-----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, DgHfQTly0vqYXGxxaIcyRiBlXwCPNIu40CocELDmBMESeX9zmFT7HuFhxgKVhupf WfSgBd1BfBl3kgivh4KKfw== 0000950144-97-011630.txt : 19971110 0000950144-97-011630.hdr.sgml : 19971110 ACCESSION NUMBER: 0000950144-97-011630 CONFORMED SUBMISSION TYPE: 10-Q PUBLIC DOCUMENT COUNT: 9 CONFORMED PERIOD OF REPORT: 19970930 FILED AS OF DATE: 19971107 SROS: NASD FILER: COMPANY DATA: COMPANY CONFORMED NAME: PROFIT RECOVERY GROUP 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: SEC FILE NUMBER: 000-28000 FILM NUMBER: 97709994 BUSINESS ADDRESS: STREET 1: 2300 WINDY RIDGE PKWY STREET 2: STE 100 N CITY: ATLANTA STATE: GA ZIP: 30339-8426 BUSINESS PHONE: 7709553815 MAIL ADDRESS: STREET 1: 2300 WINDY RIDGE PKWY STREET 2: STE 100 NORTH CITY: ATLANTA STATE: GA ZIP: 30339-8426 10-Q 1 PROFIT RECOVERY GROUP FORM 10-Q 1 ================================================================================ 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 SEPTEMBER 30, 1997 OR [ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(D) OF THE SECURITIES EXCHANGE ACT OF 1934 FOR THE TRANSITION PERIOD FROM ____________ TO ____________
COMMISSION FILE NUMBER 0-28000 --------------------- THE PROFIT RECOVERY GROUP INTERNATIONAL, INC. (Exact name of registrant as specified in its charter) --------------------- GEORGIA 58-2213805 (State or other jurisdiction of incorporation (I.R.S. Employer Identification No.) or organization)
2300 WINDY RIDGE PARKWAY SUITE 100 NORTH ATLANTA, GEORGIA 30339-8426 (770) 955-3815 (ADDRESS AND TELEPHONE NUMBER, INCLUDING AREA CODE, OF REGISTRANT'S PRINCIPAL EXECUTIVE OFFICES) Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the Registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. Yes [X] No [ ] The number of outstanding shares of the issuer's class of capital stock as of October 30, 1997, the latest practicable date, was as follows: 19,152,976 shares of Common Stock, no par value. ================================================================================ 2 THE PROFIT RECOVERY GROUP INTERNATIONAL, INC. AND SUBSIDIARIES FORM 10-Q QUARTER ENDED SEPTEMBER 30, 1997 INDEX
PAGE NO. -------- PART I. Financial Information Item 1. Financial Statements (Unaudited) Condensed Consolidated Statements of Earnings -- Three and nine month periods ended September 30, 1997 and September 30, 1996................................. 1 Condensed Consolidated Balance Sheets -- September 30, 1997 and December 31, 1996............... 2 Condensed Consolidated Statements of Cash Flows -- Nine months ended September 30, 1997 and September 30, 1996................................................... 3 Notes to Condensed Consolidated Financial Statements...... 4 Item 2. Management's Discussion and Analysis of Financial Condition and Results of Operations......................... 6 Item 3. Quantitative and Qualitative Disclosures about Market Risk......................................... 11 PART II. Other Information........................................... 12 Signatures............................................................ 13
3 PART I. FINANCIAL INFORMATION ITEM 1. FINANCIAL STATEMENTS (UNAUDITED) THE PROFIT RECOVERY GROUP INTERNATIONAL, INC. AND SUBSIDIARIES CONDENSED CONSOLIDATED STATEMENTS OF EARNINGS (AMOUNTS IN THOUSANDS, EXCEPT PER SHARE DATA) (UNAUDITED)
THREE MONTHS ENDED NINE MONTHS ENDED SEPTEMBER 30, SEPTEMBER 30, ------------------- ----------------- 1997 1996 1997 1996 -------- -------- ------- ------- Revenues.................................................. $29,627 $21,964 $76,445 $55,542 Cost of revenues.......................................... 14,693 11,002 39,553 29,105 Selling, general and administrative expenses.............. 8,790 6,623 25,709 18,694 ------- ------- ------- ------- Operating income........................................ 6,144 4,339 11,183 7,743 Interest income (expense), net............................ 14 162 132 (227) ------- ------- ------- ------- Earnings before income taxes............................ 6,158 4,501 11,315 7,516 Income taxes (Note C)..................................... 2,400 1,759 4,397 6,453 ------- ------- ------- ------- Net earnings............................................ $ 3,758 $ 2,742 $ 6,918 $ 1,063 ======= ======= ======= ======= Pro forma information: Historical earnings before income taxes................. $ 7,516 Pro forma income taxes (Note C)......................... 2,935 ------- Pro forma net earnings............................... $ 4,581 ======= Net earnings (pro forma net earnings for nine months ended September 30, 1996) per common and common equivalent share (Note D).......................................... $ .20 $ .15 $ .37 $ .27 ======= ======= ======= ======= Weighted average common and common equivalent shares outstanding............................................. 18,910 18,286 18,720 17,231 ======= ======= ======= =======
See accompanying notes to condensed consolidated financial statements. 1 4 THE PROFIT RECOVERY GROUP INTERNATIONAL, INC. AND SUBSIDIARIES CONDENSED CONSOLIDATED BALANCE SHEETS (AMOUNTS IN THOUSANDS, EXCEPT SHARE DATA) (UNAUDITED)
SEPTEMBER 30, DECEMBER 31, 1997 1996 ------------- ------------ ASSETS Current assets: Cash and cash equivalents (Note F)........................ $12,231 $16,891 Receivables: Billed contract receivables............................ 5,122 3,864 Unbilled contract receivables.......................... 40,179 30,734 Employee advances...................................... 2,160 1,363 ------- ------- Total receivables................................. 47,461 35,961 ------- ------- Refundable income taxes................................... -- 2,049 Prepaid expenses and other current assets................. 1,292 528 ------- ------- Total current assets.............................. 60,984 55,429 ------- ------- Property and equipment: Computer and other equipment.............................. 9,627 5,753 Furniture and fixtures.................................... 1,937 1,569 Leasehold improvements.................................... 1,331 1,183 ------- ------- 12,895 8,505 Less accumulated depreciation and amortization............ 4,314 2,272 ------- ------- 8,581 6,233 ------- ------- Noncompete agreements, less accumulated amortization........ 3,734 4,509 Deferred loan costs, less accumulated amortization.......... 32 56 Goodwill, less accumulated amortization..................... 6,204 393 Deferred income taxes....................................... 1,174 1,174 Other assets................................................ 537 524 ------- ------- $81,246 $68,318 ======= ======= LIABILITIES AND SHAREHOLDERS' EQUITY Current liabilities: Current installments of long-term debt.................... $ 83 $ 79 Accounts payable and accrued expenses..................... 1,719 1,383 Accrued payroll and related expenses...................... 17,788 16,356 Deferred income taxes..................................... 7,607 7,607 ------- ------- Total current liabilities......................... 27,197 25,425 Long-term debt, excluding current installments.............. 707 692 Deferred compensation....................................... 2,263 1,642 ------- ------- Total liabilities................................. 30,167 27,759 ------- ------- Shareholders' equity (Note B): Preferred stock, no par value. Authorized 1,000,000 shares; no shares issued or outstanding in 1997 and 1996................................................... -- -- Common stock, no par value; stated value $.001 per share. Authorized 60,000,000 shares; issued and outstanding 18,294,149 in 1997 and 17,649,152 in 1996.............. 18 18 Additional paid-in capital................................ 37,815 34,188 Cumulative translation adjustments........................ (56) (31) Retained earnings......................................... 13,302 6,384 ------- ------- Total shareholders' equity........................ 51,079 40,559 ------- ------- $81,246 $68,318 ======= =======
See accompanying notes to condensed consolidated financial statements. 2 5 THE PROFIT RECOVERY GROUP INTERNATIONAL, INC. AND SUBSIDIARIES CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS (AMOUNTS IN THOUSANDS) (UNAUDITED)
NINE MONTHS ENDED SEPTEMBER 30, -------------------- 1997 1996 -------- -------- Cash flows from operating activities: Net earnings.............................................. $ 6,918 $ 1,063 Adjustments to reconcile net earnings to net cash provided by (used in) operating activities: Depreciation and amortization.......................... 3,018 1,908 Deferred compensation expense.......................... 434 441 Deferred income taxes.................................. -- 3,700 Foreign translation adjustments........................ (25) 35 Changes in assets and liabilities, net of effects of acquisitions: Receivables.......................................... (10,990) (14,032) Prepaid expenses and other current assets............ (743) (272) Refundable income taxes.............................. 2,049 -- Other assets......................................... (93) (250) Accounts payable and accrued expenses................ 333 741 Accrued payroll and related expenses................. 1,084 6,288 -------- -------- Net cash provided by (used in) operating activities...................................... 1,985 (378) -------- -------- Cash flows from investing activities: Purchases of property and equipment....................... (4,054) (4,499) Acquisition of businesses (Note E)........................ (3,194) -- -------- -------- Net cash used in investing activities............. (7,248) (4,499) -------- -------- Cash flows from financing activities: Net repayments of note payable to bank.................... -- (1,763) Proceeds from loans from shareholders..................... -- 2,600 Repayments of long-term debt.............................. -- (7,117) Repayments of loans from shareholders..................... -- (3,675) Net proceeds from common stock............................ 603 33,961 Distributions............................................. -- (4,876) -------- -------- Net cash provided by financing activities......... 603 19,130 -------- -------- Net change in cash and cash equivalents........... (4,660) 14,253 Cash and cash equivalents at beginning of period............ 16,891 642 -------- -------- Cash and cash equivalents at end of period.................. $ 12,231 $ 14,895 ======== ======== Supplemental disclosure of cash flow information: Cash paid during the period for interest............... $ 38 $ 1,091 ======== ======== Cash paid during the period for income taxes........... $ 2,165 $ 1,598 ======== ========
See accompanying notes to condensed consolidated financial statements. 3 6 THE PROFIT RECOVERY GROUP INTERNATIONAL, INC. AND SUBSIDIARIES NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS SEPTEMBER 30, 1997 (UNAUDITED) NOTE A -- BASIS OF PRESENTATION The accompanying unaudited condensed consolidated financial statements of The Profit Recovery Group International, Inc. and its wholly owned subsidiaries (the "Company") have been prepared in accordance with generally accepted accounting principles for interim financial information and with the instructions to Form 10-Q and Article 10 of Regulation S-X. Accordingly, they do not include all of the information and footnotes required by generally accepted accounting principles for complete financial statements. In the opinion of management, all adjustments (consisting of normal recurring accruals) considered necessary for a fair presentation have been included. Operating results for the three and nine month periods ended September 30, 1997 are not necessarily indicative of the results that may be expected for the year ending December 31, 1997. For further information, refer to the consolidated financial statements and footnotes thereto included in the Company's Form 10-K for the fiscal year ended December 31, 1996. NOTE B -- INITIAL PUBLIC OFFERING The Company's initial public offering of its common stock was declared effective by the United States Securities and Exchange Commission on March 26, 1996, and public trading in the registered shares commenced March 27, 1996. The initial public offering consisted of 4.6 million shares priced at $11 per share with the Company selling 3.4 million newly issued shares and certain selling shareholders selling 1.2 million existing shares. The proceeds from the offering (net of underwriting discounts and commissions) were not distributed by the underwriting syndicate until April 1, 1996. On April 18, 1996, the Company received notification from its underwriting syndicate that the syndicate had exercised its full over-allotment option to purchase an additional 690,000 shares of Company common stock. All of these shares were then sold to the syndicate by certain selling shareholders. The Company received no proceeds from the sale of such shares. NOTE C -- INCOME TAXES The Company's predecessor entities prior to its initial public offering on March 26, 1996 generally were either corporations electing to be taxed as Subchapter S corporations or partnerships. As a result, any income tax liabilities were the responsibilities of the respective shareholders and partners. In connection with the initial public offering, all domestic entities became C corporations. As a result of these conversions to C corporations, the Company incurred a charge to operations of $3.7 million in the first quarter of 1996 for cumulative deferred income taxes. The results of operations for the nine month period ended September 30, 1996 have been adjusted on a pro forma basis to reflect federal and state income taxes at a composite effective rate of 39% as if the Company's predecessors had been C corporations throughout the entire period. NOTE D -- EARNINGS AND PRO FORMA EARNINGS PER COMMON AND COMMON EQUIVALENT SHARE For operations prior to April 1, 1996, pro forma earnings per common and common equivalent share has been computed by dividing the pro forma net earnings, which gives effect to pro forma income taxes, by the weighted average number of common and common equivalent shares outstanding during the period, after giving effect to the reorganization enacted at the time of the Company's March 1996 initial public offering. For purposes of determining the weighted average number of common and common equivalent shares for all periods prior to April 1, 1996, the Company has followed required supplementary guidance contained in Securities and Exchange Commission Staff Accounting Bulletin Topic 4D and has treated all common shares, warrants, options and convertible debentures issued within one year prior to its initial public offering as exercised and outstanding, using the treasury stock method, regardless if the effect were antidilutive. In 4 7 THE PROFIT RECOVERY GROUP INTERNATIONAL, INC. AND SUBSIDIARIES NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED) addition, the aforementioned computation includes the equivalent number of common shares derived from dividing the distributions payable by $11.00 per share. For operations subsequent to March 31, 1996, the weighted average number of common and common equivalent shares has been derived pursuant to requirements of Accounting Principles Board Opinion No. 15, Earnings per Share. Fully diluted earnings per share for affected reporting periods is not significantly different from the primary earnings per share presented. NOTE E -- ACQUISITIONS On January 2, 1997, the Company acquired the net operating assets of Shaps Group, Inc., a California-based company providing recovery audit services to manufacturers and distributors of technology products. The Company issued 375,000 shares of its common stock in the transaction which was accounted for as a pooling-of-interests. Since prior years' financial positions and results of operations of Shaps Group, Inc. are not material in relation to the Company's historical financial statements, the Company has not restated its prior years' consolidated financial statements. On February 11, 1997, the Company acquired all of the common stock of Accounts Payable Recovery Services, Inc., a Texas-based company providing recovery audit services to healthcare entities and energy companies. This transaction was accounted for as a purchase with consideration of $2.0 million in cash and 130,599 shares of the Company's common stock valued at $15.25 per share. Approximately $100,000 in direct acquisition-related costs were also incurred and capitalized as part of this transaction. On May 23, 1997, the Company acquired all of the common stock of The Hale Group, a California-based company providing recovery audit services to healthcare entities. This transaction was accounted for as a purchase with consideration of $1.1 million in cash and 74,998 shares of the Company's common stock valued at $13.38 per share. NOTE F -- CASH EQUIVALENTS Cash equivalents at September 30, 1997 and December 31, 1996 consisted of $2.5 million and $11.9 million, respectively, of reverse repurchase agreements with NationsBank, N.A. (South) which were fully collateralized by United States of America Treasury Notes in the possession of such bank. The reverse repurchase agreements in effect on September 30, 1997 and December 31, 1996 matured and were settled on October 1, 1997 and January 2, 1997, respectively. The Company does not intend to take possession of collateral securities on future reverse repurchase agreement transactions conducted with banking institutions of national standing. The Company does insist, however, that all such agreements provide for full collateralization using obligations of the United States of America having a current market value equivalent to or exceeding the reverse repurchase agreement amount. NOTE G -- SUBSEQUENT EVENTS On October 7, 1997, the Company acquired 98.4% of Financiere Alma, S.A. and subsidiaries ("Alma"), a privately held recovery audit firm based in Paris, France. This transaction was accounted for as a purchase with consideration of $24.6 million in cash and approximately 859,000 restricted, unregistered shares of the Company's common stock with an aggregate estimated fair value of $9,959,000, based on preliminary valuations. Approximately $1.7 million in direct acquisition-related costs were also incurred and capitalized as part of this transaction. The Company has an obligation to acquire the remaining interest in Alma by January 1999 for $398,000 in cash and 13,900 unregistered shares of the Company's common stock. The Company increased its credit facility with NationsBank, N.A. from $20.0 million to $30.0 million on October 3, 1997 to finance the cash consideration paid and a portion of the direct acquisition-related expenses incurred. 5 8 ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS The following discussion and analysis should be read in conjunction with the condensed consolidated financial statements and notes thereto included elsewhere herein. OVERVIEW The Company is a leading provider of accounts payable and other recovery audit services to large retailers, wholesale distributors, healthcare providers, technology companies and other large transaction-intensive companies, as well as to certain governmental agencies. In businesses with large purchase volumes and continuously fluctuating purchase prices, some small percentage of erroneous overpayments to vendors is inevitable. In addition, compliance with various complex tax laws also results in overpayments to governmental agencies. Moreover, services such as telecommunications, utilities and freight provided to businesses under complex pricing arrangements can result in overpayments. All of these overpayments result in "lost profits". The Company identifies and documents overpayments by using sophisticated proprietary technology and advanced audit techniques and methodologies, and by employing highly trained, experienced recovery audit specialists. The Company receives a contractually negotiated percentage of amounts recovered. The earliest of the Company's predecessors was formed in November 1990, and in early 1991 acquired the operating assets of Roy Greene Associates, Inc. and Bottom Line Associates, Inc., which were formed in 1971 and 1985, respectively. In January 1995, the Company purchased certain assets of Fail & Associates, Inc., a direct U.S. competitor. In January 1997, the Company acquired the net operating assets of Shaps Group, Inc., a California-based company providing recovery audit services to manufacturers and distributors of technology products. In February 1997, the Company acquired all of the common stock of Accounts Payable Recovery Services, Inc., a Texas-based company providing recovery audit services to healthcare entities and energy companies. In May 1997, the Company acquired all of the common stock of The Hale Group, a California-based company that also provides recovery audit services to healthcare entities. In October 1997, the Company acquired 98.4% of Financiere Alma, S.A. and subsidiaries ("Alma"), a Paris-based recovery audit firm specializing in identifying and recovering various types of French corporate tax overpayments. The Company intends to continue pursuing domestic and international strategic acquisitions, including direct competitors and complementary businesses. ANTICIPATED CHARGE TO EARNINGS On October 7, 1997, the Company acquired 98.4% of Paris-based Alma. In recognition of emerging developments such as the Alma acquisition, the Company intends to restructure and realign certain facets of its European management structure and expects to incur related pre-tax charges to operations in the quarter ending December 31, 1997 in the range of $1.0 million to $1.2 million. 6 9 RESULTS OF OPERATIONS The following table presents, for the periods indicated, certain items in the condensed consolidated statements of earnings as a percentage of revenues.
THREE MONTHS NINE MONTHS ENDED ENDED SEPTEMBER 30, SEPTEMBER 30, ------------- ------------- 1997 1996 1997 1996 ----- ----- ----- ----- HISTORICAL Revenues.................................................. 100.0% 100.0% 100.0% 100.0% Cost of revenues.......................................... 49.6 50.1 51.8 52.4 Selling, general and administrative expenses.............. 29.7 30.1 33.6 33.7 ----- ----- ----- ----- Operating income.................................. 20.7 19.8 14.6 13.9 Interest income (expense), net............................ 0.1 0.7 0.2 (0.4) ----- ----- ----- ----- Earnings before income taxes...................... 20.8 20.5 14.8 13.5 Income taxes.............................................. 8.1 8.0 5.8 11.6 ----- ----- ----- ----- Net earnings...................................... 12.7% 12.5% 9.0% 1.9% ===== ===== ===== ===== PRO FORMA Historical earnings before income taxes................... 13.5% Pro forma income taxes.................................... 5.3 ----- Pro forma net earnings............................ 8.2% =====
Three and Nine Month Periods Ended September 30, 1997 Compared to Corresponding Periods of the Prior Year Revenues. The Company's revenues consist principally of contractual percentages of overpayments recovered for clients that are primarily in the retailing industry. Revenues increased 34.9% to $29.6 million for the third quarter of 1997, up from $22.0 million for the third quarter of 1996. For the nine months ended September 30, 1997, revenues were $76.4 million, or 37.6% higher than $55.5 million achieved in the corresponding period of 1996. Domestic revenues were $23.0 million in the third quarter of 1997, up 30.2% from $17.7 million in the third quarter of 1997. This 30.2% increase consisted of (i) 8.0% growth from existing clients served in both the 1997 and 1996 periods; (ii) 14.4% growth from the three complementary recovery audit firms acquired in the first half of 1997; and (iii) 7.8% growth from provision of services to new clients (net of the effect of revenues in the third quarter of 1996 from clients not served in the third quarter of 1997). For the first nine months of 1997, domestic revenues were $58.8 million, an increase of 30.1% over $45.2 million during the comparable period of 1996. International revenues were $6.6 million in the third quarter of 1997, up 54.1% from $4.3 million in the third quarter of 1996. For the first nine months of 1997, international revenues were $17.6 million, a 70.6% increase over $10.3 million during the comparable period of 1996. International revenue increases for the 1997 periods over the corresponding periods of 1996 were primarily attributable to new clients. Company operations in almost all international markets experienced significant rates of revenue growth during the three and nine month periods ended September 30, 1997, as compared with comparable periods of 1996. The Company continues to believe that the rate of revenue growth for its international operations will significantly exceed its rate of domestic revenue growth for the foreseeable future if the revenue effect of acquired businesses, if any, is excluded. There can be no assurance, however, that recent international growth trends will continue. See "Forward-looking Statements." The Company has experienced and expects to continue to experience significant seasonality in its business. The Company typically realizes higher revenues and operating income in the last two quarters of its fiscal year. This trend is expected to continue and reflects the inherent purchasing and operational cycles of the 7 10 retailing industry, which is the principal industry served by the Company. The Company's October 1997 acquisition of Alma is not expected to affect this trend because Alma historically has experienced similar seasonality in its revenues and operating income. Should the Company not continue to realize increased revenues in future third and fourth quarter periods, profitability for any affected quarter and the entire year could be materially and adversely affected due to ongoing selling, general and administrative expenses that are largely fixed over the short term. See "Forward-looking Statements." Cost of Revenues. Cost of revenues consists principally of commissions paid or payable to the Company's auditors based upon the level of overpayment recoveries, and salaries and bonuses paid or payable to divisional and regional managers. Also included are other direct costs incurred by these personnel including rental of field offices, travel and entertainment, telephone, utilities, maintenance and supplies, and clerical assistance. Cost of revenues was 49.6% of revenues for third quarter of 1997, down from 50.1% in the comparable quarter of 1996. For the nine months ended September 30, 1997, cost of revenues was 51.8%, down from 52.4% during the comparable 1996 nine month period. Domestically, cost of revenues as a percentage of revenues was 49.9% and 52.6%, respectively, for the quarter and nine months ended September 30, 1997. For the corresponding periods of 1996, these percentages were 50.4% and 52.8%, respectively. Domestic cost of revenues as a percentage of revenues historically has been lower in each of the last two quarters of a fiscal year as compared to each of the initial two quarters of that year. This trend is expected to continue and relates to the Company's historical quarterly revenue seasonality patterns that result in various fixed components of domestic cost of revenues being spread over a growing quarterly domestic revenue base. See "Forward-looking Statements." The Company has developed a revised compensation program for its non-management domestic field auditors which it believes will more equitably compensate these individuals for their unique experience, skills and contributions in meeting Company objectives. The revised program has been designed with considerable input from auditor focus groups, has been subjected to thorough in-house testing, and has undergone extensive field tests in the first quarter of 1997. The revised program was implemented in May 1997. The Company has attempted to design the revised program such that future aggregate domestic auditor compensation expense will be unchanged from aggregate amounts which would otherwise be paid under the program historically in place. Although the Company and certain of its domestic auditors have expended considerable time and resources to design the revised program, there can be no assurance that it will meet its design objectives. If the design objectives of the revised compensation program are not achieved, the Company's domestic costs and revenues could be materially and adversely affected. See "Forward-looking Statements." Internationally, cost of revenues as a percentage of revenues was 48.4% and 48.8%, respectively, for the quarter and nine months ended September 30, 1997. For the corresponding periods of 1996, these percentages were 48.7% and 50.6%, respectively. The 1997 improvements resulted primarily from gross margin expansions in the second and third quarters of 1997 in the Company's more established international locations. Selling, General and Administrative Expenses. Selling, general and administrative expenses include the expenses of sales and marketing activities, information technology services and the corporate data center, human resources, legal and accounting, headquarters-related depreciation of property and equipment and amortization of intangibles. Selling, general and administrative expenses as a percentage of revenues decreased to 29.7% of revenues in the third quarter of 1997, down from 30.1% in the third quarter of 1996. For the nine months ended September 30, 1997, selling, general and administrative expenses as a percentage of revenues was 33.6%, down slightly from 33.7% in the comparable period of 1996. On a domestic basis, selling, general and administrative expenses as a percentage of revenues was 26.2% in the third quarter of 1997, up from 25.9% in the comparable quarter of 1996. For the nine months ended September 30, 1997, domestic selling, general and administrative expenses as a percentage of revenues increased to 30.2%, up from 29.7% in the corresponding period of 1996. The Company's 1997 domestic selling, general and administrative expense percentages are higher than the comparable percentages in 1996 due to increased expenditures for various 1997 initiatives such as significantly expanded training programs and period costs associated with intensified mergers and acquisitions efforts. 8 11 Internationally, selling, general and administrative expenses as a percentage of revenues improved to 41.6% of revenues in the second quarter of 1997, compared to 47.7% in the 1996 third quarter. For the nine month periods ended September 30, 1997 and 1996, this percentage likewise improved to 45.1% (1997) from 51.2% (1996). Improvements in 1997 related primarily to various components of fixed costs being spread over a rapidly growing revenue base. In connection with acquired businesses, the Company has recorded intangible assets including goodwill and deferred con-compete costs. Amortization of these intangible assets totaled $365,000 and $278,000 for the quarters ended September 30, 1997 and 1996, respectively, and $1.0 million and $834,000 for the nine month periods ended September 30, 1997 and 1996, respectively. Operating Income. Operating income increased 41.6% to $6.1 million in the third quarter of 1997, up from $4.3 million in the third quarter of 1996. For the nine months ended September 30, 1997, operating income increased 44.4% to $11.2 million, up from $7.7 million in the comparable period of 1996. As a percentage of total revenues, operating income increased to 20.7% for the quarter ended September 30, 1997, up from 19.8% for the quarter ended September 30, 1996. For the nine months ended September 30, 1997, operating income as a percentage of total revenues was 14.6%, up from 13.9% during the comparable period of 1996. Significant revenue increases coupled with operating margin improvements, the components of which are discussed above, yielded the improvements in the 1997 periods. Interest Income (Expense), Net. The Company reported net interest income of $14,000 during the third quarter of 1997, compared to $162,000 during the comparable quarter of 1996. The 1997 reduction relates principally to increased interest expense on growing deferred compensation liabilities and a reduction of investable funds as proceeds from the Company's March 1996 initial public offering are expended on acquired companies and used for other corporate purposes. For the nine months ended September 30, 1997, net interest income was $132,000, compared to net interest expense of $227,000 during the comparable period of 1996. The 1996 nine month period reflects significant levels of interest expense incurred during the first quarter of that year in connection with various debt obligations. Substantially all of such debt obligations were repaid with a portion of the proceeds from the March 1996 initial public offering. Earnings Before Income Taxes. Earnings before income taxes rose 36.8% and 50.5% in the quarter and nine months ended September 30, 1997, respectively, compared to the same periods of 1996. The improvements in earnings before income taxes in the 1997 periods resulted from increased revenues, improved operating margins and changes in interest income (expense), net. Income Taxes. The Company's predecessor entities prior to its initial public offering on March 26, 1996 generally were either corporations electing to be taxed as Subchapter S corporations or partnerships. As a result, any income tax liabilities were the responsibilities of the respective shareholders and partners. In connection with the initial public offering, all domestic entities became C corporations. As a result of these conversions to C corporations, the Company incurred a charge to operations of $3.7 million in the first quarter of 1996 for cumulative deferred income taxes. The provisions for income taxes for all periods subsequent to March 31, 1996 consist of federal and state income taxes at the Company's composite effective rate of 39.0%. The provision for income taxes for the nine months ended September 30, 1997 consists of the above-described $3.7 million charge for cumulative deferred income taxes in the first quarter of such year combined with $2.8 million in tax provisions at a 39.0% composite effective rate for the two quarters subsequent to the March 26, 1996 initial public offering. Pro Forma Income Taxes. The results of operations for the nine months ended September 30, 1996 have been adjusted on a pro forma basis to reflect federal and state income taxes as a composite effective rate of 39.0% as if the Company's predecessors had been C corporations throughout the entire period. LIQUIDITY AND CAPITAL RESOURCES Through December 31, 1996, the Company's predecessors had acquired and assimilated three operating companies and financed these acquisitions primarily through a combination of bank and seller financing. Ongoing Company operations and capital requirements prior to the Company's initial public offering were met 9 12 primarily with cash flows provided by operating activities and, to a lesser extent, with the proceeds from bank and shareholder loans. On April 1, 1996, the Company received its $34.8 million portion of the proceeds (net of underwriting discounts and commissions) from its initial public offering. Of these proceeds, approximately $1.1 million was subsequently utilized to pay expenses of the offering, approximately $4.9 million was used to pay previously declared and unpaid Subchapter S shareholder distributions and partnership distributions, and approximately $14.6 million was used to pay principal and accrued interest on substantially all outstanding interest-bearing debt (other than that portion of certain convertible debt that was converted to Common Stock concurrent with the initial public offering). Of the residual $14.2 million of net proceeds, approximately $2.9 million continued to be available as of September 30, 1997 to expand international operations, to acquire complementary businesses and for general corporate purposes, including working capital. During October 1997, the Company increased its Credit Facility with NationsBank, N.A. from $20.0 million to $30.0 million. The credit facility permits the Company to borrow up to $30.0 million on a term loan basis to finance mergers and acquisitions. Alternatively, the Company, at its option, may utilize up to $10.0 million as a revolving line of credit for working capital and utilize the remaining $20.0 million for mergers and acquisitions. Borrowings under the Credit Facility can be made through September 1999. As of October 30, 1997, the Company had outstanding principal borrowings of $24.7 million under the credit facility at a floating prime interest rate then at 8.5% per annum. Such borrowings were made in October 1997 in connection with the financing of the Alma acquisition. Net cash provided by operating activities was $2.0 million for the nine months ended September 30, 1997. For the nine months ended September 30, 1996, net cash used in operating activities was $378,000. During 1996, the Company overestimated its federal and state income tax liabilities resulting in $2.0 million in refundable income taxes on its Consolidated Balance Sheet at December 31, 1996 which was subsequently recovered by the Company in the first quarter of 1997. Excluding the effect of having recovered this $2.0 million in excess payments, net cash provided by operating activities for the nine months ended September 30, 1997 would have been negligible. Net cash used in investing activities was $7.2 million for the nine months ended September 30, 1997. This total consisted of $4.0 million used to acquire property and equipment (primarily computed-related equipment), $2.1 million paid in connection with the February 1997 acquisition of Accounts Payable Recovery Services, Inc., and $1.1 million paid in connection with the May 1997 acquisition of The Hale Group. Net cash used in investing activities was $4.5 million for the nine months ended September 30, 1996. Due to the Company's rapid growth, the Company doubled the size of its Atlanta home office during 1996 to approximately 45,000 square feet. This project was completed in the third quarter of 1996 and, combined with ongoing computer-related equipment additions, comprised the majority portion of the Company's property and equipment additions for the nine months ended September 30, 1996. From January 1, 1997 through October 30, 1997, the Company acquired four recovery audit firms. The Company is pursuing, and intends to continue to pursue, the acquisition of domestic and international businesses including both direct competitors and businesses providing other types of recovery services. Future acquisitions may include much larger businesses than those acquired to date. There can be no assurance, however, that the Company will be successful in consummating further acquisitions due to factors such as receptivity of potential acquisition candidates and valuation issues. Additionally, there can be no assurance that future acquisitions, if consummated, can be successfully assimilated into the Company. See "Forward-looking Statements." Net cash provided by financing activities was $603,000 for the nine months ended September 30, 1997 and consisted of proceeds from the exercise of certain employee stock options. Net cash provided by financing activities was $19.1 million for the nine months ended September 30, 1996, and reflects proceeds from the Company's initial public offering, net of repayments of debt and other obligations paid from those proceeds. The Company believes that its current working capital, its existing line of credit and cash flow generated from future operations will be sufficient to meet the Company's working capital and capital expenditure requirements through September 30, 1998 unless one or more acquisitions are consummated which require the Company to seek additional debt or equity financing. 10 13 NEW ACCOUNTING STANDARDS The Company has determined that the adoption of Statement of Financial Accounting Standards No. 128, "Earnings per Share", will not have a material impact on the Company's reported per share results of operations. This pronouncement is effective for periods ending after December 15, 1997, including interim periods; earlier application is not permitted. Once effective, this pronouncement requires restatement of all prior-period earnings per share data presented. Statement of Financial Accounting Standards No. 130, "Reporting Comprehensive Income", establishes standards for reporting and display of comprehensive income and its components (revenues, expenses, gains and losses) in a full set of general purpose financial statements. This Statement requires that all items that are required to be recognized under accounting standards as components of comprehensive income be reported in a financial statement that is displayed with the same prominence as other financial statements. The Company believes that its components of comprehensive income will consist principally of traditionally-determined net income and foreign currency translation adjustments. This Statement is effective for fiscal years beginning after December 15, 1997. Reclassification of financial statements for earlier periods provided for comparative purposes is required. Statement of Financial Accounting Standards No. 131, "Disclosures about Segments of an Enterprise and Related Information" establishes revised standards for the manner in which public business enterprises report information about operating segments. The Company does not believe that this Statement will significantly alter the segment disclosures it currently provides. This Statement is effective for fiscal years beginning after December 15, 1997. FORWARD-LOOKING STATEMENTS Statements made in this Form 10-Q for the quarter ended September 30, 1997 that state the Company's or management's intentions, hopes, beliefs, expectations or predictions of the future are forward-looking statements within the meaning of the Private Securities Litigation Reform Act of 1995. It is important to note that the Company's actual results could differ materially from those contained in such forward-looking statements. Additional information concerning factors that could cause actual results to differ materially from those in forward-looking statements is contained from time to time in the Company's SEC filings including the Risk Factors section of the Company's Prospectus dated July 29, 1997 included in registration statement number 333-31805 on Form S-3. ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK Not applicable. 11 14 PART II. OTHER INFORMATION ITEM 1. LEGAL PROCEEDINGS None. ITEM 2. CHANGES IN SECURITIES None. ITEM 3. DEFAULTS UPON SENIOR SECURITIES None. ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS None. ITEM 5. OTHER INFORMATION None. ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K (a) Exhibits 3.1 -- Articles of Incorporation of the Registrant (incorporated by reference to Exhibit 3.1 to Registrant's March 26, 1996 registration statement number 333-1086 on Form S-1). 3.2 -- Bylaws of the Registrant (incorporated by reference to Exhibit 3.2 to Registrant's March 26, 1996 registration statement number 333-1086 on Form S-1). 10.1 -- Contract for the Mandate of the President of the Directorate, dated October 7, 1997, between Alma Intervention and Marc Eisenberg. 10.2 -- Consulting Agreement, dated October 7, 1997, between the Registrant and Lieb Finance S.A. 10.3 -- Second Amendment to Employment Agreement, dated September 17, 1997, between The Profit Recovery Group International I, Inc. and John M. Cook. 10.4 -- Employment Agreement, dated October 17, 1997, between The Profit Recovery Group International I, Inc. and Michael A. Lustig. 10.5 -- Compensation Agreement, dated October 17, 1997, between The Profit Recovery Group International I, Inc. and Michael A. Lustig. 10.6 -- First Amendment to Loan and Security Agreement, dated October 3, 1997, between NationsBank, N.A. and the Registrant and its subsidiaries. 11.1 -- Statement Re: Computation of net earnings per share. 27.1 -- Financial Data Schedule (for SEC use only).
