-----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, LnqwJv3OuiQS/GaIzC0ncIUCV0LJDbcOaiqsEmLEQ7GWfAoyEOF8wBLlAiRtoaAp gLEjecTxiS01QKxVCgH6KA== 0000914062-05-000476.txt : 20050725 0000914062-05-000476.hdr.sgml : 20050725 20050725171815 ACCESSION NUMBER: 0000914062-05-000476 CONFORMED SUBMISSION TYPE: 8-K PUBLIC DOCUMENT COUNT: 5 CONFORMED PERIOD OF REPORT: 20050719 ITEM INFORMATION: Entry into a Material Definitive Agreement ITEM INFORMATION: Termination of a Material Definitive Agreement ITEM INFORMATION: Results of Operations and Financial Condition ITEM INFORMATION: Departure of Directors or Principal Officers; Election of Directors; Appointment of Principal Officers ITEM INFORMATION: Amendments to Articles of Incorporation or Bylaws; Change in Fiscal Year ITEM INFORMATION: Other Events ITEM INFORMATION: Financial Statements and Exhibits FILED AS OF DATE: 20050725 DATE AS OF CHANGE: 20050725 FILER: COMPANY DATA: COMPANY CONFORMED NAME: PRG SCHULTZ INTERNATIONAL INC CENTRAL INDEX KEY: 0001007330 STANDARD INDUSTRIAL CLASSIFICATION: SERVICES-ENGINEERING, ACCOUNTING, RESEARCH, MANAGEMENT [8700] IRS NUMBER: 582213805 STATE OF INCORPORATION: GA FISCAL YEAR END: 1231 FILING VALUES: FORM TYPE: 8-K SEC ACT: 1934 Act SEC FILE NUMBER: 000-28000 FILM NUMBER: 05972018 BUSINESS ADDRESS: STREET 1: 600 GALLERIA PARKWAY STREET 2: STE 100 CITY: ATLANTA STATE: GA ZIP: 30339-5949 BUSINESS PHONE: 7707793311 MAIL ADDRESS: STREET 1: 600 GALLERIA PARKWAY STREET 2: STE 100 CITY: ATLANTA STATE: GA ZIP: 30339-5949 FORMER COMPANY: FORMER CONFORMED NAME: PROFIT RECOVERY GROUP INTERNATIONAL INC DATE OF NAME CHANGE: 19960207 8-K 1 prg8k705.txt FORM 8-K - -------------------------------------------------------------------------------- UNITED STATES SECURITIES AND EXCHANGE COMMISSION WASHINGTON, D.C. 20549 -------------------------------- FORM 8-K -------------------------------- CURRENT REPORT PURSUANT TO SECTION 13 OR 15(D) OF THE SECURITIES EXCHANGE ACT OF 1934 Date of Report (Date of earliest event reported): JULY 19, 2005 ----------------------- PRG-SCHULTZ INTERNATIONAL, INC. (Exact name of registrant as specified in its charter) -------------------------
GEORGIA 000-28000 58-2213805 (State or Other Jurisdiction (Commission File Number) (IRS Employer of Incorporation) Identification No.)
600 GALLERIA PARKWAY, SUITE 100 (Address of principal executive office) (zip code) Registrant's telephone number, including area code: (770) 779-3900 N/A (Former name or former address, if changed since last report) ------------------------- Check the appropriate box below if the Form 8-K filing is intended to simultaneously satisfy the filing obligation of the registrant under any of the following provisions (see General Instruction A.2. below): [_] Written communications pursuant to Rule 425 under the Securities Act (17 CFR 230.425) [_] Soliciting material pursuant to Rule 14a-12 under the Exchange Act (17 CFR 240.14a-12) [_] Pre-commencement communications pursuant to Rule 14d-2(b) under the Exchange Act (17 CFR 240.14d-2(b)) [_] Pre-commencement communications pursuant to Rule 13e-4(c) under the Exchange Act (17 CFR 240.13e-4(c)) ITEM 1.01. ENTRY INTO A MATERIAL DEFINITIVE AGREEMENT. See Item 5.02 below, the contents of which are incorporated herein by reference, for the terms of Mr. McCurry's employment agreement, including the attached forms of option and indemnification agreement, a copy of which is filed herewith as Exhibit 99.3 and incorporated by reference herein. See Item 8.01 below, the contents of which are incorporated herein by reference, for the terms of Mr. Cole's form of retainer agreement, including the attached forms of option and indemnification agreement, a copy of which is filed herewith as Exhibit 99.2 and incorporated by reference herein. See Item 1.02 below, the contents of which are incorporated herein by reference, for the terms of Mr. Cook's and Mr. Toma's severance. Beginning with the next meeting of the Board of Directors, or a committee thereof, or of the Company's shareholders following July 19, 2005, Mr. Greimann will be compensated as a non-employee director pursuant to the Company's standard arrangements for all non-employee directors other than the Presiding Director and Chairman of the Board, as described in the Company's proxy statement for its 2005 annual meeting of shareholders under the heading "Information about the Board of Directors and Committees of the Board--Director Compensation." See Item 8.01 below regarding the assumption of the duties of Presiding Director by Mr. Cole. ITEM 1.02. TERMINATION OF A MATERIAL DEFINITIVE AGREEMENT. Termination of Mr. Toma's Employment Agreement and Approval of Severance On July 19, 2005, as announced in the press release filed as Exhibit 99.1 hereto and incorporated herein by reference, John Toma, Vice Chairman, gave notice of termination of his employment agreement with PRG-Schultz USA, Inc., a wholly owned subsidiary of PRG-Schultz International, Inc. (the "Company"), and the Company accepted his resignation. The Compensation Committee of the Board has approved and the independent members of the Board have ratified severance payments to be made to Mr. Toma, subject to him and the Company agreeing in principle upon the terms of a separation and release agreement which will set forth Mr. Toma's severance benefits and contain standard releases and covenants. Mr. Toma's resignation as Vice Chairman is effective as of July 25, 2005, and his last day of employment will be July 31, 2005. Pursuant to his severance, conditioned upon successful negotiation of a separation and release agreement, Mr. Toma will be entitled to receive the following: 1. In equal bi-weekly installments consistent with the Company's payroll practices, commencing February 1, 2006, $1,502,304.08 to be paid over two (2) years from that date. 2 2. Upon expiration of COBRA coverage for either of Mr. Toma or his spouse or both (as applicable), PRG Schultz USA shall assist Mr. Toma and/or his spouse in obtaining an individual health insurance policy which provides health coverage on terms substantially similar to those provided under COBRA coverage (the "Individual Replacement Policy"). PRG Schultz USA shall pay all premiums for any Individual Replacement Policy for Mr. Toma and his spouse up to $20,000 per calendar year in the aggregate, which maximum amount shall be increased each calendar year commencing January 1, 2003, by a percentage equal to the percentage increase in the consumer price index occurring since January 1, 2002. Upon Mr. Toma and/or his wife becoming enrolled for Medicare coverage, the obligation of PRG Schultz USA with respect to the Individual Replacement Policy shall terminate but PRG Schultz USA shall become responsible for paying (or reimbursing Mr. Toma and/or his spouse for) any premiums required by Medicare for Part A or B coverage and for any premiums associated with any supplemental individual insurance policy selected and obtained by Mr. Toma and/or his spouse for each up to the age of 80, respectively. In no event, however, shall PRG Schultz USA's obligation pursuant to the immediately preceding sentence exceed $20,000 per year, as adjusted by the CPI escalator described above. PRG Schultz USA's obligations with respect to Mr. Toma and/or his spouse under this paragraph shall terminate upon Mr. Toma or his spouse becoming covered under a group health plan sponsored by any other employer due to the employment of Mr. Toma or his spouse. If a separation and release agreement is successfully negotiated, the obligations set forth in 1. and 2. above will be in full satisfaction of, and in lieu of, any and all obligations previously owed to Mr. Toma by the Company pursuant to his employment agreement and/or change of control agreement with the Company, the provisions of which were previously disclosed in Company filings with the SEC. In addition, as a condition to his receipt of the severance, Mr. Toma must acknowledge that his restricted stock award of 40,000 shares of Company common stock granted on February 14, 2005 will automatically be forfeited and cancelled as of July 31, 2005, and he will agree to forfeit and cancel as of July 31, 2005 certain of his vested Company stock options. All of Mr. Toma's remaining options to purchase Company stock are also vested and will remain exercisable through their natural terms. The foregoing terms are concurrently being negotiated between Mr. Toma and the Company. There are no material relationships between Mr. Toma and the Company other than Mr. Toma's position with the Company, his ownership of Company securities, and as otherwise disclosed in the Company's proxy statement for its annual meeting of shareholders held May 3, 2005, under the headings "Executive Compensation," "Certain Transactions" and "Ownership of Directors, Principal Shareholders and Certain Executive Officers," which disclosures are incorporated by reference herein. Termination of Mr. Cook's Employment Agreement and Approval of Severance 3 As previously disclosed in a Report on Form 8-K filed on June 8, 2005, Mr. Cook had announced his intent to retire and resign from the Board upon the Company's hiring of a new Chief Executive Officer. On July 19, 2005, concurrently with the Board's appointment of Mr. McCurry, Mr. Cook tendered his resignation from the Board and as President and Chief Executive Officer, effective July 25, 2005. Mr. Cook's last day of employment will be July 31, 2005. The Compensation Committee of the Board has approved and the independent members of the Board have ratified, severance payments to be made to Mr. Cook, subject to him and the Company agreeing in principle upon the terms of a separation and release agreement which will set forth Mr. Cook's severance benefits and contain standard releases and covenants. Pursuant to his severance, conditioned upon successful negotiation of a separation and release agreement, Mr. Cook will be entitled to receive the following: 1. In equal bi-weekly installments consistent with the Company's payroll practices, commencing February 1, 2006, $5,512,423.14 to be paid over three (3) years from that date. 2. Upon expiration of COBRA coverage for either of Mr. Cook or his spouse or both (as applicable), PRG Schultz USA shall assist Mr. Cook and/or his spouse in obtaining an individual health insurance policy which provides health coverage on terms substantially similar to those provided under COBRA coverage (the "Individual Replacement Policy"). PRG Schultz USA shall pay all premiums for any Individual Replacement Policy for Mr. Cook and his spouse up to $25,000 per calendar year in the aggregate, which maximum amount shall be increased each calendar year commencing January 1, 2003, by a percentage equal to the percentage increase in the consumer price index occurring since January 1, 2002. Upon Mr. Cook and/or his wife becoming enrolled for Medicare coverage, the obligation of PRG Schultz USA with respect to the Individual Replacement Policy shall terminate but PRG Schultz USA shall become responsible for paying (or reimbursing Mr. Cook and/or his spouse for) any premiums required by Medicare for Part A or B coverage and for any premiums associated with any supplemental individual insurance policy selected and obtained by Mr. Cook and/or his spouse for each up to the age of 80, respectively. In no event, however, shall PRG Schultz USA's obligation pursuant to the immediately preceding sentence exceed $25,000 per year, as adjusted by the CPI escalator described above. PRG Schultz USA's obligations with respect to Mr. Cook and/or his spouse under this paragraph shall terminate upon Mr. Cook or his spouse becoming covered under a group health plan sponsored by any other employer due to the employment of Mr. Cook or his spouse. If a separation and release agreement is successfully negotiated, the obligations set forth in 1. and 2. above will be in full satisfaction of, and in lieu of, any and all obligations previously owed to Mr. Cook by the Company pursuant to his employment agreement with the Company, the provisions of which were previously disclosed in Company filings with the SEC. 4 In addition, as a condition to his receipt of the severance, Mr. Cook must agree to forfeit and cancel as of July 31, 2005 the following Company stock options, which either are currently vested or will vest upon the termination of his employment: (i) 110,295 shares dated December 31, 1996 with an exercise price of $10.6667 per share, (ii) 129,995 shares dated December 31, 1997 with an exercise price of $11.8333 per share, and (iii) 200,000 shares dated January 24, 2002 with an exercise price of $9.28 per share. All of Mr. Cook's remaining options to purchase Company stock are also vested and will remain exercisable through their natural terms. The foregoing terms are concurrently being negotiated between Mr. Cook and the Company. There are no material relationships between Mr. Cook and the Company other than Mr. Cook's position with the Company, his ownership of Company securities, and as otherwise disclosed in the Company's proxy statement for its annual meeting of shareholders held May 3, 2005, under the headings "Executive Compensation," "Certain Transactions" and "Ownership of Directors, Principal Shareholders and Certain Executive Officers," which disclosures are incorporated by reference herein. ITEM 2.02 RESULTS OF OPERATIONS AND FINANCIAL CONDITION. The information provided pursuant to this Item 2.02 is to be considered "filed" under the Securities Exchange Act of 1934 ("Exchange Act") and incorporated by reference into those filings of the Company that provide for the incorporation of all reports and documents filed by the Company under the Exchange Act. On July 20, 2005, The Company issued a press release announcing, among other things, its preliminary results for the quarter ended June 30, 2005. The Company hereby incorporates by reference herein the information set forth in its Press Release dated July 20, 2005, a copy of which is attached hereto as Exhibit 99.1. Except as otherwise provided in the press release, the press release speaks only as of the date of such press release and such press release shall not create any implication that the affairs of the Company have continued unchanged since such date. Except for the historical information contained in this Item 2.02, the statements made by the Company are forward-looking statements that involve risks and uncertainties. All such statements are subject to the safe harbor created by the Private Securities Litigation Reform Act of 1995. The company's future financial performance could differ significantly from the expectations of management and from results expressed or implied in the Press Release. See the risk factors contained in the Press Release for a discussion of certain risks and uncertainties that may impact such forward looking statements. For further information on other risk factors, please refer to the "Risk Factors" contained in the Company's Form 10-K for the year ended December 31, 2004 and Form 10-Q for the quarter ended March 31, 2005, filed with the Securities and Exchange Commission. The Company disclaims any obligation or duty to update or modify these forward-looking statements. 5 ITEM 5.02. DEPARTURE OF DIRECTORS OR PRINCIPAL OFFICERS; ELECTION OF DIRECTORS; APPOINTMENT OF PRINCIPAL OFFICERS Appointment of President and Chief Executive Officer and Director On July 19, 2005, as announced in the press release filed as Exhibit 99.1 hereto and incorporated herein by reference, the Company's Board of Directors appointed James B. McCurry to serve as the Company's President and Chief Executive Officer, effective July 25, 2005. On the same date, also effective July 25, 2005, the Board appointed Mr. McCurry to fill the vacancy left on the Board due to Mr. Cook's resignation. Mr. McCurry has not been named to, and there are no current plans to name him to, any Board committees. Mr. McCurry's Business Experience. Mr. McCurry, age 56, served as President of the Printing Division of Kinko's, a wholly owned subsidiary of FedEx Corporation from March 2003 to May 2005, serving as a consultant to that company from that time to date. From May 2001 until March 2003, Mr. McCurry was an independent management consultant, except for his tenure as chief executive officer of Broder Brothers, a privately owned wholesale distributor of imprintable sportswear from July to October of 2002. From May 2000 until May 2001, he was Chief Executive Officer of an e-commerce subsidiary of Fleming Companies, Inc. From July 1997 until May 2000, Mr. McCurry was a partner with Bain & Company, an international management consulting firm specializing in corporate strategy. Mr. McCurry has also served as a member of the Board of Directors of Interstate Hotels and Resorts, Inc., a New York Stock Exchange listed company, since 1998. Mr. McCurry's Employment Contract. On July 20, 2005 the Company and Mr. McCurry entered into an employment agreement with an effective date of July 25, 2005 and containing the following material terms: 1. Appointment. Mr. McCurry will serve as President and Chief Executive Officer of the Company. The Board is obligated to nominate him to the Board. Subject to shareholder elections, he will serve on the Board through the time of his employment, with no additional compensation for services as a director. 2. Share Ownership Program. Mr. McCurry will be obligated to participate in any share ownership program for officers or directors adopted by the Company. 3. Base Salary. Mr. McCurry's initial salary will be $500,000 per year. The Compensation Committee may increase his salary, but may not decrease his salary unless the Company institutes a salary reduction generally applicable to senior executives of the Company. 6 4. Annual Bonuses. For fiscal year 2005, Mr. McCurry is entitled to receive a bonus equal to 70% of his base salary ($350,000), prorated based on the number of days he is employed during the year. For fiscal year 2006 and thereafter, Mr. McCurry will be eligible to earn an annual performance bonus as follows: o Upon the achievement of annual "target" performance goals, to be set by the Compensation Committee in advance of each fiscal year, a bonus equal to 70% of his salary. o Upon the achievement of annual "maximum" performance goals, to be set by the Compensation Committee, a bonus equal to 140% of base salary. o If the Company's performance falls between the "target" and "maximum" performance goals, he will receive an amount between 70% and 140% of his salary, according to a formula to be set by the Compensation Committee. 5. Inducement Stock Option Grant. Mr. McCurry is entitled to receive a stock option to purchase 2 million shares of the Company's Common Stock, which will be awarded outside of the Company's shareholder-approved stock incentive plan, pursuant to an exemption from the Nasdaq National Market shareholder approval requirements that is available for qualified inducement grants. The option will not constitute an incentive stock option under Section 422 of the Internal Revenue Code of 1986. The option will be issued on July 29, 2005, following the setting of the exercise price at the closing price of the Common Stock on the NASDAQ National Market on that date. The Company is required to file a Registration Statement on Form S-8 with respect to the option and the underlying shares of common stock as soon as practicable. The form of the option agreement is attached as an exhibit to Mr. McCurry's employment agreement, which is filed as Exhibit 99.3 hereto and is incorporated by reference herein. The option will be subject to the following additional terms: o Time Vesting. One of two tranches of the option, representing the right to purchase 500,000 shares, will become exercisable on July 29, 2006, if Mr. McCurry has remained continuously employed by the Company as of that date. o Performance Vesting. The second tranche (the balance of the option), representing the right to purchase 1.5 million shares, will be subject to specific performance criteria and become exercisable in three tiers, as follows: 7 o Tier 1, representing the right to purchase 500,000 shares, will become exercisable at any time after July 29, 2006, if the closing market price per share of the Company's Common Stock is $4.50 (Target A) or higher for 45 consecutive trading days after July 29, 2006. o Tier 2, representing the right to purchase an additional 500,000 shares, will become exercisable at any time after July 29, 2007, if the closing market price per share of the Company's Common Stock is $6.50 (Target B) or higher for 45 consecutive trading days after July 29, 2007. o Tier 3, representing the right to purchase the final 500,000 shares, will become exercisable at any time after July 29, 2008, if the closing market price per share of the Company's Common Stock is $8.00 (Target C) or higher for 45 consecutive trading days after July 29, 2008. The Compensation Committee will have discretion to accelerate the exercisability of any or all of the performance-based tranche without regard to whether the price targets have been met. o Acceleration. The exercisability of the option will accelerate under certain circumstances as follows: o If Mr. McCurry's employment is terminated by the Company without Cause or by Mr. McCurry for Good Reason (each as defined in the employment agreement), the following portions of the performance-based tranche of his option will become exercisable: * all shares underlying any tier for which the target price has been met for 45 consecutive trading days; PLUS * a prorated portion of Tier 2, based on the extent to which the Company's Common Stock attained a market price exceeding Target A for at least 45 consecutive trading days; PLUS * a prorated portion of Tier 3, based on the extent to which the Company's Common Stock attained a market price exceeding Target B for at least 45 consecutive trading days. o Upon a Change in Control (as defined in Mr. McCurry's employment agreement), or if the Company ceases to be a reporting company under 8 the Exchange Act, as amended, any portion of the time-vesting tranche not yet vested will become exercisable. o Upon a Change in Control (as defined in Mr. McCurry's employment agreement), or if the Company ceases to be a reporting company under the Exchange Act, as amended, a prorated portion of the performance-based tranche will become exercisable, based upon the extent to which the transaction price per share (or if there is no transaction resulting in the Company ceasing to be a reporting company, the closing price of the Company's common stock immediately preceding its ceasing to be a reporting company) exceeds the target price set for the vesting of the relevant tier. o Term. The option will expire on July 29, 2012, except as follows: o Unvested (i.e., not yet exercisable) portions of the option will be forfeited upon termination of employment, except to the extent accelerated as provided above. o Vested portions that have not yet been exercised will remain exercisable: * for 75 calendar days following termination of employment for any reason other than death, disability or for Cause; and * for one year following termination of employment due to death or disability. o Vested portions will be forfeited on the date of termination, if termination is for Cause. o Transferability. The option may only be transferred by will or by the laws of descent and distribution, or for no consideration to or for the benefit of certain specified members of Mr. McCurry's immediate family. 6. Standard Benefits. Mr. McCurry will be eligible to participate in the Company's standard benefits package, on the same basis as other senior executives of the Company. 7. Vacation. Mr. McCurry will be entitled to four weeks of paid vacation per year. 9 8. Indemnification. The Company and Mr. McCurry have entered into an indemnification agreement that provides that Mr. McCurry shall be indemnified by the Company with respect to certain expenses and liabilities incurred by him because he is an officer or director of the Company or is acting at its request; provided that he acted in good faith and in a manner he reasonably believed to be in or not opposed to the best interests of the Company, and with respect to any criminal action or proceeding, he had no reasonable cause to believe his conduct was unlawful. Mr. McCurry is also entitled to receive advances from the Company with respect to expenses incurred in connection with the foregoing upon providing the Company with a written request for same and providing certain representations in connection therewith. The form of the indemnification agreement is attached as an exhibit to Mr. McCurry's employment agreement, a copy of which is filed as Exhibit 99.3 hereto, and is incorporated by reference herein. 9. Professional Fees. The Company will reimburse Mr. McCurry for his reasonable professional fees and costs incurred in connection with the negotiation and execution of his employment agreement, up to $15,000. 10. Term. The agreement expires on July 25, 2008, subject to automatic renewal for a one-year term unless either party has given the other 30 days' written notice. 