-----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, FtoqtcnhoCutxkcnVHoHpjkG+JX/GLxYtC5U5wJvf7EvQpm0UhY499IVwwWQSGDc TEVtIF8V+0kkD307FTwu1w== 0000950144-01-501843.txt : 20010511 0000950144-01-501843.hdr.sgml : 20010511 ACCESSION NUMBER: 0000950144-01-501843 CONFORMED SUBMISSION TYPE: 10-Q PUBLIC DOCUMENT COUNT: 7 CONFORMED PERIOD OF REPORT: 20010331 FILED AS OF DATE: 20010510 FILER: COMPANY DATA: COMPANY CONFORMED NAME: PROFIT RECOVERY GROUP INTERNATIONAL INC CENTRAL INDEX KEY: 0001007330 STANDARD INDUSTRIAL CLASSIFICATION: SERVICES-ENGINEERING, ACCOUNTING, RESEARCH, MANAGEMENT [8700] IRS NUMBER: 582213805 STATE OF INCORPORATION: GA FISCAL YEAR END: 1231 FILING VALUES: FORM TYPE: 10-Q SEC ACT: SEC FILE NUMBER: 000-28000 FILM NUMBER: 1628514 BUSINESS ADDRESS: STREET 1: 2300 WINDY RIDGE PKWY STREET 2: STE 100 N CITY: ATLANTA STATE: GA ZIP: 30339-8426 BUSINESS PHONE: 7707793900 MAIL ADDRESS: STREET 1: 2300 WINDY RIDGE PKWY STREET 2: STE 100 NORTH CITY: ATLANTA STATE: GA ZIP: 30339-8426 10-Q 1 g69093e10-q.txt THE PROFIT RECOVERY GROUP INTERNATIONAL, INC. 1 - -------------------------------------------------------------------------------- - -------------------------------------------------------------------------------- UNITED STATES SECURITIES AND EXCHANGE COMMISSION WASHINGTON, D.C. 20549 --------------------- FORM 10-Q --------------------- (MARK ONE) [X] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(D) OF THE SECURITIES EXCHANGE ACT OF 1934 FOR THE QUARTERLY PERIOD ENDED MARCH 31, 2001 OR [ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(D) OF THE SECURITIES EXCHANGE ACT OF 1934 FOR THE TRANSITION PERIOD FROM ____________ TO____________
COMMISSION FILE NUMBER 0-28000 --------------------- THE PROFIT RECOVERY GROUP INTERNATIONAL, INC. (Exact name of registrant as specified in its charter) --------------------- GEORGIA 58-2213805 (State or other jurisdiction of (I.R.S. Employer incorporation or organization) Identification No.) 2300 WINDY RIDGE PARKWAY 30339-8426 SUITE 100 NORTH (Zip Code) ATLANTA, GEORGIA (Address of principal executive offices)
REGISTRANT'S TELEPHONE NUMBER, INCLUDING AREA CODE: (770) 779-3900 Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. Yes [X] No [ ] Common shares of the registrant outstanding at April 30, 2001 were 47,434,841. - -------------------------------------------------------------------------------- - -------------------------------------------------------------------------------- 2 THE PROFIT RECOVERY GROUP INTERNATIONAL, INC. FORM 10-Q FOR THE QUARTER ENDED MARCH 31, 2001 INDEX
PAGE NO. -------- PART I. Financial Information Item 1. Financial Statements (Unaudited).................... 1 Condensed Consolidated Statements of Operations for the Three Months Ended March 31, 2001 and 2000............. 1 Condensed Consolidated Balance Sheets as of March 31, 2001 and December 31, 2000.................................. 2 Condensed Consolidated Statements of Cash Flows for the Three Months Ended March 31, 2001 and 2000............. 3 Notes to Condensed Consolidated Financial Statements...... 4 Item 2. Management's Discussion and Analysis of Financial Condition and Results of Operations................. 10 Item 3. Quantitative and Qualitative Disclosures About Market Risk......................................... 16 PART II. Other Information Item 1. Legal Proceedings................................... 17 Item 2. Changes in Securities and Use of Proceeds........... 17 Item 3. Defaults Upon Senior Securities..................... 17 Item 4. Submission of Matters to a Vote of Security Holders............................................. 17 Item 5. Other Information................................... 17 Item 6. Exhibits and Reports on Form 8-K.................... 18 Signature.............................................................. 19
3 PART I. FINANCIAL INFORMATION ITEM 1. FINANCIAL STATEMENTS (UNAUDITED) THE PROFIT RECOVERY GROUP INTERNATIONAL, INC. AND SUBSIDIARIES CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS (AMOUNTS IN THOUSANDS, EXCEPT SHARE DATA) (UNAUDITED)
THREE MONTHS ENDED MARCH 31, ------------------ 2001 2000 ------- -------- Revenues.................................................... $65,527 $ 63,894 Cost of revenues............................................ 34,999 35,350 Selling, general and administrative expenses................ 30,994 25,910 ------- -------- Operating income (loss)................................... (466) 2,634 Interest (expense), net..................................... (2,021) (1,570) ------- -------- Earnings (loss) from continuing operations before income taxes and discontinued operations...................... (2,487) 1,064 Income tax expense (benefit)................................ (995) 447 ------- -------- Earnings (loss) from continuing operations before discontinued operations................................ (1,492) 617 Discontinued operations (Note B): Loss from discontinued operations, net of income taxes of $(427) in 2000 and including cumulative effect of accounting change of $(26,145) in 2000................. -- (24,413) Gain (loss) on disposal from discontinued operations including operating results for phase-out period, net of income taxes........................................ -- -- ------- -------- Loss from discontinued operations......................... -- (24,413) ------- -------- Net loss.......................................... $(1,492) $(23,796) ======= ======== Basic loss per share (Note C): Earnings (loss) from continuing operations before discontinued operations................................ $ (0.03) $ 0.01 Discontinued operations................................... -- (0.49) ------- -------- Net loss.......................................... $ (0.03) $ (0.48) ======= ======== Diluted loss per share (Note C): Earnings (loss) from continuing operations before discontinued operations................................ $ (0.03) $ 0.01 Discontinued operations................................... -- (0.48) ------- -------- Net loss.......................................... $ (0.03) $ (0.47) ======= ======== Weighted-average shares outstanding (Note C): Basic..................................................... 48,025 49,433 ======= ======== Diluted................................................... 48,025 50,942 ======= ========
See accompanying Notes to Condensed Consolidated Financial Statements. 1 4 THE PROFIT RECOVERY GROUP INTERNATIONAL, INC. AND SUBSIDIARIES CONDENSED CONSOLIDATED BALANCE SHEETS (AMOUNTS IN THOUSANDS, EXCEPT SHARE AND PER SHARE DATA) (UNAUDITED)
MARCH 31, DECEMBER 31, 2001 2000 --------- ------------ ASSETS Current assets: Cash and cash equivalents (Note F)........................ $ 14,516 $ 23,870 Receivables: Contract receivables, less allowance for doubtful accounts of $6,641 in 2001 and $5,243 in 2000.......... 58,771 67,399 Employee advances and miscellaneous receivables......... 4,978 5,073 -------- -------- Total receivables................................... 63,749 72,472 -------- -------- Prepaid expenses and other current assets................. 3,213 3,470 Deferred income taxes..................................... 12,565 12,565 Net assets of discontinued operations..................... 86,658 80,682 -------- -------- Total current assets................................ 180,701 193,059 -------- -------- Property and equipment: Computer and other equipment.............................. 42,044 49,708 Furniture and fixtures.................................... 3,474 3,755 Leasehold improvements.................................... 5,610 5,957 -------- -------- 51,128 59,420 Less accumulated depreciation and amortization............ 26,986 32,516 -------- -------- Property and equipment, net............................. 24,142 26,904 -------- -------- Noncompete agreements, less accumulated amortization of $6,940 in 2001 and $6,707 in 2000......................... 704 937 Deferred loan costs, less accumulated amortization of $1,507 in 2001 and $1,341 in 2000................................ 1,935 1,701 Goodwill, less accumulated amortization of $25,544 in 2001 and $23,469 in 2000....................................... 227,413 235,153 Deferred income taxes....................................... 6,096 6,236 Other assets................................................ 883 841 -------- -------- $441,874 $464,831 ======== ======== LIABILITIES AND SHAREHOLDERS' EQUITY Current liabilities: Current installments of long-term debt.................... $ 384 $ 391 Accounts payable and accrued expenses..................... 14,875 17,284 Accrued business acquisition consideration (Note H)....... 5,722 7,567 Accrued payroll and related expenses...................... 26,562 38,017 Deferred tax recovery audit revenue....................... 708 694 -------- -------- Total current liabilities........................... 48,251 63,953 Long-term debt, excluding current installments.............. 154,991 154,563 Deferred compensation....................................... 4,036 5,615 Other long-term liabilities................................. 1,346 1,544 -------- -------- Total liabilities................................... 208,624 225,675 -------- -------- Shareholders' equity (Notes G and I): Preferred stock, no par value. Authorized 500,000 shares; no shares issued or outstanding in 2001 and 2000........ -- -- Participating preferred stock, no par value. Authorized 500,000 shares; no shares issued or outstanding in 2001 and 2000................................................ -- -- Common stock, no par value; $.001 stated value per share. Authorized 200,000,000 shares; issued 49,929,631 shares in 2001 and 49,912,231 shares in 2000................... 50 50 Additional paid-in capital................................ 315,857 316,127 Accumulated deficit....................................... (41,527) (40,035) Accumulated other comprehensive loss...................... (18,536) (14,237) Treasury stock at cost, 2,435,990 shares in 2001 and 2000.................................................... (21,024) (21,024) Unearned portion of restricted stock...................... (1,570) (1,725) -------- -------- Total shareholders' equity.......................... 233,250 239,156 -------- -------- Commitments and contingencies (Notes H and I) $441,874 $464,831 ======== ========
See accompanying Notes to Condensed Consolidated Financial Statements. 2 5 THE PROFIT RECOVERY GROUP INTERNATIONAL, INC. AND SUBSIDIARIES CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS (AMOUNTS IN THOUSANDS) (UNAUDITED)
THREE MONTHS ENDED MARCH 31, ------------------- 2001 2000 -------- -------- Cash flows from operating activities: Net loss.................................................. $ (1,492) $(23,796) Less loss from discontinued operations.................... -- 24,413 -------- -------- Earnings (loss) from continuing operations................ (1,492) 617 Adjustments to reconcile net earnings (loss) from continuing operations to net cash used in operating activities: Depreciation and amortization........................... 6,025 6,075 Loss on sale of property and equipment.................. 33 -- Restricted stock compensation expense................... 83 -- Deferred compensation expense........................... (1,579) 307 Deferred income taxes................................... 154 706 Changes in assets and liabilities: Receivables............................................. 5,716 (300) Prepaid expenses and other current assets............... 310 (185) Other assets............................................ 173 (530) Accounts payable and accrued expenses................... (3,005) (1,633) Accrued payroll and related expenses.................... (10,775) (8,096) Deferred tax recovery audit revenue..................... 68 (191) Other long-term liabilities............................. (12) (859) -------- -------- Net cash used in operating activities.............. (4,301) (4,089) -------- -------- Cash flows from investing activities: Purchases of property and equipment....................... (306) (1,854) Acquisitions of businesses (net of cash acquired)......... (1,425) (40,000) -------- -------- Net cash used in investing activities.............. (1,731) (41,854) -------- -------- Cash flows from financing activities: Net repayments of notes payable to bank................... -- (193) Proceeds from issuance of long-term debt.................. 1,794 47,583 Payments for deferred loan costs.......................... (400) -- Net proceeds from common stock issuances.................. 155 3,139 -------- -------- Net cash provided by financing activities.......... 1,549 50,529 -------- -------- Net cash used in discontinued operations.................... (6,075) (5,552) Effect of exchange rates on cash and cash equivalents....... 1,204 535 -------- -------- Net change in cash and cash equivalents............ (9,354) (431) Cash and cash equivalents at beginning of period............ 23,870 22,315 -------- -------- Cash and cash equivalents at end of period.................. $ 14,516 $ 21,884 ======== ======== Supplemental disclosure of cash flow information: Cash paid during the period for interest.................. $ 2,013 $ 1,106 ======== ======== Cash paid during the period for income taxes, net of refunds received........................................ $ 92 $ 3,279 ======== ======== Supplemental disclosure of noncash investing and financing activities: During the three months ended March 31, 2001 and 2000, the Company made payments for further purchase consideration related to two previously acquired companies as follows: Fair value of assets acquired............................. $ 1,425 $ 40,000 Cash paid for the acquisitions (net of cash acquired)..... (1,425) (40,000) -------- -------- Liabilities assumed..................................... $ -- $ -- ======== ========
See accompanying Notes to Condensed Consolidated Financial Statements. 3 6 THE PROFIT RECOVERY GROUP INTERNATIONAL, INC. AND SUBSIDIARIES NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS MARCH 31, 2001 (UNAUDITED) NOTE A -- BASIS OF PRESENTATION The accompanying Condensed Consolidated Financial Statements (Unaudited) of The Profit Recovery Group International, Inc., and its wholly owned subsidiaries (the "Company") have been prepared in accordance with accounting principles generally accepted in the United States of America for interim financial information and with the instructions for Form 10-Q and Article 10 of Regulation S-X. Accordingly, they do not include all of the information and footnotes required by accounting principles generally accepted in the United States of America for complete financial statements. In the opinion of management, all adjustments (consisting of normal recurring accruals) considered necessary for a fair presentation have been included. Operating results for the three month period ended March 31, 2001 are not necessarily indicative of the results that may be expected for the year ending December 31, 2001. For further information, refer to the Consolidated Financial Statements and Footnotes thereto included in the Company's Form 10-K for the year ended December 31, 2000. Statement of Financial Accounting Standards ("SFAS") No. 133, "Accounting for Derivative Instruments and Hedging Activities" establishes accounting and reporting standards for derivative instruments, including certain derivative instruments embedded in other contracts, and for hedging activities. This pronouncement, as amended by Statements of Financial Accounting Standards No. 137 and No. 138, is effective for all fiscal quarters of fiscal years beginning after June 15, 2000 although earlier application is encouraged. The Company adopted this pronouncement effective with its fiscal year beginning January 1, 2001. The adoption of this pronouncement had no material effect on the Company's reported results of operations or financial condition. Disclosures included herein pertain to the Company's continuing operations unless otherwise noted. Certain reclassifications have been made to 2000 amounts to conform to the presentation in 2001. NOTE B -- DISCONTINUED OPERATIONS In March 2001, the Company formalized a strategic realignment initiative designed to enhance the Company's financial position and clarify its investment and operating strategy by focusing primarily on its core Accounts Payable business. Under this strategic realignment initiative, the Company will divest the following non-core businesses: Meridian VAT Reclaim ("Meridian") within the former Taxation Services segment, the Logistics Management Services segment, the Communications Services segment and the Ship and Debit ("Ship & Debit") division within the Accounts Payable Services segment. The non-core businesses to be divested are comprised of various acquisitions completed by the Company during the periods 1997 through 2000. The acquisition of Meridian was accounted for as a pooling-of-interests in which the Company issued 6,114,375 unregistered shares of the Company's common stock. The other acquisitions which comprise the remainder of non-core businesses to be divested were accounted for as purchases with collective consideration paid of $61.5 million in cash and 2,044,206 restricted, unregistered shares of the Company's common stock. The Company's Condensed Consolidated Financial Statements (Unaudited) reflect Meridian, Logistics Management Services, Communications Services, and Ship & Debit as discontinued operations for all periods presented. Operating results of the discontinued operations are summarized below. The amounts exclude general corporate overhead previously allocated to Meridian, Logistics Management Services and Communications Services for segment reporting purposes. The amounts include interest on debt and an allocation of the interest on the Company's general credit facility. Interest allocated to discontinued operations was $0.6 million and $0.2 million for the three months ended March 31, 2001 and 2000, respectively. 4 7 THE PROFIT RECOVERY GROUP INTERNATIONAL, INC. AND SUBSIDIARIES NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED) During the quarters ended March 31, 2001 and 2000, revenues from discontinued operations were $21.8 million and $18.2 million, respectively. The Company generated a loss from discontinued operations in the first quarter of 2001 of $0.2 million, which has been deferred as required under accounting principles generally accepted in the United States of America, since it is expected to be recovered upon ultimate sale of these businesses. Summarized balance sheet information for the discontinued operations is as follows:
MARCH 31, DECEMBER 31, 2001 2000 --------- ------------ (IN THOUSANDS) Current assets.............................................. $ 46,551 $ 43,069 Total assets................................................ 130,938 125,936 Total current liabilities................................... 44,120 45,052 Total liabilities........................................... 44,280 45,254 Net assets of discontinued operations....................... 86,658 80,682
Revenue Recognition -- Conversion to Cash Basis for Certain Discontinued Operations In consideration of guidance issued by the Securities and Exchange Commission under Staff Accounting Bulletin No. 101, "Revenue Recognition in Financial Statements" ("SAB 101"), the Company changed its method of accounting for revenues for Meridian retroactively to January 1, 2000. Based upon the guidance in SAB 101, the Company defers recognition of revenues to the accounting period when cash received from the foreign governments reimbursing value-added tax claims is transferred to Meridian's clients. In 1999 and prior periods, under the prior method of accounting, revenues were recognized at the time refund claims containing all required documentation were filed with appropriate governmental agencies in those instances where historical refund disallowance rates could be accurately estimated. The Company recorded a one-time, non-cash, after-tax charge as of January 1, 2000, of $24.1 million related to Meridian's cumulative effect of a change in accounting principle as part of the loss from discontinued operations. Additionally, in consideration of the guidance under SAB 101, the Company changed it method of accounting for revenues for Ship & Debit retroactively to January 1, 2000. Based upon the guidance in SAB 101, the Company defers recognition of revenues to the accounting period when cash is received by the client. In 1999 and prior periods, under the prior method of accounting, revenues were recognized at the time that the Company invoiced clients for its fee. The Company recorded a one-time, non-cash, after-tax charge as of January 1, 2000 of $2.0 million related to Ship & Debit's cumulative effect of a change in accounting principle as part of the loss from discontinued operations. 5 8 THE PROFIT RECOVERY GROUP INTERNATIONAL, INC. AND SUBSIDIARIES NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED) NOTE C -- LOSS PER SHARE The following table sets forth the computations of basic and diluted loss per share for the three months ended March 31, 2001 and 2000 (in thousands):
THREE MONTHS ENDED MARCH 31, ------------------ 2001 2000 ------- -------- Numerator: Earnings (loss) from continuing operations before discontinued operations................................ $(1,492) $ 617 Discontinued operations................................... -- (24,413) ------- -------- Net loss............................................... $(1,492) $(23,796) ======= ======== Denominator: Denominator for basic earnings per share -- weighted-average shares outstanding........... 48,025 49,433 Effect of dilutive securities: Employee stock options................................. -- 1,509 ------- -------- Denominator for diluted earnings....................... 48,025 50,942 ======= ========
