10-Q

UNITED STATES SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

Form 10-Q

(Mark One)
þ	QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
	For the quarterly period ended June 30, 2005
	OR
o	TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
	For the transition period from             to

Commission File Number 0-28000

PRG-Schultz International, Inc.

(Exact name of registrant as specified in its charter)

Georgia	58-2213805
(State or other jurisdiction of incorporation or organization)	(I.R.S. Employer Identification No.)
600 Galleria Parkway Suite 100 Atlanta, Georgia (Address of principal executive offices)	30339-5986 (Zip Code)

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 þ          No o

      Indicate by check mark whether the registrant is an accelerated filer (as defined by Rule 12b-2 of the Exchange Act).     Yes þ          No o

      Common shares of the registrant outstanding at July 31, 2005 were 62,289,889.

PRG-SCHULTZ INTERNATIONAL, INC.

FORM 10-Q

For the Quarter Ended June 30, 2005

INDEX

			Page No.
Part I.	Financial Information
	Item 1.	Financial Statements (Unaudited)		1
		Condensed Consolidated Statements of Operations for the Three and Six Months Ended June 30, 2005 and 2004		1
		Condensed Consolidated Balance Sheets as of June 30, 2005 and December 31, 2004		2
		Condensed Consolidated Statements of Cash Flows for the Six Months Ended June 30, 2005 and 2004		3
		Notes to Condensed Consolidated Financial Statements		4
	Item 2.	Management’s Discussion and Analysis of Financial Condition and Results of Operations		14
	Item 3.	Quantitative and Qualitative Disclosures About Market Risk		28
	Item 4.	Controls and Procedures		28
Part II.	Other Information
	Item 1.	Legal Proceedings		30
	Item 2.	Unregistered Sales of Equity Securities and Use of Proceeds		30
	Item 3.	Defaults Upon Senior Securities		30
	Item 4.	Submission of Matters to a Vote of Security Holders		30
	Item 5.	Other Information		30
	Item 6.	Exhibits		30
Signatures				32
EX-3.2 RESTATED BYLAWS OF THE REGISTRANT
EX-31.1 SECTION 302 CERTIFICATION OF THE CEO
EX-31.2 SECTION 302 CERTIFICATION OF THE CFO
EX-32.1 SECTION 906 CERTIFICATION OF THE CEO AND CFO

PART I.     FINANCIAL INFORMATION

Item 1. Financial Statements (Unaudited)

PRG-SCHULTZ INTERNATIONAL, INC. AND SUBSIDIARIES

CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS

				Three Months Ended						Six Months Ended
				June 30,						June 30,
				2005			2004			2005			2004
				(Unaudited)
				(In thousands, except per share data)
Revenues				$	80,563		$	90,406		$	157,085		$	178,055
Cost of revenues					52,955			56,494			103,309			114,123
Selling, general and administrative expenses					31,427			33,244			60,213			66,450
	Operating income (loss)				(3,819	)		668			(6,437	)		(2,518	)
Interest expense					(2,193	)		(2,263	)		(4,120	)		(4,540	)
Interest income					132			115			249			296
	Loss from continuing operations before income taxes and discontinued operations				(5,880	)		(1,480	)		(10,308	)		(6,762	)
Income taxes					412			(563	)		1,099			(2,570	)
	Loss from continuing operations before earnings (loss) from discontinued operations				(6,292	)		(917	)		(11,407	)		(4,192	)
Earnings (loss) from discontinued operations (Note B):
	Gain (loss) on disposal of discontinued operations, including operating results for phase-out period, net of income tax expense (benefit) of $(79) and $5,322 for three and six months in 2004				—			(1,033	)		219			7,089
		Net earnings (loss)		$	(6,292	)	$	(1,950	)	$	(11,188	)	$	2,897
Basic earnings (loss) per share:
	Loss from continuing operations before discontinued operations			$	(0.10	)	$	(0.01	)	$	(0.18	)	$	(0.07	)
	Discontinued operations				—			(0.02	)		—			0.12
			Net earnings (loss)	$	(0.10	)	$	(0.03	)	$	(0.18	)	$	0.05
Diluted earnings (loss) per share (Note C):
	Loss from continuing operations before discontinued operations			$	(0.10	)	$	(0.01	)	$	(0.18	)	$	(0.07	)
	Discontinued operations				—			(0.02	)		—			0.12
			Net earnings (loss)	$	(0.10	)	$	(0.03	)	$	(0.18	)	$	0.05
Weighted-average shares outstanding (Note C):
	Basic				61,997			61,700			61,987			61,697
	Diluted				61,997			61,700			61,987			61,697

See accompanying Notes to Condensed Consolidated Financial Statements.

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PRG-SCHULTZ INTERNATIONAL, INC. AND SUBSIDIARIES

CONDENSED CONSOLIDATED BALANCE SHEETS

				June 30,			December 31,
				2005			2004
				(Unaudited)
				(In thousands, except
				share and per share data)
ASSETS
Current assets:
	Cash and cash equivalents (Note F)			$	12,242		$	12,596
	Restricted cash				278			120
	Receivables:
		Contract receivables, less allowances of $2,985 in 2005 and $3,515 in 2004			45,489			57,514
		Employee advances and miscellaneous receivables, less allowances of $2,084 in 2005 and $3,333 in 2004			4,497			3,490
			Total receivables		49,986			61,004
	Funds held for client obligations				20,109			30,920
	Prepaid expenses and other current assets				6,585			4,129
	Deferred income taxes				1,951			1,951
			Total current assets		91,151			110,720
Property and equipment:
	Computer and other equipment				64,503			62,858
	Furniture and fixtures				7,639			7,778
	Leasehold improvements				9,021			9,312
			Property and equipment, gross		81,163			79,948
	Less accumulated depreciation and amortization				58,688			53,475
			Property and equipment, net		22,475			26,473
Goodwill					170,645			170,684
Intangible assets, less accumulated amortization of $4,761 in 2005 and $4,068 in 2004					29,539			30,232
Other assets					3,431			3,827
				$	317,241		$	341,936
LIABILITIES AND SHAREHOLDERS’ EQUITY
Current liabilities:
	Current installments of long-term debt			$	12,500		$	—
	Obligations for client payables				20,109			30,920
	Accounts payable and accrued expenses				17,755			24,395
	Accrued payroll and related expenses				35,461			41,791
	Deferred revenue				4,194			6,466
			Total current liabilities		90,019			103,572
Convertible notes, net of unamortized discount of $1,397 in 2005 and $1,714 in 2004					123,603			123,286
Deferred compensation					1,428			2,195
Deferred income taxes					4,201			4,201
Other long-term liabilities					4,731			5,098
			Total liabilities		223,982			238,352
Shareholders’ equity (Note G):
	Preferred stock, no par value. Authorized 500,000 shares; no shares issued or outstanding in 2005 and 2004				—			—
	Participating preferred stock, no par value. Authorized 500,000 shares; no shares issued or outstanding in 2005 and 2004				—			—
	Common stock, no par value; $.001 stated value per share. Authorized 200,000,000 shares; issued 68,092,414 shares in 2005 and 67,658,656 shares in 2004				68			68
	Additional paid-in capital				495,597			493,532
	Accumulated deficit				(354,167	)		(342,979	)
	Accumulated other comprehensive income				1,635			1,740
	Treasury stock at cost; 5,764,525 shares in 2005 and 2004				(48,710	)		(48,710	)
	Unearned portion of restricted stock				(1,164	)		(67	)
			Total shareholders’ equity		93,259			103,584
Commitments and contingencies (Note H)
				$	317,241		$	341,936

See accompanying Notes to Condensed Consolidated Financial Statements.

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PRG-SCHULTZ INTERNATIONAL, INC. AND SUBSIDIARIES

CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS

					Six Months Ended
					June 30,
					2005			2004
					(Unaudited)
					(In thousands)
Cash flows from operating activities:
	Net earnings (loss)				$	(11,188	)	$	2,897
	Gain on disposal of discontinued operations					(219	)		(7,089	)
	Loss from continuing operations					(11,407	)		(4,192	)
	Adjustments to reconcile loss from continuing operations to net cash provided by (used in) operating activities:
		Depreciation and amortization				8,250			8,787
		Restricted stock compensation expense				196			(35	)
		Loss on sale of property and equipment				—			32
		Deferred income taxes				—			(5,105	)
		Changes in operating assets and liabilities:
			Restricted cash securing letter of credit obligation			(157	)		5,371
			Receivables			10,051			6,562
			Prepaid expenses and other current assets			(2,547	)		(1,536	)
			Other assets			(343	)		(98	)
			Accounts payable and accrued expenses			(5,013	)		(4,147	)
			Accrued payroll and related expenses			(5,341	)		(2,893	)
			Deferred revenue			(1,660	)		67
			Deferred compensation			(767	)		(347	)
			Other long-term liabilities			(367	)		82
				Net cash provided by (used in) operating activities		(9,105	)		2,548
Cash flows from investing activities:
	Purchases of property and equipment, net of sale proceeds					(3,542	)		(7,374	)
	Proceeds from sale of discontinued operations					—			19,116
				Net cash provided by (used in) investing activities		(3,542	)		11,742
Cash flows from financing activities:
	Net borrowings (repayments) of debt					12,500			(19,500	)
	Payments for issuance costs on convertible notes					—			(21	)
	Net proceeds from common stock issuances					772			223
				Net cash provided by (used in) financing activities		13,272			(19,298	)
Net cash provided by (used in) discontinued operations						234			(1,589	)
Effect of exchange rates on cash and cash equivalents						(1,213	)		(662	)
				Net change in cash and cash equivalents		(354	)		(7,259	)
Cash and cash equivalents at beginning of period						12,596			26,658
Cash and cash equivalents at end of period					$	12,242		$	19,399
Supplemental disclosure of cash flow information:
	Cash paid during the period for interest				$	3,343		$	3,170
	Cash paid during the period for income taxes, net of refunds received				$	707		$	2,286

See accompanying Notes to Condensed Consolidated Financial Statements.

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PRG-SCHULTZ INTERNATIONAL, INC. AND SUBSIDIARIES

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

June 30, 2005 and 2004

(Unaudited)

Note A — Basis of Presentation

      The accompanying Condensed Consolidated Financial Statements (Unaudited) of PRG-Schultz International, Inc. and its wholly owned subsidiaries (the “Company”) have been prepared in accordance with accounting principles generally accepted in the United States of America for interim financial information and with the instructions for Form 10-Q and Article 10 of Regulation S-X. Accordingly, they do not include all of the information and footnotes required by accounting principles generally accepted in the United States of America for complete financial statements. In preparing Condensed Consolidated Financial Statements (Unaudited), it is necessary for management to make assumptions and estimates affecting the amounts reported in such financial statements and related notes. These estimates and assumptions are developed based upon all information available. Actual results could differ from estimated amounts. 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 six-month period ended June 30, 2005 are not necessarily indicative of the results that may be expected for the year ending December 31, 2005.

      Disclosures included herein pertain to the Company’s continuing operations unless otherwise noted.

      For further information, refer to the Consolidated Financial Statements and Footnotes thereto included in the Company’s Form 10-K for the year ended December 31, 2004.

     (1)  Employee Stock Compensation Plans

      At June 30, 2005, the Company had two stock compensation plans and an employee stock purchase plan (the “Plans”). The Company accounts for the Plans under the provisions of Accounting Principles Board (“APB”) Opinion No. 25, Accounting for Stock Issued to Employees, and related interpretations. As such, compensation expense is measured on the date of grant only if the current market price of the underlying stock exceeds the exercise price. The options granted generally vest and become fully exercisable on a ratable basis over four years of continued employment. In accordance with APB Opinion No. 25 guidance, no compensation expense has been recognized for the Plans in the accompanying Condensed Consolidated Statements of Operations (Unaudited) except for compensation amounts relating to grants of shares of restricted stock issued in 2005 and 2000. The Company recognizes compensation expense over the indicated vesting periods using the straight-line method for its restricted stock awards.

      Pro forma information regarding net earnings and earnings per share is required by Statement of Financial Accounting Standards (“SFAS”) No. 123, Accounting for Stock-Based Compensation, as amended by SFAS No. 148, Accounting for Stock-Based Compensation — Transition and Disclosure. The following pro forma information has been determined as if the Company had accounted for its employee stock options as an operating expense under the fair value method of SFAS No. 123. The fair value of these options was estimated as of the date of grant using the Black-Scholes option valuation model.

      The Black-Scholes option valuation model was developed for use in estimating the fair value of traded options that have no vesting restrictions and are fully transferable. In addition, option valuation models require the input of highly subjective assumptions, including the expected stock price volatility. Because the Company’s employee stock options have characteristics significantly different from those of traded options and because changes in the subjective input assumptions can materially affect the fair value estimate, it is management’s opinion that existing models do not necessarily provide a reliable single measure of the fair value of the Company’s employee stock options. For purposes of pro forma disclosures below, the estimated fair value of the options is amortized to expense over the options’ vesting periods.

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PRG-SCHULTZ INTERNATIONAL, INC. AND SUBSIDIARIES

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS — (Continued)

      The Company’s pro forma information for the three and six months ended June 30, 2005 and 2004 for continuing and discontinued operations, combined, is as follows (in thousands, except for per share information):

			Three Months Ended						Six Months Ended
			June 30,						June 30,
			2005			2004			2005			2004
Numerator for basic and diluted pro forma net earnings (loss) per share:
	Net earnings (loss) before pro forma effect of compensation expense recognition provisions of SFAS No. 123		$	(6,292	)	$	(1,950	)	$	(11,188	)	$	2,897
	Pro forma effect of compensation expense recognition provisions of SFAS No. 123, net of income taxes of $(441) and $(1,091) in 2005 and $(615) and $(1,463) in 2004			(682	)		(951	)		(1,685	)		(2,260	)
	Pro forma net earnings (loss)		$	(6,974	)	$	(2,901	)	$	(12,873	)	$	637
Denominator for diluted pro forma net earnings (loss) per share:
	Weighted-average shares outstanding, as reported for basic earnings (loss) per share			61,997			61,700			61,987			61,697
	Effect of dilutive securities:
		Employee stock options		—			—			—			—
		Denominator for pro forma diluted earnings (loss) per share		61,997			61,700			61,987			61,697
Pro forma net earnings (loss) per share:
	Basic — as reported		$	(0.10	)	$	(0.03	)	$	(0.18	)	$	0.05
	Basic — pro forma		$	(0.11	)	$	(0.05	)	$	(0.21	)	$	0.01
	Diluted — as reported		$	(0.10	)	$	(0.03	)	$	(0.18	)	$	0.05
	Diluted — pro forma		$	(0.11	)	$	(0.05	)	$	(0.21	)	$	0.01

      In applying the treasury stock method to determine the dilutive impact of common stock equivalents, the calculation is performed in steps with the impact of each type of dilutive security calculated separately. For each of the three-and six-month periods ended June 30, 2005 and 2004, 16.1 million shares related to the convertible notes were excluded from the computation of pro forma diluted earnings per share calculated using the treasury stock method, due to their antidilutive effect.

      When the Company adopts SFAS No. 123 (revised 2004) (“SFAS No. 123(R)”), Share-Based Payments, as discussed below, it will include the expense associated with share-based payments issued to employees in its Condensed Consolidated Statements of Operations (Unaudited). The Company is currently scheduled to adopt SFAS No. 123(R) at the beginning of 2006. The Company has not yet completed its assessment of which valuation model or transition option to select.

     (2)  New Accounting Standards

      In December 2004, the FASB issued SFAS No. 123(R). This Statement requires a public entity to measure the cost of employee services received in exchange for an award of equity instruments based on the grant-date fair value of the award (with limited exceptions). That cost will be recognized over the period

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PRG-SCHULTZ INTERNATIONAL, INC. AND SUBSIDIARIES

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS — (Continued)

during which an employee is required to provide service in exchange for the award — the requisite service period (usually the vesting period). No compensation cost is recognized for equity instruments for which employees do not render the requisite service. Employee share purchase plans will not result in recognition of compensation cost if certain conditions are met.

      A public entity will initially measure the cost of employee services received in exchange for an award of liability instruments based on its current fair value; the fair value of that award will be remeasured subsequently at each reporting date through the settlement date. Changes in fair value during the requisite service period will be recognized as compensation cost over that period.

      As of their respective required effective dates, all public entities will apply this Statement using a modified version of prospective application. Under that transition method, compensation cost is recognized on or after the required effective date for the portion of outstanding awards for which the requisite service has not yet been rendered, based on the grant-date fair value of those awards calculated under SFAS No. 123(R) for either recognition or pro forma disclosures. For periods before the required effective date, entities may elect to apply a modified version of retrospective application under which financial statements for prior periods are adjusted on a basis consistent with the pro forma disclosures required for those periods by Statement 123(R) (see Note A(1) for pro forma disclosures). The impact of this Statement on future periods cannot be estimated at this time.

      On April 14, 2005, the U.S. Securities and Exchange Commission (the “SEC”) announced a deferral of the effective date of SFAS No. 123(R) until the first annual period beginning after June 15, 2005.

Note B — Discontinued Operations

     (a)  Revenue-Based Royalty from Sale of Logistics Management Services in 2001

      On October 30, 2001, the Company consummated the sale of its Logistics Management Services business to Platinum Equity, a firm specializing in acquiring and operating technology organizations and technology-enabled service companies worldwide. The transaction yielded initial gross sale proceeds, as adjusted, of approximately $9.5 million with an additional amount payable in the form of a revenue-based royalty over four years, of which $1.9 million had been cumulatively received through June 30, 2005 and a final $0.3 million payment is expected to be received in the third quarter of 2005.

      During the first half of 2005 and 2004, the Company recognized a gain on the sale of discontinued operations of approximately $0.2 million and $0.1 million, respectively, net of tax expenses of approximately $-0- million and $0.1 million, respectively, related to the receipt of a portion of the revenue-based royalty from the sale of the Logistics Management Services business in October 2001, as adjusted for certain expenses accrued as part of the estimated loss on the sale of that business.

     (b)  Sale of Discontinued Operations — French Taxation Services in 2001

      On December 14, 2001, the Company consummated the sale of its French Taxation Services business (“ALMA”), as well as certain notes payable due to the Company, to Chequers Capital, a Paris-based private equity firm. In conjunction with this sale, the Company provided the buyer with certain warranties. Effective December 30, 2004, the Company, Meridian and ALMA (the “Parties”) entered into a Settlement Agreement (the “Agreement”) requiring the Company to pay a total of 3.4 million Euros ($4.7 million at January 3, 2005 exchange rates, the payment date), to resolve the buyer’s warranty claims with respect to a commission dispute with Meridian. During the fourth quarter of 2004, the Company recognized a loss on discontinued operations of $3.1 million for amounts not previously accrued to provide for these claims. No tax benefit was recognized in relation to the expense. The Agreement settles all remaining indemnification obligations and terminates all contractual relationships between the Parties and further specifies that the Parties will renounce all complaints, grievances and other actions.

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PRG-SCHULTZ INTERNATIONAL, INC. AND SUBSIDIARIES

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS — (Continued)

     (c)  Sale of Communications Services

      During the fourth quarter of 2003, the Company declared its remaining Communications Services operations, formerly part of the Company’s then-existing Other Ancillary Services segment, as a discontinued operation. On January 16, 2004, the Company consummated the sale of the remaining Communications Services operations to TSL (DE) Corp., a newly formed company whose principal investor at that time was One Equity Partners, the private equity division of Bank One. The operations were sold for approximately $19.1 million in cash paid at closing, plus the assumption of certain liabilities of Communications Services. The Company recognized a gain on disposal of approximately $8.3 million, net of tax expense of approximately $5.5 million. During the three months ended June 30, 2004, the Company adjusted the gain on disposal by approximately $(120) thousand, net of a reduction in tax expense of approximately $80 thousand due to an adjustment in working capital originally estimated at the time of sale. Operating results for Communications Services during the phase-out period were a loss of $(0.3) million, net of an income tax benefit of $(0.2) million.

Note C — Diluted Earnings (Loss) Per Share

      The following table sets forth the computations of basic and diluted earnings (loss) per share for the three and six months ended June 30, 2005 and 2004 (in thousands, except per share data):

					Three Months Ended						Six Months Ended
					June 30,						June 30,
					2005			2004			2005			2004
Numerator for diluted earnings (loss) per share:
	Loss from continuing operations before discontinued operations				$	(6,292	)	$	(917	)	$	(11,407	)	$	(4,192	)
	After-tax interest expense, including amortization of discount on convertible notes					—			—			—			—
			Loss for purposes of computing diluted earnings (loss) per share from continuing operations			(6,292	)		(917	)		(11,407	)		(4,192	)
	Discontinued operations					—			(1,033	)		219			7,089
			Earnings (loss) for purposes of computing diluted earnings (loss) per share		$	(6,292	)	$	(1,950	)	$	(11,188	)	$	2,897
Denominator:
	Denominator for basic earnings (loss) per share — weighted-average shares outstanding					61,997			61,700			61,987			61,697
	Effect of dilutive securities:
		Employee stock options				—			—			—			—
		Convertible notes				—			—			—			—
		Denominator for diluted earnings (loss) per share				61,997			61,700			61,987			61,697
Diluted earnings (loss) per share:
	Loss from continuing operations before discontinued operations				$	(0.10	)	$	(0.01	)	$	(0.18	)	$	(0.07	)
	Discontinued operations					—			(0.02	)		—			0.12
				Net earnings (loss)	$	(0.10	)	$	(0.03	)	$	(0.18	)	$	0.05

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PRG-SCHULTZ INTERNATIONAL, INC. AND SUBSIDIARIES

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS — (Continued)

      For the three months ended June 30, 2005 and 2004, 6.2 million and 5.7 million stock options, respectively, were excluded from the computation of diluted earnings (loss) per share calculated using the treasury stock method, due to their antidilutive effect. For the six months ended June 30, 2005 and 2004, 5.4 million and 6.0 million stock option shares, respectively, were excluded from the computation of diluted earnings per share calculated using the treasury stock method due to their antidilutive effect.

      Additionally, for the three and six months ended June 30, 2005 and 2004, 16.1 million shares related to the convertible notes were excluded from the calculation of diluted earnings (loss) per share due to their antidilutive effect.

Note D — Operating Segments and Related Information

      The Company has two reportable operating segments, Accounts Payable Services (including the Channel Revenue business) and Meridian VAT Reclaim (“Meridian”).

Accounts Payable Services

      The Accounts Payable Services segment consists of services that entail the review of client accounts payable disbursements to identify and recover overpayments. This operating segment includes accounts payable services provided to retailers and wholesale distributors (the Company’s historical client base) and accounts payable services provided to various other types of business entities. The Accounts Payable Services segment conducts business in North America, South America, Europe, Australia, Africa and Asia.

Meridian VAT Reclaim

      Meridian is based in Ireland and specializes in the recovery of value-added taxes (“VAT”) paid on business expenses for corporate clients located throughout the world. Acting as an agent on behalf of its clients, Meridian submits claims for refunds of VAT paid on business expenses incurred primarily in European Union countries. Meridian provides a fully outsourced service dealing with all aspects of the VAT reclaim process, from the provision of audit and invoice retrieval services to the preparation and submission of VAT claims and the subsequent collection of refunds from the relevant VAT authorities.

Corporate Support

      In addition to the segments noted above, the Company includes the unallocated portion of corporate selling, general and administrative expenses not specifically attributable to Accounts Payable Services or Meridian in the category referred to as corporate support.

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PRG-SCHULTZ INTERNATIONAL, INC. AND SUBSIDIARIES

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS — (Continued)

      The Company evaluates the performance of its operating segments based upon revenues and operating income. The Company does not have any intersegment revenues. Segment information for the three and six months ended June 30, 2005 and 2004 is as follows (in thousands):

		Accounts
		Payable				Corporate
		Services		Meridian		Support			Total
Three Months Ended June 30, 2005
	Revenues	$	68,167	$	12,396	$	—		$	80,563
	Operating income (loss)		6,019		3,230		(13,068	)		(3,819	)
Three Months Ended June 30, 2004
	Revenues	$	76,756	$	13,650	$	—		$	90,406
	Operating income (loss)		8,089		5,275		(12,696	)		668
Six Months Ended June 30, 2005
	Revenues	$	134,468	$	22,617	$	—		$	157,085
	Operating income (loss)		10,847		5,916		(23,200	)		(6,437	)
Six Months Ended June 30, 2004
	Revenues	$	155,835	$	22,220	$	—		$	178,055
	Operating income (loss)		18,360		6,047		(26,925	)		(2,518	)

Note E — Comprehensive Income

      The Company applies the provisions of SFAS No. 130, Reporting Comprehensive Income. This Statement establishes items that are required to be recognized under accounting standards as components of comprehensive income. SFAS No. 130 requires, among other things, that an enterprise report a total for comprehensive income in condensed financial statements of interim periods issued to shareholders. For the three-month periods ended June 30, 2005 and 2004, the Company’s consolidated comprehensive loss was $(6.4) million and $(2.1) million, respectively. For the six-month periods ended June 30, 2005 and 2004, the Company’s consolidated comprehensive income (loss) was $(11.3) million and $2.5 million, respectively. The difference between consolidated comprehensive income (loss), as disclosed here, and traditionally determined consolidated net earnings, as set forth on the accompanying Condensed Consolidated Statements of Operations (Unaudited), results from foreign currency translation adjustments.