11. Severance. Mr. McCurry will be entitled to certain severance payments if his employment is terminated: (i) by the Company without "Cause," as that term is defined in his agreement, or (ii) by Mr. McCurry for "Good Reason," as that term is defined in his agreement. In either instance, Mr. McCurry's severance benefits will be as follows: o Lump Sum Payment. If his employment terminates within the first sixteen (16) months, he will be entitled to a lump sum payment equal to .125 times the number of months he has worked for the Company, further multiplied by his "Average Annual Compensation." "Average Annual Compensation" means: o Salary. If his employment terminates during fiscal year 2005, his base salary in 2005; OR, if his employment terminates after December 31, 2005, the average of his base salary for the final two fiscal years of his employment, including the year in which his employment terminates; PLUS o Bonus. If his employment terminates before January 1, 2007, 70% of his base salary for fiscal year 2005 (prorated based on the number of days employed during 2005, if his employment terminates during 2005); OR, if his employment terminates during fiscal year 2007, any actual annual bonus paid with respect to fiscal year 2006; OR, if his employment terminates after December 31, 2007, 10 the average of any actual annual bonuses paid or payable with respect to the last two full fiscal years immediately prior to the year in which his employment terminates. If his employment terminates more than 16 months following the date of his appointment, his lump sump payment will equal two times his Average Annual Compensation. Other Benefits. Mr. McCurry will be entitled to continue participation in the Company's medical and dental plans until the earlier of (a) his coverage under another employer's (or any other) medical or dental plans and (b) the second anniversary of the termination of his employment. However, if his continued participation is barred, he is entitled to receive, during that same period, monthly reimbursement for any premiums paid by him to obtain comparable benefits. 12. COBRA Premiums. Until the expiration of any applicable waiting periods necessary for Mr. McCurry to commence participation in the Company's healthcare plans, the Company shall reimburse him for the amounts paid by him on account of premiums to FedEx Kinko's in connection with his rights under COBRA to maintain the healthcare benefits provided to him under FedEx Kinko's healthcare plans. 13. Additional Covenants. The agreement contains restrictive covenants, including non-compete and anti-solicitation provisions extending two years after termination of his employment, as well as standard confidentiality obligations. 14. Release. In order to collect any severance benefits, Mr. McCurry is obligated to sign and return a release agreement, the form of which is attached to Mr. McCurry's employment agreement, a copy of which is filed as Exhibit 99.3 to this Form 8-K and is incorporated by reference herein. Pursuant to the release agreement, Mr. McCurry releases all current or future claims, known or unknown, arising on or before the date of the release against the Company or any direct and indirect subsidiary, parent, affiliated, or related company of the Company, or their respective officers or directors. Certain Relationships and Transactions. There are no material relationships between Mr. McCurry and the Company other than Mr. McCurry's position with the Company, his ownership of Company securities, and as otherwise disclosed above. 11 ITEM 5.03. AMENDMENTS TO ARTICLES OF INCORPORATION OR BYLAWS; CHANGE IN FISCAL YEAR. Effective July 19, 2005, the Board of Directors of the Company amended the Company's Bylaws to change the title of Article 6 to "Chairman of the Board and Officers" from its previous title, "Officers," and to delete Section 6.2 in its entirety and replace it with the following: "6.2 Chairman of the Board. If a Chairman of the Board is elected by the directors, the Chairman will preside at all meetings of shareholders and directors and shall have and perform such other duties as from time to time may be assigned by the Board of Directors. The Chairman of the Board shall not be deemed an officer of the Corporation unless designated as such by a resolution of the Board of Directors." The prior text of Section 6.2 read as follows: "6.2 Chairman of the Board. If a Chairman of the Board is elected by the directors, the Chairman shall preside at all meetings of shareholders and directors, and, unless otherwise provided by law, when the signature of the President is required the Chairman shall possess the same power as the President to sign all certificates, contracts, and other instruments of the Corporation. The Chairman shall have such other powers and duties as the Board may prescribe from time to time." A copy of the Bylaw amendment is attached as Exhibit 3.1 hereto and is incorporated by reference herein. ITEM 8.01. OTHER EVENTS. Designation of Chairman of the Board In connection with Mr. Cook's retirement from office and from the Board of Directors, on July 19, 2005, the Board designated Mr. Cole to serve as Chairman of the Board, effective July 25, 2005. Mr. Cole will assume the duties of Presiding Director, which were previously performed by Mr. Greimann. Mr. Cole will not be an officer or employee of the Company, and as described under Item 5.03 above, the Company has amended its Bylaws to provide that the Chairman of the Board position is not an officer position unless so designated by the Board. Mr. Cole's Retainer Agreement The terms under which Mr. Cole has accepted the enhanced duties of the Chairman position, and his resulting director compensation, are set forth in a retainer agreement to be formally executed with an effective date of July 25, 2005. A copy of the retainer agreement, including the option agreement and 12 indemnification agreement that are attached as exhibits thereto, is filed as Exhibit 99.2 to this Form 8-K and incorporated by reference herein. The material terms of Mr. Cole's retainer agreement are as follows: 1. Appointment. Mr. Cole will serve as Chairman of the Board until his successor is appointed, and the terms of the retainer agreement will govern his duties and compensation until such time, or, if sooner, until the 2008 annual meeting of shareholders. 2. Duties. Mr. Cole has agreed to undertake on behalf of the Board certain duties and obligations as more particularly set forth in the retainer agreement. Among these undertakings, Mr. Cole has committed to regularly attend and preside at Company shareholders' meetings and Board meetings; serve on and preside over appropriate committees as reasonably requested by the Board; set meeting schedules; establish meeting agendas (in consultation with the CEO); set and establish agendas for regularly scheduled executive sessions of the non-employee and independent members of the Board; lead the Board in the exercise of its corporate oversight functions, including assignment of specific tasks to Board committees or individual members of the Board; manage information flow to the Board to facilitate appropriate understanding of and discussion regarding matters of interest or concern to the Board; be available to the Company at mutually convenient times and places; attend external meetings and presentations (as appropriate and convenient); and advise the CEO regarding the corporate strategy and business plan of the Company and its divisions and subsidiaries, including efforts to improve the operating and financial performance of the Company and efforts to develop and grow the Company's business. The final approval of the Company's business plan and corporate strategy remain subject to full Board approval, however. Mr. Cole has acknowledged that his duties as Chairman are expected to require commitment of the equivalent of two days per week of his business time and attention over the first six months of his service as Chairman, one to two days per week for the following six months, and one day per week thereafter. However, Mr. Cole's duties may at times require more or less than that time commitment. 3. Non-executive Status. Mr. Cole will not be an employee or agent of the Company with authority to bind the Company in any respect. As Chairman, Mr. Cole will not participate in any employee benefit plans or receive any other benefits of employment. 4. Cash Retainer. Upon his appointment, Mr. Cole became entitled to receive an initial cash retainer fee of $42,000, in recognition of the significant amount of time recently spent by him in fulfilling Board duties following the announcement by Mr. Cook of his impending retirement. In addition, while he serves as Chairman of the Board, he will be entitled to a monthly cash retainer fee, payable on the first day of each month, in the following amounts: 13 o From August 1, 2005 through December 31, 2005, $42,000 per month; o From January 1, 2006 through June 30, 2006, $16,000 per month; and o From July 1, 2006 and thereafter, $12,500 per month. 5. Option Grant. In addition, Mr. Cole is entitled to receive a non-qualified option to purchase 450,000 shares of the common stock of the Company. The option will be issued on July 29, 2005, pursuant to the Company's Stock Incentive Plan, and the exercise price will be set at the closing price of the Company's common stock on the Nasdaq National Market on that date. The terms of Mr. Cole's option grant are summarized below: o Time-vesting. The time-vesting tranche of his option, representing the right to purchase 150,000 shares, will become exercisable on the earlier of the 2006 annual meeting of shareholders and June 30, 2006. o Performance-vesting. The performance-vesting tranche, representing the balance of his option, will be exercisable as follows: (a) Tier 1, representing the right to purchase 100,000 shares, will become exercisable at any time after the earlier of the 2006 annual meeting of shareholders and June 30, 2006 (the "2006 Vesting Date"), if the Company attains Target A for 45 consecutive trading days after the 2006 Vesting Date. (b) Tier 2, representing the right to purchase an additional 100,000 shares, will become exercisable at any time after the earlier of the 2006 Vesting Date, if the Company attains Target B for 45 consecutive trading days after the 2006 Vesting Date. In addition, on the 2007 Vesting Date, as defined below, if Target B has not been attained for 45consecutive trading days, but the Company's Common Stock has exceeded Target A for 45 consecutive trading days, a prorated portion of Tier 2 will become exercisable. (c) Tier 3, representing the right to purchase an additional 100,000 shares, will become exercisable at any time after the earlier of the 2007 annual meeting of shareholders and June 30, 2007 (the "2007 Vesting Date"), if the Company attains Target C for 45 consecutive trading days after the 2007 Vesting Date. On the 2007 Vesting Date, if Target C has not been attained for 45 consecutive trading days, but the 14 Company's Common Stock has exceeded Target B for 45 consecutive trading days, a prorated portion of Tier 3 will become exercisable. The Compensation Committee will have the discretion to direct acceleration of the exercisability of any or all of the performance-based tranche without regard to whether the price targets have been met. However, if Mr. Cole is currently serving on the Committee at the time, then any determination as to acceleration will exclude him. o Acceleration. Unvested portions of Mr. Cole's option will vest without regard to the criteria set forth above under the circumstances provided below : o Death and Disability. If Mr. Cole ceases to be a director due to death or disability, a prorated portion of the time-vesting tranche, if not yet vested, will become exercisable, based upon the number of days Mr. Cole served as director. If he ceases to be a director due to death or disability before that date that is 45 consecutive trading days after the 2006 Vesting Date, the following portions of the performance-based tranche will become exercisable: (A) a prorated portion of Tier 1 based on dividing the days he served in office by 365, if Target A was met for 45 consecutive trading days, plus (B) a prorated portion of Tier 2 based on dividing the days he served in office by 365, if Target B was met was met for 45 consecutive trading days. If he ceases to be a director prior to the date that is 45 consecutive trading days after the 2007 Vesting Date, then a prorated portion of Tier 3 based on dividing the days he served in office by 730 will become exercisable, if Target C was met for 45 consecutive days. o Change in Control and Cessation of Public Reporting Status. Upon a Change in Control (as defined in Mr. Cole's option agreement), or if the Company ceases to be a reporting company under the Securities Exchange Act of 1934, as amended, any portion of the time-vesting tranche not yet vested will become exercisable, and a prorated portion of the performance-based tranche will become exercisable, based upon the extent to which the transaction price per share (or if there is no transaction resulting in the Company ceasing to be a reporting company, the closing price of the 15 Company's common stock immediately preceding its ceasing to be a reporting company) exceeds the target price set for the vesting of the relevant tier. o Term. Unless sooner terminated, the option will expire on July 29, 2012. The option will terminate earlier under the following circumstances: o Unvested portions of the option will be forfeited if Mr. Cole's membership on the Board terminates for any reason. o Vested portions that have not yet been exercised will remain exercisable following termination of his service as Chairman as follows: * if his service terminates before the earlier of the 2006 annual meeting of shareholders and June 30, 2006, for that number of days equal to 15 times the number of months he has served as Chairman; * if his service terminates after that date but prior to the earlier of the 2007 annual meeting of shareholders and June 30, 2007, for one year following termination of his service; * if his service terminates after that date but prior to the earlier of the 2008 annual meeting of shareholders and June 30, 2008, for 18 months following termination of his service; and * if his service terminates following that date, for two years following termination of his service. To the extent that he remains a member of the Board following his retirement as Chairman, unvested options held by Mr. Cole will continue to vest if the relevant criteria are met and will be subject to the termination schedule set forth above for vested options. 6. Anti-Solicitation Covenant. Mr. Cole has also agreed not to solicit or recruit any of the Company's employees while he is serving, or during two years following termination of his service, as Chairman. 7. Professional Fees. The Company will reimburse Mr. Cole for his reasonable professional fees incurred in connection with the negotiation and execution of the retainer agreement up to a maximum of $15,000. 8. Indemnification. The Company and Mr. Cole have entered into an indemnification agreement that provides that Mr. Cole shall be indemnified by the Company with respect to certain expenses and liabilities incurred by 16 him because he is Chairman of the Board or a director of the Company or is acting at its request; provided that he acted in good faith and in a manner he reasonably believed to be in or not opposed to the best interests of the Company, and with respect to any criminal action or proceeding, he had no reasonable cause to believe his conduct was unlawful. Mr. Cole is also entitled to receive advances from the Company with respect to expenses incurred in connection with the foregoing upon providing the Company with a written request for same and providing certain representations in connection therewith. The form of the indemnification agreement is attached as an exhibit to Mr. Cole's retainer agreement, a copy of which is filed as Exhibit 99.2 hereto, and is incorporated by reference herein. There are no material relationships between Mr. Cole and the Company other than Mr. Cole's service as a director and as Chairman of the Board and his ownership of Company securities, as disclosed herein and in the Company's proxy statement for its annual meeting of shareholders held May 3, 2005, under the heading "Ownership of Directors, Principal Shareholders and Certain Executive Officers," which disclosures are incorporated by reference herein. ITEM 9.01. FINANCIAL STATEMENTS AND EXHIBITS. (a) Financial Statements of Businesses Acquired. Not applicable. (b) Pro Forma Financial Information. Not applicable. (c) Exhibits. Exhibit Number Description ----------- ---------------------------------------------------------- 3.1 Bylaw amendment effective July 19, 2005 99.1 Press Release dated July 20, 2005 99.2 Form of Retainer Agreement between the Registrant and David Cole to be dated effective July 25, 2005 99.3 Employment Agreement between the Registrant and James McCurry dated July 20, 2005 17 SIGNATURES Pursuant to the requirements of the Securities Exchange Act of 1934, PRG-Schultz International, Inc. has duly caused this report to be signed on its behalf by the undersigned hereunto duly authorized. PRG-SCHULTZ INTERNATIONAL, INC. Date: July 25, 2005 By: /s/ Clinton McKellar, Jr. --------------------------------- Clinton McKellar, Jr. General Counsel and Secretary 18 EX-3 2 prg8k705ex31.txt BYLAW AMENDMENTS EXHIBIT 3.1 BYLAW AMENDMENTS 1. The title of Article 6 shall be amended to be as follows: "ARTICLE 6. CHAIRMAN OF THE BOARD AND OFFICERS" 2. Section 6.2 shall be deleted in its entirety and replaced with the following: "6.2 Chairman of the Board. If a Chairman of the Board is elected by the directors, the Chairman will preside at all meetings of shareholders and directors and shall have and perform such other duties as from time to time may be assigned by the Board of Directors. The Chairman of the Board shall not be deemed an officer of the Corporation unless designated as such by a resolution of the Board of Directors." EX-99.1 3 prg8k705ex991.txt PRESS RELEASE EXHIBIT 99.1 NEWS RELEASE FOR IMMEDIATE RELEASE PRG-SCHULTZ ANNOUNCES APPOINTMENT OF JAMES B. MCCURRY AS PRESIDENT AND CHIEF EXECUTIVE OFFICER; DAVID A. COLE APPOINTED CHAIRMAN; COMPANY DISCLOSES PRELIMINARY SECOND QUARTER 2005 RESULTS ATLANTA -- (BUSINESS WIRE) -- JULY 20, 2005 SCHEDULES SECOND QUARTER 2005 EARNINGS RELEASE AND CONFERENCE CALL FOR JULY 28, 2005 ATLANTA, GA, JULY 20, 2005 - PRG-Schultz International, Inc. (Nasdaq: PRGX), the world's largest recovery audit firm, announced today that its Board of Directors has unanimously elected James B. McCurry to succeed John M. Cook as President and Chief Executive Officer of the Company. Mr. McCurry, 56, most recently served as Senior Vice President of FedEx Kinko's. The Company also announced that David A. Cole, 62, who has served as a director of PRG-Schultz since February 2003, was unanimously elected by the Board to serve as Chairman of the Board. Both Mr. McCurry and Mr. Cole will assume their new roles with PRG-Schultz effective July 25, 2005. On behalf of the PRG-Schultz Board of Directors, David Cole said, "The Board is delighted to announce Jim McCurry as PRG-Schultz's new President and CEO. Jim is widely recognized as an outstanding business leader and a successful entrepreneur with extensive operating experience in building and improving businesses. Jim is the right leader for PRG-Schultz at an important time in the Company's history. He will be instrumental in refining and pursuing our strategic plan." John Cook said, "Jim brings a wealth of industry and financial experience, and exceptional business insight to PRG-Schultz. While it is hard for me to leave a company for which I have such deep affection, I know that I leave it in good hands. I have full confidence in Jim's ability to lead PRG-Schultz into the future." "I am honored by the opportunity to lead PRG-Schultz and to serve its top-tier clients, both domestically and internationally," said James McCurry. "PRG-Schultz's key strength is its worldwide team of talented and dedicated employees. I look forward to meeting our associates over the coming months and working together with them to achieve our goals for the success of the Company and our shareholders." -- more -- Page 2 Mr. Cole added, "On behalf of the Board, I want to thank John Cook once again for his strong leadership and countless contributions to PRG-Schultz. We particularly appreciate John's efforts during this transition period. We wish John the very best in his retirement." Mr. McCurry brings more than 25 years of retail experience to PRG-Schultz. He co-founded specialty retailer Babbage's, Inc. and led the company as its Chairman as it grew rapidly from a single store start-up to a publicly-held retailer with over 300 stores throughout North America. Mr. McCurry is also a former partner with Bain & Company, an international management consulting firm, where he served as a senior consultant helping to develop successful competitive strategies for companies in a variety of industries including retail, consumer products, restaurants and food service. Mr. McCurry was recruited into Kinko's in 2003 to serve as CEO of ImageX, which had been acquired by Kinko's, and to integrate the three businesses of which ImageX was comprised into Kinko's. He also led multi-functional project teams integrating Kinko's with FedEx after its acquisition in 2004. Mr. McCurry is a member of the board of directors and Chairman of the Audit Committee of Interstate Hotels and Resorts (NYSE: IHR). He earned an M.B.A. with High Distinction from Harvard Business School, where he was a Baker Scholar, and he received a B.A. with High Honors from the University of Florida, where he was a member of Phi Beta Kappa. Mr. Cole has more than 25 years of experience working with key retailers around the world. Mr. Cole is Chairman Emeritus of Kurt Salmon Associates (KSA), a global management consulting firm serving the retail, consumer products and healthcare industries, and he served as Chairman of the board of directors of KSA from 1988 to 2000. Mr. Cole retired from KSA in 2004. He currently serves as a member of the board of directors and Chairman of the Compensation Committee of AMB Property Corporation (NYSE: AMB). -- more -- Page 3 The Company noted that Mr. McCurry was granted inducement stock options covering 2 million shares of PRG-Schultz common stock. These options will be issued in reliance on Nasdaq Marketplace Rule 4350(i)(1)(A)(iv). The options will have a seven year term and an exercise price equal to the closing price of the Company's common stock on the first business day following the release by the Company of its financial results for the second quarter of 2005, which is currently scheduled for July 28, 2005. 