NOTE D -- OPERATING SEGMENTS AND RELATED INFORMATION The Company has two reportable operating segments consisting of Accounts Payable Services and French Taxation Services. Each segment represents a strategic business unit that offers a different type of recovery audit service. These business units are managed separately because each business requires different technology and marketing strategies. The Accounts Payable Services segment consists of the review of client accounts payable disbursements to identify and recover overpayments. This operating segment includes accounts payable services provided to retailers and wholesale distributors (the Company's historical client base) and accounts payable services provided to various other types of business entities by the Company's Commercial Division. The Accounts Payable Services operating segment conducts business in North America, South America, Europe, Australia, Africa and Asia. The French Taxation Services segment consists of audits of related disbursements to identify and recover overpayments (primarily within France), and assisting business entities throughout Europe in securing available grants. While no final determinations have yet been made, the Company is exploring strategic alternatives with respect to its French Taxation Services operations. Corporate support represents the unallocated portion of corporate general and administrative expenses not specifically attributable to Accounts Payable Services or French Taxation Services. The Company evaluates the performance of its operating segments based upon revenues and operating income. Intersegment revenues are not significant. 6 9 THE PROFIT RECOVERY GROUP INTERNATIONAL, INC. AND SUBSIDIARIES NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED) Segment information for the three months ended March 31, 2001 and 2000 is as follows (in thousands):
ACCOUNTS FRENCH PAYABLE TAXATION CORPORATE SERVICES SERVICES SUPPORT TOTAL -------- -------- --------- ------- Three Months Ended March 31, 2001 Revenues....................................... $57,640 $7,887 $ -- $65,527 Operating income (loss)........................ 10,920 (851) (10,535) (466) Three Months Ended March 31, 2000 Revenues....................................... $57,528 $6,366 $ -- $63,894 Operating income (loss)........................ 12,268 (854) (8,780) 2,634
NOTE E -- COMPREHENSIVE LOSS The Company applies the provisions of SFAS No. 130, "Reporting Comprehensive Income." This statement establishes items that are required to be recognized under accounting standards as components of comprehensive income. SFAS No. 130 requires, among other things, that an enterprise report a total for comprehensive income (loss) in condensed financial statements of interim periods issued to shareholders. For the three month periods ended March 31, 2001 and 2000, the Company's consolidated comprehensive loss was $(5.8) million and $(27.0) million, respectively. The difference between consolidated comprehensive loss, as disclosed here, and traditionally determined consolidated net earnings (loss), as set forth on the accompanying Condensed Consolidated Statements of Operations (Unaudited), results from foreign currency translation adjustments. NOTE F -- CASH EQUIVALENTS Cash equivalents at March 31, 2001 and December 31, 2000 included $2.2 million and $0.9 million, respectively, of temporary investments held at U.S. banks. Cash equivalents at March 31, 2001 and December 31, 2000 also included $5.3 million and $7.1 million, respectively, held at a French bank by certain of the Company's French subsidiaries. From time to time, the Company invests excess cash in reverse repurchase agreements with Bank of America, which are fully collateralized by United States of America Treasury Notes in the possession of such bank. The Company does not intend to take possession of collateral securities on future reverse repurchase agreement transactions conducted with banking institutions of national standing. The Company does insist, however, that all such agreements provide for full collateralization using obligations of the United States of America having a current market value equivalent to or exceeding the reverse repurchase agreement amount. No reverse repurchase agreements were outstanding at March 31, 2001 or December 31, 2000. NOTE G -- SHAREHOLDER'S EQUITY On August 14, 2000, the Company issued 286,000 restricted shares of its common stock to certain employees (the "Stock Awards"). Of the total restricted shares issued, 135,000 restricted shares vest on a ratable basis over five years of continued employment. The remaining 151,000 restricted shares vest at the end of five years of continued employment. At March 31, 2001, 99,500 shares of the restricted common stock had been forfeited by former employees. Until vested, the restricted stock is nontransferable. The holders of the restricted shares are entitled to all other rights as a shareholder. Over the life of the Stock Awards, the Company will recognize $1.8 million in compensation expense. For the quarter ended March 31, 2001, the Company has recognized $0.1 million of compensation expense related to the Stock Awards. 7 10 THE PROFIT RECOVERY GROUP INTERNATIONAL, INC. AND SUBSIDIARIES NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED) On August 1, 2000, the Company's Board of Directors (the "Board") authorized a shareholder protection plan designed to protect Company shareholders from coercive or unfair takeover techniques through the use of a shareholder protection rights agreement approved by the Board (the "Agreement"). The terms of the Agreement provide for a dividend of one right (collectively, the "Rights") to purchase a fraction of a share of participating preferred stock for each share owned. This dividend was declared for each share of common stock outstanding at the close of business on August 14, 2000. The Rights, which expire on August 14, 2010, may be exercised only if certain conditions are met, such as the acquisition (or the announcement of a tender offer the consummation of which would result in the acquisition) of 15% or more of the Company's common stock by a person or affiliated group. Issuance of the Rights does not affect the finances of the Company, interfere with the Company's operations or business plans or affect earnings per share. The dividend is not taxable to the Company or its shareholders and does not change the way in which the Company's shares may be traded. Effective July 31, 2000, the Board amended the Company's Articles of Incorporation to establish a new class of stock, the participating preferred stock. The Board authorized 500,000 shares of the participating preferred stock, none of which have been issued. On July 26, 2000, the Board approved a share repurchase program. Under the share repurchase program, the Company can buy up to $40.0 million of its outstanding common stock. On October 24, 2000, the Board approved an increase of $10.0 million to the share repurchase plan, bringing the total the Company is authorized to spend to repurchase shares of its outstanding common stock in the open market to $50.0 million. As of March 31, 2001 and December 31, 2000, the Company had repurchased approximately 2.4 million shares under the program at a cost of approximately $21.0 million. As part of a May 9, 2001 amendment to the Company's $200.0 million senior bank credit facility, the Company relinquished its contractual rights to effect future repurchases of its common stock. The Company has issued no preferred stock through March 31, 2001, and has no present intentions to issue any preferred stock, except for any potential issuance of participating preferred stock (500,000 shares authorized) pursuant to the shareholders protection rights agreement. The remaining 500,000 authorized shares of the Company's preferred stock may be issued at any time or from time to time in one or more series with such designations, powers, preferences, rights, qualifications, limitations and restrictions (including dividend, conversion and voting rights) as may be determined by the Company's Board of Directors, without any further votes or action by the shareholders. NOTE H -- ACQUISITIONS On August 6, 1998, the Company acquired substantially all the assets and assumed certain liabilities of Loder, Drew & Associates, Inc. ("Loder Drew"), a California-based international recovery auditing firm primarily serving clients in the manufacturing, financial services and other non-retail sectors. The transaction was accounted for as a purchase with initial consideration of $70.0 million in cash and 1.2 million restricted, unregistered shares of the Company's common stock valued at $11.05 per share. Additionally, the prior owners of Loder Drew received further purchase price consideration in March 1999 of $30.0 million in cash based on the financial performance of Loder Drew for the nine month period ended December 31, 1998, and purchase price consideration of $40.0 million in cash in the first quarter of 2000 based on the financial performance of Loder Drew for the year ended December 31, 1999. This acquisition resulted in final goodwill at December 31, 1999 of $153.6 million which is being amortized over 25 years using the straight-line method. On October 14, 1999, the Company signed a definitive agreement with certain private shareholders to acquire approximately 89% of the total outstanding shares of AP SA and its subsidiaries (collectively, "Groupe AP"), a tax recovery audit firm which operates primarily within France. At the time the definitive agreement was signed, Groupe AP was publicly traded on the French over-the-counter market with approximately 11% of its total outstanding shares publicly held. The Company initiated a cash tender for all 8 11 THE PROFIT RECOVERY GROUP INTERNATIONAL, INC. AND SUBSIDIARIES NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED) publicly-traded shares of Groupe AP in November 1999 and substantially all of the publicly-held shares were subsequently tendered as of December 31, 1999. Acquisition of the 89% portion of Groupe AP shares held by private shareholders was closed on November 15, 1999. The acquisition of Groupe AP was accounted for as a purchase with aggregate initial consideration paid to public and private shareholders combined of $18.6 million in cash and 356,718 restricted, unregistered shares of the Company's common stock valued at $23.91 per share. In addition to the initial consideration received by the private shareholders of Groupe AP, these shareholders satisfied the criteria to receive additional purchase price consideration based upon the profitability of Groupe AP for the two year period ended December 31, 2000 of 88.7 million French Francs (approximately $11.9 million at March 31, 2001) payable no later than April 30, 2001 using a prescribed combination of cash and restricted, unregistered shares of the Company's common stock. During the first quarter of 2001, the Company made a partial payment of 10.1 million French Francs (approximately $1.4 million at the time of the payment). On April 11, 2001, the Company paid the remaining 78.6 million French Francs (approximately $10.7 million at the time of payment). Using the prescribed combination of cash and restricted, unregistered shares of the Company's common stock this amount was paid as a combination of $5.9 million in cash and $4.8 million or 815,038 restricted, unregistered shares of the Company's common stock. The acquisition resulted in final goodwill through December 31, 2000 of $38.4 million which is being amortized over 20 years using the straight-line method. NOTE I -- COMMITMENTS AND CONTINGENCIES Beginning on June 6, 2000, three putative class action lawsuits were filed against the Company and certain of its present and former officers in the United States District Court for the Northern District of Georgia, Atlanta Division. These cases were subsequently consolidated into one proceeding styled: In re Profit Recovery Group International, Inc. Sec. Litig., Civil Action File No. 1:00-CV-1416-CC (the "Securities Class Action Litigation"). On November 13, 2000, the Plaintiffs in these cases filed a Consolidated and Amended Complaint (the "Complaint"). In that Complaint, Plaintiffs allege in general terms that the Company, John M. Cook, Scott L. Colabuono, and Michael A. Lustig (the "Defendants") violated Sections 10(b) and 20(a) of the Securities Exchange Act of 1934 and Rule 10b-5 promulgated thereunder by allegedly disseminating materially false and misleading information about a change in the Company's method of recognizing revenue and in connection with revenue reported for a division. Plaintiffs purport to bring this action on behalf of a putative class of persons who purchased the Company's stock between July 19, 1999 and July 26, 2000. Plaintiffs seek an unspecified amount of compensatory damages, payment of litigation fees and expenses, and equitable and/or injunctive relief. On January 24, 2001, Defendants filed a Motion to Dismiss the Complaint for failure to state a claim under the Private Securities Litigation Reform Act, 15 U.S.C. sec. 78u-4 et seq., which is currently pending before the Court. The Company believes the alleged claims in this lawsuit are without merit. The Company intends to defend this lawsuit vigorously. Due to the inherent uncertainties of the litigation process and the judicial system, the Company is unable to predict the outcome of this litigation. If the outcome of this litigation is adverse to the Company, it could have a material adverse effect on the Company's business, financial condition, and results of operations. In the normal course of business, the Company is involved in and subject to other claims, contractual disputes and other uncertainties. Management, after reviewing with legal counsel all of these actions and proceedings, believes that the aggregate losses, if any, will not have a material adverse effect on the Company's financial position or results of operations. 9 12 ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS OVERVIEW The Profit Recovery Group International, Inc. and subsidiaries (the "Company") is a leading provider of recovery audit, expense containment and knowledge application services to large and mid-size businesses having numerous payment transactions with many vendors. In businesses with large purchase volumes and continuously fluctuating prices, some small percentage of erroneous overpayments to vendors is inevitable. Although these businesses process the vast majority of payment transactions correctly, a small number of errors do occur. In the aggregate, these transaction errors can represent meaningful "lost profits" that can be particularly significant for businesses with relatively narrow profit margins. The Company's trained, experienced industry specialists use sophisticated proprietary technology and advanced recovery techniques and methodologies to identify overpayments to vendors and tax authorities. In addition, these specialists review clients' current practices and processes related to procurement and other expenses in order to identify solutions to manage and reduce expense levels, as well as apply knowledge and expertise of industry best practices to assist clients in improving their business efficiencies. RESULTS OF OPERATIONS The following table sets forth the percentage of revenues represented by certain items in the Company's Consolidated Statements of Operations (Unaudited) for the periods indicated:
THREE MONTHS ENDED MARCH 31, ------------------ 2001 2000 ------ ------ STATEMENTS OF OPERATIONS DATA: Revenues.................................................... 100.0% 100.0% Cost of revenues............................................ 53.4 55.3 Selling, general and administrative expenses................ 47.3 40.6 ----- ----- Operating income (loss)................................... (0.7) 4.1 Interest (expense), net..................................... (3.1) (2.4) ----- ----- Earnings (loss) from continuing operations before income taxes and discontinued operations...................... (3.8) 1.7 Income tax expense (benefit)................................ (1.5) 0.7 ----- ----- Earnings (loss) from continuing operations before discontinued operations................................ (2.3) 1.0 Discontinued operations: Loss from discontinued taxes, net of income taxes and including cumulative effect of accounting change in 2000................................................... -- (38.2) Gain (loss) on disposal from discontinued operations including operating results for phase-out period, net of income taxes........................................ -- -- ----- ----- Loss from discontinued operations........................... -- (38.2) ----- ----- Net loss.......................................... (2.3)% (37.2)% ===== =====
Quarter Ended March 31, 2001 Compared to Corresponding Period of Prior Year Revenues. The Company's revenues consist principally of contractual percentages of overpayments recovered for clients. The Company's services from continuing operations are currently grouped into two distinct operating segments: Accounts Payable Services and French Taxation Services (see Note D of Notes to Condensed Consolidated Financial Statements (Unaudited) included in Item 1. of this Form 10-Q). Revenues from continuing operations increased 2.6% to $65.5 million in the first quarter of 2001, up from $63.9 million in the first quarter of 2000. This period-over-period change was comprised primarily of an increase of $1.5 million from the Company's French Taxation Services segment. 10 13 International revenues from continuing operations grew 11.9% to $22.3 million in the first quarter of 2001, up from $19.9 million in the first quarter of 2000. Revenues from the international portion of the Company's Accounts Payable Services segment increased 6.3% to $14.4 million in the first quarter of 2001, up from $13.5 million in the first quarter of 2000. This growth in the Accounts Payable Services segment was driven by new clients and by an expansion of services to existing clients, with the majority of the growth generated in Europe and Canada. Revenues generated by the Company's French Taxation Services segment increased 23.9% to $7.9 million in the first quarter of 2001, up from $6.4 million in the first quarter of 2000. Domestic revenues from continuing operations, generated entirely by the Company's Accounts Payable Services segment, decreased slightly to $43.2 million in the first quarter of 2001, down from $44.0 million in the first quarter of 2000. Cost of Revenues. Cost of revenues consists principally of commissions paid or payable to the Company's auditors based primarily upon the level of overpayment recoveries, and compensation paid to various types of hourly workers and salaried operational managers. Also included in cost of revenues are other direct costs incurred by these personnel including rental of non-headquarters offices, travel and entertainment, telephone, utilities, maintenance and supplies and clerical assistance. Cost of revenues as a percentage of revenues from continuing operations decreased to 53.4% of revenues in the first quarter of 2001, down from 55.3% of revenues in the first quarter of 2000. Internationally, cost of revenues as a percentage of international revenues from continuing operations improved to 51.5% in the first quarter of 2001, down from 56.2% in the first quarter of 2000. This year-over-year reduction in the cost of revenues as a percentage of revenues was primarily driven by improvements in the cost structure of the Company's international component of the Accounts Payable Services segment, most notably in the European, Canadian and Pacific operations. Cost of revenues as a percentage of segment revenues in the Company's French Taxation Services segment improved to 47.6% in the first quarter of 2001, down from 56.6% in the first quarter of 2000. The higher cost of revenues as a percentage of segment revenues for the French Taxation Services in the first quarter of 2000 was primarily due to fixed costs being spread over a lower revenue base as a result of the French government strike. Domestically, cost of revenues as a percentage of domestic revenues from continuing operations remained fairly consistent at 54.4% in the first quarter of 2001, compared to 54.9% for the same period of 2000 for the Company's domestic Accounts Payable Services operations. Selling, General, and Administrative Expenses. Selling, general and administrative expenses include the expenses of sales and marketing activities, information technology services and the corporate data center, human resources, legal and accounting, administration, currency translation, headquarters-related depreciation of property and equipment and amortization of intangibles. Selling, general and administrative expenses, as a percentage of revenues from continuing operations increased to 47.3% in the first quarter of 2001, up from 40.6% in the first quarter of 2000. A portion of the year-over-year increase in selling, general and administrative expenses is due to expenditures resulting from the Company's investment in infrastructure to support anticipated future growth, an increase in accounts receivable reserves, implementation of the Company's strategic realignment plan, the impact of currency transaction losses on the Company's international divisions, and research and development costs related to the Company's e-commerce business initiatives. Internationally, excluding corporate overhead, selling, general and administrative expenses as a percentage of international revenues from continuing operations increased to 42.3% in the first quarter of 2001, up from 33.1% the first quarter of in 2000. Overall, French Taxation Services experienced an increase in selling, general, and administrative expenses as a percentage of segment revenues to 63.1% in the first quarter of 2001 versus 56.8% in the first quarter of 2000. The year-over-year increase for French Taxation Services was due primarily to an increase in accounts receivable reserves for a particular revenue claim type, full implementation of the 35 hour work week in France and increased investment in sales infrastructure to support anticipated 11 14 future growth. Selling, general and administrative expenses as a percentage of segment revenues for international Accounts Payable Services increased to 30.9% in the first quarter of 2001, up from 22.0% in the first quarter of 2000, due primarily to investments in infrastructure to support anticipated future growth, particularly in Europe and Latin America. Domestically, excluding corporate overhead, selling, general