Note F — Cash Equivalents

      Cash and cash equivalents include all cash balances and highly liquid investments with an initial maturity of three months or less. The Company places its temporary cash investments with high credit quality financial institutions. At times, certain investments may be in excess of the Federal Deposit Insurance Corporation insurance limit.

      At June 30, 2005 and December 31, 2004, the Company had cash and cash equivalents of $12.2 million and $12.6 million, respectively, of which cash equivalents represent approximately $1.0 million and $1.6 million, respectively. The Company did not have any cash equivalents at U.S. banks at June 30, 2005. At December 31, 2004, the Company had $0.2 million in cash equivalents at U.S. banks. At June 30, 2005 and December 31, 2004, certain of the Company’s international subsidiaries held $1.0 million and $1.4 million, respectively, in cash equivalents, the majority of which were at banks in Latin America and the United Kingdom, respectively.

9

PRG-SCHULTZ INTERNATIONAL, INC. AND SUBSIDIARIES

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS — (Continued)

Note G — Shareholders’ 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 were structured to vest on a ratable basis over five years of continued employment. The remaining 151,000 restricted shares were structured to vest at the end of five years of continued employment. At June 30, 2005, there were 40,500 shares of this common stock which were no longer forfeitable and for which all restrictions had accordingly been removed. Additionally, as of June 30, 2005, former employees had cumulatively forfeited 191,500 shares of the restricted common stock. Over the remaining life of the Stock Awards (as adjusted at June 30, 2005 to reflect cumulative forfeitures to date), the Company will recognize $13 thousand in compensation expense before any future forfeitures. The Company recognized $17 thousand and $(10) thousand of compensation expense related to these Stock Awards for the three months ended June 30, 2005 and 2004, respectively, and $35 thousand and $(35) thousand for the six months ended June 30, 2005 and 2004, respectively. Additionally, the Company reduced unamortized compensation expense for forfeitures of Stock Awards by $10 thousand and $53 thousand for the three months ended June 30, 2005 and 2004, respectively, and $19 thousand and $135 thousand for the six months ended June 30, 2005 and 2004, respectively.

      To promote retention of key employees during the Company’s exploration of strategic alternatives, among other goals, on October 19, 2004, the Company’s Compensation Committee approved a program under which the Company modified employment and compensation arrangements with certain management employees as disclosed in the Company’s Reports on Form 8-K filed on October 26, 2004 and February 11, 2005. Under the program, the officers were offered additional benefits related to certain termination and change of control events when they agreed to revised restrictive covenants.

      Among the additional benefits, restricted stock awards representing 240,000 shares in the aggregate, and 25,000 shares of the Company’s common stock were granted to six of the Company’s officers in February 2005 and to a senior management employee in March 2005, respectively. The total 265,000 restricted shares of these grants are subject to service-based cliff vesting. Effective July 31, 2005, 40,000 restricted shares were forfeited and cancelled in accordance with their terms upon the termination of employment of the Company’s former Vice Chairman. The restricted awards vest three years following the date of the grant, subject to early vesting upon occurrence of certain events including a change of control, death, disability or involuntary termination of employment without cause. The restricted awards will be forfeited if the recipient voluntarily terminates his or her employment with the Company (or a subsidiary, affiliate or successor thereof) prior to vesting. The shares are generally nontransferable until vesting. During the vesting period, the award recipients will be entitled to receive dividends with respect to the escrowed shares and to vote the shares. Over the remaining life of the restricted stock awards, the Company will recognize $1.0 million in compensation expense before any future forfeitures. The Company recognized $109 thousand and $161 thousand of compensation expense related to these Stock Awards for the three and six months ended June 30, 2005, respectively.

      The Company has issued no preferred stock through June 30, 2005, 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 Company’s Shareholder Protection Rights Agreement. The Company’s remaining, undesignated preferred stock (500,000 shares authorized) 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.

10

PRG-SCHULTZ INTERNATIONAL, INC. AND SUBSIDIARIES

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS — (Continued)

Note H — Commitments and Contingencies

(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 alleged that the Company, John M. Cook, the Company’s former CEO, Scott L. Colabuono, the Company’s former Chief Financial Officer, and Michael A. Lustig, the Company’s former Chief Operating Officer, (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 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 purported to bring this action on behalf of a class of persons who purchased the Company’s stock between July 19, 1999 and July 26, 2000. Plaintiffs sought an unspecified amount of compensatory damages, payment of litigation fees and expenses, and equitable and/or injunctive relief. The Court granted Plaintiffs’ Motion for Class Certification on December 3, 2002.

      On May 26, 2005, the Court approved the Stipulation of Settlement (“Settlement”) entered into by the Company with Plaintiffs’ counsel, on behalf of all putative class members, pursuant to which it agreed to settle the consolidated class action for $6.75 million, which payment was made by the insurance carrier for the Company.

      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.

     (2)  Indemnification and Consideration Concerning Certain Future Asset Impairment Assessments

      The Company’s Meridian unit and an unrelated German concern named Deutscher Kraftverkehr Euro Service GmbH & Co. KG (“DKV”) are each a 50% owner of a joint venture named Transporters VAT Reclaim Limited (“TVR”). Since neither owner, acting alone, has majority control over TVR, Meridian accounts for its ownership using the equity method of accounting. DKV provides European truck drivers with a credit card that facilitates their fuel purchases. DKV distinguishes itself from its competitors, in part, by providing its customers with an immediate advance refund of the value-added taxes (“VAT”) they pay on their fuel purchases. DKV then recovers the VAT from the taxing authorities through the TVR joint venture. Meridian processes the VAT refund on behalf of TVR for which it receives a percentage fee. In April 2000, TVR entered into a financing facility with Barclays Bank plc (“Barclays”), whereby it sold the VAT refund claims to Barclays with full recourse. Effective August 2003, Barclays exercised its contractual rights and unilaterally imposed significantly stricter terms for the facility, including markedly higher costs and a series of stipulated cumulative reductions to the facility’s aggregate capacity. TVR repaid all amounts owing to Barclays during March 2004 and terminated the facility during June 2004. As a result of changes to the facility occurring during the second half of 2003, DKV transferred certain TVR clients to another VAT service provider resulting in a reduction in the processing fee revenues Meridian derives from TVR. As of December 31, 2004, the transfer of all DKV customer contracts from TVR to another VAT service provider was completed. TVR will continue to process existing claims and collect receivables and pay these to Meridian and DKV in the manner agreed between the parties.

      Meridian agreed with DKV to commence an orderly and managed closeout of the TVR business. Therefore, Meridian’s revenues from TVR for processing TVR’s VAT refunds, and the associated profits therefrom, ceased in October 2004. (Meridian’s revenues from TVR were $0.1 million and $0.5 million for the

11

PRG-SCHULTZ INTERNATIONAL, INC. AND SUBSIDIARIES

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS — (Continued)

three and six months ended June 30, 2004, respectively). As TVR goes about the orderly wind-down of its business in future periods, it will be receiving VAT refunds from countries, and a portion of such refunds will be paid to Meridian in liquidation of its investment in TVR. If there is a marked deterioration in TVR’s future financial condition from its inability to collect refunds from countries, Meridian may be unable to recover some or all of its long-term investment in TVR, which totaled $2.0 million at June 30, 2005 exchange rates and $2.2 million at December 31, 2004 exchange rates. This investment is included in Other Assets on the Company’s accompanying June 30, 2005 and December 31, 2004 Condensed Consolidated Balance Sheets (Unaudited).

     (3)  Standby Letters of Credit

      On November 30, 2004, the Company entered into a standby letter of credit under its Senior Bank Credit Facility in the face amount of 2.5 million Euros ($3.1 million at June 30, 2005 exchange rates). The letter of credit serves as assurance to VAT authorities in France that the Company’s Meridian unit will properly and expeditiously remit all French VAT refunds it receives in its capacity as intermediary and custodian to the appropriate client recipients. The current annual interest rate of the letter of credit was 3.0% at June 30, 2005. There were no borrowings outstanding under the letter of credit at June 30, 2005.

      Additionally, on November 30, 2004, the Company entered into a letter of credit under its Senior Bank Credit Facility in the face amount of $0.2 million. The letter of credit is required by an insurer in which the Company maintains a policy to provide workers’ compensation and employers’ liability insurance. The current annual interest rate of the letter of credit was 3.0% at June 30, 2005. There were no borrowings outstanding under the letter of credit at June 30, 2005.

      On January 25, 2005, the Company entered into a letter of credit under its Senior Bank Credit Facility in the face amount of $0.3 million. The letter of credit is required by an additional insurer in which the Company maintains a policy to provide workers’ compensation and employers’ liability insurance. The current annual interest rate of the letter of credit was 3.0% at June 30, 2005. There were no borrowings outstanding under the letter of credit at June 30, 2005.

     (4)  Client Bankruptcy

      On April 1, 2003, one of the Company’s larger domestic Accounts Payable Services clients at that time, filed for Chapter 11 Bankruptcy Reorganization. During the quarter ended March 31, 2003, the Company received $5.5 million in payments on account from this client. On March 24, 2005, a lawsuit was filed against the Company by the post confirmation trust for a portion of the debtor’s estate seeking recovery of the $5.5 million as a preference payment. The Company believes that it has valid defenses against this lawsuit. The Company has offered to settle such claim and has recorded an expense provision of $0.2 million with respect to this matter during the fourth quarter of 2004.

     (5)  Industrial Development Authority Grants

      During the period of May 1993 through September 1999, Meridian received grants from the Industrial Development Authority of Ireland (“IDA”) in the sum of 1.4 million Euros ($1.7 million at June 30, 2005 exchange rates). The grants were paid primarily to stimulate the creation of 145 permanent jobs in Ireland. As a condition of the grants, if the number of permanently employed Meridian staff in Ireland falls below 145, then the grants are repayable in full. This contingency expires on September 23, 2007. Meridian currently employs 229 permanent employees in Dublin, Ireland. The European Union (“EU”) has currently proposed legislation that will remove the need for suppliers to charge VAT on the supply of goods and services to clients within the EU. The effective date of the proposed legislation has not yet been determined. Management estimates that the proposed legislation, if enacted as currently drafted, would eventually have a material adverse impact on Meridian’s results of operations from its value-added tax business. If Meridian’s results of operations were to

12

PRG-SCHULTZ INTERNATIONAL, INC. AND SUBSIDIARIES

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS — (Continued)

decline as a result of the enactment of the proposed legislation, it is possible that the number of permanent employees that Meridian employs in Ireland could fall below 145 prior to September 2007. Should such an event occur, the full amount of the grants previously received by Meridian will need to be repaid to IDA. However, management currently estimates that any impact on employment levels related to a possible change in the EU legislation will not be realized until after September 2007, if ever. As any potential liability related to these grants is not currently determinable, the Company’s accompanying Condensed Consolidated Statements of Operations (Unaudited) does not include any expense related to this matter. Management is monitoring this situation and if it appears probable Meridian’s permanent staff in Ireland will fall below 145 prior to September 2007 and that grants will need to be repaid to IDA, the Company will be required to recognize an expense at that time. This expense could be material to the Company’s results of operations.

     (6)  Retirement of John M. Cook, Chairman, President and Chief Executive Officer and John M. Toma, Vice Chairman

      On June 7, 2005, the Company’s Chairman, President and Chief Executive Officer, John M. Cook, announced his decision to retire. Mr. Cook subsequently retired on July 31, 2005. The Company’s Vice Chairman, John M. Toma, also retired at that time. For the three and six months ended June 30, 2005, expense related to the Separation and Release Agreements was $3.5 million and $3.9 million, respectively.

Note I — Subsequent Events

(1) Grant of Stock Options

      On July 20, 2005, the Company announced that its Board of Directors had unanimously elected James B. McCurry to succeed John M. Cook as President and Chief Executive Officer of the Company. Mr. McCurry was granted inducement stock options covering two million shares of the Company’s common stock. These options were issued in reliance on Nasdaq Marketplace Rule 4350(i)(1)(A)(iv). The options were issued on July 29, 2005 and have a seven-year term and an exercise price of $3.16 per share. 500,000 of Mr. McCurry’s options will vest on the first anniversary of the grant date, and the balance will vest in one third increments as follows: 500,000 will vest at any time after the anniversary of the grant date that the Company’s stock closes at $4.50 or higher on the Nasdaq national market for 45 consecutive trading days, 500,000 will vest at any time after the second anniversary of the grant date that the Company’s stock closes at $6.50 or higher on the Nasdaq national market for 45 consecutive trading days, and 500,000 will vest at any time after the third anniversary of the grant date that the Company’s stock closes at $8.00 or higher on the Nasdaq national market for 45 consecutive trading days. In addition, portions of the options will vest upon the occurrence of certain events, such as a termination by the Company without cause or by Mr. McCurry for good reason, upon certain changes of control of the Company or upon the Company’s ceasing to be a publicly traded company.

      On July 19, 2005, the Board of Directors designated David A. Cole to serve as Chairman of the Board, effective July 25, 2005. Mr. Cole will not be an officer or employee of the Company. Mr. Cole was granted stock options covering 450,000 shares of the Company’s common stock. The options were issued on July 29, 2005 and have a seven-year term and an exercise price of $3.16 per share. 150,000 of Mr. Cole’s options will vest on the earlier of the 2006 annual meeting of shareholders or June 30, 2006, and the balance will vest in one-third increments as follows: 100,000 will vest at any time after the earlier of the 2006 annual meeting of shareholders or June 30, 2006, that the Company’s stock closes at $4.50 or higher on the Nasdaq for 45 consecutive trading days, 100,000 will vest at any time after the earlier of the 2006 annual meeting of shareholders or June 30, 2006, that the Company’s stock closes at $6.50 or higher on the Nasdaq for 45 consecutive trading days, and 100,000 will vest at any time after the earlier of the 2007 annual meeting of shareholders or June 30, 2007, that the Company’s stock closes at $8.00 or higher on the Nasdaq for 45 consecutive trading days. In addition, portions of the options will vest upon the occurrence of certain events, such as the death or disability of Mr. Cole, upon certain changes of control of the Company or upon the Company’s ceasing to be a publicly traded company.

13

Item 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations

      Management’s Discussion and Analysis of Financial Condition and Results of Operations discusses the Company’s Condensed Consolidated Financial Statements (Unaudited), which 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. The following Management’s Discussion and Analysis of Financial Condition and Results of Operations updates the information provided in and should be read in conjunction with Management’s Discussion and Analysis of Financial Condition and Results of Operations in the Company’s Annual Report on Form 10-K for the year ended December 31, 2004.

Overview

      PRG-Schultz International, Inc. and subsidiaries (the “Company”) is the leading provider of recovery audit services to large and mid-size business 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. 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.

Revenue Recognition

      The Company’s revenues are based on specific contracts with its clients. Such contracts generally specify: (a) time periods covered by the audit; (b) nature and extent of audit services to be provided by the Company; (c) the client’s duties in assisting and cooperating with the Company; and (d) fees payable to the Company, generally as a specified percentage of the amounts recovered by the client resulting from overpayment claims identified (contingent fee contracts).

      In addition to contractual provisions, most clients also establish specific procedural guidelines that the Company must satisfy prior to submitting claims for client approval. These guidelines are unique to each client and impose specific requirements on the Company, such as adherence to vendor interaction protocols, provision of advance written notification to vendors of forthcoming claims, securing written claim validity concurrence from designated client personnel and, in limited cases, securing written claim validity concurrence from the involved vendors. Approved claims are processed by clients and generally taken as a recovery of cash from the vendor or a reduction to the vendor’s accounts payable balance.

      The Company generally recognizes revenue on the accrual basis, except with respect to the contingent fee based VAT Reclaim division of the Company’s Meridian VAT Reclaim (“Meridian”) business, along with certain international Accounts Payable Services units. Revenue is generally recognized on a contingent fee basis for a contractually specified percentage of amounts recovered when it has been determined that the Company’s clients have received economic value (generally through credits taken against existing accounts payable due to the involved vendors or refund checks received from those vendors) and when the following criteria are met: (a) persuasive evidence of an arrangement exists; (b) services have been rendered; (c) the fee billed to the client is fixed or determinable and (d) collectibility is reasonably assured. In certain limited circumstances, the Company will invoice a client prior to meeting all four of these criteria; in such cases, revenue is deferred until all of the criteria are met. Historically, there has been a certain amount of revenue that, even though meeting the requirements of the Company’s revenue recognition policy, relate to underlying claims that were ultimately rejected by the Company’s customers’ vendors. In that case, the Company’s customers, even though cash may have been collected by the Company, may request a refund of such amount. The Company records such refunds as a reduction of revenue (See “Critical Accounting Policies — Paybacks

14

and Chargebacks” as fully described in Note 1 of Notes to the Consolidated Financial Statements of the Company’s Annual Report on Form 10-K for the year ended December 31, 2004).

      The contingent fee based VAT Reclaim division of the Company’s Meridian business, along with certain other international Accounts Payable Services units, recognize revenue on the cash basis in accordance with guidance issued by the Securities and Exchange Commission in Staff Accounting Bulletin (“SAB”) No. 104, Revenue Recognition. Based on the guidance in SAB No. 104, Meridian defers recognition of contingent fee revenues to the accounting period in which cash is both received from the foreign governmental agencies reimbursing value-added tax (“VAT”) claims and transferred to Meridian’s clients.

Audit Contract for State of California Medicare

      On March 29, 2005, the Company announced that the Centers for Medicare & Medicaid Services (“CMS”), the federal agency that administers the Medicare program, has awarded the Company a contract to provide recovery audit services for the State of California’s Medicare spending. California spends over $23 billion on Medicare disbursements annually. The three-year contract was effective on March 28, 2005. To fully address the range of payment recovery opportunities, the Company has sub-contracted with Concentra Preferred Systems, the nation’s largest provider of specialized cost containment services for the healthcare industry, which will add its clinical experience to the Company’s expertise in recovery audit services.

      The contract was awarded as part of a pilot program by CMS to recover overpayments on behalf of taxpayers through the use of recovery auditing. The Company began to incur capital expenditures and employee compensation costs related to this contract in the first and second quarters of 2005. Such capital expenditures and employee compensation costs will continue to be incurred in advance of the first revenues to be earned from the contract. The Company believes this contract represents a large opportunity to solidify its presence in the growing healthcare recovery audit sector and will prove to be beneficial to future earnings.

      Medicare is the second largest Federal benefit program and represents over $250 billion in annual benefit outlays. Combined with Medicaid, the two programs constitute the largest single purchaser of healthcare in the world and 33 cents of every dollar of healthcare spent in the United States. A provision in the Medicare Prescription Drug Improvement, and Modernization Act of 2003 (MMA, P.L. 108-173) required the Department of Health and Human Services (“HHS”) to conduct a demonstration project to evaluate the use of recovery audit contractors in identifying Medicare underpayments and overpayments and to recoup overpayments. The section allows HHS to pay the recovery audit contractors on a contingency basis.

Conclusion of Evaluation of Strategic Alternatives

      On June 7, 2005, the Company announced that its Board of Directors had concluded the evaluation of the Company’s strategic alternatives that was previously announced in October 2004. The Board, in consultation with its financial advisor, CIBC World Markets Corp., through a special committee established for that purpose, carefully evaluated the Company’s options and unanimously determined that, at that time, the best interests of its shareholders would not be served by continuing to pursue a strategic transaction.

Retirement of John M. Cook, Chairman, President and CEO and John M. Toma, Vice Chairman and Appointment of James B. McCurry as President and CEO and David A. Cole as Chairman.

      On June 7, 2005, the Company announced that John M. Cook, the Company’s Chairman, President and Chief Executive Officer, informed the Board of Directors of his decision to retire as Chairman, President and Chief Executive Officer, once a successor was found. Mr. Cook subsequently retired on July 31, 2005. The Company’s Vice Chairman, John M. Toma, also retired at that time.

      On July 20, 2005, the Company announced that its Board of Directors had unanimously elected James B. McCurry to succeed John M. Cook as President and Chief Executive Officer of the Company, effective July 25, 2005. The Company also announced the designation of David A. Cole to serve as Chairman of the Board, effective July 25, 2005. Mr. Cole will assume the duties of Presiding Director, which were previously performed by Garth H. Greimann. Mr. Cole will not be an officer or employee of the Company.

15

Unsolicited Letter from Cannell Capital LLC

      On August 2, 2005, the Company confirmed that it had received an unsolicited letter from Cannell Capital LLC, a San Francisco-based hedge fund, indicating Cannell’s interest in pursuing an acquisition of all of the Company’s outstanding shares it does not already own for $3.43 per share in cash. The Company’s Board of Directors, consistent with its fiduciary duties and in consultation with its advisors, will review and address the Cannell proposal in order to determine the appropriate response.

Strategic Business Initiatives for the Accounts Payable Services Business

      The Company’s objective is to build on its position as the leading worldwide provider of recovery audit services. The Company’s strategic plan to achieve these objectives focuses on a series of initiatives designed to maintain its dedicated focus on the Company’s clients and rekindle its growth. The Company has implemented a number of strategic business initiatives over the past 24 months that have been leveraged to reduce costs, increase recoveries and fuel growth at existing and new clients. Some of these key initiatives include: (1) centralizing claim processing and field audit work; (2) standardizing audit software and processes; (3) implementing technology platforms; and (4) optimizing the organization. With these strategic business initiatives in place, the Company is focused on executing a growth strategy that includes the following key elements: (1) growing business with existing clients; (2) growing the international business; (3) growing the U.S. commercial and government business; and (4) developing new vertical markets. See Part I, Item 1. “Business — The PRG-Schultz Strategy” of the Company’s Form 10-K for the year ended December 31, 2004.

      Evolving the service model (Model Evolution) entails developing consistent audit tools, audit methodologies and field staffing protocols. Another area the Company is addressing is gaining cost efficiencies through the standardization of the more routine sub-components of the recovery audit process that lend themselves to greater efficiency and cost-effectiveness when performed in a specialized, centralized work group setting. Management believes that this will allow the Company to maximize recoveries for its clients in both the retail and commercial sectors as a result of the better tools and methodologies while lowering the Company’s overall cost of revenues as a percentage of revenues.

      The Model Evolution project initially concentrated on the U.S. Accounts Payable Services business and domestic corporate support functions. The Company conducted the U.S.-based aspect of its work through most of 2004 and 2005. The Company continues to drive towards a goal of annualized cost savings, compared to the 2003 level, of approximately $16.0 million to $20.0 million. In implementing this service model initiative, the Company has incurred significant expenses for items such as employee severances, the closure of offices and the fees of outside advisors.

Critical Accounting Policies

      The Company’s significant accounting policies have been described in Note 1 of Notes to Consolidated Financial Statements of the Company’s Annual Report on Form 10-K for the year ended December 31, 2004. Certain of these accounting policies are considered “critical” to the portrayal of the Company’s financial position and results of operations, as they require the application of significant judgment by management; as a result, they are subject to an inherent degree of uncertainty. These “critical” accounting policies are identified and discussed in the Management’s Discussion and Analysis of Financial Condition and Results of Operations section of the Company’s Annual Report on Form 10-K for the year ended December 31, 2004. Management bases its estimates and judgments on historical experience and on various other factors that are believed to be reasonable under the circumstances, the results of which form the basis for making judgments about the carrying values of assets and liabilities that are not readily apparent from other sources. Actual results may differ from these estimates under different assumptions or conditions. On an ongoing basis, management evaluates its estimates and judgments, including those considered “critical”. The development, selection and evaluation of accounting estimates, including those deemed “critical,” and the associated disclosures in this Form 10-Q have been discussed with the Audit Committee of the Board of Directors.

16

Results of Operations

      The following table sets forth the percentage of revenues represented by certain items in the Company’s Condensed Consolidated Statements of Operations (Unaudited) for the periods indicated:

		Three Months						Six Months
		Ended						Ended
		June 30,						June 30,
		2005			2004			2005			2004
Revenues			100.0	%		100.0	%		100.0	%		100.0	%
Cost of revenues			65.7			62.5			65.8			64.1
Selling, general and administrative expenses			39.0			36.8			38.3			37.3
	Operating income (loss)		(4.7	)		0.7			(4.1	)		(1.4	)
Interest expense			(2.7	)		(2.5	)		(2.6	)		(2.6	)
Interest income			0.1			0.1			0.1			0.2
	Loss from continuing operations before income taxes and discontinued operations		(7.3	)		(1.7	)		(6.6	)		(3.8	)
Income taxes			0.5			(0.6	)		0.7			(1.4	)
	Loss from continuing operations before discontinued operations		(7.8	)		(1.1	)		(7.3	)		(2.4	)
Earnings (loss) from discontinued operations:
	Gain (loss) on disposal of discontinued operations, including operating results for phase-out period, net of income taxes		—			(1.1	)		0.2			4.0
	Net earnings (loss)		(7.8	)%		(2.2	)%		(7.1	)%		1.6	%

      The Company has two reportable operating segments, the Accounts Payable Services segment and Meridian VAT Reclaim (see Note D of Notes to Condensed Consolidated Financial Statements (Unaudited) included in Item 1. of this Form 10-Q).