500,000 of Mr. McCurry's options will vest on the anniversary of the grant date, and the balance will vest in one third increments as follows: 500,000 will vest at any time after the anniversary of the grant date that the Company's stock closes at $4.50 or higher on the Nasdaq national market for 45 consecutive trading days, 500,000 will vest at any time after the second anniversary of the grant date that the Company's stock closes at $6.50 or higher on the Nasdaq national market for 45 consecutive trading days, and 500,000 will vest at any time after the third anniversary of the grant date that the Company's stock closes at $8.00 or higher on the Nasdaq national market for 45 consecutive trading days. In addition, portions of the options will vest upon the occurrence of certain events, such as a termination by the Company without cause or by Mr. McCurry for good reason, upon certain changes of control of the Company or upon the Company's ceasing to be a publicly traded company. RETIREMENT OF VICE CHAIRMAN JACK TOMA Separately, the Company today announced that John M. "Jack" Toma, Vice Chairman, will retire as of July 31, 2005. The Company expects the Vice Chairman position to remain open. John Cook stated, "I want to thank Jack Toma for his 16 years of guidance to PRG-Schultz. Jack was co-founder of the Company with me and his contributions to the success of PRG-Schultz are beyond measure. Jack has been an invaluable partner and I wish him every future success in his retirement." OUTLOOK UPDATE The Company announced that total revenues for the second quarter of 2005 are expected to be between $80 million and $81 million due in large part to client specific issues concentrated in Europe that resulted in a slower than anticipated conversion of claims to revenue and a shortfall in commercial revenue in Europe. Diluted loss per share from continuing operations is expected to be between ($0.07) and ($0.09) for the quarter. Included in the results are charges of $2.1 million associated with the Company's obligation for retirement benefits for Mr. Cook and Mr. Toma pursuant to their employment agreements. -- more -- Page 4 The Company noted that given its previously disclosed ongoing review of its financial forecast for the balance of 2005 and 2006, and in light of the management changes announced today, PRG-Schultz will not be providing forward guidance at this time and is withdrawing its previously issued guidance with respect to 2005. SECOND QUARTER 2005 EARNINGS RELEASE AND CONFERENCE CALL The Company indicated that it will release its financial results for the second quarter 2005 on Thursday, July 28, 2005, before the market opens. The Company will hold a conference call at 10:00 a.m. Eastern Daylight Time the same day. To access the conference call, listeners in the U.S. and Canada should dial +1 888-396-0289 at least 5-10 minutes prior to the start of the conference. Listeners outside the U.S. or Canada should dial 773-799-3995. To be admitted to the call, verbally supply the passcode "PRGX." This information is required to join the call. A playback of the call will be available one hour after the conclusion of the live call, extending until midnight on August 11, 2005. To directly access the replay, dial +1 866-507-6388 (U.S./Canadian participants) or 203-369-1894 (international participants). This teleconference will also be audiocast on the Internet at www.prgx.com (go to the Investor Relations home page). Please note that the audiocast is "listen-only." Microsoft Windows Media Player is required to access the audiocast and can be downloaded from www.microsoft.com/windows/mediaplayer. A copy of this press release is also available at www.prgx.com under the heading "Investor Relations - News." ABOUT PRG-SCHULTZ INTERNATIONAL, INC. Headquartered in Atlanta, PRG-Schultz International, Inc. (PRG) is the world's leading profit improvement firm. PRG employs approximately 2,800 employees, providing clients in over 40 countries with insightful value to optimize and expertly manage their business transactions. Using proprietary software and expert audit methodologies, PRG industry specialists review client purchases and payment information to identify and recover overpayments. # # # -- more -- Page 5 FORWARD LOOKING STATEMENTS Statements made in this news release that look forward in time, including statements regarding Mr. McCurry's future leadership of the Company and statements regarding preliminary anticipated performance for the second quarter of 2005, involve risks and uncertainties and are forward-looking statements within the meaning of the Private Securities Litigation Reform Act of 1995. Such risks and uncertainties include the following: (i) the risks inherent in any CEO succession, including the time required to fully integrate Mr. McCurry into the Company's operations, (ii) the impact of internal controls assessment and other provisions of the Sarbanes Oxley Act of 2002 that have caused clients to increase their scrutiny of their accounting records and have potentially reduced the amount of lost profits available for recovery by the Company, (iii) proposed legislative and regulatory initiatives with respect to European value added taxation could reduce material portions of the revenues of Meridian VAT Reclaim, (iv) our Accounts Payable Services business may not grow as expected, and we may not be able to increase the number of clients, particularly commercial clients, utilizing contract compliance audits, and growth in smaller commercial clients may not occur as previously anticipated, (v) revenue from freight rate and pharmacy initiatives and other U.S. initiatives may not be realized as quickly as previously anticipated, (vi) our international expansion may take longer to accomplish or may be more expensive than anticipated, and it may take longer to convert existing client contracts into revenue, (vii) future weakness in the currencies of countries in which we transact business could adversely affect the profitability of our international operations, (viii) our new services providing management of credit card signature receipts and providing audits of Medicare payments will require significant expenditures and may not provide expected revenues in the time frame originally expected , if at all, and even if successful, the Medicare pilot program may not be renewed, and other risk factors discussed in our Securities and Exchange Commission filings, including the Company's Forms 10-K and 10-Q as filed with the Securities and Exchange Commission on March 16, 2005 and May 10, 2005. The Company disclaims any obligation or duty to update or modify these forward-looking statements. Contact: PRG-Schultz International, Inc., Atlanta James E. Moylan, Jr. (770) 779-6605 SOURCE: PRG-Schultz International, Inc. EX-99.2 4 prg8k705ex992.txt RETAINER AGREEMENT EXHIBIT 99.2 RETAINER AGREEMENT This Retainer Agreement (this "Agreement") is entered into as of July __, 2005 (the "Effective Date") between PRG-SCHULTZ INTERNATIONAL, INC., a Georgia corporation ("PRGX"), and DAVID A. COLE ("Director"). The Board of Directors of PRGX (the "Board") has appointed Director to the position of Non-Executive Chairman of the Board ("Non-Executive Chairman"), and Director has accepted such appointment, subject to the terms and conditions set forth in this Agreement. Therefore, the parties agree as follows: 1. Term. Director shall serve as Non-Executive Chairman for the period beginning on the Effective Date and ending as provided in paragraph 6 (the "Appointment Period"). 2. Position and Duties. (a) During the Appointment Period, Director shall serve as Non-Executive Chairman and shall have the normal duties, responsibilities and authority of a non-employee director serving in such position. (b) During the Appointment Period, Director shall: (i) regularly attend and preside at PRGX shareholders' meetings and Board meetings; (ii) serve on and preside over appropriate committees as reasonably requested by the Board (including, subject to the Board's affirmative determination of Director's "independence" as defined by the listing standards of the NASDAQ National Market, all standing committees of the Board other than the audit committee); (iii) set meeting schedules; (iv) establish meeting agendas (in consultation with PRGX's Chief Executive Officer (the "CEO")); (v) set and establish agendas for regularly scheduled executive sessions of the non-employee and independent members of the Board; (vi) lead the Board in the exercise of its corporate oversight functions, including assignment of specific tasks to Board committees or individual members of the Board; (vii) manage information flow to the Board to facilitate appropriate understanding of and discussion regarding matters of interest or concern to the Board; (viii) be available to PRGX at mutually convenient times and places; (ix) attend external meetings and presentations (as appropriate and convenient); (x) perform such duties, services and responsibilities and have the authority commensurate to the position of Non-Executive Chairman; and (xi) advise the CEO regarding the corporate strategy and business plan of PRGX and its divisions and subsidiaries, including efforts to improve the operating and financial performance of PRGX and its divisions and subsidiaries and efforts to develop and grow PRGX's business. PRGX and Director agree that final approval of the business plan and corporate strategy of PRGX rest with the full Board, it being understood that Director is authorized and expected to have a leading and active role in these matters independent of the Board and to organize and lead the Board in discussing and deciding these issues. (c) Director acknowledges that the duties described in this paragraph 2 are expected to require Director's commitment of the equivalent of two days per week of Director's business time and attention during the first six months of the Appointment Period, one to two days per week during the second six months of the Appointment Period, and one day per week thereafter during the Appointment Period. Director further acknowledges that these duties may, at times, require more or less than the time commitment described in the immediately preceding sentence. (d) Director shall continue to be bound by PRGX's Code of Conduct, including provisions thereof regarding conflicts of interest, to the extent applicable to non-employee directors. 3. Status. Director's status during the Appointment Period shall not, for any purpose, be that of an employee or agent of PRGX with authority to bind PRGX in any respect. As Non-Executive Chairman, Director shall not be entitled to participate in any employee benefit plans of PRGX or receive other benefits of employment available to employees of PRGX. 4. Remuneration. (a) Retainer Fee. On the Effective Date, PRGX shall pay Director an initial cash retainer fee of $42,000. Thereafter, during the Appointment Period, PRGX shall pay Director a cash retainer fee, payable monthly, as follows: (i) for the period commencing on August 1, 2005 through December 31, 2005, PRGX shall pay Director a cash retainer fee of $42,000 per month; (ii) for the period commencing January 1, 2006 through June 30, 2006, PRGX shall pay Director a cash retainer fee of $16,000 per month; and (iii) for the period commencing July 1, 2006 through the end of the Appointment Period, PRGX shall pay Director a cash retainer fee of $12,500 per month. The retainer fee payable for any month in which Director serves as Non-Executive Chairman for less than the entire month (other than July 2005) will be prorated based on the number of days during such month in which Director served as Non-Executive Chairman. The retainer fee payable for any month (other than July 2005) shall be payable in advance not later than the first day of such month. (b) Stock Options. In connection with Director's appointment to the position of Non-Executive Chairman, PRGX shall grant Director, at the earliest practicable date in accordance with PRGX's policies governing trading in PRGX's common stock, a stock option with respect to 450,000 shares of the common stock of PRGX, in accordance with a stock option agreement in the form attached hereto as Exhibit A. (c) Expense Reimbursement. PRGX will reimburse Director for all reasonable expenses incurred by Director during the Appointment Period in the course of performing Director's duties under this Agreement with respect to travel, entertainment and other business expenses, consistent with PRGX's reimbursement of non-employee directors generally and subject to PRGX's requirements applicable generally with respect to reporting and documentation of such expenses. (d) No Regular Director's Retainer Fee. The retainer fee payable pursuant to subparagraph 4(a) is in lieu of any regular directors' retainer and attendance fees otherwise payable to members of the Board (or any committee thereof) generally. Upon cessation of service by Director as Non-Executive Chairman, Director shall be eligible, so long as Director serves as a member of the Board, to receive any regular directors' retainer and attendance fees otherwise payable to members of the Board (or any committee thereof). 5. Indemnification. Director shall continue to be entitled to indemnification from PRGX, through PRGX's articles of incorporation and bylaws, on the same basis as the other non-employee members of the Board, and shall continue to receive insurance coverage under any directors' and officers' liability insurance policy obtained by PRGX and in effect from time to time, on the same basis as other non-employee members of the Board. Contemporaneously with this Agreement, PRGX and Director shall execute an indemnification agreement in the form attached hereto as Exhibit B. 6. Appointment Period. The Appointment Period shall terminate on the earlier of (i) the date of PRGX's 2008 annual meeting of shareholders; (ii) the date Director's service as Non-Executive Chairman terminates for any reason; or (iii) the date Director's membership on the Board terminates for any reason. 7. Non-Solicitation of Employees. (a) Agreement Not to Solicit Employees. Director acknowledges and agrees that in the performance of Director's duties to PRGX during the Appointment Period, Director will be brought into contact with PRGX's existing and potential employees. Director further understands and agrees that the foregoing makes it necessary, for the protection of the business of PRGX and any direct and indirect subsidiary, parent, affiliate, or related company of PRGX (such entities, the "Related Entities"), and Director hereby agrees that during the Appointment Period and for a period of two years from the date that the Appointment Period terminates, Director shall not, without PRGX's prior written consent, directly or indirectly, on Director's own behalf or in the service or on behalf of others, solicit, divert or recruit any PRGX employee or employee of any of the Related Entities to leave such employment, whether such employment is by written contract or at will. (b) Remedies. (i) By virtue of the duties and responsibilities attendant to Director's retention by PRGX and the special knowledge of PRGX's affairs, business, clients, and operations that Director has and will have as a consequence of Director's service as Non-Executive Chairman, Director acknowledges and agrees 3 that irreparable loss and damage will be suffered by PRGX if Director should breach or violate the covenant contained in subparagraph 7(a). Therefore, in addition to any other remedies available to PRGX, Director acknowledges and agrees that PRGX shall be entitled to an injunction to prevent a breach or contemplated breach by Director of such covenant. (ii) The existence of any claim, demand, action or cause of action of Director against PRGX, whether predicated upon this Agreement or otherwise, is not to constitute a defense to PRGX's enforcement of the covenant contained in subparagraph 7(a). (c) Indirect Solicitation. Director will be in violation of this paragraph 7 if Director engages in the prohibited activity set forth in subparagraph 7(a) directly as an individual on Director's own account, or indirectly as a partner, joint venturer, employee, agent, salesperson, consultant, officer and/or director of any firm, association, partnership, corporation or other entity, or as a shareholder of any corporation or the owner of the interests in any other entity, in which Director or Director's spouse, child or parent owns, directly or indirectly, individually or in the aggregate, more than 5% of the outstanding stock or other ownership interests. (d) Extension. If a court of competent jurisdiction finally determines that Director has violated any of Director's obligations under this paragraph 7, then the period applicable to those obligations is to automatically be extended by a period of time equal in length to the period during which those violations occurred. 8. Director Representations. Director represents to PRGX that (a) the execution, delivery and performance of this Agreement by Director does not and will not conflict with, breach, violate or cause a default under any contract, agreement, instrument, order, judgment or decree to which Director is a party or by which Director is bound, (b) Director is not a party to or bound by any employment agreement, noncompete agreement or confidentiality agreement with any other person or entity except as would not have an adverse effect on the business of PRGX or its affiliates, and (c) upon the execution and delivery of this Agreement by PRGX, this Agreement will be the valid and binding obligation of Director, enforceable in accordance with its terms. 9. No Withholding of Taxes. The parties acknowledge that any remuneration provided by this Agreement represents non-employee revenue to Director for services rendered by Director as Non-Executive Chairman and, to the extent consistent with applicable law, PRGX shall not withhold any amounts from such remuneration as federal income tax withholding from wages or as employee contributions under the Federal Insurance Contributions Act or any other federal, state or local laws. Director acknowledges that Director shall be responsible for the payment of any federal, state or local taxes resulting from such remuneration. 10. Expenses. Promptly following receipt of invoices therefor, PRGX will reimburse Director for Director's reasonable professional fees and costs (and related disbursements) incurred in connection with Director's negotiation and execution of this Agreement, in an amount not to exceed $15,000. Except as 4 provided for in the immediately preceding sentence, each party shall pay his or its own expenses incurred in connection with this Agreement. 11. Successors and Assigns. This Agreement is to bind and inure to the benefit of and be enforceable by Director, PRGX and their respective heirs, executors, personal representatives, successors and assigns, except that neither party may assign any rights or delegate any obligations hereunder without the prior written consent of the other party. Director hereby consents to the assignment by PRGX of all of its rights and obligations under this Agreement to any successor to PRGX by merger or consolidation or purchase of all or substantially all of PRGX's assets, provided that the transferee or successor assumes PRGX's liabilities under this Agreement. 12. Survival. Subject to any limits on applicability contained therein, paragraph 7 will survive and continue in full force in accordance with its terms notwithstanding any termination of the Appointment Period. 13. Choice of Law. This Agreement is to be governed by the internal law, and not the laws of conflicts, of the State of Georgia. 14. Severability. Whenever possible, each provision of this Agreement is to be interpreted in such manner as to be effective and valid under applicable law, but if any provision of this Agreement is held to be invalid, illegal or unenforceable in any respect under any applicable law or rule in any jurisdiction, that invalidity, illegality or unenforceability is not to affect any other provision or any other jurisdiction, and this Agreement is to be reformed, construed and enforced in the jurisdiction as if the invalid, illegal or unenforceable provision had never been contained herein. 15. Notices. Any notice provided for in this Agreement is to be in writing and is to be either personally delivered, sent by reputable overnight carrier or mailed by first class mail, return receipt requested, to the recipient at the address indicated as follows: Notices to Director: David A. Cole 58 Finch Forest Trail, N.W. Atlanta, Georgia 30327 Notices to PRGX: PRG-Schultz International, Inc. 600 Galleria Parkway Suite 100 Atlanta, Georgia 30339 Attn: General Counsel or any other address or to the attention of any other person as the recipient party shall have specified by prior written notice to the sending party. Any notice under this Agreement is to be deemed to have been given when so delivered, sent or mailed. 5 16. Amendment and Waiver. The provisions of this Agreement may be amended or waived only with the prior written consent of PRGX and Director, and no course of conduct or failure or delay in enforcing the provisions of this Agreement is to affect the validity, binding effect or enforceability of this Agreement. 17. Complete Agreement. This Agreement, together with the agreements referred to herein, embody the complete agreement and understanding between the parties with respect to the subject matter hereof and effective as of its date supersedes and preempts any prior understandings, agreements or representations by or between the parties, written or oral, that may have related to the subject matter hereof in any way. 18. Counterparts. This Agreement may be executed in separate counterparts, each of which are to be deemed to be an original and both of which taken together are to constitute one and the same agreement. [ SIGNATURE PAGE TO FOLLOW ] 6 The parties are signing this Agreement as of the date stated in the introductory clause. PRG-SCHULTZ INTERNATIONAL, INC. By: ------------------------------------ Name: Title: --------------------------------------- David A. Cole [ Signature Page to Employment Agreement ] EXHIBIT A OPTION AGREEMENT OPTION AGREEMENT This Option Agreement (this "Option Agreement") is entered into as of ________ __, 2005 between PRG-SCHULTZ INTERNATIONAL, INC., a Georgia corporation ("PRGX") and DAVID A. COLE ("Director"). PRGX and Director are parties to a retainer agreement dated of even date herewith (the "Retainer Agreement"). In connection with the appointment of Director to the position of non-executive chairman of the board of directors of PRGX (the "Non-Executive Chairman") and in accordance with subparagraph 4(b) of the Retainer Agreement, Director is to receive a stock option grant with respect to 450,000 shares of the common stock, no par value per share, of PRGX (the "Common Stock"). Therefore, the parties agree as follows: 1. Grant of Non-Qualified Stock Option. PRGX hereby grants to Director the right and option to purchase from PRGX, on the terms and subject to the conditions set forth in this Option Agreement, 450,000 shares of Common Stock (such shares, the "Option Shares"; such option, the "Option"). The date of grant of the Option (the "Grant Date") is ________ __, 2005. THE OPTION IS NOT TO CONSTITUTE AN INCENTIVE STOCK OPTION WITHIN THE MEANING OF SECTION 422 OF THE INTERNAL REVENUE CODE OF 1986, AS AMENDED. Of the 450,000 Option Shares, 150,000 Option Shares are time-vested Option Shares (the "Time-Vested Option Shares") and 300,000 Option Shares are performance-based Option Shares (the "Performance-Based Option Shares"). 2. Plan Terms Govern. The Option granted pursuant to this Option Agreement is granted subject to the terms and conditions set forth in the PRG-Schultz International, Inc. Stock Incentive Plan (as amended from time to time, the "Plan"), a copy of which has been delivered to Director. All terms and conditions of the Plan are hereby incorporated into this Option Agreement by reference and shall be deemed to be a part of this Option Agreement, without regard to whether such terms and conditions (including, for example, provisions relating to certain changes in capitalization of PRGX) are otherwise set forth in this Option Agreement. In the event that there is any inconsistency between the provisions of this Option Agreement and of the Plan, the provisions of the Plan shall govern. 3. Exercise Price of the Option. The exercise price for the Option Shares is $_______ per share, the closing price of the Common Stock on the NASDAQ National Market on the Grant Date (the "Exercise Price"). 