and administrative expenses as a percentage of revenues from continuing operations was 25.5% in the first quarter of 2001, up slightly from the 24.0% level during the same period last year. Contributing to this increase was the portion of non-recurring charges for severance and other personnel costs related to the implementation of the Company's strategic realignment plan incurred by the domestic Accounts Payable Services operations. Corporate overhead selling, general, and administrative expenses as a percentage of revenue from continuing operations increased to 16.1% in the first quarter of 2001 up from 13.7% the first quarter of in 2000. Excluding non-recurring charges incurred by the Company during the first quarter of 2001 for severance and other personnel costs related to the implementation of its strategic realignment plan, corporate selling, general and administrative expenses as a percentage of revenues from continuing operations was 15.1% in the first quarter of 2001 compared to 13.7% for the same period of 2000. This increase is due in part to increased investment in both the continuing and discontinued operations in areas such as infrastructure and research and development in e-commerce initiatives. Additionally, during the first quarter of 2001, the Company incurred significant consulting fees related to the implementation of its strategic realignment plan. The Company continues to incur corporate overhead expenses to support its discontinued operations and expects to do so until they are sold. Under accounting principles generally accepted in the United States of America, no allocation of general corporate overhead can be made to discontinued operations with the exception of applicable interest expense. In connection with acquired businesses, the Company has recorded intangible assets including goodwill and deferred non-compete costs. Amortization of these intangible assets totaled $3.1 million in the first quarter of 2001 and $3.0 million in the first quarter of 2000. Operating Income (Loss). Operating loss as a percentage of revenues from continuing operations was (0.7)% in the first quarter of 2001, compared to operating income as a percentage of revenues from continuing operations of 4.1% in the first quarter of 2000. Excluding non-recurring charges incurred by the Company during the first quarter of 2001, operating income as a percentage of revenues from continuing operations was 0.5% in the first quarter of 2001, compared to 4.1% in the first quarter of 2000. Internationally, operating income as a percentage of international revenues from continuing operations, excluding corporate overhead, decreased to 6.2% in the first quarter of 2001, from 10.7% in the first quarter of 2000. This decline was driven by a decrease in operating income in international Accounts Payable Services to 15.5% in the first quarter of 2001, down from 22.0% in the first quarter of 2000, for reasons outlined above. This decline was partially offset by an improvement in operating loss percentages for the French Taxation Services segment. Operating loss for the French Taxation Services segment as a percentage of segment revenues was (10.8)% in the first quarter of 2001, an improvement from a loss of (13.4)% in the first quarter of 2000. Domestically, operating income as a percentage of domestic revenues from continuing operations, excluding corporate overhead, decreased to 20.1% in 2001, down from 21.1% in the first quarter of 2000, for reasons outlined above. Interest (Expense), Net. Interest (expense), net for the first quarter of 2001 was $2.0 million, up from $1.6 million in the first quarter of 2000. Most of the Company's interest expense pertains to its $200.0 million senior credit facility with a banking syndicate. The Company makes periodic borrowings under its credit facility primarily to finance the cash portion of consideration paid for businesses it acquires (see Note H of Notes to Condensed Consolidated Financial Statements (Unaudited) included in Item 1. of this Form 10-Q). Without these acquisitions, the Company's need for bank borrowings would have been minimal. 12 15 Earnings (Loss) From Continuing Operations Before Income Taxes and Discontinued Operations. The Company had a loss from continuing operations before income taxes and discontinued operations of $(2.5) million in the first quarter of 2001 compared to earnings from continuing operations before income taxes and discontinued operations of $1.1 million in the first quarter of 2000. As a percentage of total revenues, the loss from continuing operations before income taxes and discontinued operations was (3.8)% in the first quarter of 2001. Earnings from continuing operations before income taxes and discontinued operations as a percentage of revenues was 1.7% in the first quarter of 2000. The decrease in earnings (loss) from continuing operations before income taxes and discontinued operations was the result of the factors noted above. Income Tax Expense (Benefit). The provisions for income taxes for 2001 and 2000 consist of federal, state and foreign income taxes at the Company's effective tax rate which approximated 40% for the first quarter of 2001 and 42% for the first quarter of 2000. Loss From Discontinued Operations. In March 2001, the Company formalized a strategic realignment initiative designed to enhance the Company's financial position and clarify its investment and operating strategy by focusing on its core Accounts Payable Services business. Under this strategic realignment initiative, the Company will divest the following non-core businesses: Meridian within the former Taxation Services segment, the Logistics Management Services segment, the Communications Services segment and the Ship & Debit division within the Accounts Payable Services segment. The Company generated a loss from discontinued operations in the first quarter of 2001 of $0.2 million, which has been deferred as required under accounting principles generally accepted in the United States of America, since it is expected to be recovered upon ultimate sale of these businesses. This compares to a loss of $24.4 million for the first quarter of 2000. Approximately $26.1 million of this loss was due to the Company's decision to retroactively change its method of accounting for revenue recognition for the Meridian and Ship & Debit divisions, in consideration of guidance issued by the Securities and Exchange Commission under Staff Accounting Bulletin No. 101 "Revenue Recognition in Financial Statements" (See Note B of Notes to Condensed Consolidated Financial Statements (Unaudited) included in Item 1. of this Form 10-Q). If the Company does not divest of the non-core businesses within one year, their results may be reconsolidated with the results from continuing operations. Weighted-Average Shares Outstanding -- Basic. The Company's weighted-average shares outstanding for purposes of calculating basic earnings per share decreased to 48.0 million for 2001, down from 49.4 million for 2000. This decrease was comprised primarily of outstanding shares repurchased in the open market under the Company's publicly announced share repurchase program in 2000 offset by restricted, unregistered shares to be issued by the Company in connection with the Groupe AP earnout (see Note H of Notes to Condensed Consolidated Financial Statements (Unaudited) included in Item 1. of this Form 10-Q). LIQUIDITY AND CAPITAL RESOURCES The Company maintains a $200.0 million senior bank credit facility that is syndicated between nine banking institutions led by Bank of America as agent for the group (the "Banks"). Subject to adherence to standard loan covenants, borrowings under the credit facility are available for working capital, acquisitions of other companies in the recovery audit industry, capital expenditures and general corporate purposes. As of March 31, 2001, the Company had $154.1 million in outstanding principal borrowings under its credit facility. As of March 31, 2001, the Company was not in compliance with the fixed charge coverage financial ratio covenant in its bank credit facility agreement (the "Credit Agreement"). Under the current Credit Agreement, as amended, financial ratio covenants are calculated on a trailing four-quarter basis without giving effect to SEC Staff Accounting Bulletin No. 101, "Revenue Recognition in Financial Statements" ("SAB 101"). During the first quarter of 2001, Meridian, one of the Company's discontinued operations, achieved revenues and earnings on a pre-SAB 101 basis which were significantly below expectations and were the principal causes of the non-compliance. The existing covenant violation was waived by the Banks effective 13 16 March 31, 2001 through the execution, on May 9, 2001, of an amendment to the Credit Agreement. In connection with the waiver of this covenant violation, the Banks and the Company also amended the Credit Agreement to relax certain financial ratio covenants applicable to the second and third quarters of 2001. The Company currently forecasts that it will satisfy the revised financial ratio covenants of the Credit Agreement for at least the next four calendar quarters. Notwithstanding the Company's current forecasts, no assurances can be provided that these or other violations of the Credit Agreement will not occur in the future or that, if such violations occur, that the Banks will not elect to pursue their contractual remedies under the Credit Agreement, including requiring the immediate repayment in full of all amounts outstanding. There can also be no assurance that the Company can secure adequate or timely replacement financing to repay its Banks in the event of an unanticipated repayment demand. In addition to waiving and revising certain financial ratio covenants, the May 9, 2001 amendment to the Company's Credit Agreement also eliminated the Company's right to repurchase its common stock, increased applicable interest rates to more closely reflect current rates being charged in the syndicated loan market, and provided for permanent future reductions to the $200.0 million facility size as net proceeds from future sales of the discontinued operations are applied to reduce outstanding bank borrowings. If maximum future permanent credit facility reductions are achieved, the credit facility will have a revised capacity of $125.0 million. Net cash used in operating activities was $4.3 million in the first quarter of 2001 and $4.1 million in the first quarter of 2000. Net cash used in investing activities was $1.7 million in the first quarter of 2001 and $41.9 million in the first quarter of 2000. Cash used in investing activities during the first quarter of 2000 related primarily to additional purchase price consideration (earnout) paid to the former owners of an acquired business. Net cash provided by financing activities was $1.5 million in the first quarter of 2001 and $50.5 million in the first quarter of 2000. The net cash provided by financing activities during the three months ended March 31, 2000 related primarily to proceeds from the Company's $200.0 million credit facility. The Company borrowed $43.0 million under its credit facility in March 2000 and simultaneously paid this amount to the former owners of two acquired recovery audit firms. Net cash used in discontinued operations was $6.1 million in the first quarter of 2001 and $5.6 million in the first quarter of 2000. The former private shareholders of Groupe AP satisfied the criteria to receive additional purchase price consideration based upon the profitability of Groupe AP for the two year period ended December 31, 2000 of 88.7 million French Francs (approximately $11.9 million at March 31, 2001) payable no later than April 30, 2001 using a prescribed combination of cash and restricted, unregistered shares of the Company's common stock. During the first quarter of 2001, the Company made a partial payment on the earnout of 10.1 million French Francs (approximately $1.4 million at the time of the payment). On April 11, 2001, the Company paid the remaining 78.6 million French Francs (approximately $10.7 million at the time of payment). Using the prescribed combination of cash and restricted, unregistered shares of the Company's common stock, this amount was paid as a combination of $5.9 million in cash and $4.8 million or 815,038 restricted, unregistered shares of the Company's common stock. Through April 30, 2001, the Company acquired 23 recovery audit firms. The Company intends to significantly limit future business acquisitions to those having compelling strategic importance. There can be no assurance, however, that the Company will be successful in consummating further acquisitions due to factors such as receptivity of potential acquisition candidates and valuation issues. Additionally, there can be no assurance that future acquisitions, if consummated, can be successfully assimilated into the Company. The Company from time to time issues common stock in partial consideration for the business entities it acquires. The timing and quantity of any future securities issuances are not susceptible to estimation. Additionally, if the Company is successful in arranging for future acquisitions which individually or 14 17 collectively are large relative to the Company's size, it may need to secure additional debt or equity financing. There can be no assurance that the Company can secure such additional financing if needed. As discussed in Note B of Notes to Condensed Consolidated Financial Statements (Unaudited) included in Item 1. of this Form 10-Q, the Company formalized a strategic realignment initiative designed to enhance the Company's financial position and clarify its investment and operating strategy by focusing primarily on its core Accounts Payable business. Under this strategic realignment initiative, the Company will divest the following non-core businesses: Meridian VAT Reclaim ("Meridian") within the former Taxation Services segment, the Logistics Management Services segment, the Communications Services segment and the Ship and Debit ("Ship & Debit") division within the Accounts Payable Services segment. Proceeds from the divestiture of these businesses are contractually required to be used to pay down outstanding principal borrowings under the Company's credit facility. The Company believes that its current working capital, availability remaining under its $200.0 million credit facility and cash flow generated from future operations will be sufficient to meet the Company's working capital and capital expenditure requirements through March 31, 2002 unless one or more acquisitions are consummated which require the Company to seek additional debt or equity financing. FORWARD LOOKING STATEMENTS Some of the information in this Form 10-Q contains forward-looking statements which look forward in time and involve substantial risks and uncertainties including without limitation, (1) statements that contain projections of the Company's future results of operations or of the Company's financial condition, (2) statements regarding the adequacy of the Company's current working capital and other available sources of funds, and (3) statements regarding goals and plans for the future. All statements that cannot be assessed until the occurrence of a future event or events should be considered forward-looking. These statements are forward-looking statements within the meaning of the Private Securities Litigation Reform Act of 1995 and can be identified by the use of forward-looking words such as "may," "will," "expect," "anticipate," "believe," "estimate" and "continue" or similar words. Such risk and uncertainties include, without limitation, the following: - the Company's ability to effectively manage during the divestitures; - the possibility of an adverse judgment in pending securities litigation; - the risk that the Company may be unsuccessful in complying with the financial ratio covenants of its Credit Agreement, as amended; - the impact of certain accounting pronouncements by the Securities and Exchange Commission; - potential timing issues that could delay revenue recognition; - the effect of strikes; - future weakness in the currencies of countries in which the Company transacts business; - changes in economic cycles; - competition from other companies; - the effect of bankruptcies of the Company's larger clients; - changes in governmental regulations applicable to the Company; and - other risk factors detailed in the Company's Form 10-K for the year ended December 31, 2000. There may be events in the future, however, that we are not accurately able to predict or over which we have no control. The risk factors listed in this section, as well as any cautionary language in this Form 10-Q, provide examples of risks, uncertainties and events that may cause our actual results to differ materially from the expectations we describe in our forward-looking statements. You should be aware that the occurrence of 15 18 any of the events denoted as risk factors above and elsewhere in this Form 10-Q could have a material adverse effect on our business, financial condition and results of operations. ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK On August 19, 1999, the Company acquired Meridian VAT Corporation Limited ("Meridian"). Meridian is based in Dublin, Ireland and specializes in the recovery of value-added taxes paid on business expenses by corporate clients. Meridian periodically utilizes derivative financial instruments to hedge against adverse currency fluctuations since it must transact business using a variety of European and Asian currencies. Meridian had no derivative financial instruments outstanding at March 31, 2001 or December 31, 2000. None of the Company's operating units other than Meridian have historically utilized derivative financial instruments although future use of these types of instruments is presently under consideration. The Company has not conducted any additional transactions, established commitments or entered into relationships requiring disclosures beyond those provided elsewhere in this Form 10-Q. 16 19 PART II. OTHER INFORMATION ITEM 1. LEGAL PROCEEDINGS Beginning on June 6, 2000, three putative class action lawsuits were filed against the Company and certain of its present and former officers in the United States District Court for the Northern District of Georgia, Atlanta Division. These cases were subsequently consolidated into one proceeding styled: In re Profit Recovery Group International, Inc. Sec. Litig., Civil Action File No. 1:00-CV-1416-CC (the "Securities Class Action Litigation"). On November 13, 2000, the Plaintiffs in these cases filed a Consolidated and Amended Complaint (the "Complaint"). In that Complaint, Plaintiffs allege in general terms that the Company, John M. Cook, Scott L. Colabuono, and Michael A. Lustig (the "Defendants") violated Sections 10(b) and 20(a) of the Securities Exchange Act of 1934 and Rule 10b-5 promulgated thereunder by allegedly disseminating materially false and misleading information about a change in the Company's method of recognizing revenue and in connection with revenue reported for a division. Plaintiffs purport to bring this action on behalf of a putative class of persons who purchased the Company's stock between July 19, 1999 and July 26, 2000. Plaintiffs seek an unspecified amount of compensatory damages, payment of litigation fees and expenses, and equitable and/or injunctive relief. On January 24, 2001, Defendants filed a Motion to Dismiss the Complaint for failure to state a claim under the Private Securities Litigation Reform Act, 15 U.S.C. sec. 78u-4 et seq., which is currently pending before the Court. The Company believes the alleged claims in this lawsuit are without merit. The Company intends to defend this lawsuit vigorously. Due to the inherent uncertainties of the litigation process and the judicial system, the Company is unable to predict the outcome of this litigation. If the outcome of this litigation is adverse to the Company, it could have a material adverse effect on the Company's business, financial condition, and results of operations. In the normal course of business, the Company is involved in and subject to other claims, contractual disputes and other uncertainties. Management, after reviewing with legal counsel all of these actions and proceedings, believes that the aggregate losses, if any, will not have a material adverse effect on the Company's financial position or results of operations. ITEM 2. CHANGES IN SECURITIES AND USE OF PROCEEDS None. ITEM 3. DEFAULTS UPON SENIOR SECURITIES At March 31, 2001, the Company was not in compliance with the fixed charge coverage financial ratio covenant of its bank credit facility. This violation was waived by the Company's lenders on May 9, 2001. (See Liquidity and Capital Resources under Item 2. of this Form 10-Q.) ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS None. ITEM 5. OTHER INFORMATION None. 17 20 ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K
EXHIBIT NUMBER DESCRIPTION - ------- ----------- 3.1 -- Restated Articles of Incorporation of the Registrant (incorporated by reference to Exhibit 4.2 to Registrant's Form 8-A/A filed August 9, 2000). 3.2 -- Restated Bylaws of the Registrant (incorporated by reference to Exhibit 4.3 to Registrant's Form 8-A/A filed August 9, 2000). 4.1 -- Specimen Common Stock Certificate (incorporated by reference to Exhibit 4.1 to Registrant's March 26, 1996 registration statement number 333-1086 on Form S-1). 4.2 -- See Restated Articles of Incorporation and Bylaws of the Registrant, filed as Exhibits 3.1 and 3.2, respectively. 10.1 -- Separation Agreement between Mr. Michael A. Lustig and the Registrant, dated February 2, 2001. 10.2 -- Separation Agreement between Mr. Scott L. Colabuono and the Registrant, dated January 31, 2001. 10.3 -- Non-qualified Stock Option Agreement between Mr. John Cook and the Registrant dated March 26, 2001. 10.4 -- Non-qualified Stock Option Agreement between Mr. John M. Toma and the Registrant dated March 26, 2001. 10.5 -- Non-qualified Stock Option Agreement between Mr. Mark C. Perlberg and the Registrant dated March 26, 2001. 10.6 -- Non-qualified Stock Option Agreement between Mr. James L. Dinkins and the Registrant dated March 26, 2001.