(b) Reports on Form 8-K On July 30, 1997, Registrant filed a report on Form 8-K dated July 29, 1997 which contained Registrant's press release of July 14, 1997 whereby Registrant reported its financial results for the quarter ended June 30, 1997. 12 15 SIGNATURES Pursuant to the requirements of the Securities Exchange Act of 1934, the Registrant has duly caused this report to be signed on its behalf by the undersigned, thereunto duly authorized. THE PROFIT RECOVERY GROUP INTERNATIONAL, INC. Dated: November 7, 1997 By: /s/ DONALD E. ELLIS, JR. -------------------------------------------- Donald E. Ellis, Jr. Senior Vice President, Treasurer and Chief Financial Officer (principal financial officer) Dated: November 7, 1997 By: /s/ MICHAEL R. MELTON -------------------------------------------- Michael R. Melton Vice President -- Finance (principal accounting officer)
13 EX-10.1 2 CONTRACT FOR THE MANDATE 1 EXHIBIT 10.1 CONTRACT FOR THE MANDATE OF THE PRESIDENT OF THE DIRECTORATE BETWEEN THE UNDERSIGNED: ALMA INTERVENTION, a Societe Anonyme with a Supervisory Board (Conseil de Surveillance) and Directorate (Directoire), having its registered office at Domaine des Bois d'Houlbec, Houlbec Cocherel, 27120 Pacy s/ Eure, registered at the Companies Registry of Evreux under number B 339 602 195, represented by Mr John Cook, Chairman of the Supervisory Board, duly empowered for these purposes, hereinafter referred to as "ALMA", ON ONE HAND, AND MR MARC EISENBERG, born 9 April 1955 in Paris, 75014, of French nationality, residing at 14, rue Margueritte, 75017 Paris. ON THE OTHER HAND. IT HAS BEEN AGREED AND DECIDED AS FOLLOWS: 1. MANDATE The Supervisory Board of ALMA has appointed Mr Marc Eisenberg as member and President of the Directorate for a mandate of five years, unless sooner terminated in accordance with the terms hereof. Mr Marc Eisenberg will perform the duties incumbent upon the "President of the Directorate" of ALMA as from the date of his appointment, according to the terms and conditions set forth below. 2. MANAGERIAL DUTIES Mr Marc Eisenberg will be mandated to exercise all powers necessary for the management of the company's assets and will be empowered, for this purpose, to carry out all acts and enter into any and all contracts of any kind or form involving ALMA within the limit of ALMA's object and interest and within the limits of this agreement. Subject to the terms and conditions of this agreement, Mr Marc Eisenberg will have complete discretionary control of ALMA signature and will be empowered within the limit of the objects of ALMA and on behalf of ALMA, to enter into any contract, assume any obligation, make any waiver, sign any comprise ("compromis") and act in -1- 2 every circumstance on behalf of ALMA, without having to produce authorization or power of attorney specifically granted powers for any of the above purposes. Mr Marc Eisenberg will devote all of his time and efforts for the proper performance of his contractual duties. It is, however, expressly agreed that Mr Marc Eisenberg shall be able to engage and pursue other non-competitive activities so long as such activities do not interfere with his duties hereunder. 3. SPECIAL AUTHORIZATIONS 3.1 SPECIFIC DECISIONS REQUIRING COUNTERSIGNATURE The parties agree, in accordance with ALMA Memorandum and Articles of Association ("Statuts") that Mr Marc Eisenberg will be required to secure, for any transaction (or series of related transactions) involving an amount exceeding FRF 1,000,000, the signature of another Member of the Directorate; similarly, for any transaction (or series of related transactions) involving a sum in excess of FRF 2,000,000, Mr Marc Eisenberg must secure prior authorization from the Chairman of the Supervisory Board in addition to the signature of another member of the Directorate. 3.2 AUTHORIZATION OF THE SUPERVISORY BOARD Mr Marc Eisenberg is required to obtain the express agreement of the Supervisory Board prior to the implementation of the following decisions: - any issuing of shares or securities of any nature, including, particularly, those issued in fulfillment of a promise or in payment of dividends; - any change in the Statuts or any decisions that would be designed to or result in any change in the Statuts; - the establishment, acquisition or transfer of any subsidiary, branch or office or the holding of any securities or deeds of any third company, with the exception of securities ALMA may hold it being understood that the Chairman of the Supervisory Board will be entitled to determine the types of investments that are made by Alma; - the signature of any loan agreement involving a sum in excess of FRF 2,000,000; - the granting or concession of any charge over ALMA's assets in order to guarantee a sum greater than FRF 2,000,000; - the concession or granting of any pledge, security or guarantee, other than the guarantees or pledges provided for in the preceding subparagraph, involving a sum exceeding the total annual ceiling authorized by the Supervisory Board, but only as regards securities intended to guarantee a good provision of services ("la bonne fin") provided by ALMA to its clients within the scope of its present activity; -2- 3 - the drawing-up of accounts following each financial year as well as the allocation of earnings and, especially, the decision to pay dividends; - the ceasing of any core activity of ALMA; - the commencement of a new core activity which would not be a logical continuation of ALMA's present business; - appointment of Auditors; - the signing or termination of any contract involving (i) a term in excess of three years, or (ii) yearly expenses for ALMA in excess of FRF 1,000,000, with the following exceptions: a) contracts signed with clients of ALMA; b) agreements signed with attorneys or with other brokers or agents in the normal course of company activity whose compensation does not exceed 10% of the amounts invoiced by ALMA in connection with a given file; - the acquisition or transfer of any assets with a value in excess of FRF 1,500,000; - the signing of any new collective agreement with the employees; - the hiring of any person whose base salary could exceed FRF 1,000,000 and whose total earnings could exceed FRF 2,000,000 or whose contractual termination compensation could equal or exceed six months of salary; - any amendment or modification of Eric Eisenberg's employment contract; - any change in the employment contract of any employee which would increase the employee's total remuneration in excess of FRF 2,000,000 or diminish any non-competition covenants; - the termination of any employee or representative whose total annual salary exceeds FRF 1,000,000, with the exception of any termination for serious and gross misconduct (faute lourde ou faute grave); - any additional remuneration or benefits to or for the benefit of Mr Marc Eisenberg. In the event of the Supervisory Board's refusal to authorize any of the above actions listed above, Mr Marc Eisenberg can, should he deem it useful, convene an Extraordinary General Assembly. 3.3 QUARTERLY REPORT TO THE SUPERVISORY BOARD In addition to reports reasonably requested by the Supervisory Board or required by law, every quarter a report on new litigation or legal proceedings initiated by ALMA and exceeding an initial risk threshold of FRF 400,000 will be submitted to the Supervisory Board, with the exception of accounts collection proceedings. -3- 4 Failure by the Supervisory Board to approve such litigation will require the Directorate to put an end to such litigation or legal proceeding as expedioustly as possible. Failure to comply with the provisions of this article 3 will constitute just grounds for terminating Mr Marc Eisenberg's appointment as President of the Directorate. 4. SALARY Mr Marc Eisenberg will earn, by virtue of this agreement, a gross fixed annual salary of FRF 975,000. In addition, from and including, the fiscal year 1 January 1998 - 31 December 1998, Mr Marc Eisenberg is entitled to a variable sum determined in accordance with ALMA's success in meeting performance goals as defined in article 10 below. This variable sum will be calculated according to the scale below: - meeting threshold: 20% of the fixed salary; - meeting target: 44% of the fixed salary; - meeting stretch: 67% of the fixed salary. The variable sum will be paid to Mr Marc Eisenberg during the month following the certification of the accounts of the relevant year under US GAAP by the joint Auditors and at the latest by 31 March following the end of said fiscal year. In order to be eligible to receive the variable sum referred to above for any fiscal year, Mr Marc Eisenberg must be providing services to ALMA pursuant to this agreement at the end of such fiscal year. If Mr Marc Eisenberg resigns or his appointment is terminated for any reason whatsoever, he shall not be entitled to any variable sum for the fiscal year in which such resignation or termination occurs or thereafter provided that if Mr Marc Eisenberg's appointment hereunder is terminated by Alma other than for faute grave or lourde or breach of the non competition clauses in article 8 below after 30 June in any calendar year, Mr Marc Eisenberg will be entitled to the variable sum for such year on a prorata basis. 5. STOCK OPTION In the event that ALMA meets the target level of performance set out in Article 10 below for the annual period ended 31 December 1998, he will automatically become party to a separate Stock Option Agreement in substantially the form attached hereto as Annex 1 ("STOCK OPTION AGREEMENT") in accordance with which Mr Marc Eisenberg will be granted non-qualified options ("OPTIONS") to purchase 50,000 shares of PRG's no par Common Stock under The Profit Recovery Group International, Inc. 1996 Stock Option Plan at a purchase price equal to the closing price per share of PRG's Common Stock as reported by NASDAQ on the date of such grant, or if such date is not a date on which PRG's Common Stock trades, then the closing price per share on the next preceding trading day. The Options granted to Mr Marc Eisenberg pursuant hereto shall vest over a five (5) year period from the date of grant at the rate of twenty (20%) per cent per year. -4- 5 Unvested portions of the Option's shall terminate upon the death or disability of Mr Marc Eisenberg, or termination of his appointment hereunder. Mr Marc Eisenberg will be eligible for additional stock options during the term hereof at the sole discretion of PRG's Compensation Committee in recognition of his contribution to the success of PRG and ALMA. 6. PAYMENT OF COMPENSATION UPON TERMINATION In the event of the termination, other than for one or more of the five conditions specified below, of Mr Marc Eisenberg's mandate by ALMA, the parties agree that a special compensation will be paid to Mr Marc Eisenberg. This compensation payment upon termination is granted in recognition of the following: - Mr Marc Eisenberg's ratifying the non-competition clause; - services rendered in the interest of ALMA by Mr Marc Eisenberg; - the moral damage resulting from his termination. It is expressly agreed between the parties that this compensation is unseverable and that each of the above conditions is sufficient in and of itself to justify payment of the termination compensation. In the event that this compensation is demanded pursuant to the provisions of this agreement, it shall be considered by the parties to be an irrevocable and uncontestable, except as expressly provided for herein. This sum of this termination compensation is set at the equivalent amount in French Francs of USD 1,000,000 (one million US dollars). However, this termination compensation will not be due should the termination result from one or any of the conditions set forth below: 1. Grave or gross misconduct (faute grave or faute lourde) in accordance with the definition of these terms under French jurisprudence by Mr Marc Eisenberg. 2. In the event Mr Marc Eisenberg violates the terms of the non-competition clause set forth in article 8 below, or the restrictions set forth in clause 10 of the Sales Agreement of this date. 3. In the event that ALMA fails to meet its threshold levels of performance set out in article 10, for a period of two consecutive term years it being understood that the decision to terminate Mr Marc Eisenberg's mandate will have to be made within the period of three months from the date where the General Assembly recorded the failure to meet ALMA's threshold performance level. 4. In the event of Mr Marc Eisenberg's resignation, the death of Mr Marc Eisenberg or of his Total Disability, as defined below. -5- 6 5. Mr Marc Eisenberg's failure or refusal to comply with the provisions of article 3 where such failure constitutes faute grave or faute lourde. In the event Mr Marc Eisenberg is unable due to illness, accident or any other physical or mental incapacity to perform the services required of him hereunder for NINETY (90) days within any ONE HUNDRED EIGHTY (180) day period, or such earlier date as the law permits, the Chairman of the Supervisory Board may appoint another person (the "INTERIM PRESIDENT") to serve in Mr Marc Eisenberg's place and stead as a member and President of the Directorate. The appointment of such Interim President shall not be deemed a termination of Mr Marc Eisenberg's appointment hereunder and shall not entitle Mr Marc Eisenberg to any termination compensation. The Interim President may continue to serve in Mr Marc Eisenberg's place and stead until the earlier of (i) such time as Mr Marc Eisenberg's condition has resolved such that he is able and willing to resume his duties hereunder, or (ii) the expiration of the five year term of this agreement. If there is any dispute as to whether Mr Marc Eisenberg is able to resume his duties hereunder, the issue shall be determined by medical doctor(s) as provided in section (ii) of the paragraph immediately below. During any such disability, Mr Marc Eisenberg shall be entitled to receive salary or other remuneration hereunder to the extent that Alma receives reimbursement from the French government in respect of such salary or other remuneration and is obliged by law to top up such reimbursement. For purposes of this agreement, Mr Marc Eisenberg shall be deemed Totally Disabled if (i) it is determined that he is totally disabled by the standards established by health insurance medical experts, or (ii) in the judgement of both a medical doctor selected by the Chairman of the Supervisory Board and a medical doctor selected by Mr Marc Eisenberg, or his legal representative (or, in the event such doctors fail to agree, then in the majority opinion of such doctors and a third medical doctor chosen by such doctors) that Mr Marc Eisenberg's disability is such that he is unable due to illness, accident or any other physical or mental incapacity to perform the services required of him hereunder in substantially the same manner as he was as of the commencement of the term of this agreement, and that such condition is not likely to resolve within the then remaining period of this agreement. In the event Mr Marc Eisenberg disputes the validity of his termination pursuant to paragraph 1 or 5 above and of legal proceedings in respect of this special termination compensation are undertaken, this compensation will be placed in escrow by ALMA, in a CARPA account designated by ALMA, within 15 days from the date of notification of dispute. This sum will only be paid to Mr Marc Eisenberg provided that a definitive court decision confirms that the grounds for witholding payment of the special termination compensation are invalid. In the contrary case, said sum will be reimbursed to ALMA from the escrow account. Accrued interest on the amount held in escrow will be paid to the beneficiary of the sum awarded by a court. -6- 7 In the event that The Profit Recovery Group International Inc. ("PRG"), would transfer directly or indirectly, control of ALMA to a third party during the initial five year period defined by this agreement, the special compensation described above will be payable to Mr Marc Eisenberg, even pursuant to his resignation, within such five year period, provided at the time of such resignation none of the five conditions of termination set forth above exist. This agreement having been contractually established for a period of five years, it is expressly agreed between the parties that the termination compensation provided for will not be payable by ALMA after the expiration of this first term. 7. NOTICE OF TERMINATION Mr Marc Eisenberg's appointment pursuant to this agreement may be terminated by Mr Eisenberg by giving ALMA thirty days prior written notice, which notice however may be waived by ALMA. 8. NON-COMPETITION Mr Marc Eisenberg undertakes not to solicit or hire, directly or indirectly, any persons who are or becomes employees, independent contractors or agents of ALMA or any of its subsidiaries (the "ALMA GROUP"), PRG or any of its affiliates in whatever capacity, even in the case of activities not in direct competition with those of the ALMA Group or PRG or any of its affiliates. The non-solicitation of employees and independent contractors contained in the previous paragraph of this article 8 excludes the solicitation or hiring of independent contractors other than those who provide substantially all of their services to ALMA, so long as it is for a non-competitive business and the contractor agrees not to solicit other employees or contractors on behalf of Mr Marc Eisenberg. He further undertakes not to solicit or serve any of the customers of the ALMA Group or PRG or any of its affiliates, directly or indirectly, on his own behalf or on behalf of others for any purpose whatsover. He further undertakes not to take any interest, direct or indirect (with the exception of interests not exceeding 5% of a company whose shares are quoted on a Stock Exchange) in companies or groups which are in competition with the business of the ALMA Group or PRG or any of its affiliates, on French territory or in any other country where the ALMA Group or PRG or any of its affiliates conducts their business at the date of termination of this agreement. He undertakes to abstain from providing any services, directly or indirectly, which are in competition with the business of the ALMA Group or of PRG or any of its affiliates, on French territory or in any other country where the ALMA Group or PRG or any of its affiliates could conduct their business as carried on at the date of termination of this agreement. -7- 8 All of the above undertakings provided for by this clause are to be undertaken during the period of this agreement and for a period of five years from the date of Mr Marc Eisenberg's departure from ALMA for any reason whatsoever. This period will however be reduced to three years in the event of termination of Mr Marc Eisenberg by ALMA during the initial five years of this agreement on whatever ground except for (i) serious or gross misconduct (faute grave or lourde), (ii) violation of the terms of the non-competition clause set forth in this article 8, the confidentiality clause set forth in article 9 below or the restrictions set forth in clause 10 of the Sales Agreement. The period of five years, from Mr Marc Eisenberg's departure from ALMA at any time after the initial five years will be reduced to two years from such departure in the event of termination of Mr Marc Eisenberg by ALMA on whatever ground except for (i) serious or gross misconduct (faute grave or lourde), or (ii) violation of the terms of the non-competition clause set forth in this article 8, the confidentiality clause set forth in article 9 below or restrictions set forth in clause 10 of the Sales Agreement. 9. CONFIDENTIALITY During the term of this agreement, and for a period of five years from the date of Mr Marc Eisenberg's departure from ALMA for any reason whatsoever, Mr Marc Eisenberg will not divulge to any third party whatsoever or use for his own or another's advantage any of the trade secrets or confidential know-how or confidential financial or trading information as to customers of the ALMA Group, PRG or its affiliates, or in relation to the business, finances, dealings or affairs of the ALMA Group, PRG or any of its affiliates except insofar as Mr Marc Eisenberg may prove the same has become a matter of public knowledge (otherwise than by a breach by him of this clause) or insofar as such disclosure may be required by law. Mr Marc Eisenberg undertakes to keep confidential any information not intended release to the public, any know-how, any intellectual property, any patents, etc, involving any aspect of ALMA's, or any aspect of one its subsidiary's, business. Mr Marc Eisenberg accepts and agrees that breach by him of this confidentiality clause will constitute grave or gross misconduct (faute grave or lourde) by him. 10. PERFORMANCE LEVELS Mr Marc Eisenberg will deploy his best efforts to ensure that ALMA meets performance levels set out below: - for ALMA's fiscal year ending on 31 December 1998, the threshold performance level, the target performance level and the stretch performance level are, respectively, FRF 28,800,000, FRF 31,900,000 and FRF 38,300,000 of the net result before taxation; - for ALMA's subsequent fiscal years (established for a twelve month period), the threshold performance level will be equal to 120% of the net result before taxation on the books for the previous year; and, should it be necessary, this threshold performance level will be subject to redefinition by consensus taking in account of any changes that may affect ALMA's Business. -8- 9 It is further specified that, for the purposes of measuring ALMA's achievement of the various levels of performance, the sum of any payment made by the Principals in compensation for any loss sustained by ALMA under the terms of the WARRANTY AGREEMENT signed on the date of the transfer of control of ALMA to PRG to a party other than ALMA will be included in the accountancy of the net result. Conversely, the following items will not be included in the calculation of the net result for the purposes of measuring ALMA's achievement of the various levels of performance: - the impact of any change of accounting methods imposed on ALMA; - the amount of any royalty payment or other management fee levied by PRG or any other company within the PRG Group on ALMA; provided, however, that direct charges of actual amounts incurred by PRG or any other company within PRG for or on behalf of ALMA, including but not limited to any compensation or other remuneration paid to Mr Marc Eisenberg or Mr Eric Eisenberg. In the event that ALMA fails to meet its threshold performance level as defined in article 10, for a period of two consecutive term years, this will constitute valid grounds for revoking Mr Marc Eisenberg's mandate, provided however that such revocation will have to be decided upon within three months from the preparation of the accounts of the relevant financial year. 11. PROTECTED INFORMATION All software, computer diskettes, CDs, video tapes, files, audit reports and other information in writing or in print or any other presentation as well as all Technical Information and Trade Secrets relating to the business of the ALMA Group to which Mr Marc Eisenberg will have access under the terms and conditions of this agreement shall be and remain the sole and exclusive property of ALMA. For this reason, upon the termination of his agreement for whatever reason whatsoever, Mr Marc Eisenberg will deliver the entirety of the foregoing that are in his possession and that constitute property belonging to ALMA. 12. INVENTIONS Mr Marc Eisenberg has the duty to disclose any product, service, invention, improvement, discovery, process, formula, program, system or method (collectively "INVENTIONS") that he develops that relate in any way to this agreement or to the business of the ALMA Group and for the term of his mandate. These Inventions shall become the sole and exclusive property of ALMA provided that they directly relate to the actual business of the ALMA Group, that they coincide with actual or anticipated development of the business of the ALMA Group and that these Inventions were made or conceived by Mr Marc Eisenberg, either solely by Mr Marc Eisenberg or jointly with others, in the exercise of his mandate. -9- 10 These Inventions shall constitute protected information for the purpose of the preceding article. Mr Marc Eisenberg promises to execute and deliver any document, and, more generally do such other acts as necessary for securing all right, title and interest of ALMA in and to any such Invention. 13. COPYRIGHTS Mr Marc Eisenberg understands that any original works of authorship fixed in tangible form that he shall develop during and according to the terms of his mandate, either solely by Mr Marc Eisenberg or jointly with others, will constitute property belonging to ALMA. 14. COMPANY CAR - BUSINESS EXPENSES - BENEFITS ALMA shall place at the disposal of Mr Marc Eisenberg a motor car being a BMW, ZI model or its equivalent, insured and maintained at the cost of ALMA and the fuel and parking costs relating to the use of the car will be paid by ALMA as well as petrol, toll and parking expenses incurred. In addition, Mr Marc Eisenberg shall continue to enjoy the benefit of a professional residence, maintained according to the same terms and under the same conditions as when he was Chairman of the Board of Directors of ALMA. All reasonable expenses of Mr Marc Eisenberg incurred in connection with the exercise of his mandate will be reimbursed to him against invoices and proof of expenditure. Mr Marc Eisenberg will have the benefit of health insurance for directors in accordance with the law during the term of his appointment. 15. SUBMISSION TO JURISDICTION This agreement shall be governed by and construed in accordance with French Law and any litigation relating to its execution, to its interpretation and to its termination will be governed by a court of the jurisdiction of the Court of Appeals where ALMA is headquartered. 16. NOTICES Any notice to be given under this Agreement shall be given in writing by certified mail, return receipt requested, and addressed as set forth below: If to ALMA: 114, rue Chaptal 92532 Levallois Perret Cedex -10- 11 with copies to: The Profit Recovery Group International, Inc. 2300 Windy Ridge Parkway Suite 100 North Atlanta, GA 30339-8426 Attention: Clinton McKellar, Jr Senior Vice President and General Counsel and to: Ashurst Morris Crisp 22, rue de Marignan 75008 Paris Attention: Christopher Crosthwaite If to Mr Marc Eisenberg: 14, rue Margueritte 75017 Paris The date of notice is the date of receipt of the letter, the return receipt authenticating its receipt. 17. CHANGES TO THE AGREEMENT Any modification of or change made to this agreement shall be done by an additional agreement, executed, approved and signed by John Cook, Chairman of the Supervisory Board (whilst in office) and thereafter by the Chairman of the Supervisory Board, and Mr Marc Eisenberg. 18. SEVERABILITY Any provision that may be declared null and void by a court of a given jurisdiction, shall remain null and void within that jurisdiction. However, the nullity of one provision shall not operate or be construed as affecting any other provision nor as affecting the validity of the overall agreement. MADE ON 7 OCTOBER 1997, AT LONDON. - ----------------------------------- MR JOHN COOK FOR ALMA INTERVENTION - ----------------------------------- MR MARC EISENBERG -11- EX-10.2 3 CONSULTING AGREEMENT 1 EXHIBIT 10.2 CONSULTING AGREEMENT This Consulting Agreement (the "AGREEMENT") is entered into as of this 7th day of October, 1997, between THE PROFIT RECOVERY GROUP INTERNATIONAL, INC., a Georgia corporation (the "COMPANY") and Lieb Finance SA, a company organized under the laws of Luxembourg (the "CONSULTANT"). WHEREAS, this Agreement is related to the acquisition of shares and control of Financiere Alma SA ("FA"), Alma Intervention SA ("AI"), and certain other subsidiaries of AI (collectively the "ALMA GROUP") by Company pursuant to that certain Sale Agreement of even date herewith among the Company, Marc Eisenberg (M. Eisenberg) and Eric Eisenberg (the "SALE AGREEMENT"); and WHEREAS, the Company has requested that the Consultant through the services of its sole owner and employee, Marc Eisenberg ("M. EISENBERG") assist the Company in promoting the Company and the Alma Group in certain portions of Europe and providing strategic consulting services to the Company and its affiliates in Europe with respect to market development and penetration and long-term planning with particular emphasis on the image and services of the Company; and WHEREAS, M. Eisenberg will also serve as a member and President of the Directorate of AI pursuant to the Contract for the Mandate of the President of the Directorate between AI and M. Eisenberg of even date herewith ( the "MANDATE"), a copy of which is attached hereto as ANNEX 1. NOW, THEREFORE, in consideration of the mutual covenants contained herein and other good and valuable consideration the receipt of which is hereby acknowledged, the parties agree as follows: 1. Consulting Services 1.1 The Consultant shall make available the services of M. Eisenberg, subject to his obligations under the Mandate, on a reasonable and continuing basis to consult with the Company on strategic and long-term planning matters for the Company and its affiliates in certain portions of Europe. 1.2 During the term of this Agreement and for five years thereafter the Consultant shall not engage in any activity, which M. Eisenberg has undertaken not to engage in clause 10 of the Sale Agreement or the sections of the Mandate entitled "NON-COMPETITION AND CONFIDENTIALITY." -1- 2 2. Term and Termination 2.1 This Agreement shall be in force and effect for a period of five years from the date hereof, unless sooner terminated as hereinafter provided. 2.2 Upon the termination or revocation of the Mandate for any reason whatsoever, including without limitation, M. Eisenberg's resignation from his appointment under the Mandate, this Agreement shall automatically terminate concurrently with the termination or revocation of the Mandate. Consultant may resign its engagement under this Agreement by giving the Company thirty days prior written notice, which notice, however, may be waived by the Company. 2.3 In the event of termination or revocation of the Mandate by AI and as a result of such revocation or termination under the specific terms of the Mandate M. Eisenberg is entitled to the termination compensation specified in Section 6 thereof without regard to the enforceability of such provision of the Mandate under French law, then to the extent that AI does not pay such termination compensation to M. Eisenberg, either directly or indirectly, such unpaid termination compensation shall be paid by the Company pursuant to this Agreement. 3. Consulting Fees 3.1 For the provision of the consulting services hereunder the Consultant shall be entitled during the term hereof to receive payment to the Consultant's designated account (as the Consultant from time to time may designate in writing to the Company) in the annual sum of US$ equivalent of 325,000 FRF, less any required federal, state and local withholding and payroll taxes, which net amount shall be due and payable in arrears in equal monthly installments. Notwithstanding anything to the contrary contained herein, during any period in which M. Eisenberg is not entitled to receive salary or other remuneration as a result of his disability as provided in the Mandate, Consultant shall not be entitled to any consulting fees or other remuneration under this Agreement. 3.2 The first such monthly installment shall be due and payable on November 10, 1997. Subsequent installments for the duration of this Agreement shall be due and payable on the tenth day of each month thereafter. 3.3 Subject to compliance with the Company's standard expense reimbursement policies, the Company shall reimburse the Consultant for all reasonable out-of-pocket expenditures and disbursements incurred by the Consultant in connection with the performance of duties under this Agreement. The Consultant shall submit requests for such reimbursement, accompanied by copies of invoices or other reasonable support data. The Company shall promptly pay submissions to -2- 3 the Company in accordance with the Company's standard expense reimbursement policies, accompanied by the appropriate supporting data. 4. Confidentiality 4.1 During the term of this Agreement, and for a period of five years from the date of termination for any reason whatsoever, Consultant will not divulge to any third party whatsoever or use for its own or another's advantage any of the trade secrets or confidential know-how or confidential financial or trading information as to clients of the Alma Group, the Company or its affiliates, or in relation to the business, finances, dealings or affairs of the Alma Group, the Company or any of its affiliates except insofar as Consultant may prove the same has become a matter of public knowledge (otherwise than by a breach by him of this clause) or insofar as such disclosure may be required by law. 4.2 Consultant undertakes to keep confidential any information not intended release to the public, any know-how, any intellectual property, any patents, etc, involving any aspect of the business of the Company or any of its affiliates or the Alma Group. 5. Protected Information All software, computer diskettes, CDs, video tapes, files, audit reports and other information in writing or in print or any other presentation as well as all technical information and trade secrets relating to the business of the Company and any of its affiliates or the Alma Group to which Consultant will have access under the terms and conditions of this Agreement shall be and remain the sole and exclusive property of the Company or the Alma Group, as appropriate. For this reason, upon the termination of this Agreement for whatever reason whatsoever, Consultant will deliver the entirety of the foregoing that are in its possession and that constitute property belonging to the Company or the Alma Group. 6. Copyrights and Inventions 6.1 Consultant has the duty to disclose any product, service, invention, improvement, discovery, process, formula, program, system or method (collectively "INVENTIONS") that it develops that relate in any way to this Agreement or to the business of the Company or any of its affiliates or the Alma Group and for the term of this Agreement. These Inventions shall become the sole and exclusive property of the Company or the Alma Group, as appropriate provided that they directly relate to the actual business of the Company or the Alma Group, that they coincide with actual or anticipated development of the business of the Company or the Alma Group and that these Inventions were made or conceived by Consultant or its sole employee, -3- 4 either solely by Consultant or its sole employee or jointly with others. These Inventions shall constitute protected information for the purpose of the preceding article. Consultant agrees to execute and deliver any document, and, more generally do such other acts as necessary for securing all right, title and interest of the Company or the Alma Group, as appropriate in and to any such Invention. 6.2 Consultant acknowledges and agrees that any original works of authorship fixed in tangible form that Consultant or its sole employee shall develop during and according to the terms of this Agreement, either solely by Consultant or its sole employee or jointly with others, will constitute property belonging to the Company or the Alma Group, as appropriate. 7. Successors and Assigns Neither party may assign this Agreement; provided, however, that the Company may assign this Agreement to any subsidiary or affiliate of the Company so long as the Company remains liable to Consultant hereunder. 8. Severability In the event one or more of the words, phrases, sentences, clauses or subdivisions or subparagraphs herein shall be held to be invalid, this Agreement shall be construed in such manner as to give validity to all other provisions. 9. Jurisdiction 9.1 This Agreement shall be governed by the laws of Georgia. 9.2 The Consultant hereby irrevocably submits to the jurisdiction of the federal courts within the State of Georgia and hereby appoints the Secretary of State of the State of Georgia as agent for purpose of receiving service of process in respect of any proceeding in such courts relating to this Agreement or its enforcement. 