UNITED STATES SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
---------------------
FORM 10-K/A
AMENDMENT NO. 1
(MARK ONE)
[X] ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(D) OF THE SECURITIES
EXCHANGE ACT OF 1934
FOR THE FISCAL YEAR ENDED DECEMBER 31, 1997
OR
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(D) OF THE SECURITIES
EXCHANGE ACT OF 1934
FOR THE TRANSITION PERIOD FROM _____________ TO ___________
COMMISSION FILE NUMBER 0-28000
THE PROFIT RECOVERY GROUP
INTERNATIONAL, INC.
(Exact name of registrant as specified in its charter)
GEORGIA 58-2213805
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification No.)
2300 WINDY RIDGE PARKWAY 30339-8426
SUITE 100 NORTH (Zip Code)
ATLANTA, GEORGIA
(Address of principal executive offices)
REGISTRANT'S TELEPHONE NUMBER, INCLUDING AREA CODE: (770) 955-3815
SECURITIES REGISTERED PURSUANT TO SECTION 12(B) OF THE ACT: NONE
SECURITIES REGISTERED PURSUANT TO SECTION 12(G) OF THE ACT:
COMMON STOCK, NO PAR VALUE
Indicate by check mark whether the registrant (1) has filed all reports
required to be filed by Section 13 or 15(d) of the Securities Exchange Act of
1934 during the preceding 12 months (or for such shorter period that the
registrant was required to file such reports), and (2) has been subject to such
filing requirements for the past 90 days. Yes |X| No |_|
Indicate by check mark if disclosure of delinquent filers pursuant to Item
405 of Regulation S-K is not contained herein and will not be contained, to the
best of the registrant's knowledge, in definitive proxy or information
statements incorporated by reference in Part III of this Form 10-K or any
amendment to this Form 10-K. |_|
Common shares of the registrant outstanding at January 30, 1998 were
19,226,024. The aggregate market value, as of January 30, 1998, of such common
shares held by non-affiliates of the registrant was approximately $111,423,000
based upon the last sales price reported that date on The Nasdaq Stock Market of
$15.813 per share. (Aggregate market value estimated solely for the purposes of
this report. This shall not be construed as an admission for the purposes of
determining affiliate status.)
DOCUMENTS INCORPORATED BY REFERENCE
Part III: Portions of Registrant's Proxy Statement relating to the Annual
Meeting of Shareholders to be held during 1998.
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The Registrant is hereby filing Amendment No. 1 to Form 10-K for the fiscal
year ended December 31, 1997 for the purpose of filing Exhibits 10.38 and 10.39,
and amending Item 1. and Exhibit 21.1.
PART I
ITEM 1. BUSINESS
The Company is a leading provider of accounts payable and other recovery
audit services to large retailers, wholesale distributors, healthcare providers,
technology companies and other large transaction-intensive companies, as well as
to certain governmental agencies. In businesses with large purchase volumes and
continuously fluctuating prices, some small percentage of erroneous overpayments
to vendors is inevitable. In addition, the complexity of various tax laws
results in overpayments to governmental agencies. Moreover, services such as
telecommunications, utilities and freight provided to businesses under complex
pricing arrangements can result in overpayments. All of these overpayments
result in "lost profits." The Company identifies and documents overpayments by
using sophisticated proprietary technology and advanced audit techniques and
methodologies, and by employing highly trained, experienced recovery audit
specialists. The Company continuously updates and refines its proprietary
databases that serve as a central repository reflecting its auditors'
experiences, vendor practices and knowledge of regional and national pricing
information, including seasonal allowances, discounts and rebates, but excluding
confidential client data.
The earliest of the Company's predecessors was formed in November 1990, and
in early 1991 the predecessors acquired the operating assets of Roy Greene
Associates, Inc. and Bottom Line Associates, Inc. which were formed in 1971 and
1985, respectively. In January 1995, the Company's predecessors acquired the
operating assets of Fial & Associates, Inc., a direct competitor.
The predecessor business entities that comprised the Company generally were
either Subchapter S corporations or partnerships, all under common ownership and
control. In April 1995, the Company's predecessors reorganized and its
international entities became C corporations. Additionally, prior to the
Company's March 1996 initial public offering, all domestic entities became C
corporations. Subsequent to the Company's initial public offering, the Company
has conducted its operations through its various wholly-owned domestic and
international subsidiaries.
In January 1997, the Company acquired the net operating assets of Shaps
Group, Inc., a California-based company providing recovery audit services to
manufacturers, and high technology companies. In February 1997, the Company
acquired all of the common stock of Accounts Payable Recovery Services, Inc., a
Texas-based company providing recovery audit services to healthcare entities and
energy companies. In May 1997, the Company acquired all of the common stock of
The Hale Group, a California-based company providing recovery audit services to
healthcare entities. In October 1997, the Company acquired 98.4% of Financiere
Alma, S.A. and subsidiaries, a Paris-based company providing tax recovery audit
services within France. In November 1997, the Company acquired the net operating
assets of TradeCheck, LLC, a Washington-based recovery audit firm specializing
in ocean freight shipments. The Company intends to continue pursuing domestic
and international strategic acquisitions, including direct competitors and
complementary businesses.
The Company has operations outside the United States in Australia, Belgium,
Canada, France, Germany, Mexico, The Netherlands, New Zealand, the United
Kingdom and portions of Asia, including Hong Kong, Indonesia, Malaysia,
Singapore, Taiwan and Thailand. See Note 11 of Notes to Consolidated Financial
Statements for international segment data concerning revenues, operating income
(loss) and indentifiable assets.
THE RECOVERY AUDIT INDUSTRY
Businesses with substantial volumes of payment transactions involving
multiple vendors, numerous discounts and allowances, fluctuating prices and
complex tax and pricing arrangements find it difficult to detect all payment
errors. These businesses include retailers, such as discount, department,
specialty, grocery and drug stores, wholesale distributors, manufacturers and
distributors of technology products and certain governmental agencies and
healthcare providers. Although these businesses process the vast majority of
payment transactions correctly, a small number of errors occur principally
because of communication failures between purchasing and payables departments,
complex pricing arrangements, personnel turnover and changes in information and
accounting systems. These errors include vendor pricing errors, missed or
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inaccurate discounts, allowances and rebates, incorrect freight charges and
duplicate payments. In the aggregate, these transaction errors can represent
meaningful lost profits that can be particularly significant for businesses with
relatively narrow profit margins. Although internal recovery audit departments
identify some payment errors, independent recovery audit firms often are
retained by businesses to identify additional overpayments.
In the U.S., large retailers routinely engage independent recovery audit
firms as standard business practice and other businesses increasingly are using
independent recovery audit firms. Outside the U.S., the Company believes that
large retailers and certain other businesses also increasingly are engaging
independent recovery audit firms. The U.S. retailing industry represented
approximately $2.5 trillion in revenues in 1996. The top 100 retailers worldwide
had aggregate revenues of approximately $1.4 trillion in 1996. The Company
believes that a typical U.S. retailer makes payment errors that are not
discovered internally, which in the aggregate can range from several hundred
thousand dollars to more than $1.0 million per billion dollars of revenues. In
addition, the Company believes that businesses in all industries also make
accounts payable errors.
Increasingly, businesses use technology to manage complex accounts payable
systems and realize greater operating efficiencies. Many businesses worldwide
communicate with vendors electronically to exchange inventory and sales data,
transmit purchase orders, submit invoices, forward shipping and receiving
information and remit payments. These paperless transactions are widely referred
to as "EDI" (Electronic Data Interchange), and implementation of this technology
is accelerating. EDI streamlines processing large numbers of transactions, but
does not eliminate payment errors because operator input errors may be
replicated automatically in thousands of transactions. EDI systems typically
generate significantly more individual transaction details in electronic form,
making these transactions easier to audit than traditional paper-based accounts
payable systems. Recovery audit firms, however, require sophisticated technology
in order to audit EDI accounts payable processes effectively.
Many businesses historically have maintained internal recovery audit
departments that review transactions before engaging independent recovery audit
firms. The Company believes that these businesses increasingly are outsourcing
internal recovery functions to independent recovery audit firms. Factors
contributing to this trend include (i) a need for significant investments in
technology, especially in an EDI environment, which the Company believes are
greater than even large businesses often can justify, (ii) an inability to
duplicate the breadth of industry and auditing expertise of independent recovery
audit firms, (iii) a desire to focus limited resources on core competencies, and
(iv) a desire for larger and more timely recoveries.
The domestic and international recovery audit industry is characterized by
several large and many small, local and regional firms. Many local and regional
recovery audit firms lack the centralized resources or broad client base to
support technology investments required to provide comprehensive recovery audit
services for large, complex accounts payable systems. These firms are even less
equipped to audit large EDI accounts payable systems. In addition, because of
limited resources, most of these firms subcontract work to third parties and may
lack experience and the knowledge of national promotions, seasonal allowances
and current recovery audit practices. As a result, the Company believes
significant opportunities exist for recovery audit firms with a national and
international presence, well-trained and experienced professionals and the
advanced technology required to audit increasingly complex accounts payable
systems.
THE PROFIT RECOVERY GROUP SOLUTION
The Company provides its domestic and international clients with
comprehensive recovery audit services by using sophisticated proprietary
technology and advanced audit techniques and methodologies, and by employing
highly trained, experienced recovery audit specialists. As a result, the Company
believes it is able to identify significantly more payment errors in both
traditional paper-based and EDI accounts payable systems. By leveraging its
technology investment across a large client base, the Company is able to
continue developing proprietary software tools and expand its technology
leadership in the recovery audit industry.
The Company is a leader in developing and utilizing sophisticated software
audit tools and techniques that enhance the identification and recovery of
payment errors. In EDI accounts payable systems, the
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Company's proprietary software audit tools and data processing capabilities
enable auditors to sort, filter and evaluate transactions in greater line-item
detail. The Company has developed and continuously updates and refines its
proprietary databases that serve as a central repository reflecting its
auditors' experiences, vendor practices and knowledge of regional and national
pricing information, including seasonal allowances, discounts and rebates. These
proprietary databases do not include confidential client information. The
Company's technology provides a uniform platform for its auditors to offer
consistent and proven audit techniques and methodologies regardless of the
client's size, industry or geographic scope of operations.
The Company also is a leader in establishing new recovery audit practices
to reflect evolving industry trends. The Company's auditors are highly trained
and many have joined the Company from finance-related management positions in
the retailing industry. To support its auditors, the Company provides data
processing, marketing, training and administrative services.
THE PROFIT RECOVERY GROUP STRATEGY
The Company's objective is to become the leading worldwide provider of
recovery audit services. The Company believes that it will have to significantly
increase its revenues to achieve this objective. Its strategy consists of the
following elements:
- Expand International Presence. The Company believes international
markets represent significant business opportunities and intends to
continue expanding its international presence. For example, based on 1996
sales, 63 of the top 100 retailers worldwide were headquartered outside
the U.S. Through sales and marketing efforts, the Company targets
countries having a concentration of transaction-intensive businesses. The
Company also enters new international markets by supporting its U.S.
clients' international operations. With the recent acquisition of 98.4%
of Financiere Alma, S.A. and its subsidiaries (collectively, "Alma"), the
Company has significantly increased its presence in France and the
Company intends to offer Alma's services to businesses in other European
countries. In the next twelve months, the Company anticipates that it
will commence operations in South Africa, Argentina and Brazil.
- Expand Client Base. The Company seeks to increase its worldwide retail
client base and expand its recovery audit services to other industries.
The Company recently has expanded its recovery audit services to the
healthcare and technology industries and intends to expand into other
industries, such as financial services, transportation and lodging and
gaming. The Company believes that its proprietary technology and audit
techniques and methodologies also can be applied to these industries. The
Company believes that its typical fee arrangement enhances its ability to
attract new clients because clients pay a contractually negotiated
percentage of overpayments identified by the Company and recovered for
the clients. The Company intends to leverage existing client
relationships into new audit engagements for clients' other operating
units. Based on 1996 sales, 28 of the top 100 retailers worldwide, each
of which had sales of at least $3.9 billion, were clients of the Company
in 1997. The Company principally targets large businesses having at least
$500 million in annual revenues, although smaller businesses may be
attractive clients. Retailers continue to constitute the substantial
majority of the Company's client and revenue base, and the Company's
current marketing efforts are primarily directed toward that industry.
- Pursue Strategic Acquisitions. The Company intends to continue pursuing
the acquisition of domestic and international businesses including both
direct competitors and businesses providing complementary recovery audit
services. As examples, in January 1995, the Company successfully
completed the acquisition of Fial & Associates, Inc., a direct
competitor; in January 1997, the Company acquired Shaps Group, Inc., a
firm providing recovery audit services to manufacturers and distributors
of technology products; in February 1997, the Company acquired Accounts
Payable Recovery Services, Inc., a firm providing recovery audit services
to healthcare entities and energy companies; in May 1997, the Company
acquired The Hale Group, a firm that provides recovery audit services
primarily to healthcare entities; in October 1997, the Company acquired
Alma, a firm that provides tax recovery
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audit services in France; and in November 1997, the Company acquired
TradeCheck, LLC, a firm that provides ocean freight recovery audit
services.
- Expand Recovery Audit Services. The Company seeks to expand its recovery
audit service offerings beyond its traditional accounts payable recovery
audit business. For example, the Company recently began offering tax
recovery and ocean freight audit services following its acquisitions of
Alma and TradeCheck. In addition, the Company intends to expand into or
establish its capabilities in other recovery audit services, including
telecommunications, utilities, freight and sales and property tax.
- Maintain High Client Retention Rates. The Company intends to maintain
and improve its high client retention rate by providing comprehensive
recovery audit services, utilizing highly trained auditors, and
continuing to refine its advanced audit technology. Of the Company's
accounts payable audit clients in 1996 that had claims exceeding $100,000
in that year(excluding clients no longer in existance due to such
clients' bankruptcies or acquisitions), more than 90% continued to
utilize the Company's services in 1997.
- Maintain Technology Leadership. The Company believes its proprietary
technology provides a significant competitive advantage, especially in
audits of EDI accounts payable systems. The Company intends to continue
making substantial investments in technology to maintain its leadership
position and systems capabilities.
- Promote Outsourcing Arrangements. The Company seeks to capitalize on the
growing trend of businesses to outsource internal recovery audit efforts.
The Company believes that its outsourcing clients benefit significantly
from these arrangements because their recoveries generally are larger and
completed more quickly. The Company further believes that as clients
convert their systems to EDI, outsourcing arrangements involving recovery
audit work will become increasingly prevalent due in part to the absence
of traditional "audit trail" documents.
THE PROFIT RECOVERY GROUP SERVICES
The Company provides comprehensive accounts payable, tax and other
ancillary recovery audit services. In 1997, accounts payable recovery audit
services represented approximately 91.0% of the Company's revenues. Assuming the
Alma transaction had occurred on January 1, 1997, accounts payable recovery
audit services and tax recovery audit services would have represented on a pro
forma basis approximately 80.3% and 17.0%, respectively, of the Company's
revenues for 1997.
Accounts Payable Recovery Audit Services
Using its proprietary technology, audit techniques and methodologies, the
Company conducts either primary or secondary accounts payable audits. In primary
audits, the Company is the first independent recovery audit firm engaged. In
secondary audits, the Company audits behind another independent recovery audit
firm. A substantial majority of the accounts payable audits conducted by the
Company are primary audits.