(b) Reports on Form 8-K No reports on Form 8-K were filed with the Securities and Exchange Commission during the quarter ended March 31, 2001. 18 21 SIGNATURE Pursuant to the requirements of Section 13 or 15(d) of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned, thereunto duly authorized. THE PROFIT RECOVERY GROUP INTERNATIONAL, INC. May 10, 2001 By: /s/ DONALD E. ELLIS, JR. ------------------------------------ Executive Vice President -- Finance, Chief Financial Officer and Treasurer (Principal Financial Officer) 19 EX-10.1 2 g69093ex10-1.txt SEPARATION AGREEMENT, MICHAEL A. LUSTIG, 2/02/2001 1 EXHIBIT 10.1 SEPARATION AGREEMENT THIS SEPARATION AGREEMENT ("Separation Agreement") is entered into by and among MICHAEL A. LUSTIG ("Lustig") and THE PROFIT RECOVERY GROUP INTERNATIONAL, INC., a Georgia corporation ("PRG"). WITNESSETH WHEREAS, Lustig has served as a director and the President and Chief Operating Officer of PRG and as an officer and director of subsidiaries and affiliates of PRG and his employment was being terminated without cause by agreement between PRG and Lustig on October 25, 2000; and WHEREAS, the Parties agree that for all purposes hereof, the parties will treat Lustig's termination from the Company as a resignation which became effective as of October 25, 2000; and WHEREAS, PRG and Lustig desire to settle fully and finally all differences which may arise out of or relate to Lustig's employment with PRG, all other claims Lustig has through the date of this Separation Agreement against PRG and all other claims PRG has through the date of this Separation Agreement against Lustig, and terminate the employment relationship between Lustig and PRG and all agreements, other than this Separation Agreement, relating to such employment relationship. NOW THEREFORE, in consideration of the promises undertaken and releases herein contained, it is agreed by the parties hereto, as follows: 1. TERMINATION OF EMPLOYMENT; TERMINATION BENEFITS. A. Termination of Employment. PRG and Lustig hereby agree that Lustig's employment by PRG and any and all of the subsidiaries of PRG is terminated effective as of October 25, 2000. Except for PRG's obligation to indemnify Lustig as provided herein and the restrictive covenants contained in paragraph 6.(a)-(c) of the October 17, 1997 Employment Agreement between Lustig and The Profit Recovery Group International 1, Inc., which obligation remains in full force and effect, and except as otherwise specifically provided in this Separation Agreement, any and all agreements between Lustig and PRG relating to employment, compensation, and any other benefits are hereby terminated and cancelled. Specifically excluded from this termination and cancellation provision are the stock options Lustig received while employed by PRG which had vested prior to his termination, but including in this termination and cancellation provision any options that may have become vested as a result of his termination. B. Resignation from Offices and Board of Directors. Lustig hereby confirms that he has resigned from all positions he may have had as an officer and director of PRG and of all subsidiaries and affiliates of PRG, effective October 25, 2000. 2 C. Termination Benefits. PRG and Lustig agree that Lustig shall be entitled to receive the following, severance payments and rights, which collectively are the sole termination benefits to which he is entitled (collectively, items (i), (ii) and (iii) below being the "Termination Benefits"): (i) Commencing January 31, 2001, PRG shall pay Lustig an aggregate of $660,000, payable in eighteen (18) equal monthly installments (without interest), on the last pay date each month, in accordance with PRG's customary payroll practices and subject to all applicable federal and state tax withholding and other deductions; provided, that in the event that prior to the end of such eighteen-month period either (a) any person or group of affiliated persons who, immediately prior to any transaction(s) hereinafter described, did not own 5% or more of the issued and outstanding shares of common stock of PRG, acquire beneficial ownership (as defined in Rule 13d-3 promulgated under the Securities Exchange Act of 1934, as amended), in a transaction or series of related transactions, shares of common stock of PRG which represent more than 50% of all issued and outstanding shares of common stock of PRG (other than (A) in a transaction in which PRG has issued the shares of its common stock to such person or group of affiliated persons or (B) acquisitions which are not effected with the purpose of accomplishing a change in control of PRG, as evidenced in the Schedule 13D or Schedule 13G filed by such person or group of affiliated persons), or (b) PRG sells all or substantially all of its assets to an unrelated third party in a transaction or series of related transactions, then any unpaid amounts under this Section 1.C(i) shall be immediately due and payable. (ii) In addition, PRG shall pay Lustig on the eighth day after he executes this Agreement a one-time lump-sum payment of $937,500 (less any payments made to Lustig after October 25, 2000) in full, final and complete satisfaction of any salary, bonus, deferred compensation, unvested stock options, stock purchase, fringe benefits or other employee benefits for which Lustig may have been eligible as an employee, officer and director of PRG. (iii) The parties acknowledge and agree that as of the date hereof and as a result of the termination of Lustig's employment, Lustig has received and is entitled to own and receive 63,000 shares of capital stock in PRG (the "Transferred Stock") otherwise granted to Lustig under and as provided under prior restricted stock award agreements. The parties further agree that for and in consideration of the payments made to Lustig by PRG under subparagraph (ii) hereof, Lustig is hereby conveying and transferring solely the Transferred Stock to PRG free and clear of any claims of Lustig to the continuing ownership thereof. (iv) The parties acknowledge and agree that, separate and apart from the Transferred Stock identified in subparagraph (iii) of this provision, Lustig currently owns 27,845 shares of capital stock in PRG (the "Retained Stock"). Notwithstanding anything contained herein to the contrary, Lustig shall continue to exclusively own the Retained 2 3 Stock and shall remain entitled to assert any and all claims pertaining to his ownership of the Retained Stock and his status as a shareholder of PRG resulting from such ownership. (v) The parties acknowledge and agree that, during his employment with PRG, Lustig was granted options allowing him to purchase 638,850 shares of PRG stock pursuant to various written option agreements. PRG acknowledges that prior to Lustig's termination, 306,150 of those options had fully vested and Lustig shall retain the right to exercise those options in accordance with the terms of the various options agreements. Notwithstanding language to the contrary in the option agreements, PRG agrees that Lustig shall have 120 days from the date of his termination, or until February 23, 2001, whichever is earlier, to exercise those options. (vi) PRG agrees that Lustig may retain the cell phone and the lap-top computer provided by PRG that he currently uses and acknowledges that Lustig has already delivered the computer and, to the extent applicable, the cell phone to PRG for removal of all Confidential Information (as defined herein) and all software programs owned by or licensed to PRG thereon. (vii) PRG will provide Lustig with a separate notification about his rights under COBRA to elect to continue group insurance benefits for a specified period. (viii) Lustig shall retain and shall be provided appropriate election forms for distribution or rollover of Lustig's balance under the PRG 401(k) plan all in accordance with the PRG 401(k) plan. (ix) PRG will assign to Lustig, to the extent assignable, and free and clear of all rights or claims or liens of PRG, at Lustig's request, all insurance policies owned by PRG on the life of Lustig and Lustig will assume all obligations thereunder. 2. GENERAL RELEASE. In consideration of the Termination Benefits provided herein to which Lustig was not already entitled under the terms of his Employment Agreement and his Amendment to Employment and Compensation Agreements and the promises contained in this Separation Agreement, Lustig, for himself and for his successors, assigns, dependents, heirs, legatees, executors, administrators, and personal and legal representatives, hereby forever irrevocably and unconditionally grants to PRG this general release, acquits, remises, and discharges PRG and its present and former officers, directors, stockholders, employees, agents, representatives, attorneys, insurers, corporate affiliates, divisions, subsidiaries, related companies and entities, controlling persons, predecessors, successors, and assigns (the "Released Parties") from any claims, demands, complaints, causes of action, suits, damages, costs, losses, debts, expenses, contracts, charges, controversies, obligations, liabilities, promises, or agreements whatsoever, in law or in equity, whether known or unknown, fixed or contingent, which Lustig has had or may now have against any of the Released Parties arising from or connected with any matter, including without limitation, his employment with PRG, the termination of that employment or, except as otherwise specifically provided herein, any post-termination severance, salary, bonus, deferred compensation, unvested stock options, stock awards, auto 3 4 allowance, fringe benefits or other employee benefits for which Lustig was eligible as an employee, officer or director of PRG and any subsidiary or affiliate thereof (collectively, the "Claims") but specifically excluding whatever rights or remedies or claims Lustig might have either (i) to indemnification or payment of expenses arising under PRG's charter, liability insurance or bylaws or those of any subsidiary or affiliate of PRG, (ii) in his capacity as a shareholder of PRG from and after the date of his termination or, (iii) by reason of PRG's default, failure or breach under this Agreement (collectively the "Reserved Rights"). Such released Claims shall include, but not be limited to, any claims, demands, suits or causes of. action (i) in connection with any privacy right, civil rights claim, claim for emotional or mental distress, claims of defamation, claims for personal injury, claims for breach of contract, and claims for harassment or (ii) pursuant to any federal or state securities laws or regulations (other than the Reserved Rights), federal, state, or local employment laws, regulations, executive orders, or other requirements, including without limitation those that may relate to sex, race, or other forms of discrimination. Lustig also agrees that, so long as John Cook is Chief Executive Officer of the Company, Lustig will not join in any attempt to (1) oust John Cook from his position as a director or as Chief Executive Officer; or (2) buy the Company through an unsolicited and unwelcome bid. In addition, except for the Reserved Rights, Lustig releases, remises, waives and discharges each of the Released Parties of and from any claims upon which he may have a right to recover in any lawsuit brought by any other person on Lustig's behalf or which includes Lustig in any class. Without limiting the generality of the foregoing, Lustig hereby acknowledges and covenants that he has knowingly relinquished and forever released any and all rights and remedies which might otherwise be available to him against any of the Released Parties under federal and state employment laws regarding his employment with PRG, including the Age Discrimination in Employment Act of 1967, as amended, 29 U.S.C. ss.621, et seq., the Civil Rights Act of 1964, as amended (including amendments made through the Civil Rights Act of 1991), 42 U.S.C. ss.2000e et seq., 42 U.S.C. ss.1981, as amended, the Americans With Disabilities Act, as amended, 42 U.S.C. ss.12101, et seq., the Rehabilitation Act of 1973, as amended, 29 U.S.C. ss.701 et seq., the Employee Retirement Income Security Act of 1974, as amended, 29 U.S.C. ss.031 et seq., the Worker Adjustment and Retraining Notification Act, 29 U.S.C. ss.2101, et seq., the Family and Medical Leave Act of 1993, as amended, 29 U.S.C. ss.2601 et seq., the Fair Labor Standards Act, as amended, 29 U.S.C. ss.201 et seq., and all Georgia Code provisions, state and federal workers' compensation laws, and any claims for attorneys' fees under federal, state or local laws. PRG, on behalf of itself, its affiliates and its and their respective owners, stockholders, agents, directors, officers, employees, representatives, attorneys, predecessors, successors and assigns (collectively the "PRG Releasees") hereby irrevocably and unconditionally remises, releases, and forever discharges Lustig and Lustig's heirs, representatives, successors and assigns (collectively the "Lustig Parties") of and from any and all actions, causes of actions, suits, debts, charges, allegations, assertions, complaints, claims, liabilities, obligations, promises, agreements, controversies, damages, and expenses (including attorneys' fees and costs actually incurred), of any nature whatsoever, in law or equity, whether presently known or unknown, discovered or undiscovered, whether or not accrued or fully matured (collectively the "Company Claims") 4 5 which Company Claims the Company Releasees ever had or which arises on or before the Effective Date of this Agreement, related to Lustig's employment with or termination from PRG or his status as an employee, officer, director, agent, shareholder or representative of any one or more of the Company Releasees; provided that this release shall not apply to and PRG hereby retains its rights to assert any and all claims PRG may have by reason of Lustig's default, failure or breach under this Agreement. By signing at the space indicated below, the Parties acknowledge that they have carefully read this general release and affirm that it constitutes a general release of all known and unknown Claims against the Released Parties and the PRG Releasees. /s/ C. MCKELLAR, JR. /s/ MICHAEL A. LUSTIG - --------------------------- ------------------------ For PRG Michael A. Lustig 3. COVENANT NOT TO SUE; NON-COOPERATION PROVISION. The Parties agree that they will not directly or indirectly institute, solicit, encourage, consult or advise, or in any way participate in the commencement and/or prosecution of any administrative proceeding or lawsuit against any of the Released Parties or the Lustig Parties in regard to the claims released herein or any other claims or causes of action arising from acts or omissions taken or made prior to the date of this Separation Agreement. All Parties further agree that they will not either directly or indirectly assist in, cooperate or consult with, or encourage any other parties or their attorneys to commence or prosecute any present or future administrative proceeding or lawsuit against the other Party or any of the Released Parties or the Lustig Parties. Nothing in this provision will prevent either Party from taking any actions deemed reasonably necessary to defend against any allegation, inquiries, accusations, proceeding, claim, demand, lawsuit or investigation of any nature whatsoever and by whomever initiated. 4. DUTY TO COOPERATE. For a one year period from the effective date of this Agreement, and thereafter, with respect to any litigation in which he is a defendant, Lustig agrees that he will cooperate with and provide assistance to PRG and its attorneys in connection with any and all investigations, inquiries or litigation whether in any judicial, administrative, or public, quasi-public or private forum, in which PRG is involved, whether or not Lustig is a defendant in such investigations, inquiries, proceedings or litigation. Lustig will provide such cooperation without cost (except for reimbursement for out-of-pocket expenses) on all matters involving litigation in which Lustig is a defendant. Such cooperation and assistance shall consist of, inter alia, meeting with counsel for PRG on a reasonable schedule and providing background information to counsel in such meetings, providing truthful testimony in any proceeding, and providing other support and cooperation as PRG may reasonably request. Additionally, Lustig shall use his best efforts to be available to assist any employee or representative of PRG via telephone or in person at PRG's executive offices to the extent that PRG, in its sole and exclusive discretion, determines that Lustig's assistance is necessary. PRG agrees that any requests made pursuant to this paragraph will be made in writing with adequate advance notice and any assistance provided by Lustig will be provided in a manner that does not interfere with any subsequent employment that Lustig procures. In addition, during the one year period, Lustig agrees that he will assist the Company in matters unrelated to litigation in which he is a defendant for up to one day (8 hours) 5 6 per month without additional payment to him except for reimbursement for direct, out of pocket expenses, if any, incurred by Lustig in connection with such cooperation. PRG agrees it will compensate Lustig for any time spent assisting or cooperating with the Company beyond one day per month at the rate of $1200 per day plus reimbursement for direct out-of-pocket expenses, if any, incurred by Lustig in connection with cooperation unrelated to litigation in which he is a defendant. After the one year period expires, any assistance Lustig agrees to provide to the Company (other than assistance related to litigation in which Lustig is a defendant) will be compensated at the rate of $1200 per day plus reimbursement for direct out-of-pocket expenses, if any, incurred by Lustig in connection with such cooperation. PRG also agrees to indemnify, defend and hold Lustig harmless from and against any claims, obligations, liabilities, loss or other damages incurred or sustained by Lustig in connection with all acts, undertakings or omissions committed by Lustig in providing PRG with any requested assistance. 5. NO DISPARAGEMENT. Lustig agrees that he will neither say, write nor communicate in any manner to any person or entity anything derogatory or negative about PRG and its officers, directors, employees, affiliates, and representatives, and any of its practices, policies, services or products, regardless of the truth or falsity of the information. PRG agrees that neither it nor any PRG Releasees will likewise say, write nor communicate in any manner to any person or entity anything derogatory or negative about Lustig. The Parties agree that this paragraph will not restrict either Party from providing information required by law, governmental or judicial order or to defend themselves in legal proceedings. 