4. Vesting of the Option. Subject to the earlier expiration or termination of this Option in accordance with its terms, the Option Shares granted under this Option Agreement will be exercisable as follows: (a) Time-Vested Option Shares. The Time-Vested Option Shares will become exercisable on the 2006 Relevant Date, subject to subparagraph 4(d) and conditioned upon Director's membership on the board of directors of PRGX (the "Board") as of that date. For purposes of this Option Agreement, the "2006 Relevant Date" means the date that is the earlier of the date of the PRGX 2006 annual meeting of shareholders and June 30, 2006; the "2007 Relevant Date" means the date that is the earlier of the date of the PRGX 2007 annual meeting of shareholders and June 30, 2007; and the "2008 Relevant Date" means the date that is the earlier of the date of the PRGX 2008 annual meeting of shareholders and June 30, 2008. (b) Performance-Based Option Shares. Subject to subparagraphs 4(c) and 4(d), and subject to Director's continued membership on the Board, the Performance-Based Option Shares will become exercisable in three Tiers, as follows: (1) 100,000 Performance-Based Option Shares will become exercisable upon attainment by PRGX, at any time following the 2006 Relevant Date (but prior to termination or expiration of this Option pursuant to Section 7), of a Market Price (as defined below) per share of the Common Stock of not less than $4.50 per share for 45 consecutive trading days ("Tier 1"); (2) 100,000 Performance-Based Option Shares will become exercisable upon attainment by PRGX, at any time following the 2006 Relevant Date (but prior to termination or expiration of this Option pursuant to Section 7), of a Market Price per share of the Common Stock of not less than $6.50 per share for 45 consecutive trading days ("Tier 2"); and (3) 100,000 Performance-Based Option Shares will become exercisable upon attainment by PRGX, at any time following the 2007 Relevant Date (but prior to termination or expiration of this Option pursuant to Section 7), of a Market Price per share of the Common Stock of not less than $8.00 per share for 45 consecutive trading days ("Tier 3"), ($4.50 per share, $6.50 per share and $8.00 per share being referred to herein as the "Price Target" for Tier 1, Tier 2 and Tier 3, respectively). For purposes of this Option Agreement, "Market Price" means with respect to shares of Common Stock the daily closing price as reported by the NASDAQ National Market, or national securities exchange on which shares of Common Stock are then listed (or, if shares of Common Stock are not then quoted on the NASDAQ National Market or listed on a national securities exchange, the daily closing price reported in the over-the-counter market). (c) Discretionary Acceleration of Exercisability. The Compensation Committee of the Board (the "Compensation Committee") (excluding Director, if he is then serving on such committee) may, at the direction of the Nominating and Corporate Governance Committee of the Board (excluding Director, if he is then serving on such committee), except as provided in subparagraph 4(d), accelerate the exercisability of all or a portion of the Performance-Based Option Shares without regard to whether the requirements for exercisability thereof in subparagraph 4(b) have been met. (d) Mandatory Acceleration of Exercisability. (i) On the 2007 Relevant Date, (A) if the Price Target for Tier 1 has been exceeded for 45 consecutive trading days, but the Price Target for Tier 2 has not been achieved or exceeded for 45 consecutive trading days, the Option shall automatically become exercisable for a number of shares included in Tier 2 equal 2 to 100,000 multiplied by the quotient of dividing (1) the result of subtracting 4.50 from the highest Market Price achieved by the Common Stock for forty-five consecutive trading days at any time after the Grant Date by (2) 2.00; and (B) if the Price Target for Tier 2 has been exceeded for 45 consecutive trading days, but the Price Target for Tier 3 has not been achieved or exceeded for 45 consecutive trading days, the Option shall automatically become exercisable for a number of shares included in Tier 3 equal to 100,000 multiplied by the quotient of dividing (1) the result of subtracting 6.50 from the highest Market Price achieved by the Common Stock for forty-five consecutive trading days at any time after the Grant Date by (2) 1.50. An acceleration of vesting pursuant to this subparagraph 4(d)(i) shall not prevent vesting (without duplication) pursuant to subparagraph 4(b) upon satisfaction of the Price Target conditions set forth therein. (ii) In the event Director's membership on the Board terminates due to Director's death or Disability (as defined in subparagraph 4(d)(iv)), (A) with respect to the Time-Vested Option Shares, the Option shall automatically become exercisable for a number of Time-Vested Option Shares equal to 150,000 multiplied by the quotient of dividing (1) the actual number of days after the Grant Date that Director served as a member of the Board by (2) 365 (the "2006 Quotient"); and (B) with respect to the Performance-Based Option Shares, (1) if the Price Target for Tier 1 has been achieved for 45 consecutive trading days, but termination of Director's membership on the Board occurs prior to the date that is 45 trading days after the 2006 Relevant Date, the Option shall automatically become exercisable for a number of shares included in Tier 1 equal to 100,000 multiplied by the 2006 Quotient, (2) if the Price Target for Tier 2 has been achieved for 45 consecutive trading days, but termination of Director's membership on the Board occurs prior to the date that is 45 trading days after the 2006 Relevant Date, the Option shall automatically become exercisable for a number of shares included in Tier 2 equal to 100,000 multiplied by the 2006 Quotient, and (3) if the Price Target for Tier 3 has been achieved for 45 consecutive trading days, but termination of Director's membership on the Board occurs prior to the date that is 45 trading days after the 2007 Relevant Date, the Option shall automatically become exercisable for a number of shares included in Tier 3 equal to 100,000 multiplied by the quotient of dividing (x) the actual number of days after the Grant Date that Director served as a member of the Board by (y) 730. (iii) Upon a Change in Control (as defined in subparagraph 4(d)(iv)) or if PRGX ceases to be a public company with reporting obligations under the Securities Exchange Act of 1934, as amended, (A) the Option will automatically become exercisable with respect to all Time-Vested Option Shares; (B) the Option will automatically become exercisable with respect to all Performance-Based Option Shares included in a Tier for which the applicable Price Target is exceeded by the Transaction Price (as defined in subparagraph 4(d)(iv)); and (C) (1) if the Transaction Price exceeds the Price Target for Tier 1 but is less than the Price Target for Tier 2, the Option shall automatically become exercisable for a number of shares included in Tier 2 equal to 100,000 multiplied by the quotient of dividing (x) the result of subtracting 4.50 from the Transaction Price by (y) 2; and (2) if the Transaction Price exceeds the Price Target for Tier 2 but is less than the Price Target for Tier 3, the Option shall automatically become exercisable for a number of shares included in Tier 3 equal to 100,000 multiplied by the quotient of dividing (x) the result of subtracting 6.50 from the Transaction Price by (y) 1.50. 3 (iv) For purposes of this Option Agreement: (A) "Disability" means Director's inability or expected inability (or a combination of both) to perform the duties of Non-Executive Chairman described in the Retainer Agreement due to an illness, accident or any other physical or mental incapacity for an aggregate of 90 days within any period of 180 consecutive days during which the Retainer Agreement is in effect, as determined in good faith by the Board (excluding Director); (B) "Change in Control" means the occurrence of any of the following events: (i) the acquisition of beneficial ownership of a majority of the outstanding voting stock of PRGX by any person (other than PRGX, a subsidiary of PRGX or any person that, on the date of this Option Agreement, beneficially owned not less than four million shares of the common stock of PRGX) or any two or more persons (other than persons that, on the date of this Option Agreement, beneficially owned not less than four million shares of the common stock of PRGX) acting as a partnership, limited partnership, syndicate or other group, entity or association acting in concert for the purpose of voting, acquiring, holding, or disposing of voting stock of PRGX; at any time during any period of two consecutive years (not including any period prior to the date of this Option Agreement, individuals who at the beginning of such period constituted the Board, and any new directors, whose election by the Board or nomination for election by the holders of the voting stock of PRGX was approved by a vote of at least two-thirds of the directors of PRGX then still in office who either were directors of PRGX at the beginning of the period or whose election or nomination for election was previously so approved (the "Current Directors"), cease for any reason to constitute a majority thereof, (iii) a merger or a consolidation of PRGX with or into another corporation or entity, other than (A) a merger or consolidation with a subsidiary of PRGX, or (B) a merger or consolidation in which the holders of voting stock of PRGX immediately before the merger hold as a class immediately after the merger at least a majority of all outstanding voting power of the surviving or resulting corporation or its parent, the Current Directors constitute at least a majority of the board of directors of such surviving or resulting corporation or its parent, and such surviving or resulting corporation or its parent expressly assume and agree to perform the obligations of the PRGX under this Option Agreement; (iv) a statutory exchange of shares of one or more classes or series of outstanding voting stock of PRGX for cash, securities, or other property, other than an exchange in which the holders of voting stock of PRGX immediately before the exchange hold as a class immediately after the exchange at least a majority of all outstanding voting power of the entity with which PRGX stock is being exchanged, the Current Directors constitute at least a majority of the board of directors of such entity, and such entity expressly assumes and agrees to perform the obligations of the PRGX under this Option Agreement; (v) the sale or other disposition of all or substantially all of the assets of PRGX, in one transaction or a series of transactions, other than a sale or disposition in which the holders of voting stock of PRGX immediately before the sale or disposition hold as a class immediately after the exchange at least a majority of all outstanding voting power of the entity to which the assets of PRGX are being sold, the Current Directors constitute at least a majority of the board of directors of such entity, and such entity expressly assumes and agrees to perform the obligations of the PRGX under this Option Agreement; or (vi) the liquidation or dissolution of PRGX; and (C) "Transaction Price" means the per-share price consideration for the Common Stock payable to PRGX's public shareholders in connection with the transaction resulting in, as applicable, (i) the Change in Control or (ii) PRGX ceasing to be a public company with reporting obligations under the Securities Exchange Act of 1934, as amended, or, in the case of clause (ii), if there is no transaction, the Market Price on the last trading day preceding such event. For 4 purposes of determining the Transaction Price, any non-cash consideration to be received by PRGX's public shareholders will be valued by the Compensation Committee (excluding Director, if he is then serving on such committee), in good faith. (v) Except as otherwise provided in subparagraphs 4(c), 4(d)(ii) and 4(d)(iii), upon termination of Director's membership on the Board, no additional Option Shares shall become exercisable. 5. Method of Exercise of Option. (a) To the extent then exercisable, Director may exercise the Option in whole or in part; except that no single exercise of the Option is to be for less than 100 Option Shares, unless at the time of the exercise, the maximum number of Option Shares available for purchase under the Option is less than 100 Option Shares. In no event is the Option to be exercised for a fractional share of Common Stock. (b) To exercise the Option, Director shall give written notice to PRGX stating the number of shares for which the Option is being exercised and the intended manner of payment. The date of this notice shall be the exercise date. The notice must be accompanied by payment in full of the aggregate Exercise Price, either by cash, check, note or any other instrument acceptable to the Compensation Committee (excluding Director, if he is then serving on such committee). Payment in full or in part may also be made in the form of shares of Common Stock already owned by Director based, in each case, on the Market Price of the shares of Common Stock on the date the Option is exercised; except that in no event is payment in full or in part for the exercise of an Option to be made with any Option Shares that, as of the date of exercise of the Option, have been owned by Director less than six months. If the payment is in the form of shares of Common Stock, then the certificate or certificates representing the those shares must be duly executed in blank by Director or must be accompanied by a stock power duly executed in blank suitable for purposes of transferring those shares to PRGX. Fractional shares of Common Stock will not be accepted in payment of the purchase price of Option Shares. PRGX shall not issue Option Shares until full payment for them has been made. (c) As soon as practicable upon PRGX's receipt of Director's notice of exercise and payment, PRGX shall direct the due issuance of the shares so purchased. (d) As a further condition precedent to the exercise of this Option in whole or in part, Director shall comply with all regulations and the requirements of any regulatory authority having control of, or supervision over, the issuance of the shares of Common Stock and accordingly shall execute any documents that the Board (excluding Director), in its sole discretion, deems necessary or advisable to effect such compliance. (e) In the case of Director's death, the Option, to the extent exercisable, may be exercised by the executor or administrator of Director's estate or by any person or persons who have acquired the Option directly from Director by bequest or inheritance. 6. Non-Transferability of Options. Director shall not assign or transfer the Option, other than by will or the laws of descent and distribution. During 5 Director's lifetime, only Director (or, in the event of legal incapacity or incompetency, Director's guardian or legal representative) may exercise the Option. 7. Termination of Option. (a) On the date Director's membership on the Board terminates for any reason, any portion of the Option not then exercisable (after taking into account the provisions of subparagraphs 4(c)and 4(d)) shall terminate automatically and without further notice at the close of business on such date. (b) This Option Agreement and any exercisable portion of the Option not already exercised will terminate automatically and without further notice at the close of business on the earlier of: (i) the seventh anniversary of the Grant Date and (ii)(A) if Director's service as Non-Executive Chairman terminates prior to the 2006 Relevant Date, the date that is the number of days after cessation of Director's membership on the Board equal to 15 multiplied by the number of months (rounded to the nearest month) Director serves as Non-Executive Chairman; (B) if Director's service as Non-Executive Chairman terminates on or after the 2006 Relevant Date, but prior to the 2007 Relevant Date, the date that is the first anniversary of the termination of Director's membership on the Board; (C) if Director's service as Non-Executive Chairman terminates on or after the 2007 Relevant Date, but prior to the 2008 Relevant Date, the date that is 18 months after the date of the termination of Director's membership on the Board; or (D) if Director's service as Non-Executive Chairman terminates on or after the 2008 Relevant Date, the date that is the second anniversary of the termination of Director's membership on the Board. (c) In no event may the Option be exercised, in whole or in part, after termination pursuant to subparagraphs 7(a) or 7(b). 8. Acknowledgment of Receipt of Plan Materials. PRGX has provided to Director, and Director hereby acknowledges receipt of, concurrent with execution of this Option Agreement, a copy of the Plan, a copy of the prospectus summarizing the Plan, and a copy of PRGX's 2004 annual report to shareholders. 9. Interpretation of this Option Agreement. All decisions and interpretations made by the Board (excluding Director) or the Compensation Committee (excluding Director, if he is then serving on such committee)with regard to any question arising under this Option Agreement will be binding and conclusive on PRGX and Director and any other person entitled to exercise the Option as provided for in this Option Agreement. 10. Choice of Law. This Option Agreement is to be governed by the internal law, and not the laws of conflicts, of the State of Georgia. 11. Successors and Assigns. Subject to paragraph 6, this Option Agreement is to bind and inure to the benefit of and be enforceable by Director, PRGX and their respective heirs, executors, personal representatives, successors and assigns. 12. Notices. Any notice provided for in this Option Agreement must be in writing and is to be either personally delivered, sent by reputable overnight carrier or mailed by first class mail, return receipt requested, to the recipient at the address indicated as follows: 6 Notices to Director: David A. Cole 58 Finch Forest Trail, N.W. Atlanta, Georgia 30327 Notices to PRGX: PRG-Schultz International, Inc. 600 Galleria Parkway Suite 100 Atlanta, Georgia 30339 Attn: General Counsel or any other address or to the attention of any other person as the recipient party shall have specified by prior written notice to the sending party. Any notice under this Option Agreement will be deemed to have been given when so delivered, sent or mailed. 13. Severability. Whenever possible, each provision of this Option Agreement is to be interpreted in a manner as to be effective and valid under applicable law, but if any provision of this Option Agreement is held to be invalid, illegal or unenforceable in any respect under any applicable law or rule in any particular jurisdiction, that invalidity, illegality or unenforceability is not to affect any other provision or any other jurisdiction, and this Option Agreement shall be reformed, construed and enforced in the particular jurisdiction as if the invalid, illegal or unenforceable provision had never been contained herein. 14. Complete Agreement. This Option Agreement embodies the complete agreement and understanding between the parties with respect to the subject matter hereof and effective as of its date supersedes and preempts any prior understandings, agreements or representations by or between the parties, written or oral, that may have related to the subject matter hereof in any way. 15. Amendment and Waiver. Subject to the next sentence, the provisions of this Option Agreement may be amended or waived only with the prior written consent of PRGX and Director, and no course of conduct or failure or delay in enforcing the provisions of this Option Agreement is to affect the validity, binding effect or enforceability of this Option Agreement. PRGX unilaterally may waive any provision of this Option Agreement in writing to the extent that the waiver does not adversely affect the interests of Director under this Option Agreement, but the waiver is not to operate as or be construed to be a subsequent waiver of the same provision or a waiver of any other provision of this Option Agreement. [ SIGNATURE PAGE TO FOLLOW ] 7 The parties are signing this Option Agreement as of the date stated in the introductory clause. PRG-SCHULTZ INTERNATIONAL, INC. By: ------------------------------------ Name: Title: --------------------------------------- David A. Cole [ Signature Page to Option Agreement ] EXHIBIT B INDEMNIFICATION AGREEMENT INDEMNIFICATION AGREEMENT This Indemnification Agreement (this "Agreement") is entered into as of July __, 2005, between PRG-SCHULTZ INTERNATIONAL, INC., a Georgia corporation (the "Corporation"), and DAVID A. COLE (the "Indemnitee"). Indemnitee is the non-executive chairman of the board of directors and a director of the Corporation, and in such capacity is performing a valuable service for the Corporation. Indemnitee is willing to serve, continue to serve, and take on additional service for or on behalf of the Corporation on the condition that he be indemnified as herein provided. It is intended that Indemnitee shall be paid promptly by the Corporation all amounts necessary to effectuate in full the indemnity provided herein. Therefore the parties agree as follows: 1. Certain Definitions. (a) References to the "Corporation" shall include any corporation which is a parent corporation or a subsidiary corporation with respect to PRG-Schultz International, Inc. within the meaning of Section 425(e) or (f) of the Internal Revenue Code of 1986, as amended, and shall also include, in addition to the resulting corporation, any constituent corporation (including any constituent of a constituent) absorbed in a consolidation or merger which, if its separate existence had continued, would have had power and authority to indemnify its directors, officers, and employees or agents, so that any person who is or was a director, officer, employee or agent of such constituent corporation, or is or was serving at the request of such constituent corporation as a director, officer, employee or agent of another corporation, partnership, joint venture, trust or other enterprise, shall stand in the same position under this Agreement with respect to the resulting or surviving corporation as he would have with respect to such constituent corporation if its separate existence had continued. (b) "Disinterested Director" shall mean a director of the Corporation who is not a party to the Proceeding in respect of which indemnification is being sought by Indemnitee. (c) "Expenses" shall mean all direct and indirect costs (including, without limitation, attorneys' fees, retainers, court costs, costs of bonds, transcripts, fees of experts, witness fees, travel expenses, duplicating costs, printing and binding costs, telephone charges, postage, delivery service fees, and all other disbursements or out-of-pocket expenses) actually and reasonably incurred in connection with a Proceeding or establishing or enforcing a right to indemnification under this Agreement, applicable law or otherwise; provided, however, that "Expenses" shall not include any Liabilities. (d) "Indemnification Period" shall mean the period of time during which Indemnitee has served and shall continue to serve as a director of the Corporation, and thereafter so long as Indemnitee shall be subject to any possible Proceeding arising out of acts or omissions of Indemnitee as a director or as an officer of the Corporation. (e) "Liabilities" shall mean liabilities of any type whatsoever including, but not limited to, any judgments, fines, ERISA excise taxes and penalties, penalties and amounts paid or obligated to be paid in settlement (including all interest assessments and other charges paid or payable in connection with or in respect of such judgments, fines, penalties or amounts paid in settlement and any sums paid in respect of any deductible under any policies of directors' and officers' liability insurance) of any Proceeding. (f) "Nonreimbursable Liability" shall mean any expenses or liability incurred in a proceeding in which Indemnitee is adjudged liable, in a final and non-appealable judgment, to the Corporation or is subjected to injunctive relief in favor of the Corporation: (i) for any appropriation, in violation of his duties, of any business opportunity of the Corporation; (ii) for acts or omissions which involve intentional misconduct or a knowing violation of law; (iii) for the types of liability set forth in Georgia Business Corporation Code Section 14-2-832; and (iv) for any transaction from which he received an improper personal benefit. (g) "Proceeding" shall mean any threatened, pending or completed action, claim, suit, arbitration, alternate dispute resolution mechanism, investigation, administrative hearing or any other proceeding whether civil, criminal, administrative, arbitrative or investigative, whether formal or informal, including any appeal therefrom. (h) For purposes of this Agreement, references to "other enterprises" shall include employee benefit plans and trusts; references to "fines" shall include any excise taxes assessed on a person with respect to any employee benefit plan; and references to "serving at the request of the Corporation" shall include any service as a director, officer, employee or agent of the Corporation which imposes duties on, or involves services by, such director, officer, employee, or agent with respect to an employee benefit plan or trust, its participants or beneficiaries; and a person who acted in good faith and in a manner he reasonably believed to be in the interest of the participants and beneficiaries of an employee benefit plan or trust shall be deemed to have acted in a manner "not opposed to the best interests of the Corporation" as referred to in this Agreement. 2. Services by Indemnitee. Indemnitee agrees to serve as a director and/or officer of the Corporation so long as he is duly appointed or elected and qualified in accordance with the applicable provisions of the Articles of Incorporation and By-laws of the Corporation (as each may be amended from time to time) or any subsidiary of the Corporation and until such time as he resigns or fails to stand for election or is removed from his position. Indemnitee may at any time and for any reason resign or be removed from such position (subject to any other contractual obligation or other obligation imposed by operation of law), in which event the Corporation shall have no obligation under this Agreement to continue Indemnitee in any such position. 2 3. Indemnification. (a) The Corporation shall indemnify Indemnitee, to the fullest extent permitted by applicable law, whenever he is or was a party or is threatened to be made a party to any Proceeding, including without limitation any such Proceeding brought by or in the right of the Corporation, because he is or was the non-executive chairman of the board of directors or a director of the Corporation or is or was serving at the request of the Corporation as a director, manager, officer, employee, agent, trustee or plan fiduciary of another corporation, partnership, limited liability company, joint venture, trust or other enterprise, or because of anything done or not done by Indemnitee in such capacity, against Expenses and Liabilities (including the costs of any investigation, defense, settlement or appeal) actually and reasonably incurred by Indemnitee or on his behalf in connection with such Proceeding, if he acted in good faith and in a manner he reasonably believed to be in or not opposed to the best interests of the Corporation, and, with respect to any criminal action or proceeding, had no reasonable cause to believe his conduct was unlawful. The termination of any action, suit or proceeding by judgment, order, settlement, conviction, or upon a plea of nolo contendere or its equivalent, shall not, of itself, create a presumption that Indemnitee did not act in good faith and in a manner which he reasonably believed to be in or not opposed to the best interests of the Corporation, and, with respect to any criminal action or proceeding, had reasonable cause to believe that his conduct was unlawful. The foregoing notwithstanding, in no event shall the Corporation indemnify Indemnitee against any Nonreimbursable Liability. (b) Without in any way limiting the foregoing, to the extent that Indemnitee has been successful on the merits or otherwise in defense of any Proceeding, he shall be indemnified against Expenses and Liabilities actually and reasonably incurred by him in connection therewith. 