Primary Audits. Although the Company is flexible in structuring recovery
audit programs to meet the individual needs of its clients, there are two basic
types of primary accounts payable audits conducted by the Company: (i) periodic
audits, which are usually performed nine to 18 months after a client's fiscal
year-end; and (ii) continuous audits, marketed as RecoverNow, which are
performed more closely following transaction dates.
In most periodic audits, which constitute the vast majority of the
Company's present audit engagements, the client's internal recovery audit
department conducts a preliminary review of accounts payable records to identify
payment errors. Upon completion of the client's internal recovery audit review
process, which may be as long as nine to 18 months after the client's fiscal
year-end, the Company begins its independent recovery audit.
Under the Company's RecoverNow program, clients provide the Company with
accounts payable data on a regular basis, often within 90 days following the
payment transaction. The Company believes its RecoverNow
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program generates larger client recoveries for several reasons, including: (i)
transaction data, especially paper-based records, are more complete and
accessible; (ii) the impact of vendor bankruptcies is minimized because claims
are made more timely and continuously throughout the year; (iii) certain
recoveries are facilitated when claims are made prior to the expiration of
seasonal or other special pricing promotions; and (iv) vendor relationships are
improved because of on-going communications regarding billing and payment
practices.
In some cases, the Company's clients outsource all or a portion of their
internal recovery audit functions to the Company. In these cases, the client
does not conduct an internal review prior to the Company's audit. In its
outsourcing engagements, the Company also may use client staff in the review
process. The Company believes that more businesses will outsource their recovery
audit functions in an effort to control personnel and technology costs, focus
resources on their core business functions, and increase recoveries.
Secondary Audits. In secondary audits, the Company conducts an accounts
payable audit after another independent recovery audit firm has completed its
audit. The Company usually receives a higher percentage recovery fee than
received from primary audits because it generally is more difficult to detect
payment errors in secondary audits. In most cases, the Company is able to
identify significant payment errors not previously detected by a client's
primary independent recovery audit firm. The Company utilizes secondary audits
as a marketing strategy to obtain new, primary audit clients and believes it has
been successful in implementing this strategy. Of the 28 secondary audits
performed in 1995 which individually provided revenues to the Company exceeding
$100,000, nine were converted to primary audit clients prior to December 31,
1997.
Tax Recovery Audit Services
With the recent acquisition of Alma, the Company now offers tax recovery
audit services in France. These services include the identification and recovery
of tax overpayments (other than income taxes), including business and personal
property taxes (referred to in France as "fiscal" taxes), workers compensation
taxes (referred to in France as "social" taxes), real property taxes (referred
to in France as "foncier" taxes), and value added taxes (referred to in France
as "TVA" taxes).
Using highly trained, experienced personnel together with proprietary audit
techniques and methodologies, Alma assists businesses in identifying and
recovering tax overpayments and reducing future tax obligations. Alma, with
assistance from professionals such as tax attorneys, physicians and surveyors,
applies its thorough understanding of the numerous complex French tax laws and
audits the factual information which underlies the tax in question. For example,
certain fiscal taxes are based upon a client's number of employees, payroll and
fixed assets. Certain social taxes are based upon industry segment and prior
years' claim history. Foncier or real property taxes are based on the size, use
and valuation of building improvements. Alma is constantly researching new and
expanded tax audit opportunities.
The time necessary to conduct a French tax audit and obtain governmental
approval of a claim can vary significantly based upon the type of audit. A
typical social tax audit, for example, is performed in six to nine months and
governmental approval can take an additional six to 12 months. In certain cases
when the tax authority denies a client's claim, litigation is necessary to seek
recovery. Like the Company's standard accounts payable recovery audits, the
Company receives a contractually negotiated percentage of the taxes recovered.
Ancillary Audit Services
In addition to accounts payable and tax recovery audit services, the
Company also offers ancillary recovery audit services. These ancillary services
may be offered individually or in conjunction with accounts payable and tax
recovery audit services.
- Freight Audits. The Company provides domestic freight audits using
FreightPro, the Company's proprietary freight recovery audit software, and
provides ocean freight audits. The Company also maintains centralized
domestic freight and shipping databases and has auditors who specialize in
freight audits. Freight audits are usually conducted in conjunction with
accounts payable recovery audits.
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- Lease Compliance Audits. Real estate lease and landlord compliance
audits involve an examination of all aspects of a client's facility lease
arrangements to assist the client in identifying lease overpayments or
expenses incurred through landlord noncompliance with lease terms.
- Telecommunications Audits. This program assists clients in reducing
their overall telecommunications costs. For example, overpayments often
can result from the incorrect application of rates and tariffs. Auditors
also review clients' equipment, usage and systems configuration needs and
make recommendations on how to reduce future telecommunications costs.
- Utility Audits. Auditors also review clients' electrical and natural gas
requirements and analyze alternative rates and billing plans to verify
that the billing was proper and that the proper tariff rate was applied.
- Expense Reduction Audits. With the recent acquisition of Alma, the
Company assists clients in reducing their costs for building and security
services.
CLIENT CONTRACTS
The Company's standard accounts payable client contract provides that the
Company is entitled to a contractual percentage of overpayments recovered for
clients. Clients generally recover claims by taking credits against outstanding
payables or future purchases from the involved vendors. In many cases, the
Company's auditors work on site with client personnel and continually monitor
credits taken. In other situations, Company auditors schedule periodic
reconciliations with clients to determine which claims have been processed for
credit. The Company's standard accounts payable client contract imposes a duty
on the client to process promptly all claims against vendors. In the interest of
maintaining good vendor relations, however, many clients modify the standard
client contract with the Company to provide that they retain discretion on
whether to pursue collection of a claim. In the Company's experience, it is
extremely unusual for a client to forego the collection of a large, valid claim.
In some cases, a vendor may dispute a claim by providing additional
documentation or information supporting its position. Consequently, many clients
revise the Company's standard client contract to clarify that the Company is not
entitled to payment of its fee until the client recovers the claim from its
vendor.
In addition to the client contracts, most accounts payable clients
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 prior to submitting
claims. With respect to accounts payable recovery audits for retailers,
wholesale distributors and governmental agencies, the Company recognizes
revenues at the time overpayment claims are presented to and approved by its
clients, as adjusted for estimated uncollectible claims. Estimated uncollectible
claims initially are established, and subsequently adjusted, for each individual
client based on a number of factors including historical experience. With
respect to accounts payable and other recovery audits for most entities other
than retailers, wholesale distributors and governmental agencies, the Company
recognizes revenues when it invoices clients for its portion of amounts
recovered.
The Company's standard tax recovery client contract provides that the
Company is entitled to a contractual percentage of the taxes recovered and
anticipated savings for a specified period following the audit. The Company
recognizes revenue from its fiscal, social and foncier tax recovery audit
services when it receives notification that the applicable governmental agency
has approved a claim, the client is entitled to a recovery, and an invoice is
submitted to the client requesting payment. For TVA recovery audit services, the
Company recognizes revenues when all documentation is filed with the appropriate
government agency.
TECHNOLOGY
The Company believes that its proprietary software audit tools and
proprietary databases, together with its centralized data processing
capabilities, provide it a competitive advantage over smaller local and regional
firms, especially when auditing complex EDI accounts payable systems. The
Company has devoted more than six years and has made substantial financial
investments in developing its proprietary technology. At
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January 31, 1998, the Company's information services department in the United
States had 64 employees, 10 of whom were dedicated to software development
activities, including updating and modifying the Company's existing proprietary
software. In addition, Alma's information services department had four employees
as of January 31, 1998.
Centralized Data Preparation and Verification
At the beginning of a typical accounts payable audit, magnetic media
containing accounts payable transaction data are delivered to the Company's
central data processing facility. Experienced programmers in the Company's
information services department write specialized conversion programs that
permit this data to be reformatted into standardized and proprietary formats
using IBM ES 9000 mainframe and IBM AS 400 midrange computers and Windows NT and
OS/2 Warp Connect servers. Statistical reports are then prepared to verify the
completeness and accuracy of the data. Generally, it is not necessary to rewrite
conversion programs for clients for each successive audit. This reformatted data
is compressed onto CD-ROM media and delivered to the Company's auditors who,
using the Company's proprietary field audit software, sort, filter and search
the data for overpayments. Standard reports and client-specific statistical data
also are produced for auditors.
PC-Based Software Modules
The Company has developed PC-based proprietary software modules for use
primarily in the field by its accounts payable auditors. These software modules
include the following:
- AuditPro is used in non-EDI systems to facilitate auditor-defined
searches of reformatted client accounts payable records for patterns
indicative of potential overpayments. In addition to using the standard
analytical reports produced by AuditPro, auditors may design sophisticated
custom inquiries to sort, filter and print client records.
- EDI Inquiry is a comprehensive module used to sort, filter and print
purchasing, receiving and payment records at the line-item level for
clients operating in an EDI environment. By utilizing line-item detail,
this module facilitates the search of a significantly greater number of
transaction records and improves auditor productivity.
- AuditPro 97 is a newly released module which will eventually replace both
AuditPro and EDI Inquiry. It can be utilized in both EDI and non-EDI
environments and includes considerably greater audit functionality than
the modules it replaces.
- Claims Management System enables the auditor to compile, print and report
on claims information by individual audit. This module also is used to
summarize audit findings for management reports that are typically
provided to clients at the conclusion of each engagement.
- FreightPro is used to audit and produce claims from electronic freight
records. Client freight billing data is compared with vendor routing guide
instructions to isolate potential overcharges.
- ReportPro is a specialized report generator designed to create and
display customized reports in conjunction with the Company's other
proprietary software modules.
Proprietary Databases
The Company has developed and continuously updates and refines its
proprietary accounts payable and other non-tax recovery audit databases that
serve as a central repository reflecting its auditors' experiences, vendor
practices and knowledge of regional and national pricing information, including
seasonal allowances, discounts and rebates. These proprietary databases do not
include confidential client information. Auditors use these databases to
identify discounts, allowances and other pricing information not previously
detected.
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AUDITOR HIRING AND TRAINING
Many of the Company's auditors formerly held finance-related management
positions in the retailing industry. These experienced auditors provide
important insights into certain aspects of the retailing industry. The Company
also has relied on its auditors to assist in creating its auditor training
programs and techniques and in developing its proprietary audit software. To
meet its growing need for additional auditors, the Company has begun hiring
recent college graduates, particularly those with multi-lingual capabilities.
While the Company has been able to hire a sufficient number of new auditors to
support its growth, there can be no assurance that the Company will be able to
continue hiring sufficient numbers of qualified auditors to meet its future
needs.
The Company provides intensive in-house training for auditors utilizing
many self-paced media including specialized computer-based training modules. The
Company utilizes experienced auditors as full-time field trainers to assess each
trainee's progress as he or she completes the training program. The in-house
training program is continuously upgraded based on feedback from auditors and on
changing industry protocols. Additional on-the-job training by experienced
auditors enhances the in-house training and enables newly hired auditors to
refine their skills. Because auditor compensation is based on team performance
results as well as nine different categories of individual competency composed
of job-based skills and personal success factors, the Company believes senior
auditors are motivated to continue training new auditors to maximize client
recoveries and audit team compensation. As the Company hires new auditors, there
can be no assurance that it will be able to continue providing the same in-depth
training or have sufficient numbers of experienced auditors to continue its
on-the-job training program.
CLIENT BASE
The Company provides its services principally to large
transaction-intensive businesses that include retailers, such as discount,
department, specialty, grocery and drug stores, wholesale distributors,
manufacturers and distributors of technology products, certain governmental
agencies and healthcare providers. Based on 1996 sales, 28 of the top 100
retailers worldwide, each having sales in excess of $3.9 billion, were clients
of the Company in 1997. Although the Company targets clients principally with
$500 million or more in annual revenues, smaller businesses may be attractive
clients. Retailers continue to constitute the substantial majority of the
Company's client and revenue base, and the Company's current marketing efforts
are primarily directed toward that industry.
For the years ended December 31, 1997, 1996 and 1995, the Company derived
33.8%, 34.6% and 30.1%, respectively, of its revenues form its five largest
clients. Wal-Mart Stores, Inc. and its affiliates (collectively "Wal-Mart"),
historically the Company's largest client, represented 10.4%, 14.4% and 12.7% of
revenues during 1997, 1996 and 1995, respectively. In 1997, Kmart Corporation
was the Company's largest client representing 12.3% of the revenues during the
period, due in large part to a nonrecurring situation involving concurrent
audits of multiple years. There can be no assurance that the Company's client
base will increase or that the Company's largest clients will continue to
utilize the Company's services at the same level. For example, one of the
Company's five largest accounts representing 4.6% of all of the Company's
domestic revenues for 1996 changed the Company's status from primary recovery
auditor in 1996 to secondary recovery auditor in 1997. This change resulted in
significantly lower revenues from that client in 1997. In addition, should one
or more of the Company's large clients file for bankruptcy or otherwise cease to
do business with the Company, or should one or more of the Company's large
client's vendors file for bankruptcy, the Company's business, financial
condition and results of operations could be materially and adversely affected.
SEASONALITY
The Company has experienced and expects to continue to experience
significant seasonality in its business. The Company typically realizes higher
revenues and operating income in the last two quarters of its fiscal year.
Should this trend not continue, the Company's profitability for any affected
quarter and the entire year could be materially and adversely impacted due to
ongoing selling, general and administrative expenses that are largely fixed over
the short term.
8
<PAGE>
SALES AND MARKETING
The Company markets its services primarily through one-on-one meetings with
executives of targeted clients. The decision to engage a recovery audit firm is
similar to the decision to engage most professional service firms and usually
involves a lengthy period of familiarization, investigation and evaluation by
the prospective client. The sales cycle often exceeds one year in both domestic
and international markets. In the U.S. and Canada, where the use of recovery
audit services is a generally accepted business practice among retailers, the
Company generally must displace a competing firm in order to expand market
share. In many other countries, recovery auditing is a new business service that
requires an initial educational process in order to gain acceptance.
At January 31, 1998, the Company's marketing staff consisted of 12 persons
in the United States headed by a senior officer and 36 persons in Europe. The
Company plans to expand its marketing staff in the U.S. and internationally as
its business grows and it enters new markets.
PROPRIETARY RIGHTS
The Company continuously develops new recovery audit software and enhances
existing proprietary software. The Company regards its proprietary software as
protected by trade secret and copyright laws of general applicability. In
addition, the Company attempts to safeguard its software through employee and
third-party nondisclosure agreements and other methods of protection. Despite
these precautions, it may be possible for unauthorized third parties to copy,
obtain or reverse engineer certain portions of the Company's software or
otherwise to obtain or use other information the Company regards as proprietary.
While the Company's competitive position may be affected by its ability to
protect its software and other proprietary information, the Company believes
that the protection afforded by trade secret and copyright laws is less
significant to the Company's success than the continued pursuit and
implementation of its operating strategies and other factors such as the
knowledge, ability and experience of its personnel.
The Company has registered its copyrights for AuditPro, EDI Inquiry, Claims
Management System, FreightPro and RecoverNow with the U.S. copyright office.
Third parties with functionally similar software could assert claims under the
Copyright Act of 1986, as amended, the federal patent law or state trade secret
laws that the Company's proprietary recovery audit software application products
infringe or may infringe the proprietary rights of such entities. These third
parties may seek damages from the Company as a result of such alleged
infringement, demand that the Company license certain proprietary rights from
them or otherwise demand that the Company cease and desist from its use or
license the allegedly infringing software. Such action may result in protracted
and costly litigation or royalty arrangements or otherwise have a material
adverse effect on the Company's business, financial condition or results of
operations. Although the Company believes that its recovery audit software does
not infringe on the intellectual property rights of others and the Company knows
of no such pending or other extended claims of infringement, there can be no
assurance that such a claim will not be asserted against the Company in the
future.