Three and Six Months Ended June 30, 2005 Compared to the Corresponding Periods of the Prior Year

Accounts Payable Services

      Revenues. Accounts Payable Services revenues for the three and six months ended June 30, 2005 and 2004 were as follows (in millions):

		Three Months				Six Months
		Ended				Ended
		June 30,				June 30,
		2005		2004		2005		2004
Domestic Accounts Payable Services revenues:
	Retail	$	35.7	$	40.3	$	71.2	$	81.6
	Commercial		6.1		8.0		11.3		17.8
			41.8		48.3		82.5		99.4
International Accounts Payable Services revenues			26.4		28.4		52.0		56.4
	Total Accounts Payable Services revenues	$	68.2	$	76.7	$	134.5	$	155.8

      For the three and six months ended June 30, 2005 compared to the three and six months ended June 30, 2004, the Company experienced a decline in revenues for domestic retail Accounts Payable Services. The reduction in revenues was primarily attributable to several non-recurring audits that took place in the first half of last year and a reduction in revenue from certain large U.S. retail audits. Revenues decreased as our clients developed and strengthened their own internal audit capabilities as a substitute for the Company’s services and this trend is expected to continue for the foreseeable future. Also, 2004 revenue for certain large clients

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benefited from audit acceleration as portions of audits of more than one period were performed during the first quarter of 2004. The net effect was to move the accelerated audits closer to the time period of the transaction being audited. The Company has experienced very little audit acceleration in 2005, which results in unfavorable comparisons to the prior period.

      Revenues from the Company’s domestic commercial Accounts Payable Services clients also declined during the three and six months of 2005 compared to the same periods of 2004. The Company believes the market for providing disbursement audit services (which typically entails acquisition from the client of limited purchase data and an audit focus on a select few recovery categories) to commercial entities in the United States is reaching maturity with the existence of many competitors resulting in fewer audit starts and lower fee rates due to increasing pricing pressures. In response to the recent disappointing performance for the commercial business, the Company has reorganized the unit to stimulate greater revenue productivity for the clients served. The Company has begun to intentionally reduce the number of clients serviced based on profitability and this trend is expected to continue.

      The decrease in revenues from the international portion of the Company’s Accounts Payable Services in the three and six months ended June 30, 2005 compared to the three and six months ended June 30, 2004 was primarily attributable to client-specific issues in the Company’s European operations, predominantly in the United Kingdom, resulting in a slower than anticipated conversion of claims to revenue and a shortfall in commercial revenue.

      Cost of Revenues (“COR”). COR consists principally of commissions paid or payable to the Company’s auditors based primarily upon the level of overpayment recoveries, and compensation paid to various types of hourly workers and salaried operational managers. Also included in COR are other direct costs incurred by these personnel, including rental of non-headquarters offices, travel and entertainment, telephone, utilities, maintenance and supplies and clerical assistance. A meaningful portion of the components comprising COR for the Company’s domestic Accounts Payable Services operations are variable and will increase or decrease with increases and decreases in revenues. The COR support bases for domestic retail and domestic commercial operations are not separately distinguishable and are not evaluated by management individually. The Company’s international Accounts Payable Services also have a portion of COR that will vary with revenues, although a smaller portion than domestic Accounts Payable Services. The lower variability is due to the predominant use of salaried auditor compensation plans in most emerging-market countries.

      Accounts Payable Services COR for the three and six months ended June 30, 2005 and 2004 were as follows (in millions):

		Three Months				Six Months
		Ended				Ended
		June 30,				June 30,
		2005		2004		2005		2004
Domestic Accounts Payable Services COR		$	26.0	$	30.3	$	51.1	$	61.9
International Accounts Payable Services COR			19.7		19.5		38.7		39.7
	Total Accounts Payable Services COR	$	45.7	$	49.8	$	89.8	$	101.6

      The dollar decrease in cost of revenues for domestic Accounts Payable Services was primarily due to lower revenues during the three and six months ended June 30, 2005 when compared to the same periods of the prior year. On a percentage basis, COR as a percentage of revenues from domestic Accounts Payable services decreased slightly to 62.2% for the three months ended June 30, 2005, from 62.7% in 2004. COR as a percentage of revenues from domestic Accounts Payable decreased slightly to 61.9% for the six months ended June 30, 2005, compared to 62.3% for the prior year. The Company continues to incur certain fixed costs that are a component of COR.

      On a dollar basis, cost of revenues for the Company’s international Accounts Payable Services increased slightly during the three months ended June 30, 2005 compared to the same period of the prior year primarily due to a higher head count in the Company’s European operations and currency fluctuations in the countries in which the Company operates.

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      Internationally, COR as a percentage of revenues for international Accounts Payable Services for the quarter ended June 30, 2005 was 74.4%, compared to 68.5% for the second quarter of 2004. COR as a percentage of revenues for international Accounts Payable Services for the six months ended June 30, 2005 was 74.3%, up from 70.4% in the comparable period of 2004. Although, as a result of decreased revenues, international Accounts Payable Services has experienced a decrease in the variable cost component of COR, the International Accounts Payable Services continues to incur certain fixed costs that are a component of COR. As revenues decrease, these fixed costs constitute a larger percentage of COR and result in a higher COR as a percentage of revenues on a comparable basis.

      Selling, General, and Administrative Expenses (“SG&A”). SG&A expenses include the expenses of sales and marketing activities, information technology services and the corporate data center, human resources, legal, accounting, administration, currency translation, bad debt expense, headquarters-related depreciation of property and equipment and amortization of intangibles with finite lives. The SG&A support bases for domestic retail and domestic commercial operations are not separately distinguishable and are not evaluated by management individually. Due to the relatively fixed nature of the Company’s SG&A expenses, these expenses as a percentage of revenues can vary markedly period to period based on fluctuations in revenues.

      Accounts Payable Services SG&A for the three and six months ended June 30, 2005 and 2004 were as follows (in millions):

		Three Months				Six Months
		Ended				Ended
		June 30,				June 30,
		2005		2004		2005		2004
Domestic Accounts Payable Services		$	8.2	$	10.9	$	17.6	$	20.4
International Accounts Payable Services			8.3		7.9		16.3		15.4
	Total Accounts Payable Services SG&A	$	16.5	$	18.8	$	33.9	$	35.8

      On a dollar basis, for the second quarter and first six months of 2005, the decrease in SG&A expenses for the Company’s domestic Accounts Payable Services operations, when compared to the same period of 2004 was primarily due to reduction in bad debt expenses related to a $0.6 million recovery of a legal judgment against a former client. Bad debt net recovery for the three and six months ended June 30, 2005 was $0.5 million and $0.6 million, respectively, compared to bad debt net expense of $0.6 million and $1.0 million, respectively, for the same periods of the prior year.

      The increase in SG&A expenses, on a dollar basis, for the quarter ended June 30, 2005 compared to the quarter ended June 30, 2004 for the Company’s international Accounts Payable Services operations, resulted primarily from increased SG&A expenses in Canada due to fluctuations in local currency and higher payroll expense. The Canadian operation experienced an increase in SG&A expenses due to increased payroll expenses attributed to a higher head count and a one-time charge for severances. In addition, the SG&A from the Company’s European operations was higher for the quarter ended June 30, 2005 when compared to the same period of 2004 primarily due to increase in bad debt expense.

      The increase in SG&A expenses, on a dollar basis, for the six months ended June 30, 2005 compared to the six months ended June 30, 2004 for international Accounts Payable Services resulted primarily from increased SG&A expenses experienced by the Company’s European and Canadian operations. The Company’s European operations experienced an increase in SG&A due to an increase in bad debt expense. Also contributing to the increase in SG&A for international Accounts Payable services were increased SG&A costs experienced by the Company’s Canadian operations due to increased payroll expenses attributed to a higher head count and a one-time charge for severance.

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Meridian

      Meridian’s operating income for the three and six months ended June 30, 2005 and 2004 was as follows (in millions):

		Three Months				Six Months
		Ended				Ended
		June 30,				June 30,
		2005		2004		2005		2004
Revenues		$	12.4	$	13.7	$	22.6	$	22.2
Cost of revenues			7.3		6.7		13.6		12.5
Selling, general and administrative expenses			1.8		1.7		3.0		3.7
	Operating income	$	3.3	$	5.3	$	6.0	$	6.0

      Revenues. Meridian primarily recognizes revenue in its contingent fee based VAT reclaim operations on the cash basis in accordance with SAB No. 104. Based on the guidance in SAB No. 104, Meridian defers recognition of revenues to the accounting period in which cash is both received from the foreign governmental agencies reimbursing VAT claims and transferred to Meridian’s clients. Since Meridian has minimal influence over when the foreign governmental agencies make their respective VAT reimbursement payments, Meridian’s revenues can vary markedly from period to period.

      Revenue generated by Meridian decreased by $1.3 million for the three months ended June 30, 2005 when compared to the same period of 2004. Fee income on VAT refunds decreased by $1.6 million for the three months ended June 30, 2005 when compared to the same period of 2004 due to the timing of refunds from local VAT authorities. However, the decrease in fee income above was partially offset by an increase in revenue as a result of a $0.2 million benefit from exchange rate impact related to the strengthening of the Euro, Meridian’s functional currency, to the U.S. dollar and a $0.2 million increase in revenues from new clients attributed to initiatives to develop new service offerings. Meridian has developed new service offerings on a “fee-for-service” basis providing accounts payable and employee expense reimbursement processing for third parties. Revenue from such new “fee for service” offerings is recognized on an accrual basis pursuant to the Company’s revenue recognition policy. Such amount totaled $0.4 million and $1.0 million in the three and six months ended June 30, 2005, respectively, and is expected to continue to increase throughout 2005.

      Also impacting Meridian’s revenue for the three and six months ended June 30, 2005 was a decrease in revenues generated from Meridian’s joint venture (Transporters VAT Reclaim Limited (“TVR”)) with an unrelated German concern named Deutscher Kraftverkehr Euro Service GmbH & Co. KG (“DKV”). Meridian experienced a decrease in TVR revenues of $0.1 million and $0.5 million for the three and six months ended June 30, 2005 respectively, compared to the three and six months ended June 30, 2004. During 2004, Meridian agreed with DKV to commence an orderly and managed closeout of the TVR business. Therefore, Meridian’s future revenues from TVR for processing TVR’s VAT refunds, and the associated profits therefrom, ceased in October 2004. As TVR goes about the orderly wind-down of its business in future periods, it will be receiving VAT refunds from countries, and a portion of such refunds will be paid to Meridian in liquidation of its investment in TVR. (See Note H(2) of Notes to Condensed Consolidated Financial Statements (Unaudited) included in Item 1. of this Form 10-Q).

      COR. COR consists principally of compensation paid to various types of hourly workers and salaried operational managers. Also included in COR are other direct costs incurred by these personnel, including rental of offices, travel and entertainment, telephone, utilities, maintenance and supplies and clerical assistance. COR for the Company’s Meridian operations are largely fixed and, for the most part, will not vary significantly with changes in revenue.

      For the three and six months ended June 30, 2005 compared to the same period of the prior year, on a dollar basis, COR for the Company’s Meridian operations increased primarily due to increased payroll costs as a result of higher headcount related to new service offerings. COR as a percentage of revenues for the Company’s Meridian operations was 59.1% for the quarter ended June 30, 2005, compared to 49.1% of revenues for the same period of 2004. For the six months ended June 30, 2005 and 2004, Meridian’s COR as a

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percentage of revenues was 60.1% and 56.1%, respectively. The significant increase in COR as a percentage of revenues for Meridian was the result of the decrease in revenues as discussed above combined with an increase in COR on a dollar basis.

      SG&A. Meridian’s SG&A expenses include the expenses of marketing activities, administration, professional services, property rentals and currency translation. Due to the relatively fixed nature of Meridian’s SG&A expenses, these expenses as a percentage of revenues can vary markedly period to period based on fluctuations in revenues.

      On a dollar basis, Meridian’s SG&A for the quarter ended June 30, 2005 compared to 2004 was higher primarily due to increased payroll expenses. For the six months ended June 30, 2005 compared to 2004, the SG&A decreased primarily due to a decrease in professional services fees.

Corporate Support

      SG&A. SG&A expenses include the expenses of sales and marketing activities, information technology services associated with the corporate data center, human resources, legal, accounting, administration, currency translation, headquarters-related depreciation of property and equipment and amortization of intangibles with finite lives. Due to the relatively fixed nature of the Company’s Corporate Support SG&A expenses, these expenses as a percentage of revenues can vary markedly period to period based on fluctuations in revenues. Corporate support represents the unallocated portion of corporate SG&A expenses not specifically attributable to Accounts Payable Services or Meridian and totaled the following for the three and six months ended June 30, 2005 and 2004 (in millions):

	Three Months				Six Months
	Ended				Ended
	June 30,				June 30,
	2005		2004		2005		2004
Selling, general and administrative expenses	$	13.1	$	12.7	$	23.2	$	26.9

      The increase in SG&A for corporate support for the three months ended June 30, 2005, compared to the same period of 2004, on a dollar basis, was primarily the result of a $3.1 million increase in executive retirement costs and $0.3 million of costs related to the recently concluded evaluation of strategic alternatives, partially offset by a decrease in expenses of $2.6 million relating to strategic business initiatives. The decrease in SG&A for corporate support for the six months ended June 30, 2005 compared to the same period in the prior year, on a dollar basis, was primarily the result of a decrease in expense of $5.5 million relating to strategic business initiatives and a $0.9 million severance payment made to the former Chief Financial Officer, partially offset by a $3.1 million increase in executive retirement costs and $0.5 million of costs related to the evaluation of strategic alternatives.

      On June 7, 2005, the Company’s Chairman, President and Chief Executive Officer, John M. Cook, announced his decision to retire. Mr. Cook subsequently retired on July 31, 2005. The Company’s Vice Chairman, John M. Toma, also retired at that time. For the three and six months ended June 30, 2005, expense related to the Separation and Release Agreements was $3.5 million and $3.9 million, respectively.

Discontinued Operations

      During the first half of 2005 and 2004, the Company recognized a gain on the sale of discontinued operations of approximately $0.2 million and $0.1 million, respectively, net of tax expenses of approximately $0.1 million during 2004, related to the receipt of a portion of the revenue-based royalty from the sale of the Logistics Management Services business in October 2001, as adjusted for certain expenses accrued as part of the estimated loss on the sale of that business.

      During the fourth quarter of 2003, the Company declared its remaining Communications Services operations, formerly part of the Company’s then-existing Other Ancillary Services segment, as a discontinued operation. On January 16, 2004, the Company consummated the sale of the remaining Communications Services operations to TSL (DE) Corp., a newly formed company whose principal investor is One Equity

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Partners, the private equity division of Bank One. The operations were sold for approximately $19.1 million in cash paid at closing, plus the assumption of certain liabilities of Communications Services. The Company recognized a gain on disposal of approximately $8.3 million, net of tax expense of approximately $5.5 million. During the three months ended June 30, 2004, the Company adjusted the gain on disposal by approximately $(120) thousand, net of a reduction in tax expense of approximately $80 thousand due to an adjustment in working capital originally estimated at the time of sale. Operating results for Communications Services during the phase-out period were a loss of $(0.3) million, net of an income tax benefit of $(0.2) million.

Other Items

      Interest Expense. Interest expense was $2.2 million and $2.3 million for the three months ended June 30, 2005 and 2004, respectively. Interest expense was $4.1 million and $4.5 million for the six months ended June 30, 2005 and 2004, respectively. The Company’s interest expense was comprised of interest expense and amortization of the discount related to the convertible notes and interest on borrowings outstanding under the senior bank credit facility.

      Income Tax Expense (Benefit). The provisions for income taxes for the quarters ended June 30, 2005 and 2004 consist of federal, state and foreign income taxes at the Company’s effective tax rate. The Company’s effective tax rate approximated 7% and (38%) for the three months ended June 30, 2005 and 2004, respectively, and 11% and (38%) for the six months ended June 30, 2005 and 2004, respectively. The income tax expense recognized during the six months ended June 30, 2005 was primarily attributable to international operations. The Company applies the standards of Statement of Financial Accounting Standards (“SFAS”) No. 109, Income Taxes, in recording income taxes. The change in the tax rate from a (38%) benefit in 2004 to an 11% expense in 2005 was primarily the result of the Company providing a valuation allowance against its remaining net deferred tax assets as of December 31, 2004. As a result, the Company expects to continue to record a full valuation allowance on future tax benefits until an appropriate level of profitability is sustained. Over time, the Company believes it will fully utilize these assets as its results improve.

      Impairment Charges. Given the recent market performance of our common stock and anticipated future operating performance if recent revenue trends in the business continue, the Company will evaluate whether some portion, if not all, of the Company’s goodwill, intangible assets and other long-term assets are impaired in accordance with the Company’s impairment accounting policy. As of June 30, 2005, the Company had $170.6 million of goodwill, $29.5 million of intangible assets and $22.5 million of property and equipment recorded on the Company’s Condensed Consolidated Balance Sheet. Accordingly, the possibility of a non-cash impairment charge being recorded in the consolidated statement of operations in the last six months of 2005 is more than remote.

Liquidity and Capital Resources

      Net cash provided by (used in) operating activities was $(9.1) million in the first six months of 2005, compared to $2.5 million in the first six months of 2004. Cash used in operating activities during the six months ended June 30, 2005 was the result of an $11.4 million loss from continuing operations, the $4.7 million payment related to the ALMA settlement and lower deferred revenue balances. The period-over-period decrease in cash provided by (used in) operations was primarily the result of decreased earnings from continuing operations and because cash was provided during the first six months of 2004 from the release of the $5.4 million of restricted cash, used as collateral for VAT disbursements in the Company’s Meridian operations, as a result of substituting a letter of credit.

      Net cash provided by (used in) investing activities was $(3.5) million in the first six months of 2005 and $11.7 million for the same period of 2004. Cash used in investing activities during the first two quarters of 2005 was due to capital expenditures of approximately $3.5 million. The cash provided by investing activities during the first six months of 2004 was the result of the proceeds received from the sale of certain discontinued operations of $19.1 million, partially offset by capital expenditures of $7.4 million.

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      Net cash provided by (used in) financing activities was $13.3 million in the first six months of 2005 versus $(19.3) million in the first six months of 2004. The net cash provided by financing activities during the six months ended June 30, 2005 related primarily to net borrowings on the Company’s revolving credit facility. The net cash used in the six months ended June 30, 2004 related primarily to net repayments of debt from proceeds of the sale of discontinued operations.

      Net cash provided by (used in) discontinued operations was $0.2 million and $(1.6) million during the six months ended June 30, 2005 and 2004, respectively. Cash provided by discontinued operations during the six months ended June 30, 2005 was the result of the receipt of a portion of the revenue-based royalty from the former Logistics Management Services segment that was sold in October 2001. Cash used in discontinued operations during the six months ended June 30, 2004 was the result of losses generated by the Communications Services operations prior to its sale on January 16, 2004, partially offset by the receipt of a portion of the revenue-based royalty from the former Logistics Management Services segment that was sold in October 2001.

      On November 30, 2004, the Company entered into an amended and restated credit agreement (the “Senior Credit Facility”) with Bank of America (the “Lender”). The Senior Credit Facility amends and restates the Company’s previous senior credit facility, which was maintained by a syndicate of banking institutions led by the Lender. The Senior Credit Facility currently provides for revolving credit loans up to a maximum amount of $25.0 million. The Senior Credit Facility provides for the availability of Letters of Credit subject to a $10.0 million sublimit.

      The occurrence of certain stipulated events, as defined in the Senior Credit Facility, including but not limited to the Company’s outstanding borrowings exceeding the prescribed borrowing base or other covenant violations, would give the Lender the right to require accelerated principal payments. Otherwise, so long as there is no violation of any of the covenants (or any such violations are waived), no principal payments are due until the maturity date on May 26, 2006. The Senior Credit Facility is secured by substantially all assets of the Company. Revolving loans under the Senior Credit Facility bear interest at either (1) the Lender’s prime rate plus 0.5%, or (2) the London Interbank Offered Rate (“LIBOR”) plus 3.0%. The Senior Credit Facility requires a fee for committed but unused credit capacity of 0.5% per annum. The Senior Credit Facility contains customary financial covenants relating to the maintenance of a maximum leverage ratio and minimum consolidated earnings before interest, taxes, depreciation and amortization as those terms are defined in the Senior Credit Facility. As discussed below, the Company was in compliance with all covenants contained in the Senior Credit Facility as of June 30, 2005.

      The Company had outstanding borrowings of $12.5 million under the Senior Credit Facility at June 30, 2005. Additionally, the Company had Letters of Credit of $3.5 million under which no borrowings were outstanding at June 30, 2005. As of June 30, 2005, the Company had cash and cash equivalents of $12.2 million, and approximately $8.9 million remained available under the Senior Credit Facility for revolving loans, of which approximately $6.5 million was available for Letters of Credit. As of August 8, 2005, approximately $7.7 million remains available for revolving loans, of which approximately $6.5 million is available for Letters of Credit, under the Senior Credit Facility.

      Availability under the Senior Credit Facility would be potentially restricted if the Company were not in compliance with all of the financial covenants. At June 30, 2005, the Company was in compliance with all of its financial covenants. If current revenue trends in the business continue, however, management believes it is likely that the Company would not be in compliance with these covenants for the third quarter of 2005. The Company has notified the Lender under the Senior Credit Facility of the potential for prospective covenant breaches and is in discussion with the Lender concerning adjustments to the covenants. The Company is also in discussions with the Lender about additional borrowing availability under the Senior Credit Facility. No assurance can be provided that the Lender will agree to any adjustment of the covenants or will provide the Company with additional borrowing capacity. In addition, no assurance can be provided that should a financial covenant violation occur in the future the Lender will not elect to pursue its contractual remedies under the Senior Credit Facility, including requiring the immediate repayment in full of all amounts outstanding. There can be no assurance the Company can secure adequate or timely replacement financing to repay the lender in

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the event of an unanticipated repayment demand. Additionally, if the Lender accelerates the payment of the outstanding indebtedness under the Senior Credit Facility, cross default provisions contained in the indenture governing the Company’s $125 million outstanding note issue, due November 26, 2006, would allow either the trustee or holders of 25% in interest of the aggregate outstanding principal amount of the notes to provide the Company with notice of a default under the notes. Failure of the Company to repay the amounts outstanding under the Senior Credit Facility within thirty days of the receipt of such notice would result in an event of default under the indenture. In that event, either the trustee or holders of 25% in interest of the aggregate outstanding principal amount of the notes could accelerate the payment of all $125 million of the outstanding notes. In such an instance, there can likewise be no assurance that the Company would be able to secure the additional financing that would be required to make such a rapid repayment.

      If current revenue trends in the business continue, it is reasonably possible that the Company will have to access additional sources of cash beyond current financing arrangements before the end of the year. In addition to the talks with the Lender, the Company has begun an internal evaluation of alternative financing sources, but there is no assurance that the Company will be able to secure additional financing.

      Additionally, the Company is in the process of developing an action plan to improve profitability and the Company’s financial condition. The plan is likely to include a reduction in headcount, exiting certain markets, and an overall reduction in cost. The impact on near-term liquidity of this plan is yet to be determined, but its implementation may require cash outlays.

      The July 31, 2005 retirements of the Company’s former Chairman, President and CEO, John M. Cook, and the Company’s former Vice Chairman, John M. Toma, resulted in retirement benefits of $7.6 million to be paid in monthly cash installments principally over a three-year period, beginning February 1, 2006. The $7.6 million has been fully accrued for as of June 30, 2005.

      The Company made capital expenditures of $3.5 million during the first six months of 2005 and anticipates that capital expenditures for the remainder of the year will range between $3.0 million and $4.0 million. Included in the above, the Company began to incur capital expenditures and employee compensations costs in the first quarter of 2005 relating to the audit contract for the State of California Medicare as previously discussed. Such capital expenditures and employee compensation costs will continue to be incurred in advance of the first revenues to be earned from the contract.

      On May 26, 2005, the United States District Court for the Northern District of Georgia, Atlanta Division, approved the Company’s Stipulation of Settlement (“Settlement”) to settle the consolidated class action lawsuit. No payments by the Company were required in connection with the Settlement. For additional discussion of the Settlement and certain other litigation to which the Company is a party and which may have an impact on future liquidity and capital resources, see Note H (1) to Condensed Consolidated Financial Statements (Unaudited) included in Item 1. of this Form 10-Q.

      On April 1, 2003, one of the Company’s larger domestic Accounts Payable Services clients at that time, filed for Chapter 11 bankruptcy reorganization. During the quarter ended March 31, 2003, the Company received $5.5 million in payments on account from this client. On March 24, 2005, a lawsuit was filed against the Company by the post confirmation trust for a portion of the debtor’s estate seeking recovery of the $5.5 million as a preference payment. The Company believes that it has valid defenses against this lawsuit. The Company has offered to settle such claim and has recorded an expense provision of $0.2 million with respect to this matter during the fourth quarter of 2004. However, if the Company is unsuccessful in defending a preference payment claim, the Company’s earnings would be reduced and the Company would be required to make unbudgeted cash payments, which would adversely affect future liquidity.