10. Notices Any notice to be given under this Agreement shall be given in writing and shall be effected personal delivery or by sending such notice by certified mail, return receipt requested and addressed as set forth below. If to the Company: John M. Cook, Chairman and CEO The Profit Recovery Group International, Inc. 2300 Windy Ridge Parkway, Suite 100 North Atlanta, Georgia 30339-8426 -4- 5 If to the Consultant: Lieb Finance SA c/o Wilinski & Scotto 19, rue Marbeuf 75008 Paris 11. Waiver The waiver by one party of a breach of any provision of this Agreement by the other party shall not operate or be construed as a waiver of any subsequent breach of the same or any other provision by the other party. 12. Authorization 12.1 The Company represents and warrants to the Consultant that the execution, delivery and performance of this Agreement has been authorized and approved by all necessary corporate actions. 12.2 The Consultant represents and warrants to the Company that the execution, delivery and performance of this Agreement has been authorized and approved by all necessary corporate actions. 13. Entire Agreement This Agreement, together with the Mandate and the other documents referred to therein constitute the entire agreement of the parties with respect to the subject matter hereof and supercedes any prior discussions, understandings or agreements with respect to such subject matter. 14. Counterparts This Agreement may be executed in one or more counterparts, each of which shall be deemed an original, and together shall constitute one and the same agreement. -5- 6 IN WITNESS WHEREOF, the parties hereto have executed this Agreement at Broadwalk House, 5 Appold Street, London EC2A 2HA, as of the date first written above. THE PROFIT RECOVERY GROUP INTERNATIONAL, INC. By: Mr Clinton McKellar, Jr. Title: Senior Vice President and General Counsel - ------------------------------------------------- By: Marc Eisenberg Title: Sole Representative -6- EX-10.3 4 SECOND AMENDMENT TO EMPLOYMENT AGREEMENT 1 EXHIBIT 10.3 SECOND AMENDMENT TO EMPLOYMENT AGREEMENT THIS SECOND AMENDMENT is made this 17th day of September, 1997, effective as of the 22nd day of July, 1997, by and among THE PROFIT RECOVERY GROUP INTERNATIONAL I, INC., a Georgia corporation (the "Company") and JOHN M. COOK (hereinafter referred to as "Employee"). W I T N E S S E T H: WHEREAS, Company, as successor to The Profit Recovery Group International II, L.P., and and Employee are parties to that certain Employment Agreement dated March 20, 1996, as amended by that certain First Amendment to Employment Agreement, dated March 7, 1996, effective as of December 31, 1996 (the "Employment Agreement"); and WHEREAS, Company and Employee desire to amend the Employment Agreement. NOW, THEREFORE, for good and valuable consideration, the adequacy and receipt of which are acknowledged, the parties hereto do hereby agree as follows: 1. The Section 1(b) of Exhibit B to the Employment Agreement is hereby deleted in its entirety and replaced with the following new Section 1(b) of Exhibit B to the Employment Agreement: "(b) Bonus. Commencing with the Term Year beginning January 1, 1997, an annual bonus ("Bonus") in an amount determined as provided herein for such Term Year and each succeeding Term Year during the term hereof, payable in a lump sum within ninety (90) days following the end of each such Term Year. The maximum potential Bonus for any Term Year shall be one hundred fifty (150%) percent of Employee's Base Salary for such Term Year. For each Term Year, Employee shall be entitled to a Bonus if and only if the following annual increases in EPS, as hereinafter defined, are achieved by the Company during such Term Year over the immediately preceding Term Year: (i) "Threshold" - Employee shall be entitled to a Bonus in an amount equal to fifty (50%) percent of his Base Salary if EPS increase by twenty (20%) percent or more but less than thirty (30%) percent; (ii) "Target" - Employee shall be entitled to a Bonus in an amount equal to one hundred (100%) percent of his Base Salary if EPS increase by thirty (30%) percent or more but less than forty (40%) percent; and 2 (iii) "Stretch" - Employee shall be entitled to a Bonus in an amount equal to one hundred fifty (150%) percent of his Base Salary if EPS increase by forty (40%) percent or more. 2. Except to the extent expressly modified above, the Employment Agreement shall remain in full force and effect as originally executed. IN WITNESS WHEREOF, and intending to be legally bound hereby, the parties have hereunto affixed their hands and seals the day and year first written above. THE PROFIT RECOVERY GROUP INTERNATIONAL I, INC. By: -------------------------------------- Clinton McKellar, Jr. Title: Senior Vice President, General Counsel and Secretary EMPLOYEE: ------------------------------------------- John M. Cook 40 Cates Ridge Atlanta, GA 30327 -2- EX-10.4 5 EMPLOYMENT AGREEMENT 1 EXHIBIT 10.4 EMPLOYMENT AGREEMENT THIS EMPLOYMENT AGREEMENT ("Agreement"), is made as of the 17th day of October, 1997, effective as of January 1, 1997 (the "Effective Date"), by and between THE PROFIT RECOVERY GROUP INTERNATIONAL I, INC., a Georgia corporation (the "Company") and MICHAEL A. LUSTIG, a resident of the State of Georgia (the "Employee"). W I T N E S S E T H: WHEREAS, the Company desires to retain Employee to provide services to the Company and its Affiliates (as defined in Section 23 below), and Employee desires to provide his services to the Company pursuant to the terms and conditions that follow; NOW, THEREFORE, in consideration of the mutual promises and covenants hereinafter contained and other good and valuable consideration, the receipt and sufficiency of which are hereby acknowledged, the parties do hereby agree as follows: 1. EMPLOYMENT. Employee shall serve as President of the Company. Employee agrees to apply Employee's full time efforts to the position and to perform Employee's work at all times to the best of Employee's ability and at the direction of the Chief Executive Officer of the Company. Employee will render to the Company at regular intervals set by the Company, reports and accounting of the status and progress of any work Employee is performing. 2. TERM. The initial term of this Agreement shall commence on January 1, 1997, and shall continue until December 31, 1997, unless sooner terminated as hereinafter provided. Unless otherwise terminated pursuant to Section 14 hereof, this Agreement shall automatically renew on a year-to-year basis at the end of the initial term and each subsequent renewal term unless either party gives written notice of non-renewal to the other at least ninety (90) days prior to the end of the initial term or a renewal term. The initial term of this Agreement and any subsequent one-year renewal period shall be deemed a "Term Year." 3. SCOPE OF THE COMPANY'S ACTIVITIES. Employee acknowledges and agrees that the Company conducts the following business in the following territories: (a) Scope of the Company's Business. The Company is engaged in the business of auditing accounts payable, paid bill files, promotional and demonstrator agreements, personal property, real estate, sales and use tax and other taxes, common area maintenance charges, telephone and other utilities, sales promotion, advertising and cosmetic wage/commission agreements of its Clients, as hereinafter defined, to identify and document for subsequent charge back or credit over-payments and/or under deductions (collectively, the "Audit Activities"), and rendering management counseling services associated with the Audit Activities (collectively, the "Business of the Company"). 2 (b) Location of the Company's Business. The Company actively conducts business with its clients (herein referred to as "Clients") throughout the United States, Australia, Belgium, Canada, France, Germany, Great Britain, Hong Kong, Indonesia, Malaysia, Mexico, the Netherlands, New Zealand, Singapore, South Africa, Taiwan, and Thailand. The address of the Company's principal office in Atlanta, Georgia where Employee provides substantially all of his services on behalf of the Company is 2300 Windy Ridge Parkway, Suite 100, North, Atlanta, Cobb County, Georgia 30339-8426 (the "Principal Office"). 4. COMPENSATION. For services rendered by Employee under this Agreement during the term hereof, Employee shall be entitled to receive the compensation and benefits set forth in Sections 10, 11 and 12 hereof and in that certain Compensation Agreement by and between Employee and the Company (the "Compensation Agreement"), which provides in part that as of the Effective Date Employee's Base Salary (as defined therein) is Two Hundred Forty-Five Thousand and No/100 ($245,000.00) Dollars), exclusive of Twenty Thousand and No/100 ($20,000.00) Dollars of salary to be deferred in accordance therewith, subject to any future amendment of the Compensation Agreement. 5. STOCK OPTION. Employee and The Profit Recovery Group International, Inc., a Georgia corporation ("PRGX"), are party to one or more separate stock option agreements in accordance with which Employee has been granted non-qualified options to purchase One Hundred Eleven Thousand Five Hundred (111,500) shares of PRGX Common Stock under the 1996 Stock Option Plan (the "Plan"). Additionally, the Company will grant Employee 37,500 stock options if the Company's earnings per share ("EPS") for 1997 increases by at least thirty-five (35%) percent over 1996 EPS. If EPS for 1997 increases by more than forty (40%) percent over 1996 EPS, the total stock option awarded will be increased to 75,000 stock options. The Company shall have the right to revise the 1997 EPS targets stated above to reflect business and organizational changes occurring during 1997 that are outside of the ordinary course of PRGX's business, including adjustments to exclude extraordinary charges incurred in connection with PRGX's acquisition of Groupe Alma. Any stock options so granted which relate to increases in 1997 EPS over 1996 EPS will (i) vest ratably and proportionately over four (4) years and be reflected in the form of The Profit Recovery Group International, Inc. Non-Qualified Stock Option Agreement previously adopted and approved by the Company's Compensation Committee, (ii) be granted at fair market value as of December 31, 1997; and (iii) relate to and be part of Employee's compensation package for 1997, notwithstanding that KPMG Peat Marwick will need additional time after the end of 1997 to complete its audit in order to make a final determination of whether the earnings per share goals were achieved. 6. SPECIFIC ACKNOWLEDGMENTS. Employee acknowledges that the Company has expended and will continue to expend substantial time, money, effort and other resources to develop its goodwill, clients, business sources and relationships and that the Company has a legitimate business interest in protecting same. In connection with Employee's employment by the Company as herein provided, the Company will introduce Employee to its Clients, business sources and relationships and will expend considerable time, effort and capital to train Employee in the business of the Company. Employee further acknowledges that, by virtue of Employee's employment with the Company, Employee will be in a position of substantial responsibility and authority and will have frequent and substantial contact with certain of the Company's Clients and business sources and relationships. Employee further acknowledges that in Employee's capacity, Employee will be privy to certain confidential information, Company secrets 2 3 and proprietary information not generally known or available to the Company's competitors or the general public. (a) Agreement Not to Compete - Competing Businesses. Employee covenants and agrees that during Employee's employment by the Company and for a period of eighteen (18) months after the termination of Employee's employment for any reason whatsoever, of such employment, he will not, without the prior written consent of the Company signed by the President of the Company, directly or indirectly, (i) for himself or (ii) as a consultant, management, supervisory or executive employee or owner of a Competing Business, as hereinafter defined, or (iii) as an independent contractor for a Competing Business, engage in any business, within a radius of thirty (30) miles of the Principal Office, for which Employee provides services which are the same or substantially similar to his duties as Employee as herein described. (b) Agreement Not to Solicit Clients. Employee covenants and agrees that during Employee's employment by the Company and for a period of eighteen (18) months after termination of Employee's employment for any reason whatsoever, Employee will not, without the prior written consent of the Company signed by the President of the Company, directly or indirectly, on Employee's behalf or on behalf of a Competing Business, as hereinafter defined, solicit, divert or appropriate, or attempt to solicit, divert or appropriate any of the Company's Clients for whom Employee performed services or otherwise had direct contact, influence and/or responsibility during the twenty-four (24) month period immediately preceding the termination of Employee's employment with the Company (or such shorter period if Employee is employed for less than 24 months) for the purpose of providing services of the type identified in Section 3 (a) hereof. Employee's covenants pursuant to this subsection (b) shall also apply to prospective customers of the Company with respect to which Employee participated in soliciting on behalf of the Company during the twenty-four (24) month period immediately preceding the termination of Employee's employment with the Company (or such shorter period if Employee is employed for less than 24 months). (c) Agreement Not to Solicit Employees or Contractors. Employee covenants and agrees that during Employee's employment by the Company and for a period of eighteen (18) months after termination of Employee's employment for any reason whatsoever, Employee will not, without the prior written consent of the Company signed by the President of the Company, directly or indirectly, on Employee's behalf or on behalf of others, solicit, entice, persuade or induce, or attempt to solicit, entice, persuade or induce any person who is actively employed by, or is performing services as an independent contractor for, the Company and (i) who was employed by, or was performing services as an independent contractor for, the Company at any time during which Employee was employed by the Company and (ii) who reported to Employee or was within Employee's chain of responsibility, or (iii) who had regular contact with Employee, to terminate his or her employment or contractual arrangement with the Company or to become employed or engaged by any person, firm or entity other than the Company, or approach any such person for any of the foregoing purposes or authorize or assist in the taking of any such action by any third party. 3 4 (d) Proprietary Information. All Proprietary Information, as hereinafter defined, and all physical embodiments thereof received or developed by Employee or disclosed to Employee while employed by the Company is confidential to and is and will remain the sole and exclusive property of the Company. Except to the extent necessary to perform the duties assigned to Employee by the Company, Employee will hold such Proprietary Information in trust and in the strictest confidence, and will not use, reproduce, distribute, disclose or otherwise disseminate the Proprietary Information or any physical embodiments thereof and may in no event take any action causing or fail to take the action necessary in order to prevent any Proprietary Information disclosed to or developed by Employee to lose its character or cease to qualify as Proprietary Information. The confidentiality requirements and use restrictions contained in this subsection shall survive any termination of Employee's employment with the Company but shall not apply (i) to any information that falls into the public domain through no fault of Employee, or (ii) to Proprietary Information which is not Trade Secrets, as hereinafter defined, when a period of five (5) years has expired following the termination of Employee's employment with Company. Upon request by the Company, and in any event upon termination of Employee's employment with the Company for any reason, Employee will promptly deliver to the Company all property belonging to the Company, including without limitation all Proprietary Information (and all physical embodiments thereof) then in Employee's custody, control, or possession. (e) Contracts or Other Agreements with Former Employer or Business. Employee agrees that Employee will provide to the Company, upon the execution of this Agreement, a copy of the pertinent portions of any employment agreement or similar document executed by Employee with a former employer or any other business. Employee warrants and represents that (i) the execution and delivery of this Agreement by Employee and the performance of the obligations, covenants and agreements contained herein, do not and will not conflict with or result in any breach or violation of any of the terms and provisions of any agreement, judgment, order, statute or other instrument or restriction of any kind with respect to which Employee is bound, and (ii) Employee is not subject to any restrictive covenant agreement, covenant not to compete, nonsolicitation agreement or other agreement that would prohibit Employee from carrying out Employee's duties hereunder. (f) Definitions. - "Competing Business" means any business organization of whatever form engaged, either directly or indirectly, in any business or enterprise which is the same as, or substantially the same as, the Business of the Company, as defined in Section 2(a) hereof. - "Proprietary Information" means information related to the Company or its Affiliates or clients (i) which derives economic value, actual or potential, from not being generally known to or readily ascertainable by other persons who can obtain economic value from its disclosure or use; and (ii) which is the subject of efforts that are reasonable under the circumstances to maintain its secrecy. Such Proprietary Information shall include information in any form or media and shall not necessarily be in writing. Proprietary Information also includes information which has been disclosed to the Company or its Affiliates by a third party and which the Company or its Affiliates are obligated to treat as confidential. Trade Secrets means Proprietary Information which meets the foregoing criteria and which is also deemed to be a "Trade Secret" as that term is defined in the Georgia Trade Secrets Act of 1990, O.C.G.A. ss. 10-1-760, et. seq., including but not limited to technical and nontechnical data, formulas, 4 5 patterns, compilations, programs, devices, methods, techniques, drawings, processes, financial data, financial plans, product plans, and lists of actual or potential customers and suppliers. Proprietary Information may or may not be marked by the Company or its Affiliates as "proprietary" or "secret" or with other words or markings of similar meaning, and the failure of the Company to make such notations upon the physical embodiments of any Proprietary Information shall not affect the status of such information as Proprietary Information. 7. OWNERSHIP BY COMPANY. All software, computer diskettes, CDs, video tapes, literature, cassettes, photographs, prints, slides, records, notes, files, memoranda, reports, audit reports, price lists, client lists, documents, and all copies thereof, equipment, and apparatus and like items relating to the business of the Company, Proprietary Information or Trade Secrets which shall be prepared by Employee or which shall be disclosed to or which shall come into Employee's possession shall be and remain the sole and exclusive property of the Company. Employee agrees that, upon the termination of employment with the Company for any reason whatsoever, or at any other time upon request, Employee will promptly deliver to the Company the originals and all copies of any of the foregoing that are in Employee's possession, custody or control, and any other property belonging to the Company. 8. INVENTIONS. Employee agrees that, during the term of this Agreement, Employee has a continuing duty to disclose to the Company any invention, improvement, discovery, process, formula, code, program, system or method (collectively, "Inventions") developed or being developed by Employee any time during the term of Employee's employment, either solely by Employee or jointly with others, whether or not such Inventions are assignable to the Company as set forth below. Any Invention which Employee has conceived or made or may conceive or make at any time while employed by the Company, either solely by Employee or jointly with others, (a) which relate in any way to the actual Business of the Company, or (b) which relate in any way to the actual or anticipated research or development of the Company, or (c) which are suggested by or result from any task assigned to Employee on behalf of the Company, shall be the sole and exclusive property of the Company, and Employee hereby assigns to the Company any right, title or interest Employee may have to such Invention. Furthermore, any such Invention shall constitute Proprietary Information as set forth above. At the request and expense of the Company, Employee will execute and deliver all documents and will do such other acts as may be in the Company's opinion necessary or desirable to secure to the Company or its nominee all right, title and interest in and to any such Invention. The provisions of this Section shall be binding upon Employee's heirs, legal representatives, successors and assigns. 9. COPYRIGHTS. Employee understands that any original works of authorship fixed in tangible form, including, without limitation, computer software and manuals, advertising material, and training material, prepared by Employee, either solely or jointly with others, within the scope of Employee's employment by the Company, constitute works made for hire as provided by law, so that such works are owned by the Company. If, for any reason, a work of authorship by Employee created during the term of Employee's employment by the Company and related to the Business of the Company is considered other than a work for hire, then Employee hereby assigns all Employee's right, title and interest in copyrights to such works of authorship to the Company. 10. INSURANCE AND BENEFITS. 5 6 (a) Subject to Employee being insurable at standard rates as of the commencement of employment (or when coverage is applied for, as applicable) and to the availability of such coverage from the Company's customary insurance providers, the Company shall (i) obtain on Employee's behalf life, disability, hospitalization and medical insurance coverage in accordance with the Company's standard group coverage, (ii) pay the premiums, or reimburse Employee for premiums paid, to obtain, coverage as described below in addition to the Company's standard group coverage in accordance with the Company's standard policies and procedures: (A) basic term life insurance policy at the best available rates for a fifteen (15) year level term type product, but not higher than standard nonsmoker rates, in an amount of coverage equal to One Million ($1,000,000) Dollars, and (B) disability income insurance coverage, which, when added to the standard group coverages, will provide a monthly benefit of sixty (60%) percent of the sum of (x) Employee's current Base Salary, (y) any amount of Bonus (as defined in the Compensation Agreement) payable to Employee, without adjustment or deduction for any Bonus amount the payment of which was deferred pursuant to this Agreement, for the Term Year preceding the Term Year in which the disability occurs, and (z) any amount of salary for the Term Year in which the Disability occurs the payment of which is deferred pursuant to this Agreement, and (iii) share the cost of Employee's health insurance premiums in accordance with the Company's standard employee policies and procedures. The Company will reimburse Employee for any amount incurred in connection with an annual physical examination not covered by insurance. (b) Employee shall be provided an annual automobile allowance of Twelve Thousand and No/100 ($12,000.00) Dollars, payable in accordance with the Company's customary procedures, which amount shall be reviewed annually and may be modified in writing prior to the commencement of any Term Year. (c) The Company will pay for an executive financial program for Employee as provided by Advisory Services, Ltd. (d) Employee shall be entitled to participate in any 401(k) Plan of the Company generally available to other employees of the Company, except as may be limited by applicable law or regulation. (e) The Company shall pay Employee's reasonable travel and business expenses (including air travel at coach rate), subject to Employee's submission of receipts therefor in accordance with the Company's normal practices and procedures. (f) Any amounts the Company pays for insurance coverage or fringe benefits that are supplemental or in addition to the Company's standard insurance coverage or benefits shall be compensation in addition to Base Salary (but not included within the definition of Base Salary) and shall be reflected on Employee's W-2. 6 7 11. PAYMENT OF COMPENSATION UPON TERMINATION. In addition to any deferred compensation to which Employee might be entitled pursuant to Section 12 hereof following Employee's termination of employment, Employee shall receive the following compensation upon the termination of Employee's employment under the Employment Agreement: (a) In the event Employee's employment hereunder is terminated for cause or if Employee voluntarily resigns, Employee shall be entitled to receive Employee's Base Salary prorated through the date of termination, payable within sixty (60) days after termination and Employee shall not be entitled to receive any Bonus (as defined in the Compensation Agreement), or any other amount in respect of the Term Year in which termination occurs or in respect of any subsequent years. (b) In the event Employee's employment hereunder is terminated by the Company without cause, Employee shall be entitled to receive Base Salary and Bonus for the Term Year in which such termination occurs prorated through the date of such termination, plus a severance payment equal to six (6) months of Base Salary at the rate then in effect and shall not be entitled to receive any other amount in respect of the Term Year in which termination occurs or in respect of any subsequent years. The prorated Base Salary shall be payable in a lump sum within sixty (60) days after termination, the prorated Bonus shall be payable in a lump sum within ninety (90) days after the end of the Term Year to which it relates, and the severance payment shall be payable in six (6) equal monthly installments commencing on the last day of the first month following termination. If the Company gives Employee notice of non-renewal pursuant to Section 2 of this Agreement, it shall be deemed to be a termination of Employee's employment without cause and Employee shall be entitled to compensation pursuant to this Section 11(b). (c) In the event Employee's employment hereunder is terminated by Employee's death, Employee's legal representative shall be entitled to receive Base Salary and Bonus for the Term Year in which such termination occurs prorated through the date of such termination and any other payments specifically provided for herein in respect of death and shall not be entitled to receive any other amount in respect of the Term Year in which termination occurs or in respect of any subsequent years. The prorated Base Salary shall be payable in a lump sum within sixty (60) days after termination and the prorated Bonus shall be payable in a lump sum within ninety (90) days after the end of the Term Year to which it relates. (d) In the event Employee's employment hereunder is terminated for Disability, Employee or Employee's legal representative shall be entitled to receive (A) Base Salary and Bonus for the Term Year in which such termination occurs prorated through the date of such termination, with the prorated Base Salary payable to Employee payable in a lump sum within sixty (60) days after termination and the prorated Bonus payable in a lump sum within ninety (90) days after the end of the Term Year to which it relates; and (B) Base Salary at the rates in effect upon the date of such termination payable in accordance with the Company's normal payroll procedure until the disability payments provided for under any of the Company's standard group disability insurance coverage provided pursuant to Section 10(a) hereof are scheduled to commence (but in no event longer than ninety (90) days after the date of Employee's termination) and shall not be entitled to receive any other amount in respect of the Term Year in which termination occurs or in respect of any subsequent years. 7 8 (e) In the event this Agreement is not renewed due to the Company giving Employee notice of non-renewal pursuant to Section 2 hereof, Employee shall be entitled to receive such severance payment or any other amount with respect to the Company's non-renewal of this Agreement as if such non-renewal were termination without cause hereunder. Non-renewal by Employee shall give rise to no right to receive any severance payment hereunder. (f) If Employee's employment hereunder terminates for any reason during a Term Year, Employee will be paid within sixty (60) days of termination for all unused vacation time accrued up to the date of termination. 12. DEFERRED COMPENSATION. (a) Annual Deferred Compensation Credit. An account ("Employee's Account") has been maintained on the books and records of the Company for the purposes hereinafter provided. As of December 31, 1996, the amount credited to Employee's Account, whether vested or unvested (the "Credit Balance"), equals $40,903.22 (including $903.18 in accrued interest). As of the end of each Term Year beginning with the Term Year ending December 31, 1997, the Credit Balance of Employee's Account shall be increased by an amount equal to the sum of (i) the Salary Deferred Compensation Credit (as defined in the Compensation Agreement) for such Term Year, and (ii) Twenty Thousand and No/100 ($20,000.00) Dollars (the "Company Deferred Compensation Credit"). In the event of the termination of Employee's employment hereunder for any reason prior to the end of any Term Year, however, no credits shall be made to Employee's Account with respect to a Company Deferred Compensation Credit for such Term Year. Employee's Account shall also be credited from and after the date hereof with an amount computed like interest on the credit balance of Employee's Account at the Prime Rate (as hereinafter defined). For these purposes, the Salary Deferred Compensation Credit and all interest so accrued on the credit balance of Employee's Account shall be deemed to be credited to Employee's Account as of the end of each month of each Term Year, and the Company Deferred Compensation Credit shall be deemed to be credited to Employee's Account as of December 31 of each Term Year, as provided in Section 12(b) hereof. As used in this Agreement, the term "Prime Rate" means the rate publicly announced from time to time by NationsBank, N.A. (South), Atlanta, Georgia, as its "prime rate." (b) Vesting. The provisions of this Section 12(b) shall determine the portion of Employee's Account which is vested and eligible for payment in accordance with Section 12(c) hereof. (i) General Vesting Rule. Subject to the other provisions of this Section 12(b), Employee shall in all events be immediately vested in the portion of Employee's Account attributable to all Salary Deferred Compensation Credits (as defined in the Compensation Agreement) and interest credited with respect thereto (as determined pursuant to Section 12(a) hereof). Subject to the other provisions of this Section 12(b), Employee's right to the portion of Employee's Account attributable to each Company Deferred Compensation Credit and all interest credited with respect thereto (as determined pursuant to Section 12(a) hereof) will vest as follows: (A) Employee's rights shall be immediately vested as of the end of the Term Year for which such amount is credited with respect to that portion of the Company Deferred Compensation Credit equal to the product of ten (10%) percent of the Company Deferred Compensation Credit multiplied by the number of calendar years elapsed from the end of the calendar year in respect of which any funds were first credited to Employee's Account to the Term Year 8 9 for which such amount is credited (except in the case of termination of Employee's employment hereunder without cause, in which case vesting of the product described in this sentence in respect to the Term Year in which termination without cause occurs will be prorated through the date of termination), and (B) thereafter, Employee's rights to the remainder of each Term Year's Company Deferred Compensation Credit shall vest based on ten (10%) percent of the Balance for each subsequent year until Employee is one hundred (100%) percent vested in such Company Deferred Compensation Credit. As a result of clause (A) and clause (B) above, all contributions shall be fully vested at the end of ten (10) Term Years. (ii) Termination Due to Death or Disability. In the event of termination of Employee's employment hereunder due to death or Disability, then notwithstanding anything to the contrary in Section 12(b)(i) hereof, Employee, in the event of Disability, or Employee's Beneficiary, in the event of Employee's death, shall be vested in the Credit Balance of Employee's Account. (iii) Termination for Gross Cause. Upon the termination of Employee's employment hereunder for Gross Cause, notwithstanding anything to the contrary in Section 12(b)(i) hereof, Employee shall be vested in the Salary Deferred Compensation Credit in Employee's Account as of the end of the month preceding such termination or resignation but shall not be vested in any portion of the Company Deferred Compensation Credit, regardless of whether or not previously vested, or any interest accrued thereon. (iv) No Further Credits. Upon Employee's termination of employment hereunder for any reason, no further increase in the Credit Balance shall be made to Employee's Account. (c) Payments Following Termination of Employment. (i) Termination. In the event of termination of Employee's employment hereunder for any reason, Employee (or, in the event of Employee's death, Employee's Beneficiary) shall receive a payment equal to the portion of the Credit Balance of Employee's Account which is vested in accordance with Section 12(b) hereof within sixty (60) days after the earlier to occur of (A) Employee's death, or (B) such termination of Employee's employment. (ii) Forfeiture of Balance of Employee's Account. The portion of the Credit Balance of Employee's Account which is not vested in accordance with Section 12(b) hereof following termination of Employee's employment hereunder shall be forfeited and Employee shall not be entitled to any payment with respect thereto. 9 10 (d) Beneficiary. Employee shall have the right to designate a beneficiary ("Beneficiary") under this Agreement who shall succeed to Employee's right to receive payments with respect to this Section 12 hereof in the event of Employee's death. In the event Employee fails to designate a Beneficiary or a Beneficiary dies without Employee's designation of a successor Beneficiary, then for all purposes hereunder the Beneficiary shall be Employee's estate. No designation of Beneficiary shall be valid unless in writing signed by Employee, dated and delivered to the Company. Beneficiaries may be changed by Employee without the consent of any prior Beneficiary. (e) Rights Unsecured; Unfunded Plan; ERISA. (i) The Company's obligations arising under this Section 12 hereof to pay benefits to Employee or Employee's Beneficiary constitute a mere promise by the Company to make payments in the future in accordance with the terms hereof and Employee and Employee's Beneficiary have the status of a general unsecured creditor of the Company. Neither Employee nor Employee's Beneficiary shall have any rights in or against any specific assets of the Company. (ii) It is the intention of the Company and Employee that the Company's obligations under this Section 12 hereof be unfunded for income tax purposes and for purposes of Title I of the Employee Retirement Income Security Act of 1974, as amended ("ERISA"). (iii) The Company and Employee shall treat its obligations under this Section 12 hereof as maintained for a select group of management or highly compensated employees exempt from Parts 2, 3 and 4 of Title I of ERISA. The Company shall comply with the reporting and disclosure requirements of Part 1 of Title I of ERISA in accordance with U.S. Department of Labor Regulation ss.2520.104-23. (f) Nonassignability. The rights Employee and Employee's Beneficiary to payments pursuant to this Section 12 hereof are not subject in any manner to anticipation, alienation, sale, transfer, assignment, pledge, encumbrance attachment, or garnishment by creditors of Employee or Employee's Beneficiary. 