4. Mandatory Advancement of Expenses. The Corporation shall advance to Indemnitee from time to time all reasonable Expenses incurred by or on behalf of Indemnitee within fifteen (15) days after the Corporation's receipt of a written request for an advance of Expenses by Indemnitee, whether prior to or after final disposition of a Proceeding. The written request for an advancement of any and all Expenses under this Section shall contain reasonable detail of the Expenses incurred by Indemnitee. The foregoing notwithstanding, the Corporation shall not be obligated to advance Expenses hereunder unless it shall have received from Indemnitee (a) a written affirmation of Indemnitee's good faith belief that his conduct did not constitute behavior which could result in Nonreimbursable Liability and (b) a written undertaking to repay any advances if it is ultimately determined that he is not entitled to indemnification pursuant to this Agreement. 5. Limitations. The foregoing indemnity and advancement of Expenses shall apply only to the extent that Indemnitee has not been indemnified and reimbursed pursuant to such insurance as the Corporation may maintain for Indemnitee's benefit or pursuant to the Articles of Incorporation or Bylaws of the Corporation (as each may be amended from time to time); provided, however, that notwithstanding the availability of such other indemnification and reimbursement pursuant to such Corporation-maintained policies, Indemnitee may, with the Corporation's consent, claim indemnification and advancement of Expenses 3 pursuant to this Agreement by assigning Indemnitee's claims under such insurance to the Corporation to the extent Indemnitee is paid by the Corporation. 6. Insurance. The Corporation may, but is not obligated to, purchase and maintain insurance to protect itself and/or Indemnitee against Expenses and Liabilities in connection with Proceedings to the fullest extent permitted by applicable laws. The Corporation may, but is not obligated to, create a trust fund, grant a security interest or use other means (including, without limitation, a letter of credit) to ensure the payment of such amounts as may be necessary to effect indemnification or advancement of Expenses as provided in this Agreement. 7. Procedure for Determination of Entitlement to Indemnification. (a) Whenever Indemnitee believes that he is entitled to indemnification pursuant to this Agreement, Indemnitee shall submit a written request for indemnification to the Corporation. Any request for indemnification shall include sufficient documentation or information reasonably available to Indemnitee to support his claim for indemnification. Indemnitee shall submit such claim for indemnification within a reasonable time not to exceed three years after any judgment, order, settlement, dismissal, arbitration award, conviction, acceptance of a plea of nolo contendere or its equivalent, final termination or other disposition or partial disposition of any Proceeding, whichever is the latest event for which Indemnitee requests indemnification. If a determination is required by the Corporation that Indemnitee is entitled to Indemnification, and the Corporation fails to respond within sixty (60) days of such request, the Corporation shall be deemed to have approved the request. Any indemnification or advance of expenses which is due and payable to Indemnitee shall be made promptly and in any event within thirty (30) days after the determination that Indemnitee is entitled to such amounts. (b) If such a determination is required, the Indemnitee shall be entitled to select the forum in which Indemnitee's request for indemnification will be heard, which selection shall be included in the written request for indemnification required in Section 7(a). The forum shall be any one of the following: (i) The shareholders of the Corporation; or (ii) A majority vote of the Board of Directors consisting of Disinterested Directors (even though less than a quorum); provided, however, that if there are no Disinterested Directors, or if the Disinterested Directors so direct, the determination shall be made by independent legal counsel in a written opinion. If Indemnitee fails to make such designation, his claim shall be determined by an appropriate court of the State of Georgia or a federal court located in the State of Georgia. 8. Fees and Expenses of Counsel. The Corporation agrees to pay the reasonable fees and expenses of independent legal counsel should such counsel be retained to make a determination of Indemnitee's entitlement to indemnification pursuant to Section 7 of this Agreement. 4 9. Remedies of Indemnitee. (a) In the event that (i) a determination pursuant to Section 7 hereof is made that Indemnitee is not entitled to indemnification, (ii) advances of Expenses are not made pursuant to this Agreement for any reason, (iii) payment has not been timely made following a determination of entitlement to indemnification pursuant to this Agreement, or (iv) Indemnitee otherwise seeks enforcement of this Agreement, Indemnitee shall be entitled to a final adjudication of his rights in an appropriate court. The Corporation shall not oppose Indemnitee's right to seek any such adjudication. (b) In the event that a determination that Indemnitee is not entitled to indemnification, in whole or in part, has been made pursuant to Section 7 hereof, the decision in the judicial proceeding provided in paragraph (a) of this Section 9 shall be made de novo and Indemnitee shall not be prejudiced by reason of a determination that he is not entitled to indemnification. (c) If a determination that Indemnitee is entitled to indemnification has been made pursuant to Section 7 hereof or otherwise pursuant to the terms of this Agreement, the Corporation shall be bound by such determination in the absence of (i) misrepresentation of a material fact by Indemnitee or (ii) a specific finding (which has become final) by an appropriate court that all or any part of such indemnification is expressly prohibited by law. (d) In any court proceeding pursuant to this Section 9, the Corporation shall be precluded from asserting that the procedures and presumptions of this Agreement are not valid, binding and enforceable. The Corporation shall stipulate in any such court that the Corporation is bound by all the provisions of this Agreement and is precluded from making any assertion to the contrary. 10. Modification, Waiver, Termination and Cancellation. No supplement, modification, termination, cancellation or amendment of this Agreement shall be binding unless executed in writing by both of the parties hereto. No waiver of any of the provisions of this Agreement shall be deemed or shall constitute a waiver of any other provisions hereof (whether or not similar), nor shall such waiver constitute a continuing waiver. 11. Notice by Indemnitee and Defense of Claim. Indemnitee shall promptly notify the Corporation in writing upon being served with any summons, citation, subpoena, complaint, indictment, information or other document relating to any matter, whether civil, criminal, administrative, arbitrative or investigative, but the omission to so notify the Corporation will not relieve it from any liability which it may have to Indemnitee if such omission does not prejudice the Corporation's rights. If such omission does prejudice the Corporation's rights, the Corporation will be relieved from liability only to the extent of such prejudice. With respect to any Proceeding as to which Indemnitee notifies the Corporation of the commencement thereof: (a) The Corporation will be entitled to participate therein at its own expense; and (b) The Corporation jointly with any other indemnifying party similarly notified will be entitled to assume the defense thereof, with counsel reasonably satisfactory to Indemnitee; provided, however, that the Corporation shall not be entitled to assume the defense of any Proceeding if Indemnitee shall have 5 reasonably concluded that there may be a conflict of interest between the Corporation and Indemnitee with respect to such Proceeding. After notice from the Corporation to Indemnitee of its election to assume the defense thereof, the Corporation will not be liable to Indemnitee under this Agreement for any Expenses subsequently incurred by Indemnitee in connection with the defense thereof, other than reasonable costs of investigation or as otherwise provided below. Indemnitee shall have the right to employ his own counsel in such Proceeding but the fees and expenses of such counsel incurred after notice from the Corporation of its assumption of the defense thereof shall be at the expense of Indemnitee unless: (i) The employment of counsel by Indemnitee has been authorized by the Corporation; (ii) Indemnitee shall have reasonably concluded that counsel engaged by the Corporation may not adequately represent Indemnitee; (iii) The Corporation shall not in fact have employed counsel to assume the defense in such Proceeding or shall not in fact have assumed such defense and be acting in connection therewith with reasonable diligence; in each of which cases the fees and expenses of such counsel shall be at the expense of the Corporation. (c) The Corporation shall not settle any Proceeding in any manner which would impose any penalty, liability, obligation or limitation on Indemnitee without Indemnitee's written consent; provided, however, that Indemnitee will not unreasonably withhold his consent to any proposed settlement. 12. Notices. All notices, requests, consents and other communications hereunder shall be in writing and shall be sent by Federal Express or other overnight or same day courier service providing a return receipt (and shall be effective when received or when refused, as evidenced on the return receipt) to the following addresses: To Corporation: PRG-Schultz International, Inc. 600 Galleria Parkway, Suite 100 Atlanta, Georgia 30339 Attention: General Counsel To Indemnitee: David A. Cole 58 Finch Forest Trail, N.W. Atlanta, Georgia 30327 13. Nonexclusivity. The rights of Indemnitee hereunder shall not be deemed exclusive of any other rights to which Indemnitee may now or in the future be entitled under the Georgia Business Corporation Code, the Corporation's Articles 6 of Incorporation or By-Laws (as each may be amended from time to time), or any agreements, vote of shareholders, resolution of the Board of Directors or otherwise, except that the parties hereby declare that the Indemnification Agreement, dated February 26, 2003, between the Indemnitee and the Corporation (the "2003 Agreement") is hereby terminated and such agreement is to have no further effect. The provisions of this Agreement are hereby deemed to be a contract right between the Corporation and the Indemnitee and any repeal of the relevant provisions of the General Corporation law of the State of Georgia, or other applicable law, shall not affect this Agreement or its enforceability. 14. Binding Effect, Duration and Scope of Agreement. This Agreement shall be binding upon and inure to the benefit of and be enforceable by the parties hereto and their respective successors and assigns (including any direct or indirect successor, by purchase, merger, consolidation or otherwise, to all or substantially all of the business or assets of the Corporation), heirs and personal and legal representatives. This Agreement shall continue in effect during the Indemnification Period, regardless of whether Indemnitee continues to serve as a director or as an officer. 15. Severability. If any provision or provisions of this Agreement (or any portion thereof) shall be held to be invalid, illegal or unenforceable for any reason whatsoever: (a) the validity, legality and enforceability of the remaining provisions of this Agreement shall not in any way be affected or impaired thereby; and (b) to the fullest extent legally possible, the provisions of this Agreement shall be construed so as to give effect to the intent of any provision held invalid, illegal or unenforceable. 16. Governing Law and Interpretation of Agreement. This Agreement shall be governed by and construed and enforced in accordance with the laws of the State of Georgia, as applied to contracts between Georgia residents entered into and to be performed entirely within Georgia. If the laws of the State of Georgia are hereafter amended to permit the Corporation to provide broader indemnification rights than said laws permitted the Corporation to provide prior to such amendment, the rights of indemnification and advancement of expenses conferred by this Agreement shall automatically be broadened to the fullest extent permitted by the laws of the State of Georgia, as so amended. 17. Entire Agreement. This Agreement represents the entire agreement between the parties hereto, and there are no other agreements, contracts or understandings between the parties hereto with respect to the subject matter of this Agreement (including the 2003 Agreement), except as specifically referred to herein or as provided in Section 13 hereof. 18. Partial Indemnification. If Indemnitee is entitled under any provision of this Agreement to indemnification by the Company for some or a portion of the Expenses, judgments, fines or penalties actually and reasonably incurred by him in the investigation, defense, appeal or settlement of any Proceeding but not, however, for the total amount thereof, the Company shall nevertheless indemnify Indemnitee for the portion of such Expenses, judgments, fines or penalties to which Indemnitee is entitled. 7 19. Counterparts. This Agreement may be executed in one or more counterparts, each of which shall for all purposes be deemed to be an original but all of which together shall constitute one and the same Agreement. [ SIGNATURE PAGE TO FOLLOW ] 8 IN WITNESS WHEREOF, the undersigned have executed this Agreement as of the date first written above. PRG-SCHULTZ INTERNATIONAL, INC. By: ----------------------------------- Name: Title: --------------------------------------- David A. Cole [ Signature Page to Indemnification Agreement ] EX-99.3 5 prg8k705ex993.txt EMPLOYMENT AGREEMENT EXHIBIT 99.3 EMPLOYMENT AGREEMENT This Employment Agreement (this "Agreement") is entered into as of July __, 2005 (the "Effective Date") among PRG-SCHULTZ USA, INC., a Georgia corporation (the "Company"), PRG-SCHULTZ INTERNATIONAL, INC., a Georgia corporation that owns all of the capital stock of the Company ("PRGX"), and JAMES B. MCCURRY ("Executive"). The parties agree as follows: 1. Certain Definitions. Certain words or phrases with initial capital letters not otherwise defined herein are to have the meanings set forth in paragraph 8. 2. Employment. The Company shall employ Executive, and Executive accepts employment with the Company, as of the Effective Date, upon the terms and conditions set forth in this Agreement for the period beginning on the Effective Date and ending as provided in paragraph 5 (the "Employment Period"). 3. Position and Duties. (a) During the Employment Period, Executive shall serve as the President and Chief Executive Officer of the Company and is to have the normal duties, responsibilities and authority of an executive serving in such position, subject to the power of the board of directors of the Company (the "Company Board") and the board of directors of PRGX (the "PRGX Board") to provide oversight and direction with respect to such duties, responsibilities and authority, either generally or in specific instances and consistent with such position. (b) During the Employment Period, the PRGX Board shall nominate Executive to serve as a member of the PRGX Board. Subject, as required, to reelection by PRGX's shareholders, Executive shall serve as a member of the PRGX Board, with no additional remuneration payable to Executive for that service. Upon the Date of Termination, Executive shall, at the PRGX Board's request, resign from the PRGX Board. (c) During the Employment Period, the PRGX Board shall appoint Executive to serve as president and chief executive officer of PRGX. Executive shall serve as the president and chief executive officer of PRGX, with no additional remuneration payable to Executive for that service. Upon the Date of Termination, Executive shall, at the PRGX Board's request, resign from the position of president and chief executive officer of PRGX. (d) Executive shall report to the Company Board and the PRGX Board. (e) During the Employment Period, Executive shall devote Executive's best efforts and Executive's full professional time and attention (except for permitted vacation periods and reasonable periods of illness or other incapacity) to the Business and affairs of the Company, its subsidiaries and affiliates. Executive shall perform Executive's duties and responsibilities to the best of Executive's abilities in a diligent, trustworthy, business-like and efficient manner. During the Employment Period, Executive shall not serve as a director or a principal of another company or any charitable or civic organization without the PRGX Board's prior consent, except that the PRGX Board hereby approves and consents to Executive's continued service on the board of directors of Interstate Hotels and Resorts, Inc. (or its successors) and on the board of trustees of The Galloway School, of Atlanta, Georgia. (f) Executive shall perform Executive's duties and responsibilities principally in the Atlanta, Georgia metropolitan area. (g) Executive shall acquire, through purchase on the open market, that number of shares of the Company's common stock as is required by any PRGX Board-approved share ownership program applicable to all of the Company's senior executives as may be in effect from time to time. Executive shall maintain this minimum ownership requirement at all times during the Employment Period in accordance with the provisions of the share ownership program. 4. Compensation and Benefits. (a) Salary. The Company agrees to pay Executive a salary during the Employment Period in installments based on the Company's payroll practices as may be in effect from time to time. The Company shall set Executive's initial salary at the rate of $500,000 per year ("Base Salary"). The Compensation Committee of the PRGX Board shall review Executive's Base Salary from time to time. The Compensation Committee of the PRGX Board may, in its sole discretion, increase Executive's Base Salary, but may decrease Executive's Base Salary only to the extent that the Company institutes a salary reduction generally and ratably applicable to all senior executives of the Company. If the Company modifies the Base Salary as defined, "Base Salary" in this Agreement is to refer to the modified Base Salary. (b) Annual Bonus. (i) For fiscal year 2005, Executive is entitled to receive a bonus equal to 70% of Base Salary, prorated based on the number of days actually employed during fiscal year 2005, payable to Executive in a lump sum not later than 75 days after the end of the fiscal year. (ii) For each fiscal year following fiscal year 2005 during the Employment Period, Executive shall be eligible to receive an annual bonus, with the annual bonus potential to be between 70% of Base Salary (i.e., 70% upon achievement of annual "target" performance goals) and a maximum of 140% of Base Salary (i.e., 140% upon achievement of annual "maximum" performance goals), with the "target" and "maximum" performance goals and bonus criteria to be defined and approved by the Compensation Committee of the PRGX Board in advance for each fiscal year. The Company shall pay any such annual bonus earned to Executive in a lump sum not later than 75 days after the end of the fiscal year. (c) Stock Options. Contemporaneously with Executive's entering into employment with the Company, PRGX shall grant Executive a stock option with respect to 2,000,000 shares of the common stock of PRGX, in accordance with a stock option agreement in the form attached hereto as Exhibit A and executed contemporaneously with this Agreement. 2 (d) Expense Reimbursement. The Company will reimburse Executive for all reasonable expenses incurred by Executive during the Employment Period in the course of performing Executive's duties under this Agreement in accordance with the Company's policies in effect from time to time with respect to travel, entertainment and other business expenses, and subject to the Company's requirements applicable generally with respect to reporting and documentation of such expenses. (e) Standard Executive Benefits Package. Executive is entitled during the Employment Period to participate, on the same basis as the Company's other senior executives, in the Company's Standard Executive Benefits Package. A summary of such benefits as in effect on the date of this Agreement is attached hereto as Exhibit B. (f) Vacation; Holidays. Executive is entitled to four weeks of paid vacation, without carryover for unused vacation, as well as paid holidays in accordance with the Company's policies in effect from time to time. (g) Indemnification. Contemporaneously with this Agreement, PRGX and Executive shall execute PRGX's standard form of Indemnification Agreement, in the form attached hereto as Exhibit C. (h) Professional Fees. Promptly following receipt of invoices therefor, the Company will reimburse Executive for Executive's reasonable professional fees and costs (and related disbursements) incurred in connection with Executive's negotiation and execution of this Agreement, in an amount not to exceed $15,000. (i) Additional Compensation/Benefits. The Compensation Committee of the PRGX Board, in its sole discretion, will determine any compensation or benefits to be provided to Executive during the Employment Period other than as set forth in this Agreement, including, without limitation, any future grant of stock options or other equity awards. (j) Disgorgement of Compensation. If the Company is required to prepare an accounting restatement due to its material noncompliance, as a result of misconduct, with any financial reporting requirement under the federal securities laws, to the extent required by law, Executive will reimburse the Company for (i) any bonus or other incentive-based or equity-based compensation received by Executive from the Company (including such compensation payable in accordance with this paragraph 4 and paragraph 6) during the 12-month period following the first public issuance or filing with the Securities and Exchange Commission (whichever first occurs) of the financial document embodying that financial reporting requirement; and (ii) any profits realized by Executive from the sale of the Company's securities during that 12-month period. (k) COBRA Reimbursement. Until the expiration of any applicable waiting periods necessary for Executive to commence participation in the Company's healthcare plans, the Company shall reimburse to Executive, upon Executive's written requests therefor from time to time, the amounts paid on account of premiums to FedEx Kinko's by Executive in connection with Executive's rights under COBRA (as defined below) to maintain the healthcare benefits provided to Executive under FedEx Kinko's healthcare plans. 3 5. Employment Period. (a) Subject to subparagraph 5(b), the Employment Period will commence on the Effective Date and will continue until, and will end upon, the third anniversary of the Effective Date; except that on the third anniversary of the Effective Date, unless either party shall have given the other 30-days' written notice otherwise, the Employment Period will be extended automatically for one additional year. (b) The Employment Period will end upon the first to occur of any of the following events: (i) Executive's death; (ii) the Company's termination of Executive's employment on account of Disability; (iii) the Company's termination of Executive's employment for Cause (a "Termination for Cause"); (iv) the Company's termination of Executive's employment without Cause (a "Termination without Cause"); (v) Executive's termination of Executive's employment for Good Reason (a "Termination for Good Reason"); or (vi) Executive's termination of Executive's employment for any reason other than Good Reason (a "Voluntary Termination"). (c) Any termination of Executive's employment under subparagraph 5(b) must be communicated by a Notice of Termination delivered by the Company or Executive, as the case may be, to the other party. (d) Executive will be deemed to have waived any right to a Termination for Good Reason based on the occurrence or existence of a particular event or circumstance constituting Good Reason unless Executive delivers a Notice of Termination within 90 days from the date Executive first became aware of the event or circumstance. 6. Post-Employment Period Payments. (a) At the Date of Termination, regardless of the reason for termination of employment, Executive will be entitled to (i) any Base Salary that has accrued but is unpaid, any annual bonus that has been earned but is unpaid, any reimbursable expenses that have been incurred but are unpaid, and any unexpired vacation days that have accrued under the Company's vacation policy but are unused, as of the end of the Employment Period, (ii) any plan benefits that by their terms extend beyond termination of Executive's employment (but only to the extent provided in any such benefit plan in which Executive has participated as a Company employee and excluding, except as hereinafter provided in paragraph 6, any Company severance pay program or policy) and (iii) reimbursement for any benefits to which Executive is entitled and has paid in accordance with Part 6 of Subtitle B of Title I of the Employee Retirement Income Security Act of 1974, as amended ("COBRA") (such reimbursement to be made upon Executive's written requests therefor from time to time). Except as specifically described in this subparagraph 6(a) and in the succeeding subparagraphs of this paragraph 6 (under the circumstances described in those succeeding subparagraphs), from and after the Date of Termination Executive shall cease to have any rights to salary, bonus, expense reimbursements or other benefits from the Company. 