      On June 7, 2005, the Company announced that its Board of Directors has concluded the evaluation of the Company’s strategic alternatives that was previously announced in October 2004. The Board, in consultation with its financial advisor, CIBC World Markets Corp., through a special committee established for that purpose, carefully evaluated the company’s options and unanimously determined that, at that time, the best interests of its shareholders would not be served by continuing to pursue a strategic transaction.

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      On July 29, 2005, Cannell Capital LLC, a significant owner of the Company’s common stock, filed a Form SC 13D/ A with the U.S. Securities and Exchange Commission, expressing an interest in acquiring all of the Company’s outstanding shares it does not already own for $3.43 per share in cash. The Company’s Board of Directors issued a press release on August 2, 2005, stating that the Board would review the proposal consistent with its fiduciary duties.

      To promote retention of key employees during the Company’s exploration of strategic alternatives, among other goals, the Company’s Compensation Committee approved a program under which the Company modified employment and compensation arrangements with certain management employees as disclosed in the Company’s Reports on Form 8-K filed on October 26, 2004 and February 11, 2005. Under the program, the officers are entitled to additional benefits related to certain termination and change of control events in exchange for revised restrictive covenants. Also, in October 2004, the Compensation Committee approved transaction success bonuses payable upon a change of control for 26 additional key managers. Such bonuses would be calculated as a percentage of each manager’s annual salary with the applicable percentage based on the per share consideration received in a change of control transaction. Payments under these arrangements would be a material use of cash.

      On December 14, 2001, the Company consummated the sale of its French Taxation Services business (“ALMA”), as well as certain notes payable due to the Company, to Chequers Capital, a Paris-based private equity firm. In conjunction with this sale, the Company provided the buyer with certain warranties. Effective December 30, 2004, the Company, Meridian and ALMA (the “Parties”) entered into a Settlement Agreement (the “Agreement”) requiring the Company to pay a total of 3.4 million Euros ($4.7 million at January 3, 2005 exchange rates, the payment date), to resolve the buyer’s warranty claims and a commission dispute with Meridian. During the fourth quarter of 2004, the Company recognized a loss on discontinued operations of $3.1 million for amounts not previously accrued to provide for those claims. No tax benefit was recognized in relation to the expense. The Agreement settles all remaining indemnification obligations and terminates all contractual relationships between the Parties and further specifies that the Parties will renounce all complaints, grievances and other actions.

      During the period of May 1993 through September 1999, Meridian received grants from the Industrial Development Authority of Ireland (“IDA”) in the sum of 1.4 million Euro ($1.7 million at June 30, 2005 exchange rates). The grants were paid primarily to stimulate the creation of 145 permanent jobs in Ireland. As a condition of the grants, if the number of permanently employed Meridian staff in Ireland falls below 145 prior to September 23, 2007, the date the contingency expires, then the grants are repayable in full. Meridian currently employs 229 permanent employees in Dublin, Ireland. The European Union (“EU”) has currently proposed legislation that will remove the need for suppliers to charge VAT on the supply of goods and services to clients within the EU. The effective date of the proposed legislation is currently unknown. Management estimates that the proposed legislation, if enacted as currently drafted, would eventually have a material adverse impact on Meridian’s results of operations from its value-added tax business. If Meridian’s results of operations were to decline as a result of the enactment of the proposed legislation, it is possible that the number of permanent employees that Meridian employs in Ireland could fall below 145 prior to September 2007. Should such an event occur, the full amount of the grants previously received by Meridian would need to be repaid to IDA. However, management currently estimates that any impact on employment levels related to a possible change in the EU legislation will not be realized until after September 2007, if ever. As any potential liability related to these grants is not currently determinable, the Company’s Consolidated Statement of Operations for the three and six months ended June 30, 2005 does not include any expense related to this matter. Management is monitoring this situation and if it appears probable Meridian’s permanent staff in Ireland will fall below 145 and that grants will need to be repaid to IDA, the Company will recognize an expense at that time.

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) state-

25

ments regarding the adequacy of the Company’s current working capital and other available sources of funds, (3) statements regarding goals and plans for the future, (4) statements regarding anticipated 2005 levels of capital expenditures and strategic business initiatives costs, (5) statements regarding the impact of potential law changes and restructuring of Meridian, (6) statements regarding expected compliance with its debt facility covenants, (7) statements regarding the Centers for Medicare & Medicaid Services (CMS) audit, and (8) statements regarding potential increases in Meridian “fee-for-service” revenues. All statements that cannot be assessed until the occurrence of a future event or events should be considered forward-looking. These statements are forward-looking statements within the meaning of the Private Securities Litigation Reform Act of 1995 and can be identified by the use of forward-looking words such as “may,” “will,” “expect,” “anticipate,” “believe,” “estimate” and “continue” or similar words. Risks and uncertainties that may potentially impact these forward-looking statements include, without limitation, the following:

•  potential timing issues or changes in the Company’s clients’ claims approval processes that could delay revenue recognition;

•  if the recent economic recovery does not continue, the Company’s clients may not return to previous purchasing levels, and as a result, the Company may be unable to recognize anticipated revenues;

•  the possibility of clients who have filed for bankruptcy asserting a claim against the Company for preference payments: one large client that paid the Company approximately $5.5 million in the first quarter of 2003 filed a lawsuit against the Company on March 24, 2005 seeking its return as a preference payment;

•  the bankruptcy of any of the Company’s larger clients, or vendors who supply them, could impair then-existing accounts receivable and reduce expected future revenues from such clients;

•  failure to successfully implement the strategic business initiatives may reduce expected future revenues;

•  the Company may not achieve anticipated expense savings;

•  the Company’s Accounts Payable Services businesses may not grow as expected and may not be able to increase the number of clients, particularly commercial clients, utilizing contract compliance audits, and growth in smaller commercial clients may not occur as previously anticipated;

•  the Company’s commercial business may continue to show declines unless the Company is able to successfully develop alternative structures to increase revenue;

•  the Company’s international expansion may prove unprofitable or may take longer to accomplish than anticipated, and it may take longer to convert existing client contracts into revenue;

•  the Company’s reorganization of the U.S. Accounts Payable Services operations in connection with the Company’s current strategic business initiatives may adversely affect the Company’s ability to generate anticipated revenues and profits, and may not be successful or may require more time, management attention or expense than we currently anticipate;

•  the Company will be required to expend substantial resources to prepare for and perform the CMS audit and there is no guarantee that actual revenues will justify the required expenditures;

•  until the CMS pilot program is well underway, there will be no way to accurately predict the level of recoveries that will be achieved, and there is no guarantee that the level of recoveries will be significant;

•  even if CMS deems the pilot program sufficiently successful to justify further ventures, there is no guarantee that it, or any other medical claims client, will award future contracts to the Company;

•  the Company has violated its debt covenants in the past and currently expects to violate them in the third quarter unless they can be successfully renegotiated with the Lender;

•  violations of the Company’s debt covenants could result in an acceleration of its outstanding bank debt (totaling $13.7 million at August 8, 2005) as well as debt under its convertible notes (totaling

26

	$125.0 million in gross principal balance at June 30, 2005), and the Company may not be able to secure sufficient liquid resources to pay the accelerated debt;
•	prior years had revenue at increased levels because multiple client audit years were being audited, and this trend is currently not expected to continue;
•	the impact of internal controls assessment and other provisions of Sarbanes-Oxley Act of 2002 that have caused clients to increase their scrutiny of their accounting records and have potentially reduced the amount of lost profits available for recovery by the Company;
•	the Company may continue to experience revenue losses or delays as a result of our U.S. retailing clients’ actual and/or potential revision of claim approval and claim processing guidelines;
•	the possibility of an adverse judgment in pending securities litigation;
•	the impact of certain accounting pronouncements by the Financial Accounting Standards Board or the United States Securities and Exchange Commission, including, without limitation, the potential impact of any goodwill impairment that may be required by ongoing impairment testing under SFAS No. 142;
•	future weakness in the currencies of countries in which the Company transacts business could adversely affect the profitability of the Company’s international operations;
•	changes in economic cycles;
•	competition from other companies;
•	changes in governmental regulations applicable to us;
•	the Meridian VAT Reclaim operating segment may require additional time and effort of Company executives and may therefore distract management from its focus on the Company’s core Accounts Payable Services business;
•	Meridian’s revenues from new service offerings on a “fee-for-service” basis may not grow as expected;
•	revenue from freight rate and pharmacy initiatives and other U.S. initiatives may not be realized as quickly as previously anticipated.
•	proposed legislation and regulatory initiatives concerning the mechanisms of European value-added taxation, if finalized as currently drafted, would reduce material portions of the revenues of Meridian VAT Reclaim;
•	if recent revenue trends in the business continue, the Company will need to evaluate whether some portion, if not all, of the Company’s goodwill, intangible assets and other long-term assets are impaired in accordance with the Company’s impairment accounting policy.
•	the risks inherent in any CEO succession, including the time required to fully integrate Mr. McCurry into the Company’s operations;
•	other risk factors detailed in the Company’s Securities and Exchange Commission filings, including the Company’s Form 10-K for the year ended December 31, 2004 as filed with the Securities and Exchange Commission on March 16, 2005.

      There may be events in the future, however, that the Company cannot accurately predict or over which the Company has no control. The risks and uncertainties listed in this section, as well as any cautionary language in this Form 10-Q, provide examples of risks, uncertainties and events that may cause our actual results to differ materially from the expectations we describe in our forward-looking statements. You should be aware that the occurrence of any of the events denoted above as risks and uncertainties and elsewhere in this Form 10-Q could have a material adverse effect on our business, financial condition and results of operations.

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Item 3. Quantitative and Qualitative Disclosures About Market Risk

      Foreign Currency Market Risk. Our primary functional currency is the U.S. dollar although we transact business in various foreign locations and currencies. As a result, our financial results could be significantly affected by factors such as changes in foreign currency exchange rates or weak economic conditions in the foreign markets in which we provide services. Our operating results are exposed to changes in exchange rates between the U.S. dollar and the currencies of the other countries in which we operate. When the U.S. dollar strengthens against other currencies, the value of nonfunctional currency revenues decreases. When the U.S. dollar weakens, the functional currency amount of revenues increases. We are a net receiver of currencies other than the U.S. dollar and, as such, benefit from a weaker dollar. We are therefore adversely affected by a stronger dollar relative to major currencies worldwide.

      Interest Rate Risk. Our interest income and expense are most sensitive to changes in the general level of Prime and LIBOR interest rates. In this regard, changes in interest rates affect the interest earned on our cash equivalents as well as interest paid on our debt. At June 30, 2005, we had $12.5 million of short-term variable-rate debt outstanding. Additionally, at June 30, 2005, we had fixed-rate convertible notes outstanding with a principal amount of $125.0 million which bear interest at 4.75% per annum. For the variable rate component of debt, a hypothetical 100 basis point change in interest rates with respect to the three and six months ended June 30, 2005 would have resulted in approximately a $30 thousand and $60 thousand change in pre-tax income, respectively.

      Derivative Instruments. The Company has in place a formal policy concerning its use of derivative financial instruments and intends to utilize these instruments prospectively to manage its foreign currency market risk. As of June 30, 2005, the Company had no derivative financial instruments outstanding.

Item 4. Controls and Procedures

      The Company’s management conducted an evaluation, with the participation of its Chief Executive Officer (CEO) and its Executive Vice President and Chief Financial Officer (CFO), of the effectiveness of the Company’s disclosure controls and procedures (as defined in Rules 13a-15(e) and 15d-15(e) under the Securities Exchange Act of 1934, as amended (the “Exchange Act”)) as of the end of the quarterly period covered by this report. Based upon that evaluation, the CEO and CFO have concluded that the Company’s disclosure controls and procedures were not effective at the reasonable assurance level in ensuring that information required to be disclosed by the Company in the reports the Company files or submits under the Exchange Act is recorded, processed, summarized and reported on a timely basis, due to a material weakness in its internal controls relating to revenue and the reserve for estimated refunds, as described below.

      The Company’s management is responsible for establishing and maintaining adequate internal control over financial reporting. The Company’s internal control over financial reporting is a process designed to provide reasonable assurance of the reliability of its financial reporting and the preparation of its financial statements for external reporting purposes, in accordance with U.S. generally accepted accounting principles.

      The material weakness, as originally reported in the Company’s Annual Report on Form 10-K/ A for the year ended December 31, 2004, related to ineffective oversight and review over revenue and the reserve for estimated refunds. In the quarter ended June 30, 2005, management made significant progress in remediating certain aspects of the deficiencies found, specifically in the training of affected personnel and the improvement of the amount and quality of evidence gathered to calculate the reserve for estimated refunds. However, other aspects of the deficiencies found are still in the remediation process and appear to constitute a material weakness.

      A material weakness in internal control over financial reporting is defined by the Public Company Accounting Oversight Board (“PCAOB”) Auditing Standard No. 2 as a significant deficiency, or combination of significant deficiencies, that result in a more than remote likelihood that a material misstatement of the annual or interim financial statements will not be prevented or detected.

      There were no changes, other than as discussed below, in the Company’s internal control over financial reporting identified in connection with the evaluation of changes in internal control required by

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Rule 13a-15(d) under the Exchange Act that occurred during the quarter ended June 30, 2005 that have materially affected, or are reasonably likely to materially affect, the Company’s internal control over financial reporting.

      The Company reported a second material weakness in its Annual Report on Form 10-K/ A for the year ended December 31, 2004, relating to insufficient oversight and review of the Company’s income tax accounting practices. In the quarter ended March 31, 2005, the Company established and implemented additional review steps by management to detect errors in the calculation and roll forward of its tax assets and valuation allowances. Management believes these new procedures, and performance of the procedures, have effectively remediated this material weakness.

      The Company is continuing to implement the following remediation steps to address the material weakness in its internal controls relating to revenue and the reserve for estimated refunds noted above:

•  Further clarification of control procedures and additional training for affected personnel;

•  Enhancement of controls over the reserve for estimated refunds calculation, including additional controls over supporting data extraction and management review; and

•  Additional controls at the corporate level to increase oversight over audit site determination of when the Company’s services are considered performed.

Management believes these new policies and procedures, when fully implemented, will be effective in remediating this material weakness.

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PART II.     OTHER INFORMATION

Item 1. Legal Proceedings

      See Note H(1) of Notes to Condensed Consolidated Financial Statements (Unaudited) included in Part I. Item 1. of this Form 10-Q which is incorporated by reference.

Item 2. Unregistered Sales of Equity Securities and Use of Proceeds

      None.

Item 3. Defaults Upon Senior Securities

      None.

Item 4. Submission of Matters to a Vote of Security Holders

      At the annual meeting of shareholders held on May 3, 2005, the shareholders of the Company took the following actions:

      1. The holders of common stock elected the following two Class III directors for terms of office expiring at the 2008 annual meeting of shareholders as follows:

Name	For		Withheld
David A. Cole		50,701,020		4,926,385
Thomas S. Robertson		51,516,574		4,110,831

      The following Class I and Class II members of the Board of Directors continued their terms of office following the meeting: John M. Cook, Jonathan Golden, Gerald E. Daniels, Garth H. Greimann, N. Colin Lind and Jimmy M. Woodward. Mr. Cook resigned from the Board of Directors effective July 25, 2005 and the Board filled the vacancy by electing James B. McCurry.

      2. The holders of common stock ratified the Audit Committee’s appointment of KPMG LLP as PRG-Schultz’s independent registered public accounting firm for fiscal year 2005. The vote was 49,633,746 for the ratification, 5,169,094 against, with 824,565 abstentions/votes withheld and -0-broker non-votes.

Item 5. Other Information

      None.

Item 6. Exhibits

Exhibit
Number			Description
	3	.1	Restated Articles of Incorporation of the Registrant (incorporated by reference to Exhibit 3.1 to Registrant’s Form 10-Q for the quarter ended June 30, 2002).
	3	.2	Restated Bylaws of the Registrant.
	4	.1	Specimen Common Stock Certificate (incorporated by reference to Exhibit 4.1 to Registrant’s Form 10-K for the year ended December 31, 2001).
	4	.2	See Restated Articles of Incorporation and Bylaws of the Registrant, filed as Exhibits 3.1 and 3.2, respectively.
	4	.3	Second Amendment to Shareholder Protection Rights Agreement dated as of August 16, 2002 between the Registrant and Rights Agent (incorporated by reference to Exhibit 4.3 to Registrant’s Form 10-Q for the quarter ended September 30, 2002).

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Exhibit
Number			Description
	10	.1	Employment Agreement between Registrant and Mr. James B. McCurry, dated as of July 25, 2005 (incorporated by reference to Exhibit 99.3 to Registrant’s Form 8-K filed on July 25, 2005).
	10	.2	Retainer Agreement between Registrant and Mr. David A. Cole, dated as of July 20, 2005 (incorporated by reference to Exhibit 99.2 to Registrant’s Form 8-K filed on July 25, 2005).
	10	.3	Separation and Release Agreement between Registrant and Mr. John M. Cook, dated as of August 2, 2005 (incorporated by reference to Exhibit 99.1 to Registrant’s Form 8-K filed on August 8, 2005).
	10	.4	Separation and Release Agreement between Registrant and Mr. John M. Toma, dated as of August 2, 2005 (incorporated by reference to Exhibit 99.2 to Registrant’s Form 8-K filed on August 8, 2005).
	31	.1	Certification of the Chief Executive Officer, pursuant to Rule 13a-14(a) or 15d-14(a), for the quarter ended June 30, 2005.
	31	.2	Certification of the Chief Financial Officer, pursuant to Rule 13a-14(a) or 15d-14(a), for the quarter ended June 30, 2005.
	32	.1	Certification of the Chief Executive Officer and Chief Financial Officer, pursuant to 18 U.S.C. Section 1350, for the quarter ended June 30, 2005.

31

SIGNATURES

      Pursuant to the requirements of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned, thereunto duly authorized.

PRG-Schultz International, Inc.

August 9, 2005	By: /s/ James B. McCurry James B. McCurry President and Chief Executive Officer (Principal Executive Officer)
August 9, 2005	By: /s/ James E. Moylan, Jr. James E. Moylan, Jr. Executive Vice President-Finance, Chief Financial Officer and Treasurer (Principal Financial Officer)