13. REMEDIES. (a) Employee acknowledges and agrees that, by virtue of the duties and responsibilities attendant to Employee's employment by the Company and the special knowledge of the Company's affairs, business, clients and operations that Employee has and will have as a consequence of such employment, irreparable loss and damage will be suffered by the Company if Employee should breach or violate any of the covenants and agreements contained in Sections 6, 7, 8, or 9 hereof; and Employee further acknowledges and agrees that each of such covenants is reasonably necessary to protect and preserve the Company. Employee, therefore, agrees and consents that, in addition to any other remedies available to it, the Company shall be entitled to specific performance by temporary as well as permanent injunction to prevent a breach or contemplated breach by Employee of any of the covenants or agreements contained in such Sections. 10 11 (b) The existence of any claim, demand, action or cause of action that Employee may have against the Company, whether predicated upon this Agreement or otherwise, shall not constitute a defense to the enforcement by the Company of any of the covenants contained in Sections 6, 7, 8, or 9 hereof. (c) Nothing contained in this Agreement shall limit, abridge or modify the rights of the parties under applicable trade secret, trademark, copyright or patent law or under the laws of unfair competition. (d) In the event a court of competent jurisdiction determines that Employee has breached any of the foregoing covenants contained in Sections 6, 7, 8, or 9 hereof, Employee shall pay all costs of enforcement of the foregoing covenants, including, but not limited to, court costs and reasonable attorney's fees. 14. TERMINATION. (a) This Agreement may be terminated by the Company for "cause" upon delivery of notice of termination to Employee. As used herein, "cause" shall mean (i) fraud, dishonesty, gross negligence, willful misconduct, commission of a felony or act of moral turpitude (e.g. theft, embezzlement and the like), or (ii) engaging in activities prohibited by Sections 6, 7, 8, or 9 hereof, or any other material breach of this Agreement, and "Gross Cause" shall refer to any item or items listed in subclause 14(a)(i) immediately above. (b) This Agreement may be terminated by the Company or Employee without cause by giving the other party thirty (30) days prior written notice and such termination shall be effective on the thirtieth (30th) day following receipt of such notice or such earlier date as the parties shall mutually agree. (c) In the event of Employee's Disability, physical or mental, the Company shall have the right, subject to all applicable laws, including without limitation, the Americans with Disabilities Act ("ADA"), to terminate Employee's employment immediately. For purposes of this Agreement, the term "Disability" shall mean Employee's inability, in the judgment in accordance with the ADA, of both a medical doctor selected by the Company and a medical doctor selected by Employee or Employee's legal representative (or, in the event that such doctors fail to agree, then in the majority opinion of such doctors and a third medical doctor chosen by such doctors) due to illness, accident or any other physical or mental incapacity to perform the services required of Employee hereunder for an aggregate of ninety (90) days within any period of one hundred eighty (180) consecutive days during which this Agreement is in effect. 15. SUCCESSORS AND ASSIGNS. This Agreement may not be assigned by Employee. This Agreement may be assigned by the Company. 16. SEVERABILITY. In the event that one or more of the words, phrases, sentences, clauses, sections, subdivisions or subparagraphs contained herein shall be held invalid, this Agreement shall be construed as if such invalid portion had not been inserted, and if such invalidity shall be caused by the length of any period of time, the number or location of Clients, the size of any area, or the description of the duties of Employee set forth in any part hereof, such period of time, number or location of Clients, 11 12 area, or description of duties, or any combination thereof, shall be considered to be reduced to a period, number, location, area or description which would cure such invalidity. 17. SUBMISSION TO JURISDICTION. This Agreement shall be governed by and construed under the laws of the State of Georgia. Employee hereby agrees to submit to the jurisdiction of the courts of the State of Georgia or the federal courts within the State of Georgia and hereby appoints the Secretary of State of the State of Georgia as agent for the purpose of receiving service of process in respect of any proceeding in connection herewith. Time is of the essence of this Agreement and each and every Section and subsection hereof. 18. NOTICES. Any notice to be given under this Agreement shall be given in writing and may be effected by personal delivery or by placing such in the United States certified mail, return receipt requested and addressed as set forth below: If to Company: The Profit Recovery Group International I, Inc. 2300 Windy Ridge Parkway Suite 100, North Atlanta, Georgia 30339-8426 Attention: Chairman of the Board If to Employee: At the address specified below Employee's signature. 19. REQUIRED DEDUCTIONS OR WITHHOLDINGS. All amounts payable to Employee pursuant to the Employment Agreement or the Compensation Agreement shall have deducted or withheld therefrom by the Company such amount or amounts as may be required to be so deducted or withheld pursuant to applicable federal, state or local laws. 20. ENTIRE AGREEMENT AND AMENDMENT. The Employment Agreement, the Compensation Agreement and the Plan constitute the entire agreement of the parties hereto with respect to the subject matter hereof and supersedes all prior discussions, understandings and agreements among the parties hereto, including, without limitation, that certain Employment Agreement dated November 27, 1996 and that certain Compensation Agreement also dated as of November 27, 1996. Any such prior agreements other than the Plan shall, from and after the effective date hereof, be null and void. This Agreement may not be changed orally, but only by an agreement in writing signed by the party against whom enforcement of any waiver, change, modification, extension or discharge is sought. 21. WAIVER. The waiver by one party of a breach of any provision of this Agreement by the other party shall not operate or be construed as a waiver of any subsequent breach of the same or any other provision by the other party. 22. AUTHORIZATION. The Company represents and warrants to Employee that this Agreement has been authorized and approved by all necessary corporate actions. 12 13 23. AFFILIATES. As used herein, "Affiliates" shall mean PRGX, and all entities, whether now or hereafter existing, 51% or more of the outstanding capital stock of which is owned by any combination of the Company and/or any Affiliate and which are engaged in substantially the same business as the Business of the Company regardless of the industry segment of its Clients and/or which provide services or employees to the Company or any Affiliate in connection with the operations thereof. 24. COUNTERPARTS. This Agreement may be executed in one or more counterparts, each of which shall be deemed an original and together which shall constitute one and the same instrument. IN WITNESS WHEREOF, the parties hereto have executed this Agreement as of the date first written above. COMPANY: THE PROFIT RECOVERY GROUP INTERNATIONAL I, INC. By: ------------------------------------- John M. Cook, Chief Executive Officer EMPLOYEE: (SEAL) ---------------------------------------- Michael A. Lustig 2660 Peachtree Road, N.W. #6H Atlanta, GA 30305 13 EX-10.5 6 COMPENSATION AGREEMENT 1 EXHIBIT 10.5 COMPENSATION AGREEMENT THIS COMPENSATION AGREEMENT ("Agreement") is made this 17th day of October, 1997 effective as of January 1, 1997 (the "Effective Date"), by and between THE PROFIT RECOVERY GROUP INTERNATIONAL I, INC., a Georgia corporation (the "Company") and MICHAEL A. LUSTIG, a resident of the State of Georgia (the "Employee"). W I T N E S S E T H: WHEREAS, the parties hereto are party to that certain Employment Agreement, dated September __, 1997 and effective as of the Effective Date (the "Employment Agreement") whereby the Company employs Employee as President of the Company's Retail, Wholesale and Government Divisions, and Employee accepts such employment in accordance with the terms thereof; and WHEREAS, the Employment Agreement provides that the compensation payable to Employee shall be as set forth herein (any terms capitalized but not otherwise defined herein shall have the meanings ascribed to them in the Employment Agreement). NOW, THEREFORE, in consideration of the foregoing and of the mutual promises and covenants contained herein and other good and valuable consideration the receipt and sufficiency of which are hereby acknowledged, the parties hereto hereby agree as follows: 1. COMPENSATION. For services rendered by Employee under the Employment Agreement during the term thereof, Employee shall be entitled to receive the following compensation (subject to following sections), provided that such compensation and Performance Goals (as defined below) may be reviewed annually and modified by the Company in writing prior to the commencement of any Term Year. (a) Base Salary. Two Hundred Forty-Five Thousand and No/100 ($245,000.00) Dollars) ("Base Salary") shall be payable in accordance with the Company's customary payroll procedures. For purposes of this Agreement, the term "Adjusted Base Salary" shall mean and refer to the sum of Employee's Base Salary and Twenty Thousand and No/100 ($20,000.00) Dollars (such Twenty Thousand and No/100 ($20,000.00) Dollars, together with interest accrued thereon as hereinafter provided, is hereinafter referred to as the "Salary Deferred Compensation Credit"). Employee's Salary Deferred Compensation Credit shall not be paid to Employee but such amount shall instead be deferred and credited to Employee's Account (as defined in Section 12(a) of the Employment Agreement) as deferred compensation in accordance with Section 12 of the Employment Agreement. In the event of termination of Employee's employment under the Employment Agreement for any reason during any Term Year, no portion of the Salary Deferred Compensation Credit shall be credited to Employee's Account in respect of the month in which such termination occurs or any subsequent period. (b) Bonus. An annual bonus ("Bonus") in an amount determined and payable as provided herein for each Term Year during the term of the Employment Agreement, payable in a lump sum within ninety (90) days following the end of each Term Year; provided, however, that Employee shall be entitled to a Bonus only if certain Performance Goal Attainment Measures (as set forth in Exhibit 1 hereto) are achieved by Employee and the Company. The amount of any Bonus will depend on which Performance Goal Payout Level (as defined in Exhibit 1 hereto) Employee and the Company have 2 attained. The Performance Goal Attainment Measures and related provisions applicable to Employee hereunder are set forth in the "Incentive Summary" attached as Exhibit 1 hereto. The maximum potential Bonus shall be established from time to time by mutual consent of the parties hereto, but, assuming no decrease in Base Salary, shall not be less than One Hundred Thirty-Two Thousand Five Hundred and No/100 ($132,500.00) Dollars per Term Year without Employee's consent. 2. TERMINATION. This Agreement shall terminate effect upon the termination of the Employment Agreement; provided, however, that all provisions hereof relating to any actions, including payment, subsequent to termination shall survive such termination. 3. INCORPORATION BY REFERENCE. The provisions of the Employment Agreement are hereby incorporated herein by reference. 4. SUCCESSORS AND ASSIGNS. This Agreement may not be assigned by Employee. In the event that the Employment Agreement is assigned this Agreement shall be assigned to the assignee thereof. 5. COUNTERPARTS. This Agreement may be executed in one or more counterparts, each of which shall be deemed an original and together which shall constitute one and the same instrument. IN WITNESS WHEREOF, the parties hereto have executed this Agreement as of the date first written above. COMPANY: THE PROFIT RECOVERY GROUP INTERNATIONAL I, INC. By: ----------------------------------------- John M. Cook, Chief Executive Officer EMPLOYEE: (SEAL) -------------------------------------------- Michael A. Lustig -2- 3 EXHIBIT 1 1997 PRG Executive Incentive Plan Summary Annual Payout Objective - To motivate and reward outstanding performance, and to reinforce and support PRG's strategic plans and financial goals. - Attract and retain highly talented associates by offering a competitive total compensation package. Plan Payouts - Incentive awards under the plan will be based upon year-to-date base salary earnings for the period January 1, 1997 - December 31, 1997. - Incentive plan measurements/goals and levels of payout are shown on the attached incentive summary. Also attached are definitions for each of the measurement categories. - One-fifth of the payout is attributable to meeting each of the four quarters' goals in each category of measurement, and one-fifth is attributable to meeting the annual goals for each category of measurement. - Incentive payments will be paid within 60 days following the end of the fiscal year. Participants must be actively employed in order to receive awards. Exceptions may be made in terminations due to retirement, disability, or death. - Participants must have satisfactory performance at the time payments are made to be eligible. Participants on performance plans are not eligible to receive payments. Part-Year Participation - If an associate becomes eligible for the PRG Executive Incentive Plan after January 1, 1997, he/she may be eligible for a prorated payout based on the date of entry into the Plan. - Prorated payouts will be based on year-to-date base salary earnings from the date of entry into the Plan. Entry into the Plan must be prior to October 1, 1997 for participation in the Plan during 1997. -3- 4 Management of the Plan - The plan is effective from January 1, 1997 through December 31, 1997. - Overall responsibility for the plan resides with the Chairman and Chief Executive Officer, Chief Financial Officer, and Senior Vice President Human Resources, and payments are subject to Board of Directors' approval. - Management reserves the right to amend the plan, with regard to participation, procedures, awards and any other provisions. This includes revision of financial targets in the event of business or organizational change deemed to warrant such action. -4- 5 1997 Incentive Plan Measures - Executive Definitions of Categories A) EPS - Earnings per share of PRGX as recorded in quarterly/annual consolidated financial statements reported in the Company's quarterly 10Q and annual 10K. Measurements will be quarterly based upon threshold, target, and stretch quarterly goals, however, payouts on EPS will only be annual. B) "PRG" Operating Profit - Operating profit for subsidiaries wholly owned by PRGX as of December 1, 1996. Measurement will be quarterly and will have threshold, target, and stretch goals for each quarter. -5- 6 ATTACHMENT A 1997 INCENTIVE SUMMARY PAYOUT LEVELS (expressed as a percentage of base salary) Threshold 30% Target 40% Stretch 50% GOAL ATTAINMENT MEASURES Qtrly EPS 25% Qtrly "PRG" Operating Profit 75% -6- EX-10.6 7 FIRST AMENDMENT TO LOAN AGREEMENT 1 EXHIBIT 10.6 FIRST AMENDMENT TO LOAN AND SECURITY AGREEMENT THIS FIRST AMENDMENT TO LOAN AND SECURITY AGREEMENT (the "First Amendment") is dated as of the 3rd day of October, 1997, by and between NATIONSBANK, N.A., a national banking association, successor by merger to NATIONSBANK, N.A. (SOUTH) ("Lender") and THE PROFIT RECOVERY GROUP INTERNATIONAL, INC., a Georgia corporation ("Borrower"); THE PROFIT RECOVERY GROUP INTERNATIONAL I, INC., a Georgia corporation ("PRG International"); THE PROFIT RECOVERY GROUP U.K., INC., a Georgia corporation ("PRG U.K."); THE PROFIT RECOVERY GROUP ASIA, INC., a Georgia corporation ("PRG Asia"); THE PROFIT RECOVERY GROUP CANADA, INC., a Georgia corporation ("PRG Canada"); THE PROFIT RECOVERY GROUP NEW ZEALAND, INC., a Georgia corporation ("PRG New Zealand"); THE PROFIT RECOVERY GROUP NETHERLANDS, INC., a Georgia corporation ("PRG Netherlands"); THE PROFIT RECOVERY GROUP BELGIUM, INC., a Georgia corporation ("PRG Belgium"); THE PROFIT RECOVERY GROUP MEXICO, INC., a Georgia corporation ("PRG Mexico") THE PROFIT RECOVERY GROUP FRANCE, INC., a Georgia corporation ("PRG France"); THE PROFIT RECOVERY GROUP AUSTRALIA, INC., a Georgia corporation ("PRG Australia"); THE PROFIT RECOVERY GROUP GERMANY, INC., a Georgia corporation ("PRG Germany"); PRG INTERNATIONAL HOLDING COMPANY, INC., a Georgia corporation ("PRG International Holding"); ACCOUNTS PAYABLE RECOVERY SERVICES, INC., a Georgia corporation ("Accounts Payable"); CLINTON McKELLAR, JR. acting as attorney (mandataire) in the name of and on behalf of PRG FRANCE SA, a French societe anonyme in the process of being incorporated ("French PRG"); and THE PROFIT RECOVERY GROUP SOUTH AFRICA, INC., a Georgia corporation ("PRG South Africa") (Borrower, PRG International, PRG U.K., PRG Asia, PRG Canada, PRG New Zealand, PRG Netherlands, PRG Belgium, PRG Mexico, PRG France, PRG Australia and PRG Germany, each an "Existing Loan Party" and, collectively, the "Existing Loan Parties"; and PRG International Holding, Accounts Payable, French PRG and PRG South Africa each a "New Loan Party" and, collectively, the "New Loan Parties"; and the New Loan Parties and the Existing Loan Parties other than Borrower each a "Guarantor" and, collectively, the "Guarantors"). W I T N E S S E T H : WHEREAS, Lender, Borrower and Existing Loan Parties are parties to that certain Loan and Security Agreement dated September 27, 1996 (such Agreement being hereinafter referred to as the "Loan Agreement"); WHEREAS, Lender, Borrower, Existing Loan Parties and New Loan Parties desire to amend and modify the Loan Agreement as more particularly set forth herein; and NOW, THEREFORE, for and in consideration of the sum of Ten and No/100 Dollars ($10.00) and other good and valuable consideration, the receipt and sufficiency of which are 2 hereby acknowledged, Lender, Borrower, Existing Loan Parties and New Loan Parties hereby agree as follows: 1. Defined Terms. Capitalized terms used herein without definition are used as defined in the Loan Agreement. 2. New Loan Parties. Each New Loan Party agrees that such New Loan Party shall be hereafter considered a Loan Party, as such term is defined in the Loan Agreement; and each New Loan Party hereby adopts, ratifies and agrees to be bound by all provisions of the Loan Agreement, as amended from time to time, as it applies (and, in the case of French PRG, to the extent applicable) to Loan Parties. Each New Loan Party, excluding French PRG, specifically grants to Lender a continuing security interest in all of the Property of such New Loan Party to the full extent that Existing Loan Parties have granted such a security interest in the Property of Existing Loan Parties under the provisions of the Loan Agreement. As contemplated in Section 6 below, French PRG will pledge to Lender as collateral for the guaranty obligations of French PRG all of the shares owned by French PRG in Financiere Alma SA and Alma Intervention SA. 3. Specific Amendments to Loan Agreement. Lender, Borrower, Existing Loan Parties and New Loan Parties hereby agree that the Loan Agreement is hereby amended and modified as follows: (a) The definitions for the following terms in Section 1, Paragraph 1.1 are hereby deleted in their entirety, and inserted in lieu thereof shall be the following: (i) "Accounts - means all accounts, contract rights, chattel paper, instruments and documents, whether now owned or hereafter created or acquired by Loan Party or in which Loan Party now has or hereafter acquires any interest; except that amounts due from or payable to any Affiliate, Subsidiary or Loan Party shall be excluded therefrom." (ii) "Permitted Distributions - means a Distribution made by a Loan Party which does not result in the Combined Debt Service Coverage Ratio of the Loan Parties to be less than 1.5 to 1.0 for any fiscal quarter or the U.S. Debt Service Coverage Ratio to be less than 1.0 to 1.0 for any fiscal quarter." (iii) "Revolver Loan Period - means the period from the date of this Agreement until September 30, 1999." (b) Definitions for the following terms are hereby inserted into Section 1, Paragraph 1.1, to read as follows: (i) "U.S. Debt Service Coverage Ratio - means, for any period of time, the ratio computed as of the last day of such period of time of (i) U.S. EBITDA to (ii) U.S. Debt Service." 2 3 (ii) "U.S. Debt Service - means Debt Service relating to and arising from the operations of the Loan Parties in the United States of America plus, if not already included, the debt service relating to the Loans." (iii) "U.S. EBITDA - means EBITDA relating to and arising solely from the operations of the Loan Parties within the United States of America." (c) The first sentence of Section 2, Paragraph 2.1, is hereby deleted in its entirety, and inserted in lieu thereof shall be the following: "2.1 Term Loan. Subject to all of the terms and conditions of this Agreement, Lender agrees, upon Borrower's request, to advance to Borrower, from time to time until September 30, 1999, Term Loans in an aggregate principal amount outstanding at any one time not to exceed $30,000,000.00, the proceeds of which are to be used by Borrower in connection with future acquisitions. It is anticipated that $26,500,000.00 will be advanced to Borrower and, in turn, made available, directly or indirectly, to French PRG for the purpose of acquiring shares in certain French companies being Financiere Alma SA and Alma Intervention SA." (d) Subparagraph (A) of Section 2, Paragraph 2.3 is hereby deleted in its entirety, and inserted in lieu thereof shall be the following: "(A) At no time shall Lender be obligated to advance amounts under either the Term Loan or the Revolver Loan if, as a result of such advance, the aggregate principal balance of the Loans would exceed $30,000,000.00 (subject to permanent reduction at Borrower's election pursuant to Section 3.2(D) herein)." (e) New subparagraphs (D) and (E) are hereby inserted into Section 2, Paragraph 2.3, to read as follows: "(D) At no time shall Lender be obligated to advance amounts under the Loans unless, at the time of such advance, Loan Parties have accounts receivable or contracts receivable (billed and unbilled) net of reserves equal to or greater than the amount which would be outstanding on the Loans following such advance. (E) At all times throughout the term of the Loans, the accounts receivable or contracts receivable of Loan Parties (billed and unbilled) net of reserves shall be equal to or greater than the amount outstanding under the Loans. If at any time such ratio is not achieved, Borrower shall reduce the amount outstanding under the Loans by an amount necessary to cause such ratio to be achieved." (f) Subparagraph (B) of Section 3, Paragraph 3.1 is hereby deleted in its entirety, and inserted in lieu thereof shall be the following: 3 4 "(B) Payment of Principal and Interest. Each advance under the Term Loan shall be repayable in forty-eight (48) monthly installments. Payment of such monthly installments shall commence one (1) month following the date of the Term Note applicable to such advance and shall continue on the same day of each and every month thereafter until the maturity date of such Term Note. Monthly payments of accrued and unpaid interest only shall be due and payable under such Term Note in arrears for the first twelve (12) months; thereafter, for the next thirty-five (35) months, the monthly payments shall consist of all accrued and unpaid interest together with one sixtieth (1/60) of the original principal amount of such Term Note, and the remainder of all accrued and unpaid interest together with the remaining unpaid principal balance shall be immediately paid in full forty-eight (48) months following the date of such Term Note." (g) The date "September 30, 1998" in the fourth line of subparagraph (B) of Section 3, Paragraph 3.2 is hereby deleted and the date "September 30, 1999" is inserted in lieu thereof. (h) Section 3, Paragraph 3.4 is hereby deleted in its entirety, and inserted in lieu thereof shall be the following: "3.4 Unused Facility Fee. In addition to other fees payable under the terms and conditions of this Agreement and in addition to principal and interest under the Revolver Note and each of the Term Notes, Borrower shall pay to Lender on the first day of April, July, October and January, commencing on January 1, 1998 and ending October 1, 1999, a fee equal to .25 percent (on a per annum basis) of the difference between (i) the maximum aggregate amount which Lender has agreed to advance under the Loans (which, as of the date hereof, is $30,000,000.00); and (ii) the average daily aggregate outstanding principal balance under the Loans throughout the fiscal quarter preceding such payment date. Borrower may, at its option, elect to permanently reduce the maximum amount which Borrower is entitled to borrow and which Lender is obligated to advance under the Loans by providing Lender with three business days advance written notice of such election and provided that the minimum amount of such permanent reduction of the Loans is at least $1,000,000.00." (i) New subparagraphs (F) and (G) are hereby inserted into Section 9, Paragraph 9.3, to read as follows: "(F) Maintain a U.S. Debt Service Coverage Ratio of at least 1.0 to 1.0 measured as of the end of each fiscal quarter for the period consisting of such fiscal quarter together with the preceding three fiscal quarters. (G) Maintain accounts receivable or contracts receivable (billed and unbilled) net of reserves in an amount equal to or greater than the amount of Loans outstanding under this Agreement." 4 5 (j) Lender's address for notice in Section 12, Paragraph 12.10 is hereby deleted, and inserted in lieu of shall be the following: "NationsBank, N.A. 600 Peachtree Street, N.E., 19th Floor Atlanta, Georgia 30308 Attention: Ms. Melinda M. Bergbom, Senior Vice President Telecopier No: (404) 607-6343". (k) Exhibit A-1, Exhibit A-2, Exhibit A-3 and Exhibit E are deleted in their entirety, and substituted in lieu thereof are the attached Exhibit A-1, Exhibit A-2, Exhibit A-3 and Exhibit E. 4. Commitment Fee. Simultaneously with the execution of this Agreement, Borrower shall pay to Lender an aggregate commitment fee of $25,000.00, with respect to the Revolver Loan and with respect to the Term Loan, which has been fully earned, and shall not be subject to rebate except as may be required by applicable law. Such fees shall compensate Lender for the costs associated with the origination, structuring, processing, approving and closing the Revolver Loan and the Term Loan, including, but not limited to, administrative, out-of-pocket, general overhead and lost opportunity costs, but not including any expenses for which Borrower has agreed to reimburse Lender pursuant to any other provisions of this Agreement or any of the other Loan Documents, such as, by way of example, legal fees and expenses. 5. Representations and Warranties. In order to induce Lender to agree to the modifications made to the Loan Agreement set forth herein, Borrower, Existing Loan Parties and New Loan Parties hereby expressly reaffirm or affirm, as the case may be, all covenants, agreements, representations and warranties set forth in the Loan Agreement. 6. Agreements Regarding Pledge of Stock. (a) In order to induce Lender to agree to the modifications made to the Loan Agreement set forth herein, Borrower covenants and agrees that, within thirty (30) days of the date of this Agreement, Borrower shall execute and deliver to Lender all such documents or instruments as may be reasonably necessary to grant to Lender as collateral for all of Borrower's obligations to Lender a first in priority pledge and security interest in all of the stock which Borrower owns, or will own, in French PRG. The terms and conditions of all such documents shall be reasonably satisfactory to Lender and shall include an opinion of French counsel that all such documents are valid and enforceable in accordance with their terms. Failure by Borrower to comply with the terms and conditions of this Section 6 shall constitute an Event of Default under the Loan Agreement. 5 6 (b) In order to induce Lender to agree to the modifications made to the Loan Agreement set forth herein, Borrower covenants and agrees that, within thirty (30) days from the date of this Agreement, Borrower shall procure and cause to be delivered to Lender (i) a Guaranty by French PRG of the obligations of Borrower to Lender ; and (ii) all such documents or instruments as may be reasonably necessary to grant to Lender as collateral for the obligations of French PRG to Lender a first-in-priority pledge and security interest in all of the stock which French PRG owns, or will own, in Alma Intervention SA and Financiere Alma SA. The terms and conditions of all such documents shall be reasonably satisfactory to Lender and shall include an opinion of French counsel that all such documents have been properly authorized and executed and are valid and enforceable in accordance with their terms. Failure by Borrower to comply with the terms and conditions of this Section 6 shall constitute an Event of Default under the Loan Agreement. 7. No Other Agreement. Except as expressly amended and modified herein, the Loan Agreement shall remain unchanged and in full force and effect, and the parties do hereby ratify and affirm the same. This Agreement constitutes the entire understanding and agreement of the parties hereto with respect to the modification of the Loan Agreement and supersedes all prior agreements, understandings or negotiations regarding said modification. 8. Binding Effect. This Agreement shall be binding upon and shall inure to the benefit of the parties hereto and their respective heirs, successors and assigns. 9. Georgia Law. This Agreement shall be governed by and interpreted in accordance with the laws of the State of Georgia. IN WITNESS WHEREOF, the parties hereto have caused this First Amendment to be executed under seal as of the date first above written. [SIGNATURES BEGIN ON FOLLOWING PAGE] 6 7 [SIGNATURES CONTINUED FROM PREVIOUS PAGE] LENDER: NATIONSBANK, N.A., a national banking association By: ---------------------------------- Name: -------------------------- Title: ------------------------- (BANK SEAL) BORROWER: THE PROFIT RECOVERY GROUP INTERNATIONAL, INC., a Georgia corporation By: ----------------------------------- Donald E. Ellis, Jr., Senior Vice President Attest: -------------------------------- Clinton McKellar, Jr., Secretary [CORPORATE SEAL] [SIGNATURES CONTINUED ON FOLLOWING PAGE] [SIGNATURES FOR FIRST AMENDMENT TO LOAN AND SECURITY AGREEMENT] 7 8 [SIGNATURES CONTINUED FROM PREVIOUS PAGE] GUARANTORS: THE PROFIT RECOVERY GROUP INTERNATIONAL I, INC., a Georgia corporation By: -------------------------------------- Donald E. Ellis, Jr., Senior Vice President Attest: ---------------------------------- Clinton McKellar, Jr., Secretary [CORPORATE SEAL] THE PROFIT RECOVERY GROUP U.K., INC., a Georgia corporation By: -------------------------------------- Donald E. Ellis, Jr., Senior Vice President Attest: ---------------------------------- Clinton McKellar, Jr., Secretary [CORPORATE SEAL] [SIGNATURES CONTINUED ON FOLLOWING PAGE] [SIGNATURES FOR FIRST AMENDMENT TO LOAN AND SECURITY AGREEMENT] 8 9 [SIGNATURES CONTINUED FROM PREVIOUS PAGE] THE PROFIT RECOVERY GROUP ASIA, INC., a Georgia corporation By: ------------------------------------- Donald E. Ellis, Jr., Senior Vice President Attest: --------------------------------- Clinton McKellar, Jr., Secretary [CORPORATE SEAL] THE PROFIT RECOVERY GROUP CANADA, INC., a Georgia corporation By: ------------------------------------- Donald E. Ellis, Jr., Senior Vice President Attest: --------------------------------- Clinton McKellar, Jr., Secretary [CORPORATE SEAL] [SIGNATURES CONTINUED ON FOLLOWING PAGE] [SIGNATURES FOR FIRST AMENDMENT TO LOAN AND SECURITY AGREEMENT] 9 10 [SIGNATURES CONTINUED FROM PREVIOUS PAGE] THE PROFIT RECOVERY GROUP NEW ZEALAND, INC., a Georgia corporation By: ------------------------------------- Donald E. Ellis, Jr., Senior Vice President Attest: --------------------------------- Clinton McKellar, Jr., Secretary [CORPORATE SEAL] THE PROFIT RECOVERY GROUP NETHERLANDS, INC., a Georgia corporation By: ------------------------------------- Donald E. Ellis, Jr., Senior Vice President Attest: --------------------------------- Clinton McKellar, Jr., Secretary [CORPORATE SEAL] THE PROFIT RECOVERY GROUP BELGIUM, INC., a Georgia corporation By: ------------------------------------- Donald E. Ellis, Jr., Senior Vice President Attest: --------------------------------- Clinton McKellar, Jr., Secretary [CORPORATE SEAL] [SIGNATURES CONTINUED ON FOLLOWING PAGE] [SIGNATURES FOR FIRST AMENDMENT TO LOAN AND SECURITY AGREEMENT] 10 11 [SIGNATURE PAGE CONTINUED FROM PREVIOUS PAGE] THE PROFIT RECOVERY GROUP MEXICO, INC., a Georgia corporation By: ------------------------------------- Donald E. Ellis, Jr., Senior Vice President Attest: --------------------------------- Clinton McKellar, Jr., Secretary [CORPORATE SEAL] THE PROFIT RECOVERY GROUP FRANCE, INC., a Georgia corporation By: ------------------------------------- Donald E. Ellis, Jr., Senior Vice President Attest: --------------------------------- Clinton McKellar, Jr., Secretary [CORPORATE SEAL] [SIGNATURES CONTINUED ON FOLLOWING PAGE] [SIGNATURES FOR FIRST AMENDMENT TO LOAN AND SECURITY AGREEMENT] 11 12 [SIGNATURES CONTINUED FROM PREVIOUS PAGE] THE PROFIT RECOVERY GROUP AUSTRALIA, INC., a Georgia corporation By: ------------------------------------- Donald E. Ellis, Jr., Senior Vice President Attest: --------------------------------- Clinton McKellar, Jr., Secretary [CORPORATE SEAL] THE PROFIT RECOVERY GROUP GERMANY, INC., a Georgia corporation By: ------------------------------------- Donald E. Ellis, Jr., Senior Vice President Attest: --------------------------------- Clinton McKellar, Jr., Secretary [CORPORATE SEAL] [SIGNATURES CONTINUED ON FOLLOWING PAGE] [SIGNATURES FOR FIRST AMENDMENT TO LOAN AND SECURITY AGREEMENT] 12 13 [SIGNATURES CONTINUED FROM PREVIOUS PAGE] PRG INTERNATIONAL HOLDING COMPANY, INC., a Georgia corporation By: ------------------------------------- Donald E. Ellis, Jr., Senior Vice President Attest: --------------------------------- Clinton McKellar, Jr., Secretary [CORPORATE SEAL] ACCOUNTS PAYABLE RECOVERY SERVICES, INC., a Georgia corporation By: ------------------------------------- Donald E. Ellis, Jr., Senior Vice President Attest: --------------------------------- Clinton McKellar, Jr., Secretary [CORPORATE SEAL] [SIGNATURES CONTINUED ON FOLLOWING PAGE] [SIGNATURES FOR FIRST AMENDMENT TO LOAN AND SECURITY AGREEMENT] 13 14 [SIGNATURES CONTINUED FROM PREVIOUS PAGE] PRG FRANCE SA By: -------------------------------------------- Clinton McKellar, Jr. acting as attorney (mandataire) in the name of and on behalf of PRG France SA, a French societe anonyme in the process of being incorporated THE PROFIT RECOVERY GROUP SOUTH AFRICA, INC., a Georgia corporation By: -------------------------------------------- Donald E. Ellis, Jr., Senior Vice President Attest: ---------------------------------------- Clinton McKellar, Jr., Secretary [CORPORATE SEAL] [SIGNATURES FOR FIRST AMENDMENT TO LOAN AND SECURITY AGREEMENT] 14 15 EXHIBIT E FORM OF COMPLIANCE CERTIFICATE NationsBank, N.A. 600 Peachtree Street, N.E. 19th Floor Atlanta, Georgia 30308 Attention: Melinda M. Bergbom, Senior Vice President The undersigned, the Chief Financial Officer of The Profit Recovery Group International, Inc., a Georgia corporation ("Borrower"), gives this Certificate to NationsBank, N.A. ("Lender") in accordance with the requirements of Section 9.1(K) of that certain Loan and Security Agreement, dated September 27, 1997, as amended, by and between Lender and Borrower and certain affiliated entities of Borrower (the "Loan Agreement") (capitalized terms used in this Certificate, unless otherwise defined herein, shall have the means ascribed to them in the Loan Agreement). Based upon my review of the financial statements of the Loan Parties for the (month/fiscal year) ending _________________, 19__, copies of which are attached hereto, I hereby certify to the best of my knowledge that: (1) The Combined Total Liabilities to Net Worth Ratio of the Loan Parties does not exceed 1.5 to 1.0; (2) The ratio of Funded Debt to EBITDA does not exceed 2.0 to 1.0; (3) The Combined Debt Service Coverage Ratio of the Loan Parties is not less than 1.5 to 1.0; (4) The Combined Net Worth of the Loan Parties is not less than $34,000,000.00; (5) The ratio of Current Assets to Current Liabilities of the Loan Parties is not less than 1.0 to 1.0; (6) The U.S. Debt Service Coverage Ratio of the Loan Parties is not less than 1.0 to 1.0; and (7) The ratio of accounts receivable or contracts receivable (billed and unbilled) net of reserves of the Loan Parties is not less than the amount of Loans outstanding under the Loan Agreement. Very truly yours, By: ---------------------------- Chief Financial Officer Date: ___________________________ 16 NATIONSBANK PROMISSORY NOTE $26,500,000.00 Date: October 3, 1997 Atlanta, Georgia 1. PROMISE TO PAY. FOR VALUE RECEIVED, the undersigned, THE PROFIT RECOVERY GROUP INTERNATIONAL, INC., a Georgia corporation (hereinafter referred to as "Maker"), promises to pay to the order of NATIONSBANK, N.A., a national bank (hereinafter referred to as "Payee"; Payee and any subsequent holder of all or any part interest in this Note being hereinafter referred to collectively as "Holder"), at the following address: NationsBank, N.A. 600 Peachtree Street, N.E. 19th Floor Atlanta, Georgia 30308 Attn: Melinda M. Bergbom, Senior Vice President or at any such other place as Holder may designate to Maker in writing from time to time, the principal sum of TWENTY-SIX MILLION FIVE HUNDRED THOUSAND AND NO/100THS DOLLARS ($26,500,000.00), or so much thereof as shall be disbursed hereunder and shall from time to time be outstanding and unpaid, together with interest thereon at the rates hereinafter set forth (subject to adjustment and designation of the applicable interest rate or rates as provided below), in lawful money of the United States of America, which at the time of payment shall be legal tender in payment of all debts and dues, public and private, such principal and interest to be paid in the manner hereinafter provided. This Promissory Note (the "Note") is executed and delivered pursuant to that certain Loan and Security Agreement, dated September 27, 1996, among Payee, Maker and certain affiliates of Maker (hereinafter, together with all supplements and amendments thereto, the "Loan Agreement"). This Note is a Term Note referred to in, and is issued pursuant to, the Loan Agreement, and is entitled to all of the benefits and security of the Loan Agreement. All of the terms, covenants and conditions of the Loan Agreement and all other instruments evidencing or securing the indebtedness hereunder are hereby made a part of this Note and are deemed incorporated herein in full. All capitalized terms used herein, unless otherwise specifically defined in this Note, shall have the meanings ascribed to them in the Loan Agreement. 