The Company's trademarks include "Profit Recovery Group International,"
"PRG," "AuditPro," "AuditPro 97," "EDI Inquiry," "Claims Management System,"
"FreightPro," "ReportPro" and "RecoverNow." The Company has registered "Profit
Recovery Group International," "PRG," "AuditPro," "RecoverNow" and the Company's
logo as federal trademarks with the U.S. Patent and Trademark Office. There can
be no assurance, however, that the Company will be successful in its attempt to
register such trademarks or that it otherwise will be able to continue to use
any of the foregoing trademarks.
The Company has filed applications for protection of certain of its
trademarks outside of the U.S. in the various countries where the Company
conducts business, and such protection is available. There can be no assurance,
however, that the Company will be successful in its attempt to register or
continue to use such trademarks outside of the U.S.
9
<PAGE>
COMPETITION
The recovery audit business is highly competitive. The competitive factors
affecting the market for the Company's recovery audit services include:
establishing and maintaining client relationships, quality and quantity of
claims identified, experience and professionalism of audit staff, rates for
services, technology and geographic scope of operations. The Company's principal
competitors for accounts payable recovery audit services include local and
regional firms and one firm, Howard Schultz & Associates, with a network of
affiliate organizations in the U.S. and abroad. The Company believes that Howard
Schultz & Associates has been in operation longer than the Company and may have
achieved greater revenues than the Company in 1997. The Company's competitors
for tax recovery audit services in France include major international accounting
firms, tax attorneys and several smaller tax recovery audit firms. There can be
no assurance that the Company will continue competing successfully with such
competitors.
The Company believes that as large, transaction-intensive businesses expand
internationally and implement EDI accounts payable systems, smaller recovery
audit firms will lack the technology and infrastructure necessary to remain
competitive unless they make substantial investments to upgrade and expand their
skills, technologies and geographic scope of operations.
EMPLOYEES
At January 31, 1998, the Company had 1,174 employees, 709 of whom were
located in the U.S., with 575 persons in the audit function, 12 persons in sales
and marketing, 64 persons in information services and the remainder in
corporate, finance and administrative functions. In addition to its 465
employees located outside the U.S., internationally the Company engaged 26
independent contractors at January 31, 1998. The Company believes its employee
relations are good.
PART IV
ITEM 14. EXHIBITS, FINANCIAL STATEMENT SCHEDULES, AND REPORTS ON FORM 8-K
(a) Consolidated Financial Statements.
For the following consolidated financial information included herein,
see Index on Page 21:
Independent Auditors' Reports
Consolidated Statements of Earnings for the Years ended December
31, 1997, 1996 and 1995
Consolidated Balance Sheets as of December 31, 1997 and 1996
Consolidated Statements of Shareholders' Equity (Deficit) for the
Years ended December 31, 1997, 1996 and 1995
Consolidated Statements of Cash Flows for the Years ended
December 31, 1997, 1996 and 1995
Notes to Consolidated Financial Statements
(b) All financial statement schedules are omitted for the reason that they
are either not applicable or not required or because the information is
contained in the consolidated financial statements or notes thereto.
(c) Reports on Form 8-K.
On October 22, 1997, Registrant filed Form 8-K regarding Registrant's
October 7, 1997 acquisition of 98.4% of Financiere Alma, S.A. and its
subsidiaries (collectively, "Alma").
On November 21, 1997, Registrant filed Form 8-K/A to provide required
audited and pro forma financial statements regarding Alma.
(d) Exhibits
+2.1-- Agreement and Plan of Reorganization dated January 4, 1995, among The
Profit Recovery Group, Inc., Fial & Associates, Inc. and T. Charles
Fial. The following is a list of omitted schedules and exhibits which
the Registrant agrees to furnish supplementally to the Commission upon
request: Exhibits: A--List of Purchasers, with Principal Amount of
Each Purchaser's Note; B--Form of Note; C-1 and C- 2--Form of Amended
and Restated Partnership Agreement; D-1 and D-2--Form of Amended and
Restated Certificate of Limited Partnership; E--Form of Registration
Rights Agreement; Schedules; 2F--List of Shareholders and
Proportionate Obligation to Purchase; 2L--Earnings Test; 3C--List of
Limited Partners and Their Respective Units; 3D--List of Stockholders
of General Partner and Their Respective Ownership Interests;
3F--Balance Sheet; and 3P--Transactions with Affiliates.
+2.2-- Note Purchase Agreement dated April 27, 1995, among The Profit
Recovery Group International, L.P. (the "Partnership"), The Profit
Recovery Group International I, Inc., T. Charles Fial and certain
limited partners and purchasers named therein. The following is a list
of omitted schedules and exhibits which the Registrant agrees to
furnish supplementally to the Commission upon request: Schedules:
1.1(c)--Contracts and Agreements; 1.1(f)--Fixed Assets; 3.6--Company
Trade Area; 3.7--Affiliated Companies; 4.8--Employee Plans;
4.13--Seller's Tax Returns; 4.14--Employee Bonuses; 4.15--Accounts
Receivable; 4.16--Independent Contractors; 5.1-A--Articles of
Incorporation of Purchaser; 5.1-B--List of agreements among
shareholders of Purchaser; 5.7--Certain Liabilities of Purchaser;
5.8--Subsequent Events; Exhibits: 1.3(a)--Bill of Sale;
1.3(b)--Assignment and Assumption Agreement; 3.2--Consulting
Agreement; 3.3--Form of Noncompetition Agreement with Stockholder;
3.9--Stockholders' Agreement; 7.1(a)(vi)--Form of Opinion of Counsel
to Seller and Stockholder; and 7.1(b)(ix)--Form of Opinion of Counsel
to Purchaser.
-10-
<PAGE>
+3.1-- Articles of Incorporation of the Registrant.
+3.2-- Amended and Restated Bylaws of the Registrant.
+4.1-- Specimen Common Stock Certificate.
+4.2-- See Articles of Incorporation and Bylaws of the Registrant, filed as
Exhibits 3.1 and 3.2, respectively.
*+10.1-- Letter Agreement dated May 25, 1995 between Wal-Mart Stores, Inc. and
Registrant.
+10.2-- 1996 Stock Option Plan dated as of January 25, 1996, together with
Forms of Non-qualified Stock Option Agreement.
+10.3-- The Profit Recovery Group International I, Inc. 401(k) Plan.
+10.4-- Form of Employment Agreement, dated March 20, 1996, between the
Registrant and John M. Cook.
+10.5-- Form of Employment Agreement, dated March 20, 1996, between the
Registrant and John M. Toma.
+10.6-- Form of Employment Agreement, dated March 20, 1996, between the
Registrant and Paul J. Dinkins.
+10.7-- Form of Employment Agreement, dated March 20, 1996, between the
Registrant and Brian M. O'Toole.
+10.8-- Form of Employment Agreement, dated March 20, 1996, between the
Registrant and Donald E. Ellis, Jr.
+10.9-- Form of Consulting Agreement, dated January 1, 1996, between The
Profit Recovery Group International , Inc. and SBC Financial
Corporation, Jonathan Golden, P.C. and Berkshire Partners.
+10.10-- Form of Identification Agreement between the Registrant and the
Directors and certain officers of the Registrant.
+10.11-- First Amendment to Amended and Restated Loan and Security Agreement
dated January 3, 1996 among NationsBank of Georgia, N.A.
("NationsBank"), the Partnership and certain guarantors named therein.
+10.12-- Amended and Restated Loan and Security Agreement dated April 27, 1995
among NationsBank, the Partnership and certain guarantors named
therein. The following is a list of omitted schedules and exhibits
which the Registrant agrees to furnish supplementally to the
Commission upon request: Exhibits: A-1--Amended and Restated
Promissory Note, A-2--Amended and Restated Promissory Note,
B-1--Borrower's Business Locations, B-2--Other Business Locations,
C-1--Borrower's Corporate Names, C-2--Other Corporate Names,
D--Litigation, E--Form of Compliance Certificate, F--Berkshire
Lenders, G--Other Liens, H--Indebtedness.
+10.13-- First Amendment to Loan and Security Agreement dated January 4, 1995
among NationsBank, The Profit Recovery Group, Inc., PRG International,
Inc., the Partnership and the Foreign Companies.
+10.14-- Loan and Security Agreement dated March 24, 1994 among NationsBank,
The Profit Recovery Group, Inc., PRG International, Inc., the
Partnership and the Foreign Companies. The following is a list of
omitted schedules and exhibits which the Registrant agrees to furnish
supplementally to the Commission upon request; Exhibits:
A-1--Promissory Note, A-2--Promissory Note, B-1--Borrower's Business
Locations, B-2--Other Business Locations, C-1--Borrower's Corporate
Names, C-2--Other Corporate Names, D--Litigation, E--Form of
Compliance Certificate, F--Collateral Assignment of Policy, G--Other
Liens, H--Indebtedness.
+10.15-- Sublease dated October 29, 1993, between The Profit Recovery Group
International I, Inc. and International Business Machines Corporation.
+10.16-- Lease dated January 19, 1996 between the Partnership and "J" Street
Development Inc.
+10.17-- Agreement dated January 19, 1996 between the Partnership and May
Construction Company, Inc. The following is a list of omitted
schedules and exhibits which Registrant agrees to furnish
supplementally to the Commission upon request: Exhibit A--General
Conditions of the Contract for Construction.
+10.18-- Second Amendment to Amended and Restated Loan and Security Agreement
dated February 8, 1996 among NationsBank, the Partnership, The Profit
Recovery Group International I, Inc., PRG International Holding Co.
and the Foreign Companies.
+10.19-- First Sublease Amendment dated February 12, 1996 among International
Business Machines Corporation, the Partnership and The Profit Recovery
Group International I, Inc.
+10.20-- Promissory Note dated February 8, 1996, in the amount of $1,600,000 by
the Partnership to CT Investments, L.L.C.
**10.21-- Loan and Security Agreement by and among NationsBank, N.A. (South) as
Lender, and The Profit Recovery Group International, Inc. as Borrower,
and Certain Affiliates of Borrower, as Guarantors, dated September 27,
1996.
-11-
<PAGE>
***10.22-- First Amendment dated March 7, 1997 to Employment Agreement between
the Registrant and John M. Cook.
****10.23-- The Profit Recovery Group International, Inc. Employee Stock
Purchase Plan.
*****10.24-- Contract for the Mandate of the President of the Directorate, dated
October 7, 1997, between Alma Intervention and Marc Eisenberg.
*****10.25-- Consulting Agreement, dated October 7, 1997, between the Registrant
and Lieb Finance S.A.
*****10.26-- Second Amendment to Employment Agreement, dated September 17, 1997,
between The Profit Recovery Group International I, Inc. and John M.
Cook.
*****10.27-- Employment Agreement, dated October 17, 1997, between The Profit
Recovery Group International I, Inc. and Michael A. Lustig.
*****10.28-- Compensation Agreement, dated October 17, 1997, between The Profit
Recovery Group International I, Inc. and Michael A. Lustig.
*****10.29-- First Amendment to Loan and Security Agreement, dated October 3,
1997, between NationsBank, N.A. and the Registrant and its
subsidiaries.
++++10.30-- Lease Agreement dated January 30, 1998 between Wildwood Associates
and The Profit Recovery Group International I, Inc.
++10.31-- Services Agreement dated April 7, 1993 between Registrant and Kmart
Corporation as amended by Addendum dated January 28, 1997.
++++10.32-- Employment Agreement dated August 26, 1996 between Registrant and
Tony G. Mills; Compensation Agreement dated August 26, 1996 between
Registrant and Mr. Mills; and description of 1998 compensation
arrangement between Registrant and Mr. Mills.
++++10.33-- Employment Agreement dated August 23, 1996 between Registrant and
David A. Brookmire; Compensation Agreement dated August 23, 1996
between Registrant and Mr. Brookmire; and description of 1998
compensation arrangement between Registrant and Mr. Brookmire.
++++10.34-- Description of 1998-2002 compensation arrangement between
Registrant and John M. Cook.
++++10.35-- Description of 1998 compensation arrangement between Registrant and
John M. Toma.
++++10.36-- Description of 1998 compensation arrangement between Registrant and
Michael A. Lustig.
++++10.37-- Description of 1998 compensation arrangement between Registrant and
Donald E. Ellis, Jr.
+++10.38-- Employment Agreement between Registrant and Robert G. Kramer;
Compensation Agreement between Registrant and Mr. Kramer; and
description of 1998 compensation arrangement between Registrant and
Mr. Kramer.
+++10.39-- Employment Agreement between Registrant and Clinton McKellar, Jr.;
Compensation Arrangement between Registrant and Mr. McKellar; and
description of 1998 compensation arrangement between Registrant and
Mr. McKellar.
++++21.1-- Subsidiaries of the Registrant.
++++23.1-- Consent of KPMG Peat Marwick LLP.
++++23.2-- Consent of ERNST & YOUNG Entrepreneurs.
++++27.1-- Financial Data Schedule (for SEC use only).
- -----------------------
+ Incorporated by reference to Exhibit of same number of the
Registrant's Registration Statement on Form S-1 (Registration No.
333-1086).
* Confidential treatment pursuant to 17 CFR ss.ss. 200.80 and 230.406
has been granted regarding certain portions of the indicated
Exhibit, which portions have been filed separately with the
Commission.
+++ Filed herewith.
++ Confidential treatment pursuant to 17 CFR ss.ss. 200.80 and
240.24b-2 has been granted regarding certain portions of the
indicated Exhibit, which portions have been filed separately with
the Commission.
** Incorporated by reference to Exhibit 10.1 of Registrant's Form 10-Q
for the quarterly period ended September 30, 1996.
*** Incorporated by reference to Exhibit of same number of the
Registrant's Form 10-K for the year ended December 31, 1996.
-12-
<PAGE>
**** Incorporated by reference to Exhibit "A" to Registrant's proxy
statement dated April 15, 1997, which was issued in connection with
Registrant's 1997 Annual Meeting of Shareholders.
***** Incorporated by reference to Exhibits 10.1-10.6 of Registrant's
Form 10-Q for the quarterly period ended September 30, 1997.
++++ Previously filed.
-13-
<PAGE>
SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) of the Securities
Exchange Act of 1934, the registrant has duly caused this report to be signed on
its behalf by the undersigned, thereunto duly authorized.
THE PROFIT RECOVERY GROUP
INTERNATIONAL, INC.
March 13, 1998 By: /s/ JOHN M. COOK
----------------
John M. Cook
Chairman of the Board
and Chief Executive Officer
-14-
EMPLOYMENT AGREEMENT
THIS EMPLOYMENT AGREEMENT ("Agreement"), is made as of this 12th day of
February, 1998, effective as of October 13, 1997 (the "Effective Date") by and
between THE PROFIT RECOVERY GROUP INTERNATIONAL I, INC., a Georgia corporation
(the "Company") and ROBERT G. KRAMER, a resident of the State of Florida (the
"Employee").
W I T N E S S E T H:
WHEREAS, the Company desires to retain Employee to provide services to the
Company and its Affiliates (as defined in Section 23 below), and Employee
desires to provide his services to the Company pursuant to the terms and
conditions that follow;
NOW, THEREFORE, in consideration of the mutual promises and covenants
hereinafter contained and other good and valuable consideration, the receipt and
sufficiency of which are hereby acknowledged, the parties do hereby agree as
follows:
1. Employment. Employee shall serve as Executive Vice President and Chief
Information Officer of the Company. Employee agrees to apply Employee's full
time and efforts to the position and to perform Employee's work at all times to
the best of Employee's ability and at the direction of the Vice-Chairman of the
Company. Employee will render to the Company, at regular intervals set by the
Company, reports and accounting of the status and progress of any work Employee
is performing.