32 EX-3.2 2 g96545exv3w2.txt EX-3.2 RESTATED BYLAWS OF THE REGISTRANT EXHIBIT 3.2 AMENDED AND RESTATED BYLAWS OF PRG-SCHULTZ INTERNATIONAL, INC. TABLE OF CONTENTS ARTICLE 1 Offices........................................................... 1 1.1 Principal Office........................................................ 1 1.2 Office Location......................................................... 1 1.3 Registered Office....................................................... 1 ARTICLE 2 Capital Stock..................................................... 1 2.1 Certificates............................................................ 1 2.2 Signatures; Transfer Agent; Registrar................................... 1 2.3 Stock Transfer Books.................................................... 1 2.4 Replacement Certificate................................................. 2 2.5 Fractional Share Interests.............................................. 3 2.6 Share Transfers and Registration........................................ 3 2.7 Registered Shareholders................................................. 3 2.8 Record Date............................................................. 3 ARTICLE 3 Shareholders' Meetings............................................ 4 3.1 Definitions............................................................. 4 3.2 Date and Time........................................................... 4 3.3 Place................................................................... 4 3.4 Call.................................................................... 4 3.5 Notice.................................................................. 5 3.6 Waiver of Notice........................................................ 5 3.7 Shareholders List....................................................... 5 3.8 Conduct of Meeting...................................................... 6 -i- 3.9 Proxy Representation.................................................... 6 3.10 Quorum and Action of Shareholders.................................... 6 3.11 Adjournment of Meeting............................................... 6 3.12 Action Without a Meeting............................................. 6 ARTICLE 4 Directors......................................................... 9 4.1 Definitions and Corporate Power and Authority........................... 9 4.2 Qualifications and Number............................................... 9 4.3 Election and Term....................................................... 9 4.4 Vacancies............................................................... 10 4.5 Quorum and Action....................................................... 10 4.6 Meetings................................................................ 11 4.7 Action Without Meeting.................................................. 11 4.8 Compensation............................................................ 11 4.9 Removal by Shareholders................................................. 12 ARTICLE 5 Committees........................................................ 12 5.1 Members................................................................. 12 5.2 Authority............................................................... 12 5.3 Meetings................................................................ 12 5.4 Quorum and Voting....................................................... 12 5.5 Removal................................................................. 12 ARTICLE 6 Officers.......................................................... 12 6.1 Selection............................................................... 13 6.2 Chairman of the Board................................................... 13 -ii- 6.3 President............................................................... 13 6.4 Vice President.......................................................... 13 6.5 Secretary............................................................... 14 6.6 Treasurer............................................................... 14 6.7 Salaries and Bonds...................................................... 14 6.8 Removal................................................................. 14 ARTICLE 7 Indemnification................................................... 15 Authority to Indemnify........................................................ 15 7.2 Mandatory Indemnification............................................... 15 7.3 Advance for Expenses.................................................... 15 7.4 Determination and Authorization of Indemnification...................... 16 7.5 Indemnification of Officers, Employees, and Agents...................... 17 7.6 Director's Expenses as a Witness........................................ 17 7.7 Rights to Indemnification Not Exclusive................................. 17 ARTICLE 8 Notices........................................................... 17 ARTICLE 9 Amendments........................................................ 18 ARTICLE 10 Miscellaneous..................................................... 18 10.1 Inspection of Records by Shareholders................................ 18 10.2 Fiscal Year.......................................................... 20 10.3 Seal................................................................. 20 10.4 Financial Statements................................................. 20 10.5 Appointment of Agents................................................ 20 10.6 Contracts, Deeds, and Loans.......................................... 20 -iii- 10.7 Checks and Drafts.................................................... 21 ARTICLE 11 Fair Price Provisions.......................................... 21 ARTICLE 12 Business Combinations With Interested Shareholders............. 21 -iv- AMENDED AND RESTATED BYLAWS OF PRG-SCHULTZ INTERNATIONAL, INC. ARTICLE 1 Offices 1.1. Principal Office. The principal office for the business of PRG-Schultz International, Inc. (the "Corporation") shall be located at such place (within or without the State of Georgia) as the Board of Directors may fix from time to time. 1.2. Office Location. The Corporation may have other offices at such place or places (within or without the State of Georgia) as the Board of Directors may designate from time to time or the business of the Corporation may require or make desirable. 1.3. Registered Office. The registered office of the Corporation and the registered agent shall be the office and the agent set forth in the appropriate documents filed by the Corporation in the office of the Secretary of State of Georgia. ARTICLE 2 Capital Stock 2.1. Certificates. At a minimum, each share certificate shall state on its face: (1) the name of the Corporation and that the Corporation is organized under the laws of Georgia; (2) the name of the person to whom the shares are issued; and (3) the number and class of shares and the designation of the series, if any, that the certificate represents. Share certificates shall be numbered consecutively and entered into the stock transfer books of the Corporation as they are issued. 2.2. Signatures; Transfer Agent; Registrar. Each certificate shall be signed, either manually or in facsimile, by an officer of the Corporation and may bear the corporate seal or its facsimile. If the certificate is signed in facsimile, then it must be countersigned by a transfer agent or registered by a registrar other than the Corporation itself or an employee of the Corporation. The transfer agent or registrar may sign either manually or by facsimile. Share certificates exchanged or returned shall be cancelled by the Secretary or his or her designee and placed in their original place in the stock book. 2.3. Stock Transfer Books. The Corporation shall keep at its registered office or its principal office or at the principal office of its transfer agent or registrar, wherever located, with a -1- copy at the principal office of the Corporation, a book or set of books, to be known as the stock transfer books of the Corporation, containing in alphabetical order the name of each shareholder of record, together with such shareholder's address and social security or other tax identification number and the number of shares of each kind, class, or series of capital stock represented by each share certificate held by the shareholder and the number of each such certificate. The stock transfer books shall be maintained in current condition. The stock transfer books, or the duplicate copy thereof maintained at the principal office of the Corporation, shall be available for inspection and copying by any shareholder authorized to make such inspection pursuant to the Georgia Business Corporation Code (the "Code"), at the sole cost of such person. The stock transfer books may be inspected or copied either by such shareholder or by such shareholder's duly authorized attorney or agent. The information contained in the stock transfer books and share register may be stored on punch cards, magnetic tape, magnetic discs, or other information storage devices relating to electronic data processing equipment, provided that any such method, device, or system employed shall be approved by the Board of Directors, and provided further that the same is capable of reproducing all information contained therein, in legible and understandable form, for inspection by any shareholder authorized by the Code or for any other proper corporate purpose. 2.4. Replacement Certificate. The Corporation may issue a new certificate for its shares in place of any certificate theretofore issued and alleged by its owner of record or such owner's authorized representative to have been lost, stolen, or destroyed if the Corporation, transfer agent, or registrar is not on notice that such certificate has been acquired by a bona fide purchaser. A replacement certificate may be issued upon such owner's or representative's compliance with all of the following conditions: (a) the owner shall file with the Secretary of the Corporation and the transfer agent or the registrar, if any, a request for the issuance of a new certificate, together with an affidavit in form satisfactory to the Secretary and transfer agent or registrar, if any, setting forth the time, place, and circumstances of the loss; (b) if requested by the Corporation, the owner also shall file with the Secretary and the transfer agent or the registrar, if any, a bond with good and sufficient security acceptable to the Secretary and the transfer agent or the registrar, if any, conditioned to indemnify and save harmless the Corporation and the transfer agent or the registrar, if any, from any and all damage, liability, and expense of every nature whatsoever resulting from the Corporation, the transfer agent, or the registrar issuing a new certificate in place of the one alleged to have been lost, stolen, or destroyed; and (c) the owner shall comply with such other reasonable requirements as the Chairman of the Board, the President, the Secretary, or the Board of Directors of the Corporation and the transfer agent or the registrar shall deem appropriate under the circumstances. A new certificate may be issued in lieu of any certificate previously issued that has become defaced or mutilated upon surrender for cancellation of a part of the old certificate sufficient, in the opinion of the Secretary and the transfer agent or the registrar, to identify the owner of the defaced or mutilated certificate, the number of shares represented thereby, and the number of the certificate and its authenticity and to protect the Corporation and the transfer agent or the registrar against loss or liability. When sufficient identification for such defaced or mutilated certificate is lacking, a new -2- certificate may be issued upon compliance with all of the conditions set forth above in connection with the replacement of lost, stolen, or destroyed certificates. 2.5. Fractional Share Interests. The Corporation may, but shall have no obligation to, (1) issue fractions of a share or pay in money the value of fractions of a share; (2) arrange for disposition of fractional shares by or for the account of the shareholders; and (3) issue scrip in registered or bearer form entitling the holder to receive a full share upon surrendering enough scrip to equal a full share. Each certificate representing scrip must be conspicuously labeled "scrip" and must contain the information required by the Code to be on share certificates. The holder of a fractional share is entitled to exercise the rights of a shareholder, including the right to vote, to receive dividends, and to participate in the assets of the Corporation upon liquidation. The holder of scrip is not entitled to any of these rights unless the scrip provides for such rights. The Board of Directors may authorize the issuance of scrip subject to any conditions considered desirable. 2.6. Share Transfers and Registration. Upon compliance with provisions restricting the transferability of shares, if any, transfers of capital stock of the Corporation by the registered holder thereof shall be recorded on the stock transfer books of the Corporation only upon the written request of such registered holder, or by such holder's attorney authorized to effect such transfers by power of attorney duly executed and filed with the Secretary of the Corporation or with a transfer agent or registrar, if any, and upon surrender of the certificate or certificates for such shares properly endorsed for transfer (if the shares are represented by certificates), accompanied by such assurances as the Corporation, or such transfer agent or registrar, may require as to the genuineness and effectiveness of each necessary endorsement and satisfactory evidence of compliance with all applicable laws relating to securities transfers and the collection of taxes. It shall be the duty of the Corporation, or such transfer agent or registrar, to issue a new certificate, cancel the old certificate, and record the transactions upon the stock transfer books of the Corporation. 2.7. Registered Shareholders. Except as otherwise required by law, the Corporation shall be entitled to treat the person registered in the stock transfer books as the owner of shares of capital stock of the Corporation as the person exclusively entitled to receive notification, dividends, and distributions, to vote and to otherwise exercise the rights, powers, and privileges of ownership of such capital stock, and shall not be required to recognize any adverse claim. 2.8. Record Date. The Board of Directors may fix a future date to serve as the record date for one or more voting groups in order to determine the shareholders entitled to notice of a shareholders' meeting, to demand a special meeting, to vote, or to take any other shareholder action; provided, however, that such future date shall not be more than seventy days before the meeting or action requiring a determination of shareholders. When a determination of shareholders entitled to vote at any meeting of shareholders has been made as provided herein, such determination shall apply to any adjournment thereof, unless the Board of Directors shall fix -3- a new record date for the adjourned meeting, which it must do if the meeting is adjourned to a date more than 120 days after the date fixed for the original meeting. ARTICLE 3 Shareholders' Meetings 3.1. Definitions. As used in these bylaws regarding the right to notice of a meeting of shareholders or a waiver thereof or to participate or vote thereat or to consent or dissent in writing in lieu of a meeting, as the case may be, the term "share" or "shares" or "shareholder" or "shareholders" refers to an outstanding share or shares of capital stock of the Corporation and to a holder or holders of record of outstanding shares of capital stock of the Corporation when the Corporation is authorized to issue only one class of shares. Such reference also is intended to include any outstanding share or shares and any holder or holders of record of outstanding shares of any class upon which or upon whom the articles of incorporation confer such governance rights when there are two or more classes or series of shares or upon which or upon whom the Code confers such governance rights notwithstanding that the articles of incorporation may provide for more than one class or series of shares, one or more of which are limited or denied such rights thereunder. 3.2. Date and Time. The annual meeting of the shareholders of the Corporation shall be held each fiscal year on the date and at the time designated, from time to time, by the Board of Directors. If at any time the Board of Directors shall fail to otherwise designate the date of an annual meeting, then such annual meeting shall be held at 10:00 a.m., local time, on the second Tuesday of the fifth month following the end of the fiscal year of the Corporation, or, if such day is a legal holiday, the next following business day. A special meeting shall be held on the date and at the time designated by the person or persons calling such special meeting. 3.3. Place. Annual and special meetings may be held within or without the State of Georgia at such place as the Board of Directors may from time to time designate or as may be specified in the notice of such meeting. Whenever the Board of Directors shall fail to designate such place, the meeting shall be held at the principal business office of the Corporation in the State of Georgia. 3.4. Call. Annual meetings may be called by the Board of Directors, the Chairman of the Board, if any, the President, or by any officer instructed by the directors to call the meeting. Special meetings, including any special meeting in lieu of an annual meeting, may be called only by: (a) the Chairman of the Board, if any; (b) the President; (c) a majority of the members of the Board of Directors then in office; or -4- (d) the holders of at least thirty five percent (35%) of all the votes entitled to be cast on any issue proposed to be considered at the proposed special meeting if said holders deliver to the Secretary of the corporation one (1) or more signed and dated written demands for the meeting, describing therein the purpose or purposes for which the special meeting is to be held; provided, however, that at such time and for so long as there are one hundred (100) or fewer shareholders of record, the corporation shall hold such special meeting upon the demand of at least twenty five percent (25%) of said holders. The record date for determining shareholders entitled to demand a special meeting shall be determined in the manner provided in these bylaws. Only the business within the purpose or purposes described in the meeting notice required by subsection (c) of Code Section 14-2-705 may be conducted at a special meeting of the Shareholders. 3.5. Notice. Written notice stating the place, day, and hour of each meeting, and, in the case of a special meeting, the purpose or purposes for which the meeting is called, shall be delivered not less than ten days (or not less than any other such minimum period of days as may be prescribed by the Code) nor more than sixty days before the date of the meeting, either personally or by first class mail by or at the direction of the President, the Secretary, or the officer or persons calling the meeting, to each shareholder of record entitled to vote at such meeting. When a meeting is adjourned to another time or place it shall not be necessary to give any notice of the new date, time, or place if the date, time, and place are announced at the meeting before adjournment. If, however, a new record date is or must be fixed under the Code, a notice of the new meeting shall be given to persons who are shareholders as of the new record date. At the adjourned meeting any business may be transacted that might have been transacted on the original date of the meeting. 3.6. Waiver of Notice. A shareholder may waive any notice required by the Code, the articles of incorporation, or these bylaws before or after the date and time of the required notice. The waiver must be in writing, signed by the shareholder entitled to notice, and delivered to the Corporation for inclusion in the minutes or filing with the corporate records. No such waiver of notice of a shareholders' meeting with respect to an amendment of the articles of incorporation pursuant to Code section 14-2-1003, a plan of merger or share exchange pursuant to Code section 14-2-1103, a sale of assets pursuant to Code section 14-2-1202, or any other action which would entitle the shareholder to dissent pursuant to Code section 14-2-1302 or any successor statute shall be effective unless the provisions of paragraphs (1) or (2) of subsection (c) of Code section 14-2-706 or any successor statute are followed. Attendance at a meeting waives objection (1) to notice or defective notice of a meeting unless the shareholder at the beginning of the meeting objects to holding the meeting or transacting business at the meeting and (2) to consideration of a particular matter at the meeting that is not within the purpose or purposes described in the meeting notice, unless the shareholder objects to considering the matter when it is presented. 3.7. Shareholders List. After fixing a record date for a meeting, the Corporation shall prepare an alphabetical list of the names of all its shareholders who are entitled to notice of a shareholders' meeting. The list shall be arranged by voting group (and within each voting group -5- by class or series of shares) and show the address of and number of shares held by each shareholder. The shareholders list shall be available for inspection at the time and place of the meeting by any shareholder or the shareholder's agent or attorney. 3.8. Conduct of Meeting. Meetings of the shareholders shall be presided over by one of the following officers in the order of seniority and if present and acting: the Chairman of the Board, if any, the Vice Chairman of the Board, if any, the President, a Vice President, or, if none of the foregoing is in office and present and acting, by a chairman of the meeting to be chosen by the shareholders. The Secretary of the Corporation, or in the Secretary's absence an Assistant Secretary, shall act as secretary of every meeting, but, if neither the Secretary nor an Assistant Secretary is present, the chairman of the meeting shall appoint a secretary of the meeting. 3.9. Proxy Representation. At any meeting of the shareholders, any shareholder having the right to vote shall be entitled to vote in person or by proxy. An appointment of a proxy is valid for eleven months, unless a longer period is expressly provided in the appointment form. 3.10. Quorum and Action of Shareholders. At all meetings of the shareholders, a majority of the votes entitled to be cast on a matter by a voting group shall constitute a quorum of that voting group for action on that matter, unless the Code, the articles of incorporation, or a provision of these bylaws approved by shareholders, as the same are now enacted or hereafter amended, provides otherwise. Once a share is represented for any purpose at a meeting, other than solely to object to holding the meeting or transacting business at the meeting, it is deemed present for quorum purposes for the remainder of the meeting and for any adjournment of that meeting unless a new record date is or must be set for that adjourned meeting. If a quorum exists, action on a matter (other than the election of directors) by a voting group is approved if the votes cast within the voting group favoring the action exceed the votes cast opposing the action, unless the Code, the articles of incorporation, or a provision of these bylaws adopted by the shareholders under section 14-2-1021 of the Code or any successor statute, requires a greater number of affirmative votes. Unless otherwise provided in the articles of incorporation, directors are elected by a plurality of votes cast by the shares entitled to vote in the election at a meeting at which a quorum is present. 3.11. Adjournment of Meeting. The holders of a majority of the voting shares represented at a meeting, whether or not a quorum is present, may adjourn such meeting from time to time. 3.12. Action Without a Meeting. Any action required or permitted by the Code to be taken at a shareholders' meeting may be taken without a meeting if all the shareholders entitled to vote on such action sign one or more written consents describing the action taken and the consents are delivered to the Corporation for inclusion in the minutes or filing with the corporate records. No such written consent shall be valid unless the provisions of section 14-2-704(b) of the Code or any successor statute are followed. -6- 3.13. Advance Notice of Shareholder Nominations and Proposals. Nominations of persons for election to the Board of Directors and proposals of business to be transacted by the shareholders may be made at an annual meeting of shareholders (a) pursuant to the Corporation's notice with respect to such meeting, (b) by or at the direction of the Board of Directors, or (c) by any shareholder of record of the Corporation who was a shareholder of record at the time of the giving of the notice provided for in the following paragraph, who is entitled to vote at the meeting and who has complied with the notice procedures set forth in this Section. For nominations or other business to be properly brought before an annual meeting by a shareholder pursuant to clause (c) of the foregoing paragraph, (1) the shareholder must have given timely notice thereof in writing to the Secretary of the Corporation, (2) such business must be a proper matter for shareholder action under the Georgia Business Corporation Code, (3) if the shareholder, or the beneficial owner on whose behalf any such proposal or nomination is made, has provided the Corporation with a Solicitation Notice, as that term is defined in this paragraph, such shareholder or beneficial owner must, in the case of a proposal, have delivered a proxy statement and form of proxy to holders of at least the percentage of the Corporation's voting shares required under applicable law to carry any such proposal, or, in the case of a nomination or nominations, have delivered a proxy statement and form of proxy to holders of a percentage of the Corporation's voting shares reasonably believed by such shareholder or beneficial holder to be sufficient to elect the nominee or nominees proposed to be nominated by such shareholder, and must, in either case, have included in such materials the Solicitation Notice and any proxy statement and form of proxy utilized or to be utilized by such person, and (4) if no Solicitation Notice relating thereto has been timely provided pursuant to this Section, the shareholder or beneficial owner proposing such business or nomination must not have solicited, and must represent that he, she or it will not solicit, a number of proxies sufficient to have required the delivery of such a Solicitation Notice under this Section. To be timely, a stockholder's notice shall be delivered to the Secretary at the principal executive offices of the Corporation not less than ninety (90) nor more than one hundred twenty (120) days prior to the first anniversary (the "Anniversary") of the date on which the Corporation first mailed its proxy materials for the preceding year's annual meeting of shareholders; provided, however, that if the date of the annual meeting is advanced more than thirty (30) days prior to or delayed by more than thirty (30) days after the anniversary of the preceding year's annual meeting, notice by the shareholder to be timely must be so delivered not later than the close of business on the later of (i) the 90th day prior to such annual meeting or (ii) the 10th day following the day on which public announcement of the date of such meeting is first made. Such stockholder's notice shall set forth (a) as to each person whom the shareholder proposes to nominate for election or reelection as a director all information relating to such person as would be required to be disclosed in solicitations of proxies for the election of such nominees as directors pursuant to Regulation 14A under the Securities Exchange Act of 1934, as amended (the "Exchange Act"), and shall contain such person's written consent to serve as a director if elected; (b) as to any other business that the shareholder proposes to bring before the meeting, a brief description of such business, the reasons for conducting such business at the meeting and any material interest in such business of such shareholder and the beneficial owner, if any, on whose behalf the proposal is made; (c) as to the shareholder giving the notice and the beneficial owner, if any, on whose behalf the nomination or -7- proposal is made (i) the name and address of such shareholder, and of such beneficial owner, as they appear on the Corporation's books, (ii) the class and number of shares of the Corporation that are owned beneficially and of record by such shareholder and such beneficial owner, and (iii) whether such shareholder or beneficial owner has delivered or intends to deliver a proxy statement and form of proxy to holders of, in the case of a proposal, at least the percentage of the Corporation's voting shares required under applicable law to carry the proposal or, in the case of a nomination or nominations, a sufficient number of holders of the Corporation's voting shares to elect such nominee or nominees (the notice described in this sentence, a "Solicitation Notice"). Notwithstanding anything in the second sentence of the second paragraph of this Section 3.13 to the contrary, in the event that the number of directors to be elected to the Board is increased and there is no public announcement naming all of the nominees for director or specifying the size of the increased Board made by the Corporation at least fifty-five (55) days prior to the Anniversary, a stockholder's notice required by this Section shall also be considered timely, but only with respect to nominees for any new positions created by such increase, if it shall be delivered to the Secretary at the principal executive offices of the Corporation not later than the close of business on the 10th day following the day on which such public announcement is first made by the Corporation. Only persons nominated in accordance with the procedures set forth in this Section 3.13 shall be eligible to serve as directors and only such business shall be conducted at an annual meeting of shareholders as shall have been brought before the meeting in accordance with the procedures set forth in this Section. The chairman of the meeting shall have the power and the duty to determine whether a nomination or any business proposed to be brought before the meeting has been made in accordance with the procedures set forth in these Bylaws and, if any proposed nomination or business is not in compliance with these Bylaws, to declare that such defective proposed business or nomination shall not be presented for shareholder action at the meeting and shall be disregarded. Only such business shall be conducted at a special meeting of shareholders as shall have been brought before the meeting pursuant to the Corporation's notice of meeting. Nominations of persons for election to the Board of Directors may be made at a special meeting of shareholders at which directors are to be elected pursuant to the Corporation's notice of meeting (a) by or at the direction of the Board or (b) by any shareholder of record of the Corporation who is a shareholder of record at the time of giving of notice provided for in this paragraph, who shall be entitled to vote at the meeting and who complies with the notice procedures set forth in this Section 3.13. Nominations by shareholders of persons for election to the Board may be made at such a special meeting of shareholders if the stockholder's notice required by the second paragraph of this Section 3.13 shall be delivered to the Secretary at the principal executive offices of the Corporation not later than the close of business on the later of the 90th day prior to such special meeting or the 10th day following the day on which public announcement is first made of the date of the special meeting and of the nominees proposed by the Board to be elected at such meeting. -8- For purposes of this Section, "public announcement" shall mean disclosure in a press release reported by the Dow Jones News Service, Associated Press or a comparable national news service or in a document publicly filed by the Corporation with the Securities and Exchange Commission pursuant to Section 13, 14 or 15(d) of the Exchange Act. Notwithstanding the foregoing provisions of this Section 3.13, a shareholder must also comply with all applicable requirements of the Exchange Act and the rules and regulations thereunder with respect to matters set forth in this Section 3.13. Nothing in this Section 3.13 shall be deemed to affect any rights of shareholders to request inclusion of proposals in the Corporation's proxy statement pursuant to Rule 14a-8 under the Exchange Act." ARTICLE 4 Directors 4.1. Definitions and Corporate Power and Authority. All corporate powers shall be exercised by or under the authority of, and the business and affairs of the Corporation shall be managed under the direction of, a board of directors (herein referred to as the "Board of Directors," "Board," or "directors" notwithstanding that only one director may legally constitute the Board), subject to any limitation set forth in the articles of incorporation, or a provision of these bylaws approved by shareholders, as the same are now enacted or hereafter amended, or lawful agreements among the shareholders. 4.2. Qualifications and Number. Directors shall be natural persons who are at least eighteen years of age. A director need not be a shareholder, a citizen of the United States, or a resident of the State of Georgia. The Board of Directors shall consist of not less than three (3) nor more than fifteen (15) members, with the specific number to be determined by the Board of Directors. Notwithstanding the foregoing, this bylaw provision may be amended by the vote of a majority of the directors then in office in order to expand or contract the variable range for the permissible number of directors. 4.3. Election and Term. (a) The Board of Directors shall be divided into three (3) classes with each such class to be as nearly equal in number as possible. The term of the directors in Class I shall expire at the first annual meeting of Shareholders following the date of adoption of these Amended and Restated Bylaws, the term of the directors in Class 11 shall expire at the second annual meeting of Shareholders following the date of adoption of these Amended and Restated Bylaws, and the term of the directors in Class III shall expire at the third annual meeting of Shareholders following the date of adoption of these Amended and Restated Bylaws. At each annual Shareholders' meeting, directors shall be chosen for a term of three (3) years to succeed those whose term expires. -9- (b) The members of the initial classified Board of Directors are as follows:

Class I Class II Class III - ------- -------- --------- John M. Cook Jonathan Golden Stanley B. Cohen John M. Toma Garth H. Greimann T. Charles Fial E. James Lowrey Fred W. I. Lachotzki