17 2. DEFINITIONS. As used herein, the following terms shall have the indicated definitions: (a) "Business Day" means any day whereon banks are open for business in Atlanta, Georgia and, with respect to borrowing, payment or rate selection of the Fixed Rate or a Eurodollar Interest Period, any day whereon banks are open for business in both Atlanta, Georgia and New York, New York and whereon dealings in U.S. dollars are carried on in the London interbank market. (b) "Default Rate" means (i) with respect to the Floating Rate, a rate per annum equal to the Prime Rate plus two percent (2%); and (ii) with respect to the Fixed Rate for the remainder of the applicable Eurodollar Interest Period, a rate per annum equal to the applicable Eurodollar Rate plus two percent (2%), and after such applicable Eurodollar Interest Period at the rate per annum equal to the Prime Rate plus two percent (2%). (c) "Effective Date" means any Business Day designated by Maker in a Rate Selection Notice as the date such rate selection shall become effective. (d) "Eurodollar Interest Period" means, with respect to the Fixed Rate, a period of thirty (30) days, sixty (60) days, ninety (90) days or one hundred eighty (180) days to the extent eurodollar borrowings of such or similar periods are available, commencing on a Business Day and selected by the Maker in its Rate Selection Notice; provided, however, such Eurodollar Interest Period shall commence on the last day of the immediately preceding Eurodollar Interest Period in the case of a rollover to a successive Eurodollar Interest Period. If any Eurodollar Interest Period would otherwise end on a day which is not a Business Day, such Eurodollar Interest Period shall end on the next succeeding Business Day. Any Eurodollar Interest Period must end on or before the maturity date of this Note. (e) "Eurodollar Rate" means, with respect to the relevant Eurodollar Interest Period, the sum of the LIBOR Rate applicable to that Eurodollar Interest Period plus one and three-quarters percent (1.75%) per annum, subject to adjustment from time to time as hereinafter provided. The Eurodollar Rate shall be rounded, if necessary, to the next higher one-sixteenth of one percent. (f) "Event of Default" means an Event of Default as that term is defined in the Loan Agreement. (g) "Fixed Rate" means the rate per annum for the applicable Eurodollar Rate selected from time to time pursuant to this Note. (h) "Floating Rate" means a rate per annum equal to the Prime Rate, changing when and as the Prime Rate changes. (i) "LIBOR Rate" means the simple interest rate per annum determined by Holder, 2 18 taking into account the rates at which deposits in United States dollars for periods of thirty (30) days, sixty (60) days, ninety (90) days and one hundred eighty (180) days (each of the foregoing is individually referred to as "LIBOR Rate Option") are offered in the interbank eurodollar market, and such other factors as Holder may reasonably deem appropriate from time to time. The LIBOR Rate is established in the discretion of Holder for the particular indebtedness evidenced by this Note, and may not be the lowest rate based in part upon which market for deposits in the interbank eurodollar market at which Holder prices loans on the date on which the LIBOR Rate is established. The rate of interest charged under this Note with respect to any selection of any of the LIBOR Rate Options shall be the selected LIBOR Rate Option on the Effective Date of the Rate Selection Notice, and shall continue to be the same rate of interest, without daily adjustment, until the maturity of the selected LIBOR Rate Option has fully elapsed or the Rate Selection Notice has been terminated as otherwise provided herein. The LIBOR Rate Option applicable to new selections shall be the rate of interest of the selected LIBOR Rate Option on the Effective Date of the Rate Selection Notice. In the event that Holder shall have determined that the dollar deposits in an amount approximately equal to the Principal Amount are not available to Holder at such time in the interbank eurodollar market, or that reasonable means within the customary operating practices of Holder do not exist for ascertaining a LIBOR Rate, or if any change in any law or regulation or in the interpretation thereof by any governmental authority charged with the administration or interpretation thereof shall make in unlawful for Holder to make or maintain LIBOR Rates with respect to the principal balance hereof or to fund the principal advanced hereunder in the interbank eurodollar market then, Holder shall promptly notify Maker and thereafter such portion of the principal balance hereof shall bear interest at the Floating Rate until such time, if any, as a LIBOR Rate loan can be made by Holder to Maker, following which Holder shall be entitled to the selection of the LIBOR Rate Options as provided in this Note. (j) "Minimum Notice Period" means a period commencing no later than 10:00 a.m. Atlanta, Georgia time three (3) Business Days prior to the Effective Date of a Fixed Rate Advance. (k) "Prime Rate" shall be the per annum rate announced by Payee from time to time as its Prime Rate and as one of the several interest rate bases used by Payee. Payee lends at rates both above and below the Prime Rate and is not represented or intended to be the lowest or most favorable rate of interest offered by Payee. If, and to the extent and from time to time, the Prime Rate of Payee increases or decreases, then the Prime Rate under this Note shall be corresponding increased or decreased, such increase or decrease hereunder to be effective as of the date on which such increase or decrease of the Prime Rate of Payee occurs. The Prime Rate in effect at the end of each day shall be the Prime Rate utilized for purposes of calculating interest under this Note for such day. In the event that Payee shall abolish or abandon the practice of establishing its Prime Rate, Holder shall designate a comparable reference rate which shall be deemed to be the Prime Rate hereunder. (l) "Principal Amount" means the principal amount outstanding from time to time under this Note. 3 19 (m) "Rate Option" means the rate per annum equal to either (i) the Floating Rate or (ii) the Eurodollar Rate. (n) "Rate Selection Notice" means a written or telephonic notice (such telephonic notice to be immediately confirmed by written or telefaxed notice) providing irrevocable notice by the Maker to the Payee specifying (i) the Eurodollar Interest Period which Maker desires to select, and (ii) the Effective Date of each such Eurodollar Rate selection. (o) "Regulation D" means Regulation D of the Board of Governors of the Federal Reserve System from time to time in effect and shall include any successor or other regulation or official interpretation of said Board of Governors relating to Reserve Requirements applicable to member banks of the Federal Reserve System. (p) "Reserve Requirement" means, with respect to a Eurodollar Interest Period, the maximum aggregate reserve requirement (including all basic, supplemental, marginal and other reserves and taking into account any transitional adjustments or scheduled changes in reserve requirements during such Eurodollar Interest Period) which is imposed under Regulation D on non-personal time deposits of $100,000.00 or more with a maturity date equal to that on Eurocurrency liabilities. 3. FLOATING RATE BORROWING. Except as provided in Section 4 below, this Note shall bear interest at the rate per annum equal to the Floating Rate and, therefore, the initial rate of interest as of the date hereof, expressed in simple interest terms, is 8.618% per annum. If at any time or from time to time the Floating Rate increases or decreases, then the rate of interest hereunder shall be correspondingly increased or decreased effective on the date of which such increase or decrease of such Floating Rate takes effect. 4. SELECTION OF FIXED RATE. Subject to the terms and conditions of this Note, Maker may elect from time to time that interest accrue at a rate per annum equal to the Eurodollar Rate rather than the rate per annum equal to the Floating Rate, and for a Eurodollar Interest Period selected hereunder for all (but not less than all) of the outstanding principal balance of this Note by giving the Holder the appropriate Rate Selection Notice in not less than the Minimum Notice Period applicable thereto. The Principal Amount shall bear interest from and including the first day of the Eurodollar Interest Period applicable thereto and during such Eurodollar Interest Period. Except in accordance with Section 7 hereof, the Rate Option shall not be changed by the Maker. Maker may select a new Eurodollar Interest Period and Eurodollar Rate to apply to the Principal Amount, effective as of the last day of the existing Eurodollar Interest Period, by giving a Rate Selection Notice in not less than the Minimum Notice Period. If at the end of a Eurodollar Interest Period the Maker fails to select a new Eurodollar Rate and new Eurodollar Interest Period, then the Principal Amount shall accrue interest at the Floating Rate on and after the last day of such existing Eurodollar Interest Period until paid or until the Effective Date of a new Rate Option selected by the Maker. The Maker may not select the Fixed Rate if, on the date of the Rate Selection Notice or the Effective Date of such selection, there exists an Event of Default. 4 20 5. RESTRICTIONS ON FIXED RATE. Notwithstanding anything in this Note to the contrary, Maker may not select that this Note accrue at the Fixed Rate unless the outstanding principal balance of this Note as of the date of such election is equal to or greater than $500,000.00. 6. TELEPHONIC NOTICES. Maker hereby authorizes the Payee to effect Rate Option selections based on telephonic notices made by any one of the following (or such other persons as Borrower may designate in writing from time to time to Lender): Donald E. Ellis, Jr. Michael Melton The Maker agrees to deliver promptly to Payee a written confirmation of each telephone notice signed by an authorized officer of Maker. If the written confirmation differs in any material respect from the action taken by the Payee, the records of the Payee shall govern absent manifest error. 7. YIELD PROTECTION. With respect only to interest calculated at the Fixed Rate, if any existing or future law, governmental rule, policy, guideline, regulation or directive, whether or not having the force of law, or compliance of the Payee with such, (i) subjects the Payee to any tax, duty, charge or withholding on or from payments due from the Maker (excluding U.S. taxation of the overall net income of the Payee), or changes the basis of taxation of payment to the Payee in respect of the Indebtedness, or (ii) imposes or increases or deems applicable any reserve, assessment (other than reserves and assessments included in the Reserve Requirement with respect to principal accruing at the Fixed Rate), special deposit, insurance charge or similar requirement against assets of, deposits with or for the account of, or credit extended by, the Payee (other than reserves and assessments taken into account in determining the Fixed Rate), or (iii) imposes any other condition the result of which is to increase the cost to the Payee of making, funding or maintaining U.S. dollar loans or reduces any amount receivable by the Payee in connection with U.S. dollar loans, or requires the Payee to make any payment calculated by reference to the amount of loans held or interest received by it, by an amount deemed material by the Payee, or (iv) affects the amount of capital required or expected to be maintained by the Payee or any corporation controlling the Payee and the Payee determines that the amount of capital required is increased by or based upon the existence of the Loan or any of the Loan Documents or its obligation to make the Loan hereunder or of commitments of this type, then within 15 days of demand by the Payee, Maker shall pay the Payee that portion of such increased expense incurred (including, in the case of Paragraph 7(iv), any reduction in the rate of return on capital to an amount below that which it could have achieved but for such change in regulation after taking into account Payee's policies as to capital adequacy) or the amount of reduction in an amount received which the Payee determines is attributable to making, funding and maintaining the Loan. A certificate of Payee is to the amounts payable pursuant to this Paragraph 7 (which certificate shall reflect in reasonable detail the method and basis for the calculation thereof) submitted to Maker shall, absent manifest error, be final and binding upon all of the parties hereto. Payee will give 5 21 Maker notice that Payee has determined that amounts are due and payable pursuant to this Paragraph 7 within a reasonable time after such determination by Payee. Payee agrees that the determination of any such increased expense incurred or in the amount of reduction in the amount received shall be consistent with such determination made with respect to other loans of Payee which are similarly structured, of a similar amount and for a similar purpose. 8. (a) AVAILABILITY OF INTEREST RATE. If the Payee determines that (i) maintenance of the Fixed Rate would violate any applicable law, rule, regulation, or directive, whether or not having the force of law, (ii) deposits of a type and maturity appropriate to match fund a Fixed Rate loan are not available, or (iii) a Eurodollar Rate does not accurately reflect the cost of making or maintaining the Fixed Rate, then the Payee shall suspend the availability of the affected LIBOR Rate Option and require that the Fixed Rate under an affected LIBOR Rate Option to be converted to an unaffected Rate Option. Subject to the terms and conditions of this Note, the Maker may select, by giving a Rate Selection Notice in not less than the Minimum Notice Period, any unaffected Rate Option to apply to this Note. If the Maker fails to select a new Rate Option, this Note shall accrue interest at the Floating Rate. (b) BANK CERTIFICATES; SURVIVAL OF INDEMNITY. A certificate of the Payee as to the amount due under Section 7 shall be final, conclusive and binding on the Maker in the absence of manifest error. Determination of amounts payable under such Section 7 shall be calculated as though the Holder funded its Fixed Rate loan through the purchase of a deposit of the type and maturity corresponding to the deposit used as a reference in determining the Eurodollar Rate applicable to such Fixed Rate loan, whether in fact that is the case or not. Unless otherwise provided herein, the amount specified in the certificate shall be payable on demand after receipt by the Maker of the certificate. The obligations under Section 7 shall survive for a period of six (6) months following repayment of the Loan. 9. PAYMENTS OF PRINCIPAL AND INTEREST. Commencing on November 1, 1997 and continuing on the first (1st) day of each calendar month thereafter through and including October 1, 1998, there shall be due and payable monthly installments consisting only of accrued and unpaid interest under this Note; thereafter, commencing on November 1, 1998 and continuing on the first (1st) day of each calendar month thereafter through and including September 1, 2001, there shall be due and payable monthly installments consisting of (i) all accrued and unpaid interest under this Note, and (ii) principal in the amount of FOUR HUNDRED FORTY-ONE THOUSAND SIX HUNDRED SIXTY-SIX AND 67/100THS DOLLARS ($441,666.67). Interest shall be calculated on a 360 day year basis for the actual number of days elapsed. If any payment of principal or interest hereunder would become due and payable on a day which is not a Business Day, then such payment shall be due and payable on the next succeeding Business Day. 6 22 10. MATURITY DATE. If not sooner paid (subject to the restrictions on prepayment contained in the Loan Documents) the entire outstanding principal balance of this Note shall be due and payable in full on October 1, 2001. 11. APPLICATION OF PAYMENTS. If any permitted payments or prepayments are received when no Event of Default exists hereunder or under any of the Loan Documents, and if any such payments do not fully pay all sums evidenced by this Note, then such payment first shall be applied to the payment of late charges and other fees payable under this Note or the Loan Documents, then to accrued and unpaid interest under this Note and, then, to the outstanding principal balance of this Note. Following any partial prepayment of this Note, following the date of such prepayment, monthly installments shall be due and payable consisting of (i) all accrued and unpaid interest, and (ii) equal installments of principal based upon an amortization of the outstanding principal balance of the Note following such prepayment over the number of monthly installments payable between such date and the maturity date of this Note. 12. FACILITY. The loan made pursuant to this Note is governed by the terms of the Loan Agreement whereby the loan evidenced by this Note shall be made pursuant to and subject to the Loan Agreement. 13. PREPAYMENT. Maker may, from time to time, pay all or any portion this Note without prepayment premium or penalty provided that, at the time of such prepayment, this Note is accruing interest at the Floating Rate. If a prepayment of all or any portion of the outstanding amount of this Note is made at the time that this Note is accruing interest at the Fixed Rate, then there shall be due and payable as a condition to such prepayment a prepayment premium equal to any loss or cost incurred by Holder resulting from such prepayment including, without limitation, any loss or cost in liquidating or employing deposits acquired to fund or maintain the fixed rate under this Note. 14. LATE CHARGE. A late charge shall be due and payable in the amount of five percent (5%) of the amount of any installment or payment of interest and/or principal not paid within ten (10) days of the date on which such installment or payment was due. Holder shall have no obligation to accept any such delinquent payment of principal and/or interest without the accompanying late charge, and the acceptance by Holder of such delinquent payment without the accompanying late charge shall not constitute a waiver by Holder of the right to enforce and collect such late charge. Maker acknowledges and agrees that the late charge herein provided is not a charge in the nature of interest imposed for the use of money advanced under this Note; rather, the late charge is imposed to compensate Holder for the expense, inconvenience and economic frustration experienced by Holder as a result of Maker's failure to make timely payments due hereunder, and is a reasonable forecast and estimate of Holder's actual damages and loss on account of such delinquent payment. 15. DEFAULT AND ACCELERATION. It is hereby expressly agreed that should default occur in any payment of principal or interest stipulated, or should any other Event of 7 23 Default occur, then, and in any such event, the outstanding principal balance of the indebtedness evidenced hereby, and any other sums advanced hereunder or under the Loan Documents (hereinafter defined), together with all accrued and unpaid interest, at the option of Holder and without notice to Maker except as otherwise provided herein or in the Loan Documents, shall at once become due and payable and may be collected forthwith, regardless of the stipulated date of maturity. Interest shall accrue at the applicable Default Rate from maturity, or sooner following the occurrence of a default hereunder and after the expiration date of any period provided for the curing of such default and for so long as such default continues, regardless of whether or not there has been an acceleration of the indebtedness evidenced hereby as set forth herein. All such interest at the Default Rate shall be paid at the time of and as a condition precedent to the curing of any such default should Maker have the right to cure such default. Time is of the essence of this Note. In the event this Note, or any part thereof, is collected by or through an attorney-at-law, Maker agrees to pay all costs of collection including, but not limited to, reasonable attorneys' fees actually incurred. 16. WAIVERS. (a) Except as expressly required herein or in the Loan Documents, presentment for payment, demand, protest and notice of demand, protest and non-payment and all other notices, except for such notices (if any) of default provided to be given hereunder or under any of the Loan Documents, are hereby waived by Maker. No failure to accelerate the debt evidenced hereby by reason of default hereunder, acceptance of a past due installment, or indulgences granted from time to time shall be construed (i) as a novation of this Note or as a reinstatement of the indebtedness evidenced hereby or as a waiver of such right of acceleration or of the right of Holder thereafter to insist upon strict compliance with the terms of this Note, or (ii) to prevent the exercise of such right of acceleration or any other right granted hereunder or by the laws of the State of Georgia; and Maker hereby expressly waives the benefit of any statute or rule of law or equity now provided, or which may hereafter be provided, which would produce a result contrary to or in conflict with the foregoing. No extension of the time for the payment of this Note or any installment due hereunder, made by agreement with any person now or hereafter liable for the payment of this Note, shall operate to release, discharge, modify, change or affect the original liability of Maker under this Note, either in whole or in part, unless Holder agrees otherwise in writing. This Note may not be changed orally, but only by an agreement in writing signed by the party against whom enforcement of any waiver, change, modification or discharge is sought. (b) Maker hereby waives and renounces for itself, its heirs, successors and assigns, all rights to the benefit of any statute of limitations and any moratorium, reinstatement, marshalling, forbearance, valuation, stay, extension, redemption, appraisement, exemption and homestead now provided, or which may hereafter be provided by the Constitution and laws of the United States of America and of any state thereof, both as to itself and in and to all of its property, real and personal, against the enforcement and collection of the obligations evidenced by this Note. Maker hereby transfers, conveys and assigns to Holder a sufficient amount of such homestead or exemption as may be set apart in bankruptcy, to pay this Note in full, with 8 24 all costs of collection, and does hereby direct any trustee in bankruptcy having possession of such homestead or exemption to deliver to Holder a sufficient amount of property or money set apart as exempt to pay the indebtedness evidenced hereby, or any renewal thereof, and does hereby appoint Holder the attorney-in-fact for Maker to claim any and all homestead exemptions allowed by law. 17. GOVERNING LAW. This Note is intended as a contract under and shall be construed and enforceable in accordance with the laws of the State of Georgia. 18. DEFINITIONS. As used herein, the terms "Maker" and "Holder" shall be deemed to include their respective heirs, successors, legal representatives and assigns, whether by voluntary action of the parties or by operation of law. In the event that more than one person, firm or entity is a Maker hereunder, then all references to "Maker" shall be deemed to refer equally to each of said persons, firms, or entities, all of whom shall be jointly and severally liable for all of the obligations of Maker hereunder. 19. LEGAL LIMITATIONS. It is the express intent hereof that the undersigned not pay and the Holder not receive, directly or indirectly in any manner whatsoever, interest in excess of that which may be legally paid by the undersigned under applicable law. In no event, whether by reason of demand for payment or acceleration of the maturity of the Note or otherwise, shall the interest contracted for, charged or received by Holder hereunder or otherwise exceed the maximum amount permissible under applicable law. If, from any circumstance whatsoever, interest would otherwise be payable to Holder in excess of the maximum lawful amount permitted under applicable law, the interest payable to Holder shall be reduced automatically to the maximum amount permitted under applicable law. If Holder shall ever receive anything of value deemed interest under applicable law which would apart from this provision be in excess of the maximum lawful amount, an amount equal to any amount which would have been excessive interest shall be applied to the reduction of the principal amount owing on the Note in the inverse order of its maturity and not to the payment of interest, or if such amount which would have been excessive interest exceeds the unpaid principal balance of the Note, such excess shall be refunded to Maker. All interest paid or agreed to be paid to Holder shall, to the extent permitted by applicable law, be amortized, prorated, allocated and spread throughout the full stated term (including any renewal or extension) of such indebtedness so that the amount of interest on account of such indebtedness does not exceed the maximum permitted by applicable law. The provisions of this paragraph shall control all existing and future agreements between Maker and Holder. 20. ARBITRATION. Any controversy or claim between or among the parties hereto including but not limited to those arising out of or relating to this Note or any related agreements or instruments, including any claim based on or arising from an alleged tort, shall be determined by binding arbitration in accordance with the Federal Arbitration Act (or if not applicable, the applicable state law), the Rules of Practice and Procedure for the Arbitration of Commercial Disputes or Judicial Arbitration and Mediation Services, Inc. ("J.A.M.S."), and the "Special Rules" set forth below. In the event of any inconsistency, the Special Rules shall 9 25 control. Judgment upon any arbitration award may be entered in any court having jurisdiction. Any party to this Note may bring an action, including a summary or expedited proceeding, to compel arbitration of any controversy or claim in which this Note applies in any court having jurisdiction over such action. 21. SPECIAL RULES. The arbitration shall be conducted in the city of Maker's domicile at the time of this Note's execution and administered by J.A.M.S., who will appoint an arbitrator; if J.A.M.S. is unable or legally precluded from administering the arbitration, then the American Arbitration Association will serve. All arbitration hearings will be commenced within ninety (90) days of the demand for arbitration; further the arbitrator shall only, upon a showing of cause, be permitted to extend the commencement of such hearing for an additional sixty (60) days. 22. RESERVATION OF RIGHTS. Nothing in this Note shall be deemed to (i) limit the applicability of any otherwise applicable statutes of limitation or repose and any waivers contained in this Note; or (ii) be a waiver by the Holder of the protection afforded to it by 12 U.S.C. Section 91 or any substantially equivalent state law; or (iii) limit the right of the Holder hereto (a) to exercise self help remedies such as (but not limited to) setoff, or (b) to foreclose against any real or personal property collateral, or (c) to obtain from a court provisional or ancillary remedies such as (but not limited to) injunctive relief, writ of possession or the appointment of a receiver. The Holder may exercise such self help rights, foreclosure upon such property, or obtain such provisional or ancillary remedies before, during or after the pendency of any arbitration proceeding brought pursuant to this Note. Neither the exercise or self help remedies nor the institution or maintenance of an action for foreclosure or provisional or ancillary remedies shall constitute a waiver of the right of any party, including the claimant in such action, to arbitrate the merits of the controversy or claim occasioning resort to such remedies. Nothing in this Note shall be deemed to limit the right of Maker to seek injunctive relief. 23. TITLES. The titles of sections or paragraphs herein are used for the convenience of the parties only and neither amplify, modify or alter in any way the provisions of this instrument. 10 26 IN WITNESS WHEREOF, Maker has executed this Note under seal on the date first above written. MAKER: THE PROFIT RECOVERY GROUP INTERNATIONAL, INC., a Georgia corporation By: ----------------------------------- Donald E. Ellis, Jr., Senior Vice President Attest: --------------------------------- Clinton McKellar, Jr., Secretary (CORPORATE SEAL) 11 27 EXHIBIT A-3 NATIONSBANK PROMISSORY NOTE (TERM NOTE-FIXED RATE) $________________ Date: ___________, 1997 Atlanta, Georgia 1. PROMISE TO PAY. FOR VALUE RECEIVED, the undersigned, THE PROFIT RECOVERY GROUP INTERNATIONAL, INC., a Georgia corporation (hereinafter referred to as "Maker"), promises to pay to the order of NATIONSBANK, N.A., a national bank (hereinafter referred to as "Payee"; Payee and any subsequent holder of all or any part interest in this Note being hereinafter referred to collectively as "Holder"), at the following address: NationsBank, N.A. 600 Peachtree Street, N.E. 19th Floor Atlanta, Georgia 30308 Attn: Melinda M. Bergbom, Senior Vice President or at any such other place as Holder may designate to Maker in writing from time to time, the principal sum of ________ AND NO/100THS DOLLARS ($_____________.00), or so much thereof as shall be disbursed hereunder and shall from time to time be outstanding and unpaid, together with interest thereon at the rates hereinafter set forth (subject to adjustment as provided below), in lawful money of the United States of America, which at the time of payment shall be legal tender in payment of all debts and dues, public and private, such principal and interest to be paid in the manner hereinafter provided. This Promissory Note (the "Note") is executed and delivered pursuant to that certain Loan and Security Agreement, dated September 27, 1996, among Payee, Maker and certain affiliates of Maker (hereinafter, together with all supplements and amendments thereto, the "Loan Agreement"). This Note is a Term Note referred to in, and is issued pursuant to, the Loan Agreement, and is entitled to all of the benefits and security of the Loan Agreement. All of the terms, covenants and conditions of the Loan Agreement and all other instruments evidencing or securing the indebtedness hereunder are hereby made a part of this Note and are deemed incorporated herein in full. All capitalized terms used herein, unless otherwise specifically defined in this Note, shall have the meanings ascribed to them in the Loan Agreement. 28 2. DEFINITIONS. As used herein, the following terms shall have the indicated definitions: (a) "Business Day" means any day whereon banks are open for business in Atlanta, Georgia and, with respect to borrowing, payment or rate selection of the Fixed Rate or a Eurodollar Interest Period, any day whereon banks are open for business in both Atlanta, Georgia and New York, New York and whereon dealings in U.S. dollars are carried on in the London interbank market. (b) "Default Rate" means [the rate of interest specified in Section 3] plus 2% per annum. (c) "Event of Default" means an Event of Default as that term is defined in the Loan Agreement. 3. INTEREST RATE. This Note shall bear interest at the rate of ________ percent (___%) per annum. 4. PAYMENTS OF PRINCIPAL AND INTEREST. Commencing one (1) month from the date of this Note and continuing on the same day of each calendar month thereafter through and including [the day which is 12 months from the date of the Note], there shall be due and payable monthly installments of only accrued and unpaid interest under this Note; thereafter, commencing one (1) month after [the day which is 12 months from the date of the Note] and continuing on the same day of each calendar month thereafter through and including [the day which is 47 months from the date of the Note], there shall be due and payable equal monthly installments in the amount of $ __________. Interest shall be calculated on a 360 day year basis for the actual number of days elapsed. If any payment of principal or interest hereunder would become due and payable on a day which is not a Business Day, then such payment shall be due and payable on the next succeeding Business Day. 5. MATURITY DATE. If not sooner paid (subject to the restrictions on prepayment contained in the Loan Documents) the entire outstanding principal balance of this Note shall be due and payable in full 48 months from the date of this Note. 6. APPLICATION OF PAYMENTS. If any permitted payments or prepayments are received when no Event of Default exists hereunder or under any of the Loan Documents, and if any such payments do not fully pay all sums evidenced by this Note, then such payment first shall be applied to the payment of late charges and other fees payable under this Note or the Loan Documents, then to accrued and unpaid interest under this Note and, then, to the outstanding principal balance of this Note. 2 29 7. FACILITY. The loan made pursuant to this Note is governed by the terms of the Loan Agreement whereby the loan evidenced by this Note shall be made pursuant to and subject to the Loan Agreement. 