6. CONFIDENTIAL INFORMATION AND CONTINUING RESTRICTIVE COVENANTS. As used in this Separation Agreement, the term "Confidential Information" shall mean all information regarding PRG, PRG's activities, PRG's businesses including, but not limited to, PRG's accounting and other business procedures or PRG's customers that is not generally known to persons not employed by PRG, that is not generally disclosed by PRG to persons not employed by PRG, and that is the subject of reasonable efforts to protect its confidentiality. "Trade Secrets" shall mean information defined as a trade secret by the Georgia Trade Secrets Act. (a) Lustig understands and agrees that the Confidential Information and Trade Secrets constitute valuable assets of PRG and its affiliated entities, and should not be disclosed to any third parties without express permission from PRG. Lustig hereby represents and warrants that he has not revealed, divulged or disclosed to any third parties not affiliated with PRG any Confidential Information or Trade Secrets that he may have become aware of over the course of his employment with PRG and/or in the process of discussing the terms of his departure with PRG. Lustig further agrees that he shall not, directly or indirectly, at any time in future, reveal, divulge, or disclose to any person, not expressly authorized by PRG, any Trade Secrets. Lustig further agrees that he shall not, directly or indirectly, for a period of two years from the date of this Agreement, reveal, divulge, or disclose to any person, not expressly authorized by PRG, any Confidential Information. (b) Lustig understands and agrees that the restrictive covenants contained in paragraph 6.(a)-(c) of his Employment Agreement dated October 17, 1997, with PRG's subsidiary, The Profit Recovery Group International 1, Inc., shall remain in full force and effect. 6 7 7. OTHER REPRESENTATIONS. Lustig represents and warrants to PRG as follows: (a) that from October 25, 2000, through the date of execution of this Separation Agreement, he has not acted in any manner that, after the date of execution of this Separation Agreement, would be a violation of the terms of the Separation Agreement; (b) that he has not made any false statements or misrepresentations in connection with this Separation Agreement, that he has not assigned or transferred to any person or entity not a party to this Separation Agreement any Claim or other right released hereunder and that he shall defend, indemnify, and hold harmless PRG from and against any claim (including the payment of attorneys fees and costs actually incurred whether or not litigation has commenced) based on or in connection with or arising out of any such assignment or transfer made by Lustig; (c) that he has not, prior to the date and time of his execution of this Separation Agreement, initiated any lawsuit or any administrative proceedings against PRG with any governmental agency or any court; and (d) that a portion of the consideration he is receiving under this Separation Agreement is valuable consideration to which he would not otherwise be entitled. (e) that, in accordance with Lustig's existing and continuing obligations to PRG, except for the cellular telephone and lap top computer which he may retain pursuant to Section 1.C. (vi) hereof, he has returned or will immediately return to PRG all property and equipment of PRG in his possession, control or custody, including, without limitation, any of the following: pager(s), calling card(s), corporate credit card(s), office key(s), security card(s), all files, records, documents, correspondence, data, computer access codes, computer programs, business plans and other property which he prepared or helped prepare in connection with his employment by PRG and Lustig will not retain any copies or reproductions of any such property and equipment of PRG; and 8. INDEMNIFICATION BY LUSTIG. Lustig will defend, indemnify, and hold harmless PRG from and against any loss, expense or liability (including the reasonable attorneys fees and costs actually incurred whether or not litigation has commenced) suffered or incurred by PRG based on or in connection with or arising out of any disclosure by Lustig of Confidential Information prior to, on or after the date of execution of this Separation Agreement to any recipient who at the time of disclosure was not an officer, director or employee of PRG or otherwise authorized by PRG to received the Confidential Information. 9. INDEMNIFICATION BY PRG. Irrespective of Lustig's termination and with respect to those acts, errors or omissions undertaken or committed by Lustig on or before the date hereof in the performance of his duties as an officer, director or representative of any one or more of PRG or the PRG Releasees, Lustig will remain entitled to receive and PRG and each of the PRG Releases shall provide and extend to Lustig all rights of indemnification (including without limit obligations to defend) provided as available under either (i) the Articles of Incorporation, By- 7 8 Laws or the indemnification agreement of any one or more of PRG or the PRG Releasees to the maximum extent now or hereafter in effect and (ii) all professional or other liability insurance policies maintained by any one or more of PRG or the PRG Releasees to the maximum extent now or hereafter available. Additionally, PRG, on behalf of itself and each PRG Releasee, agrees that it shall continue to maintain all professional or other liability insurance covering its directors and officers and this liability insurance shall continue to provide Lustig with beneficial coverage for all acts or omissions undertaken by Lustig on or before the date hereof in the performance of his duties as an officer, director or representative of any one or more of PRG or the PRG Releasees. 10. REMEDIES. In the event either Party breaches any obligations under this Agreement, the non-breaching Party will be entitled to recover from the breaching Party attorneys' fees and all other costs and expenses incurred in enforcing this Agreement or in prosecuting any counterclaim or cross claim or appeal based hereon and to obtain all other relief provided by law or equity. Such rights and remedies shall be in addition to, and not in lieu of, any other rights and remedies available to the Parties at law or in equity. The Parties agree that if either Party is unsuccessful in any challenge to the terms of this Separation Agreement, or to the Separation Agreement as a whole, the unsuccessful Party shall be fully responsible for any expenses or damages incurred by the prevailing Party, including court costs and reasonable attorneys fees arising as a result of the unsuccessful Party's challenge. 11. NO ADMISSION. This Separation Agreement shall not be construed as an admission by either Party of any liability, or any acts of wrongdoing, or the violation of any federal, state or local law, ordinance or regulation, nor shall it be considered as evidence of any such alleged liability, wrongdoing, or violation of any federal, state or local law, ordinance or regulation. 12. CONFIDENTIALITY OF SEPARATION AGREEMENT. The nature and terms of this Separation Agreement are strictly confidential and shall not be disclosed by Lustig at any time to any person other than his immediate family, his lawyer and accountants without the prior written consent of PRG, except as necessary in any legal proceedings brought to enforce the provisions and terms of this Separation Agreement, to prepare and file income tax returns, pursuant to court order or to defend himself in legal proceedings. If either PRG or Lustig are asked about the termination of the relationship by parties outside PRG's group of employees and agents who have a legitimate business reason to know of the terms hereof, they will respond that Lustig voluntarily resigned. 13. GOVERNING LAW. This Separation Agreement is made and entered into in the State of Georgia and will in all material respects be interpreted, enforced, and governed under the laws of said state. The provisions of this Separation Agreement are severable, and if any part of the Separation Agreement is found to be unenforceable or invalid, the remainder of the Separation Agreement shall not in any way be affected or impaired and those provisions will continue to be valid and effective. 14. NO OTHER CONSIDERATION. Lustig affirms that the only consideration received by Lustig for entering into this Separation Agreement is as stated herein, and that no other promise, 8 9 representation or agreement of any kind whatsoever has been made to, or relied upon by, Lustig in connection with Lustig's execution of this Separation Agreement. Lustig further acknowledges that he has read the entire Separation Agreement and fully understands the meaning and intent of the Separation Agreement, including, but not limited to, its final and binding effect in relation to the general release of all claims. Lustig acknowledges that, with the exception of the payments and benefits described herein, he is not entitled to any other payments, compensation or fringe benefits of any kind whatsoever after the date of this Separation Agreement. 15. CONSULTATION WITH ATTORNEY. Lustig further acknowledges that he has been advised by PRG to consult with an attorney in connection with this Separation Agreement. Lustig further acknowledges that he was given the opportunity to take at least twenty-one (21) days from the time he first received this Separation Agreement within which to consider whether to sign it. Additionally, Lustig acknowledges that he will have seven (7) days from the date of the execution of this Separation Agreement by Lustig within which to change his mind and revoke the Separation Agreement, upon which event the payments and other obligations of PRG will cease. Lustig acknowledges and agrees that any revocation of this Separation Agreement must be made in writing and delivered within the seven 7-day revocation period to: The Profit Recovery Group International, Inc. Attn: Clinton McKellar, Jr. 2300 Windy Ridge Parkway, Suite 100 N Atlanta, Georgia 30339-8426 Lustig further acknowledges that the effective date of this Separation Agreement will be the eighth (8th) day after it has been executed by Lustig. 16. MERGER AND INTEGRATION. It is expressly understood and agreed that this Separation Agreement constitutes a full and final settlement and general release of all Claims. This Separation Agreement, therefore, supersedes and extinguishes any and all other promises, representations or agreements, whether written or oral, made at any time prior to the date of this Separation Agreement by and between the parties or any of their current and former officers, directors, stockholders, partners, principals, employees, agents, parent corporations, subsidiaries, affiliates, predecessors, estates, successors, assigns, and attorneys regarding the resolution of the Claims. The parties agree that, except with respect to any charter, bylaw or other agreement which provides indemnification obligations to Lustig and which PRG has agreed to extend to Lustig in accordance with Section 9 hereof, this Separation Agreement contains the entire agreement between the parties with respect to the Claims and that the terms of this Separation Agreement are contractual and not mere recitals. This Separation Agreement may not be changed, modified, amended or altered except by written agreement signed by all parties hereto. 17. KNOWING EXECUTION. Lustig warrants, represents, and acknowledges that this Separation Agreement is entered into by Lustig KNOWINGLY AND VOLUNTARILY as an act of Lustig's OWN FREE WILL; that Lustig is of sound mind; that Lustig is laboring under no physical, psychological, or 9 10 mental infirmity which would affect his capacity either to understand the terms of this Separation Agreement or to freely enter into and be bound by the provisions of this Separation Agreement. I HAVE PERSONALLY READ THE FOREGOING AGREEMENT, AND I AM VOLUNTARILY AND KNOWINGLY ENTERING INTO THE TERMS AND PROVISIONS CONTAINED IN IT, WITH FULL UNDERSTANDING OF ITS CONSEQUENCES. LUSTIG /s/ MICHAEL A. LUSTIG ----------------------------------------- MICHAEL A. LUSTIG Date: 2-2-01 ------------------------------------ PRG THE PROFIT RECOVERY GROUP INTERNATIONAL, INC. By: /s/ C. MCKELLAR, JR. ------------------------------------- Title: S.V.P ---------------------------------- Date: 2/2/01 ------------------------------------ 10 11 ACKNOWLEDGEMENT OF KNOWING AND VOLUNTARY EXECUTION BEFORE EXPIRATION OF MANDATORY TWENTY-ONE DAY CONSIDERATION PERIOD UNDER THE AGE DISCRIMINATION IN EMPLOYMENT ACT OF 1967, AS AMENDED I, MICHAEL A. LUSTIG, understand that I may take a minimum of twenty-one (21) days within which to consider and execute the above Separation Agreement. However, I acknowledge, represent and warrant that I have had sufficient time to review and consider this Separation Agreement, and I have freely and voluntarily chosen to execute the said Separation Agreement before the twenty-one (21) day period has expired. I further acknowledge that I have been advised by THE PROFIT RECOVERY GROUP INTERNATIONAL, INC. to consult an attorney prior to executing this acknowledgement below. Date: February 2, 2001 /s/ Michael A. Lustig --------------------------------------- --------------------------- MICHAEL A. LUSTIG 11 EX-10.2 3 g69093ex10-2.txt SEPARATION AGREEMENT, SCOTT L. COLABUONO, 1/31/01 1 EXHIBIT 10.2 SEPARATION AGREEMENT THIS SEPARATION AGREEMENT ("Separation Agreement") is entered into this January 31, 2001, by and among SCOTT L. COLABUONO ("Colabuono") and THE PROFIT RECOVERY GROUP INTERNATIONAL, INC., a Georgia corporation ("PRG"). W I T N E S S E T H WHEREAS, Colabuono has served as Executive Vice President - Finance, Chief Financial Officer and Treasurer of PRG and as an officer of subsidiaries and affiliates of PRG and resigned voluntarily from employment with PRG on October 25, 2000; and WHEREAS, PRG is willing to accept Colabuono's resignation as an officer; and WHEREAS, PRG and Colabuono desire to settle fully and finally all differences which may arise out of or relate to Colabuono's employment with PRG and all other claims Colabuono has through the date of this Separation Agreement against PRG and terminate the employment relationship between Colabuono and PRG and all agreements, other than this Separation Agreement, relating to such employment relationship. NOW THEREFORE, in consideration of the promises undertaken and releases herein contained, it is agreed by the parties hereto, as follows: 1. TERMINATION OF EMPLOYMENT; TERMINATION BENEFITS A. Termination of Employment. PRG and Colabuono hereby agree that Colabuono's employment by PRG and any and all of the subsidiaries of PRG is terminated effective as of October 25, 2000. Except for PRG's obligation to indemnify Colabuono as provided herein and the obligations of Colabuono contained in the July 19, 1999 Employee Agreement with PRG, which obligations remain in full force and effect, and except as otherwise specifically provided in this Separation Agreement, any and all agreements between Colabuono and PRG relating to employment, compensation, stock options, stock awards and any other benefits are hereby terminated and cancelled. B. Resignation from Offices and Board of Directors. Colabuono hereby confirms that he has resigned from all positions he may have had as an officer and director of PRG and of all subsidiaries and affiliates of PRG, effective October 25, 2000. C. Termination Benefits. PRG and Colabuono agree that Colabuono shall be entitled to receive the following, severance payments and rights, which collectively are the sole termination benefits to which he is entitled (collectively, items (i), (ii) and (iii) below being the "Termination Benefits"): (i) Commencing February 1, 2001, PRG shall pay Colabuono an aggregate of $680,625, payable in eighteen (18) equal monthly installments (without interest), on the last pay date each month, in accordance with PRG's customary payroll practices and subject to all applicable federal and state tax withholding and other deductions; provided, that in the event that prior to the end of such eighteen-month period either (a) any person or group of affiliated persons who, immediately prior to any transaction hereinafter described, 2 did not own 5% or more of the issued and outstanding shares of common stock of PRG, acquire beneficial ownership (as defined in Rule 13d-3 promulgated under the Securities Exchange Act of 1934, as amended), in a transaction or series of transactions, shares of common stock of PRG which represent more than 50% of all issued and outstanding shares of common stock of PRG (other than (A) in a transaction in which PRG has issued the shares of its common stock to such person or group of affiliated persons or (B) acquisitions which are not effected with the purpose of accomplishing a change in control of PRG, as evidenced in the Schedule 13D or Schedule 13G filed by such person or group of affiliated persons); (b) PRG shall consolidate or merge or participate in a share exchange with any other individual, partnership, association, group (as such term is used in Rule 13d under the Securities Exchange Act, as such Rule is in effect on the date of this Agreement), corporation or other entity (hereinafter "Person") other than PRG (or one or more of its wholly-owned subsidiaries) if, at the time of the consolidation, merger or share exchange or at the time PRG enters into any agreement with respect to any such consolidation, merger or share exchange, such other Person (or an affiliate or associate thereof) is entitled to elect a majority of the Board of Directors of PRG or if John Cook does not continue as the CEO of PRG; or (c) PRG sells all or substantially all of its assets to an unrelated third party in a transaction or series of related transactions, then any unpaid amounts under this Section 1.C(i) shall be immediately due and payable. (ii) In addition, PRG shall pay Colabuono on January 31, 2001 a one-time lump-sum payment of $301,041 (less the aggregate amount, if any, of payments made by PRG to Colabuono during the period from October 25, 2000 until January 31, 2001 as advances on such lump-sum payment or otherwise) in full, final and complete satisfaction of any salary, bonus, deferred compensation, stock options, stock purchase, fringe benefits or other employee benefits for which Colabuono may have been eligible as an employee or officer of PRG. (iii) PRG agrees that it will reimburse Colabuono for all amounts has paid to purchase shares of PRG common stock under the PRG Employee Stock Purchase Plan. Colabuono agrees that any and all stock awards or grants of PRG Common Stock and any and all options to purchase shares of PRG common stock, whether or not vested, are hereby cancelled. (iv) PRG agrees that Colabuono may retain the cell phone and the lap-top computer provided by PRG that he currently uses; provided that he first deliver the computer and, to the extent applicable, the cell phone to PRG for removal of all Confidential Information (as defined herein) and all software programs owned by or licensed to PRG thereon. (v) PRG will provide Colabuono with a separate notification about his rights under COBRA to elect to continue group insurance benefits for a specified period. (vi) Appropriate election forms for distribution or rollover of Colabuono's balance under the PRG 401(k) plan will be provided by the Plan Administrator in accordance with the PRG 401(k) plan. (vii) PRG will assign to Colabuono, to the extent assignable, at Colabuono's request, all insurance policies owned by PRG on the life of Colabuono, and Colabuono will assume all obligations thereunder. 