(c) Subject to the foregoing, at each annual meeting of shareholders beginning with the first annual meeting following the adoption of these Amended and Restated Bylaws, the successors to the class of directors whose term shall then expire shall be elected to hold office for a term expiring at the third succeeding annual meeting. Each director shall hold office for the term for which he or she is elected or appointed or until his or her successor shall be elected and qualified, or until his or her death, removal from office or resignation. (d) Should the number of directors be changed, any newly created directorships or any decrease in directorships shall be so apportioned among the classes as to make Classes I, II, and III as nearly equal in number as possible. (e) No decrease in the number of directors constituting the Board of Directors shall shorten the term of any incumbent director. 4.4. Vacancies. Any vacancy in the Board of Directors resulting from the resignation, incapacity, death or retirement of a director, or any other cause, other than removal by the shareholders or increase in the number of directors, shall be filled by a majority vote of the remaining directors, though less than a quorum, for a term corresponding to the unexpired term of his or her predecessor in office. Newly created directorships resulting from any increase in the authorized number of directors shall be filled by either: (i) a majority of the shareholders voting at a meeting of the shareholders, or (ii) a majority vote of the remaining directors, though less than a quorum, and the directors so chosen shall hold office for a term expiring at the next meeting of shareholders at which directors are to be elected; provided, however, that the term of any such additional director, if elected by the shareholders at such meeting, shall correspond to the term of the class to which he or she has been assigned, regardless of whether or not such class was the subject of the election held at the shareholders' meeting. 4.5. Quorum and Action. A majority of the directors shall constitute a quorum for the transaction of business unless the Code, the articles of incorporation, or a provision of these bylaws approved by shareholders, as the same are now enacted or hereafter amended, authorizes a greater number. If a quorum is present when a vote is taken, the affirmative vote of a majority of the directors present at a meeting is the act of the Board, unless the articles of incorporation or -10- a provision of these bylaws approved by shareholders, as the same are now enacted or hereafter amended, requires the vote of a greater number of directors. 4.6. Meetings. (a) Time. Meetings shall be held at such time as the Board shall fix, except that the first meeting of a newly elected Board shall be held as soon after its election as the directors may conveniently assemble. (b) Place. Meetings shall be held at such place within or without the State of Georgia as shall be determined by the Board. (c) Call. Meetings may be called by the Chairman of the Board, if any, by the President, or by any two directors if the Board consists of three or more directors, or by any director if the Board consists of fewer than three directors. (d) Notice, Waiver of Notice. Unless the articles of incorporation provide otherwise, regular meetings of the Board of Directors may be held without notice required of the date, time, place, or purpose of the meeting. Notice of special meetings shall be given to directors at least two days before such meetings, which notice shall specify the date, time, and place of the meeting. The notice need not state the purpose of the special meeting. A director may waive any notice required by the Code, the articles of incorporation, or these bylaws before or after the date and time of the required notice. The waiver must be in writing, signed by the director entitled to the notice, and delivered to the Corporation for inclusion in the minutes or filing with the corporate records. A director's attendance at or participation in a meeting waives any required notice unless the director at the beginning of the meeting (or promptly upon arrival) objects to holding the meeting or transacting business at the meeting and does not thereafter vote for or assent to action taken at the meeting. (e) Chairman of the Meeting. The Chairman of the Board, if any, and if present and acting, shall preside at all meetings. Otherwise, any director chosen by the Board shall preside. The person presiding at the meeting shall designate a person to act as secretary of the meeting, who may or may not be a director or officer of the Corporation. 4.7. Action Without Meeting. Unless the articles of incorporation or a provision of these bylaws provides otherwise, any action required or permitted by the Code to be taken at a Board of Directors' meeting may be taken without a meeting, if the action is taken by all members of the Board. The action must be evidenced by one or more written consents describing the action taken, signed by each director, and delivered to the Corporation for inclusion in the minutes or filing with the corporate records. 4.8. Compensation. Directors may be allowed such compensation for attendance at regular or special meetings of the Board of Directors and any special or standing committees thereof as may be determined from time to time by resolution of the Board of Directors. -11- 4.9. Removal by Shareholders. At any shareholders' meeting with respect to which notice of such purpose has been given, the shareholders may remove one or more directors from office, with or without cause, by a majority of the votes entitled to be cast unless the articles of incorporation or a provision of these bylaws approved by shareholders, as the same are now enacted or hereafter amended, provides otherwise. ARTICLE 5 Committees 5.1. Members. The Board of Directors may create one or more committees and appoint members to serve on them. Each committee may have one or more directors, who shall serve at the pleasure of the Board of Directors. 5.2. Authority. To the extent specified by the Board of Directors, each committee may exercise the authority of the Board of Directors under Code section 14-2-801 or any successor statute. A committee shall not, however: (1) approve or propose to shareholders action that the Code requires to be approved by shareholders; (2) fill vacancies on the Board of Directors or on any of its committees; (3) amend articles of incorporation pursuant to Code section 14-2-1002 or any successor statute; (4) adopt, amend, or repeal bylaws; or (5) approve a plan of merger not requiring shareholder approval. 5.3. Meetings. Committees shall meet from time to time on call of the Chairman of the Board, if any, the President, or of any one or more members of the particular committee. The requirements for meetings, action without meetings, notices, and waivers of notice of the Board of Directors shall apply to any committee which the Board shall establish. A committee shall keep a record of its proceedings and shall report these proceedings to the Board of Directors at the meeting thereof held next after the action has been taken. All such proceedings shall be subject to revision or alteration by the Board of Directors, except to the extent that action shall have been taken pursuant to or in reliance upon such proceedings prior to any such revision or alteration. 5.4. Quorum and Voting. The quorum and voting requirements of the Board of Directors also shall apply to any committee which the Board shall establish. 5.5. Removal. The Board of Directors shall have power to remove any member of any committee at any time, with or without cause, to fill vacancies, and to dissolve any such committee. -12- ARTICLE 6 Officers 6.1. Selection. The Board of Directors at each annual meeting shall, or if no annual meeting is held, at such time as the Board deems proper, and at any regular or special meeting may, elect or appoint a President, a Secretary, and a Treasurer and may elect or appoint a Chairman of the Board, one or more Vice Presidents, one or more Assistant Secretaries, one or more Assistant Treasurers, and such other officers, assistant officers, and agents as they may determine, or the Board may designate a duly appointed officer to appoint one or more officers or assistant officers. The President may, but need not, be a director. Any two or more offices may be held simultaneously by the same person. Unless otherwise provided in the resolution of election or appointment, all officers shall be elected for a term of office running until the meeting of the Board of Directors following the next annual meeting of shareholders and until their successors have been duly elected or appointed and qualified or until their earlier resignation, removal from office, or death. All officers, assistant officers, and agents of the Corporation shall have such authority, powers, duties, functions, and privileges as provided for herein and as the Board may determine from time to time. The Board may designate, elect, or appoint a chief operating officer and/or a chief executive officer, each of whom shall be deemed a Vice President unless elected to any other office. 6.2 Chairman of the Board. If a Chairman of the Board is elected by the directors, the Chairman will preside at all meetings of shareholders and directors and shall have and perform such other duties as from time to time may be assigned by the Board of Directors. The Chairman of the Board shall not be deemed an officer of the Corporation unless designated as such by a resolution of the Board of Directors. 6.3 President. The President shall be the Chief Executive Officer of the Company, and in the absence of a Chairman of the Board, preside at all meetings of the shareholders, and if he or she is a member of the Board, at all meetings of the Board of Directors. It shall be the President's duty to attend to the business of the Corporation and maintain strict supervision over all of its affairs and interests. The President shall keep the Board of Directors fully advised about the affairs and conditions of the Corporation, and shall manage and operate the business of the Corporation pursuant to and in accordance with such policies as may be prescribed from time to time by the Board of Directors. The President shall, subject to the approval of the Board, hire and fix the compensation of all employees and agents of the Corporation (other than the executive officers of the Corporation), and any such employee or agent shall be removable at the President's pleasure. Unless the Board of Directors by resolution shall otherwise provide, the President may delegate such of the President's powers as the President deems appropriate to other officers, employees, and agents of the Corporation. 6.4 Vice President. The Vice President (or Vice Presidents, in the order designated by the Board) shall, in the absence or disability of the President (and the Chairman of the Board, if one is elected by the Board of Directors) perform the duties and exercise the powers of the President, and shall perform such other duties as shall from time to time be imposed upon any Vice President by the Board or delegated to a Vice President by the President. The Board may by resolution supplement the title of any Vice President in any manner. -13- 6.5 Secretary. It shall be the duty of the Secretary to keep a record of the proceedings of all meetings of the shareholders and the Board of Directors; to keep the stock transfer books of the Corporation or to assure that they are properly kept if the Corporation employs an independent transfer agent; to notify the shareholders and directors of meetings as provided by these bylaws or the Code; to have custody of the seal of the Corporation; to affix such seal to any instrument requiring the same; to attest the signature or certify the incumbency or signature of any officer of the Corporation; and to perform such other duties as the Chairman of the Board, the President, or the Board of Directors may prescribe. Any Assistant Secretary, if elected, shall perform the duties of the Secretary during the absence or disability of the Secretary and shall perform such other duties as the Chairman of the Board, the President, the Secretary, or the Board of Directors may prescribe. 6.6 Treasurer. The Treasurer shall keep, or cause to be kept, the financial books and records of the Corporation, and shall faithfully account for the Corporation's funds, financial assets, and other assets entrusted to the Treasurer's care and custody. The Treasurer shall make such reports as may be necessary to keep the Chairman of the Board, the President, and the Board of Directors informed at all times as to the financial condition of the Corporation, and shall perform such other duties as the Chairman of the Board, the President, or the Board of Directors may prescribe. The Treasurer shall maintain the money and other assets of the Corporation in the name and to the credit of the Corporation in such depositories as may be designated by the Board of Directors. The Treasurer may provide for the investment of the money and other assets of the Corporation consistent with the needs of the Corporation to disburse such money and assets in the course of the Corporation's business. The Treasurer shall perform the duties of the Secretary of the Corporation in the absence or disability of the Secretary and any Assistant Secretary. Any Assistant Treasurer, if elected, shall perform the duties of the Treasurer during the absence or disability of the Treasurer, and shall perform such other duties as the Chairman of the Board, the President, the Treasurer, or the Board of Directors may prescribe. 6.7 Salaries and Bonds. The Board of Directors shall fix the compensation of all officers of the Corporation, unless pursuant to a resolution of the Board the authority to fix such compensation is delegated to a committee of the Board or (other than compensation of executive officers) to the President. The fact that any officer also is a director shall not preclude such officer from receiving a salary or from voting upon the resolution providing the same. The Board of Directors may, in its sole discretion, require bonds from any or all of the officers and employees of the Corporation for the faithful performance of their duties and conduct while in office. 6.8 Removal. The Board of Directors may remove any officer at any time with or without cause. -14- ARTICLE 7 Indemnification 7.1. Authority to Indemnify. (a) Except as provided in subsections (b) and (c) of this Section 7.1, the Corporation shall indemnify an individual made a party to a proceeding because such individual is or was a director or officer of the Corporation against liability incurred in the proceeding, if such director or officer acted in a manner such director or officer believed in good faith to be in or not opposed to the best interests of the Corporation and, in the case of any criminal proceeding, such director or officer had no reasonable cause to believe the conduct was unlawful. (b) The Corporation may not indemnify a director or officer under this Section 7.1: (1) In connection with a proceeding by or in the right of the Corporation in which the director or officer was adjudged liable to the Corporation; or (2) In connection with any other proceeding in which the director or officer was adjudged liable on the basis that personal benefit was improperly received by the director or officer. (c) Indemnification permitted under this Section 7.1 in connection with a proceeding by or in the right of the Corporation is limited to reasonable expenses incurred in connection with the proceeding. 7.2. Mandatory Indemnification. Unless otherwise provided in the articles of incorporation, to the extent that a director or officer has been successful, on the merits or otherwise, in the defense of any proceeding to which the director or officer was a party, or in defense of any claim, issue, or matter therein, because that individual is or was a director or officer of the Corporation, the Corporation shall indemnify the director or officer against reasonable expenses incurred by the director or officer in connection therewith. 7.3. Advance for Expenses. (a) The Corporation shall pay for or reimburse the reasonable expenses incurred by a director or officer who is a party to a proceeding in advance of final disposition of the proceeding if: (1) The director or officer furnishes the Corporation a written affirmation of such director's or officer's good faith belief that such director or officer has met the standard of conduct set forth in subsection (a) of Section 7.1 of these bylaws; and -15- (2) The director or officer furnishes the Corporation a written undertaking, executed personally or on the director's or officer's behalf, to repay any advances if it is ultimately determined that the director or officer is not entitled to indemnification under Section 7.1. (b) The undertaking required by paragraph (2) of subsection (a) of this Section 7.3 must be an unlimited general obligation of the director or officer, but need not be secured and may be accepted without reference to financial ability to make repayment. 7.4. Determination and Authorization of Indemnification. (a) The Corporation may not indemnify a director or officer under Section 7.1 of these bylaws unless authorized thereunder and a determination has been made in the specific case that indemnification of the director or officer is required in the circumstances because the director or officer has met the standard of conduct set forth in subsection (a) of Section 7.1. (b) The determination shall be made: (1) By the Board of Directors by majority vote of a quorum consisting of directors not at the time parties to the proceeding; or (2) If a quorum cannot be obtained under paragraph (1) of this subsection, by majority vote of a committee duly designated by the Board of Directors (in which designation directors who are parties may participate), consisting solely of two or more directors not at the time parties to the proceeding; or (3) By special legal counsel: (i) Selected by the Board of Directors or its committee in the manner prescribed in paragraphs (1) or (2) of this subsection (b); or (ii) If a quorum of the Board of Directors cannot be obtained under paragraph (1) of this subsection (b) and a committee cannot be designated under paragraph (2) of this subsection, selected by majority vote of the full Board of Directors (in which selection directors who are parties may participate); or (4) By the shareholders, but shares owned by or voted under the control of directors or officers who are at the time parties to the proceeding may not be voted on the determination. (c) Evaluation as to reasonableness of expenses shall be made in the same manner as the determination that indemnification is required, except that if the determination that indemnification is required is made by special legal counsel, evaluation as to reasonableness of -16- expenses shall be made by those entitled under paragraph (3) of subsection (b) of this bylaw provision to select counsel. 7.5. Indemnification of Officers, Employees, and Agents. Notwithstanding any other provisions of these bylaws to the contrary, unless the articles of incorporation provide otherwise, the Corporation may, in the discretion of the Board of Directors, indemnify and advance expenses to an officer, employee, or agent who is not a director, to the extent the Board deems appropriate, consistent with public policy. 7.6. Director's Expenses as a Witness. This Article Seven does not limit the Corporation's power to pay or reimburse expenses incurred by a director in connection with such director's appearance as a witness in a proceeding at a time when such director has not been made a named defendant or respondent to the proceeding. 7.7. Rights to Indemnification Not Exclusive. The right of the directors and officers of the Corporation to indemnification under these bylaws is not exclusive of or in limitation of any other right now possessed or hereafter acquired under the Articles of Incorporation or any statute, agreement or otherwise. ARTICLE 8 Notices (a) Except as otherwise specifically provided in these bylaws, whenever under the provisions of these bylaws notice is required to be given to any shareholder, director, or officer, it shall be in writing unless oral notice is reasonable under the circumstances. Notice may be communicated in person; by telephone, telegraph, teletype, or other form of wire or wireless communication; or by mail or private carrier. If these forms of personal notice are impracticable, notice may be communicated by a newspaper of general circulation in the area where published, or by radio, television, or other form of public broadcast communication. (b) Written notice to a shareholder, if in comprehensible form, is effective when mailed, if mailed with first-class postage prepaid and correctly addressed to the shareholder's address shown in the Corporation's current record of shareholders. If the Corporation has more than 500 shareholders of record entitled to vote at a meeting, however, the Corporation may utilize a class of mail other than first class if the notice of the meeting is mailed, with adequate postage prepaid, not less than thirty days before the date of the meeting. (c) Except as provided in subsection (b) of this Article Eight, written notice, if in comprehensible form, is effective at the earliest of the following: (1) when received, or when delivered, properly addressed, to the addressee's last known principal place of business or residence; (2) five days after its deposit in the mail, as evidenced by the postmark or such longer period as may be provided in the articles of incorporation or these bylaws, if mailed with first-class postage prepaid and correctly addressed; or (3) on the date shown on the return receipt, if -17- sent by registered or certified mail, return receipt requested, and the receipt is signed by or on behalf of the addressee. Oral notice is effective when communicated if communicated in a comprehensible manner. ARTICLE 9 Amendments (a) Unless the articles of incorporation or the Code provides otherwise, or the shareholders in amending or repealing a particular bylaw provide expressly that the Board of Directors may not amend or repeal that bylaw, the Board of Directors may amend the bylaws if the voting requirements provided in Section 4.5 of these bylaws are satisfied, except as provided below. The shareholders also may amend or repeal the Corporation's bylaws or adopt new bylaws, but only by the affirmative vote of the holders of not less than sixty percent (60%) of all the issued and outstanding shares of Common Stock. Unless the articles of incorporation or a provision of these bylaws provides otherwise, a bylaw that fixes a greater quorum or voting requirement for the Board of Directors may be adopted, amended, repealed or rescinded only by (i) the affirmative vote of the majority of the entire Board of Directors or (ii) the affirmative vote of the holders of not less than sixty percent (60%) of all the issued and outstanding shares of Common Stock. A bylaw adopted or amended by the shareholders that fixes a greater quorum or voting requirement for the Board of Directors may provide that it may be amended or repealed only by a specified vote of either the shareholders or the Board of Directors. (b) Unless the articles of incorporation or the Code provides otherwise, a provision of these bylaws limiting the authority of the Board of Directors or establishing staggered terms for directors may be adopted, amended, repealed or rescinded only by the affirmative vote of the holders of not less than sixty percent (60%) of all the issued and outstanding shares of Common Stock. The shareholders may provide by resolution that any bylaw provision repealed or amended by them may not be repealed or amended by the Board of Directors. ARTICLE 10 Miscellaneous 10.1. Inspection of Records by Shareholders. (a) A Shareholder is entitled to inspect and copy, during regular business hours at the Corporation's principal office, any of the following records of the Corporation if the shareholder gives the Corporation written notice of the shareholder's demand at least five business days before the date on which the shareholder wishes to inspect and copy such records: (1) The Corporation's articles or restated articles of incorporation and all amendments currently in effect; -18- (2) The Corporation's bylaws or restated bylaws and all amendments currently in effect; (3) Resolutions adopted by either the shareholders or the Board of Directors with respect to increasing or decreasing the number of directors, the classification of directors, if any, or the names and residence addresses of any members of the Board of Directors; (4) Resolutions adopted by the Board of Directors creating one or more classes or series of shares, and fixing their relative rights, preferences, and limitations, if shares issued pursuant to such resolutions are outstanding and any resolution adopted by the Board of Directors that affect the size of the Board of Directors; (5) The minutes of all shareholders' meetings, executed waivers of notice of meetings, and executed written consents evidencing all actions taken by shareholders without a meeting, for the past three years; (6) All written communications to shareholders generally within the past three years, including the financial statements furnished for the past three years under section 14-2-1620 of the Code; (7) A list of the names and business addresses of the Corporation's current directors and officers; and (8) The Corporation's most recent annual registration as delivered to the Secretary of State. (b) A shareholder is entitled to inspect and copy, during regular business hours at a reasonable location specified by the Corporation, any of the following records of the Corporation if the shareholder meets the requirements of subsection (c) of this Section 10.1 and gives the Corporation written notice of the shareholder's demand at least five business days before the date on which the shareholder wishes to inspect and copy such records: (1) Excerpts from minutes of any meeting of the Board of Directors, records of any action of a committee of the Board of Directors while acting in place of the Board of Directors on behalf of the Corporation, minutes of any meeting of the shareholders, and records of action taken by the shareholders or Board of Directors without a meeting, to the extent not subject to inspection under subsection (a) of this Section 10.1; (2) Accounting records of the Corporation; and (3) The record of shareholders. -19- (c) A shareholder may inspect and copy the records described in subsection (b) of this Section 10.1 only if: (1) the shareholder's demand is made in good faith and for a proper purpose that is reasonably relevant to the shareholder's legitimate interest as a shareholder; (2) the shareholder describes with reasonable particularity the shareholder's purpose and the records the shareholder desires to inspect; (3) the records are directly connected with the shareholder's purpose; and (4) the records are to be used only for the stated purpose. 10.2. Fiscal Year. The fiscal year of the Corporation shall be fixed from time to time by resolution of the Board of Directors. If no fiscal year is fixed by the Board, the fiscal year of the Corporation shall end on December 31 of each calendar year. 10.3. Seal. The corporate seal shall be in such form as the Board of Directors may determine from time to time. 10.4. Financial Statements. The Board of Directors may appoint the Treasurer or other fiscal officer or the Secretary or any other officer to cause to be prepared and furnished to shareholders entitled thereto any special financial notice or any financial statements which may be required by any provision of law. 10.5. Appointment of Agents. The Chairman of the Board, if any, the President or any Vice President or any other officer authorized by the Board shall be authorized and empowered in the name and as the act and deed of the Corporation to name and appoint general and special agents, representatives, and attorneys to represent the Corporation in the United States or in any foreign country or countries and to name and appoint attorneys and proxies to vote any shares of stock in any other corporation at any time owned or held of record by the Corporation, and to prescribe, limit, and define the powers and duties of such agents, representatives, attorneys, and proxies and to make substitution, revocation, or cancellation in whole or in part of any power or authority conferred on any such agent, representative, attorney, or proxy. All powers of attorney or instruments under which such agents, representatives, attorneys, or proxies shall be so named and appointed shall be signed and executed by the Chairman of the Board, if any, the President, or a Vice President, or any other officer designated by the Board, and the corporate seal shall be affixed thereto. Any substitution, revocation, or cancellation shall be signed in like manner. Any agent, representative, attorney, or proxy, when so authorized by the instrument appointing such person, may substitute or delegate such person's powers in whole or in part and revoke and cancel such substitutions or delegations. No special authorization by the Board of Directors shall be necessary in connection with the foregoing, and this bylaw shall be deemed to constitute full and complete authority to the officers above designated to do all the acts and things as they deem necessary or incidental thereto or in connection therewith. 10.6. Contracts, Deeds, and Loans. All contracts, deeds, mortgages, pledges, promissory notes, security documents, transfers, and other written instruments binding upon the Corporation shall be executed on behalf of the Corporation by the Chairman of the Board, if any, or the President, or any Vice President, or by such officers or agents as the Board of Directors or the President (unless the Board of Directors shall otherwise provide) may designate from time to -20- time. Any such instrument which may be or is required to be given under the seal of the Corporation may be sealed and attested by the Secretary or any Assistant Secretary of the Corporation. 10.7. Checks and Drafts. Checks and drafts of the Corporation shall be signed by such officer or officers or such other employees or persons as the Board of Directors may from time to time designate. The Board of Directors may provide by resolution for the authority of officers, employees, and other persons to deal with banks and other financial institutions on behalf of the Corporation. ARTICLE 11 Fair Price Provisions The requirements of Part 2 of Article 11 of the Code shall be applicable to the Corporation to the maximum extent permitted by the Code and under the circumstances set forth therein. ARTICLE 12 Business Combinations With Interested Shareholders The requirements of Part 3 of Article 11 of the Code shall be applicable to the Corporation to the maximum extent permitted by the Code and under the circumstances set forth therein. -21- EX-31.1 3 g96545exv31w1.htm EX-31.1 SECTION 302 CERTIFICATION OF THE CEO

EXHIBIT 31.1

CERTIFICATION

I, James B. McCurry, certify that:

      1. I have reviewed this Form 10-Q of PRG-Schultz International, Inc.;

      2. Based on my knowledge, this report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this report;

      3. Based on my knowledge, the financial statements, and other financial information included in this report, fairly present in all material respects the financial condition, results of operations and cash flows of the registrant as of, and for, the periods presented in this report;

      4. The registrant’s other certifying officer and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-15(e) and 15d-15(e)) and internal control over financial reporting (as defined in Exchange Act Rules 13a-15(f) and 15d-15(f)) for the registrant and have:

      (a) Designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under our supervision, to ensure that material information relating to the registrant, including its consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which this report is being prepared;

      (b) Designed such internal control over financial reporting, or caused such internal control over financial reporting to be designed under our supervision, to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles;

      (c) Evaluated the effectiveness of the registrant’s disclosure controls and procedures and presented in this report our conclusions about the effectiveness of the disclosure controls and procedures, as of the end of the period covered by this report based on such evaluation; and

      (d) Disclosed in this report any change in the registrant’s internal control over financial reporting that occurred during the registrant’s most recent fiscal quarter (the registrant’s fourth fiscal quarter in the case of an annual report) that has materially affected, or is reasonably likely to materially affect, the registrant’s internal control over financial reporting; and

      5. The registrant’s other certifying officer and I have disclosed, based on our most recent evaluation of internal control over financial reporting, to the registrant’s auditors and the audit committee of the registrant’s board of directors:

      (a) All significant deficiencies and material weaknesses in the design or operation of internal control over financial reporting which are reasonably likely to adversely affect the registrant’s ability to record, process, summarize and report financial information; and

      (b) Any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant’s internal control over financial reporting.

By:  /s/ James B. McCurry

James B. McCurry

President and Chief Executive Officer

(Principal Executive Officer)

August 9, 2005

33 EX-31.2 4 g96545exv31w2.htm EX-31.2 SECTION 302 CERTIFICATION OF THE CFO

EXHIBIT 31.2

CERTIFICATION

I, James E. Moylan, Jr., certify that:

      1. I have reviewed this Form 10-Q of PRG-Schultz International, Inc.;

      2. Based on my knowledge, this report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this report;

      3. Based on my knowledge, the financial statements, and other financial information included in this report, fairly present in all material respects the financial condition, results of operations and cash flows of the registrant as of, and for, the periods presented in this report;

      4. The registrant’s other certifying officer and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-15(e) and 15d-15(e)) and internal control over financial reporting (as defined in Exchange Act Rules 13a-15(f) and 15d-15(f)) for the registrant and have:

      (a) Designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under our supervision, to ensure that material information relating to the registrant, including its consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which this report is being prepared;

      (b) Designed such internal control over financial reporting, or caused such internal control over financial reporting to be designed under our supervision, to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles;

      (c) Evaluated the effectiveness of the registrant’s disclosure controls and procedures and presented in this report our conclusions about the effectiveness of the disclosure controls and procedures, as of the end of the period covered by this report based on such evaluation; and

      (d) Disclosed in this report any change in the registrant’s internal control over financial reporting that occurred during the registrant’s most recent fiscal quarter (the registrant’s fourth fiscal quarter in the case of an annual report) that has materially affected, or is reasonably likely to materially affect, the registrant’s internal control over financial reporting; and

      5. The registrant’s other certifying officer and I have disclosed, based on our most recent evaluation of internal control over financial reporting, to the registrant’s auditors and the audit committee of the registrant’s board of directors:

      (a) All significant deficiencies and material weaknesses in the design or operation of internal control over financial reporting which are reasonably likely to adversely affect the registrant’s ability to record, process, summarize and report financial information; and

      (b) Any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant’s internal control over financial reporting.

By:  /s/ James E. Moylan, Jr.

James E. Moylan, Jr.

Executive Vice President — Finance,

Chief Financial Officer and Treasurer

(Principal Financial Officer)

August 9, 2005

34 EX-32.1 5 g96545exv32w1.htm EX-32.1 SECTION 906 CERTIFICATION OF THE CEO AND CFO

EXHIBIT 32.1

CERTIFICATION PURSUANT TO 18 U.S.C. SECTION 1350,

AS ADOPTED PURSUANT TO SECTION 906

OF THE SARBANES-OXLEY ACT OF 2002

      In connection with the Quarterly Report of PRG-Schultz International, Inc. (the “Company”) on Form 10-Q for the period ending June 30, 2005 as filed with the Securities and Exchange Commission on the date hereof (the “Report”), I, James B. McCurry, President and Chief Executive Officer of the Company and I, James E. Moylan, Jr., Chief Financial Officer and Treasurer of the Company, certify pursuant to 18 U.S.C. § 1350, as adopted pursuant to § 906 of the Sarbanes-Oxley Act of 2002, that to the best of the undersigned’s knowledge: (1) the Report fully complies with the requirements of Section 13(a) of the Securities Exchange Act of 1934; and (2) the information contained in the Report fairly presents, in all material respects, the financial condition and results of operations of the Company.

By:  /s/ James B. McCurry

James B. McCurry

President and Chief Executive Officer

(Principal Executive Officer)

August 9, 2005

By:  /s/ James E. Moylan, Jr.

James E. Moylan, Jr.

Executive Vice President — Finance,

Chief Financial Officer and Treasurer

(Principal Financial Officer)

August 9, 2005

35 -----END PRIVACY-ENHANCED MESSAGE-----

EX-3.2

                                                                     EXHIBIT 3.2

                              AMENDED AND RESTATED

                                     BYLAWS

                                       OF

                         PRG-SCHULTZ INTERNATIONAL, INC.



                                TABLE OF CONTENTS
                                                                                  
ARTICLE 1      Offices...........................................................    1

   1.1   Principal Office........................................................    1

   1.2   Office Location.........................................................    1

   1.3   Registered Office.......................................................    1

ARTICLE 2      Capital Stock.....................................................    1

   2.1   Certificates............................................................    1

   2.2   Signatures; Transfer Agent; Registrar...................................    1

   2.3   Stock Transfer Books....................................................    1

   2.4   Replacement Certificate.................................................    2

   2.5   Fractional Share Interests..............................................    3

   2.6   Share Transfers and Registration........................................    3

   2.7   Registered Shareholders.................................................    3

   2.8   Record Date.............................................................    3

ARTICLE 3      Shareholders' Meetings............................................    4

   3.1   Definitions.............................................................    4

   3.2   Date and Time...........................................................    4

   3.3   Place...................................................................    4

   3.4   Call....................................................................    4

   3.5   Notice..................................................................    5

   3.6   Waiver of Notice........................................................    5

   3.7   Shareholders List.......................................................    5

   3.8   Conduct of Meeting......................................................    6



                                      -i-


                                                                                 
   3.9   Proxy Representation....................................................    6

   3.10     Quorum and Action of Shareholders....................................    6

   3.11     Adjournment of Meeting...............................................    6

   3.12     Action Without a Meeting.............................................    6

ARTICLE 4      Directors.........................................................    9

   4.1   Definitions and Corporate Power and Authority...........................    9

   4.2   Qualifications and Number...............................................    9

   4.3   Election and Term.......................................................    9

   4.4   Vacancies...............................................................   10

   4.5   Quorum and Action.......................................................   10

   4.6   Meetings................................................................   11

   4.7   Action Without Meeting..................................................   11

   4.8   Compensation............................................................   11

   4.9   Removal by Shareholders.................................................   12

ARTICLE 5      Committees........................................................   12

   5.1   Members.................................................................   12

   5.2   Authority...............................................................   12

   5.3   Meetings................................................................   12

   5.4   Quorum and Voting.......................................................   12

   5.5   Removal.................................................................   12

ARTICLE 6      Officers..........................................................   12

   6.1   Selection...............................................................   13

   6.2   Chairman of the Board...................................................   13



                                      -ii-



                                                                                 
   6.3   President...............................................................   13

   6.4   Vice President..........................................................   13

   6.5   Secretary...............................................................   14

   6.6   Treasurer...............................................................   14

   6.7   Salaries and Bonds......................................................   14

   6.8   Removal.................................................................   14

ARTICLE 7      Indemnification...................................................   15

   Authority to Indemnify........................................................   15

   7.2   Mandatory Indemnification...............................................   15

   7.3   Advance for Expenses....................................................   15

   7.4   Determination and Authorization of Indemnification......................   16

   7.5   Indemnification of Officers, Employees, and Agents......................   17

   7.6   Director's Expenses as a Witness........................................   17

   7.7   Rights to Indemnification Not Exclusive.................................   17

ARTICLE 8      Notices...........................................................   17

ARTICLE 9      Amendments........................................................   18

ARTICLE 10     Miscellaneous.....................................................   18

   10.1     Inspection of Records by Shareholders................................   18

   10.2     Fiscal Year..........................................................   20

   10.3     Seal.................................................................   20

   10.4     Financial Statements.................................................   20

   10.5     Appointment of Agents................................................   20

   10.6     Contracts, Deeds, and Loans..........................................   20



                                     -iii-


                                                                                 
   10.7     Checks and Drafts....................................................   21

ARTICLE 11        Fair Price Provisions..........................................   21

ARTICLE 12        Business Combinations With Interested Shareholders.............   21



                                      -iv-



                              AMENDED AND RESTATED

                                     BYLAWS

                       OF PRG-SCHULTZ INTERNATIONAL, INC.