8. PREPAYMENT. Maker may, from time to time, pay all or any portion this Note without prepayment premium or penalty. Following any partial prepayment of this Note, following the date of such prepayment, equal monthly installments of principal and interest shall be due and payable based upon a reamortization of the outstanding principal balance of this Note following such prepayment over the number of monthly installments payable between such date and the maturity date of this Note and utilizing the rate of interest set forth in this Note. 9. LATE CHARGE. A late charge shall be due and payable in the amount of five percent (5%) of the amount of any installment or payment of interest and/or principal not paid within ten (10) days of the date on which such installment or payment was due. Holder shall have no obligation to accept any such delinquent payment of principal and/or interest without the accompanying late charge, and the acceptance by Holder of such delinquent payment without the accompanying late charge shall not constitute a waiver by Holder of the right to enforce and collect such late charge. Maker acknowledges and agrees that the late charge herein provided is not a charge in the nature of interest imposed for the use of money advanced under this Note; rather, the late charge is imposed to compensate Holder for the expense, inconvenience and economic frustration experienced by Holder as a result of Maker's failure to make timely payments due hereunder, and is a reasonable forecast and estimate of Holder's actual damages and loss on account of such delinquent payment. 10. DEFAULT AND ACCELERATION. It is hereby expressly agreed that should default occur in any payment of principal or interest stipulated, or should any other Event of Default occur, then, and in any such event, the outstanding principal balance of the indebtedness evidenced hereby, and any other sums advanced hereunder or under the Loan Documents (hereinafter defined), together with all accrued and unpaid interest, at the option of Holder and without notice to Maker except as otherwise provided herein or in the Loan Documents, shall at once become due and payable and may be collected forthwith, regardless of the stipulated date of maturity. Interest shall accrue at the applicable Default Rate from maturity, or sooner following the occurrence of a default hereunder and after the expiration date of any period provided for the curing of such default and for so long as such default continues, regardless of whether or not there has been an acceleration of the indebtedness evidenced hereby as set forth herein. All such interest at the Default Rate shall be paid at the time of and as a condition precedent to the curing of any such default should Maker have the right to cure such default. Time is of the essence of this Note. In the event this Note, or any part thereof, is collected by or through an attorney-at-law, Maker agrees to pay all costs of collection including, but not limited to, reasonable attorneys' fees actually incurred. 3 30 11. WAIVERS. (a) Except as expressly required herein or in the Loan Documents, presentment for payment, demand, protest and notice of demand, protest and non-payment and all other notices, except for such notices (if any) of default provided to be given hereunder or under any of the Loan Documents, are hereby waived by Maker. No failure to accelerate the debt evidenced hereby by reason of default hereunder, acceptance of a past due installment, or indulgences granted from time to time shall be construed (i) as a novation of this Note or as a reinstatement of the indebtedness evidenced hereby or as a waiver of such right of acceleration or of the right of Holder thereafter to insist upon strict compliance with the terms of this Note, or (ii) to prevent the exercise of such right of acceleration or any other right granted hereunder or by the laws of the State of Georgia; and Maker hereby expressly waives the benefit of any statute or rule of law or equity now provided, or which may hereafter be provided, which would produce a result contrary to or in conflict with the foregoing. No extension of the time for the payment of this Note or any installment due hereunder, made by agreement with any person now or hereafter liable for the payment of this Note, shall operate to release, discharge, modify, change or affect the original liability of Maker under this Note, either in whole or in part, unless Holder agrees otherwise in writing. This Note may not be changed orally, but only by an agreement in writing signed by the party against whom enforcement of any waiver, change, modification or discharge is sought. (b) Maker hereby waives and renounces for itself, its heirs, successors and assigns, all rights to the benefit of any statute of limitations and any moratorium, reinstatement, marshalling, forbearance, valuation, stay, extension, redemption, appraisement, exemption and homestead now provided, or which may hereafter be provided by the Constitution and laws of the United States of America and of any state thereof, both as to itself and in and to all of its property, real and personal, against the enforcement and collection of the obligations evidenced by this Note. Maker hereby transfers, conveys and assigns to Holder a sufficient amount of such homestead or exemption as may be set apart in bankruptcy, to pay this Note in full, with all costs of collection, and does hereby direct any trustee in bankruptcy having possession of such homestead or exemption to deliver to Holder a sufficient amount of property or money set apart as exempt to pay the indebtedness evidenced hereby, or any renewal thereof, and does hereby appoint Holder the attorney-in-fact for Maker to claim any and all homestead exemptions allowed by law. 12. GOVERNING LAW. This Note is intended as a contract under and shall be construed and enforceable in accordance with the laws of the State of Georgia. 13. DEFINITIONS. As used herein, the terms "Maker" and "Holder" shall be deemed to include their respective heirs, successors, legal representatives and assigns, whether by voluntary action of the parties or by operation of law. In the event that more than one person, firm or entity is a Maker hereunder, then all references to "Maker" shall be deemed to refer equally to each of said persons, firms, or entities, all of whom shall be jointly and 4 31 severally liable for all of the obligations of Maker hereunder. 14. LEGAL LIMITATIONS. It is the express intent hereof that the undersigned not pay and the Holder not receive, directly or indirectly in any manner whatsoever, interest in excess of that which may be legally paid by the undersigned under applicable law. In no event, whether by reason of demand for payment or acceleration of the maturity of the Note or otherwise, shall the interest contracted for, charged or received by Holder hereunder or otherwise exceed the maximum amount permissible under applicable law. If, from any circumstance whatsoever, interest would otherwise be payable to Holder in excess of the maximum lawful amount permitted under applicable law, the interest payable to Holder shall be reduced automatically to the maximum amount permitted under applicable law. If Holder shall ever receive anything of value deemed interest under applicable law which would apart from this provision be in excess of the maximum lawful amount, an amount equal to any amount which would have been excessive interest shall be applied to the reduction of the principal amount owing on the Note in the inverse order of its maturity and not to the payment of interest, or if such amount which would have been excessive interest exceeds the unpaid principal balance of the Note, such excess shall be refunded to Maker. All interest paid or agreed to be paid to Holder shall, to the extent permitted by applicable law, be amortized, prorated, allocated and spread throughout the full stated term (including any renewal or extension) of such indebtedness so that the amount of interest on account of such indebtedness does not exceed the maximum permitted by applicable law. The provisions of this paragraph shall control all existing and future agreements between Maker and Holder. 15. ARBITRATION. Any controversy or claim between or among the parties hereto including but not limited to those arising out of or relating to this Note or any related agreements or instruments, including any claim based on or arising from an alleged tort, shall be determined by binding arbitration in accordance with the Federal Arbitration Act (or if not applicable, the applicable state law), the Rules of Practice and Procedure for the Arbitration of Commercial Disputes or Judicial Arbitration and Mediation Services, Inc. ("J.A.M.S."), and the "Special Rules" set forth below. In the event of any inconsistency, the Special Rules shall control. Judgment upon any arbitration award may be entered in any court having jurisdiction. Any party to this Note may bring an action, including a summary or expedited proceeding, to compel arbitration of any controversy or claim in which this Note applies in any court having jurisdiction over such action. 16. SPECIAL RULES. The arbitration shall be conducted in the city of Maker's domicile at the time of this Note's execution and administered by J.A.M.S., who will appoint an arbitrator; if J.A.M.S. is unable or legally precluded from administering the arbitration, then the American Arbitration Association will serve. All arbitration hearings will be commenced within ninety (90) days of the demand for arbitration; further the arbitrator shall only, upon a showing of cause, be permitted to extend the commencement of such hearing for an additional sixty (60) days. 5 32 17. RESERVATION OF RIGHTS. Nothing in this Note shall be deemed to (i) limit the applicability of any otherwise applicable statutes of limitation or repose and any waivers contained in this Note; or (ii) be a waiver by the Holder of the protection afforded to it by 12 U.S.C. Section 91 or any substantially equivalent state law; or (iii) limit the right of the Holder hereto (a) to exercise self help remedies such as (but not limited to) setoff, or (b) to foreclose against any real or personal property collateral, or (c) to obtain from a court provisional or ancillary remedies such as (but not limited to) injunctive relief, writ of possession or the appointment of a receiver. The Holder may exercise such self help rights, foreclosure upon such property, or obtain such provisional or ancillary remedies before, during or after the pendency of any arbitration proceeding brought pursuant to this Note. Neither the exercise or self help remedies nor the institution or maintenance of an action for foreclosure or provisional or ancillary remedies shall constitute a waiver of the right of any party, including the claimant in such action, to arbitrate the merits of the controversy or claim occasioning resort to such remedies. Nothing in this Note shall be deemed to limit the right of Maker to seek injunctive relief. 18. TITLES. The titles of sections or paragraphs herein are used for the convenience of the parties only and neither amplify, modify or alter in any way the provisions of this instrument. IN WITNESS WHEREOF, Maker has executed this Note under seal on the date first above written. MAKER: THE PROFIT RECOVERY GROUP INTERNATIONAL, INC., a Georgia corporation By: ----------------------------------- Donald E. Ellis, Jr., Senior Vice President Attest: --------------------------------- Clinton McKellar, Jr., Secretary (CORPORATE SEAL) 6 33 EXHIBIT A-2 NATIONSBANK PROMISSORY NOTE $10,000,000.00 Date: _____________, 1997 Atlanta, Georgia 1. PROMISE TO PAY. FOR VALUE RECEIVED, the undersigned, THE PROFIT RECOVERY GROUP INTERNATIONAL, INC., a Georgia corporation (hereinafter referred to as "Maker"), promises to pay to the order of NATIONSBANK, N.A., a national bank (hereinafter referred to as "Payee"; Payee and any subsequent holder of all or any part interest in this Note being hereinafter referred to collectively as "Holder"), at the following address: NationsBank, N.A. 600 Peachtree Street, N.E. 19th Floor Atlanta, Georgia 30308 Attn: Melinda M. Bergbom, Senior Vice President or at any such other place as Holder may designate to Maker in writing from time to time, the principal sum of TEN MILLION AND NO/100THS DOLLARS ($10,000,000.00), or so much thereof as shall be disbursed hereunder and shall from time to time be outstanding and unpaid, together with interest thereon at one or more of the rates hereinafter set forth (subject to adjustment and designation of the applicable interest rate or rates as provided below), in lawful money of the United States of America, which at the time of payment shall be legal tender in payment of all debts and dues, public and private, such principal and interest to be paid in the manner hereinafter provided. This Promissory Note (the "Note") is executed and delivered pursuant to that certain Loan and Security Agreement, dated as of even date herewith, among Payee, Maker and certain affiliates of Maker (hereinafter, together with all supplements and amendments thereto, the "Loan Agreement"). This Note is the Revolver Note referred to in, and is issued pursuant to, the Loan Agreement, and is entitled to all of the benefits and security of the Loan Agreement. All of the terms, covenants and conditions of the Loan Agreement and all other instruments evidencing or securing the indebtedness hereunder are hereby made a part of this Note and are deemed incorporated herein in full. All capitalized terms used herein, unless otherwise specifically defined in this Note, shall have the meanings ascribed to them in the Loan Agreement. 34 2. DEFINITIONS. As used herein, the following terms shall have the indicated definitions: (a) "Advance" means a Fixed Rate Advance or a Floating Rate Advance. (b) "Business Day" means any day whereon banks are open for business in Atlanta, Georgia and, with respect to borrowing, payment or rate selection of a Fixed Rate Advance or a Eurodollar Interest Period, any day whereon banks are open for business in both Atlanta, Georgia and New York, New York and whereon dealings in U.S. dollars are carried on in the London interbank market. (c) "Default Rate" means (i) with respect to each Floating Rate Advance, a rate per annum equal to the Prime Rate plus two percent (2%); and (ii) with respect to each Fixed Rate Advance for the remainder of the applicable Eurodollar Interest Period, a rate per annum equal to the applicable Eurodollar Rate plus two percent (2%), and after such applicable Eurodollar Interest Period at the rate per annum equal to the Prime Rate plus two percent (2%). (d) "Effective Date" means any Business Day designated by Maker in a Rate Selection Notice as the date such rate selection shall become effective, or the first day of Floating Rate Advance. (e) "Eurodollar Interest Period" means, with respect to a Fixed Rate Advance, a period of thirty (30) days, sixty (60) days, ninety (90) days or one hundred eighty (180) days to the extent eurodollar borrowings of such or similar periods are available, commencing on a Business Day and selected by the Maker in its Rate Selection Notice; provided, however, such Eurodollar Interest Period shall commence on the last day of the immediately preceding Eurodollar Interest Period in the case of a rollover to a successive Eurodollar Interest Period. If any Eurodollar Interest Period would otherwise end on a day which is not a Business Day, such Eurodollar Interest Period shall end on the next succeeding Business Day. Any Eurodollar Interest Period must end on or before the maturity date of this Note. (f) "Eurodollar Rate" means, with respect to a Fixed Rate Advance for the relevant Eurodollar Interest Period, the sum of the LIBOR Rate applicable to that Eurodollar Interest Period plus one and three-quarters percent (1.75%) per annum, subject to adjustment from time to time as hereinafter provided. The Eurodollar Rate shall be rounded, if necessary, to the next higher one-sixteenth of one percent. (g) "Event of Default" means an Event of Default as that term is defined in the Loan Agreement. (h) "Fixed Rate Advance" means that portion of the Principal Amount to which the Eurodollar Rate is applicable for a particular Eurodollar Interest Period. 2 35 (i) "Floating Rate" means a rate per annum equal to the Prime Rate, changing when and as the Prime Rate changes. (j) "Floating Rate Advance" means that portion of the Principal Amount of the Note bearing interest at the Floating Rate. (k) "LIBOR Rate" means the simple interest rate per annum determined by Holder, taking into account the rates at which deposits in United States dollars for periods of thirty (30) days, sixty (60) days, ninety (90) days and one hundred eighty (180) days (each of the foregoing is individually referred to as "LIBOR Rate Option") are offered in the interbank eurodollar market, and such other factors as Holder may reasonably deem appropriate from time to time. The LIBOR Rate is established in the discretion of Holder for the particular indebtedness evidenced by this Note, and may not be the lowest rate based in part upon which market for deposits in the interbank eurodollar market at which Holder prices loans on the date on which the LIBOR Rate is established. The rate of interest charged under this Note with respect to any selection of any of the LIBOR Rate Options shall be the selected LIBOR Rate Option on the Effective Date of the Rate Selection Notice, and shall continue to be the same rate of interest, without daily adjustment, until the maturity of the selected LIBOR Rate Option has fully elapsed or the Rate Selection Notice has been terminated as otherwise provided herein. The LIBOR Rate Option applicable to new selections shall be the rate of interest of the selected LIBOR Rate Option on the Effective Date of the Rate Selection Notice. In the event that Holder shall have determined that the dollar deposits in an amount approximately equal to the portion of the Principal Amount to which any of the LIBOR Rate Options apply are not available to Holder at such time in the interbank eurodollar market, or that reasonable means within the customary operating practices of Holder do not exist for ascertaining a LIBOR Rate, or if any change in any law or regulation or in the interpretation thereof by any governmental authority charged with the administration or interpretation thereof shall make in unlawful for Holder to make or maintain LIBOR Rates with respect to the principal balance hereof or any portion thereof or to fund any portion of the principal advanced hereunder in the interbank eurodollar market then, Holder shall promptly notify Maker and thereafter such portion of the principal balance hereof shall bear interest at the Floating Rate until such time, if any, as a LIBOR Rate loan can be made by Holder to Maker, following which Holder shall be entitled to the selection of the LIBOR Rate Options as provided in this Note. (l) "Minimum Notice Period" means a period commencing no later than 10:00 a.m. Atlanta, Georgia time three (3) Business Days prior to the Effective Date of a Fixed Rate Advance. (m) "Prime Rate" shall be the per annum rate announced by Payee from time to time as its Prime Rate and as one of the several interest rate bases used by Payee. Payee lends at rates both above and below the Prime Rate and is not represented or intended to be the lowest or most favorable rate of interest offered by Payee. If, and to the extent and from time to time, the Prime Rate of Payee increases or decreases, then the Prime Rate under this Note shall 3 36 be corresponding increased or decreased, such increase or decrease hereunder to be effective as of the date on which such increase or decrease of the Prime Rate of Payee occurs. The Prime Rate in effect at the end of each day shall be the Prime Rate utilized for purposes of calculating interest under this Note for such day. In the event that Payee shall abolish or abandon the practice of establishing its Prime Rate, Holder shall designate a comparable reference rate which shall be deemed to be the Prime Rate hereunder. (n) "Principal Amount" means the principal amount outstanding from time to time under this Note. (o) "Rate Option" means the rate per annum equal to either (i) the Floating Rate or (ii) the Eurodollar Rate. (p) "Rate Selection Notice" means a written or telephonic notice (such telephonic notice to be immediately confirmed by written or telefaxed notice) providing irrevocable notice by the Maker to the Payee specifying (i) the Principal Amount which shall be governed by the Eurodollar Rate, (ii) the Eurodollar Interest Period applicable to each such amount to be governed by the Eurodollar Rate, and (iii) the Effective Date of each such Eurodollar Rate selection. (a) "Regulation D" means Regulation D of the Board of Governors of the Federal Reserve System from time to time in effect and shall include any successor or other regulation or official interpretation of said Board of Governors relating to Reserve Requirements applicable to member banks of the Federal Reserve System. (b) "Reserve Requirement" means, with respect to a Eurodollar Interest Period, the maximum aggregate reserve requirement (including all basic, supplemental, marginal and other reserves and taking into account any transitional adjustments or scheduled changes in reserve requirements during such Eurodollar Interest Period) which is imposed under Regulation D on non-personal time deposits of $100,000.00 or more with a maturity date equal to that on Eurocurrency liabilities. 3. FLOATING RATE BORROWING. Except as provided in Section 4 below, this Note shall bear interest at the rate per annum equal to the Floating Rate and, therefore, the initial rate of interest as of the date hereof, expressed in simple interest terms, is 8.25% per annum. If at any time or from time to time the Floating Rate increases or decreases, then the rate of interest hereunder shall be correspondingly increased or decreased effective on the date of which such increase or decrease of such Floating Rate takes effect. 4. SELECTION OF FIXED RATE ADVANCE. Subject to the terms and conditions of this Note, Maker may elect from time to time to pay interest at a rate per annum equal to the Eurodollar Rate rather than the rate per annum equal to the Floating Rate, and for a Eurodollar Interest Period selected hereunder for all or any outstanding portion of the Note 4 37 (subject to the provision of Paragraph 5 below) by giving the Holder the appropriate Rate Selection Notice in not less than the Minimum Notice Period applicable thereto. The Principal Amount of each Fixed Rate Advance shall bear interest from and including the first day of the Eurodollar Interest Period applicable thereto and during such Eurodollar Interest Period. Except in accordance with Section 7 hereof, the Rate Option applicable to such Fixed Rate Advance shall not be changed by the Maker. Maker may select a new Eurodollar Interest Period and Eurodollar Rate to apply to an outstanding Fixed Rate Advance, effective as of the last day of the existing Eurodollar Interest Period applicable to such Fixed Rate Advance, by giving a Rate Selection Notice in not less than the Minimum Notice Period and subject to the minimum advance amount provisions applicable to the Fixed Rate Advance selected. If at the end of a Eurodollar Interest Period for an outstanding Fixed Rate Advance, the Maker fails to select a new Eurodollar Rate and new Eurodollar Interest Period, then such Advance shall be a Floating Rate Advance on and after the last day of such existing Eurodollar Interest Period until paid or until the Effective Date of a new Rate Option with respect thereto selected by the Maker. An outstanding Floating Rate Advance can be converted to a Fixed Rate Advance at any time by providing a Rate Selection Notice (and subject to the provisions of Paragraph 5 below). The Maker may not select a Fixed Rate Advance for any Advance if, on the date of the Rate Selection Notice or the Effective Date of such selection, there exists an Event of Default. 5. RESTRICTIONS ON LOANS. The amount of any Fixed Rate Advance pursuant to this Note shall be in a minimum amount of $500,000.00. 6. TELEPHONIC NOTICES. Maker hereby authorizes the Payee to extend Advances and effect Rate Option selections based on telephonic notices made by any one of the following (or such other persons as Borrower may designate in writing from time to time to Lender): Donald E. Ellis, Jr. Michael Melton The Maker agrees to deliver promptly to Payee a written confirmation of each telephone notice signed by an authorized officer of Maker. If the written confirmation differs in any material respect from the action taken by the Payee, the records of the Payee shall govern absent manifest error. 7. YIELD PROTECTION. With respect only to interest calculated at the Fixed Rate, if any existing or future law, governmental rule, policy, guideline, regulation or directive, whether or not having the force of law, or compliance of the Payee with such, (i) subjects the Payee to any tax, duty, charge or withholding on or from payments due from the Maker (excluding U.S. taxation of the overall net income of the Payee), or changes the basis of taxation of payment to the Payee in respect of the Indebtedness, or (ii) imposes or increases or deems applicable any reserve, assessment (other than reserves and assessments included in the 5 38 Reserve Requirement with respect to Fixed Rate Advances), special deposit, insurance charge or similar requirement against assets of, deposits with or for the account of, or credit extended by, the Payee (other than reserves and assessments taken into account in determining the interest rate applicable to Fixed Rate Advances), or (iii) imposes any other condition the result of which is to increase the cost to the Payee of making, funding or maintaining U.S. dollar loans or reduces any amount receivable by the Payee in connection with U.S. dollar loans, or requires the Payee to make any payment calculated by reference to the amount of loans held or interest received by it, by an amount deemed material by the Payee, or (iv) affects the amount of capital required or expected to be maintained by the Payee or any corporation controlling the Payee and the Payee determines that the amount of capital required is increased by or based upon the existence of the Loan or any of the Loan Documents or its obligation to make the Loan hereunder or of commitments of this type, then within 15 days of demand by the Payee, Maker shall pay the Payee that portion of such increased expense incurred (including, in the case of Paragraph 7(iv), any reduction in the rate of return on capital to an amount below that which it could have achieved but for such change in regulation after taking into account Payee's policies as to capital adequacy) or the amount of reduction in an amount received which the Payee determines is attributable to making, funding and maintaining the Loan. A certificate of Payee is to the amounts payable pursuant to this Paragraph 7 (which certificate shall reflect in reasonable detail the method and basis for the calculation thereof) submitted to Maker shall, absent manifest error, be final and binding upon all of the parties hereto. Payee will give Maker notice that Payee has determined that amounts are due and payable pursuant to this Paragraph 7 within a reasonable time after such determination by Payee. Payee agrees that the determination of any such increased expense incurred or in the amount of reduction in the amount received shall be consistent with such determination made with respect to other loans of Payee which are similarly structured, of a similar amount and for a similar purpose. 8. (a) AVAILABILITY OF INTEREST RATE. If the Payee determines that (i) maintenance of the Fixed Rate Advances would violate any applicable law, rule, regulation, or directive, whether or not having the force of law, (ii) deposits of a type and maturity appropriate to match fund a Fixed Rate Advance are not available, or (iii) a Eurodollar Rate does not accurately reflect the cost of making or maintaining a Fixed Rate Advance, then the Payee shall suspend the availability of the affected LIBOR Rate Option and require any Fixed Rate Advances outstanding under an affected LIBOR Rate Option to be converted to an unaffected Rate Option; provided, however, with respect to the circumstance described above in clause (iii) of this Section 8(a) only, the Fixed Rate shall be converted to an unaffected Rate Option at the end of the Eurodollar Interest Period applicable to such Fixed Rate Advance. Subject to the terms and conditions of this Note, including the minimum borrowing provisions applicable to the Fixed Rate Advance for which a new Rate Option is selected, the Maker may select, by giving a Rate Selection Notice in not less than the Minimum Notice Period, any unaffected Rate Option to apply to such affected Advances. If the Maker fails to select a new Rate Option, the affected Advances shall be Floating Rate Advances. (b) FAILURE TO PAY OR BORROW ON CERTAIN DATES. If any payment of 6 39 a Fixed Rate Advance occurs on a date which is not the last day of the applicable Eurodollar Interest Period, whether because of acceleration, prepayment or otherwise, or a Fixed Rate Advance is not made on the date specified by the Maker for any reason other than a default by the Payee, the Maker will indemnify the Payee for any loss or cost incurred by Payee resulting therefrom, including, without limitation, any loss or cost in liquidating or employing deposits acquired to fund or maintain the Fixed Rate Advance. (c) BANK CERTIFICATES; SURVIVAL OF INDEMNITY. A certificate of the Payee as to the amount due under Sections 7 and 8(b) shall be final, conclusive and binding on the Maker in the absence of manifest error. Determination of amounts payable under such Sections 7 and 8(b) in connection with a Fixed Rate Advance shall be calculated as though the Holder funded its Fixed Rate Advance through the purchase of a deposit of the type and maturity corresponding to the deposit used as a reference in determining the Eurodollar Rate applicable to such Fixed Rate Advance, whether in fact that is the case or not. Unless otherwise provided herein, the amount specified in the certificate shall be payable on demand after receipt by the Maker of the certificate. The obligations under Section 7 and 8(b) shall survive for a period of six (6) months following repayment of the Loan. 9. PAYMENTS OF INTEREST. Accrued and unpaid interest only shall be due and payable on the last day of each calendar month commencing on October 31, 1996 and continuing through and including September 30, 1999. Interest shall be calculated on a 360 day year basis for the actual number of days elapsed. If any payment of principal or interest hereunder would become due and payable on a day which is not a Business Day, then such payment shall be due and payable on the next succeeding Business Day. 10. PAYMENT OF PRINCIPAL. If not sooner paid (subject to the restrictions on prepayment contained in the Loan Documents) the entire outstanding principal balance of this Note shall be due and payable in full on September 30, 1999. 11. APPLICATION OF PAYMENTS. If any permitted payments or prepayments are received when no Event of Default exists hereunder or under any of the Loan Documents, and if any such payments do not fully pay all sums evidenced by this Note, then such payment first shall be applied to the payment of late charges and other fees payable under this Note or the Loan Documents, then to accrued and unpaid interest under this Note and, then, the balance of such payment shall be applied to the outstanding principal balance of this Note in the following order of application: (a) The Principal Amount accruing interest at the Floating Rate at the time of such prepayment; and (b) The Principal Amount accruing interest at the Eurodollar Rate as of the date of 7 40 such prepayment in the order of the maturity dates of the Eurodollar Interest Periods in effect at such time. 12. FACILITY. The loan evidenced by this Note is governed by the terms of the Loan Agreement whereby advances of principal under this Note shall be made pursuant to and subject to the Loan Agreement. 13. PREPAYMENT. Maker may from time to time, pay all or any portion of outstanding Floating Rate Advances. A Fixed Rate Advance may not be paid prior to the last day of the applicable Eurodollar Interest Period unless, at the time of such prepayment, Maker pays to Holder all costs associated with the early termination of such Fixed Rate Advance as provided in Section 8(b) herein. 14. LATE CHARGE. A late charge shall be due and payable in the amount of five percent (5%) of the amount of any installment or payment of interest and/or principal not paid within ten (10) days of the date on which such installment or payment was due. Holder shall have no obligation to accept any such delinquent payment of principal and/or interest without the accompanying late charge, and the acceptance by Holder of such delinquent payment without the accompanying late charge shall not constitute a waiver by Holder of the right to enforce and collect such late charge. Maker acknowledges and agrees that the late charge herein provided is not a charge in the nature of interest imposed for the use of money advanced under this Note; rather, the late charge is imposed to compensate Holder for the expense, inconvenience and economic frustration experienced by Holder as a result of Maker's failure to make timely payments due hereunder, and is a reasonable forecast and estimate of Holder's actual damages and loss on account of such delinquent payment. 15. DEFAULT AND ACCELERATION. It is hereby expressly agreed that should default occur in any payment of principal or interest stipulated, or should any other Event of Default occur, then, and in any such event, the outstanding principal balance of the indebtedness evidenced hereby, and any other sums advanced hereunder or under the Loan Documents (hereinafter defined), together with all accrued and unpaid interest, at the option of Holder and without notice to Maker except as otherwise provided herein or in the Loan Documents, shall at once become due and payable and may be collected forthwith, regardless of the stipulated date of maturity. Interest shall accrue on each Advance at the applicable Default Rate from maturity, or sooner following the occurrence of a default hereunder and after the expiration date of any period provided for the curing of such default and for so long as such default continues, regardless of whether or not there has been an acceleration of the indebtedness evidenced hereby as set forth herein. All such interest at the Default Rate shall be paid at the time of and as a condition precedent to the curing of any such default should Maker have the right to cure such default. Time is of the essence of this Note. In the event this Note, or any part thereof, is collected by or through an attorney-at-law, Maker agrees to 8 41 pay all costs of collection including, but not limited to, reasonable attorneys' fees actually incurred. 