2 3 2. GENERAL RELEASE. In consideration of the Termination Benefits provided to Colabuono by PRG and the promises contained in this Separation Agreement, Colabuono, for himself and for his successors, assigns, dependents, heirs, legatees, executors, administrators, and personal and legal representatives, hereby forever irrevocably and unconditionally grants to PRG this general release, acquits, remises, and discharges PRG and its present and former officers, directors, stockholders, employees, agents, representatives, attorneys, insurers, corporate affiliates, divisions, subsidiaries, related companies and entities, controlling persons, predecessors, successors, and assigns (the "Released Parties") from any claims, demands, complaints, causes of action, suits, damages, costs, losses, debts, expenses, contracts, charges, controversies, obligations, liabilities, promises, or agreements whatsoever, in law or in equity, whether known or unknown, fixed or contingent, which Colabuono has had or may now have against any of the Released Parties arising from or connected with any matter whatsoever, including without limitation, his employment with PRG, the termination of that employment or, except for the Termination Benefits or as otherwise specifically provided herein, any post-termination severance, salary, bonus, deferred compensation, stock options, stock awards, auto allowance, fringe benefits or other employee benefits for which Colabuono was eligible as an employee, officer or director of PRG and any subsidiary or affiliate thereof, but specifically excluding whatever rights Colabuono might have to indemnification or payment of expenses arising under PRG's charter or bylaws or those of any subsidiary or affiliate of PRG (collectively, the "Claims"). Such Claims shall include, but not be limited to, any claims, demands, suits or causes of action (i) in connection with any privacy right, civil rights claim, claim for emotional or mental distress, claims of defamation, claims for personal injury, claims for breach of contract, and claims for harassment or (ii) pursuant to any federal or state securities laws or regulations, federal, state, or local employment laws, regulations, executive orders, or other requirements, including without limitation those that may relate to sex, race, or other forms of discrimination. In addition, Colabuono releases, remises, waives and discharges each of the Released Parties of and from any claims upon which he may have a right to recover in any lawsuit brought by any other person on Colabuono's behalf or which includes Colabuono in any class. Without limiting the generality of the foregoing, Colabuono hereby acknowledges and covenants that he has knowingly relinquished and forever released any and all rights and remedies which might otherwise be available to him against any of the Released Parties under federal and state employment laws regarding his employment with PRG, including the Age Discrimination in Employment Act of 1967, as amended, 29 U.S.C. ss. 621, et seq., the Civil Rights Act of 1964, as amended (including amendments made through the Civil Rights Act of 1991), 42 U.S.C. ss. 2000e et seq., 42 U.S.C. ss. 1981, as amended, the Americans With Disabilities Act, as amended, 42 U.S.C. ss. 12101, et seq., the Rehabilitation Act of 1973, as amended, 29 U.S.C. ss. 701 et seq., the Employee Retirement Income Security Act of 1974, as amended, 29 U.S.C. ss. 031 et seq., the Worker Adjustment and Retraining Notification Act, 29 U.S.C. ss. 2101, et seq., the Family and Medical Leave Act of 1993, as amended, 29 U.S.C. ss. 2601 et seq., the Fair Labor Standards Act, as amended, 29 U.S.C. ss. 201 et seq., and all Georgia Code provisions, state and federal workers' compensation laws, and any claims for attorneys' fees under federal, state or local laws. 3 4 By signing at the space indicated below, Colabuono acknowledges that he has carefully read this general release and affirms that it constitutes a general release of all known and unknown Claims against the Released Parties. /s/ Scott L. Colabuono ------------------------------------- Scott L. Colabuono 3. COVENANT NOT TO SUE; NON-COOPERATION PROVISION. Colabuono agrees that he will not directly or indirectly institute, solicit, encourage, consult or advise, or in any way participate in the commencement and/or prosecution of any administrative proceeding or lawsuit against any of the Released Parties in regard to the Claims released herein or any other claims or causes of action arising from acts or omissions taken or made prior to the date of this Separation Agreement. Colabuono further agrees that he will not either directly or indirectly assist in, cooperate or consult with, or encourage any other parties or their attorneys to commence or prosecute any present or future administrative proceeding or lawsuit against PRG or any of the Released Parties. 4. DUTY TO COOPERATE. Colabuono agrees that he will cooperate with and provide assistance to PRG and its attorneys in connection with any and all investigations, inquiries or litigation whether in any judicial, administrative, or public, quasi-public or private forum, in which PRG is involved, whether or not Colabuono is a defendant in such investigations, inquiries, proceedings or litigation. Such cooperation and assistance shall consist of, inter alia, meeting with counsel for PRG on a reasonable schedule and providing background information to counsel in such meetings, providing truthful testimony in any proceeding, and providing other support and cooperation as PRG may reasonably request in connection with such proceedings. PRG agrees that any such requests will be made to the extent possible with adequate advance notice and in a manner that does not interfere with any subsequent employment that Colabuono procures. Colabuono agrees that all such cooperation will be without any additional payment to him, except that PRG shall reimburse Colabuono for direct out-of-pocket expenses, if any, incurred by him in connection with such cooperation. 5. NO DISPARAGEMENT. Colabuono agrees that he will neither say, write nor communicate in any manner to any person or entity anything derogatory or negative about PRG and its officers, directors, employees, affiliates, and representatives, and any of its practices, policies, services or products, regardless of the truth or falsity of the information. PRG agrees that it and its officers, directors, employees, affiliates and representatives will also refrain from stating, writing, or communicating in any manner to any person or entity anything derogatory or negative about Colabuono. Further, when called for a reference or other inquiry by a potential employer of Colabuono, PRG, its officers, directors, employees, affiliates and representatives will speak positively about Colabuono's performance and relationship while employed by PRG, in terms and substance similar to that provided on Exhibit "A" attached to this Agreement. Additionally, PRG shall either communicate this requirement to its officers, directors, employees, affiliates, and representatives, or alternatively PRG shall communicate to them to direct all calls for reference or other inquiry to the designated PRG individual(s) and that everyone else should not speak further on this subject. 6. CONFIDENTIAL INFORMATION. As used in this Separation Agreement, the term "Confidential Information" shall mean all information regarding PRG, PRG's activities, PRG's businesses including, but not limited to, PRG's accounting and other business procedures or PRG's 4 5 customers that is not generally known to persons not employed by PRG, that is not generally disclosed by PRG to persons not employed by PRG, and that is the subject of reasonable efforts to protect its confidentiality. "Trade Secrets" shall mean information defined as a trade secret by the Georgia Trade Secrets Act. (a) Colabuono understands and agrees that the Confidential Information and Trade Secrets constitute valuable assets of PRG and its affiliated entities, and should not be disclosed to any third parties without express permission from PRG. Colabuono hereby represents and warrants that he has not revealed, divulged or disclosed to any third parties not affiliated with PRG any Confidential Information or Trade Secrets that he may have become aware of over the course of his employment with PRG and/or in the process of discussing the terms of his departure with PRG. Colabuono further agrees that he shall not, directly or indirectly, at any time in future, reveal, divulge, or disclose to any person, not expressly authorized by PRG, any Confidential Information and/or Trade Secrets. (b) Colabuono understands and agrees that he remain bound by the restrictive covenants contained in his Employee Agreement dated July 19, 1999, with PRG. 7. OTHER REPRESENTATIONS. Colabuono represents and warrants to PRG as follows: (a) that from October 25, 2000, through the date of execution of this Separation Agreement, he has not acted in any manner that, after the date of execution of this Separation Agreement, would be a violation of the terms of the Separation Agreement; (b) that he has not made any false statements or misrepresentations in connection with this Separation Agreement, that he has not assigned or transferred to any person or entity not a party to this Separation Agreement any Claim or other right released hereunder and that he shall defend, indemnify, and hold harmless PRG from and against any claim (including the payment of attorneys fees and costs actually incurred whether or not litigation has commenced) based on or in connection with or arising out of any such assignment or transfer made by Colabuono; (c) that he has not, prior to the date and time of his execution of this Separation Agreement, initiated any lawsuit or any administrative proceedings against PRG with any governmental agency or any court; (d) that the consideration he is receiving under this Separation Agreement is valuable consideration to which he would not otherwise be entitled; and (e) that, in accordance with Colabuono's existing and continuing obligations to PRG, except for the cellular telephone and lap top computer which he may retain pursuant to Section 1C hereof, he has returned or will immediately return to PRG all property and equipment of PRG in his possession, control or custody, including, without limitation, any of the following: pager(s), calling card(s), corporate credit card(s), office key(s), security card(s), all files, records, documents, correspondence, data, computer access codes, computer programs, business plans and other property which he prepared or helped prepare in connection with his employment by PRG, and Colabuono will not retain any copies or reproductions of any such property and equipment of PRG. 5 6 8. INDEMNIFICATION BY PRG. PRG agrees that it will continue to provide indemnification to Colabuono to the fullest extent permissible under PRG's charter and bylaws and the charter and bylaws of any subsidiary of PRG and in accordance with applicable law. 9. REMEDIES. PRG agrees that immediately upon the finding of a breach, as set forth below, by it or any of its officers, directors, employees, affiliates, and representatives of any of the terms and provisions of this Separation Agreement, Colabuono is immediately thereby relieved of all of his obligations hereunder. Colabuono agrees that immediately upon the finding of a breach, as set forth below, by him of any of the terms and provisions of this Separation Agreement, PRG is immediately thereby relieved of all of its obligations hereunder. A "finding of a breach" shall be made by a third party who is unrelated to the parties to this Separation Agreement in an acceptable forum. An "acceptable forum" shall be a court of competent jurisdiction or the American Arbitration Association in Atlanta, Georgia, in which all parties have an opportunity to participate. If either party is unsuccessful in any challenge to the terms of this Separation Agreement, or to the Separation Agreement as a whole, that party acknowledges and agrees that it will be fully responsible for any expenses or damages incurred by the other party, including court costs and reasonable attorney's fees, arising as a result of the challenge. In the event either party (the "Breaching Party") breaches or threatens to commit a breach of any of the provisions of this Separation Agreement, the other party (the "Enforcing Party") shall have the right to enjoin, preliminarily and permanently, the Breaching Party from violating or threatening to violate this Separation Agreement and to have this Separation Agreement specifically enforced by any court of competent jurisdiction due to the irreparable injury to the Enforcing Party such a breach would cause. PRG shall not have any rights to withhold the Termination Benefits described herein absent a finding of breach, as defined above. In no event shall PRG have the right to withhold the Termination Benefits described herein absent a finding of breach, as defined above. All rights and remedies defined under this Section 9 shall be in addition to, and not in lieu of, any other rights and remedies available to either party at law or in equity. By execution of this Separation Agreement, Colabuono hereby waives any breaches by PRG or any of its officers, directors, and employees of any of the terms hereof from October 25, 2000, to the date hereof. 10. NO ADMISSION. This Separation Agreement shall not be construed as an admission by PRG of any liability, or any acts of wrongdoing, or the violation of any federal, state or local law, ordinance or regulation, nor shall it be considered as evidence of any such alleged liability, wrongdoing, or violation of any federal, state or local law, ordinance or regulation. 11. CONFIDENTIALITY OF SEPARATION AGREEMENT. The nature and terms of this Separation Agreement are strictly confidential and shall not be disclosed by Colabuono at any time to any person other than his lawyer and accountants without the prior written consent of PRG, except as necessary in any legal proceedings brought to enforce the provisions and terms of this Separation Agreement, to prepare and file income tax returns, or pursuant to court order after a notice to PRG. If either PRG or Colabuono are asked about the termination of the relationship by parties outside 6 7 PRG's group of employees and agents who have a legitimate business reason to know of the terms hereof, they will respond that Colabuono voluntarily resigned. 12. GOVERNING LAW. This Separation Agreement is made and entered into in the State of Georgia and will in all material respects be interpreted, enforced, and governed under the laws of said state. The provisions of this Separation Agreement are severable, and if any part of the Separation Agreement is found to be unenforceable or invalid, the remainder of the Separation Agreement shall not in any way be affected or impaired and those provisions will continue to be valid and effective. 13. NO OTHER CONSIDERATION. Colabuono affirms that the only consideration received by Colabuono for entering into this Separation Agreement is as stated herein, and that no other promise, representation or agreement of any kind whatsoever has been made to, or relied upon by, Colabuono in connection with Colabuono's execution of this Separation Agreement. Colabuono further acknowledges that he has read the entire Separation Agreement and fully understands the meaning and intent of the Separation Agreement, including, but not limited to, its final and binding effect in relation to the general release of all claims. Colabuono acknowledges that pursuant to the terms of this Separation Agreement he is not entitled to any other payments, compensation, or fringe benefits of any kind whatsoever after the date of this Separation Agreement. 14. CONSULTATION WITH ATTORNEY. Colabuono further acknowledges that he has been advised by PRG to consult with an attorney in connection with this Separation Agreement. Colabuono further acknowledges that he was given the opportunity to take at least twenty-one (21) days from the time he first received this Separation Agreement within which to consider whether to sign it. Additionally, Colabuono acknowledges that he will have seven (7) days from the date of the execution of this Separation Agreement by Colabuono within which to change his mind and revoke the Separation Agreement, upon which event the payments and other obligations of PRG will cease. Colabuono acknowledges and agrees that any revocation of this Separation Agreement must be made in writing and delivered within the seven 7-day revocation period to: The Profit Recovery Group International, Inc. Attn: Clinton McKellar, Jr. 2300 Windy Ridge Parkway, Suite 100 N Atlanta, Georgia 30339-8426 Colabuono further acknowledges that the effective date of this Separation Agreement will be the eighth (8th) day after it has been executed by Colabuono. 7 8 15. MERGER AND INTEGRATION. It is expressly understood and agreed that this Separation Agreement constitutes a full and final settlement and general release of all Claims. This Separation Agreement, therefore, supersedes and extinguishes any and all other promises, representations or agreements, whether written or oral, made at any time prior to the date of this Separation Agreement by and between the parties or any of their current and former officers, directors, stockholders, partners, principals, employees, agents, parent corporations, subsidiaries, affiliates, predecessors, estates, successors, assigns, and attorneys regarding the resolution of the Claims. The parties agree that, except with respect to any charter, bylaw or other agreement which provides indemnification obligations to Colabuono and which PRG has agreed to extend to Colabuono in accordance with Section 9 hereof, this Separation Agreement contains the entire agreement between the parties with respect to the Claims and that the terms of this Separation Agreement are contractual and not mere recitals. This Separation Agreement may not be changed, modified, amended or altered except by written agreement signed by all parties hereto. 