2. Term. The initial term of this Agreement shall commence on October 13,
1997, and shall continue until December 31, 1997 unless sooner terminated as
hereinafter provided. Unless otherwise terminated pursuant to Section 14 hereof,
this Agreement shall automatically renew on a year-to-year basis at the end of
the initial term and each subsequent renewal term unless either party gives
written notice of non-renewal to the other on or before September 30 of any
calendar year for the immediately succeeding calendar year. The initial term of
this Agreement and any subsequent one-year renewal period shall be deemed a
"Term Year."
3. Scope of the Company's and Employee's Activities. Employee acknowledges
and agrees that the Company and its Affiliates conduct the following business in
the following areas and that Employee has been assigned to perform Employee's
duties in accordance therewith:
(a) Scope of the Company's Business. The Company and its Affiliates are
engaged in the business of auditing accounts payable, paid bill files,
promotional and demonstrator agreements, personal property, real estate, sales
and use tax and other taxes, common area maintenance charges, telephone and
other utilities, sales promotion, advertising and cosmetic wage/commission
agreements, freight and shipping invoices, capital expenditures and other
transactions of the Company's and its Affiliates' clients ("Clients"), in order
to identify and document for subsequent charge back or credit over-payments
and/or under deductions
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<PAGE>
(collectively, the "Audit Activities"), and rendering management counseling
services associated with the Audit Activities (collectively, the "Business of
the Company").
(b) Location of the Company's Business. The Company and its Affiliates
actively conduct business with their Clients throughout the United States and in
other countries throughout the world, including without limitation, countries in
Europe, Latin America, Asia and the Pacific. Employee shall provide
substantially all of his services on behalf of the Company at the Company's
principal office located at 2300 Windy Ridge Parkway, Suite 100 North, Atlanta,
Cobb County, Georgia 30339-8426.
4. Compensation. For services rendered by Employee under this Agreement
during the term hereof, Employee shall be entitled to receive the compensation
and benefits set forth in Sections 10, 11 and 12 hereof and in that certain
Compensation Agreement by and between Employee and the Company of even date
herewith (the "Compensation Agreement").
5. Stock Options. Employee and The Profit Recovery Group International,
Inc., a Georgia corporation ("PRGX") are party to one or more separate stock
option agreements in accordance with which Employee has been granted
non-qualified options to purchase shares of PRGX Common Stock under the 1996
Stock Option Plan (the "Plan").
6. Specific Acknowledgments. Employee acknowledges that the Company and
its Affiliates have expended and will continue to expend substantial time,
money, effort and other resources to develop its goodwill, clients, business
sources and relationships, the Company and its Affiliates have a legitimate
business interest in protecting same, in connection with Employee's employment
by the Company as herein provided, the Company and its Affiliates will introduce
Employee to their Clients, business sources and relationships and will expend
considerable time, effort and capital to train Employee in the Business of the
Company, the knowledge and experience that Employee will acquire while an
employee of the Company and Employee's services to be rendered to the Company
and its Affiliates are of special, unique and extraordinary character, by virtue
of Employee's employment with the Company, Employee will be in a position of
substantial responsibility and authority and will have frequent and substantial
contact with certain of the Company's and the Affiliates' Clients and business
sources and relationships, in Employee's capacity, Employee will be privy to
certain confidential information, Company secrets and proprietary information
not generally known or available to the Company's or its Affiliates competitors
or the general public, the nature and periods of the restrictions imposed by the
covenants contained in this Section 6 are fair, reasonable, and necessary to
protect and preserve for the Company and its Affiliates the benefits of
Employee's employment hereunder and such restrictions will not prevent Employee
from earning a livelihood, and (viii) the Company and its Affiliates would
sustain great and irreparable loss and damage if Employee were in any manner to
breach any of such covenants.
(a) Agreement Not to Compete - Competing Businesses. While employed by the
Company or its Affiliates and for eighteen (18) months after termination of all
such employment, without the prior written consent of the Company signed by the
President of the Company, Employee will not directly or indirectly provide or
perform Services in the Territory
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2
<PAGE>
(as such capitalized terms are defined in subsection "f" below), whether as an
employee, officer, director, shareholder, partner, proprietor, agent,
consultant, independent contractor, lender or otherwise, for any business which
is in competition with the Business of the Company (as defined in subsection
3(a) above).
(b) Agreement Not to Solicit Clients. While employed by the Company or its
Affiliates and for eighteen (18) months after termination of all such
employment, without the prior written consent of the Company signed by the
President of the Company, Employee will not directly or indirectly solicit or
call upon any Client or prospective Client (or any employee or independent
contractor of any Client or prospective Client) of the Company or any of its
Affiliates for purposes of selling or providing any product, equipment or
service, competitive or potentially competitive with any product, equipment or
service sold, leased, offered for sale or lease or under development by, the
Company or any of its Affiliates during the twenty-four (24) month period
immediately preceding termination of all of Employee's employment with the
Company and its Affiliates, provided that the restrictions set forth in this
Section 6(b) shall apply only to Clients or prospective Clients with whom
Employee had Material Contact (as defined below) during such twenty-four (24)
month period (or such shorter period if Employee is employed by the Company and
its Affiliates for less than twenty-four (24) months).
(c) Agreement Not to Solicit Employees or Contractors. While employed by
the Company or its Affiliates and for eighteen (18) months after termination of
all such employment, without the prior written consent of the Company signed by
the President of the Company, Employee will not directly or indirectly
(1) solicit, entice, persuade or induce, or attempt to solicit,
entice, persuade or induce any person who is employed by, or performing
services as an independent contractor or as an employee of an independent
contractor for, the Company or any of its Affiliates, either to terminate
such person's employment with the Company or its Affiliates, or to cease
performing such services for the Company or any of its Affiliates or
(2) authorize any person to engage in or assist any person in any of
the activities described in clause (1) of this subsection.
(b) Proprietary Information. All Proprietary Information (as defined
below) and all physical embodiments thereof received or developed by Employee or
disclosed to Employee while employed by the Company is confidential to and is
and will remain the sole and exclusive property of the Company. While Employee
is in the Company's employ and for a period ending five (5) years after the date
of Employee's termination of employment with the Company for any reason,
Employee will hold such Proprietary Information in trust and in the strictest
confidence, and will not use, reproduce, distribute, disclose or otherwise
disseminate the Proprietary Information or any physical embodiments thereof
except to the extent necessary to perform the duties assigned to Employee by the
Company. In no event shall Employee take any action causing or fail to take the
action necessary in order to prevent any Proprietary Information disclosed to or
developed by Employee to lose its character or cease to qualify as Proprietary
Information.
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<PAGE>
Notwithstanding anything contained herein to the contrary, this Section 6(d)
shall not limit in any manner the protection of the Company's trade secrets
otherwise afforded by law. Upon request by the Company, and in any event upon
termination of Employee's employment with the Company for any reason, Employee
will promptly deliver to the Company all property belonging to the Company,
including without limitation all Proprietary Information (and all physical
embodiments thereof) then in Employee's custody, control, or possession.
(e) Contracts or Other Agreements with Former Employer or Business.
Employee agrees that Employee has provided to the Company, prior to the
execution of this Agreement, a copy of the pertinent portions of any employment
agreement or similar document executed by Employee with a former employer or any
other business. Employee warrants and represents that the execution and delivery
of this Agreement by Employee and the performance of the obligations, covenants
and agreements contained herein, do not and will not conflict with or result in
any breach or violation of any of the terms and provisions of any agreement,
judgment, order, statute or other instrument or restriction of any kind with
respect to which Employee is bound, and Employee is not subject to any
restrictive covenant agreement, covenant not to compete, nonsolicitation
agreement or other agreement that would prohibit Employee from fully carrying
out Employee's duties hereunder.
(f) Definitions.
- "Material Contact" means contact between Employee and each Client or
prospective Client (A) with whom the Employee dealt; (B) whose dealings with the
Company were coordinated or supervised by Employee; (C) about whom Employee
obtained Proprietary Information in the ordinary course of business as a result
of Employee's association with the Company; or (D) who receives services
provided by the Company, the sale or provision of which results or resulted in
compensation, commissions or earnings for Employee, in each of cases (A) through
(D) within two years prior to the date of Employee's termination.
- "person" means and includes any individual, partnership, association,
corporation, limited liability company, trust, unincorporated organization, or
any other business entity or enterprise.
- "Proprietary Information" means information (in any form or media)
including but not limited to technical and nontechnical data, lists, training
manuals, training systems, computer based training modules, formulas, patterns,
compilations, programs, devices, methods, techniques, drawings, processes and
plans regarding the Company's or its Affiliates' Clients, prospective Clients,
methods of operation, billing rates, billing procedures, suppliers, business
methods, finances, management, or any other business information relating to the
Company or its Affiliates (whether constituting a trade secret or proprietary or
otherwise) which has value to the Company or its Affiliates and is treated by
the Company or its Affiliates as being confidential; provided, however, that
Proprietary Information shall not include any information that has been
voluntarily disclosed to the public by the Company or its Affiliates (except
where such public disclosure has been made by Employee without authorization) or
that has been independently developed and disclosed by others, or that otherwise
enters the public domain
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<PAGE>
through lawful means. Proprietary Information also includes information which
has been disclosed to the Company or its Affiliates by a third party and which
the Company or its Affiliates are obligated to treat as confidential.
Proprietary Information may or may not be marked by the Company or its
Affiliates as "proprietary" or "secret" or with other words or markings of
similar meaning, and the failure of the Company to make such notations upon the
physical embodiments of any Proprietary Information shall not affect the status
of such information as Proprietary Information.
- "prospective Client" means any person to whom the Company has sent or
delivered a written sales or servicing proposal or contract in connection with
the Business of the Company.
- "Services" means directing, implementing, managing, coordinating, and
supervising all information services relating to the Company and its Affiliates
and any other services substantially similar to those services provided by
Employee to the Company at any time during the twenty-four (24) month period
immediately preceding Employee's termination of employment with the Company (or
such shorter period if Employee is employed by the Company for less than
twenty-four (24) months).
- "Territory" means that geographical area represented by a circle having a
radius of thirty (30) miles from the centerline of Windy Hill Road and Powers
Ferry Road in Cobb County, Georgia, the closest major intersection to the
Company's offices located at 2300 Windy Ridge Parkway, Atlanta, Georgia 30339.
- Capitalized terms used but not defined herein shall have the meanings
ascribed to them in the Compensation Agreement.
(g) Consideration to the Company. The Company acknowledges and agrees that
its agreements, including, without limitation, its agreement to disclose
confidential information to Employee, are made in consideration of the services
to be provided by Employee, Employee's agreement to refrain from competing with
the Company for eighteen (18) months following the termination of Employee's
employment hereunder, Employee's agreement to refrain from disclosing
confidential information, and the other mutual covenants and agreements set out
in this Agreement.
7. Ownership by Company. All software, computer diskettes, CDs, DVDs,
video tapes, literature, training manuals, training systems, computer based
training modules, Client documents, cassettes, photographs, prints, slides,
records, notes, files, memoranda, reports, audit reports, price lists, client
lists, documents, and all copies thereof, equipment, and apparatus and like
items relating to the business of the Company, Proprietary Information or trade
secrets which shall be prepared by Employee or which shall be disclosed to or
which shall come into Employee's possession, shall be and remain the sole and
exclusive property of the Company. Employee agrees that, upon the termination of
employment with the Company for any reason whatsoever, or at any other time upon
request, Employee will promptly deliver to the Company the originals and all
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copies of any of the foregoing that are in Employee's possession, custody or
control, and any other property belonging to the Company.
8. Inventions. Employee agrees that, during the term of this Agreement,
Employee has a continuing duty to disclose to the Company any invention,
improvement, discovery, process, formula, code, program, system or method
(collectively, "Inventions") developed or being developed by Employee any time
during the term of Employee's employment, either solely by Employee or jointly
with others, whether or not such Inventions are assignable to the Company as set
forth below. Any Invention which Employee has conceived or made or may conceive
or make at any time while employed by the Company, either solely by Employee or
jointly with others, which relate in any way to the actual Business of the
Company, or which relate in any way to the actual or anticipated research or
development of the Company, or which are suggested by or result from any task
assigned to Employee on behalf of the Company, shall be the sole and exclusive
property of the Company, and Employee hereby assigns to the Company any right,
title or interest Employee may have to such Invention. Furthermore, any such
Invention shall constitute Proprietary Information as set forth above. At the
request and expense of the Company, Employee will execute and deliver all
documents and will do such other acts as may be in the Company's opinion
necessary or desirable to secure to the Company or its nominee all right, title
and interest in and to any such Invention.
9. Copyrights. Employee understands that any original works of authorship
fixed in tangible form, including, without limitation, computer software and
manuals, advertising material, and training material, prepared by Employee,
either solely or jointly with others, within the scope of Employee's employment
by the Company, constitute works made for hire as provided by law, so that such
works are owned by the Company. If, for any reason, a work of authorship by
Employee created during the term of Employee's employment by the Company and
related to the Business of the Company is considered other than a work for hire,
then Employee hereby assigns all Employee's right, title and interest in
copyrights to such works of authorship to the Company.
10. Insurance and Benefits.
(a) Employee shall be provided a one-time relocation allowance of Sixty
Thousand and No/100 ($60,000.00) Dollars; provided, however, that if Employee's
employment is terminated prior to October 12, 1998 as a result of Employee's
resignation or termination by the Company for cause, Employee shall promptly
reimburse the Company an amount equal to One Hundred Sixty-Four and 38/100
($164.38) Dollars multiplied by the number of days remaining between the
effective date of Employee's termination of employment and October 12, 1998.
(b) Subject to Employee being insurable at standard rates as of the
commencement of employment (or when coverage is applied for, as applicable) and
to the availability of such coverage from the Company's customary insurance
providers, the Company shall obtain on Employee's behalf life, disability,
hospitalization and medical insurance coverage in accordance with the Company's
standard group coverage.
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(c) For each full month of each Term Year, Employee shall be provided an
automobile allowance equal to one-twelfth (1/12) of Fourteen Thousand Six
Hundred and No/100 ($14,600.00) Dollars, payable in accordance with the
Company's customary procedures, which amount shall be reviewed annually and may
be modified in writing prior to the commencement of any Term Year.
(d) Upon satisfaction of any applicable eligibility requirements, Employee
shall be entitled to participate in any 401(k) plan of the Company generally
available to other employees of the Company, except as may be limited by
applicable law or regulation.
(e) The Company shall pay Employee's reasonable travel and business
expenses, subject to Employee's submission of receipts therefor in accordance
with the Company's normal practices and procedures.
(f) Any amounts the Company pays for insurance coverage or fringe benefits
that are supplemental or in addition to the Company's standard insurance
coverage or benefits shall be compensation in addition to Base Salary (but not
included within the definition of Base Salary) and shall be reflected on
Employee's W-2.