4 (b) If the Employment Period ends in accordance with paragraph 5 on account of Executive's death, Disability, Voluntary Termination or Termination for Cause, the Company will make no further payments to Executive except as contemplated in subparagraph 6(a). (c) Subject to subparagraph (2), if the Employment Period ends in accordance with paragraph 5 on account of a Termination without Cause or a Termination for Good Reason, Executive shall be entitled to the following: (1) a lump sum payment equal to either (i) in the event the Employment Period ends prior to the date that is 16 months after the Effective Date, 0.125 times the number of months in the Employment Period multiplied by Executive's Average Annual Compensation (as defined below) or (ii) in the event the Employment Period ends on or after the date that is 16 months after the Effective Date, 2 times Executive's Average Annual Compensation (for purposes hereof, "Average Annual Compensation" means (x) Executive's Base Salary for fiscal year 2005, if the Date of Termination occurs in fiscal year 2005, or the average of Executive's Base Salary in effect for the final two fiscal years in the Employment Period (including the fiscal year in which the Date of Termination occurs), if the Date of Termination occurs after December 31, 2005; plus (y) (A) if the Date of Termination occurs prior to January 1, 2006, 70% of Base Salary, prorated based on the number of days actually employed during fiscal year 2005; (B) if the Date of Termination occurs after December 31, 2005 but prior to January 1, 2007, 70% of Executive's Base Salary for fiscal year 2005; (C) if the Date of Termination occurs during fiscal year 2007, the actual annual bonus paid in respect of fiscal year 2006; or (D) if the Date of Termination occurs after December 31, 2007, the average of the actual annual bonuses paid or payable in respect of the two full fiscal years immediately preceding the fiscal year in which the Date of Termination occurs); and (2) continued participation in the Company's medical and dental plans, on the same basis (including cost) as active employees participate in such plans, until the earlier of (i) Executive's eligibility for any such coverage under another employer's or any other medical or dental insurance plans sponsored by a subsequent employer of Executive or (ii) the second anniversary of the Date of Termination; except that in the event that participation in any such plan is barred, the Company shall pay Executive on a monthly basis an amount that, following withholding for the application or imposition of any income or employment taxes, is equal to the amount of any premiums paid by Executive to obtain benefits (for Executive and his dependents) equivalent to the benefits he is entitled to receive under the Company's benefit plans. (d) The Company shall make no payments in accordance with subparagraph 6(c) if Executive declines to sign and return a Release Agreement or revokes the Release Agreement within the time provided in the Release Agreement. The Company shall make all payments required to be made in accordance with subparagraph 6(c) within 30 days after the end of any revocation period provided by the Release Agreement. (e) Executive is not required to mitigate the amount of any payment or benefit provided for in this Agreement by seeking other employment or otherwise. 7. Competitive Activity; Confidentiality; Non-solicitation. 5 (a) Acknowledgements and Agreements. Executive acknowledges and agrees that in the performance of Executive's duties to the Company during the Employment Period, Executive will be brought into frequent contact, either in person, by telephone or through the mails, with the Company's existing and potential customers and employees. Executive also agrees that any Trade Secrets and Confidential Information of the Company gained by Executive during Executive's association with the Company have been developed by the Company through substantial expenditures of time, effort and money and constitute the Company's valuable and unique property. Executive further understands and agrees that the foregoing makes it necessary, for the protection of the Business, that Executive not compete with the Company during the Employment Period and not compete with the Company for a reasonable period thereafter, as further provided in the following subparagraphs. (b) Confidentiality. During and after the Employment Period, Executive shall treat as confidential and shall not, without the Company's prior written approval, use (other than in the performance of Executive's designated duties for the Company) or disclose any Trade Secrets or Confidential Information. (c) Records. All records, notes, files, recordings, tapes, disks, memoranda, reports, price lists, client lists, drawings, plans, sketches, documents, equipment, apparatus, and like items, and all copies thereof, relating to the Business or any Trade Secrets or Confidential Information that may be prepared by Executive or that may be disclosed to or that may come into the possession of Executive during the Employment Period, are to be and remain the Company's sole and exclusive property. Executive shall promptly deliver to the Company the originals and all copies of any of the foregoing that are in Executive's possession, custody or control, at any time upon request from the Company. (d) Executive Inventions. (i) All Works are to be the Company's sole and absolute property, including all patent, copyright, trade secret, or other rights in respect thereof. Executive shall assign to Company all right, title, and interest in and to any and all Works, including all worldwide copyrights, patent rights, and all trade secret information embodied therein, in all media and including all rights to create derivative works thereof. Executive waives any and all rights Executive may have in any Works, including but not limited to the right to acknowledgement as author or moral rights. Executive shall not use or include in Works any patented, copyrighted, restricted or protected code, specifications, concepts, or trade secrets of any third party or any other information that Executive would be prohibited from using by any confidentiality, non-disclosure or other agreement with any third party. Executive shall fully and promptly disclose in writing to the Company any such Works as such Works may arise from time to time. (ii) Executive shall, without charge to the Company other than for reimbursement of Executive's reasonable out-of-pocket expenses, execute and deliver all such further documents and instruments, including applications for patents and copyrights, and perform such acts, at any time during or after the term of this Agreement as may be necessary or desirable, to obtain, maintain, and defend patents, copyrights, or other proprietary rights in respect of the 6 Works or to vest title to the Works in the Company, its successors, assigns, or designees. Without limiting the generality of the foregoing, Executive shall give all lawful testimony, during or after the term of Executive's employment, that may be required in connection with any proceedings involving any Works so assigned by Executive. Executive shall keep and maintain adequate and complete records (in the form of notes, laboratory notebooks, sketches, drawings, optical drives, hard drives and as may otherwise be specified by the Company) of all inventions and original works of authorship made by Executive (solely or jointly with others) in the course of employment with Company, with the Company's time, on the Company's premises, or using the Company's resources or equipment, which records are to be available to and remain the Company's sole property at all times. (e) Cooperation. Executive shall cooperate at all times to the extent and in the manner requested by the Company and at the Company's expense, in the prosecution or defense of any claims, litigation or other proceeding involving the Works, the Company's property or the Trade Secrets or Confidential Information. Executive shall comply with regulations, policies, and procedures established by the Company, including, without limitation, all regulations, policies, and procedures established for the purpose of protecting Trade Secrets and Confidential Information. (f) Agreement Not to Compete. During the Employment Period and for a period of two years from the Date of Termination, regardless of the reason for termination of employment, Executive shall not, without the Company's prior written consent, within the Restricted Territory, for Executive or on behalf of another, directly or indirectly, engage in any business for which Executive provides services that are the same or substantially similar to Executive's services for the Company (as described in paragraph 3) to or on behalf of a Competing Business. Executive acknowledges and agrees that Restricted Territory is the geographic area within which Executive performs services for the Company. (g) Agreement Not to Solicit Customers. During the Employment Period and for a period of two years from the Date of Termination, regardless of the reason for termination of employment, Executive shall not, without the Company's prior written consent, directly or indirectly, on Executive's own behalf or in the service or on behalf of others, (i) solicit or attempt to divert or appropriate to a Competing Business any customer or actual prospect of the Company with whom Executive dealt on the Company's behalf at any time during the 12-month period immediately preceding the Date of Termination, or (ii) solicit or attempt to divert or appropriate to a Competing Business, any customer or actual prospect of the Company with whom an employee that was directly supervised by Executive dealt on the Company's behalf at any time during the 12-month period immediately preceding the Date of Termination. (h) Agreement Not to Solicit Employees. During the Employment Period and for a period of two years from the Date of Termination, regardless of the reason for termination of employment, Executive shall not, without the Company's prior consent, directly or indirectly, on Executive's own behalf or in the service or on behalf of others, solicit, divert or recruit any Company employee to leave such employment, whether such employment is by written contract or at will. (i) Remedies. 7 (i) By virtue of the duties and responsibilities attendant to Executive's employment by the Company and the special knowledge of the Company's affairs, Business, clients, and operations that Executive has and will have as a consequence of Executive's employment, Executive acknowledges and agrees that irreparable loss and damage will be suffered by the Company if Executive should breach or violate any of the covenants and agreements contained in this paragraph 7. Therefore, in addition to any other remedies available to the Company, Executive acknowledges and agrees that the Company shall be entitled to an injunction to prevent a breach or contemplated breach by Executive of any of the covenants or agreements contained in this paragraph 7. (ii) The existence of any claim, demand, action or cause of action of Executive against the Company, whether predicated upon this Agreement or otherwise, is not to constitute a defense to the Company's enforcement of any of the covenants or agreements contained in paragraph 7. The Company's rights under this Agreement are in addition to, and not in lieu of, all other rights the Company may have at law or in equity to protect its confidential information, trade secrets and other proprietary interests. (j) Indirect Competition. Executive will be in violation of this paragraph 7 if Executive engages in any or all of the activities set forth in this paragraph 7 directly as an individual on Executive's own account, or indirectly as a partner, joint venturer, employee, agent, salesperson, consultant, officer and/or director of any firm, association, partnership, corporation or other entity, or as a shareholder of any corporation or the owner of the interests in any other entity, in which Executive or Executive's spouse, child or parent owns, directly or indirectly, individually or in the aggregate, more than 5% of the outstanding stock or other ownership interests. Ownership of a lesser percentage in any such entity, in and of itself, will not constitute a violation of this paragraph 7, so long as Executive does not engage in action prohibited in this paragraph 7 with regard to such entity. (k) Definition of "Company". For purposes of this paragraph 7, the "Company" includes any direct and indirect subsidiary, parent, affiliate, or related company of the Company. 8. Definitions. (a) "Business" means, with respect to the Company, (i) audit services (A) to identify and recover lost profits or, in the case of governmental agencies or programs, overpayments or erroneous or wrongful payments or reimbursements, from any source, including, without limitation, payment errors, missed or inaccurate discounts, allowances, or rebates, vendor pricing errors, or duplicate payments, or any other services substantially similar to or readily suitable for any such described services and (B) to identify expense containment opportunities; (ii) development and use of technology to provide such services; and (iii) provision of related consulting services, as further described in any and all Company marketing and sales manuals and materials as the same may be altered, amended, supplemented or otherwise changed from time to time. (b) "Cause" means, as determined by the PRGX Board in good faith: (i) a material breach of the duties and responsibilities of Executive or any written policies or directives of PRGX or the Company (other than as a result of 8 Disability) that is (A) willful or involves gross negligence, and (B) not remedied within 30 days after receipt of written notice from the Company that specifically identifies the manner in which such breach has occurred; (ii) Executive's commission of any felony that causes damage to the property, business or reputation of PRGX or the Company; (iii) Executive's engagement in a fraudulent or dishonest act; (iv) Executive's engagement in habitual insobriety or the use of illegal drugs or substances; (v) Executive's breach of Executive's fiduciary duties to PRGX or the Company; (vi) Executive's willful failure to cooperate, or willful failure to cause and direct the persons under Executive's management or direction, or employed by, or consultants or agents to, the Company or PRGX to cooperate, with all corporate investigations or independent investigations by the PRGX Board or the Company Board, all governmental investigations of the Company or PRGX and all orders involving Executive, the Company or PRGX entered by a court of competent jurisdiction; (vii) Executive's violation in any material respect of PRGX's Code of Conduct or PRGX's Code of Ethics for Senior Financial Officers or any successor codes; or (viii) Executive's engagement in activities prohibited by paragraph 7. Notwithstanding the foregoing, however, Executive shall not be deemed to have been terminated for Cause unless and until there shall have been delivered to Executive (i) a letter from the PRGX Board finding that, in the good faith opinion of the PRGX Board, Executive was guilty of the conduct set forth in any of the clauses of the preceding sentence and specifying the particulars thereof in detail and (ii) a copy of a resolution duly adopted by the affirmative vote of the members of the PRGX Board who are not officers of the Company at a meeting of the PRGX Board called and held for such purpose (after reasonable notice to Executive and an opportunity for Executive, together with Executive's counsel, to be heard before the PRGX Board), finding, in the good faith opinion of the PRGX Board, that Executive was guilty of such conduct and specifying the particulars thereof in detail. (c) "Change in Control" means the occurrence of any of the following events: (i) the acquisition of beneficial ownership of a majority of the outstanding voting stock of PRGX by any person (other than PRGX, a subsidiary of PRGX or any person that, on the Effective Date, beneficially owned not less than four million shares of the common stock of PRGX) or any two or more persons (other than persons that, on the Effective Date, beneficially owned not less than four million shares of the common stock of PRGX) acting as a partnership, limited partnership, syndicate or other group, entity or association acting in concert for the purpose of voting, acquiring, holding, or disposing of voting stock of PRGX; at any time during any period of two consecutive years (not including any period prior to the Effective Date, individuals who at the beginning of such period constituted the PRGX Board, and any new directors, whose election by the PRGX Board or nomination for election by the holders of the voting stock of PRGX was approved by a vote of at least two-thirds of the directors of PRGX then still in office who either were directors of PRGX at the beginning of the period or whose election or nomination for election was previously so approved (the "Current Directors"), cease for any reason to constitute a majority thereof, (iii) a merger or a consolidation of PRGX with or into another corporation or entity, other than (A) a merger or consolidation with a subsidiary of PRGX, or (B) a merger or consolidation in which the holders of voting stock of PRGX immediately before the merger hold as a class immediately after the merger at least a majority of all outstanding voting power of the surviving or resulting corporation or its parent, the Current Directors constitute at least a majority of the board of directors of such surviving or resulting corporation or its parent, and such surviving or resulting corporation or its parent expressly assume and agree to perform the obligations of the Company and PRGX under this Agreement; (iv) a statutory exchange of shares of one or more classes or series of outstanding voting stock of PRGX for cash, 9 securities, or other property, other than an exchange in which the holders of voting stock of PRGX immediately before the exchange hold as a class immediately after the exchange at least a majority of all outstanding voting power of the entity with which PRGX stock is being exchanged, the Current Directors constitute at least a majority of the board of directors of such entity, and such entity expressly assumes and agrees to perform the obligations of the Company and PRGX under this Agreement; (v) the sale or other disposition of all or substantially all of the assets of PRGX, in one transaction or a series of transactions, other than a sale or disposition in which the holders of voting stock of PRGX immediately before the sale or disposition hold as a class immediately after the exchange at least a majority of all outstanding voting power of the entity to which the assets of PRGX are being sold, the Current Directors constitute at least a majority of the board of directors of such entity, and such entity expressly assumes and agrees to perform the obligations of the Company and PRGX under this Agreement; or (vi) the liquidation or dissolution of PRGX. (d) "Competing Business" means any business engaging in the same or substantially similar business as the Business. (e) "Confidential Information" means any confidential or proprietary information relating to the Company or its customers that is not a Trade Secret., except for information that (i) was generally known prior to the Effective Date; (ii) was in Executive's possession prior to the Effective Date (other than information supplied to him by the Company or its agents), to the extent Executive has written record of possessing such information prior to the Effective Date; (iii) becomes generally known through no act or omission by Executive; (iv) is supplied to Executive subsequent to the Effective Date by a third party not under an obligation of confidentiality with respect to such information; (v) was independently developed by Executive without reference to or knowledge of any information, data, or disclosures received from the Company; or (vi) is required to be disclosed pursuant to an order of a court or other governmental agency of competent jurisdiction. (f) "Date of Termination" means (i) if Executive's employment is terminated by the Company for Disability, 30 days after the Company gives Notice of Termination to Executive (provided that Executive has not returned to the performance of Executive's duties on a full-time basis during this 30-day period), (ii) if Executive's employment is terminated by Executive for Good Reason, the date specified in the Notice of Termination, and (iii) if Executive's employment is terminated by the Company for any other reason, the date on which a Notice of Termination is given. (g) "Disability" means Executive's inability or expected inability (or a combination of both) to perform the services required of Executive under this Agreement due to illness, accident or any other physical or mental incapacity for an aggregate of 90 days within any period of 180 consecutive days during which this Agreement is in effect, as agreed by the parties or as determined in accordance with the next sentence. If there is a dispute between Executive and the Company in the determination of Disability as to whether an illness, accident or any other physical or mental incapacity exists or existed during the applicable period, then such dispute is to be decided by a medical doctor selected by the Company and a medical doctor selected by Executive and Executive's legal representative (or, in the event that these doctors fail to 10 agree, then in the majority opinion of these doctors and a third medical doctor chosen by these doctors). Each party shall pay all costs associated with engaging the medical doctor selected by such party and the parties shall each pay one-half of the costs associated with engaging any third medical doctor. (h) "Good Reason" means, subject to the next sentence, any of the following: (i) the Company's demotion of Executive to a lesser position than the position that he is serving in prior to the demotion; (ii) the assignment to Executive of duties materially inconsistent with his position or material reduction of Executive's duties, responsibilities or authority (as described in paragraph 3), in either case without Executive's prior written consent; except that a change in the foregoing that results solely from PRGX ceasing to be a publicly traded entity or from PRGX becoming a wholly owned subsidiary of a publicly traded entity will not, in either event and standing alone, constitute grounds for "Good Reason"; (iii) any decrease in Executive's Base Salary or annual bonus or benefits under the Standard Executive Benefits Package, except to the extent that the Company has instituted a salary, bonuses or benefits reduction generally and ratably applicable to all senior executives of the Company and so long as such reduction does not occur in contemplation of a Change in Control; (iv) unless agreed to by Executive, the relocation of Executive's principal place of business outside of the metropolitan area of Atlanta, Georgia; (v) the PRGX Board's failure to nominate Executive to serve as a member of the PRGX Board; or (vi) the failure by the Company, without Executive's consent, to pay to Executive any portion of Executive's Base Salary, annual bonus or other benefits within ten business days after the date the same is due, in each case not remedied by the Company within 30 days after receipt by the Company of written notification from Executive to the Company that specifically identifies the Good Reason. During the one-year period following a Change in Control, however, (i) no Good Reason for termination can occur under this Agreement because of any change in Executive's title or reporting relationship as a consequence of the Change in Control and any determination of Good Reason, if the determination relates to Executive's title or reporting relationship, is to be made by reference to Executive's title or reporting relationship that exists as a consequence of the Change in Control; and (ii) without limiting the occurrence of Good Reason as defined in the preceding sentence other than because of a change in, or by reference to, Executive's title or reporting relationship as specified in clause (i) of this sentence, Good Reason for termination can also occur under this Agreement upon: (A) the failure by the Company to continue to provide Executive with benefits at least as favorable in the aggregate to those enjoyed by Executive under the Standard Executive Benefits Package in which Executive was participating at the time of the Change in Control, (B) the taking of any action by the Company that would directly or indirectly materially reduce any such benefits or deprive Executive of any material fringe benefit (including equity-based benefits) enjoyed at the time of the Change in Control, or (C) the Company's failure to provide Executive with the number of paid vacation days to which Executive is entitled at the time of the Change in Control, excluding in subclauses (A) - (C), any failure or action by the Company that is not taken in bad faith and that is remedied by the Company promptly after receipt of notice thereof from Executive. (i) "Notice of Termination" means a written notice that indicates those specific termination provisions in this Agreement relied upon and that sets forth in reasonable detail the facts and circumstances claimed to provide a basis for termination of Executive's employment under the provision so indicated. For purposes of this Agreement, no purported termination by either party is to be effective without a Notice of Termination. 