16. KNOWING EXECUTION. Colabuono warrants, represents, and acknowledges that this Separation Agreement is entered into by Colabuono KNOWINGLY AND VOLUNTARILY as an act of Colabuono's OWN FREE WILL; that Colabuono is of sound mind; that Colabuono is laboring under no physical, psychological, or mental infirmity which would affect his capacity either to understand the terms of this Separation Agreement or to freely enter into and be bound by the provisions of this Separation Agreement. 8 9 I HAVE PERSONALLY READ THE FOREGOING AGREEMENT, AND I AM VOLUNTARILY AND KNOWINGLY ENTERING INTO THE TERMS AND PROVISIONS CONTAINED IN IT, WITH FULL UNDERSTANDING OF ITS CONSEQUENCES. COLABUONO /s/ SCOTT L. COLABUONO ----------------------------------------- SCOTT L. COLABUONO Date: January 31, 2001 ------------------------------------ PRG THE PROFIT RECOVERY GROUP INTERNATIONAL, INC. By: /s/ MARIE A. NEFF ------------------------------ Title: S.V.P. HUMAN RESOURCES --------------------------- Date: February 2, 2001 ---------------------------- 9 10 ACKNOWLEDGEMENT OF KNOWING AND VOLUNTARY EXECUTION BEFORE EXPIRATION OF MANDATORY TWENTY-ONE DAY CONSIDERATION PERIOD UNDER THE AGE DISCRIMINATION IN EMPLOYMENT ACT OF 1967, AS AMENDED I, SCOTT L. COLABUONO, understand that I may take a minimum of twenty-one (21) days within which to consider and execute the above Separation Agreement. However, I acknowledge, represent and warrant that I have had sufficient time to review and consider this Separation Agreement, and I have freely and voluntarily chosen to execute the said Separation Agreement before the twenty-one (21) day period has expired. I further acknowledge that I have been advised by THE PROFIT RECOVERY GROUP INTERNATIONAL, INC. to consult an attorney prior to executing this acknowledgement below. Date: JANUARY 31, 2001 /s/ SCOTT L. COLABUONO ---------------------- -------------------------------- SCOTT L. COLABUONO 10 11 EXHIBIT A Colabuono is a highly effective senior management executive with cross functional, multi industry experience in general and financial management. He is skilled in developing strategy, executing business plans and enhancing profitable operating results in competitive global markets. He has a high impact leadership style in driving organizational change and launching major business initiatives in support of business and financial objectives. He is recognized for strong analytical skills, innovative thinking and sound business judgment. He has held senior positions in GTE, Sprint, Burger King Worldwide, Norrell, Jack Nicklaus companies as well as Profit Recovery Group. While he is accomplished as a financial executive, his next logical career step is general management and we were not able to fulfill his career aspirations at PRG at this time. 11 EX-10.3 4 g69093ex10-3.txt NON-QUALIFIED STOCK OPTION AGMT - JOHN COOK 1 EXHIBIT 10.3 YOUR NAME: JOHN COOK TOTAL NO. OF OPTIONS: 200,000 PRG NON-QUALIFIED STOCK OPTION AGREEMENT THE PROFIT RECOVERY GROUP INTERNATIONAL, INC. ("PRG") is pleased to grant to the person signing below ("you" or "Optionee") the nonqualified stock option described below under the PRG Stock Incentive Plan (the "Plan"). For tax law purposes, this Option shall be treated as a Non-Qualified Stock Option. This Option is not intended to be and shall not be treated as an Incentive Stock Option for tax law purposes. GRANT DATE: MARCH 26, 2001 EXERCISE PRICE PER SHARE: $6.563 OPTION EXPIRATION DATE: MARCH 26, 2006 START DATE FOR VESTING SCHEDULE: MARCH 26, 2001
VESTING SCHEDULE: Subject to the Plan and this Agreement, this Option may be exercised in whole or in part, before the Option Expiration Date, in accordance with the following schedule:
CUMULATIVE AMOUNT OF SHARES ON OR AFTER PURCHASABLE UPON EXERCISE OF OPTION ----------- ----------------------------------- On March 26, 2001 50% March 26, 2002 75% March 26, 2003 100%
THE FOLLOWING DOCUMENTS (INCORPORATED IN THIS AGREEMENT BY REFERENCE) CONTAIN IMPORTANT INFORMATION ABOUT YOUR OPTIONS. PLEASE REVIEW CAREFULLY AND CONTACT PRG HUMAN RESOURCES IF YOU HAVE ANY QUESTIONS: Additional Terms and Conditions (attached) describes how to exercise your Option, what happens if you are no longer employed by PRG before you exercise your Option and where to send notices. The Plan contains the detailed terms that govern your Option. If anything in this Agreement or the other attachments is inconsistent with the Plan, the terms of the Plan, as amended from time to time, will control. As of the date of this Agreement PRG acknowledges that the terms of this Agreement and the other attachments are consistent with the terms of the Plan. Plan Prospectus Document covering the Options contains important information and the 2000 Annual Report of PRG (all of these may be accessed via the following Internet link: http://www.prgx.com/stock_incentive.htm) The Plan, the Plan Prospectus Document and the 2000 Annual Report of PRG are available on the PRG Intranet site (http://www.prgx.com/stock_incentive.htm). If you prefer, you may request that PRG mail these documents to you. Please mark in the space below to show how you intend to receive these documents. PLEASE CHECK ONE: ___ you will access these documents on line at http://www.prgx.com/stock_incentive.htm ___ you would like PRG to mail these documents to you at your residence address below. PLEASE SIGN BELOW TO SHOW THAT YOU ACCEPT THESE OPTIONS, KEEP A COPY AND RETURN BOTH ORIGINALS TO PRG HUMAN RESOURCES. OPTIONEE: THE PROFIT RECOVERY GROUP INTERNATIONAL, INC. /s/ JOHN COOK By: /s/ MARIE A. NEFF - ---------------------------------------- ------------------------------- Print Your Name: John Cook Name: Marie A. Neff ----------------------- ------------------------------- Your Residence Address: Its: SVP Human Resources ------------------------------- - ---------------------------------------- - ---------------------------------------- 2 ADDITIONAL TERMS AND CONDITIONS OF YOUR OPTION HOW TO EXERCISE YOUR OPTION - - This Option must be exercised for whole shares only and in increments of at least 40 shares per exercise. - - The Plan is administered by a Stock Option Plan Administrator in the Finance Department in the Atlanta office. The Administrator is responsible for assisting you in the exercise of your option and maintaining the records of the Plan. He may be reached at (770) 779-6537 or 6536. If you have questions about your options, how you go about exercising your vested options or how the Plan works, please contact the Administrator during normal business hours. EFFECT OF TERMINATION OF EMPLOYMENT. Except as provided below, you must be employed by PRG, its Subsidiaries or Affiliates on the applicable vesting date to exercise your Option. - - Termination of Employment Due to Death, Disability or Retirement. If your employment by PRG, its Subsidiaries or Affiliates terminates by reason of your death, Disability, or Retirement (see below for definitions)(i) your Options that are unvested as of the date of termination of your employment will terminate as of the date of the termination of your employment, and (ii) you (or your estate) can exercise any portion of your vested Options at any time within ninety (90) days after the date of termination of employment. After such 90-day period, the unexercised, but vested Options shall terminate. - - Other Termination of Employment. If your employment with PRG, its Subsidiaries or Affiliates is terminated for any reason other than death, Disability or Retirement, (i) any unvested Options will terminate as of the date of such termination of employment, and (ii) unless your employment is terminated for cause, you will have the right, for a period of seventy-five (75) days following such termination of employment, to exercise any vested Options, after which the unexercised, but vested Options shall terminate. If your employment is terminated for cause, all vested and unvested Options will terminate as of the date of termination of employment. - - "Cause" means (A) your act or failure to act amounting to gross negligence or willful misconduct to the detriment of PRG, its Subsidiaries or Affiliates; (B) your dishonesty, fraud, theft or embezzlement of funds or properties in the course of your employment; (C) your commission of or pleading guilty to or confessing to any felony; or (D) your breach of any restrictive covenant agreement with PRG, its Subsidiaries or Affiliates, including but not limited to covenants not to compete, non-solicitation covenants and non-disclosure covenants. For purposes of this Agreement your resignation without PRG's written consent prior to the expiration of a written employment contract or in anticipation of termination of employment for Cause shall constitute termination of employment for Cause. - - "Disability" means the inability, as a result of a physical or mental condition, to perform all material acts necessary to carry out your duties of employment for an aggregate of ninety (90) days within any one hundred eighty (180) consecutive day period. - - "Retirement" shall mean retirement from employment with PRG, its Subsidiaries or Affiliates at age sixty-five (65) or older with the consent of PRG. NOTICES. All notices pursuant to this Agreement will be in writing and either (i) delivered by hand, (ii) mailed by United States certified mail, return receipt requested, postage prepaid, or (iii) sent by an internationally recognized courier which maintains evidence of delivery and receipt. All notices or other communications will be directed to the following addresses (or to such other addresses as either of us may designate by notice to the other): To the Company: The Profit Recovery Group International, Inc. 2300 Windy Ridge Parkway, Suite 100 North Atlanta, GA 30339-8426 Attention: Senior Vice President, Human Resources To you: The address set forth on page 1 -2- 3 MISCELLANEOUS. Failure by you or PRG at any time or times to require performance by the other of any provisions in this Agreement will not affect the right to enforce those provisions. Any waiver by you or PRG of any condition or the breach of any term or provision in this Agreement, whether by conduct or otherwise, in any one or more instances, shall apply only to that instance and will not be deemed to waive conditions or breaches in the future. If any court of competent jurisdiction holds that any term or provision of this Agreement is invalid or unenforceable, the remaining terms and provisions will continue in full force and effect, and this Agreement shall be deemed to be amended automatically to exclude the offending provision. This Agreement may be executed in multiple copies and each executed copy shall be an original of this Agreement. This Agreement shall be subject to and governed by the laws of the State of Georgia. No change or modification of this Agreement shall be valid unless it is in writing and signed by the party against which enforcement is sought. This Agreement shall be binding upon, and inure to the benefit of, the permitted successors, assigns, heirs, executors and legal representatives of the parties hereto. The headings of each Section of this Agreement are for convenience only. This Agreement and any other agreements referenced herein contain the entire agreement of the parties hereto and no representation, inducement, promise, or agreement or otherwise between the parties not embodied herein shall be of any force or effect, and no party will be liable or bound in any manner for any warranty, representation, or covenant except as specifically set forth herein. -3- EX-10.4 5 g69093ex10-4.txt NON-QUALIFIED STOCK OPTION AGMT - JOHN TOMA 1 EXHIBIT 10.4 YOUR NAME: JOHN TOMA TOTAL NO. OF OPTIONS: 150,000 PRG NON-QUALIFIED STOCK OPTION AGREEMENT THE PROFIT RECOVERY GROUP INTERNATIONAL, INC. ("PRG") is pleased to grant to the person signing below ("you" or "Optionee") the nonqualified stock option described below under the PRG Stock Incentive Plan (the "Plan"). For tax law purposes, this Option shall be treated as a Non-Qualified Stock Option. This Option is not intended to be and shall not be treated as an Incentive Stock Option for tax law purposes. GRANT DATE: MARCH 26, 2001 EXERCISE PRICE PER SHARE: $6.563 OPTION EXPIRATION DATE: MARCH 26, 2006 START DATE FOR VESTING SCHEDULE: MARCH 26, 2001 VESTING SCHEDULE: Subject to the Plan and this Agreement, this Option may be exercised in whole or in part, before the Option Expiration Date, in accordance with the following schedule:
CUMULATIVE AMOUNT OF SHARES ON OR AFTER PURCHASABLE UPON EXERCISE OF OPTION ----------- ----------------------------------- On March 26, 2001 50% March 26, 2002 75% March 26, 2003 100%
THE FOLLOWING DOCUMENTS (INCORPORATED IN THIS AGREEMENT BY REFERENCE) CONTAIN IMPORTANT INFORMATION ABOUT YOUR OPTIONS. PLEASE REVIEW CAREFULLY AND CONTACT PRG HUMAN RESOURCES IF YOU HAVE ANY QUESTIONS: Additional Terms and Conditions (attached) describes how to exercise your Option, what happens if you are no longer employed by PRG before you exercise your Option and where to send notices. The Plan contains the detailed terms that govern your Option. If anything in this Agreement or the other attachments is inconsistent with the Plan, the terms of the Plan, as amended from time to time, will control. As of the date of this Agreement PRG acknowledges that the terms of this Agreement and the other attachments are consistent with the terms of the Plan. Plan Prospectus Document covering the Options contains important information and the 2000 Annual Report of PRG (all of these may be accessed via the following Internet link: http://www.prgx.com/stock_incentive.htm) The Plan, the Plan Prospectus Document and the 2000 Annual Report of PRG are available on the PRG Intranet site (http://www.prgx.com/stock_incentive.htm). If you prefer, you may request that PRG mail these documents to you. Please mark in the space below to show how you intend to receive these documents. PLEASE CHECK ONE: ___ you will access these documents on line at http://www.prgx.com/stock_incentive.htm ___ you would like PRG to mail these documents to you at your residence address below. PLEASE SIGN BELOW TO SHOW THAT YOU ACCEPT THESE OPTIONS, KEEP A COPY AND RETURN BOTH ORIGINALS TO PRG HUMAN RESOURCES. OPTIONEE: THE PROFIT RECOVERY GROUP INTERNATIONAL, INC. /s/ JOHN M. TOMA By: /s/ MARIE A. NEFF - ----------------------------- ------------------------------------ Print Your Name: John M. Toma Name: Marie A. Neff ------------- ---------------------------------- Your Residence Address: Its: SVP Human Resources ----------------------------------- - ----------------------------- - ----------------------------- - ----------------------------- 2 ADDITIONAL TERMS AND CONDITIONS OF YOUR OPTION HOW TO EXERCISE YOUR OPTION - - This Option must be exercised for whole shares only and in increments of at least 40 shares per exercise. - - The Plan is administered by a Stock Option Plan Administrator in the Finance Department in the Atlanta office. The Administrator is responsible for assisting you in the exercise of your option and maintaining the records of the Plan. He may be reached at (770) 779-6537 or 6536. If you have questions about your options, how you go about exercising your vested options or how the Plan works, please contact the Administrator during normal business hours. EFFECT OF TERMINATION OF EMPLOYMENT. Except as provided below, you must be employed by PRG, its Subsidiaries or Affiliates on the applicable vesting date to exercise your Option. - - Termination of Employment Due to Death, Disability or Retirement. If your employment by PRG, its Subsidiaries or Affiliates terminates by reason of your death, Disability, or Retirement (see below for definitions)(i) your Options that are unvested as of the date of termination of your employment will terminate as of the date of the termination of your employment, and (ii) you (or your estate) can exercise any portion of your vested Options at any time within ninety (90) days after the date of termination of employment. After such 90-day period, the unexercised, but vested Options shall terminate. - - Other Termination of Employment. If your employment with PRG, its Subsidiaries or Affiliates is terminated for any reason other than death, Disability or Retirement, (i) any unvested Options will terminate as of the date of such termination of employment, and (ii) unless your employment is terminated for cause, you will have the right, for a period of seventy-five (75) days following such termination of employment, to exercise any vested Options, after which the unexercised, but vested Options shall terminate. If your employment is terminated for cause, all vested and unvested Options will terminate as of the date of termination of employment. - - "Cause" means (A) your act or failure to act amounting to gross negligence or willful misconduct to the detriment of PRG, its Subsidiaries or Affiliates; (B) your dishonesty, fraud, theft or embezzlement of funds or properties in the course of your employment; (C) your commission of or pleading guilty to or confessing to any felony; or (D) your breach of any restrictive covenant agreement with PRG, its Subsidiaries or Affiliates, including but not limited to covenants not to compete, non-solicitation covenants and non-disclosure covenants. For purposes of this Agreement your resignation without PRG's written consent prior to the expiration of a written employment contract or in anticipation of termination of employment for Cause shall constitute termination of employment for Cause. - - "Disability" means the inability, as a result of a physical or mental condition, to perform all material acts necessary to carry out your duties of employment for an aggregate of ninety (90) days within any one hundred eighty (180) consecutive day period. - - "Retirement" shall mean retirement from employment with PRG, its Subsidiaries or Affiliates at age sixty-five (65) or older with the consent of PRG. NOTICES. All notices pursuant to this Agreement will be in writing and either (i) delivered by hand, (ii) mailed by United States certified mail, return receipt requested, postage prepaid, or (iii) sent by an internationally recognized courier which maintains evidence of delivery and receipt. All notices or other communications will be directed to the following addresses (or to such other addresses as either of us may designate by notice to the other): To the Company: The Profit Recovery Group International, Inc. 2300 Windy Ridge Parkway, Suite 100 North Atlanta, GA 30339-8426 Attention: Senior Vice President, Human Resources To you: The address set forth on page 1 -2- 3 MISCELLANEOUS. Failure by you or PRG at any time or times to require performance by the other of any provisions in this Agreement will not affect the right to enforce those provisions. Any waiver by you or PRG of any condition or the breach of any term or provision in this Agreement, whether by conduct or otherwise, in any one or more instances, shall apply only to that instance and will not be deemed to waive conditions or breaches in the future. If any court of competent jurisdiction holds that any term or provision of this Agreement is invalid or unenforceable, the remaining terms and provisions will continue in full force and effect, and this Agreement shall be deemed to be amended automatically to exclude the offending provision. This Agreement may be executed in multiple copies and each executed copy shall be an original of this Agreement. This Agreement shall be subject to and governed by the laws of the State of Georgia. No change or modification of this Agreement shall be valid unless it is in writing and signed by the party against which enforcement is sought. This Agreement shall be binding upon, and inure to the benefit of, the permitted successors, assigns, heirs, executors and legal representatives of the parties hereto. The headings of each Section of this Agreement are for convenience only. This Agreement and any other agreements referenced herein contain the entire agreement of the parties hereto and no representation, inducement, promise, or agreement or otherwise between the parties not embodied herein shall be of any force or effect, and no party will be liable or bound in any manner for any warranty, representation, or covenant except as specifically set forth herein. -3- EX-10.5 6 g69093ex10-5.txt NON-QUALIFIED STOCK OPTION AGMT - MARK PERLBERG 1 EXHIBIT 10.5 YOUR NAME: MARK PERLBERG TOTAL NO. OF OPTIONS: 135,000 PRG NON-QUALIFIED STOCK OPTION AGREEMENT THE PROFIT RECOVERY GROUP INTERNATIONAL, INC. ("PRG") is pleased to grant to the person signing below ("you" or "Optionee") the nonqualified stock option described below under the PRG Stock Incentive Plan (the "Plan"). For tax law purposes, this Option shall be treated as a Non-Qualified Stock Option. This Option is not intended to be and shall not be treated as an Incentive Stock Option for tax law purposes. GRANT DATE: MARCH 26, 2001 EXERCISE PRICE PER SHARE: $6.563 OPTION EXPIRATION DATE: MARCH 26, 2006 START DATE FOR VESTING SCHEDULE: MARCH 26, 2001 VESTING SCHEDULE: Subject to the Plan and this Agreement, this Option may be exercised in whole or in part, before the Option Expiration Date, in accordance with the following schedule:
