICATION I, Peter Limeri, certify that: 1. I have reviewed this Form 10-Q of PRG-Schultz International, Inc.; 2. Based on my knowledge, this report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this report; 3. Based on my knowledge, the financial statements, and other financial information included in this report, fairly present in all material respects the financial condition, results of operations and cash flows of the registrant as of, and for, the periods presented in this report; 4. The registrant's other certifying officer and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-15(e) and 15d-15(e)) and internal control over financial reporting (as defined in Exchange Act Rules 13a-15(f) and 15d-15(f)) for the registrant and have: (a) Designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under our supervision, to ensure that material information relating to the registrant, including its consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which this report is being prepared; (b) Designed such internal control over financial reporting, or caused such internal control over financial reporting to be designed under our supervision, to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles; (c) Evaluated the effectiveness of the registrant's disclosure controls and procedures and presented in this report our conclusions about the effectiveness of the disclosure controls and procedures, as of the end of the period covered by this report based on such evaluation; and (d) Disclosed in this report any change in the registrant's internal control over financial reporting that occurred during the registrant's most recent fiscal quarter (the registrant's fourth fiscal quarter in the case of an annual report) that has materially affected, or is reasonably likely to materially affect, the registrant's internal control over financial reporting; and 5. The registrant's other certifying officer and I have disclosed, based on our most recent evaluation of internal control over financial reporting, to the registrant's auditors and the audit committee of the registrant's board of directors: (a) All significant deficiencies and material weaknesses in the design or operation of internal control over financial reporting which are reasonably likely to adversely affect the registrant's ability to record, process, summarize and report financial information; and (b) Any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant's internal control over financial reporting. May 15, 2006 By: /s/ Peter Limeri ---------------------------------- Peter Limeri Chief Financial Officer and Treasurer (Principal Financial Officer) EX-32.1 10 prg10q33106ex32.txt CERTIFICATION EXHIBIT 32.1 CERTIFICATION PURSUANT TO 18 U.S.C. SECTION 1350, AS ADOPTED PURSUANT TO SECTION 906 OF THE SARBANES-OXLEY ACT OF 2002 In connection with the Quarterly Report of PRG-Schultz International, Inc. (the "Company") on Form 10-Q for the period ending March 31, 2006 as filed with the Securities and Exchange Commission on the date hereof (the "Report"), I, James B. McCurry, President, Chairman of the Board and Chief Executive Officer of the Company and I, Peter Limeri., Chief Financial Officer and Treasurer of the Company, certify pursuant to 18 U.S.C. ss. 1350, as adopted pursuant to ss. 906 of the Sarbanes-Oxley Act of 2002, that to the best of the undersigned's knowledge: (1) the Report fully complies with the requirements of Section 13(a) of the Securities Exchange Act of 1934; and (2) the information contained in the Report fairly presents, in all material respects, the financial condition and results of operations of the Company. May 15, 2006 By: /s/ James B. McCurry ---------------------------------- James B. McCurry President, Chairman of the Board and Chief Executive Officer (Principal Executive Officer) May 15, 2006 By: /s/ Peter Limeri ---------------------------------- Peter Limeri Chief Financial Officer and Treasurer (Principal Financial Officer) -----END PRIVACY-ENHANCED MESSAGE-----