11. Payment of Compensation Upon Termination.
In addition to any deferred compensation to which Employee might be
entitled pursuant to Section 12 hereof, Employee shall receive the following
compensation upon the termination of Employee's employment hereunder:
(a) In the event Employee's employment hereunder is terminated for cause
or if Employee voluntarily resigns other than due to Retirement (as defined in
Section 12(b)(ii) hereof), Employee shall be entitled to receive Employee's Base
Salary prorated through the date of termination, payable in accordance with the
Company's normal payroll procedure, and Employee shall not be entitled to
receive any Bonus or any other amount in respect of the Term Year in which
termination occurs or in respect of any subsequent years.
(b) In the event Employee's employment hereunder is terminated by the
Company without cause, Employee shall be entitled to receive Base Salary and
Bonus for the Term Year in which such termination occurs prorated through the
date of such termination, plus a severance payment equal to six (6) months of
Adjusted Base Salary at the rate then in effect, and the Company shall pay the
continuation premiums for Employee's health and medical insurance coverage for
the three (3) month period following termination of Employee's employment.
Except as provided in the immediately preceding sentence, Employee shall not be
entitled to receive any other amount in respect of the Term Year in which
termination occurs or in respect of any subsequent years. The prorated Base
Salary shall be payable in accordance with the Company's normal payroll
procedure and the prorated Bonus shall be payable in a lump sum within ninety
(90) days after the end of the Term Year to which it relates, and the severance
payment shall be payable in six (6) equal monthly installments commencing on the
last day of the first month following termination. If the Company gives Employee
notice of non-renewal pursuant to Section
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2 of this Agreement, it shall be deemed to be a termination of Employee's
employment without cause and Employee shall be entitled to compensation pursuant
to this Section 11(b).
(c) In the event Employee's employment hereunder is terminated by
Employee's death or Retirement, Employee (or Employee's legal representative in
the case of death) shall be entitled to receive Base Salary and Bonus for the
Term Year in which such termination occurs prorated through the date of such
termination and, in the case of termination due to Employee's death, any other
payments specifically provided for herein in respect of the death of Employee,
and shall not be entitled to receive any other amount in respect of the Term
Year in which termination occurs or in respect of any subsequent years. The
prorated Base Salary shall be payable in accordance with the Company's normal
payroll procedure and the prorated Bonus shall be payable in a lump sum within
ninety (90) days after the end of the Term Year to which it relates.
(d) In the event Employee's employment hereunder is terminated for
Disability (as defined below), Employee or Employee's legal representative shall
be entitled to receive (i) all unpaid Base Salary and Bonus for the term year in
which such termination occurs prorated through the date of termination with such
prorated Base Salary payable in accordance with the Company's normal payroll
procedure and the prorated Bonus payable in a lump sum within ninety (90) days
after the end of the Term Year to which it relates, and (ii) Adjusted Base
Salary for a period of ninety (90) days following termination of employment due
to Disability at the rates in effect upon the date of such termination payable
in accordance with the Company's normal payroll procedure, reduced (but not
below zero) by the sum of (x) all amounts paid by the Company to Employee as
Base Salary prior to termination of employment for the times that Employee was
unable to perform the services required of the Employee under this Agreement due
to illness, accident or any other physical or mental incapacity which resulted
in Employee's Disability and (y) all amounts that Employee is eligible to
receive under any of the Company's standard short-term group disability
insurance coverage provided pursuant to Section 10(a) hereof as a result of such
illness, accident or any other physical or mental incapacity. To the extent that
the Company has not reduced its payments to Employee to reflect such amount that
Employee is eligible to receive under such short-term group disability coverage,
Employee shall immediately remit to the Company such amount upon Employee's
receipt thereof. Employee shall not be entitled to receive any other amount in
respect of the Term Year in which termination occurs or in respect of any
subsequent years. In lieu of terminating Employee pursuant to this Section
11(d), the Company may elect to put Employee on unpaid leave of absence for a
period determined in the sole discretion of the Company, but in no event to
exceed one year. If put on unpaid leave of absence, Employee shall be entitled
to the same compensation to which Employee is entitled if Employee is terminated
as set forth above and shall not be entitled to any further compensation except
that Employee shall continue to maintain Employee's eligibility in all Company
benefit plans (but only to the extent such continued eligibility is not
prohibited pursuant to the terms of any such plan) provided that the Company
shall have no responsibility to pay any premiums or other amounts on behalf of
Employee with respect to any such plans. Notwithstanding anything contained
herein to the contrary, if the Company elects to place Employee on unpaid leave
of absence in lieu of terminating Employee pursuant to this Section 11(d), (i)
the Company shall be entitled to subsequently terminate Employee's employment
with the Company on the expiration of such leave
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of absence without any further monetary obligations to Employee and (ii) the
Company shall have no obligation to reinstate Employee to active status unless
the Company determines in its sole discretion that such reinstatement is in the
best interests of both the Company and Employee.
(e) In the event this Agreement is not renewed due to the Company giving
Employee notice of non-renewal pursuant to Section 2 hereof, Employee shall be
entitled to receive such severance payment or any other amount with respect to
the Company's non-renewal of this Agreement as if such non-renewal were
termination without cause hereunder. Non-renewal by Employee shall give rise to
no right to receive any severance payment hereunder.
(f) If Employee's employment hereunder terminates for any reason during a
Term Year, Employee will be paid within sixty (60) days of termination for the
value of all unused vacation time which accrued during the calendar year in
which such termination occurs up to the date of termination in accordance with
the Company's policies.
(g) If Employee fails to observe or perform any of Employee's duties and
obligations under Sections 6(a), 6(b), 6(c), 6(d), 8 or 9 of this Agreement,
Employee shall forfeit any right to payment under Section 11 of any amounts
other than Base Salary prorated through the date of termination and upon the
Company's demand for same, shall repay to the Company any amounts paid pursuant
to Section 11 to Employee after the date of termination of Employee's employment
with the Company (other than such Base Salary).
12. Deferred Compensation.
(a) Annual Deferred Compensation Credit. An account ("Employee's Account")
will be maintained on the books and records of the Company for the purposes
hereinafter provided. Subject to the exceptions set forth below, Employee's
Account shall be increased each Term Year by an amount equal to the sum of the
Salary Deferred Compensation Credit (as defined in the Compensation Agreement)
for such Term Year, and Twenty-Five Thousand and No/100 ($25,000.00) Dollars
(the "Company Deferred Compensation Credit"); provided that for the initial Term
Year the Salary Deferred Compensation Credit and the Company Deferred
Compensation Credit shall each be prorated based on the ratio of the number of
days in the initial Term Year commencing on the Effective Date to the number of
days in the calendar year in which the Effective Date falls. In the event of the
termination of Employee's employment hereunder prior to the end of any Term Year
for any reason other than due to (a) termination by the Company without cause as
a result of Employee's position with the Company being eliminated, or (b)
Employee's death, Disability or Retirement (as defined below), no credits shall
be made to Employee's Account with respect to a Company Deferred Compensation
Credit for such Term Year. In the event of termination of Employee's employment
hereunder during any Term Year due to (a) termination by the Company without
cause as a result of Employee's position with the Company being eliminated, or
(b) Employee's death, Disability or Retirement, a partial credit shall be made
to Employee's Account with respect to a Company Deferred Compensation Credit for
such Term Year prorated based on the ratio of the number of days in such Term
Year that Employee was an employee of the Company to the number of days in the
calendar year in which such termination due to death, Disability or Retirement
occurs. Employee's Account shall also
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be credited from and after the date hereof with an amount computed like interest
on the credit balance of Employee's Account at the Prime Rate (as hereinafter
defined). For these purposes, the Salary Deferred Compensation Credit and all
interest so accrued on the credit balance of Employee's Account shall be deemed
to be credited to Employee's Account as of the end of each month of each Term
Year, and the Company Deferred Compensation Credit shall be deemed to be
credited to Employee's Account as of December 31 of each Term Year unless
Employee's employment hereunder terminates due to (a) termination by the Company
without cause as a result of Employee's position with the Company being
eliminated, or (b) Employee's death, Disability or Retirement, in which case the
Company Deferred Compensation Credit for Employee's final year of employment
shall be deemed to be credited to Employee's Account as of the last day of the
month within which Employee's employment with the Company is terminated. The
Company shall in all events determine (in its sole and absolute discretion)
whether Employee's employment hereunder has been terminated as a result of
Employee's position with the Company being eliminated. As used in this
Agreement, the term "Prime Rate" means the rate publicly announced from time to
time by NationsBank, N.A. (South), Atlanta, Georgia, as its "prime rate."
(b) Vesting. The provisions of this Section 12(b) shall determine the
portion of Employee's Account which is vested and eligible for payment in
accordance with Section 12(c) hereof.
(i) General Vesting Rule. Employee shall be immediately vested in the
portion of Employee's Account attributable to all Salary Deferred Compensation
Credits (as defined in the Compensation Agreement) and, subject to Section
12(b)(iii), interest credited with respect thereto (as determined pursuant to
Section 12(a) hereof). Subject to the other provisions of this Section 12,
Employee's right to the portion of Employee's Account attributable to each
Company Deferred Compensation Credit and all interest credited with respect
thereto (as determined pursuant to Section 12(a) hereof) will vest as follows:
Date: Total Amount Vested:
As of December 31, 1997 0%
As of December 31, 1998 10%
As of December 31, 1999 20%
As of December 31, 2000 30%
As of December 31, 2001 40%
As of December 31, 2002 50%
As of December 31, 2003 60%
As of December 31, 2004 70%
As of December 31, 2005 80%
As of December 31, 2006 90%
As of December 31, 2007 100%
(ii) Termination Due to Death, Disability or Retirement. In the event of
termination of Employee's employment hereunder due to death, Disability or
Retirement (as defined below), then notwithstanding anything to the contrary in
Section 12(b)(i) hereof,
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Employee, in the event of Disability or Retirement, or Employee's Beneficiary,
in the event of Employee's death, shall be vested in the entire balance of
Employee's Account [including any Company Deferred Compensation Credit credited
to Employee's account as of the last day of the month within which Employee's
employment with the Company is terminated, as provided in Section 12(a)]. For
purposes hereof, Retirement shall mean Employee's resignation of employment with
the Company on or after Employee's sixtieth (60th) birthday and following at
least ten (10) years of full time employment with the Company.
(iii) Termination for Cause. Upon the termination of Employee's employment
hereunder for Cause (as defined in Section 14(a) hereof), notwithstanding
anything to the contrary in Section 12(b)(i) hereof, Employee shall be vested in
the Salary Deferred Compensation Credit in Employee's Account as of the end of
the month preceding such termination or resignation but shall not be vested in
any portion of the Company Deferred Compensation Credit, regardless of whether
or not previously vested, or in any interest accrued on either the Salary
Deferred Compensation Credit or the Company Deferred Compensation Credit.
(iv) Termination by the Company Without Cause. If Employee's employment
hereunder is terminated by the Company without cause, then notwithstanding
anything to the contrary in Section 12(b)(i) hereof, Employee's right to each
Company Deferred Compensation Credit and all interest credited with respect
thereto (as determined pursuant to Section 12(a) hereof) will vest for the Term
Year within which such termination occurs by an additional percentage equal to
ten percent (10%) multiplied by a fraction, the numerator of which is the number
of days in such Term Year that Employee was an employee of the Company and the
denominator of which is the number of days in the calendar year in which
Employee's employment hereunder is terminated by the Company. For example, if
Employee's employment is terminated by the Company without cause effective as of
July 2, 1999 (the 182nd day of the year), Employee would be entitled to fifteen
percent (15%) of each Company Deferred Compensation Credit and all interest
credited with respect thereto (calculated by adding 10% for 1998 and 182/365 of
10% for 1999).
(v) No Further Credits. Except as otherwise expressly provided for above,
upon Employee's termination of employment hereunder, no further increase in the
vested balance shall be made to Employee's Account.
(c) Payments Following Termination of Employment.
(i) Termination. In the event of termination of Employee's employment
hereunder for any reason, Employee (or, in the event of Employee's death,
Employee's Beneficiary) shall receive a payment equal to the portion of the
Credit Balance of Employee's Account which is vested in accordance with Section
12(b) hereof within sixty (60) days after the earlier to occur of Employee's
death, or such termination of Employee's employment.
(ii) Forfeiture of Balance of Employee's Account. The portion of
Employee's Account which is not vested in accordance with Section 12(b) hereof
following
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termination of Employee's employment hereunder shall be forfeited and Employee
shall not be entitled to any payment with respect thereto.
(d) Beneficiary. Employee shall have the right to designate a beneficiary
("Beneficiary") under this Agreement who shall succeed to Employee's right to
receive payments with respect to this Section 12 hereof in the event of
Employee's death. In the event Employee fails to designate a Beneficiary or a
Beneficiary dies without Employee's designation of a successor Beneficiary, then
for all purposes hereunder the Beneficiary shall be Employee's estate. No
designation of Beneficiary shall be valid unless in writing signed by Employee,
dated and delivered to the Company. Beneficiaries may be changed by Employee
without the consent of any prior Beneficiary.
(e) Rights Unsecured; Unfunded Plan; ERISA.
(i) The Company's obligations arising under this Section 12 hereof to pay
benefits to Employee or Employee's Beneficiary constitute a mere promise by the
Company to make payments in the future in accordance with the terms hereof and
Employee and Employee's Beneficiary have the status of a general unsecured
creditor of the Company. Neither Employee nor Employee's Beneficiary shall have
any rights in or against any specific assets of the Company.
(ii) It is the intention of the Company and Employee that the Company's
obligations under this Section 12 hereof be unfunded for income tax purposes and
for purposes of Title I of the Employee Retirement Income Security Act of 1974,
as amended ("ERISA").
(iii) The Company and Employee shall treat its obligations under this
Section 12 hereof as maintained for a select group of management or highly
compensated employees exempt from Parts 2, 3 and 4 of Title I of ERISA. The
Company shall comply with the reporting and disclosure requirements of Part 1 of
Title I of ERISA in accordance with U.S. Department of Labor Regulation
ss.2520.104-23.
(f) Nonassignability. The rights Employee and Employee's Beneficiary to
payments pursuant to this Section 12 hereof are not subject in any manner to
anticipation, alienation, sale, transfer, assignment, pledge, encumbrance
attachment, or garnishment by creditors of Employee or Employee's Beneficiary.
13. Remedies.
(a) Employee acknowledges and agrees that, by virtue of the duties and
responsibilities attendant to Employee's employment by the Company and the
special knowledge of the Company's and its Affiliates' affairs, business,
clients and operations that Employee has and will have as a consequence of such
employment, irreparable loss and damage will be suffered by the Company and its
Affiliates if Employee should breach or violate any of the covenants and
agreements contained in Sections 6, 7, 8, or 9 hereof; and Employee further
acknowledges and agrees that each of such covenants is reasonably necessary to
protect and preserve the Company and its Affiliates. Employee, therefore, agrees
and consents that, in addition to any other remedies
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available to it, the Company shall be entitled to specific performance by
temporary as well as permanent injunction to prevent a breach or contemplated
breach by Employee of any of the covenants or agreements contained in such
Sections.
(b) The existence of any claim, demand, action or cause of action that
Employee may have against the Company, whether predicated upon this Agreement or
otherwise, shall not constitute a defense to the enforcement by the Company of
any of the covenants contained in Sections 6, 7, 8, or 9 hereof.
(c) Nothing contained in this Agreement shall limit, abridge or modify the
rights of the parties under applicable trade secret, trademark, copyright or
patent law or under the laws of unfair competition.
(d) In the event a court of competent jurisdiction determines that
Employee has breached any of the foregoing covenants contained in Sections 6, 7,
8, or 9 hereof, Employee shall pay all costs of enforcement of the foregoing
covenants, including, but not limited to, court costs and reasonable attorney's
fees.