                                   ARTICLE 1

                                     Offices

      1.1. Principal Office. The principal office for the business of
PRG-Schultz International, Inc. (the "Corporation") shall be located at such
place (within or without the State of Georgia) as the Board of Directors may fix
from time to time.

      1.2. Office Location. The Corporation may have other offices at such place
or places (within or without the State of Georgia) as the Board of Directors may
designate from time to time or the business of the Corporation may require or
make desirable.

      1.3. Registered Office. The registered office of the Corporation and the
registered agent shall be the office and the agent set forth in the appropriate
documents filed by the Corporation in the office of the Secretary of State of
Georgia.

                                   ARTICLE 2

                                  Capital Stock

      2.1. Certificates. At a minimum, each share certificate shall state on its
face: (1) the name of the Corporation and that the Corporation is organized
under the laws of Georgia; (2) the name of the person to whom the shares are
issued; and (3) the number and class of shares and the designation of the
series, if any, that the certificate represents. Share certificates shall be
numbered consecutively and entered into the stock transfer books of the
Corporation as they are issued.

      2.2. Signatures; Transfer Agent; Registrar. Each certificate shall be
signed, either manually or in facsimile, by an officer of the Corporation and
may bear the corporate seal or its facsimile. If the certificate is signed in
facsimile, then it must be countersigned by a transfer agent or registered by a
registrar other than the Corporation itself or an employee of the Corporation.
The transfer agent or registrar may sign either manually or by facsimile. Share
certificates exchanged or returned shall be cancelled by the Secretary or his or
her designee and placed in their original place in the stock book.

      2.3. Stock Transfer Books. The Corporation shall keep at its registered
office or its principal office or at the principal office of its transfer agent
or registrar, wherever located, with a

                                      -1-


copy at the principal office of the Corporation, a book or set of books, to be
known as the stock transfer books of the Corporation, containing in alphabetical
order the name of each shareholder of record, together with such shareholder's
address and social security or other tax identification number and the number of
shares of each kind, class, or series of capital stock represented by each share
certificate held by the shareholder and the number of each such certificate. The
stock transfer books shall be maintained in current condition. The stock
transfer books, or the duplicate copy thereof maintained at the principal office
of the Corporation, shall be available for inspection and copying by any
shareholder authorized to make such inspection pursuant to the Georgia Business
Corporation Code (the "Code"), at the sole cost of such person. The stock
transfer books may be inspected or copied either by such shareholder or by such
shareholder's duly authorized attorney or agent. The information contained in
the stock transfer books and share register may be stored on punch cards,
magnetic tape, magnetic discs, or other information storage devices relating to
electronic data processing equipment, provided that any such method, device, or
system employed shall be approved by the Board of Directors, and provided
further that the same is capable of reproducing all information contained
therein, in legible and understandable form, for inspection by any shareholder
authorized by the Code or for any other proper corporate purpose.

      2.4. Replacement Certificate. The Corporation may issue a new certificate
for its shares in place of any certificate theretofore issued and alleged by its
owner of record or such owner's authorized representative to have been lost,
stolen, or destroyed if the Corporation, transfer agent, or registrar is not on
notice that such certificate has been acquired by a bona fide purchaser. A
replacement certificate may be issued upon such owner's or representative's
compliance with all of the following conditions: (a) the owner shall file with
the Secretary of the Corporation and the transfer agent or the registrar, if
any, a request for the issuance of a new certificate, together with an affidavit
in form satisfactory to the Secretary and transfer agent or registrar, if any,
setting forth the time, place, and circumstances of the loss; (b) if requested
by the Corporation, the owner also shall file with the Secretary and the
transfer agent or the registrar, if any, a bond with good and sufficient
security acceptable to the Secretary and the transfer agent or the registrar, if
any, conditioned to indemnify and save harmless the Corporation and the transfer
agent or the registrar, if any, from any and all damage, liability, and expense
of every nature whatsoever resulting from the Corporation, the transfer agent,
or the registrar issuing a new certificate in place of the one alleged to have
been lost, stolen, or destroyed; and (c) the owner shall comply with such other
reasonable requirements as the Chairman of the Board, the President, the
Secretary, or the Board of Directors of the Corporation and the transfer agent
or the registrar shall deem appropriate under the circumstances. A new
certificate may be issued in lieu of any certificate previously issued that has
become defaced or mutilated upon surrender for cancellation of a part of the old
certificate sufficient, in the opinion of the Secretary and the transfer agent
or the registrar, to identify the owner of the defaced or mutilated certificate,
the number of shares represented thereby, and the number of the certificate and
its authenticity and to protect the Corporation and the transfer agent or the
registrar against loss or liability. When sufficient identification for such
defaced or mutilated certificate is lacking, a new

                                      -2-


certificate may be issued upon compliance with all of the conditions set forth
above in connection with the replacement of lost, stolen, or destroyed
certificates.

      2.5. Fractional Share Interests. The Corporation may, but shall have no
obligation to, (1) issue fractions of a share or pay in money the value of
fractions of a share; (2) arrange for disposition of fractional shares by or for
the account of the shareholders; and (3) issue scrip in registered or bearer
form entitling the holder to receive a full share upon surrendering enough scrip
to equal a full share. Each certificate representing scrip must be conspicuously
labeled "scrip" and must contain the information required by the Code to be on
share certificates. The holder of a fractional share is entitled to exercise the
rights of a shareholder, including the right to vote, to receive dividends, and
to participate in the assets of the Corporation upon liquidation. The holder of
scrip is not entitled to any of these rights unless the scrip provides for such
rights. The Board of Directors may authorize the issuance of scrip subject to
any conditions considered desirable.

      2.6. Share Transfers and Registration. Upon compliance with provisions
restricting the transferability of shares, if any, transfers of capital stock of
the Corporation by the registered holder thereof shall be recorded on the stock
transfer books of the Corporation only upon the written request of such
registered holder, or by such holder's attorney authorized to effect such
transfers by power of attorney duly executed and filed with the Secretary of the
Corporation or with a transfer agent or registrar, if any, and upon surrender of
the certificate or certificates for such shares properly endorsed for transfer
(if the shares are represented by certificates), accompanied by such assurances
as the Corporation, or such transfer agent or registrar, may require as to the
genuineness and effectiveness of each necessary endorsement and satisfactory
evidence of compliance with all applicable laws relating to securities transfers
and the collection of taxes. It shall be the duty of the Corporation, or such
transfer agent or registrar, to issue a new certificate, cancel the old
certificate, and record the transactions upon the stock transfer books of the
Corporation.

      2.7. Registered Shareholders. Except as otherwise required by law, the
Corporation shall be entitled to treat the person registered in the stock
transfer books as the owner of shares of capital stock of the Corporation as the
person exclusively entitled to receive notification, dividends, and
distributions, to vote and to otherwise exercise the rights, powers, and
privileges of ownership of such capital stock, and shall not be required to
recognize any adverse claim.

      2.8. Record Date. The Board of Directors may fix a future date to serve as
the record date for one or more voting groups in order to determine the
shareholders entitled to notice of a shareholders' meeting, to demand a special
meeting, to vote, or to take any other shareholder action; provided, however,
that such future date shall not be more than seventy days before the meeting or
action requiring a determination of shareholders. When a determination of
shareholders entitled to vote at any meeting of shareholders has been made as
provided herein, such determination shall apply to any adjournment thereof,
unless the Board of Directors shall fix

                                      -3-


a new record date for the adjourned meeting, which it must do if the meeting is
adjourned to a date more than 120 days after the date fixed for the original
meeting.

                                   ARTICLE 3

                             Shareholders' Meetings

      3.1. Definitions. As used in these bylaws regarding the right to notice of
a meeting of shareholders or a waiver thereof or to participate or vote thereat
or to consent or dissent in writing in lieu of a meeting, as the case may be,
the term "share" or "shares" or "shareholder" or "shareholders" refers to an
outstanding share or shares of capital stock of the Corporation and to a holder
or holders of record of outstanding shares of capital stock of the Corporation
when the Corporation is authorized to issue only one class of shares. Such
reference also is intended to include any outstanding share or shares and any
holder or holders of record of outstanding shares of any class upon which or
upon whom the articles of incorporation confer such governance rights when there
are two or more classes or series of shares or upon which or upon whom the Code
confers such governance rights notwithstanding that the articles of
incorporation may provide for more than one class or series of shares, one or
more of which are limited or denied such rights thereunder.

      3.2. Date and Time. The annual meeting of the shareholders of the
Corporation shall be held each fiscal year on the date and at the time
designated, from time to time, by the Board of Directors. If at any time the
Board of Directors shall fail to otherwise designate the date of an annual
meeting, then such annual meeting shall be held at 10:00 a.m., local time, on
the second Tuesday of the fifth month following the end of the fiscal year of
the Corporation, or, if such day is a legal holiday, the next following business
day. A special meeting shall be held on the date and at the time designated by
the person or persons calling such special meeting.

      3.3. Place. Annual and special meetings may be held within or without the
State of Georgia at such place as the Board of Directors may from time to time
designate or as may be specified in the notice of such meeting. Whenever the
Board of Directors shall fail to designate such place, the meeting shall be held
at the principal business office of the Corporation in the State of Georgia.

      3.4. Call. Annual meetings may be called by the Board of Directors, the
Chairman of the Board, if any, the President, or by any officer instructed by
the directors to call the meeting. Special meetings, including any special
meeting in lieu of an annual meeting, may be called only by:

            (a) the Chairman of the Board, if any;

            (b) the President;

            (c) a majority of the members of the Board of Directors then in
office; or

                                      -4-


            (d) the holders of at least thirty five percent (35%) of all the
votes entitled to be cast on any issue proposed to be considered at the proposed
special meeting if said holders deliver to the Secretary of the corporation one
(1) or more signed and dated written demands for the meeting, describing therein
the purpose or purposes for which the special meeting is to be held; provided,
however, that at such time and for so long as there are one hundred (100) or
fewer shareholders of record, the corporation shall hold such special meeting
upon the demand of at least twenty five percent (25%) of said holders. The
record date for determining shareholders entitled to demand a special meeting
shall be determined in the manner provided in these bylaws. Only the business
within the purpose or purposes described in the meeting notice required by
subsection (c) of Code Section 14-2-705 may be conducted at a special meeting of
the Shareholders.

      3.5. Notice. Written notice stating the place, day, and hour of each
meeting, and, in the case of a special meeting, the purpose or purposes for
which the meeting is called, shall be delivered not less than ten days (or not
less than any other such minimum period of days as may be prescribed by the
Code) nor more than sixty days before the date of the meeting, either personally
or by first class mail by or at the direction of the President, the Secretary,
or the officer or persons calling the meeting, to each shareholder of record
entitled to vote at such meeting. When a meeting is adjourned to another time or
place it shall not be necessary to give any notice of the new date, time, or
place if the date, time, and place are announced at the meeting before
adjournment. If, however, a new record date is or must be fixed under the Code,
a notice of the new meeting shall be given to persons who are shareholders as of
the new record date. At the adjourned meeting any business may be transacted
that might have been transacted on the original date of the meeting.

      3.6. Waiver of Notice. A shareholder may waive any notice required by the
Code, the articles of incorporation, or these bylaws before or after the date
and time of the required notice. The waiver must be in writing, signed by the
shareholder entitled to notice, and delivered to the Corporation for inclusion
in the minutes or filing with the corporate records. No such waiver of notice of
a shareholders' meeting with respect to an amendment of the articles of
incorporation pursuant to Code section 14-2-1003, a plan of merger or share
exchange pursuant to Code section 14-2-1103, a sale of assets pursuant to Code
section 14-2-1202, or any other action which would entitle the shareholder to
dissent pursuant to Code section 14-2-1302 or any successor statute shall be
effective unless the provisions of paragraphs (1) or (2) of subsection (c) of
Code section 14-2-706 or any successor statute are followed. Attendance at a
meeting waives objection (1) to notice or defective notice of a meeting unless
the shareholder at the beginning of the meeting objects to holding the meeting
or transacting business at the meeting and (2) to consideration of a particular
matter at the meeting that is not within the purpose or purposes described in
the meeting notice, unless the shareholder objects to considering the matter
when it is presented.

      3.7. Shareholders List. After fixing a record date for a meeting, the
Corporation shall prepare an alphabetical list of the names of all its
shareholders who are entitled to notice of a shareholders' meeting. The list
shall be arranged by voting group (and within each voting group

                                      -5-


by class or series of shares) and show the address of and number of shares held
by each shareholder. The shareholders list shall be available for inspection at
the time and place of the meeting by any shareholder or the shareholder's agent
or attorney.

      3.8. Conduct of Meeting. Meetings of the shareholders shall be presided
over by one of the following officers in the order of seniority and if present
and acting: the Chairman of the Board, if any, the Vice Chairman of the Board,
if any, the President, a Vice President, or, if none of the foregoing is in
office and present and acting, by a chairman of the meeting to be chosen by the
shareholders. The Secretary of the Corporation, or in the Secretary's absence an
Assistant Secretary, shall act as secretary of every meeting, but, if neither
the Secretary nor an Assistant Secretary is present, the chairman of the meeting
shall appoint a secretary of the meeting.

      3.9. Proxy Representation. At any meeting of the shareholders, any
shareholder having the right to vote shall be entitled to vote in person or by
proxy. An appointment of a proxy is valid for eleven months, unless a longer
period is expressly provided in the appointment form.

      3.10. Quorum and Action of Shareholders. At all meetings of the
shareholders, a majority of the votes entitled to be cast on a matter by a
voting group shall constitute a quorum of that voting group for action on that
matter, unless the Code, the articles of incorporation, or a provision of these
bylaws approved by shareholders, as the same are now enacted or hereafter
amended, provides otherwise. Once a share is represented for any purpose at a
meeting, other than solely to object to holding the meeting or transacting
business at the meeting, it is deemed present for quorum purposes for the
remainder of the meeting and for any adjournment of that meeting unless a new
record date is or must be set for that adjourned meeting. If a quorum exists,
action on a matter (other than the election of directors) by a voting group is
approved if the votes cast within the voting group favoring the action exceed
the votes cast opposing the action, unless the Code, the articles of
incorporation, or a provision of these bylaws adopted by the shareholders under
section 14-2-1021 of the Code or any successor statute, requires a greater
number of affirmative votes. Unless otherwise provided in the articles of
incorporation, directors are elected by a plurality of votes cast by the shares
entitled to vote in the election at a meeting at which a quorum is present.

      3.11. Adjournment of Meeting. The holders of a majority of the voting
shares represented at a meeting, whether or not a quorum is present, may adjourn
such meeting from time to time.

      3.12. Action Without a Meeting. Any action required or permitted by the
Code to be taken at a shareholders' meeting may be taken without a meeting if
all the shareholders entitled to vote on such action sign one or more written
consents describing the action taken and the consents are delivered to the
Corporation for inclusion in the minutes or filing with the corporate records.
No such written consent shall be valid unless the provisions of section
14-2-704(b) of the Code or any successor statute are followed.

                                      -6-


      3.13. Advance Notice of Shareholder Nominations and Proposals. Nominations
of persons for election to the Board of Directors and proposals of business to
be transacted by the shareholders may be made at an annual meeting of
shareholders (a) pursuant to the Corporation's notice with respect to such
meeting, (b) by or at the direction of the Board of Directors, or (c) by any
shareholder of record of the Corporation who was a shareholder of record at the
time of the giving of the notice provided for in the following paragraph, who is
entitled to vote at the meeting and who has complied with the notice procedures
set forth in this Section.

            For nominations or other business to be properly brought before an
annual meeting by a shareholder pursuant to clause (c) of the foregoing
paragraph, (1) the shareholder must have given timely notice thereof in writing
to the Secretary of the Corporation, (2) such business must be a proper matter
for shareholder action under the Georgia Business Corporation Code, (3) if the
shareholder, or the beneficial owner on whose behalf any such proposal or
nomination is made, has provided the Corporation with a Solicitation Notice, as
that term is defined in this paragraph, such shareholder or beneficial owner
must, in the case of a proposal, have delivered a proxy statement and form of
proxy to holders of at least the percentage of the Corporation's voting shares
required under applicable law to carry any such proposal, or, in the case of a
nomination or nominations, have delivered a proxy statement and form of proxy to
holders of a percentage of the Corporation's voting shares reasonably believed
by such shareholder or beneficial holder to be sufficient to elect the nominee
or nominees proposed to be nominated by such shareholder, and must, in either
case, have included in such materials the Solicitation Notice and any proxy
statement and form of proxy utilized or to be utilized by such person, and (4)
if no Solicitation Notice relating thereto has been timely provided pursuant to
this Section, the shareholder or beneficial owner proposing such business or
nomination must not have solicited, and must represent that he, she or it will
not solicit, a number of proxies sufficient to have required the delivery of
such a Solicitation Notice under this Section. To be timely, a stockholder's
notice shall be delivered to the Secretary at the principal executive offices of
the Corporation not less than ninety (90) nor more than one hundred twenty (120)
days prior to the first anniversary (the "Anniversary") of the date on which the
Corporation first mailed its proxy materials for the preceding year's annual
meeting of shareholders; provided, however, that if the date of the annual
meeting is advanced more than thirty (30) days prior to or delayed by more than
thirty (30) days after the anniversary of the preceding year's annual meeting,
notice by the shareholder to be timely must be so delivered not later than the
close of business on the later of (i) the 90th day prior to such annual meeting
or (ii) the 10th day following the day on which public announcement of the date
of such meeting is first made. Such stockholder's notice shall set forth (a) as
to each person whom the shareholder proposes to nominate for election or
reelection as a director all information relating to such person as would be
required to be disclosed in solicitations of proxies for the election of such
nominees as directors pursuant to Regulation 14A under the Securities Exchange
Act of 1934, as amended (the "Exchange Act"), and shall contain such person's
written consent to serve as a director if elected; (b) as to any other business
that the shareholder proposes to bring before the meeting, a brief description
of such business, the reasons for conducting such business at the meeting and
any material interest in such business of such shareholder and the beneficial
owner, if any, on whose behalf the proposal is made; (c) as to the shareholder
giving the notice and the beneficial owner, if any, on whose behalf the
nomination or

                                      -7-


proposal is made (i) the name and address of such shareholder, and of such
beneficial owner, as they appear on the Corporation's books, (ii) the class and
number of shares of the Corporation that are owned beneficially and of record by
such shareholder and such beneficial owner, and (iii) whether such shareholder
or beneficial owner has delivered or intends to deliver a proxy statement and
form of proxy to holders of, in the case of a proposal, at least the percentage
of the Corporation's voting shares required under applicable law to carry the
proposal or, in the case of a nomination or nominations, a sufficient number of
holders of the Corporation's voting shares to elect such nominee or nominees
(the notice described in this sentence, a "Solicitation Notice").

            Notwithstanding anything in the second sentence of the second
paragraph of this Section 3.13 to the contrary, in the event that the number of
directors to be elected to the Board is increased and there is no public
announcement naming all of the nominees for director or specifying the size of
the increased Board made by the Corporation at least fifty-five (55) days prior
to the Anniversary, a stockholder's notice required by this Section shall also
be considered timely, but only with respect to nominees for any new positions
created by such increase, if it shall be delivered to the Secretary at the
principal executive offices of the Corporation not later than the close of
business on the 10th day following the day on which such public announcement is
first made by the Corporation.

            Only persons nominated in accordance with the procedures set forth
in this Section 3.13 shall be eligible to serve as directors and only such
business shall be conducted at an annual meeting of shareholders as shall have
been brought before the meeting in accordance with the procedures set forth in
this Section. The chairman of the meeting shall have the power and the duty to
determine whether a nomination or any business proposed to be brought before the
meeting has been made in accordance with the procedures set forth in these
Bylaws and, if any proposed nomination or business is not in compliance with
these Bylaws, to declare that such defective proposed business or nomination
shall not be presented for shareholder action at the meeting and shall be
disregarded.

            Only such business shall be conducted at a special meeting of
shareholders as shall have been brought before the meeting pursuant to the
Corporation's notice of meeting. Nominations of persons for election to the
Board of Directors may be made at a special meeting of shareholders at which
directors are to be elected pursuant to the Corporation's notice of meeting (a)
by or at the direction of the Board or (b) by any shareholder of record of the
Corporation who is a shareholder of record at the time of giving of notice
provided for in this paragraph, who shall be entitled to vote at the meeting and
who complies with the notice procedures set forth in this Section 3.13.
Nominations by shareholders of persons for election to the Board may be made at
such a special meeting of shareholders if the stockholder's notice required by
the second paragraph of this Section 3.13 shall be delivered to the Secretary at
the principal executive offices of the Corporation not later than the close of
business on the later of the 90th day prior to such special meeting or the 10th
day following the day on which public announcement is first made of the date of
the special meeting and of the nominees proposed by the Board to be elected at
such meeting.

                                      -8-


            For purposes of this Section, "public announcement" shall mean
disclosure in a press release reported by the Dow Jones News Service, Associated
Press or a comparable national news service or in a document publicly filed by
the Corporation with the Securities and Exchange Commission pursuant to Section
13, 14 or 15(d) of the Exchange Act.

            Notwithstanding the foregoing provisions of this Section 3.13, a
shareholder must also comply with all applicable requirements of the Exchange
Act and the rules and regulations thereunder with respect to matters set forth
in this Section 3.13. Nothing in this Section 3.13 shall be deemed to affect any
rights of shareholders to request inclusion of proposals in the Corporation's
proxy statement pursuant to Rule 14a-8 under the Exchange Act."

                                   ARTICLE 4

                                    Directors

      4.1. Definitions and Corporate Power and Authority. All corporate powers
shall be exercised by or under the authority of, and the business and affairs of
the Corporation shall be managed under the direction of, a board of directors
(herein referred to as the "Board of Directors," "Board," or "directors"
notwithstanding that only one director may legally constitute the Board),
subject to any limitation set forth in the articles of incorporation, or a
provision of these bylaws approved by shareholders, as the same are now enacted
or hereafter amended, or lawful agreements among the shareholders.

      4.2. Qualifications and Number. Directors shall be natural persons who are
at least eighteen years of age. A director need not be a shareholder, a citizen
of the United States, or a resident of the State of Georgia. The Board of
Directors shall consist of not less than three (3) nor more than fifteen (15)
members, with the specific number to be determined by the Board of Directors.
Notwithstanding the foregoing, this bylaw provision may be amended by the vote
of a majority of the directors then in office in order to expand or contract the
variable range for the permissible number of directors.

      4.3. Election and Term.

            (a) The Board of Directors shall be divided into three (3) classes
with each such class to be as nearly equal in number as possible. The term of
the directors in Class I shall expire at the first annual meeting of
Shareholders following the date of adoption of these Amended and Restated
Bylaws, the term of the directors in Class 11 shall expire at the second annual
meeting of Shareholders following the date of adoption of these Amended and
Restated Bylaws, and the term of the directors in Class III shall expire at the
third annual meeting of Shareholders following the date of adoption of these
Amended and Restated Bylaws. At each annual Shareholders' meeting, directors
shall be chosen for a term of three (3) years to succeed those whose term
expires.

                                      -9-


            (b) The members of the initial classified Board of Directors are as
follows:



Class I                  Class II                      Class III
- -------                  --------                      ---------
                                                 
John M. Cook             Jonathan Golden               Stanley B. Cohen
John M. Toma             Garth H. Greimann             T. Charles Fial
                         E. James Lowrey               Fred W. I. Lachotzki


            (c) Subject to the foregoing, at each annual meeting of shareholders
beginning with the first annual meeting following the adoption of these Amended
and Restated Bylaws, the successors to the class of directors whose term shall
then expire shall be elected to hold office for a term expiring at the third
succeeding annual meeting. Each director shall hold office for the term for
which he or she is elected or appointed or until his or her successor shall be
elected and qualified, or until his or her death, removal from office or
resignation.