CUMULATIVE AMOUNT OF SHARES ON OR AFTER PURCHASABLE UPON EXERCISE OF OPTION ----------- ------------------------------------ On March 26, 2001 50% March 26, 2002 75% March 26, 2003 100%
THE FOLLOWING DOCUMENTS (INCORPORATED IN THIS AGREEMENT BY REFERENCE) CONTAIN IMPORTANT INFORMATION ABOUT YOUR OPTIONS. PLEASE REVIEW CAREFULLY AND CONTACT PRG HUMAN RESOURCES IF YOU HAVE ANY QUESTIONS: Additional Terms and Conditions (attached) describes how to exercise your Option, what happens if you are no longer employed by PRG before you exercise your Option and where to send notices. The Plan contains the detailed terms that govern your Option. If anything in this Agreement or the other attachments is inconsistent with the Plan, the terms of the Plan, as amended from time to time, will control. As of the date of this Agreement PRG acknowledges that the terms of this Agreement and the other attachments are consistent with the terms of the Plan. Plan Prospectus Document covering the Options contains important information and the 2000 Annual Report of PRG (all of these may be accessed via the following Internet link: http://www.prgx.com/stock_incentive.htm) The Plan, the Plan Prospectus Document and the 2000 Annual Report of PRG are available on the PRG Intranet site (http://www.prgx.com/stock_incentive.htm). If you prefer, you may request that PRG mail these documents to you. Please mark in the space below to show how you intend to receive these documents. PLEASE CHECK ONE: ___ you will access these documents on line at http://www.prgx.com/stock_incentive.htm ___ you would like PRG to mail these documents to you at your residence address below. PLEASE SIGN BELOW TO SHOW THAT YOU ACCEPT THESE OPTIONS, KEEP A COPY AND RETURN BOTH ORIGINALS TO PRG HUMAN RESOURCES. OPTIONEE: THE PROFIT RECOVERY GROUP INTERNATIONAL, INC. /s/ MARK C. PERLBERG By:/s/ MARIE A. NEFF - ------------------------------------ ------------------------------------- Print Your Name: Mark C. Perlberg Name: Marie A. Neff ------------------- ---------------------------------- Your Residence Address: Its: SVP Human Resources ----------------------------------- - ------------------------------------ - ------------------------------------ 2 ADDITIONAL TERMS AND CONDITIONS OF YOUR OPTION HOW TO EXERCISE YOUR OPTION - - This Option must be exercised for whole shares only and in increments of at least 40 shares per exercise. - - The Plan is administered by a Stock Option Plan Administrator in the Finance Department in the Atlanta office. The Administrator is responsible for assisting you in the exercise of your option and maintaining the records of the Plan. He may be reached at (770) 779-6537 or 6536. If you have questions about your options, how you go about exercising your vested options or how the Plan works, please contact the Administrator during normal business hours. EFFECT OF TERMINATION OF EMPLOYMENT. Except as provided below, you must be employed by PRG, its Subsidiaries or Affiliates on the applicable vesting date to exercise your Option. - - Termination of Employment Due to Death, Disability or Retirement. If your employment by PRG, its Subsidiaries or Affiliates terminates by reason of your death, Disability, or Retirement (see below for definitions)(i) your Options that are unvested as of the date of termination of your employment will terminate as of the date of the termination of your employment, and (ii) you (or your estate) can exercise any portion of your vested Options at any time within ninety (90) days after the date of termination of employment. After such 90-day period, the unexercised, but vested Options shall terminate. - - Other Termination of Employment. If your employment with PRG, its Subsidiaries or Affiliates is terminated for any reason other than death, Disability or Retirement, (i) any unvested Options will terminate as of the date of such termination of employment, and (ii) unless your employment is terminated for cause, you will have the right, for a period of seventy-five (75) days following such termination of employment, to exercise any vested Options, after which the unexercised, but vested Options shall terminate. If your employment is terminated for cause, all vested and unvested Options will terminate as of the date of termination of employment. - - "Cause" means (A) your act or failure to act amounting to gross negligence or willful misconduct to the detriment of PRG, its Subsidiaries or Affiliates; (B) your dishonesty, fraud, theft or embezzlement of funds or properties in the course of your employment; (C) your commission of or pleading guilty to or confessing to any felony; or (D) your breach of any restrictive covenant agreement with PRG, its Subsidiaries or Affiliates, including but not limited to covenants not to compete, non-solicitation covenants and non-disclosure covenants. For purposes of this Agreement your resignation without PRG's written consent prior to the expiration of a written employment contract or in anticipation of termination of employment for Cause shall constitute termination of employment for Cause. - - "Disability" means the inability, as a result of a physical or mental condition, to perform all material acts necessary to carry out your duties of employment for an aggregate of ninety (90) days within any one hundred eighty (180) consecutive day period. - - "Retirement" shall mean retirement from employment with PRG, its Subsidiaries or Affiliates at age sixty-five (65) or older with the consent of PRG. NOTICES. All notices pursuant to this Agreement will be in writing and either (i) delivered by hand, (ii) mailed by United States certified mail, return receipt requested, postage prepaid, or (iii) sent by an internationally recognized courier which maintains evidence of delivery and receipt. All notices or other communications will be directed to the following addresses (or to such other addresses as either of us may designate by notice to the other): To the Company: The Profit Recovery Group International, Inc. 2300 Windy Ridge Parkway, Suite 100 North Atlanta, GA 30339-8426 Attention: Senior Vice President, Human Resources To you: The address set forth on page 1 -2- 3 MISCELLANEOUS. Failure by you or PRG at any time or times to require performance by the other of any provisions in this Agreement will not affect the right to enforce those provisions. Any waiver by you or PRG of any condition or the breach of any term or provision in this Agreement, whether by conduct or otherwise, in any one or more instances, shall apply only to that instance and will not be deemed to waive conditions or breaches in the future. If any court of competent jurisdiction holds that any term or provision of this Agreement is invalid or unenforceable, the remaining terms and provisions will continue in full force and effect, and this Agreement shall be deemed to be amended automatically to exclude the offending provision. This Agreement may be executed in multiple copies and each executed copy shall be an original of this Agreement. This Agreement shall be subject to and governed by the laws of the State of Georgia. No change or modification of this Agreement shall be valid unless it is in writing and signed by the party against which enforcement is sought. This Agreement shall be binding upon, and inure to the benefit of, the permitted successors, assigns, heirs, executors and legal representatives of the parties hereto. The headings of each Section of this Agreement are for convenience only. This Agreement and any other agreements referenced herein contain the entire agreement of the parties hereto and no representation, inducement, promise, or agreement or otherwise between the parties not embodied herein shall be of any force or effect, and no party will be liable or bound in any manner for any warranty, representation, or covenant except as specifically set forth herein. EX-10.6 7 g69093ex10-6.txt NON-QUALIFIED STOCK OPTION AGMT - JAMES DINKINS 1 EXHIBIT 10.6 YOUR NAME: JAMES DINKINS TOTAL NO. OF OPTIONS: 135,000 PRG NON-QUALIFIED STOCK OPTION AGREEMENT THE PROFIT RECOVERY GROUP INTERNATIONAL, INC. ("PRG") is pleased to grant to the person signing below ("you" or "Optionee") the nonqualified stock option described below under the PRG Stock Incentive Plan (the "Plan"). For tax law purposes, this Option shall be treated as a Non-Qualified Stock Option. This Option is not intended to be and shall not be treated as an Incentive Stock Option for tax law purposes. GRANT DATE: MARCH 26, 2001 EXERCISE PRICE PER SHARE: $6.563 OPTION EXPIRATION DATE: MARCH 26, 2006 START DATE FOR VESTING SCHEDULE: MARCH 26, 2001 VESTING SCHEDULE: Subject to the Plan and this Agreement, this Option may be exercised in whole or in part, before the Option Expiration Date, in accordance with the following schedule:
CUMULATIVE AMOUNT OF SHARES ON OR AFTER PURCHASABLE UPON EXERCISE OF OPTION ----------- ----------------------------------- On March 26, 2001 50% March 26, 2002 75% March 26, 2003 100%
THE FOLLOWING DOCUMENTS (INCORPORATED IN THIS AGREEMENT BY REFERENCE) CONTAIN IMPORTANT INFORMATION ABOUT YOUR OPTIONS. PLEASE REVIEW CAREFULLY AND CONTACT PRG HUMAN RESOURCES IF YOU HAVE ANY QUESTIONS: Additional Terms and Conditions (attached) describes how to exercise your Option, what happens if you are no longer employed by PRG before you exercise your Option and where to send notices. The Plan contains the detailed terms that govern your Option. If anything in this Agreement or the other attachments is inconsistent with the Plan, the terms of the Plan, as amended from time to time, will control. As of the date of this Agreement PRG acknowledges that the terms of this Agreement and the other attachments are consistent with the terms of the Plan. Plan Prospectus Document covering the Options contains important information and the 2000 Annual Report of PRG (all of these may be accessed via the following Internet link: http://www.prgx.com/stock_incentive.htm) The Plan, the Plan Prospectus Document and the 2000 Annual Report of PRG are available on the PRG Intranet site (http://www.prgx.com/stock_incentive.htm). If you prefer, you may request that PRG mail these documents to you. Please mark in the space below to show how you intend to receive these documents. PLEASE CHECK ONE: ___ you will access these documents on line at http://www.prgx.com/stock_ incentive.htm ___ you would like PRG to mail these documents to you at your residence address below. PLEASE SIGN BELOW TO SHOW THAT YOU ACCEPT THESE OPTIONS, KEEP A COPY AND RETURN BOTH ORIGINALS TO PRG HUMAN RESOURCES. OPTIONEE: THE PROFIT RECOVERY GROUP INTERNATIONAL, INC. /s/ JAMES L. DINKINS By: /s/ MARIE A. NEFF - -------------------------------------------- ----------------------- Print Your Name: James L. Dinkins Name: Marie A. Neff --------------------------- -------------------- Your Residence Address: Its: SVP Human Resources - -------------------------------------------- - -------------------------------------------- 2 ADDITIONAL TERMS AND CONDITIONS OF YOUR OPTION HOW TO EXERCISE YOUR OPTION - - This Option must be exercised for whole shares only and in increments of at least 40 shares per exercise. - - The Plan is administered by a Stock Option Plan Administrator in the Finance Department in the Atlanta office. The Administrator is responsible for assisting you in the exercise of your option and maintaining the records of the Plan. He may be reached at (770) 779-6537 or 6536. If you have questions about your options, how you go about exercising your vested options or how the Plan works, please contact the Administrator during normal business hours. EFFECT OF TERMINATION OF EMPLOYMENT. Except as provided below, you must be employed by PRG, its Subsidiaries or Affiliates on the applicable vesting date to exercise your Option. - - Termination of Employment Due to Death, Disability or Retirement. If your employment by PRG, its Subsidiaries or Affiliates terminates by reason of your death, Disability, or Retirement (see below for definitions)(i) your Options that are unvested as of the date of termination of your employment will terminate as of the date of the termination of your employment, and (ii) you (or your estate) can exercise any portion of your vested Options at any time within ninety (90) days after the date of termination of employment. After such 90-day period, the unexercised, but vested Options shall terminate. - - Other Termination of Employment. If your employment with PRG, its Subsidiaries or Affiliates is terminated for any reason other than death, Disability or Retirement, (i) any unvested Options will terminate as of the date of such termination of employment, and (ii) unless your employment is terminated for cause, you will have the right, for a period of seventy-five (75) days following such termination of employment, to exercise any vested Options, after which the unexercised, but vested Options shall terminate. If your employment is terminated for cause, all vested and unvested Options will terminate as of the date of termination of employment. - - "Cause" means (A) your act or failure to act amounting to gross negligence or willful misconduct to the detriment of PRG, its Subsidiaries or Affiliates; (B) your dishonesty, fraud, theft or embezzlement of funds or properties in the course of your employment; (C) your commission of or pleading guilty to or confessing to any felony; or (D) your breach of any restrictive covenant agreement with PRG, its Subsidiaries or Affiliates, including but not limited to covenants not to compete, non-solicitation covenants and non-disclosure covenants. For purposes of this Agreement your resignation without PRG's written consent prior to the expiration of a written employment contract or in anticipation of termination of employment for Cause shall constitute termination of employment for Cause. - - "Disability" means the inability, as a result of a physical or mental condition, to perform all material acts necessary to carry out your duties of employment for an aggregate of ninety (90) days within any one hundred eighty (180) consecutive day period. - - "Retirement" shall mean retirement from employment with PRG, its Subsidiaries or Affiliates at age sixty-five (65) or older with the consent of PRG. NOTICES. All notices pursuant to this Agreement will be in writing and either (i) delivered by hand, (ii) mailed by United States certified mail, return receipt requested, postage prepaid, or (iii) sent by an internationally recognized courier which maintains evidence of delivery and receipt. All notices or other communications will be directed to the following addresses (or to such other addresses as either of us may designate by notice to the other): To the Company: The Profit Recovery Group International, Inc. 2300 Windy Ridge Parkway, Suite 100 North Atlanta, GA 30339-8426 Attention: Senior Vice President, Human Resources To you: The address set forth on page 1 -2- 3 MISCELLANEOUS. Failure by you or PRG at any time or times to require performance by the other of any provisions in this Agreement will not affect the right to enforce those provisions. Any waiver by you or PRG of any condition or the breach of any term or provision in this Agreement, whether by conduct or otherwise, in any one or more instances, shall apply only to that instance and will not be deemed to waive conditions or breaches in the future. If any court of competent jurisdiction holds that any term or provision of this Agreement is invalid or unenforceable, the remaining terms and provisions will continue in full force and effect, and this Agreement shall be deemed to be amended automatically to exclude the offending provision. This Agreement may be executed in multiple copies and each executed copy shall be an original of this Agreement. This Agreement shall be subject to and governed by the laws of the State of Georgia. No change or modification of this Agreement shall be valid unless it is in writing and signed by the party against which enforcement is sought. This Agreement shall be binding upon, and inure to the benefit of, the permitted successors, assigns, heirs, executors and legal representatives of the parties hereto. The headings of each Section of this Agreement are for convenience only. This Agreement and any other agreements referenced herein contain the entire agreement of the parties hereto and no representation, inducement, promise, or agreement or otherwise between the parties not embodied herein shall be of any force or effect, and no party will be liable or bound in any manner for any warranty, representation, or covenant except as specifically set forth herein. -3- -----END PRIVACY-ENHANCED MESSAGE-----