14. Termination.
(a) This Agreement may be terminated by the Company for "cause" upon
delivery of notice of termination to Employee. As used herein, "cause" shall
mean (i) fraud, dishonesty, gross negligence, willful misconduct, commission of
a felony or an act of moral turpitude, or (ii) engaging in activities prohibited
by Sections 6, 7, 8, or 9 hereof, or any other material breach of this
Agreement.
(b) Employee may, without cause, terminate this Agreement by giving to the
Company thirty (30) days' written notice in the manner specified in Section 18
hereof and such termination shall be effective on the thirtieth (30th) day
following the date of such notice or such earlier date as the Company shall
specify. The Company may, without cause, terminate this Agreement by giving to
Employee thirty (30) days' written notice in the manner specified in Section 18
hereof and such termination shall be effective on the thirtieth (30th) day
following the date of such notice. At the option of the Company, Employee shall
cease performing Employee's duties hereunder on such earlier date as the Company
may specify in its notice of termination.
(c) In the event of Employee's Disability, physical or mental, the Company
shall have the right, subject to all applicable laws, including without
limitation, the Americans with Disabilities Act ("ADA"), to terminate Employee's
employment immediately. For purposes of this Agreement, the term "Disability"
shall mean Employee's inability or expected inability (or a combination of both)
to perform the services required of Employee hereunder due to illness, accident
or any other physical or mental incapacity for an aggregate of ninety (90) days
within any period of one hundred eighty (180) consecutive days during which this
Agreement is in effect, as agreed by the parties or as determined pursuant to
the next sentence. If there is a dispute between the Company and Employee or
Employee's legal representative as to whether a Disability exists, then such
issue shall be decided by a medical doctor selected by the Company and a medical
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<PAGE>
doctor selected by Employee or Employee's legal representative (or, in the event
that such doctors fail to agree, then in the majority opinion of such doctors
and a third medical doctor chosen by such doctors). Each party shall pay all
costs associated with engaging the medical doctor selected by such party and the
parties shall each pay one-half (1/2) of the costs associated with engaging any
third medical doctor.
(d) In the event this Agreement is terminated, all provisions hereof
relating to any actions, including those of payment or compliance with
covenants, subsequent to termination shall survive such termination.
15. Successors and Assigns. This Agreement may not be assigned by
Employee. This Agreement may be assigned by the Company to any Affiliate without
the consent of Employee. The provisions of this Agreement shall be binding upon
Employee's heirs and legal representatives.
16. Severability. In the event that one or more of the words, phrases,
sentences, clauses, sections, subdivisions or subparagraphs contained herein
shall be held invalid, this Agreement shall be construed as if such invalid
portion had not been inserted, and if such invalidity shall be caused by the
length of any period of time, the number or location of Clients, the size of any
area, or the description of the duties of Employee set forth in any part hereof,
such period of time, number or location of Clients, area, or description of
duties, or any combination thereof, shall be considered to be reduced to a
period, number, location, area or description which would cure such invalidity.
17. Submission to Jurisdiction. Except as otherwise expressly provided
herein, this Agreement shall be governed by and construed under the laws of the
State of Georgia. Employee hereby agrees to submit to the jurisdiction of the
courts of the State of Georgia and the federal courts within the State of
Georgia and hereby appoints the Secretary of State of the State of Georgia as
agent for the purpose of receiving service of process in respect of any
proceeding in connection herewith. The parties agree that notwithstanding
anything contained herein to the contrary, the Company shall have the right to
bring suit against Employee for any breach or threatened breach of Sections 6,
7, 8 or 9 of this Agreement and the enforcement of Section 6 (and the related
remedies provisions set forth in Section 13 of this Agreement) shall be governed
by and construed under the law of the state in which such suit is brought by the
Company, and Employee hereby agrees to submit to the jurisdiction of the courts
of the State of Georgia and of any state within which Employee resides or is
alleged to be breaching any of Sections 6 through 9 of this Agreement and the
federal courts within such states, provided, however, that in any suit brought
in any state for purposes of enforcing any of Employee's covenants contained in
Sections 6 through 9 of this Agreement, the substantive law of the State of
Georgia shall govern all provisions hereof other than Sections 6, 13 and 17 of
this Agreement.
18. Notices. Any notice to be given under this Agreement shall be given in
writing and may be effected by personal delivery or by placing such in the
United States certified mail, return receipt requested and addressed as set
forth below, or as otherwise addressed as specified by the parties by notice
given in like manner:
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If to Company: The Profit Recovery Group International I, Inc.
2300 Windy Ridge Parkway
Suite 100 North
Atlanta, Georgia 30339-8426
Attention: President
If to Employee: At the address specified below Employee's signature.
19. Required Deductions or Withholdings. All amounts payable to Employee
pursuant to the Employment Agreement and Compensation Agreement shall have
deducted or withheld therefrom by the Company such amount or amounts as may be
required to be so deducted or withheld pursuant to applicable federal, state or
local laws.
20. Entire Agreement and Amendment. The Employment Agreement, the
Compensation Agreement, the Plan and such other documents as may be referenced
by such documents (the "Referenced Documents"), constitute the entire agreement
of the parties hereto with respect to the subject matter hereof and, except as
specifically provided herein or in the Compensation Agreement, the Plan and the
Referenced Documents, supersedes all prior discussions, understandings and
agreements among the parties hereto. Any such prior agreements shall, from and
after the Effective Date, be null and void. This Agreement may not be changed
orally, but only by an agreement in writing signed by the party against whom
enforcement of any waiver, change, modification, extension or discharge is
sought. Time is of the essence of this Agreement and each and every Section and
subsection hereof.
21. Waiver. The waiver by one party of a breach of any provision of this
Agreement by the other party shall not operate or be construed as a waiver of
any subsequent breach of the same or any other provision by the other party.
22. Authorization. The Company represents and warrants to Employee that
this Agreement has been authorized and approved by all necessary corporate
actions.
23. Affiliates. As used herein, "Affiliates" shall mean PRGX, and all
entities, whether now or hereafter existing, 51% or more of the outstanding
capital stock of which is owned by any combination of the Company and/or any
Affiliate and which are engaged in substantially the same business as the
Business of the Company regardless of the industry segment of its Clients and/or
which provide services or employees to the Company or any Affiliate in
connection with the operations thereof.
24. Counterparts. This Agreement may be executed in one or more
counterparts, each of which shall be deemed an original and together which shall
constitute one and the same instrument.
25. Pronouns. All personal pronouns in this Agreement and the Compensation
Agreement, whether used in the masculine, feminine or neuter gender shall
include all other genders, and the singular shall include the plural and the
plural shall include the singular.
527591.1
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<PAGE>
IN WITNESS WHEREOF, the parties hereto have executed this Agreement as of
the date first written above.
COMPANY:
THE PROFIT RECOVERY GROUP
INTERNATIONAL I, INC.
By S/
------------------------------------
David A. Brookmire, Senior Vice President-
Human Resources
EMPLOYEE:
S/
---------------------------------------- (SEAL)
Robert G. Kramer
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COMPENSATION AGREEMENT
THIS COMPENSATION AGREEMENT ("Agreement") is made this 12th day of
February, 1998 effective as of October 13, 1997 (the "Effective Date"), by and
between THE PROFIT RECOVERY GROUP INTERNATIONAL I, INC., a Georgia corporation
(the "Company") and ROBERT G. KRAMER, a resident of the State of Florida (the
"Employee").
W I T N E S S E T H:
WHEREAS, the parties hereto are party to that certain Employment Agreement,
dated the date hereof and effective as of the Effective Date (the "Employment
Agreement") whereby the Company employs Employee as Executive Vice President and
Chief Information Officer of the Company and Employee accepts such employment in
accordance with the terms thereof; and
WHEREAS, the Employment Agreement provides that the compensation payable to
Employee shall be as set forth herein (any terms capitalized but not otherwise
defined herein shall have the meanings given to them in the Employment
Agreement).
NOW, THEREFORE, in consideration of the foregoing and of the mutual
promises and covenants contained herein and other good and valuable
consideration, the receipt and sufficiency of which are hereby acknowledged, the
parties agree as follows:
1. Compensation. For services rendered by Employee under the Employment
Agreement during the term thereof, Employee shall be entitled to receive the
following compensation, subject to the terms hereof, provided that Base Salary
(as defined below) may be reviewed annually and modified by the Company in
writing prior to the commencement of any Term Year and the Bonus (as defined
below) may be modified in accordance with the terms hereof:
(a) Base Salary. Two Hundred Thousand and No/100 ($200,000.00) Dollars on
an annual basis ("Base Salary") shall be payable in accordance with the
Company's customary payroll procedures. For purposes of this Agreement, the term
"Adjusted Base Salary" shall mean and refer to the sum of Employee's Base Salary
and Twenty-Five Thousand and No/100 ($25,000.00) Dollars (such Twenty-Five
Thousand and No/100 ($25,000.00) Dollars, together with interest accrued thereon
as hereinafter provided, is hereinafter referred to as the "Salary Deferred
Compensation Credit"). Employee's Salary Deferred Compensation Credit shall not
be paid to Employee but such amount shall instead be deferred and credited to
Employee's Account (as defined in Section 12(a) of the Employment Agreement) as
deferred compensation in accordance with Section 12 of the Employment Agreement.
In the event of termination of Employee's employment under the Employment
Agreement during any Term Year due to (a) termination by the Company without
cause as a result of Employee's position being eliminated, or (b) Employee's
death, Disability or Retirement (as such terms are defined in the Employment
Agreement), a prorated portion of the Salary Deferred Compensation Credit shall
be credited to
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Employee's Account in respect of the month in which such termination occurs
based upon the ratio of the number of days in such month that Employee was an
Employee of the Company to the total number of calendar days in such month and
no further credit shall be made for any subsequent period. In the event of
termination of Employee's employment under the Employment Agreement for any
reason other than as set forth in the immediately preceding sentence, no portion
of the Salary Deferred Compensation Credit shall be credited to Employee's
Account in respect of the month in which such termination occurs or any
subsequent period and the amount that would have otherwise been credited to
Employee's Account pursuant to the immediately preceding sentence in respect of
the month in which such termination occurs will instead be paid to Employee as
additional Base Salary.
(b) Bonus. An annual bonus ("Bonus") in an amount determined and payable
as provided herein for each Term Year during the term of the Employment
Agreement; provided, however, that Employee shall be entitled to a Bonus if
certain Performance Goal Attainment Measures (as set forth in Exhibit 1 hereto)
are achieved by Employee and the Company. The amount of any Bonus will depend on
which Performance Goal Payout Level (as defined in Exhibit 1 hereto) Employee
and the Company have attained. On the date hereof, the Performance Goal
Attainment Measures and related provisions applicable to Employee hereunder are
set forth in the "Incentive Summary" attached as Exhibit 1 hereto, which may be
superseded by the terms of any subsequent Incentive Summary which may be
prepared and delivered to Employee by the Company. Said Exhibit 1, together with
the Company records referenced therein, are hereby incorporated herein by
reference and any such subsequent Incentive Summary shall automatically be
incorporated herein in lieu thereof upon its delivery to Employee.
Notwithstanding anything contained herein to the contrary, the payment level for
Employee's annual bonus for 1998 shall not be less than Employee's 1998
Threshold Percentage multiplied by Employee's Adjusted Base Salary, prorated if
Employee's employment terminates prior to December 31, 1998 for any reason other
than for cause. If terminated for cause during 1998, Employee shall receive no
Bonus for 1998.
In the event the Effective Date is a date other than January 1, then Employee's
Base Salary, Adjusted Base Salary, Salary Deferred Compensation Credit and Bonus
for the initial Term Year shall be prorated based on the ratio of the number of
days in the initial Term Year commencing on the Effective Date to the number of
days in the calendar year in which the Effective Date falls.
(c) Automobile Allowance. For each full month of each Term Year, Employee
shall be provided an automobile allowance equal to one-twelfth (1/12) of
Fourteen Thousand Six Hundred and No/100 ($14,600.00) Dollars, payable in
accordance with the Company's customary procedures, which amount shall be
reviewed annually and may be modified in writing prior to the commencement of
any Term Year.
2. Termination. This Agreement shall terminate effective upon termination
of the Employment Agreement; provided, however, that all provisions hereof
relating to any actions, including those of payment, subsequent to termination
shall survive such termination.
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3. Incorporation by Reference. The provisions of the Employment Agreement
are hereby incorporated herein by reference.
4. Successors and Assigns. This Agreement may not be assigned by Employee.
In the event that the Employment Agreement is assigned by the Company, this
Agreement shall also be assigned to the assignee thereof.
5. Counterparts. This Agreement may be executed in one or more
counterparts, each of which shall be deemed an original and together which shall
constitute one and the same instrument.
IN WITNESS WHEREOF, the parties hereto have executed this Agreement as of
the date first written above.
COMPANY:
THE PROFIT RECOVERY GROUP
INTERNATIONAL I, INC.
By: S/
------------------------------------------
David A. Brookmire, Senior Vice President-
Human Resources
EMPLOYEE:
S/
------------------------- (SEAL)
Robert G. Kramer
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Exhibit 1
1997 PRG Executive Incentive
Plan Summary
Annual Payout
Objective
o To motivate and reward outstanding performance, and to reinforce and
support PRG's strategic plans and financial goals.
o Attract and retain highly talented associates by offering a
competitive total compensation package.
Plan Payouts
o Incentive awards under the plan will be based upon year-to-date
adjusted base salary earnings for the period January 1, 1997 -
December 31, 1997.
o Incentive plan measurements/goals and levels of payout are shown on
the attached incentive summary. Also attached are definitions for each
of the measurement categories.
o One-fifth of the payout is attributable to meeting each of the four
quarters' goals in each category of measurement, and one-fifth is
attributable to meeting the annual goals for each category of
measurement.
o Incentive payments will be paid within 60 days following the end of
the fiscal year. Participants must be actively employed in order to
receive awards. Exceptions may be made in terminations due to
retirement, disability, or death.
o Participants must have satisfactory performance at the time payments
are made to be eligible. Participants on performance plans are not
eligible to receive payments.
Part-Year Participation
o If an associate becomes eligible for the PRG Executive Incentive Plan
after January 1, 1997, he/she may be eligible for a prorated payout
based on the date of entry into the Plan.
o Prorated payouts will be based on year-to-date base salary earnings
from the date of entry into the Plan.
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Management of the Plan
o The plan is effective from January 1, 1997 through December 31, 1997.
o Overall responsibility for the plan resides with the Chairman and
Chief Executive Officer, Chief Financial Officer, and Senior Vice
President Human Resources, and payments are subject to Board of
Directors' approval.
o Management reserves the right to amend the plan, with regard to
participation, procedures, awards and any other provisions. This
includes revision of financial targets in the event of business or
organizational change deemed to warrant such action.
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<PAGE>
1997 Incentive Plan Measures - Executive
Definitions of Categories
A) EPS - Earnings per share of PRGX as recorded in quarterly/annual
consolidated financial statements reported in the Company's quarterly
10Q and annual 10K. Measurements will be quarterly based upon
threshold, target, and stretch quarterly goals, however, payouts on EPS
will only be annual.
B) Function Expenses - In order to control expenses, this ties to cost
center budgets. Target achievement is measured on a quarterly basis,
however, year end will have threshold, target, and stretch achievement
levels.
If expenses are at/under budget each quarter, 20% of target bonus is
paid. At the end of the year, if at/under budget for:
2 quarters Threshold level is met
3 quarters Target level is met
4 quarters Stretch level is met
All bonus payments relating to Function Expenses will be made annually.