16. WAIVERS. (a) Except as expressly required herein or in the Loan Documents, presentment for payment, demand, protest and notice of demand, protest and non-payment and all other notices, except for such notices (if any) of default provided to be given hereunder or under any of the Loan Documents, are hereby waived by Maker. No failure to accelerate the debt evidenced hereby by reason of default hereunder, acceptance of a past due installment, or indulgences granted from time to time shall be construed (i) as a novation of this Note or as a reinstatement of the indebtedness evidenced hereby or as a waiver of such right of acceleration or of the right of Holder thereafter to insist upon strict compliance with the terms of this Note, or (ii) to prevent the exercise of such right of acceleration or any other right granted hereunder or by the laws of the State of Georgia; and Maker hereby expressly waives the benefit of any statute or rule of law or equity now provided, or which may hereafter be provided, which would produce a result contrary to or in conflict with the foregoing. No extension of the time for the payment of this Note or any installment due hereunder, made by agreement with any person now or hereafter liable for the payment of this Note, shall operate to release, discharge, modify, change or affect the original liability of Maker under this Note, either in whole or in part, unless Holder agrees otherwise in writing. This Note may not be changed orally, but only by an agreement in writing signed by the party against whom enforcement of any waiver, change, modification or discharge is sought. (b) Maker hereby waives and renounces for itself, its heirs, successors and assigns, all rights to the benefit of any statute of limitations and any moratorium, reinstatement, marshalling, forbearance, valuation, stay, extension, redemption, appraisement, exemption and homestead now provided, or which may hereafter be provided by the Constitution and laws of the United States of America and of any state thereof, both as to itself and in and to all of its property, real and personal, against the enforcement and collection of the obligations evidenced by this Note. Maker hereby transfers, conveys and assigns to Holder a sufficient amount of such homestead or exemption as may be set apart in bankruptcy, to pay this Note in full, with all costs of collection, and does hereby direct any trustee in bankruptcy having possession of such homestead or exemption to deliver to Holder a sufficient amount of property or money set apart as exempt to pay the indebtedness evidenced hereby, or any renewal thereof, and does hereby appoint Holder the attorney-in-fact for Maker to claim any and all homestead exemptions allowed by law. 17. GOVERNING LAW. This Note is intended as a contract under and shall be construed and enforceable in accordance with the laws of the State of Georgia. 18. DEFINITIONS. As used herein, the terms "Maker" and "Holder" shall be deemed to include their respective heirs, successors, legal representatives and assigns, whether 9 42 by voluntary action of the parties or by operation of law. In the event that more than one person, firm or entity is a Maker hereunder, then all references to "Maker" shall be deemed to refer equally to each of said persons, firms, or entities, all of whom shall be jointly and severally liable for all of the obligations of Maker hereunder. 19. LEGAL LIMITATIONS. It is the express intent hereof that the undersigned not pay and the Holder not receive, directly or indirectly in any manner whatsoever, interest in excess of that which may be legally paid by the undersigned under applicable law. In no event, whether by reason of demand for payment or acceleration of the maturity of the Note or otherwise, shall the interest contracted for, charged or received by Holder hereunder or otherwise exceed the maximum amount permissible under applicable law. If, from any circumstance whatsoever, interest would otherwise be payable to Holder in excess of the maximum lawful amount permitted under applicable law, the interest payable to Holder shall be reduced automatically to the maximum amount permitted under applicable law. If Holder shall ever receive anything of value deemed interest under applicable law which would apart from this provision be in excess of the maximum lawful amount, an amount equal to any amount which would have been excessive interest shall be applied to the reduction of the principal amount owing on the Note in the inverse order of its maturity and not to the payment of interest, or if such amount which would have been excessive interest exceeds the unpaid principal balance of the Note, such excess shall be refunded to Maker. All interest paid or agreed to be paid to Holder shall, to the extent permitted by applicable law, be amortized, prorated, allocated and spread throughout the full stated term (including any renewal or extension) of such indebtedness so that the amount of interest on account of such indebtedness does not exceed the maximum permitted by applicable law. The provisions of this paragraph shall control all existing and future agreements between Maker and Holder. 20. ARBITRATION. Any controversy or claim between or among the parties hereto including but not limited to those arising out of or relating to this Note or any related agreements or instruments, including any claim based on or arising from an alleged tort, shall be determined by binding arbitration in accordance with the Federal Arbitration Act (or if not applicable, the applicable state law), the Rules of Practice and Procedure for the Arbitration of Commercial Disputes or Judicial Arbitration and Mediation Services, Inc. ("J.A.M.S."), and the "Special Rules" set forth below. In the event of any inconsistency, the Special Rules shall control. Judgment upon any arbitration award may be entered in any court having jurisdiction. Any party to this Note may bring an action, including a summary or expedited proceeding, to compel arbitration of any controversy or claim in which this Note applies in any court having jurisdiction over such action. 21. SPECIAL RULES. The arbitration shall be conducted in the city of Maker's domicile at the time of this Note's execution and administered by J.A.M.S., who will appoint an arbitrator; if J.A.M.S. is unable or legally precluded from administering the arbitration, then the American Arbitration Association will serve. All arbitration hearings will be commenced within ninety (90) days of the demand for arbitration; further the arbitrator shall 10 43 only, upon a showing of cause, be permitted to extend the commencement of such hearing for an additional sixty (60) days. 22. RESERVATION OF RIGHTS. Nothing in this Note shall be deemed to (i) limit the applicability of any otherwise applicable statutes of limitation or repose and any waivers contained in this Note; or (ii) be a waiver by the Holder of the protection afforded to it by 12 U.S.C. Section 91 or any substantially equivalent state law; or (iii) limit the right of the Holder hereto (a) to exercise self help remedies such as (but not limited to) setoff, or (b) to foreclose against any real or personal property collateral, or (c) to obtain from a court provisional or ancillary remedies such as (but not limited to) injunctive relief, writ of possession or the appointment of a receiver. The Holder may exercise such self help rights, foreclosure upon such property, or obtain such provisional or ancillary remedies before, during or after the pendency of any arbitration proceeding brought pursuant to this Note. Neither the exercise or self help remedies nor the institution or maintenance of an action for foreclosure or provisional or ancillary remedies shall constitute a waiver of the right of any party, including the claimant in such action, to arbitrate the merits of the controversy or claim occasioning resort to such remedies. Nothing in this Note shall be deemed to limit the right of Maker to seek injunctive relief. 23. TITLES. The titles of sections or paragraphs herein are used for the convenience of the parties only and neither amplify, modify or alter in any way the provisions of this instrument. IN WITNESS WHEREOF, Maker has executed this Note under seal on the date first above written. MAKER: THE PROFIT RECOVERY GROUP INTERNATIONAL, INC., a Georgia corporation By: ------------------------------------- Donald E. Ellis, Jr., Senior Vice President Attest: --------------------------------- Clinton McKellar, Jr., Secretary (CORPORATE SEAL) 11 44 NATIONSBANK PROMISSORY NOTE $10,000,000.00 Date: October 3, 1997 Atlanta, Georgia 1. PROMISE TO PAY. FOR VALUE RECEIVED, the undersigned, THE PROFIT RECOVERY GROUP INTERNATIONAL, INC., a Georgia corporation (hereinafter referred to as "Maker"), promises to pay to the order of NATIONSBANK, N.A., a national bank (hereinafter referred to as "Payee"; Payee and any subsequent holder of all or any part interest in this Note being hereinafter referred to collectively as "Holder"), at the following address: NationsBank, N.A. 600 Peachtree Street, N.E. 19th Floor Atlanta, Georgia 30308 Attn: Melinda M. Bergbom, Senior Vice President or at any such other place as Holder may designate to Maker in writing from time to time, the principal sum of TEN MILLION AND NO/100THS DOLLARS ($10,000,000.00), or so much thereof as shall be disbursed hereunder and shall from time to time be outstanding and unpaid, together with interest thereon at one or more of the rates hereinafter set forth (subject to adjustment and designation of the applicable interest rate or rates as provided below), in lawful money of the United States of America, which at the time of payment shall be legal tender in payment of all debts and dues, public and private, such principal and interest to be paid in the manner hereinafter provided. This Promissory Note (the "Note") is executed and delivered pursuant to that certain Loan and Security Agreement, dated as of even date herewith, among Payee, Maker and certain affiliates of Maker (hereinafter, together with all supplements and amendments thereto, the "Loan Agreement"). This Note is the Revolver Note referred to in, and is issued pursuant to, the Loan Agreement, and is entitled to all of the benefits and security of the Loan Agreement. All of the terms, covenants and conditions of the Loan Agreement and all other instruments evidencing or securing the indebtedness hereunder are hereby made a part of this Note and are deemed incorporated herein in full. All capitalized terms used herein, unless otherwise specifically defined in this Note, shall have the meanings ascribed to them in the Loan Agreement. 45 2. DEFINITIONS. As used herein, the following terms shall have the indicated definitions: (a) "Advance" means a Fixed Rate Advance or a Floating Rate Advance. (b) "Business Day" means any day whereon banks are open for business in Atlanta, Georgia and, with respect to borrowing, payment or rate selection of a Fixed Rate Advance or a Eurodollar Interest Period, any day whereon banks are open for business in both Atlanta, Georgia and New York, New York and whereon dealings in U.S. dollars are carried on in the London interbank market. (c) "Default Rate" means (i) with respect to each Floating Rate Advance, a rate per annum equal to the Prime Rate plus two percent (2%); and (ii) with respect to each Fixed Rate Advance for the remainder of the applicable Eurodollar Interest Period, a rate per annum equal to the applicable Eurodollar Rate plus two percent (2%), and after such applicable Eurodollar Interest Period at the rate per annum equal to the Prime Rate plus two percent (2%). (d) "Effective Date" means any Business Day designated by Maker in a Rate Selection Notice as the date such rate selection shall become effective, or the first day of Floating Rate Advance. (e) "Eurodollar Interest Period" means, with respect to a Fixed Rate Advance, a period of thirty (30) days, sixty (60) days, ninety (90) days or one hundred eighty (180) days to the extent eurodollar borrowings of such or similar periods are available, commencing on a Business Day and selected by the Maker in its Rate Selection Notice; provided, however, such Eurodollar Interest Period shall commence on the last day of the immediately preceding Eurodollar Interest Period in the case of a rollover to a successive Eurodollar Interest Period. If any Eurodollar Interest Period would otherwise end on a day which is not a Business Day, such Eurodollar Interest Period shall end on the next succeeding Business Day. Any Eurodollar Interest Period must end on or before the maturity date of this Note. (f) "Eurodollar Rate" means, with respect to a Fixed Rate Advance for the relevant Eurodollar Interest Period, the sum of the LIBOR Rate applicable to that Eurodollar Interest Period plus one and three-quarters percent (1.75%) per annum, subject to adjustment from time to time as hereinafter provided. The Eurodollar Rate shall be rounded, if necessary, to the next higher one-sixteenth of one percent. (g) "Event of Default" means an Event of Default as that term is defined in the Loan Agreement. (h) "Fixed Rate Advance" means that portion of the Principal Amount to which the Eurodollar Rate is applicable for a particular Eurodollar Interest Period. 2 46 (i) "Floating Rate" means a rate per annum equal to the Prime Rate, changing when and as the Prime Rate changes. (j) "Floating Rate Advance" means that portion of the Principal Amount of the Note bearing interest at the Floating Rate. (k) "LIBOR Rate" means the simple interest rate per annum determined by Holder, taking into account the rates at which deposits in United States dollars for periods of thirty (30) days, sixty (60) days, ninety (90) days and one hundred eighty (180) days (each of the foregoing is individually referred to as "LIBOR Rate Option") are offered in the interbank eurodollar market, and such other factors as Holder may reasonably deem appropriate from time to time. The LIBOR Rate is established in the discretion of Holder for the particular indebtedness evidenced by this Note, and may not be the lowest rate based in part upon which market for deposits in the interbank eurodollar market at which Holder prices loans on the date on which the LIBOR Rate is established. The rate of interest charged under this Note with respect to any selection of any of the LIBOR Rate Options shall be the selected LIBOR Rate Option on the Effective Date of the Rate Selection Notice, and shall continue to be the same rate of interest, without daily adjustment, until the maturity of the selected LIBOR Rate Option has fully elapsed or the Rate Selection Notice has been terminated as otherwise provided herein. The LIBOR Rate Option applicable to new selections shall be the rate of interest of the selected LIBOR Rate Option on the Effective Date of the Rate Selection Notice. In the event that Holder shall have determined that the dollar deposits in an amount approximately equal to the portion of the Principal Amount to which any of the LIBOR Rate Options apply are not available to Holder at such time in the interbank eurodollar market, or that reasonable means within the customary operating practices of Holder do not exist for ascertaining a LIBOR Rate, or if any change in any law or regulation or in the interpretation thereof by any governmental authority charged with the administration or interpretation thereof shall make in unlawful for Holder to make or maintain LIBOR Rates with respect to the principal balance hereof or any portion thereof or to fund any portion of the principal advanced hereunder in the interbank eurodollar market then, Holder shall promptly notify Maker and thereafter such portion of the principal balance hereof shall bear interest at the Floating Rate until such time, if any, as a LIBOR Rate loan can be made by Holder to Maker, following which Holder shall be entitled to the selection of the LIBOR Rate Options as provided in this Note. (l) "Minimum Notice Period" means a period commencing no later than 10:00 a.m. Atlanta, Georgia time three (3) Business Days prior to the Effective Date of a Fixed Rate Advance. (m) "Prime Rate" shall be the per annum rate announced by Payee from time to time as its Prime Rate and as one of the several interest rate bases used by Payee. Payee lends at rates both above and below the Prime Rate and is not represented or intended to be the lowest or most favorable rate of interest offered by Payee. If, and to the extent and from time to time, the Prime Rate of Payee increases or decreases, then the Prime Rate under this Note shall 3 47 be corresponding increased or decreased, such increase or decrease hereunder to be effective as of the date on which such increase or decrease of the Prime Rate of Payee occurs. The Prime Rate in effect at the end of each day shall be the Prime Rate utilized for purposes of calculating interest under this Note for such day. In the event that Payee shall abolish or abandon the practice of establishing its Prime Rate, Holder shall designate a comparable reference rate which shall be deemed to be the Prime Rate hereunder. (n) "Principal Amount" means the principal amount outstanding from time to time under this Note. (o) "Rate Option" means the rate per annum equal to either (i) the Floating Rate or (ii) the Eurodollar Rate. (p) "Rate Selection Notice" means a written or telephonic notice (such telephonic notice to be immediately confirmed by written or telefaxed notice) providing irrevocable notice by the Maker to the Payee specifying (i) the Principal Amount which shall be governed by the Eurodollar Rate, (ii) the Eurodollar Interest Period applicable to each such amount to be governed by the Eurodollar Rate, and (iii) the Effective Date of each such Eurodollar Rate selection. (a) "Regulation D" means Regulation D of the Board of Governors of the Federal Reserve System from time to time in effect and shall include any successor or other regulation or official interpretation of said Board of Governors relating to Reserve Requirements applicable to member banks of the Federal Reserve System. (b) "Reserve Requirement" means, with respect to a Eurodollar Interest Period, the maximum aggregate reserve requirement (including all basic, supplemental, marginal and other reserves and taking into account any transitional adjustments or scheduled changes in reserve requirements during such Eurodollar Interest Period) which is imposed under Regulation D on non-personal time deposits of $100,000.00 or more with a maturity date equal to that on Eurocurrency liabilities. 3. FLOATING RATE BORROWING. Except as provided in Section 4 below, this Note shall bear interest at the rate per annum equal to the Floating Rate and, therefore, the initial rate of interest as of the date hereof, expressed in simple interest terms, is 8.25% per annum. If at any time or from time to time the Floating Rate increases or decreases, then the rate of interest hereunder shall be correspondingly increased or decreased effective on the date of which such increase or decrease of such Floating Rate takes effect. 4. SELECTION OF FIXED RATE ADVANCE. Subject to the terms and conditions of this Note, Maker may elect from time to time to pay interest at a rate per annum equal to the Eurodollar Rate rather than the rate per annum equal to the Floating Rate, and for a Eurodollar Interest Period selected hereunder for all or any outstanding portion of the Note 4 48 (subject to the provision of Paragraph 5 below) by giving the Holder the appropriate Rate Selection Notice in not less than the Minimum Notice Period applicable thereto. The Principal Amount of each Fixed Rate Advance shall bear interest from and including the first day of the Eurodollar Interest Period applicable thereto and during such Eurodollar Interest Period. Except in accordance with Section 7 hereof, the Rate Option applicable to such Fixed Rate Advance shall not be changed by the Maker. Maker may select a new Eurodollar Interest Period and Eurodollar Rate to apply to an outstanding Fixed Rate Advance, effective as of the last day of the existing Eurodollar Interest Period applicable to such Fixed Rate Advance, by giving a Rate Selection Notice in not less than the Minimum Notice Period and subject to the minimum advance amount provisions applicable to the Fixed Rate Advance selected. If at the end of a Eurodollar Interest Period for an outstanding Fixed Rate Advance, the Maker fails to select a new Eurodollar Rate and new Eurodollar Interest Period, then such Advance shall be a Floating Rate Advance on and after the last day of such existing Eurodollar Interest Period until paid or until the Effective Date of a new Rate Option with respect thereto selected by the Maker. An outstanding Floating Rate Advance can be converted to a Fixed Rate Advance at any time by providing a Rate Selection Notice (and subject to the provisions of Paragraph 5 below). The Maker may not select a Fixed Rate Advance for any Advance if, on the date of the Rate Selection Notice or the Effective Date of such selection, there exists an Event of Default. 5. RESTRICTIONS ON LOANS. The amount of any Fixed Rate Advance pursuant to this Note shall be in a minimum amount of $500,000.00. 6. TELEPHONIC NOTICES. Maker hereby authorizes the Payee to extend Advances and effect Rate Option selections based on telephonic notices made by any one of the following (or such other persons as Borrower may designate in writing from time to time to Lender): Donald E. Ellis, Jr. Michael Melton The Maker agrees to deliver promptly to Payee a written confirmation of each telephone notice signed by an authorized officer of Maker. If the written confirmation differs in any material respect from the action taken by the Payee, the records of the Payee shall govern absent manifest error. 7. YIELD PROTECTION. With respect only to interest calculated at the Fixed Rate, if any existing or future law, governmental rule, policy, guideline, regulation or directive, whether or not having the force of law, or compliance of the Payee with such, (i) subjects the Payee to any tax, duty, charge or withholding on or from payments due from the Maker (excluding U.S. taxation of the overall net income of the Payee), or changes the basis of taxation of payment to the Payee in respect of the Indebtedness, or (ii) imposes or increases or deems applicable any reserve, assessment (other than reserves and assessments included in the 5 49 Reserve Requirement with respect to Fixed Rate Advances), special deposit, insurance charge or similar requirement against assets of, deposits with or for the account of, or credit extended by, the Payee (other than reserves and assessments taken into account in determining the interest rate applicable to Fixed Rate Advances), or (iii) imposes any other condition the result of which is to increase the cost to the Payee of making, funding or maintaining U.S. dollar loans or reduces any amount receivable by the Payee in connection with U.S. dollar loans, or requires the Payee to make any payment calculated by reference to the amount of loans held or interest received by it, by an amount deemed material by the Payee, or (iv) affects the amount of capital required or expected to be maintained by the Payee or any corporation controlling the Payee and the Payee determines that the amount of capital required is increased by or based upon the existence of the Loan or any of the Loan Documents or its obligation to make the Loan hereunder or of commitments of this type, then within 15 days of demand by the Payee, Maker shall pay the Payee that portion of such increased expense incurred (including, in the case of Paragraph 7(iv), any reduction in the rate of return on capital to an amount below that which it could have achieved but for such change in regulation after taking into account Payee's policies as to capital adequacy) or the amount of reduction in an amount received which the Payee determines is attributable to making, funding and maintaining the Loan. A certificate of Payee is to the amounts payable pursuant to this Paragraph 7 (which certificate shall reflect in reasonable detail the method and basis for the calculation thereof) submitted to Maker shall, absent manifest error, be final and binding upon all of the parties hereto. Payee will give Maker notice that Payee has determined that amounts are due and payable pursuant to this Paragraph 7 within a reasonable time after such determination by Payee. Payee agrees that the determination of any such increased expense incurred or in the amount of reduction in the amount received shall be consistent with such determination made with respect to other loans of Payee which are similarly structured, of a similar amount and for a similar purpose. 8. (a) AVAILABILITY OF INTEREST RATE. If the Payee determines that (i) maintenance of the Fixed Rate Advances would violate any applicable law, rule, regulation, or directive, whether or not having the force of law, (ii) deposits of a type and maturity appropriate to match fund a Fixed Rate Advance are not available, or (iii) a Eurodollar Rate does not accurately reflect the cost of making or maintaining a Fixed Rate Advance, then the Payee shall suspend the availability of the affected LIBOR Rate Option and require any Fixed Rate Advances outstanding under an affected LIBOR Rate Option to be converted to an unaffected Rate Option; provided, however, with respect to the circumstance described above in clause (iii) of this Section 8(a) only, the Fixed Rate shall be converted to an unaffected Rate Option at the end of the Eurodollar Interest Period applicable to such Fixed Rate Advance. Subject to the terms and conditions of this Note, including the minimum borrowing provisions applicable to the Fixed Rate Advance for which a new Rate Option is selected, the Maker may select, by giving a Rate Selection Notice in not less than the Minimum Notice Period, any unaffected Rate Option to apply to such affected Advances. If the Maker fails to select a new Rate Option, the affected Advances shall be Floating Rate Advances. (b) FAILURE TO PAY OR BORROW ON CERTAIN DATES. If any payment of 6 50 a Fixed Rate Advance occurs on a date which is not the last day of the applicable Eurodollar Interest Period, whether because of acceleration, prepayment or otherwise, or a Fixed Rate Advance is not made on the date specified by the Maker for any reason other than a default by the Payee, the Maker will indemnify the Payee for any loss or cost incurred by Payee resulting therefrom, including, without limitation, any loss or cost in liquidating or employing deposits acquired to fund or maintain the Fixed Rate Advance. (c) BANK CERTIFICATES; SURVIVAL OF INDEMNITY. A certificate of the Payee as to the amount due under Sections 7 and 8(b) shall be final, conclusive and binding on the Maker in the absence of manifest error. Determination of amounts payable under such Sections 7 and 8(b) in connection with a Fixed Rate Advance shall be calculated as though the Holder funded its Fixed Rate Advance through the purchase of a deposit of the type and maturity corresponding to the deposit used as a reference in determining the Eurodollar Rate applicable to such Fixed Rate Advance, whether in fact that is the case or not. Unless otherwise provided herein, the amount specified in the certificate shall be payable on demand after receipt by the Maker of the certificate. The obligations under Section 7 and 8(b) shall survive for a period of six (6) months following repayment of the Loan. 9. PAYMENTS OF INTEREST. Accrued and unpaid interest only shall be due and payable on the last day of each calendar month commencing on October 31, 1996 and continuing through and including September 30, 1999. Interest shall be calculated on a 360 day year basis for the actual number of days elapsed. If any payment of principal or interest hereunder would become due and payable on a day which is not a Business Day, then such payment shall be due and payable on the next succeeding Business Day. 10. PAYMENT OF PRINCIPAL. If not sooner paid (subject to the restrictions on prepayment contained in the Loan Documents) the entire outstanding principal balance of this Note shall be due and payable in full on September 30, 1999. 11. APPLICATION OF PAYMENTS. If any permitted payments or prepayments are received when no Event of Default exists hereunder or under any of the Loan Documents, and if any such payments do not fully pay all sums evidenced by this Note, then such payment first shall be applied to the payment of late charges and other fees payable under this Note or the Loan Documents, then to accrued and unpaid interest under this Note and, then, the balance of such payment shall be applied to the outstanding principal balance of this Note in the following order of application: (a) The Principal Amount accruing interest at the Floating Rate at the time of such prepayment; and (b) The Principal Amount accruing interest at the Eurodollar Rate as of 7 51 the date of such prepayment in the order of the maturity dates of the Eurodollar Interest Periods in effect at such time. 12. FACILITY. The loan evidenced by this Note is governed by the terms of the Loan Agreement whereby advances of principal under this Note shall be made pursuant to and subject to the Loan Agreement. 13. PREPAYMENT. Maker may from time to time, pay all or any portion of outstanding Floating Rate Advances. A Fixed Rate Advance may not be paid prior to the last day of the applicable Eurodollar Interest Period unless, at the time of such prepayment, Maker pays to Holder all costs associated with the early termination of such Fixed Rate Advance as provided in Section 8(b) herein. 14. LATE CHARGE. A late charge shall be due and payable in the amount of five percent (5%) of the amount of any installment or payment of interest and/or principal not paid within ten (10) days of the date on which such installment or payment was due. Holder shall have no obligation to accept any such delinquent payment of principal and/or interest without the accompanying late charge, and the acceptance by Holder of such delinquent payment without the accompanying late charge shall not constitute a waiver by Holder of the right to enforce and collect such late charge. Maker acknowledges and agrees that the late charge herein provided is not a charge in the nature of interest imposed for the use of money advanced under this Note; rather, the late charge is imposed to compensate Holder for the expense, inconvenience and economic frustration experienced by Holder as a result of Maker's failure to make timely payments due hereunder, and is a reasonable forecast and estimate of Holder's actual damages and loss on account of such delinquent payment. 15. DEFAULT AND ACCELERATION. It is hereby expressly agreed that should default occur in any payment of principal or interest stipulated, or should any other Event of Default occur, then, and in any such event, the outstanding principal balance of the indebtedness evidenced hereby, and any other sums advanced hereunder or under the Loan Documents (hereinafter defined), together with all accrued and unpaid interest, at the option of Holder and without notice to Maker except as otherwise provided herein or in the Loan Documents, shall at once become due and payable and may be collected forthwith, regardless of the stipulated date of maturity. Interest shall accrue on each Advance at the applicable Default Rate from maturity, or sooner following the occurrence of a default hereunder and after the expiration date of any period provided for the curing of such default and for so long as such default continues, regardless of whether or not there has been an acceleration of the indebtedness evidenced hereby as set forth herein. All such interest at the Default Rate shall be paid at the time of and as a condition precedent to the curing of any such default should Maker have the right to cure such default. Time is of the essence of this Note. In the event this Note, or any part thereof, is collected by or through an attorney-at-law, Maker agrees to pay all costs of collection including, but not limited to, reasonable attorneys' fees actually incurred. 8 52 16. WAIVERS. (a) Except as expressly required herein or in the Loan Documents, presentment for payment, demand, protest and notice of demand, protest and non-payment and all other notices, except for such notices (if any) of default provided to be given hereunder or under any of the Loan Documents, are hereby waived by Maker. No failure to accelerate the debt evidenced hereby by reason of default hereunder, acceptance of a past due installment, or indulgences granted from time to time shall be construed (i) as a novation of this Note or as a reinstatement of the indebtedness evidenced hereby or as a waiver of such right of acceleration or of the right of Holder thereafter to insist upon strict compliance with the terms of this Note, or (ii) to prevent the exercise of such right of acceleration or any other right granted hereunder or by the laws of the State of Georgia; and Maker hereby expressly waives the benefit of any statute or rule of law or equity now provided, or which may hereafter be provided, which would produce a result contrary to or in conflict with the foregoing. No extension of the time for the payment of this Note or any installment due hereunder, made by agreement with any person now or hereafter liable for the payment of this Note, shall operate to release, discharge, modify, change or affect the original liability of Maker under this Note, either in whole or in part, unless Holder agrees otherwise in writing. This Note may not be changed orally, but only by an agreement in writing signed by the party against whom enforcement of any waiver, change, modification or discharge is sought. (b) Maker hereby waives and renounces for itself, its heirs, successors and assigns, all rights to the benefit of any statute of limitations and any moratorium, reinstatement, marshalling, forbearance, valuation, stay, extension, redemption, appraisement, exemption and homestead now provided, or which may hereafter be provided by the Constitution and laws of the United States of America and of any state thereof, both as to itself and in and to all of its property, real and personal, against the enforcement and collection of the obligations evidenced by this Note. Maker hereby transfers, conveys and assigns to Holder a sufficient amount of such homestead or exemption as may be set apart in bankruptcy, to pay this Note in full, with all costs of collection, and does hereby direct any trustee in bankruptcy having possession of such homestead or exemption to deliver to Holder a sufficient amount of property or money set apart as exempt to pay the indebtedness evidenced hereby, or any renewal thereof, and does hereby appoint Holder the attorney-in-fact for Maker to claim any and all homestead exemptions allowed by law. 17. GOVERNING LAW. This Note is intended as a contract under and shall be construed and enforceable in accordance with the laws of the State of Georgia. 18. DEFINITIONS. As used herein, the terms "Maker" and "Holder" shall be deemed to include their respective heirs, successors, legal representatives and assigns, whether by voluntary action of the parties or by operation of law. In the event that more than one person, firm or entity is a Maker hereunder, then all references to "Maker" shall be deemed to refer equally to each of said persons, firms, or entities, all of whom shall be jointly and 9 53 severally liable for all of the obligations of Maker hereunder. 19. LEGAL LIMITATIONS. It is the express intent hereof that the undersigned not pay and the Holder not receive, directly or indirectly in any manner whatsoever, interest in excess of that which may be legally paid by the undersigned under applicable law. In no event, whether by reason of demand for payment or acceleration of the maturity of the Note or otherwise, shall the interest contracted for, charged or received by Holder hereunder or otherwise exceed the maximum amount permissible under applicable law. If, from any circumstance whatsoever, interest would otherwise be payable to Holder in excess of the maximum lawful amount permitted under applicable law, the interest payable to Holder shall be reduced automatically to the maximum amount permitted under applicable law. If Holder shall ever receive anything of value deemed interest under applicable law which would apart from this provision be in excess of the maximum lawful amount, an amount equal to any amount which would have been excessive interest shall be applied to the reduction of the principal amount owing on the Note in the inverse order of its maturity and not to the payment of interest, or if such amount which would have been excessive interest exceeds the unpaid principal balance of the Note, such excess shall be refunded to Maker. All interest paid or agreed to be paid to Holder shall, to the extent permitted by applicable law, be amortized, prorated, allocated and spread throughout the full stated term (including any renewal or extension) of such indebtedness so that the amount of interest on account of such indebtedness does not exceed the maximum permitted by applicable law. The provisions of this paragraph shall control all existing and future agreements between Maker and Holder. 20. ARBITRATION. Any controversy or claim between or among the parties hereto including but not limited to those arising out of or relating to this Note or any related agreements or instruments, including any claim based on or arising from an alleged tort, shall be determined by binding arbitration in accordance with the Federal Arbitration Act (or if not applicable, the applicable state law), the Rules of Practice and Procedure for the Arbitration of Commercial Disputes or Judicial Arbitration and Mediation Services, Inc. ("J.A.M.S."), and the "Special Rules" set forth below. In the event of any inconsistency, the Special Rules shall control. Judgment upon any arbitration award may be entered in any court having jurisdiction. Any party to this Note may bring an action, including a summary or expedited proceeding, to compel arbitration of any controversy or claim in which this Note applies in any court having jurisdiction over such action. 