            (d) Should the number of directors be changed, any newly created
directorships or any decrease in directorships shall be so apportioned among the
classes as to make Classes I, II, and III as nearly equal in number as possible.

            (e) No decrease in the number of directors constituting the Board of
Directors shall shorten the term of any incumbent director.

      4.4. Vacancies. Any vacancy in the Board of Directors resulting from the
resignation, incapacity, death or retirement of a director, or any other cause,
other than removal by the shareholders or increase in the number of directors,
shall be filled by a majority vote of the remaining directors, though less than
a quorum, for a term corresponding to the unexpired term of his or her
predecessor in office. Newly created directorships resulting from any increase
in the authorized number of directors shall be filled by either:

            (i) a majority of the shareholders voting at a meeting of the
      shareholders, or

            (ii) a majority vote of the remaining directors, though less than a
      quorum, and the directors so chosen shall hold office for a term expiring
      at the next meeting of shareholders at which directors are to be elected;
      provided, however, that the term of any such additional director, if
      elected by the shareholders at such meeting, shall correspond to the term
      of the class to which he or she has been assigned, regardless of whether
      or not such class was the subject of the election held at the
      shareholders' meeting.

      4.5. Quorum and Action. A majority of the directors shall constitute a
quorum for the transaction of business unless the Code, the articles of
incorporation, or a provision of these bylaws approved by shareholders, as the
same are now enacted or hereafter amended, authorizes a greater number. If a
quorum is present when a vote is taken, the affirmative vote of a majority of
the directors present at a meeting is the act of the Board, unless the articles
of incorporation or

                                      -10-


a provision of these bylaws approved by shareholders, as the same are now
enacted or hereafter amended, requires the vote of a greater number of
directors.

      4.6. Meetings.

            (a) Time. Meetings shall be held at such time as the Board shall
fix, except that the first meeting of a newly elected Board shall be held as
soon after its election as the directors may conveniently assemble.

            (b) Place. Meetings shall be held at such place within or without
the State of Georgia as shall be determined by the Board.

            (c) Call. Meetings may be called by the Chairman of the Board, if
any, by the President, or by any two directors if the Board consists of three or
more directors, or by any director if the Board consists of fewer than three
directors.

            (d) Notice, Waiver of Notice. Unless the articles of incorporation
provide otherwise, regular meetings of the Board of Directors may be held
without notice required of the date, time, place, or purpose of the meeting.
Notice of special meetings shall be given to directors at least two days before
such meetings, which notice shall specify the date, time, and place of the
meeting. The notice need not state the purpose of the special meeting. A
director may waive any notice required by the Code, the articles of
incorporation, or these bylaws before or after the date and time of the required
notice. The waiver must be in writing, signed by the director entitled to the
notice, and delivered to the Corporation for inclusion in the minutes or filing
with the corporate records. A director's attendance at or participation in a
meeting waives any required notice unless the director at the beginning of the
meeting (or promptly upon arrival) objects to holding the meeting or transacting
business at the meeting and does not thereafter vote for or assent to action
taken at the meeting.

            (e) Chairman of the Meeting. The Chairman of the Board, if any, and
if present and acting, shall preside at all meetings. Otherwise, any director
chosen by the Board shall preside. The person presiding at the meeting shall
designate a person to act as secretary of the meeting, who may or may not be a
director or officer of the Corporation.

      4.7. Action Without Meeting. Unless the articles of incorporation or a
provision of these bylaws provides otherwise, any action required or permitted
by the Code to be taken at a Board of Directors' meeting may be taken without a
meeting, if the action is taken by all members of the Board. The action must be
evidenced by one or more written consents describing the action taken, signed by
each director, and delivered to the Corporation for inclusion in the minutes or
filing with the corporate records.

      4.8. Compensation. Directors may be allowed such compensation for
attendance at regular or special meetings of the Board of Directors and any
special or standing committees thereof as may be determined from time to time by
resolution of the Board of Directors.

                                      -11-


      4.9. Removal by Shareholders. At any shareholders' meeting with respect to
which notice of such purpose has been given, the shareholders may remove one or
more directors from office, with or without cause, by a majority of the votes
entitled to be cast unless the articles of incorporation or a provision of these
bylaws approved by shareholders, as the same are now enacted or hereafter
amended, provides otherwise.

                                   ARTICLE 5

                                   Committees

      5.1. Members. The Board of Directors may create one or more committees and
appoint members to serve on them. Each committee may have one or more directors,
who shall serve at the pleasure of the Board of Directors.

      5.2. Authority. To the extent specified by the Board of Directors, each
committee may exercise the authority of the Board of Directors under Code
section 14-2-801 or any successor statute. A committee shall not, however: (1)
approve or propose to shareholders action that the Code requires to be approved
by shareholders; (2) fill vacancies on the Board of Directors or on any of its
committees; (3) amend articles of incorporation pursuant to Code section
14-2-1002 or any successor statute; (4) adopt, amend, or repeal bylaws; or (5)
approve a plan of merger not requiring shareholder approval.

      5.3. Meetings. Committees shall meet from time to time on call of the
Chairman of the Board, if any, the President, or of any one or more members of
the particular committee. The requirements for meetings, action without
meetings, notices, and waivers of notice of the Board of Directors shall apply
to any committee which the Board shall establish. A committee shall keep a
record of its proceedings and shall report these proceedings to the Board of
Directors at the meeting thereof held next after the action has been taken. All
such proceedings shall be subject to revision or alteration by the Board of
Directors, except to the extent that action shall have been taken pursuant to or
in reliance upon such proceedings prior to any such revision or alteration.

      5.4. Quorum and Voting. The quorum and voting requirements of the Board of
Directors also shall apply to any committee which the Board shall establish.

      5.5. Removal. The Board of Directors shall have power to remove any member
of any committee at any time, with or without cause, to fill vacancies, and to
dissolve any such committee.

                                      -12-


                                   ARTICLE 6

                                    Officers

      6.1. Selection. The Board of Directors at each annual meeting shall, or if
no annual meeting is held, at such time as the Board deems proper, and at any
regular or special meeting may, elect or appoint a President, a Secretary, and a
Treasurer and may elect or appoint a Chairman of the Board, one or more Vice
Presidents, one or more Assistant Secretaries, one or more Assistant Treasurers,
and such other officers, assistant officers, and agents as they may determine,
or the Board may designate a duly appointed officer to appoint one or more
officers or assistant officers. The President may, but need not, be a director.
Any two or more offices may be held simultaneously by the same person. Unless
otherwise provided in the resolution of election or appointment, all officers
shall be elected for a term of office running until the meeting of the Board of
Directors following the next annual meeting of shareholders and until their
successors have been duly elected or appointed and qualified or until their
earlier resignation, removal from office, or death. All officers, assistant
officers, and agents of the Corporation shall have such authority, powers,
duties, functions, and privileges as provided for herein and as the Board may
determine from time to time. The Board may designate, elect, or appoint a chief
operating officer and/or a chief executive officer, each of whom shall be deemed
a Vice President unless elected to any other office.

      6.2 Chairman of the Board. If a Chairman of the Board is elected by the
directors, the Chairman will preside at all meetings of shareholders and
directors and shall have and perform such other duties as from time to time may
be assigned by the Board of Directors. The Chairman of the Board shall not be
deemed an officer of the Corporation unless designated as such by a resolution
of the Board of Directors.

      6.3 President. The President shall be the Chief Executive Officer of the
Company, and in the absence of a Chairman of the Board, preside at all meetings
of the shareholders, and if he or she is a member of the Board, at all meetings
of the Board of Directors. It shall be the President's duty to attend to the
business of the Corporation and maintain strict supervision over all of its
affairs and interests. The President shall keep the Board of Directors fully
advised about the affairs and conditions of the Corporation, and shall manage
and operate the business of the Corporation pursuant to and in accordance with
such policies as may be prescribed from time to time by the Board of Directors.
The President shall, subject to the approval of the Board, hire and fix the
compensation of all employees and agents of the Corporation (other than the
executive officers of the Corporation), and any such employee or agent shall be
removable at the President's pleasure. Unless the Board of Directors by
resolution shall otherwise provide, the President may delegate such of the
President's powers as the President deems appropriate to other officers,
employees, and agents of the Corporation.

      6.4 Vice President. The Vice President (or Vice Presidents, in the order
designated by the Board) shall, in the absence or disability of the President
(and the Chairman of the Board, if one is elected by the Board of Directors)
perform the duties and exercise the powers of the President, and shall perform
such other duties as shall from time to time be imposed upon any Vice President
by the Board or delegated to a Vice President by the President. The Board may by
resolution supplement the title of any Vice President in any manner.

                                      -13-


      6.5 Secretary. It shall be the duty of the Secretary to keep a record of
the proceedings of all meetings of the shareholders and the Board of Directors;
to keep the stock transfer books of the Corporation or to assure that they are
properly kept if the Corporation employs an independent transfer agent; to
notify the shareholders and directors of meetings as provided by these bylaws or
the Code; to have custody of the seal of the Corporation; to affix such seal to
any instrument requiring the same; to attest the signature or certify the
incumbency or signature of any officer of the Corporation; and to perform such
other duties as the Chairman of the Board, the President, or the Board of
Directors may prescribe. Any Assistant Secretary, if elected, shall perform the
duties of the Secretary during the absence or disability of the Secretary and
shall perform such other duties as the Chairman of the Board, the President, the
Secretary, or the Board of Directors may prescribe.

      6.6 Treasurer. The Treasurer shall keep, or cause to be kept, the
financial books and records of the Corporation, and shall faithfully account for
the Corporation's funds, financial assets, and other assets entrusted to the
Treasurer's care and custody. The Treasurer shall make such reports as may be
necessary to keep the Chairman of the Board, the President, and the Board of
Directors informed at all times as to the financial condition of the
Corporation, and shall perform such other duties as the Chairman of the Board,
the President, or the Board of Directors may prescribe. The Treasurer shall
maintain the money and other assets of the Corporation in the name and to the
credit of the Corporation in such depositories as may be designated by the Board
of Directors. The Treasurer may provide for the investment of the money and
other assets of the Corporation consistent with the needs of the Corporation to
disburse such money and assets in the course of the Corporation's business. The
Treasurer shall perform the duties of the Secretary of the Corporation in the
absence or disability of the Secretary and any Assistant Secretary. Any
Assistant Treasurer, if elected, shall perform the duties of the Treasurer
during the absence or disability of the Treasurer, and shall perform such other
duties as the Chairman of the Board, the President, the Treasurer, or the Board
of Directors may prescribe.

      6.7 Salaries and Bonds. The Board of Directors shall fix the compensation
of all officers of the Corporation, unless pursuant to a resolution of the Board
the authority to fix such compensation is delegated to a committee of the Board
or (other than compensation of executive officers) to the President. The fact
that any officer also is a director shall not preclude such officer from
receiving a salary or from voting upon the resolution providing the same. The
Board of Directors may, in its sole discretion, require bonds from any or all of
the officers and employees of the Corporation for the faithful performance of
their duties and conduct while in office.

      6.8 Removal. The Board of Directors may remove any officer at any time
with or without cause.

                                      -14-


                                   ARTICLE 7

                                 Indemnification

      7.1. Authority to Indemnify.

            (a) Except as provided in subsections (b) and (c) of this Section
7.1, the Corporation shall indemnify an individual made a party to a proceeding
because such individual is or was a director or officer of the Corporation
against liability incurred in the proceeding, if such director or officer acted
in a manner such director or officer believed in good faith to be in or not
opposed to the best interests of the Corporation and, in the case of any
criminal proceeding, such director or officer had no reasonable cause to believe
the conduct was unlawful.

            (b) The Corporation may not indemnify a director or officer under
this Section 7.1:

                  (1) In connection with a proceeding by or in the right of the
Corporation in which the director or officer was adjudged liable to the
Corporation; or

                  (2) In connection with any other proceeding in which the
director or officer was adjudged liable on the basis that personal benefit was
improperly received by the director or officer.

            (c) Indemnification permitted under this Section 7.1 in connection
with a proceeding by or in the right of the Corporation is limited to reasonable
expenses incurred in connection with the proceeding.

      7.2. Mandatory Indemnification. Unless otherwise provided in the articles
of incorporation, to the extent that a director or officer has been successful,
on the merits or otherwise, in the defense of any proceeding to which the
director or officer was a party, or in defense of any claim, issue, or matter
therein, because that individual is or was a director or officer of the
Corporation, the Corporation shall indemnify the director or officer against
reasonable expenses incurred by the director or officer in connection therewith.

      7.3. Advance for Expenses.

            (a) The Corporation shall pay for or reimburse the reasonable
expenses incurred by a director or officer who is a party to a proceeding in
advance of final disposition of the proceeding if:

                  (1) The director or officer furnishes the Corporation a
written affirmation of such director's or officer's good faith belief that such
director or officer has met the standard of conduct set forth in subsection (a)
of Section 7.1 of these bylaws; and

                                      -15-


                  (2) The director or officer furnishes the Corporation a
written undertaking, executed personally or on the director's or officer's
behalf, to repay any advances if it is ultimately determined that the director
or officer is not entitled to indemnification under Section 7.1.

            (b) The undertaking required by paragraph (2) of subsection (a) of
this Section 7.3 must be an unlimited general obligation of the director or
officer, but need not be secured and may be accepted without reference to
financial ability to make repayment.

      7.4. Determination and Authorization of Indemnification.

            (a) The Corporation may not indemnify a director or officer under
Section 7.1 of these bylaws unless authorized thereunder and a determination has
been made in the specific case that indemnification of the director or officer
is required in the circumstances because the director or officer has met the
standard of conduct set forth in subsection (a) of Section 7.1.

            (b) The determination shall be made:

                  (1) By the Board of Directors by majority vote of a quorum
consisting of directors not at the time parties to the proceeding; or

                  (2) If a quorum cannot be obtained under paragraph (1) of this
subsection, by majority vote of a committee duly designated by the Board of
Directors (in which designation directors who are parties may participate),
consisting solely of two or more directors not at the time parties to the
proceeding; or

                  (3) By special legal counsel:

                        (i) Selected by the Board of Directors or its committee
in the manner prescribed in paragraphs (1) or (2) of this subsection (b); or

                        (ii) If a quorum of the Board of Directors cannot be
obtained under paragraph (1) of this subsection (b) and a committee cannot be
designated under paragraph (2) of this subsection, selected by majority vote of
the full Board of Directors (in which selection directors who are parties may
participate); or

                  (4) By the shareholders, but shares owned by or voted under
the control of directors or officers who are at the time parties to the
proceeding may not be voted on the determination.

            (c) Evaluation as to reasonableness of expenses shall be made in the
same manner as the determination that indemnification is required, except that
if the determination that indemnification is required is made by special legal
counsel, evaluation as to reasonableness of

                                      -16-


expenses shall be made by those entitled under paragraph (3) of subsection (b)
of this bylaw provision to select counsel.

      7.5. Indemnification of Officers, Employees, and Agents. Notwithstanding
any other provisions of these bylaws to the contrary, unless the articles of
incorporation provide otherwise, the Corporation may, in the discretion of the
Board of Directors, indemnify and advance expenses to an officer, employee, or
agent who is not a director, to the extent the Board deems appropriate,
consistent with public policy.

      7.6. Director's Expenses as a Witness. This Article Seven does not limit
the Corporation's power to pay or reimburse expenses incurred by a director in
connection with such director's appearance as a witness in a proceeding at a
time when such director has not been made a named defendant or respondent to the
proceeding.

      7.7. Rights to Indemnification Not Exclusive. The right of the directors
and officers of the Corporation to indemnification under these bylaws is not
exclusive of or in limitation of any other right now possessed or hereafter
acquired under the Articles of Incorporation or any statute, agreement or
otherwise.

                                   ARTICLE 8

                                     Notices

            (a) Except as otherwise specifically provided in these bylaws,
whenever under the provisions of these bylaws notice is required to be given to
any shareholder, director, or officer, it shall be in writing unless oral notice
is reasonable under the circumstances. Notice may be communicated in person; by
telephone, telegraph, teletype, or other form of wire or wireless communication;
or by mail or private carrier. If these forms of personal notice are
impracticable, notice may be communicated by a newspaper of general circulation
in the area where published, or by radio, television, or other form of public
broadcast communication.

            (b) Written notice to a shareholder, if in comprehensible form, is
effective when mailed, if mailed with first-class postage prepaid and correctly
addressed to the shareholder's address shown in the Corporation's current record
of shareholders. If the Corporation has more than 500 shareholders of record
entitled to vote at a meeting, however, the Corporation may utilize a class of
mail other than first class if the notice of the meeting is mailed, with
adequate postage prepaid, not less than thirty days before the date of the
meeting.

            (c) Except as provided in subsection (b) of this Article Eight,
written notice, if in comprehensible form, is effective at the earliest of the
following: (1) when received, or when delivered, properly addressed, to the
addressee's last known principal place of business or residence; (2) five days
after its deposit in the mail, as evidenced by the postmark or such longer
period as may be provided in the articles of incorporation or these bylaws, if
mailed with first-class postage prepaid and correctly addressed; or (3) on the
date shown on the return receipt, if

                                      -17-


sent by registered or certified mail, return receipt requested, and the receipt
is signed by or on behalf of the addressee. Oral notice is effective when
communicated if communicated in a comprehensible manner.

                                   ARTICLE 9

                                   Amendments

            (a) Unless the articles of incorporation or the Code provides
otherwise, or the shareholders in amending or repealing a particular bylaw
provide expressly that the Board of Directors may not amend or repeal that
bylaw, the Board of Directors may amend the bylaws if the voting requirements
provided in Section 4.5 of these bylaws are satisfied, except as provided below.
The shareholders also may amend or repeal the Corporation's bylaws or adopt new
bylaws, but only by the affirmative vote of the holders of not less than sixty
percent (60%) of all the issued and outstanding shares of Common Stock. Unless
the articles of incorporation or a provision of these bylaws provides otherwise,
a bylaw that fixes a greater quorum or voting requirement for the Board of
Directors may be adopted, amended, repealed or rescinded only by (i) the
affirmative vote of the majority of the entire Board of Directors or (ii) the
affirmative vote of the holders of not less than sixty percent (60%) of all the
issued and outstanding shares of Common Stock. A bylaw adopted or amended by the
shareholders that fixes a greater quorum or voting requirement for the Board of
Directors may provide that it may be amended or repealed only by a specified
vote of either the shareholders or the Board of Directors.

            (b) Unless the articles of incorporation or the Code provides
otherwise, a provision of these bylaws limiting the authority of the Board of
Directors or establishing staggered terms for directors may be adopted, amended,
repealed or rescinded only by the affirmative vote of the holders of not less
than sixty percent (60%) of all the issued and outstanding shares of Common
Stock. The shareholders may provide by resolution that any bylaw provision
repealed or amended by them may not be repealed or amended by the Board of
Directors.

                                   ARTICLE 10

                                  Miscellaneous

      10.1. Inspection of Records by Shareholders. (a) A Shareholder is entitled
to inspect and copy, during regular business hours at the Corporation's
principal office, any of the following records of the Corporation if the
shareholder gives the Corporation written notice of the shareholder's demand at
least five business days before the date on which the shareholder wishes to
inspect and copy such records:

                  (1) The Corporation's articles or restated articles of
incorporation and all amendments currently in effect;

                                      -18-


                  (2) The Corporation's bylaws or restated bylaws and all
amendments currently in effect;

                  (3) Resolutions adopted by either the shareholders or the
Board of Directors with respect to increasing or decreasing the number of
directors, the classification of directors, if any, or the names and residence
addresses of any members of the Board of Directors;

                  (4) Resolutions adopted by the Board of Directors creating one
or more classes or series of shares, and fixing their relative rights,
preferences, and limitations, if shares issued pursuant to such resolutions are
outstanding and any resolution adopted by the Board of Directors that affect the
size of the Board of Directors;

                  (5) The minutes of all shareholders' meetings, executed
waivers of notice of meetings, and executed written consents evidencing all
actions taken by shareholders without a meeting, for the past three years;

                  (6) All written communications to shareholders generally
within the past three years, including the financial statements furnished for
the past three years under section 14-2-1620 of the Code;

                  (7) A list of the names and business addresses of the
Corporation's current directors and officers; and

                  (8) The Corporation's most recent annual registration as
delivered to the Secretary of State.

            (b) A shareholder is entitled to inspect and copy, during regular
business hours at a reasonable location specified by the Corporation, any of the
following records of the Corporation if the shareholder meets the requirements
of subsection (c) of this Section 10.1 and gives the Corporation written notice
of the shareholder's demand at least five business days before the date on which
the shareholder wishes to inspect and copy such records:

                  (1) Excerpts from minutes of any meeting of the Board of
Directors, records of any action of a committee of the Board of Directors while
acting in place of the Board of Directors on behalf of the Corporation, minutes
of any meeting of the shareholders, and records of action taken by the
shareholders or Board of Directors without a meeting, to the extent not subject
to inspection under subsection (a) of this Section 10.1;

                  (2) Accounting records of the Corporation; and

                  (3) The record of shareholders.

                                      -19-


            (c) A shareholder may inspect and copy the records described in
subsection (b) of this Section 10.1 only if: (1) the shareholder's demand is
made in good faith and for a proper purpose that is reasonably relevant to the
shareholder's legitimate interest as a shareholder; (2) the shareholder
describes with reasonable particularity the shareholder's purpose and the
records the shareholder desires to inspect; (3) the records are directly
connected with the shareholder's purpose; and (4) the records are to be used
only for the stated purpose.

      10.2. Fiscal Year. The fiscal year of the Corporation shall be fixed from
time to time by resolution of the Board of Directors. If no fiscal year is fixed
by the Board, the fiscal year of the Corporation shall end on December 31 of
each calendar year.

      10.3. Seal. The corporate seal shall be in such form as the Board of
Directors may determine from time to time.

      10.4. Financial Statements. The Board of Directors may appoint the
Treasurer or other fiscal officer or the Secretary or any other officer to cause
to be prepared and furnished to shareholders entitled thereto any special
financial notice or any financial statements which may be required by any
provision of law.

      10.5. Appointment of Agents. The Chairman of the Board, if any, the
President or any Vice President or any other officer authorized by the Board
shall be authorized and empowered in the name and as the act and deed of the
Corporation to name and appoint general and special agents, representatives, and
attorneys to represent the Corporation in the United States or in any foreign
country or countries and to name and appoint attorneys and proxies to vote any
shares of stock in any other corporation at any time owned or held of record by
the Corporation, and to prescribe, limit, and define the powers and duties of
such agents, representatives, attorneys, and proxies and to make substitution,
revocation, or cancellation in whole or in part of any power or authority
conferred on any such agent, representative, attorney, or proxy. All powers of
attorney or instruments under which such agents, representatives, attorneys, or
proxies shall be so named and appointed shall be signed and executed by the
Chairman of the Board, if any, the President, or a Vice President, or any other
officer designated by the Board, and the corporate seal shall be affixed
thereto. Any substitution, revocation, or cancellation shall be signed in like
manner. Any agent, representative, attorney, or proxy, when so authorized by the
instrument appointing such person, may substitute or delegate such person's
powers in whole or in part and revoke and cancel such substitutions or
delegations. No special authorization by the Board of Directors shall be
necessary in connection with the foregoing, and this bylaw shall be deemed to
constitute full and complete authority to the officers above designated to do
all the acts and things as they deem necessary or incidental thereto or in
connection therewith.

      10.6. Contracts, Deeds, and Loans. All contracts, deeds, mortgages,
pledges, promissory notes, security documents, transfers, and other written
instruments binding upon the Corporation shall be executed on behalf of the
Corporation by the Chairman of the Board, if any, or the President, or any Vice
President, or by such officers or agents as the Board of Directors or the
President (unless the Board of Directors shall otherwise provide) may designate
from time to

                                      -20-


time. Any such instrument which may be or is required to be given under the seal
of the Corporation may be sealed and attested by the Secretary or any Assistant
Secretary of the Corporation.

      10.7. Checks and Drafts. Checks and drafts of the Corporation shall be
signed by such officer or officers or such other employees or persons as the
Board of Directors may from time to time designate. The Board of Directors may
provide by resolution for the authority of officers, employees, and other
persons to deal with banks and other financial institutions on behalf of the
Corporation.

                                   ARTICLE 11

                              Fair Price Provisions

      The requirements of Part 2 of Article 11 of the Code shall be applicable
to the Corporation to the maximum extent permitted by the Code and under the
circumstances set forth therein.

                                   ARTICLE 12

               Business Combinations With Interested Shareholders

      The requirements of Part 3 of Article 11 of the Code shall be applicable
to the Corporation to the maximum extent permitted by the Code and under the
circumstances set forth therein.

                                      -21-

EX-31.1

EX-31.1 SECTION 302 CERTIFICATION OF THE CEO

EX-31.2

EX-31.2 SECTION 302 CERTIFICATION OF THE CFO

EX-32.1

EX-32.1 SECTION 906 CERTIFICATION OF CEO AND CFO