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Attachment A
Robert G. Kramer
1997 Incentive Summary:
Payout Levels
(expressed as a percentage of Adjusted Base Salary)
Threshold 10%
Target 25%
Stretch 40%
Goal Attainment Measures
Qtrly EPS 75%
Qtrly Function Expenses 25%
(Information Services)
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<PAGE>
DESCRIPTION OF 1998 COMPENSATION ARRANGEMENT BETWEEN
MR. ROBERT G. KRAMER AND REGISTRANT
The following describes certain compensation arrangements between the
Registrant and Mr. Kramer for calendar year 1998.
The Company has entered into an employment agreement with Mr. Kramer
that currently expires October 12, 1998. The employment agreement provides for
automatic one-year renewals upon the expiration of each year of employment,
subject to prior notice of nonrenewal by the Board of Directors. For 1998, the
Compensation Committee of the Board of Directors (the "Compensation Committee")
maintained Mr. Kramer's annual base salary at $225,000. Pursuant to Mr. Kramer's
employment agreement, for 1998, he will receive a bonus of up to 40% of his base
salary based in part upon the Company's performance for 1998. Beginning in 1998,
the Compensation Committee has determined that the Company will make annual
contributions in the amount of $25,000 per year to a deferred compensation
program for Mr. Kramer, which amounts will vest over a ten-year period at 10%
per year. Mr. Kramer will be entitled to receive his deferred compensation upon
termination of his employment for any reason, other than for cause, including
death or disability. The Company has also agreed to provide Mr. Kramer with
certain other personal benefits. Upon termination, other than for cause or by
voluntary resignation, Mr. Kramer will receive severance payments equal to 6
months' base salary and certain other personal benefits. Mr. Kramer has agreed
not to compete with the Company or to solicit any clients or employees of the
Company for a period of 18 months following termination of his employment.
EMPLOYMENT AGREEMENT
THIS EMPLOYMENT AGREEMENT ("Agreement"), is made as of this 12th day of
February, 1998, effective as of June 16, 1997 (the "Effective Date") by and
between THE PROFIT RECOVERY GROUP INTERNATIONAL I, INC., a Georgia corporation
(the "Company") and CLINTON McKELLAR, JR., a resident of the State of Georgia
(the "Employee").
W I T N E S S E T H:
WHEREAS, the Company desires to retain Employee to provide services to the
Company and its Affiliates (as defined in Section 23 below), and Employee
desires to provide his services to the Company pursuant to the terms and
conditions that follow;
NOW, THEREFORE, in consideration of the mutual promises and covenants
hereinafter contained and other good and valuable consideration, the receipt and
sufficiency of which are hereby acknowledged, the parties do hereby agree as
follows:
1. Employment. Employee shall serve as Senior Vice President, General
Counsel and Secretary of the Company. Employee agrees to apply Employee's full
time and efforts to the position and to perform Employee's work at all times to
the best of Employee's ability and at the direction of the Vice-Chairman of the
Company. Employee will render to the Company, at regular intervals set by the
Company, reports and accounting of the status and progress of any work Employee
is performing.
2. Term. The initial term of this Agreement shall commence on June 16,
1997, and shall continue until December 31, 1997 unless sooner terminated as
hereinafter provided. Unless otherwise terminated pursuant to Section 14 hereof,
this Agreement shall automatically renew on a year-to-year basis at the end of
the initial term and each subsequent renewal term unless either party gives
written notice of non-renewal to the other on or before September 30 of any
calendar year for the immediately succeeding calendar year. The initial term of
this Agreement and any subsequent one-year renewal period shall be deemed a
"Term Year."
3. Scope of the Company's and Employee's Activities. Employee acknowledges
and agrees that the Company and its Affiliates conduct the following business in
the following areas and that Employee has been assigned to perform Employee's
duties in accordance therewith:
(a) Scope of the Company's Business. The Company and its Affiliates are
engaged in the business of auditing accounts payable, paid bill files,
promotional and demonstrator agreements, personal property, real estate, sales
and use tax and other taxes, common area maintenance charges, telephone and
other utilities, sales promotion, advertising and cosmetic wage/commission
agreements, freight and shipping invoices, capital expenditures and other
transactions of the Company's and its Affiliates' clients ("Clients"), in order
to identify and document for subsequent charge back or credit over-payments
and/or under deductions
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<PAGE>
(collectively, the "Audit Activities"), and rendering management counseling
services associated with the Audit Activities (collectively, the "Business of
the Company").
(b) Location of the Company's Business. The Company and its Affiliates
actively conduct business with their Clients throughout the United States and in
other countries throughout the world, including without limitation, countries in
Europe, Latin America, Asia and the Pacific. Employee shall provide
substantially all of his services on behalf of the Company at the Company's
principal office located at 2300 Windy Ridge Parkway, Suite 100 North, Atlanta,
Cobb County, Georgia 30339-8426.
4. Compensation. For services rendered by Employee under this Agreement
during the term hereof, Employee shall be entitled to receive the compensation
and benefits set forth in Sections 10, 11 and 12 hereof and in that certain
Compensation Agreement by and between Employee and the Company of even date
herewith (the "Compensation Agreement").
5. Stock Options. Employee and The Profit Recovery Group International,
Inc., a Georgia corporation ("PRGX") are party to one or more separate stock
option agreements in accordance with which Employee has been granted
non-qualified options to purchase shares of PRGX Common Stock under the 1996
Stock Option Plan (the "Plan").
6. Specific Acknowledgments. Employee acknowledges that the Company and
its Affiliates have expended and will continue to expend substantial time,
money, effort and other resources to develop its goodwill, clients, business
sources and relationships, the Company and its Affiliates have a legitimate
business interest in protecting same, in connection with Employee's employment
by the Company as herein provided, the Company and its Affiliates will introduce
Employee to their Clients, business sources and relationships and will expend
considerable time, effort and capital to train Employee in the Business of the
Company, the knowledge and experience that Employee will acquire while an
employee of the Company and Employee's services to be rendered to the Company
and its Affiliates are of special, unique and extraordinary character, by virtue
of Employee's employment with the Company, Employee will be in a position of
substantial responsibility and authority and will have frequent and substantial
contact with certain of the Company's and the Affiliates' Clients and business
sources and relationships, in Employee's capacity, Employee will be privy to
certain confidential information, Company secrets and proprietary information
not generally known or available to the Company's or its Affiliates competitors
or the general public, the nature and periods of the restrictions imposed by the
covenants contained in this Section 6 are fair, reasonable, and necessary to
protect and preserve for the Company and its Affiliates the benefits of
Employee's employment hereunder and such restrictions will not prevent Employee
from earning a livelihood, and (viii) the Company and its Affiliates would
sustain great and irreparable loss and damage if Employee were in any manner to
breach any of such covenants.
(a) Agreement Not to Compete - Competing Businesses. While employed by
the Company or its Affiliates and for eighteen (18) months after termination of
all such employment, without the prior written consent of the Company signed by
the President of the Company, Employee will not directly or indirectly provide
or perform Services in the Territory
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<PAGE>
(as such capitalized terms are defined in subsection "f" below), whether as an
employee, officer, director, shareholder, partner, proprietor, agent,
consultant, independent contractor, lender or otherwise, for any business which
is in competition with the Business of the Company (as defined in subsection
3(a) above).
(b) Agreement Not to Solicit Clients. While employed by the Company or
its Affiliates and for eighteen (18) months after termination of all such
employment, without the prior written consent of the Company signed by the
President of the Company, Employee will not directly or indirectly solicit or
call upon any Client or prospective Client (or any employee or independent
contractor of any Client or prospective Client) of the Company or any of its
Affiliates for purposes of selling or providing any product, equipment or
service, competitive or potentially competitive with any product, equipment or
service sold, leased, offered for sale or lease or under development by, the
Company or any of its Affiliates during the twenty-four (24) month period
immediately preceding termination of all of Employee's employment with the
Company and its Affiliates, provided that the restrictions set forth in this
Section 6(b) shall apply only to Clients or prospective Clients with whom
Employee had Material Contact (as defined below) during such twenty-four (24)
month period (or such shorter period if Employee is employed by the Company and
its Affiliates for less than twenty-four (24) months).
(c) Agreement Not to Solicit Employees or Contractors. While employed
by the Company or its Affiliates and for eighteen (18) months after termination
of all such employment, without the prior written consent of the Company signed
by the President of the Company, Employee will not directly or indirectly
(1) solicit, entice, persuade or induce, or attempt to solicit,
entice, persuade or induce any person who is employed by, or performing
services as an independent contractor or as an employee of an independent
contractor for, the Company or any of its Affiliates, either to terminate
such person's employment with the Company or its Affiliates, or to cease
performing such services for the Company or any of its Affiliates or
(2) authorize any person to engage in or assist any person in any of
the activities described in clause (1) of this subsection.
(d) Proprietary Information. All Proprietary Information (as defined
below) and all physical embodiments thereof received or developed by Employee or
disclosed to Employee while employed by the Company is confidential to and is
and will remain the sole and exclusive property of the Company. While Employee
is in the Company's employ and for a period ending five (5) years after the date
of Employee's termination of employment with the Company for any reason,
Employee will hold such Proprietary Information in trust and in the strictest
confidence, and will not use, reproduce, distribute, disclose or otherwise
disseminate the Proprietary Information or any physical embodiments thereof
except to the extent necessary to perform the duties assigned to Employee by the
Company. In no event shall Employee take any action causing or fail to take the
action necessary in order to prevent any Proprietary Information disclosed to or
developed by Employee to lose its character or cease to qualify as Proprietary
Information.
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<PAGE>
Notwithstanding anything contained herein to the contrary, this Section 6(d)
shall not limit in any manner the protection of the Company's trade secrets
otherwise afforded by law. Upon request by the Company, and in any event upon
termination of Employee's employment with the Company for any reason, Employee
will promptly deliver to the Company all property belonging to the Company,
including without limitation all Proprietary Information (and all physical
embodiments thereof) then in Employee's custody, control, or possession.
(e) Contracts or Other Agreements with Former Employer or Business.
Employee agrees that Employee has provided to the Company, prior to the
execution of this Agreement, a copy of the pertinent portions of any employment
agreement or similar document executed by Employee with a former employer or any
other business. Employee warrants and represents that the execution and delivery
of this Agreement by Employee and the performance of the obligations, covenants
and agreements contained herein, do not and will not conflict with or result in
any breach or violation of any of the terms and provisions of any agreement,
judgment, order, statute or other instrument or restriction of any kind with
respect to which Employee is bound, and Employee is not subject to any
restrictive covenant agreement, covenant not to compete, nonsolicitation
agreement or other agreement that would prohibit Employee from fully carrying
out Employee's duties hereunder.
(f) Definitions.
- "Material Contact" means contact between Employee and each Client or
prospective Client (A) with whom the Employee dealt; (B) whose dealings with the
Company were coordinated or supervised by Employee; (C) about whom Employee
obtained Proprietary Information in the ordinary course of business as a result
of Employee's association with the Company; or (D) who receives services
provided by the Company, the sale or provision of which results or resulted in
compensation, commissions or earnings for Employee, in each of cases (A) through
(D) within two years prior to the date of Employee's termination.
- "person" means and includes any individual, partnership, association,
corporation, limited liability company, trust, unincorporated organization, or
any other business entity or enterprise.
- "Proprietary Information" means information (in any form or media)
including but not limited to technical and nontechnical data, lists, training
manuals, training systems, computer based training modules, formulas, patterns,
compilations, programs, devices, methods, techniques, drawings, processes and
plans regarding the Company's or its Affiliates' Clients, prospective Clients,
methods of operation, billing rates, billing procedures, suppliers, business
methods, finances, management, or any other business information relating to the
Company or its Affiliates (whether constituting a trade secret or proprietary or
otherwise) which has value to the Company or its Affiliates and is treated by
the Company or its Affiliates as being confidential; provided, however, that
Proprietary Information shall not include any information that has been
voluntarily disclosed to the public by the Company or its Affiliates (except
where such public disclosure has been made by Employee without authorization) or
that has been independently developed and disclosed by others, or that otherwise
enters the public domain
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<PAGE>
through lawful means. Proprietary Information also includes information which
has been disclosed to the Company or its Affiliates by a third party and which
the Company or its Affiliates are obligated to treat as confidential.
Proprietary Information may or may not be marked by the Company or its
Affiliates as "proprietary" or "secret" or with other words or markings of
similar meaning, and the failure of the Company to make such notations upon the
physical embodiments of any Proprietary Information shall not affect the status
of such information as Proprietary Information.
- "prospective Client" means any person to whom the Company has sent or
delivered a written sales or servicing proposal or contract in connection with
the Business of the Company.
- "Services" means directing, implementing, managing, coordinating, and
supervising all legal matters relating to the Company and its Affiliates and any
other services substantially similar to those services provided by Employee to
the Company at any time during the twenty-four (24) month period immediately
preceding Employee's termination of employment with the Company (or such shorter
period if Employee is employed by the Company for less than twenty-four (24)
months).
- "Territory" means that geographical area represented by a circle having a
radius of thirty (30) miles from the centerline of Windy Hill Road and Powers
Ferry Road in Cobb County, Georgia, the closest major intersection to the
Company's offices located at 2300 Windy Ridge Parkway, Atlanta, Georgia 30339.
- Capitalized terms used but not defined herein shall have the meanings
ascribed to them in the Compensation Agreement.
(g) Consideration to the Company. The Company acknowledges and agrees
that its agreements, including, without limitation, its agreement to disclose
confidential information to Employee, are made in consideration of the services
to be provided by Employee, Employee's agreement to refrain from competing with
the Company for eighteen (18) months following the termination of Employee's
employment hereunder, Employee's agreement to refrain from disclosing
confidential information, and the other mutual covenants and agreements set out
in this Agreement.
7. Ownership by Company. All software, computer diskettes, CDs, DVDs,
video tapes, literature, training manuals, training systems, computer based
training modules, Client documents, cassettes, photographs, prints, slides,
records, notes, files, memoranda, reports, audit reports, price lists, client
lists, documents, and all copies thereof, equipment, and apparatus and like
items relating to the business of the Company, Proprietary Information or trade
secrets which shall be prepared by Employee or which shall be disclosed to or
which shall come into Employee's possession, shall be and remain the sole and
exclusive property of the Company. Employee agrees that, upon the termination of
employment with the Company for any reason whatsoever, or at any other time upon
request, Employee will promptly deliver to the Company the originals and all
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<PAGE>
copies of any of the foregoing that are in Employee's possession, custody or
control, and any other property belonging to the Company.
8. Inventions. Employee agrees that, during the term of this Agreement,
Employee has a continuing duty to disclose to the Company any invention,
improvement, discovery, process, formula, code, program, system or method
(collectively, "Inventions") developed or being developed by Employee any time
during the term of Employee's employment, either solely by Employee or jointly
with others, whether or not such Inventions are assignable to the Company as set
forth below. Any Invention which Employee has conceived or made or may conceive
or make at any time while employed by the Company, either solely by Employee or
jointly with others, which relate in any way to the actual Business of the
Company, or which relate in any way to the actual or anticipated research or
development of the Company, or which are suggested by or result from any task
assigned to Employee on behalf of the Company, shall be the sole and exclusive
property of the Company, and Employee hereby assigns to the Company any right,
title or interest Employee may have to such Invention. Furthermore, any such
Invention shall constitute Proprietary Information as set forth above. At the
request and expense of the Company, Employee will execute and deliver all
documents and will do such other acts as may be in the Company's opinion
necessary or desirable to secure to the Company or its nominee all right, title
and interest in and to any such Invention.