11 (j) "Release Agreement" means an agreement, substantially in the form attached hereto as Exhibit D, approved by the Company, pursuant to which Executive releases all current or future claims, known or unknown, arising on or before the date of the release against the Company or any direct and indirect subsidiary, parent, affiliated, or related company of the Company, or their respective officers and directors. (k) "Restricted Territory" means, and is limited to, Fulton County, Georgia. (l) "Standard Executive Benefits Package" means those benefits (including retirement, insurance and other welfare benefits, but excluding, except as provided in paragraph 6, any severance pay program or policy of the Company) for which substantially all of the Company's senior executives are from time to time generally eligible, as determined from time to time by the PRGX Board. (m) "Trade Secrets" means information of the Company without regard to form, including, but not limited to, technical or non-technical data, a formula, a pattern, a compilation, a program, a device, a method, a technique, a drawing, a design, a process, financial data, financial plans, product plans, or a list of actual or potential customers or suppliers that is not commonly known by or available to the public and which information: (a) derives economic value, actual or potential, from not being generally known to, and not being readily ascertainable by proper means by, other persons who can obtain economic value from its disclosure or use, and (b) is the subject of efforts that are reasonable under the circumstances to maintain its secrecy. (n) "Works" means any work of authorship, code, invention, improvement, discovery, process, formula, code algorithm, program, system, method, visual work, or work product, whether or not patentable or eligible for copyright, and in whatever form or medium and all derivative works thereof, that may be created, made, developed, or conceived by Executive in the course of employment with the Company, with the Company's time, on the Company's premises, using the Company's resources or equipment, or relating to the Business. 9. Executive Representations. Executive represents to the Company that (a) the execution, delivery and performance of this Agreement by Executive does not and will not conflict with, breach, violate or cause a default under any contract, agreement, instrument, order, judgment or decree to which Executive is a party or by which Executive is bound, (b) Executive is not a party to or bound by any employment agreement, noncompete agreement or confidentiality agreement with any other person or entity and (c) upon the execution and delivery of this Agreement by the Company, this Agreement will be the valid and binding obligation of Executive, enforceable in accordance with its terms. 10. Withholding of Taxes. The Company shall withhold from any amounts payable under this Agreement all federal, state, city or other taxes that the Company is required to withhold under any applicable law, regulation or ruling. 11. American Jobs Creation Act. Notwithstanding anything to the contrary in this Agreement, in the event that it is determined that any payment to be made under this Agreement in connection with a "separation of service" within the meaning of Section 409A(a)(2)(A)(i) of the Internal Revenue Code of 1986, as amended (the "Code"), is considered "nonqualified deferred compensation" subject 12 to Section 409A of the Code, payment under this Agreement will be delayed for six months following the Date of Termination, but only in the event Executive is a "specified employee" within the meaning of Section 409A(a)(2)(B)(i) of the Code. 12. Successors and Assigns. This Agreement is to bind and inure to the benefit of and be enforceable by Executive, the Company and their respective heirs, executors, personal representatives, successors and assigns, except that neither party may assign any rights or delegate any obligations hereunder without the prior written consent of the other party. Executive hereby consents to the assignment by the Company of all of its rights and obligations under this Agreement to any successor to the Company by merger or consolidation or purchase of all or substantially all of the Company's assets, provided that the transferee or successor assumes the obligations of the Company and PRGX under this Agreement. 13. Survival. Subject to any limits on applicability contained therein, paragraph 7 will survive and continue in full force in accordance with its terms notwithstanding any termination of the Employment Period. 14. Choice of Law. This Agreement is to be governed by the internal law, and not the laws of conflicts, of the State of Georgia. 15. Severability. Whenever possible, each provision of this Agreement is to be interpreted in such manner as to be effective and valid under applicable law, but if any provision of this Agreement is held to be invalid, illegal or unenforceable in any respect under any applicable law or rule in any jurisdiction, that invalidity, illegality or unenforceability is not to affect any other provision or any other jurisdiction, and this Agreement is to be reformed, construed and enforced in the jurisdiction as if the invalid, illegal or unenforceable provision had never been contained herein. 16. Notices. Any notice provided for in this Agreement is to be in writing and is to be either personally delivered, sent by reputable overnight carrier or mailed by first class mail, return receipt requested, to the recipient at the address indicated as follows: Notices to Executive: James B. McCurry 45 Finch Forest Trail, N.W. Atlanta, Georgia 30327 Notices to the Company or to PRGX: PRG-Schultz USA, Inc. 600 Galleria Parkway Suite 100 Atlanta, Georgia 30339 Attn: General Counsel 13 or any other address or to the attention of any other person as the recipient party shall have specified by prior written notice to the sending party. Any notice under this Agreement is to be deemed to have been given when so delivered, sent or mailed. 17. Amendment and Waiver. The provisions of this Agreement may be amended or waived only with the prior written consent of the Company and Executive, and no course of conduct or failure or delay in enforcing the provisions of this Agreement is to affect the validity, binding effect or enforceability of this Agreement. 18. Complete Agreement. This Agreement embodies the complete agreement and understanding between the parties with respect to the subject matter hereof and effective as of its date supersedes and preempts any prior understandings, agreements or representations by or between the parties, written or oral, that may have related to the subject matter hereof in any way. 19. Counterparts. This Agreement may be executed in separate counterparts, each of which are to be deemed to be an original and both of which taken together are to constitute one and the same agreement. [ SIGNATURE PAGE TO FOLLOW ] 14 The parties are signing this Agreement as of the date stated in the introductory clause. PRG-SCHULTZ USA, INC. By: ------------------------------------ Name: Title: PRG-SCHULTZ INTERNATIONAL, INC. By: ------------------------------------ Name: Title: --------------------------------------- James B. McCurry [ Signature Page to Employment Agreement ] EXHIBIT A OPTION AGREEMENT OPTION AGREEMENT This Stock Option Agreement (this "Option Agreement") is entered into as of ________ __, 2005 between PRG-SCHULTZ INTERNATIONAL, INC., a Georgia corporation ("PRGX") and JAMES B. MCCURRY ("Executive"). PRGX, Executive and PRG-Schultz USA, Inc., a Georgia corporation and wholly owned subsidiary of PRGX (the "Company") are parties to an employment agreement dated of even date herewith (the "Employment Agreement"). In accordance with paragraph 4(c) of the Employment Agreement, in connection with Executive's entering into employment with the Company, Executive is to receive a stock option grant with respect to 2,000,000 shares of the common stock, no par value per share, of PRGX (the "Common Stock"). Therefore, the parties agree as follows: 1. Grant of Non-Qualified Stock Option. PRGX hereby grants to Executive the right and option to purchase from PRGX, on the terms and subject to the conditions set forth in this Option Agreement, 2,000,000 shares of Common Stock (such shares, the "Option Shares"; such option, the "Option"). The date of grant of the Option (the "Grant Date") is ________ __, 2005. THE OPTION IS NOT TO CONSTITUTE AN INCENTIVE STOCK OPTION WITHIN THE MEANING OF SECTION 422 OF THE INTERNAL REVENUE CODE OF 1986, AS AMENDED. Of the 2,000,000 Option Shares, 500,000 Option Shares are time-vested Option Shares (the "Time-Vested Option Shares") and 1,500,000 Option Shares are performance-based Option Shares (the "Performance-Based Option Shares"). 2. Exercise Price of the Option. The exercise price for the Option Shares is $_______ per share, the closing price of the Common Stock on the NASDAQ National Market on the last trading day preceding the Grant Date (the "Exercise Price"). 3. Vesting of the Option. Subject to the earlier expiration or termination of this Option in accordance with its terms, the Option Shares granted under this Option Agreement will be exercisable as follows: (a) Time-Vested Option Shares. Subject to subparagraph 3(d), the Time-Vested Option Shares will become exercisable on the first anniversary of the Grant Date if Executive remains in the continuous employ of the Company as of that date. (b) Performance-Based Option Shares. Subject to subparagraphs 3(c) and 3(d), the Performance-Based Option Shares will become exercisable in three Tiers, as follows: (1) 500,000 Performance-Based Option Shares will become exercisable upon attainment by PRGX, at any time following the first anniversary of the Grant Date (but prior to termination or expiration of this Option pursuant to Section 6), of a Market Price (as defined below) per share of the Common Stock of not less than $4.50 per share for 45 consecutive trading days ("Tier 1"); (2) 500,000 Performance-Based Option Shares will become exercisable upon attainment by PRGX, at any time following the second anniversary of the Grant Date (but prior to termination or expiration of this Option pursuant to Section 6), of a Market Price per share of the Common Stock of not less than $6.50 per share for 45 consecutive trading days ("Tier 2"); and (3) 500,000 Performance-Based Option Shares will become exercisable upon attainment by PRGX, at any time following the third anniversary of the Grant Date (but prior to termination or expiration of this Option pursuant to Section 6), of a Market Price per share of the Common Stock of not less than $8.00 per share for 45 consecutive trading days ("Tier 3"), ($4.50 per share, $6.50 per share and $8.00 per share being referred to herein as the "Price Target" for Tier 1, Tier 2 and Tier 3, respectively). For purposes of this Option Agreement, "Market Price" means with respect to shares of Common Stock the daily closing price as reported by the NASDAQ National Market, or national securities exchange on which shares of Common Stock are then listed (or, if shares of Common Stock are not then quoted on the NASDAQ National Market or listed on a national securities exchange, the daily closing price reported in the over-the-counter market). (c) Discretionary Acceleration of Exercisability. The Compensation Committee of the Board of Directors of PRGX (the "Compensation Committee") may, in its sole discretion except as provided in subparagraph 3(d), accelerate the exercisability of all or a portion of Performance-Based Option Shares without regard to whether the requirements for exercisability thereof in subparagraph 3(b) have been met. (d) Mandatory Acceleration of Exercisability. (i) Upon a Termination without Cause or a Termination for Good Reason (each as defined in the Employment Agreement), (A) with respect to any Tier of Performance-Based Option Shares for which the Price Target has been achieved for 45 consecutive trading days, the Option shall automatically become exercisable for all shares included in such Tier without regard to the time period specified for such Tier in subparagraph 3(b); and (B) if the Price Target for Tier 1 has been exceeded for 45 consecutive trading days, but the Price Target for Tier 2 has not been achieved or exceeded for 45 consecutive trading days, the Option shall automatically become exercisable for a number of shares included in Tier 2 equal to 500,000 multiplied by the quotient of dividing (x) the result of subtracting 4.50 from the highest Market Price achieved by the Common Stock for forty-five consecutive trading days at any time after the Grant Date by (y) 2; and (C) if the Price Target for Tier 2 has been exceeded for 45 consecutive trading days, but the Price Target for Tier 3 has not been achieved or exceeded for 45 consecutive trading days, the Option shall automatically become exercisable for a number of shares included in Tier 3 equal to 500,000 multiplied by the quotient of dividing (x) the result of subtracting 6.50 from the highest Market Price achieved by the Common Stock for forty-five consecutive trading days at any time after the Grant Date by (y) 1.50. (i) Upon a Change in Control (as defined in the Employment Agreement) or if PRGX ceases to be a public company with reporting obligations under the Securities Exchange Act of 1934, as amended, (A)the Option will automatically 2 become exercisable with respect to all Time-Vested Option Shares; (B)the Option will automatically become exercisable with respect to all Performance-Based Option Shares included in a Tier for which the applicable Price Target is exceeded by the Transaction Price; (C) if the Transaction Price exceeds the Price Target for Tier 1 but is less than the Price Target for Tier 2, the Option shall automatically become exercisable for a number of shares included in Tier 2 equal to 500,000 multiplied by the quotient of dividing (x) the result of subtracting 4.50 from the Transaction Price by (y) 2; and (D) if the Transaction Price exceeds the Price Target for Tier 2 but is less than the Price Target for Tier 3, the Option shall automatically become exercisable for a number of shares included in Tier 3 equal to 500,000 multiplied by the quotient of dividing (x) the result of subtracting 6.50 from the Transaction Price by (y) 1.50. For purpose hereof, "Transaction Price" means the per-share price consideration for the Common Stock payable to the Company's public shareholders in connection with the transaction resulting in, as applicable, (i) the Change in Control or (ii) PRGX ceasing to be a public company with reporting obligations under the Securities Exchange Act of 1934, as amended, or, in the case of clause (ii), if there is no transaction, the Market Price on the last trading day preceding such event. For purposes of determining the Transaction Price, any non-cash consideration to be received by the Company's public shareholders will be valued by the Compensation Committee, in good faith. 4. Method of Exercise of Option. (a) To the extent then exercisable, Executive may exercise the Option in whole or in part; except that no single exercise of the Option is to be for less than 100 Option Shares, unless at the time of the exercise, the maximum number of Option Shares available for purchase under the Option is less than 100 Option Shares. In no event is the Option to be exercised for a fractional share of Common Stock. (b) To exercise the Option, Executive shall give written notice to PRGX stating the number of shares for which the Option is being exercised and the intended manner of payment. The date of this notice shall be the exercise date. The notice must be accompanied by payment in full of the aggregate Exercise Price, either by cash, check, note or any other instrument acceptable to the Compensation Committee. Payment in full or in part may also be made in the form of shares of Common Stock already owned by Executive based, in each case, on the Market Price of the shares of Common Stock on the date the Option is exercised; except that in no event is payment in full or in part for the exercise of an Option to be made with any Option Shares that, as of the date of exercise of the Option, have been owned by Executive less than six months. If the payment is in the form of shares of Common Stock, then the certificate or certificates representing the those shares must be duly executed in blank by Executive or must be accompanied by a stock power duly executed in blank suitable for purposes of transferring those shares to PRGX. Fractional shares of Common Stock will not be accepted in payment of the purchase price of Option Shares. PRGX shall not issue Option Shares until full payment for them has been made. (c) As soon as practicable upon PRGX's receipt of Executive's notice of exercise and payment, PRGX shall direct the due issuance of the shares so purchased. (d) As a further condition precedent to the exercise of this Option in whole or in part, Executive shall comply with all regulations and the requirements of any regulatory authority having control of, or supervision over, the issuance of the shares of Common Stock and accordingly shall execute any 3 documents that the Board of Directors of PRGX (the "PRGX Board"), in its sole discretion, deems necessary or advisable to effect such compliance. (e) In the case of Executive's death, the Option, to the extent exercisable, may be exercised by the executor or administrator of Executive's estate or by any person or persons who have acquired the Option directly from Executive by bequest or inheritance. 5. Non-Transferability of Options. Executive shall not assign or transfer the Option, other than by will or the laws of descent and distribution. During Executive's lifetime, only Executive (or, in the event of legal incapacity or incompetency, Executive's guardian or legal representative) may exercise the Option. Notwithstanding the foregoing, however, Executive, with the approval of the Compensation Committee, may transfer the Option for no consideration to or for the benefit of Executive's Immediate Family (including, without limitation, to a trust for the benefit of Executive's Immediate Family or to a partnership or limited liability company for one or more members of Executive's Immediate Family, subject to such limits as the Compensation Committee may establish, and the transferee(s) shall remain subject to all the terms and conditions applicable to the Option prior to transfer. The term "Immediate Family" means Executive's spouse, parents, children, stepchildren, adoptive relationships, sisters, brothers and grandchildren (and, for this purpose, shall also include Executive). 6. Termination of Option. (a) The portion of the Option that is not exercisable pursuant to paragraph 3 as of the Date of Termination (as defined in the Employment Agreement) will terminate automatically as of that date. (b) This Option Agreement and any portion of the Option not either terminated pursuant to subparagraph 6(a) or already exercised will terminate automatically and without further notice at the close of business on the earliest of the following dates: (i) on the Date of Termination, if termination of Executive's employment is for Cause (as defined in the Employment Agreement); (ii) on the first anniversary of the Date of Termination, if termination of Executive's employment is for death or Disability (as defined in the Employment Agreement); (iii) 75 calendar days following the Date of Termination, if termination of Executive's employment is for any reason other than death, Disability or for Cause; or (iv) the seventh anniversary of the Grant Date. (c) In no event may the Option be exercised, in whole or in part, after termination pursuant to subparagraphs 6(a) and 6(b). 7. Investment Representations. PRGX may require Executive, as a condition of exercising the Option, to give written assurances in substance and form satisfactory to PRGX to the effect that Executive is acquiring the Option Shares for Executive's own account for investment and not with any present intention of selling or otherwise distributing them, and to such other effect as PRGX deems necessary or appropriate in order to comply with applicable federal and state securities laws. 4 8. Registration of Option and Option Shares. As soon as practicable after the date hereof, PRGX shall file a registration statement on Form S-8 under the Securities Act of 1934, as amended, to register the resale of the Option Shares. 9. Compliance with Law. The Option is subject to the requirement that, if at any time counsel to PRGX determines that the listing, registration or qualification of the Option Shares upon any securities exchange or under any state or federal law, or the consent or approval of any governmental or regulatory body, is necessary as a condition of, or in connection with, the issuance or purchase of the Option Shares, then the Option may not to be exercised, in whole or in part, unless the listing, registration, qualification, consent or approval has been effected or obtained on conditions acceptable to the Compensation Committee. Nothing in this Option Agreement will be deemed to require PRGX to apply for or to obtain the listing, registration, qualification, consent or approval. 10. Recapitalization. If the outstanding shares of Common Stock are changed into or exchanged for a different number or kind of shares or other securities of PRGX by reason of any recapitalization, reclassification, stock split, stock dividend, combination, subdivision or similar transaction, then, subject to any required action by PRGX's shareholders, the number and kind of Option Shares and the Exercise Price for the Option Shares are to be proportionately adjusted; except that no fractional Option Shares are to be issued or made subject to the Option in making the foregoing adjustments. All adjustments made by the Compensation Committee under this paragraph 10 will be final, conclusive and binding upon Executive. 11. Reorganization. If, while all or any portion of the Option remains exercisable, PRGX proposes to merge or consolidate with another corporation, whether or not PRGX is to be the surviving corporation, or if PRGX proposes to liquidate or sell or otherwise dispose of substantially all of its assets or substantially all of the outstanding shares of Common Stock are to be sold, then the Compensation Committee may, in its sole discretion, either (i) make appropriate provision for the protection of the Option by the substitution on an equitable basis of (A) appropriate stock of the surviving corporation or its parent in the merger or consolidation, or other reorganized corporation that will be issuable in respect to the Option Shares then exercisable, or (B) any alternative consideration as the Compensation Committee, in good faith, may determine to be equitable in the circumstances; and, in either case, require in connection therewith the surrender of the Option so replaced; or (ii) upon written notice to Executive, provide that the unexercised (but exercisable) portion of the Option must be exercised within a specified number of days of the date of such notice or it will be terminated. In any such case, the Compensation Committee may, in its discretion, accelerate the date on which the Option, in whole or in part, becomes exercisable. 12. Rights as Shareholder. Neither Executive nor any executor, administrator, distributee or legatee of Executive's estate will have any of the rights or privileges of, a shareholder of PRGX in respect of any of the Option Shares unless and until those Option Shares have been fully paid and certificates representing those Option Shares have been endorsed, transferred and delivered, and the name of Executive (or of Executive's personal representative, administrator, distributee or legatee of Executive's estate) has been entered as the shareholder of record on PRGX's books. 5 13. Withholding of Taxes. PRGX's obligation to deliver Options Shares upon exercise of the Option is subject to Executive's satisfaction of any applicable federal, state and local income and employment tax and withholding requirements in a manner and form satisfactory to PRGX. 14. No Special Employment Rights. No provision in this Option Agreement will be deemed to grant to Executive any right with respect to Executive's continued employment with, or other engagement by, the Company or any subsidiary, parent or affiliate or interfere in any way with the ability of the Company or any subsidiary, parent or affiliate at any time to terminate Executive's employment or other engagement or to increase or decrease Executive's compensation from the rate in existence at the Grant Date. 15. Other Employee Benefits. The amount of any compensation deemed to be received by Executive as a result of the exercise of the Option or the sale of Option Shares received upon the exercise will not constitute "earnings" with respect to which any other benefits of Executive are determined, including, without limitation, benefits under any pension, profit sharing, life insurance or salary continuation plan. 16. Interpretation of this Option Agreement. All decisions and interpretations made by the PRGX Board or the Compensation Committee with regard to any question arising under this Option Agreement will be binding and conclusive on PRGX and Executive and any other person entitled to exercise the Option as provided for in this Option Agreement. 