21. SPECIAL RULES. The arbitration shall be conducted in the city of Maker's domicile at the time of this Note's execution and administered by J.A.M.S., who will appoint an arbitrator; if J.A.M.S. is unable or legally precluded from administering the arbitration, then the American Arbitration Association will serve. All arbitration hearings will be commenced within ninety (90) days of the demand for arbitration; further the arbitrator shall 10 54 only, upon a showing of cause, be permitted to extend the commencement of such hearing for an additional sixty (60) days. 22. RESERVATION OF RIGHTS. Nothing in this Note shall be deemed to (i) limit the applicability of any otherwise applicable statutes of limitation or repose and any waivers contained in this Note; or (ii) be a waiver by the Holder of the protection afforded to it by 12 U.S.C. Section 91 or any substantially equivalent state law; or (iii) limit the right of the Holder hereto (a) to exercise self help remedies such as (but not limited to) setoff, or (b) to foreclose against any real or personal property collateral, or (c) to obtain from a court provisional or ancillary remedies such as (but not limited to) injunctive relief, writ of possession or the appointment of a receiver. The Holder may exercise such self help rights, foreclosure upon such property, or obtain such provisional or ancillary remedies before, during or after the pendency of any arbitration proceeding brought pursuant to this Note. Neither the exercise or self help remedies nor the institution or maintenance of an action for foreclosure or provisional or ancillary remedies shall constitute a waiver of the right of any party, including the claimant in such action, to arbitrate the merits of the controversy or claim occasioning resort to such remedies. Nothing in this Note shall be deemed to limit the right of Maker to seek injunctive relief. 23. TITLES. The titles of sections or paragraphs herein are used for the convenience of the parties only and neither amplify, modify or alter in any way the provisions of this instrument. IN WITNESS WHEREOF, Maker has executed this Note under seal on the date first above written. MAKER: THE PROFIT RECOVERY GROUP INTERNATIONAL, INC., a Georgia corporation By: -------------------------------------- Donald E. Ellis, Jr., Senior Vice President Attest: ---------------------------------- Clinton McKellar, Jr., Secretary (CORPORATE SEAL) 11 55 EXHIBIT A-1 NATIONSBANK PROMISSORY NOTE (TERM NOTE) $____________ Date: ___________, 1997 Atlanta, Georgia 1. PROMISE TO PAY. FOR VALUE RECEIVED, the ndersigned, THE PROFIT RECOVERY GROUP INTERNATIONAL, INC., a Georgia corporation (hereinafter referred to as "Maker"), promises to pay to the order of NATIONSBANK, N.A., a national bank (hereinafter referred to as "Payee"; Payee and any subsequent holder of all or any part interest in this Note being hereinafter referred to collectively as "Holder"), at the following address: NationsBank, N.A. 600 Peachtree Street, N.E. 19th Floor Atlanta, Georgia 30308 Attn: Melinda M. Bergbom, Senior Vice President or at any such other place as Holder may designate to Maker in writing from time to time, the principal sum of ___________________ AND NO/100THS DOLLARS ($ __________.00), or so much thereof as shall be disbursed hereunder and shall from time to time be outstanding and unpaid, together with interest thereon at the rates hereinafter set forth (subject to adjustment and designation of the applicable interest rate or rates as provided below), in lawful money of the United States of America, which at the time of payment shall be legal tender in payment of all debts and dues, public and private, such principal and interest to be paid in the manner hereinafter provided. This Promissory Note (the "Note") is executed and delivered pursuant to that certain Loan and Security Agreement, dated September 27, 1996, among Payee, Maker and certain affiliates of Maker (hereinafter, together with all supplements and amendments thereto, the "Loan Agreement"). This Note is a Term Note referred to in, and is issued pursuant to, the Loan Agreement, and is entitled to all of the benefits and security of the Loan Agreement. All of the terms, covenants and conditions of the Loan Agreement and all other instruments evidencing or securing the indebtedness hereunder are hereby made a part of this Note and are deemed incorporated herein in full. All capitalized terms used herein, unless otherwise specifically defined in this Note, shall have the meanings ascribed to them in the Loan Agreement. 56 2. DEFINITIONS. As used herein, the following terms shall have the indicated definitions: (a) "Business Day" means any day whereon banks are open for business in Atlanta, Georgia and, with respect to borrowing, payment or rate selection of the Fixed Rate or a Eurodollar Interest Period, any day whereon banks are open for business in both Atlanta, Georgia and New York, New York and whereon dealings in U.S. dollars are carried on in the London interbank market. (b) "Default Rate" means (i) with respect to the Floating Rate, a rate per annum equal to the Prime Rate plus two percent (2%); and (ii) with respect to the Fixed Rate for the remainder of the applicable Eurodollar Interest Period, a rate per annum equal to the applicable Eurodollar Rate plus two percent (2%), and after such applicable Eurodollar Interest Period at the rate per annum equal to the Prime Rate plus two percent (2%). (c) "Effective Date" means any Business Day designated by Maker in a Rate Selection Notice as the date such rate selection shall become effective. (d) "Eurodollar Interest Period" means, with respect to the Fixed Rate, a period of thirty (30) days, sixty (60) days, ninety (90) days or one hundred eighty (180) days to the extent eurodollar borrowings of such or similar periods are available, commencing on a Business Day and selected by the Maker in its Rate Selection Notice; provided, however, such Eurodollar Interest Period shall commence on the last day of the immediately preceding Eurodollar Interest Period in the case of a rollover to a successive Eurodollar Interest Period. If any Eurodollar Interest Period would otherwise end on a day which is not a Business Day, such Eurodollar Interest Period shall end on the next succeeding Business Day. Any Eurodollar Interest Period must end on or before the maturity date of this Note. (e) "Eurodollar Rate" means, with respect to the relevant Eurodollar Interest Period, the sum of the LIBOR Rate applicable to that Eurodollar Interest Period plus one and three-quarters percent (1.75%) per annum, subject to adjustment from time to time as hereinafter provided. The Eurodollar Rate shall be rounded, if necessary, to the next higher one-sixteenth of one percent. (f) "Event of Default" means an Event of Default as that term is defined in the Loan Agreement. (g) "Fixed Rate" means the rate per annum for the applicable Eurodollar Rate selected from time to time pursuant to this Note. (h) "Floating Rate" means a rate per annum equal to the Prime Rate, changing when 2 57 and as the Prime Rate changes. (i) "LIBOR Rate" means the simple interest rate per annum determined by Holder, taking into account the rates at which deposits in United States dollars for periods of thirty (30) days, sixty (60) days, ninety (90) days and one hundred eighty (180) days (each of the foregoing is individually referred to as "LIBOR Rate Option") are offered in the interbank eurodollar market, and such other factors as Holder may reasonably deem appropriate from time to time. The LIBOR Rate is established in the discretion of Holder for the particular indebtedness evidenced by this Note, and may not be the lowest rate based in part upon which market for deposits in the interbank eurodollar market at which Holder prices loans on the date on which the LIBOR Rate is established. The rate of interest charged under this Note with respect to any selection of any of the LIBOR Rate Options shall be the selected LIBOR Rate Option on the Effective Date of the Rate Selection Notice, and shall continue to be the same rate of interest, without daily adjustment, until the maturity of the selected LIBOR Rate Option has fully elapsed or the Rate Selection Notice has been terminated as otherwise provided herein. The LIBOR Rate Option applicable to new selections shall be the rate of interest of the selected LIBOR Rate Option on the Effective Date of the Rate Selection Notice. In the event that Holder shall have determined that the dollar deposits in an amount approximately equal to the Principal Amount are not available to Holder at such time in the interbank eurodollar market, or that reasonable means within the customary operating practices of Holder do not exist for ascertaining a LIBOR Rate, or if any change in any law or regulation or in the interpretation thereof by any governmental authority charged with the administration or interpretation thereof shall make in unlawful for Holder to make or maintain LIBOR Rates with respect to the principal balance hereof or to fund the principal advanced hereunder in the interbank eurodollar market then, Holder shall promptly notify Maker and thereafter such portion of the principal balance hereof shall bear interest at the Floating Rate until such time, if any, as a LIBOR Rate loan can be made by Holder to Maker, following which Holder shall be entitled to the selection of the LIBOR Rate Options as provided in this Note. (j) "Minimum Notice Period" means a period commencing no later than 10:00 a.m. Atlanta, Georgia time three (3) Business Days prior to the Effective Date of a Fixed Rate Advance. (k) "Prime Rate" shall be the per annum rate announced by Payee from time to time as its Prime Rate and as one of the several interest rate bases used by Payee. Payee lends at rates both above and below the Prime Rate and is not represented or intended to be the lowest or most favorable rate of interest offered by Payee. If, and to the extent and from time to time, the Prime Rate of Payee increases or decreases, then the Prime Rate under this Note shall be corresponding increased or decreased, such increase or decrease hereunder to be effective as of the date on which such increase or decrease of the Prime Rate of Payee occurs. The Prime Rate in effect at the end of each day shall be the Prime Rate utilized for purposes of calculating interest under this Note for such day. In the event that Payee shall abolish or abandon the practice of establishing its Prime Rate, Holder shall designate a comparable reference rate which shall be deemed to be the Prime Rate hereunder. 3 58 (l) "Principal Amount" means the principal amount outstanding from time to time under this Note. (m) "Rate Option" means the rate per annum equal to either (i) the Floating Rate or (ii) the Eurodollar Rate. (n) "Rate Selection Notice" means a written or telephonic notice (such telephonic notice to be immediately confirmed by written or telefaxed notice) providing irrevocable notice by the Maker to the Payee specifying (i) the Eurodollar Interest Period which Maker desires to select, and (ii) the Effective Date of each such Eurodollar Rate selection. (o) "Regulation D" means Regulation D of the Board of Governors of the Federal Reserve System from time to time in effect and shall include any successor or other regulation or official interpretation of said Board of Governors relating to Reserve Requirements applicable to member banks of the Federal Reserve System. (p) "Reserve Requirement" means, with respect to a Eurodollar Interest Period, the maximum aggregate reserve requirement (including all basic, supplemental, marginal and other reserves and taking into account any transitional adjustments or scheduled changes in reserve requirements during such Eurodollar Interest Period) which is imposed under Regulation D on non-personal time deposits of $100,000.00 or more with a maturity date equal to that on Eurocurrency liabilities. 3. FLOATING RATE BORROWING. Except as provided in Section 4 below, this Note shall bear interest at the rate per annum equal to the Floating Rate and, therefore, the initial rate of interest as of the date hereof, expressed in simple interest terms, is____% per annum. If at any time or from time to time the Floating Rate increases or decreases, then the rate of interest hereunder shall be correspondingly increased or decreased effective on the date of which such increase or decrease of such Floating Rate takes effect. 4. SELECTION OF FIXED RATE. Subject to the terms and conditions of this Note, Maker may elect from time to time that interest accrue at a rate per annum equal to the Eurodollar Rate rather than the rate per annum equal to the Floating Rate, and for a Eurodollar Interest Period selected hereunder for all (but not less than all) of the outstanding principal balance of this Note by giving the Holder the appropriate Rate Selection Notice in not less than the Minimum Notice Period applicable thereto. The Principal Amount shall bear interest from and including the first day of the Eurodollar Interest Period applicable thereto and during such Eurodollar Interest Period. Except in accordance with Section 7 hereof, the Rate Option shall not be changed by the Maker. Maker may select a new Eurodollar Interest Period and Eurodollar Rate to apply to the Principal Amount, effective as of the last day of the existing Eurodollar Interest Period, by giving a Rate Selection Notice in not less than the Minimum Notice Period. If at the end of a Eurodollar Interest Period the Maker fails to select a new Eurodollar Rate and new Eurodollar Interest Period, then the Principal Amount shall accrue interest at the Floating Rate on and after the last day of such existing Eurodollar Interest Period 4 59 until paid or until the Effective Date of a new Rate Option selected by the Maker. The Maker may not select the Fixed Rate if, on the date of the Rate Selection Notice or the Effective Date of such selection, there exists an Event of Default. 5. RESTRICTIONS ON FIXED RATE. Notwithstanding anything in this Note to the contrary, Maker may not select that this Note accrue at the Fixed Rate unless the outstanding principal balance of this Note as of the date of such election is equal to or greater than $500,000.00. 6. TELEPHONIC NOTICES. Maker hereby authorizes the Payee to effect Rate Option selections based on telephonic notices made by any one of the following (or such other persons as Borrower may designate in writing from time to time to Lender): Donald E. Ellis, Jr. Michael Melton The Maker agrees to deliver promptly to Payee a written confirmation of each telephone notice signed by an authorized officer of Maker. If the written confirmation differs in any material respect from the action taken by the Payee, the records of the Payee shall govern absent manifest error. 7. YIELD PROTECTION. With respect only to interest calculated at the Fixed Rate, if any existing or future law, governmental rule, policy, guideline, regulation or directive, whether or not having the force of law, or compliance of the Payee with such, (i) subjects the Payee to any tax, duty, charge or withholding on or from payments due from the Maker (excluding U.S. taxation of the overall net income of the Payee), or changes the basis of taxation of payment to the Payee in respect of the Indebtedness, or (ii) imposes or increases or deems applicable any reserve, assessment (other than reserves and assessments included in the Reserve Requirement with respect to principal accruing at the Fixed Rate), special deposit, insurance charge or similar requirement against assets of, deposits with or for the account of, or credit extended by, the Payee (other than reserves and assessments taken into account in determining the Fixed Rate), or (iii) imposes any other condition the result of which is to increase the cost to the Payee of making, funding or maintaining U.S. dollar loans or reduces any amount receivable by the Payee in connection with U.S. dollar loans, or requires the Payee to make any payment calculated by reference to the amount of loans held or interest received by it, by an amount deemed material by the Payee, or (iv) affects the amount of capital required or expected to be maintained by the Payee or any corporation controlling the Payee and the Payee determines that the amount of capital required is increased by or based upon the existence of the Loan or any of the Loan Documents or its obligation to make the Loan hereunder or of commitments of this type, then within 15 days of demand by the Payee, Maker shall pay the Payee that portion of such increased expense incurred (including, in the case of Paragraph 7(iv), any reduction in the rate of return on capital to an amount below that which it could have achieved but for such change in regulation after taking into account Payee's policies as to capital adequacy) or the amount of reduction in an amount received which the Payee 5 60 determines is attributable to making, funding and maintaining the Loan. A certificate of Payee is to the amounts payable pursuant to this Paragraph 7 (which certificate shall reflect in reasonable detail the method and basis for the calculation thereof) submitted to Maker shall, absent manifest error, be final and binding upon all of the parties hereto. Payee will give Maker notice that Payee has determined that amounts are due and payable pursuant to this Paragraph 7 within a reasonable time after such determination by Payee. Payee agrees that the determination of any such increased expense incurred or in the amount of reduction in the amount received shall be consistent with such determination made with respect to other loans of Payee which are similarly structured, of a similar amount and for a similar purpose. 8. (a) AVAILABILITY OF INTEREST RATE. If the Payee determines that (i) maintenance of the Fixed Rate would violate any applicable law, rule, regulation, or directive, whether or not having the force of law, (ii) deposits of a type and maturity appropriate to match fund a Fixed Rate loan are not available, or (iii) a Eurodollar Rate does not accurately reflect the cost of making or maintaining the Fixed Rate, then the Payee shall suspend the availability of the affected LIBOR Rate Option and require that the Fixed Rate under an affected LIBOR Rate Option to be converted to an unaffected Rate Option. Subject to the terms and conditions of this Note, the Maker may select, by giving a Rate Selection Notice in not less than the Minimum Notice Period, any unaffected Rate Option to apply to this Note. If the Maker fails to select a new Rate Option, this Note shall accrue interest at the Floating Rate. (b) BANK CERTIFICATES; SURVIVAL OF INDEMNITY. A certificate of the Payee as to the amount due under Section 7 shall be final, conclusive and binding on the Maker in the absence of manifest error. Determination of amounts payable under such Section 7 shall be calculated as though the Holder funded its Fixed Rate loan through the purchase of a deposit of the type and maturity corresponding to the deposit used as a reference in determining the Eurodollar Rate applicable to such Fixed Rate loan, whether in fact that is the case or not. Unless otherwise provided herein, the amount specified in the certificate shall be payable on demand after receipt by the Maker of the certificate. The obligations under Section 7 shall survive for a period of six (6) months following repayment of the Loan. 9. PAYMENTS OF PRINCIPAL AND INTEREST. Commencing one (1) month from the date of this Note and continuing on the same day of each calendar month thereafter through and including [the day which is 12 months from the date of the Note], there shall be due and payable monthly installments consisting only of accrued and unpaid interest under this Note; thereafter, commencing one (1) month after [the day which is 12 months from the date of the Note] and continuing on the same day of each calendar month thereafter through and including [the day which is 47 months from the date of the Note], there shall be due and payable monthly installments consisting of (i) all accrued and unpaid interest under this Note, and (ii) principal in the amount of [1/60 of the original principal amount of the Note]. Interest shall be calculated on a 360 day year basis for the actual number of days elapsed. If any payment of principal or interest hereunder would become due and payable on a 6 61 day which is not a Business Day, then such payment shall be due and payable on the next succeeding Business Day. 10. MATURITY DATE. If not sooner paid (subject to the restrictions on prepayment contained in the Loan Documents) the entire outstanding principal balance of this Note shall be due and payable in full 48 months from the date of this Note. 11. APPLICATION OF PAYMENTS. If any permitted payments or prepayments are received when no Event of Default exists hereunder or under any of the Loan Documents, and if any such payments do not fully pay all sums evidenced by this Note, then such payment first shall be applied to the payment of late charges and other fees payable under this Note or the Loan Documents, then to accrued and unpaid interest under this Note and, then, to the outstanding principal balance of this Note. Following any partial prepayment of this Note, following the date of such prepayment, monthly installments shall be due and payable consisting of (i) all accrued and unpaid interest, and (ii) equal installments of principal based upon an amortization of the outstanding principal balance of the Note following such prepayment over the number of monthly installments payable between such date and the maturity date of this Note. 12. FACILITY. The loan made pursuant to this Note is governed by the terms of the Loan Agreement whereby the loan evidenced by this Note shall be made pursuant to and subject to the Loan Agreement. 13. PREPAYMENT. Maker may, from time to time, pay all or any portion this Note without prepayment premium or penalty provided that, at the time of such prepayment, this Note is accruing interest at the Floating Rate. If a prepayment of all or any portion of the outstanding amount of this Note is made at the time that this Note is accruing interest at the Fixed Rate, then there shall be due and payable as a condition to such prepayment a prepayment premium equal to any loss or cost incurred by Holder resulting from such prepayment including, without limitation, any loss or cost in liquidating or employing deposits acquired to fund or maintain the fixed rate under this Note. 14. LATE CHARGE. A late charge shall be due and payable in the amount of five percent (5%) of the amount of any installment or payment of interest and/or principal not paid within ten (10) days of the date on which such installment or payment was due. Holder shall have no obligation to accept any such delinquent payment of principal and/or interest without the accompanying late charge, and the acceptance by Holder of such delinquent payment without the accompanying late charge shall not constitute a waiver by Holder of the right to enforce and collect such late charge. Maker acknowledges and agrees that the late charge herein provided is not a charge in the nature of interest imposed for the use of money advanced under this Note; rather, the late charge is imposed to compensate Holder for the expense, inconvenience and economic frustration experienced by Holder as a result of Maker's failure to make timely payments due hereunder, and is a reasonable forecast and estimate of Holder's actual damages and loss on account of such delinquent payment. 7 62 15. DEFAULT AND ACCELERATION. It is hereby expressly agreed that should default occur in any payment of principal or interest stipulated, or should any other Event of Default occur, then, and in any such event, the outstanding principal balance of the indebtedness evidenced hereby, and any other sums advanced hereunder or under the Loan Documents (hereinafter defined), together with all accrued and unpaid interest, at the option of Holder and without notice to Maker except as otherwise provided herein or in the Loan Documents, shall at once become due and payable and may be collected forthwith, regardless of the stipulated date of maturity. Interest shall accrue at the applicable Default Rate from maturity, or sooner following the occurrence of a default hereunder and after the expiration date of any period provided for the curing of such default and for so long as such default continues, regardless of whether or not there has been an acceleration of the indebtedness evidenced hereby as set forth herein. All such interest at the Default Rate shall be paid at the time of and as a condition precedent to the curing of any such default should Maker have the right to cure such default. Time is of the essence of this Note. In the event this Note, or any part thereof, is collected by or through an attorney-at-law, Maker agrees to pay all costs of collection including, but not limited to, reasonable attorneys' fees actually incurred. 16. WAIVERS. (a) Except as expressly required herein or in the Loan Documents, presentment for payment, demand, protest and notice of demand, protest and non-payment and all other notices, except for such notices (if any) of default provided to be given hereunder or under any of the Loan Documents, are hereby waived by Maker. No failure to accelerate the debt evidenced hereby by reason of default hereunder, acceptance of a past due installment, or indulgences granted from time to time shall be construed (i) as a novation of this Note or as a reinstatement of the indebtedness evidenced hereby or as a waiver of such right of acceleration or of the right of Holder thereafter to insist upon strict compliance with the terms of this Note, or (ii) to prevent the exercise of such right of acceleration or any other right granted hereunder or by the laws of the State of Georgia; and Maker hereby expressly waives the benefit of any statute or rule of law or equity now provided, or which may hereafter be provided, which would produce a result contrary to or in conflict with the foregoing. No extension of the time for the payment of this Note or any installment due hereunder, made by agreement with any person now or hereafter liable for the payment of this Note, shall operate to release, discharge, modify, change or affect the original liability of Maker under this Note, either in whole or in part, unless Holder agrees otherwise in writing. This Note may not be changed orally, but only by an agreement in writing signed by the party against whom enforcement of any waiver, change, modification or discharge is sought. (b) Maker hereby waives and renounces for itself, its heirs, successors and assigns, all rights to the benefit of any statute of limitations and any moratorium, reinstatement, marshalling, forbearance, valuation, stay, extension, redemption, appraisement, exemption and homestead now provided, or which may hereafter be provided by the Constitution and laws of the United States of America and of any state thereof, both as to itself and in and to all of its property, real and personal, against the enforcement and collection of the obligations evidenced 8 63 by this Note. Maker hereby transfers, conveys and assigns to Holder a sufficient amount of such homestead or exemption as may be set apart in bankruptcy, to pay this Note in full, with all costs of collection, and does hereby direct any trustee in bankruptcy having possession of such homestead or exemption to deliver to Holder a sufficient amount of property or money set apart as exempt to pay the indebtedness evidenced hereby, or any renewal thereof, and does hereby appoint Holder the attorney-in-fact for Maker to claim any and all homestead exemptions allowed by law. 17. GOVERNING LAW. This Note is intended as a contract under and shall be construed and enforceable in accordance with the laws of the State of Georgia. 18. DEFINITIONS. As used herein, the terms "Maker" and "Holder" shall be deemed to include their respective heirs, successors, legal representatives and assigns, whether by voluntary action of the parties or by operation of law. In the event that more than one person, firm or entity is a Maker hereunder, then all references to "Maker" shall be deemed to refer equally to each of said persons, firms, or entities, all of whom shall be jointly and severally liable for all of the obligations of Maker hereunder. 19. LEGAL LIMITATIONS. It is the express intent hereof that the undersigned not pay and the Holder not receive, directly or indirectly in any manner whatsoever, interest in excess of that which may be legally paid by the undersigned under applicable law. In no event, whether by reason of demand for payment or acceleration of the maturity of the Note or otherwise, shall the interest contracted for, charged or received by Holder hereunder or otherwise exceed the maximum amount permissible under applicable law. If, from any circumstance whatsoever, interest would otherwise be payable to Holder in excess of the maximum lawful amount permitted under applicable law, the interest payable to Holder shall be reduced automatically to the maximum amount permitted under applicable law. If Holder shall ever receive anything of value deemed interest under applicable law which would apart from this provision be in excess of the maximum lawful amount, an amount equal to any amount which would have been excessive interest shall be applied to the reduction of the principal amount owing on the Note in the inverse order of its maturity and not to the payment of interest, or if such amount which would have been excessive interest exceeds the unpaid principal balance of the Note, such excess shall be refunded to Maker. All interest paid or agreed to be paid to Holder shall, to the extent permitted by applicable law, be amortized, prorated, allocated and spread throughout the full stated term (including any renewal or extension) of such indebtedness so that the amount of interest on account of such indebtedness does not exceed the maximum permitted by applicable law. The provisions of this paragraph shall control all existing and future agreements between Maker and Holder. 20. ARBITRATION. Any controversy or claim between or among the parties hereto including but not limited to those arising out of or relating to this Note or any related agreements or instruments, including any claim based on or arising from an alleged tort, shall be determined by binding arbitration in accordance with the Federal Arbitration Act (or if not applicable, the applicable state law), the Rules of Practice and Procedure for the Arbitration of 9 64 Commercial Disputes or Judicial Arbitration and Mediation Services, Inc. ("J.A.M.S."), and the "Special Rules" set forth below. In the event of any inconsistency, the Special Rules shall control. Judgment upon any arbitration award may be entered in any court having jurisdiction. Any party to this Note may bring an action, including a summary or expedited proceeding, to compel arbitration of any controversy or claim in which this Note applies in any court having jurisdiction over such action. 21. SPECIAL RULES. The arbitration shall be conducted in the city of Maker's domicile at the time of this Note's execution and administered by J.A.M.S., who will appoint an arbitrator; if J.A.M.S. is unable or legally precluded from administering the arbitration, then the American Arbitration Association will serve. All arbitration hearings will be commenced within ninety (90) days of the demand for arbitration; further the arbitrator shall only, upon a showing of cause, be permitted to extend the commencement of such hearing for an additional sixty (60) days. 22. RESERVATION OF RIGHTS. Nothing in this Note shall be deemed to (i) limit the applicability of any otherwise applicable statutes of limitation or repose and any waivers contained in this Note; or (ii) be a waiver by the Holder of the protection afforded to it by 12 U.S.C. Section 91 or any substantially equivalent state law; or (iii) limit the right of the Holder hereto (a) to exercise self help remedies such as (but not limited to) setoff, or (b) to foreclose against any real or personal property collateral, or (c) to obtain from a court provisional or ancillary remedies such as (but not limited to) injunctive relief, writ of possession or the appointment of a receiver. The Holder may exercise such self help rights, foreclosure upon such property, or obtain such provisional or ancillary remedies before, during or after the pendency of any arbitration proceeding brought pursuant to this Note. Neither the exercise or self help remedies nor the institution or maintenance of an action for foreclosure or provisional or ancillary remedies shall constitute a waiver of the right of any party, including the claimant in such action, to arbitrate the merits of the controversy or claim occasioning resort to such remedies. Nothing in this Note shall be deemed to limit the right of Maker to seek injunctive relief. 23. TITLES. The titles of sections or paragraphs herein are used for the convenience of the parties only and neither amplify, modify or alter in any way the provisions of this instrument. 10 65 IN WITNESS WHEREOF, Maker has executed this Note under seal on the date first above written. MAKER: THE PROFIT RECOVERY GROUP INTERNATIONAL, INC., a Georgia corporation By: ------------------------------------- Donald E. Ellis, Jr., Senior Vice President Attest: --------------------------------- Clinton McKellar, Jr., Secretary (CORPORATE SEAL) 11 EX-11.1 8 COMPUTATION OF NET EARNINGS 1 EXHIBIT 11.1 THE PROFIT RECOVERY GROUP INTERNATIONAL, INC. AND SUBSIDIARIES STATEMENT RE: COMPUTATION OF NET EARNINGS PER SHARE(1) (AMOUNTS IN THOUSANDS, EXCEPT PER SHARE DATA)
THREE MONTHS ENDED NINE MONTHS ENDED SEPTEMBER 30, SEPTEMBER 30, ------------------- ----------------- 1997 1996 1997 1996 -------- -------- ------- ------- Net earnings (pro forma net earnings for nine months ended September 30, 1996)..................................... $ 3,758 $ 2,742 $ 6,918 $ 4,581 Interest accrued on convertible debt, net of income taxes(2)................................................ -- -- -- 97 ------- ------- ------- ------- Adjusted net earnings (pro forma net earnings)..................................... $ 3,758 $ 2,742 $ 6,918 $ 4,678 ======= ======= ======= ======= Weighted average number of shares outstanding(3).......... 18,278 17,621 18,185 15,810 Weighted average number of common equivalent shares (computed using the treasury stock method).............. 632 665 535 562 Common shares from convertible debt(2).................... -- -- -- 719 Common equivalent shares from the distribution payable $(4,875,576) divided by the initial public offering price of $11.00 per share (and weighted since the initial public offering)................................ -- -- -- 140 ------- ------- ------- ------- Weighted average number of common and common equivalent shares............................. 18,910 18,286 18,720 17,231 ======= ======= ======= ======= Net earnings (pro forma net earnings for nine months ended September 30, 1996) per common and common equivalent share................................................... $ .20 $ .15 $ .37 $ .27 ======= ======= ======= =======
- --------------- (1) All share and per share data has been adjusted to reflect the effect of the 2-for-1 stock split (effected in the form of a stock dividend) at the time of the March 1996 initial public offering. (2) Assumes convertible debentures were converted, as a component of the initial public offering-related reorganization, as of the beginning of the period and the related interest expense, net of income taxes, is added back to pro forma net earnings. (3) Assumes number of shares outstanding, after giving effect to the initial public offering-related reorganization, as of the beginning of the period. EX-27.1 9 FINANCIAL DATA SCHEDULE
5 THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM THE FINANCIAL STATEMENTS OF THE PROFIT RECOVERY GROUP INTERNATIONAL, INC. FOR THE NINE MONTH PERIOD ENDED SEPTEMBER 30, 1997 AND IS QUALIFIED IN ITS ENTIRETY BY REFERENCE TO SUCH FINANCIAL STATEMENTS. 1,000 9-MOS DEC-31-1997 JAN-01-1997 SEP-30-1997 12,231 0 47,461 0 0 60,984 12,895 4,314 81,246 27,197 707 0 0 18 51,061 81,246 0 76,445 0 39,553 25,709 0 (132) 11,315 4,397 6,918 0 0 0 6,918 .37 .37
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