17. Choice of Law. This Option Agreement is to be governed by the internal law, and not the laws of conflicts, of the State of Georgia. 18. Successors and Assigns. Subject to paragraph 5, this Option Agreement is to bind and inure to the benefit of and be enforceable by Executive, PRGX and their respective heirs, executors, personal representatives, successors and assigns. 19. Notices. Any notice provided for in this Option Agreement must be in writing and is to be either personally delivered, sent by reputable overnight carrier or mailed by first class mail, return receipt requested, to the recipient at the address indicated as follows: Notices to Executive: James B. McCurry 45 Finch Forest Trail, N.W. Atlanta, Georgia 30327 Notices to PRGX: PRG-Schultz International, Inc. 600 Galleria Parkway Suite 100 Atlanta, Georgia 30339 Attn: General Counsel 6 or any other address or to the attention of any other person as the recipient party shall have specified by prior written notice to the sending party. Any notice under this Option Agreement will be deemed to have been given when so delivered, sent or mailed. 20. Severability. Whenever possible, each provision of this Option Agreement is to be interpreted in a manner as to be effective and valid under applicable law, but if any provision of this Option Agreement is held to be invalid, illegal or unenforceable in any respect under any applicable law or rule in any particular jurisdiction, that invalidity, illegality or unenforceability is not to affect any other provision or any other jurisdiction, and this Option Agreement shall be reformed, construed and enforced in the particular jurisdiction as if the invalid, illegal or unenforceable provision had never been contained herein. 21. Complete Agreement. This Option Agreement embodies the complete agreement and understanding between the parties with respect to the subject matter hereof and effective as of its date supersedes and preempts any prior understandings, agreements or representations by or between the parties, written or oral, that may have related to the subject matter hereof in any way. 22. Amendment and Waiver. Subject to the next sentence, the provisions of this Option Agreement may be amended or waived only with the prior written consent of PRGX and Executive, and no course of conduct or failure or delay in enforcing the provisions of this Option Agreement is to affect the validity, binding effect or enforceability of this Option Agreement. PRGX unilaterally may waive any provision of this Option Agreement in writing to the extent that the waiver does not adversely affect the interests of Executive under this Option Agreement, but the waiver is not to operate as or be construed to be a subsequent waiver of the same provision or a waiver of any other provision of this Option Agreement. [ SIGNATURE PAGE TO FOLLOW ] 7 The parties are signing this Option Agreement as of the date stated in the introductory clause. PRG-SCHULTZ INTERNATIONAL, INC. By: ------------------------------------ Name: Title: --------------------------------------- James B. McCurry [ Signature Page to Option Agreement ] EXHIBIT B STANDARD EXECUTIVE BENEFITS PACKAGE EXHIBIT C INDEMNIFICATION AGREEMENT INDEMNIFICATION AGREEMENT This Indemnification Agreement (this "Agreement") is entered into as of July __, 2005, between PRG-SCHULTZ INTERNATIONAL, INC., a Georgia corporation (the "Corporation"), and JAMES B. MCCURRY (the "Indemnitee"). Indemnitee is a director and officer of the Corporation, and in such capacity is performing a valuable service for the Corporation. Indemnitee is willing to serve, continue to serve, and take on additional service for or on behalf of the Corporation on the condition that he be indemnified as herein provided. It is intended that Indemnitee shall be paid promptly by the Corporation all amounts necessary to effectuate in full the indemnity provided herein. Therefore the parties agree as follows: 1. Certain Definitions. (a) References to the "Corporation" shall include any corporation which is a parent corporation or a subsidiary corporation with respect to PRG-Schultz International, Inc. within the meaning of Section 425(e) or (f) of the Internal Revenue Code of 1986, as amended, and shall also include, in addition to the resulting corporation, any constituent corporation (including any constituent of a constituent) absorbed in a consolidation or merger which, if its separate existence had continued, would have had power and authority to indemnify its directors, officers, and employees or agents, so that any person who is or was a director, officer, employee or agent of such constituent corporation, or is or was serving at the request of such constituent corporation as a director, officer, employee or agent of another corporation, partnership, joint venture, trust or other enterprise, shall stand in the same position under this Agreement with respect to the resulting or surviving corporation as he would have with respect to such constituent corporation if its separate existence had continued. (b) "Disinterested Director" shall mean a director of the Corporation who is not a party to the Proceeding in respect of which indemnification is being sought by Indemnitee. (c) "Expenses" shall mean all direct and indirect costs (including, without limitation, attorneys' fees, retainers, court costs, costs of bonds, transcripts, fees of experts, witness fees, travel expenses, duplicating costs, printing and binding costs, telephone charges, postage, delivery service fees, and all other disbursements or out-of-pocket expenses) actually and reasonably incurred in connection with a Proceeding or establishing or enforcing a right to indemnification under this Agreement, applicable law or otherwise; provided, however, that "Expenses" shall not include any Liabilities. (d) "Indemnification Period" shall mean the period of time during which Indemnitee shall continue to serve as a director or as an officer of the Corporation, and thereafter so long as Indemnitee shall be subject to any possible Proceeding arising out of acts or omissions of Indemnitee as a director or as an officer of the Corporation. (e) "Liabilities" shall mean liabilities of any type whatsoever including, but not limited to, any judgments, fines, ERISA excise taxes and penalties, penalties and amounts paid or obligated to be paid in settlement (including all interest assessments and other charges paid or payable in connection with or in respect of such judgments, fines, penalties or amounts paid in settlement and any sums paid in respect of any deductible under any policies of directors' and officers' liability insurance) of any Proceeding. (f) "Nonreimbursable Liability" shall mean any expenses or liability incurred in a proceeding in which Indemnitee is adjudged liable, in a final and non-appealable judgment, to the Corporation or is subjected to injunctive relief in favor of the Corporation: (i) for any appropriation, in violation of his duties, of any business opportunity of the Corporation; (ii) for acts or omissions which involve intentional misconduct or a knowing violation of law; (iii) for the types of liability set forth in Georgia Business Corporation Code Section 14-2-832; and (iv) for any transaction from which he received an improper personal benefit. (g) "Proceeding" shall mean any threatened, pending or completed action, claim, suit, arbitration, alternate dispute resolution mechanism, investigation, administrative hearing or any other proceeding whether civil, criminal, administrative, arbitrative or investigative, whether formal or informal, including any appeal therefrom. (h) For purposes of this Agreement, references to "other enterprises" shall include employee benefit plans and trusts; references to "fines" shall include any excise taxes assessed on a person with respect to any employee benefit plan; and references to "serving at the request of the Corporation" shall include any service as a director, officer, employee or agent of the Corporation which imposes duties on, or involves services by, such director, officer, employee, or agent with respect to an employee benefit plan or trust, its participants or beneficiaries; and a person who acted in good faith and in a manner he reasonably believed to be in the interest of the participants and beneficiaries of an employee benefit plan or trust shall be deemed to have acted in a manner "not opposed to the best interests of the Corporation" as referred to in this Agreement. 2. Services by Indemnitee. Indemnitee agrees to serve as a director and/or officer of the Corporation so long as he is duly appointed or elected and qualified in accordance with the applicable provisions of the Articles of Incorporation and By-laws of the Corporation (as each may be amended from time to time) or any subsidiary of the Corporation and until such time as he resigns or fails to stand for election or is removed from his position. Indemnitee may at any time and for any reason resign or be removed from such position (subject to any other contractual obligation or other obligation imposed by operation of law), in which event the Corporation shall have no obligation under this Agreement to continue Indemnitee in any such position. 2 3. Indemnification. (a) The Corporation shall indemnify Indemnitee, to the fullest extent permitted by applicable law, whenever he is or was a party or is threatened to be made a party to any Proceeding, including without limitation any such Proceeding brought by or in the right of the Corporation, because he is or was a director or officer of the Corporation or is or was serving at the request of the Corporation as a director, manager, officer, employee, agent, trustee or plan fiduciary of another corporation, partnership, limited liability company, joint venture, trust or other enterprise, or because of anything done or not done by Indemnitee in such capacity, against Expenses and Liabilities (including the costs of any investigation, defense, settlement or appeal) actually and reasonably incurred by Indemnitee or on his behalf in connection with such Proceeding, if he acted in good faith and in a manner he reasonably believed to be in or not opposed to the best interests of the Corporation, and, with respect to any criminal action or proceeding, had no reasonable cause to believe his conduct was unlawful. The termination of any action, suit or proceeding by judgment, order, settlement, conviction, or upon a plea of nolo contendere or its equivalent, shall not, of itself, create a presumption that Indemnitee did not act in good faith and in a manner which he reasonably believed to be in or not opposed to the best interests of the Corporation, and, with respect to any criminal action or proceeding, had reasonable cause to believe that his conduct was unlawful. The foregoing notwithstanding, in no event shall the Corporation indemnify Indemnitee against any Nonreimbursable Liability. (b) Without in any way limiting the foregoing, to the extent that Indemnitee has been successful on the merits or otherwise in defense of any Proceeding, he shall be indemnified against Expenses and Liabilities actually and reasonably incurred by him in connection therewith. 4. Mandatory Advancement of Expenses. The Corporation shall advance to Indemnitee from time to time all reasonable Expenses incurred by or on behalf of Indemnitee within fifteen (15) days after the Corporation's receipt of a written request for an advance of Expenses by Indemnitee, whether prior to or after final disposition of a Proceeding. The written request for an advancement of any and all Expenses under this Section shall contain reasonable detail of the Expenses incurred by Indemnitee. The foregoing notwithstanding, the Corporation shall not be obligated to advance Expenses hereunder unless it shall have received from Indemnitee (a) a written affirmation of Indemnitee's good faith belief that his conduct did not constitute behavior which could result in Nonreimbursable Liability and (b) a written undertaking to repay any advances if it is ultimately determined that he is not entitled to indemnification pursuant to this Agreement. 5. Limitations. The foregoing indemnity and advancement of Expenses shall apply only to the extent that Indemnitee has not been indemnified and reimbursed pursuant to such insurance as the Corporation may maintain for Indemnitee's benefit or pursuant to the Articles of Incorporation or Bylaws of the Corporation (as each may be amended from time to time); provided, however, that notwithstanding the availability of such other indemnification and reimbursement pursuant to such Corporation-maintained policies, Indemnitee may, with the Corporation's consent, claim indemnification and advancement of Expenses pursuant to this Agreement by assigning Indemnitee's claims under such insurance to the Corporation to the extent Indemnitee is paid by the Corporation. 3 6. Insurance. The Corporation may, but is not obligated to, purchase and maintain insurance to protect itself and/or Indemnitee against Expenses and Liabilities in connection with Proceedings to the fullest extent permitted by applicable laws. The Corporation may, but is not obligated to, create a trust fund, grant a security interest or use other means (including, without limitation, a letter of credit) to ensure the payment of such amounts as may be necessary to effect indemnification or advancement of Expenses as provided in this Agreement. 7. Procedure for Determination of Entitlement to Indemnification. (a) Whenever Indemnitee believes that he is entitled to indemnification pursuant to this Agreement, Indemnitee shall submit a written request for indemnification to the Corporation. Any request for indemnification shall include sufficient documentation or information reasonably available to Indemnitee to support his claim for indemnification. Indemnitee shall submit such claim for indemnification within a reasonable time not to exceed three years after any judgment, order, settlement, dismissal, arbitration award, conviction, acceptance of a plea of nolo contendere or its equivalent, final termination or other disposition or partial disposition of any Proceeding, whichever is the latest event for which Indemnitee requests indemnification. If a determination is required by the Corporation that Indemnitee is entitled to Indemnification, and the Corporation fails to respond within sixty (60) days of such request, the Corporation shall be deemed to have approved the request. Any indemnification or advance of expenses which is due and payable to Indemnitee shall be made promptly and in any event within thirty (30) days after the determination that Indemnitee is entitled to such amounts. (b) If such a determination is required, the Indemnitee shall be entitled to select the forum in which Indemnitee's request for indemnification will be heard, which selection shall be included in the written request for indemnification required in Section 7(a). The forum shall be any one of the following: (i) The shareholders of the Corporation; or (ii) A majority vote of the Board of Directors consisting of Disinterested Directors (even though less than a quorum); provided, however, that if there are no Disinterested Directors, or if the Disinterested Directors so direct, the determination shall be made by independent legal counsel in a written opinion. If Indemnitee fails to make such designation, his claim shall be determined by an appropriate court of the State of Georgia or a federal court located in the State of Georgia. 8. Fees and Expenses of Counsel. The Corporation agrees to pay the reasonable fees and expenses of independent legal counsel should such counsel be retained to make a determination of Indemnitee's entitlement to indemnification pursuant to Section 7 of this Agreement. 9. Remedies of Indemnitee. (a) In the event that (i) a determination pursuant to Section 7 hereof is made that Indemnitee is not entitled to indemnification, (ii) advances of Expenses are not made pursuant to this Agreement for any reason, (iii) payment has not been timely made following a determination of entitlement to indemnification pursuant to this Agreement, or (iv) Indemnitee otherwise seeks 4 enforcement of this Agreement, Indemnitee shall be entitled to a final adjudication of his rights in an appropriate court. The Corporation shall not oppose Indemnitee's right to seek any such adjudication. (b) In the event that a determination that Indemnitee is not entitled to indemnification, in whole or in part, has been made pursuant to Section 7 hereof, the decision in the judicial proceeding provided in paragraph (a) of this Section 9 shall be made de novo and Indemnitee shall not be prejudiced by reason of a determination that he is not entitled to indemnification. (c) If a determination that Indemnitee is entitled to indemnification has been made pursuant to Section 7 hereof or otherwise pursuant to the terms of this Agreement, the Corporation shall be bound by such determination in the absence of (i) misrepresentation of a material fact by Indemnitee or (ii) a specific finding (which has become final) by an appropriate court that all or any part of such indemnification is expressly prohibited by law. (d) In any court proceeding pursuant to this Section 9, the Corporation shall be precluded from asserting that the procedures and presumptions of this Agreement are not valid, binding and enforceable. The Corporation shall stipulate in any such court that the Corporation is bound by all the provisions of this Agreement and is precluded from making any assertion to the contrary. 10. Modification, Waiver, Termination and Cancellation. No supplement, modification, termination, cancellation or amendment of this Agreement shall be binding unless executed in writing by both of the parties hereto. No waiver of any of the provisions of this Agreement shall be deemed or shall constitute a waiver of any other provisions hereof (whether or not similar), nor shall such waiver constitute a continuing waiver. 11. Notice by Indemnitee and Defense of Claim. Indemnitee shall promptly notify the Corporation in writing upon being served with any summons, citation, subpoena, complaint, indictment, information or other document relating to any matter, whether civil, criminal, administrative, arbitrative or investigative, but the omission to so notify the Corporation will not relieve it from any liability which it may have to Indemnitee if such omission does not prejudice the Corporation's rights. If such omission does prejudice the Corporation's rights, the Corporation will be relieved from liability only to the extent of such prejudice. With respect to any Proceeding as to which Indemnitee notifies the Corporation of the commencement thereof: (a) The Corporation will be entitled to participate therein at its own expense; and (b) The Corporation jointly with any other indemnifying party similarly notified will be entitled to assume the defense thereof, with counsel reasonably satisfactory to Indemnitee; provided, however, that the Corporation shall not be entitled to assume the defense of any Proceeding if Indemnitee shall have reasonably concluded that there may be a conflict of interest between the Corporation and Indemnitee with respect to such Proceeding. After notice from the Corporation to Indemnitee of its election to assume the defense thereof, the Corporation will not be liable to Indemnitee under this Agreement for any Expenses subsequently incurred by Indemnitee in connection with the defense thereof, other than reasonable costs of investigation or as otherwise provided 5 below. Indemnitee shall have the right to employ his own counsel in such Proceeding but the fees and expenses of such counsel incurred after notice from the Corporation of its assumption of the defense thereof shall be at the expense of Indemnitee unless: (i) The employment of counsel by Indemnitee has been authorized by the Corporation; (ii) Indemnitee shall have reasonably concluded that counsel engaged by the Corporation may not adequately represent Indemnitee; (iii) The Corporation shall not in fact have employed counsel to assume the defense in such Proceeding or shall not in fact have assumed such defense and be acting in connection therewith with reasonable diligence; in each of which cases the fees and expenses of such counsel shall be at the expense of the Corporation. (c) The Corporation shall not settle any Proceeding in any manner which would impose any penalty, liability, obligation or limitation on Indemnitee without Indemnitee's written consent; provided, however, that Indemnitee will not unreasonably withhold his consent to any proposed settlement. 12. Notices. All notices, requests, consents and other communications hereunder shall be in writing and shall be sent by Federal Express or other overnight or same day courier service providing a return receipt (and shall be effective when received or when refused, as evidenced on the return receipt) to the following addresses: To Corporation: PRG-Schultz International, Inc. 600 Galleria Parkway, Suite 100 Atlanta, Georgia 30339 Attention: General Counsel To Indemnitee: James B. McCurry 45 Finch Forest Trail, N.W. Atlanta, Georgia 30327 13. Nonexclusivity. The rights of Indemnitee hereunder shall not be deemed exclusive of any other rights to which Indemnitee may now or in the future be entitled under the Georgia Business Corporation Code, the Corporation's Articles of Incorporation or By-Laws (as each may be amended from time to time), or any agreements, vote of shareholders, resolution of the Board of Directors or otherwise. The provisions of this Agreement are hereby deemed to be a contract right between the Corporation and the Indemnitee and any repeal of the relevant 6 provisions of the General Corporation law of the State of Georgia, or other applicable law, shall not affect this Agreement or its enforceability. 14. Binding Effect, Duration and Scope of Agreement. This Agreement shall be binding upon and inure to the benefit of and be enforceable by the parties hereto and their respective successors and assigns (including any direct or indirect successor, by purchase, merger, consolidation or otherwise, to all or substantially all of the business or assets of the Corporation), heirs and personal and legal representatives. This Agreement shall continue in effect during the Indemnification Period, regardless of whether Indemnitee continues to serve as a director or as an officer. 15. Severability. If any provision or provisions of this Agreement (or any portion thereof) shall be held to be invalid, illegal or unenforceable for any reason whatsoever: (a) the validity, legality and enforceability of the remaining provisions of this Agreement shall not in any way be affected or impaired thereby; and (b) to the fullest extent legally possible, the provisions of this Agreement shall be construed so as to give effect to the intent of any provision held invalid, illegal or unenforceable. 16. Governing Law and Interpretation of Agreement. This Agreement shall be governed by and construed and enforced in accordance with the laws of the State of Georgia, as applied to contracts between Georgia residents entered into and to be performed entirely within Georgia. If the laws of the State of Georgia are hereafter amended to permit the Corporation to provide broader indemnification rights than said laws permitted the Corporation to provide prior to such amendment, the rights of indemnification and advancement of expenses conferred by this Agreement shall automatically be broadened to the fullest extent permitted by the laws of the State of Georgia, as so amended. 17. Entire Agreement. This Agreement represents the entire agreement between the parties hereto, and there are no other agreements, contracts or understandings between the parties hereto with respect to the subject matter of this Agreement, except as specifically referred to herein or as provided in Section 13 hereof. 18. Partial Indemnification. If Indemnitee is entitled under any provision of this Agreement to indemnification by the Company for some or a portion of the Expenses, judgments, fines or penalties actually and reasonably incurred by him in the investigation, defense, appeal or settlement of any Proceeding but not, however, for the total amount thereof, the Company shall nevertheless indemnify Indemnitee for the portion of such Expenses, judgments, fines or penalties to which Indemnitee is entitled. 19. Counterparts. This Agreement may be executed in one or more counterparts, each of which shall for all purposes be deemed to be an original but all of which together shall constitute one and the same Agreement. [ SIGNATURE PAGE TO FOLLOW ] 7 IN WITNESS WHEREOF, the undersigned have executed this Agreement as of the date first written above. PRG-SCHULTZ INTERNATIONAL, INC. By: ------------------------------------ Name: Title: --------------------------------------- James B. McCurry [ Signature Page to Indemnification Agreement ] EXHIBIT D FORM OF RELEASE -----END PRIVACY-ENHANCED MESSAGE-----