9. Copyrights. Employee understands that any original works of authorship
fixed in tangible form, including, without limitation, computer software and
manuals, advertising material, and training material, prepared by Employee,
either solely or jointly with others, within the scope of Employee's employment
by the Company, constitute works made for hire as provided by law, so that such
works are owned by the Company. If, for any reason, a work of authorship by
Employee created during the term of Employee's employment by the Company and
related to the Business of the Company is considered other than a work for hire,
then Employee hereby assigns all Employee's right, title and interest in
copyrights to such works of authorship to the Company.
10. Insurance and Benefits.
(a) Subject to Employee being insurable at standard rates as of the
commencement of employment (or when coverage is applied for, as applicable) and
to the availability of such coverage from the Company's customary insurance
providers, the Company shall (i) obtain on Employee's behalf life, disability,
hospitalization and medical insurance coverage in accordance with the Company's
standard group coverage, and (ii) pay the premiums, or reimburse Employee for
premiums paid, to obtain basic term life insurance policy at the best available
rates for a fifteen (15) year level term type product, but not higher than
standard nonsmoker rates, in an amount of coverage equal to One Million
($1,000,000) Dollars, in addition to the Company's standard group coverage in
accordance with the Company's standard policies and procedures.
(b) For each full month of each Term Year, Employee shall be provided
an automobile allowance equal to one-twelfth (1/12) of Ten Thousand and No/100
($10,000.00) Dollars, payable in accordance with the Company's customary
procedures, which amount shall
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be reviewed annually and may be modified in writing prior to the
commencement of any Term Year.
(c) Upon satisfaction of any applicable eligibility requirements,
Employee shall be entitled to participate in any 401(k) plan of the Company
generally available to other employees of the Company, except as may be limited
by applicable law or regulation.
(d) The Company shall pay Employee's reasonable travel and business
expenses (including overseas air travel at business class rates and all other
air travel at coach rates), subject to Employee's submission of receipts
therefor in accordance with the Company's normal practices and procedures.
(e) Any amounts the Company pays for insurance coverage or fringe
benefits that are supplemental or in addition to the Company's standard
insurance coverage or benefits shall be compensation in addition to Base Salary
(but not included within the definition of Base Salary) and shall be reflected
on Employee's W-2.
11. Payment of Compensation Upon Termination.
In addition to any deferred compensation to which Employee might be
entitled pursuant to Section 12 hereof, Employee shall receive the following
compensation upon the termination of Employee's employment hereunder:
(a) In the event Employee's employment hereunder is terminated for
cause or if Employee voluntarily resigns other than due to Retirement (as
defined in Section 12(b)(ii) hereof), Employee shall be entitled to receive
Employee's Base Salary prorated through the date of termination, payable in
accordance with the Company's normal payroll procedure, and Employee shall not
be entitled to receive any Bonus or any other amount in respect of the Term Year
in which termination occurs or in respect of any subsequent years.
(b) In the event Employee's employment hereunder is terminated by the
Company without cause, Employee shall be entitled to receive Base Salary and
Bonus for the Term Year in which such termination occurs prorated through the
date of such termination, plus a severance payment equal to six (6) months of
Adjusted Base Salary at the rate then in effect and shall not be entitled to
receive any other amount in respect of the Term Year in which termination occurs
or in respect of any subsequent years. The prorated Base Salary shall be payable
in accordance with the Company's normal payroll procedure and the prorated Bonus
shall be payable in a lump sum within ninety (90) days after the end of the Term
Year to which it relates, and the severance payment shall be payable in six (6)
equal monthly installments commencing on the last day of the first month
following termination. If the Company gives Employee notice of non-renewal
pursuant to Section 2 of this Agreement, it shall be deemed to be a termination
of Employee's employment without cause and Employee shall be entitled to
compensation pursuant to this Section 11(b).
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(c) In the event Employee's employment hereunder is terminated by
Employee's death or Retirement, Employee (or Employee's legal representative in
the case of death) shall be entitled to receive Base Salary and Bonus for the
Term Year in which such termination occurs prorated through the date of such
termination and, in the case of termination due to Employee's death, any other
payments specifically provided for herein in respect of the death of Employee,
and shall not be entitled to receive any other amount in respect of the Term
Year in which termination occurs or in respect of any subsequent years. The
prorated Base Salary shall be payable in accordance with the Company's normal
payroll procedure and the prorated Bonus shall be payable in a lump sum within
ninety (90) days after the end of the Term Year to which it relates.
(d) In the event Employee's employment hereunder is terminated for
Disability (as defined below), Employee or Employee's legal representative shall
be entitled to receive (i) all unpaid Base Salary and Bonus for the term year in
which such termination occurs prorated through the date of termination with such
prorated Base Salary payable in accordance with the Company's normal payroll
procedure and the prorated Bonus payable in a lump sum within ninety (90) days
after the end of the Term Year to which it relates, and (ii) Adjusted Base
Salary for a period of ninety (90) days following termination of employment due
to Disability at the rates in effect upon the date of such termination payable
in accordance with the Company's normal payroll procedure, reduced (but not
below zero) by the sum of (x) all amounts paid by the Company to Employee as
Base Salary prior to termination of employment for the times that Employee was
unable to perform the services required of the Employee under this Agreement due
to illness, accident or any other physical or mental incapacity which resulted
in Employee's Disability and (y) all amounts that Employee is eligible to
receive under any of the Company's standard short-term group disability
insurance coverage provided pursuant to Section 10(a) hereof as a result of such
illness, accident or any other physical or mental incapacity. To the extent that
the Company has not reduced its payments to Employee to reflect such amount that
Employee is eligible to receive under such short-term group disability coverage,
Employee shall immediately remit to the Company such amount upon Employee's
receipt thereof. Employee shall not be entitled to receive any other amount in
respect of the Term Year in which termination occurs or in respect of any
subsequent years. In lieu of terminating Employee pursuant to this Section
11(d), the Company may elect to put Employee on unpaid leave of absence for a
period determined in the sole discretion of the Company, but in no event to
exceed one year. If put on unpaid leave of absence, Employee shall be entitled
to the same compensation to which Employee is entitled if Employee is terminated
as set forth above and shall not be entitled to any further compensation except
that Employee shall continue to maintain Employee's eligibility in all Company
benefit plans (but only to the extent such continued eligibility is not
prohibited pursuant to the terms of any such plan) provided that the Company
shall have no responsibility to pay any premiums or other amounts on behalf of
Employee with respect to any such plans. Notwithstanding anything contained
herein to the contrary, if the Company elects to place Employee on unpaid leave
of absence in lieu of terminating Employee pursuant to this Section 11(d), (i)
the Company shall be entitled to subsequently terminate Employee's employment
with the Company on the expiration of such leave of absence without any further
monetary obligations to Employee and (ii) the Company shall have no obligation
to reinstate Employee to active status unless the Company determines in its sole
discretion that such reinstatement is in the best interests of both the Company
and Employee.
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(e) In the event this Agreement is not renewed due to the Company
giving Employee notice of non-renewal pursuant to Section 2 hereof, Employee
shall be entitled to receive such severance payment or any other amount with
respect to the Company's non-renewal of this Agreement as if such non-renewal
were termination without cause hereunder. Non-renewal by Employee shall give
rise to no right to receive any severance payment hereunder.
(f) If Employee's employment hereunder terminates for any reason during
a Term Year, Employee will be paid within sixty (60) days of termination for the
value of all unused vacation time which accrued during the calendar year in
which such termination occurs up to the date of termination in accordance with
the Company's policies.
(g) If Employee fails to observe or perform any of Employee's duties
and obligations under Sections 6(a), 6(b), 6(c), 6(d), 8 or 9 of this Agreement,
Employee shall forfeit any right to payment under Section 11 of any amounts
other than Base Salary prorated through the date of termination and upon the
Company's demand for same, shall repay to the Company any amounts paid pursuant
to Section 11 to Employee after the date of termination of Employee's employment
with the Company (other than such Base Salary).
12. Deferred Compensation.
(a) Annual Deferred Compensation Credit. An account ("Employee's
Account") will be maintained on the books and records of the Company for the
purposes hereinafter provided. Subject to the exceptions set forth below,
Employee's Account shall be increased each Term Year by an amount equal to the
sum of the Salary Deferred Compensation Credit (as defined in the Compensation
Agreement) for such Term Year, and Ten Thousand and No/100 ($10,000.00) Dollars
(the "Company Deferred Compensation Credit"); provided that for the initial Term
Year the Salary Deferred Compensation Credit and the Company Deferred
Compensation Credit shall each be prorated based on the ratio of the number of
days in the initial Term Year commencing on the Effective Date to the number of
days in the calendar year in which the Effective Date falls. Employee's Account
shall also be credited from and after the date hereof with an amount computed
like interest on the credit balance of Employee's Account at the Prime Rate (as
hereinafter defined). For these purposes, the Salary Deferred Compensation
Credit and all interest so accrued on the credit balance of Employee's Account
shall be credited to Employee's Account as of the end of each month of each Term
Year. In the event of the termination of Employee's employment hereunder prior
to the end of any Term Year for any reason other than due to (a) termination by
the Company without cause as a result of Employee's position with the Company
being eliminated or combined with another position, or (b) Employee's death,
Disability or Retirement (as defined below), no credits shall be made to
Employee's Account with respect to a Company Deferred Compensation Credit for
such Term Year. In the event of termination of Employee's employment hereunder
during any Term Year due to (a) termination by the Company without cause as a
result of Employee's position with the Company being eliminated or combined with
another position, or (b) Employee's death, Disability or Retirement, a partial
credit shall be made to Employee's Account with respect to a Company Deferred
Compensation Credit for such Term Year prorated based on the ratio of the number
of days in such Term Year that Employee was an employee of the Company to the
number of days
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in the calendar year in which such termination due to death, Disability or
Retirement occurs. The Company Deferred Compensation Credit shall be credited to
Employee's Account as of December 31 of each Term Year unless Employee's
employment hereunder terminates due to (a) termination by the Company without
cause as a result of Employee's position with the Company being eliminated or
combined with another position, or (b) Employee's death, Disability or
Retirement, in which case the Company Deferred Compensation Credit for
Employee's final year of employment shall be credited to Employee's Account as
of the last day of the month within which Employee's employment with the Company
is terminated. The Company shall in all events determine (in its sole and
absolute discretion) whether Employee's employment hereunder has been terminated
as a result of Employee's position with the Company being eliminated or combined
with another position. As used in this Agreement, the term "Prime Rate" means
the rate publicly announced from time to time by NationsBank, N.A. (South),
Atlanta, Georgia, as its "prime rate."
(b) Vesting. The provisions of this Section 12(b) shall determine the
portion of Employee's Account which is vested and eligible for payment in
accordance with Section 12(c) hereof.
(i) General Vesting Rule. Employee shall be immediately vested in
the portion of Employee's Account attributable to all Salary Deferred
Compensation Credits (as defined in the Compensation Agreement) and, subject to
Section 12(b)(iii), interest credited with respect thereto (as determined
pursuant to Section 12(a) hereof). Subject to the other provisions of this
Section 12, Employee's right to the portion of Employee's Account attributable
to each Company Deferred Compensation Credit and all interest credited with
respect thereto (as determined pursuant to Section 12(a) hereof) will vest as
follows:
Date: Total Amount Vested:
As of December 31, 1997 10%
As of December 31, 1998 20%
As of December 31, 1999 30%
As of December 31, 2000 40%
As of December 31, 2001 50%
As of December 31, 2002 60%
As of December 31, 2003 70%
As of December 31, 2004 80%
As of December 31, 2005 90%
As of December 31, 2006 100%
(ii) Termination Due to Death, Disability or Retirement. In the
event of termination of Employee's employment hereunder due to death, Disability
or Retirement (as defined below), then notwithstanding anything to the contrary
in Section 12(b)(i) hereof, Employee, in the event of Disability or Retirement,
or Employee's Beneficiary, in the event of Employee's death, shall be vested in
the entire balance of Employee's Account (including any Company Deferred
Compensation Credit credited to Employee's account as of the last day of the
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month within which Employee's employment with the Company is terminated, as
provided in Section 12(a)). For purposes hereof, Retirement shall mean
Employee's resignation of employment with the Company on or after Employee's
sixtieth (60th) birthday and following at least ten (10) years of full time
employment with the Company.
(iii) Termination for Cause. Upon the termination of Employee's
employment hereunder for Cause (as defined in Section 14(a) hereof),
notwithstanding anything to the contrary in Section 12(b)(i) hereof, Employee
shall be vested in the Salary Deferred Compensation Credit in Employee's Account
as of the end of the month preceding such termination or resignation but shall
not be vested in any portion of the Company Deferred Compensation Credit,
regardless of whether or not previously vested, or in any interest accrued on
either the Salary Deferred Compensation Credit or the Company Deferred
Compensation Credit.
(iv) Termination by the Company Without Cause. If Employee's
employment hereunder is terminated by the Company without cause, then
notwithstanding anything to the contrary in Section 12(b)(i) hereof, Employee's
right to each Company Deferred Compensation Credit and all interest credited
with respect thereto (as determined pursuant to Section 12(a) hereof) will vest
for the Term Year within which such termination occurs by an additional
percentage equal to ten percent (10%) multiplied by a fraction, the numerator of
which is the number of days in such Term Year that Employee was an employee of
the Company and the denominator of which is the number of days in the calendar
year in which Employee's employment hereunder is terminated by the Company.
(v) No Further Credits. Except as otherwise expressly provided for
above, upon Employee's termination of employment hereunder, no further increase
in the vested balance shall be made to Employee's Account.
(c) Payments Following Termination of Employment.
(i) Termination. In the event of termination of Employee's
employment hereunder for any reason, Employee (or, in the event of Employee's
death, Employee's Beneficiary) shall receive a payment equal to the portion of
the Credit Balance of Employee's Account which is vested in accordance with
Section 12(b) hereof within sixty (60) days after the earlier to occur of
Employee's death, or such termination of Employee's employment.
(ii) Forfeiture of Balance of Employee's Account. The portion of
Employee's Account which is not vested in accordance with Section 12(b) hereof
following termination of Employee's employment hereunder shall be forfeited and
Employee shall not be entitled to any payment with respect thereto.
(d) Beneficiary. Employee shall have the right to designate a
beneficiary ("Beneficiary") under this Agreement who shall succeed to Employee's
right to receive payments with respect to this Section 12 hereof in the event of
Employee's death. In the event Employee fails to designate a Beneficiary or a
Beneficiary dies without Employee's designation of a
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successor Beneficiary, then for all purposes hereunder the Beneficiary shall be
Employee's estate. No designation of Beneficiary shall be valid unless in
writing signed by Employee, dated and delivered to the Company. Beneficiaries
may be changed by Employee without the consent of any prior Beneficiary.
(e) Rights Unsecured; Unfunded Plan; ERISA.
(i) The Company's obligations arising under this Section 12 hereof
to pay benefits to Employee or Employee's Beneficiary constitute a mere promise
by the Company to make payments in the future in accordance with the terms
hereof and Employee and Employee's Beneficiary have the status of a general
unsecured creditor of the Company. Neither Employee nor Employee's Beneficiary
shall have any rights in or against any specific assets of the Company.
(ii) It is the intention of the Company and Employee that the
Company's obligations under this Section 12 hereof be unfunded for income tax
purposes and for purposes of Title I of the Employee Retirement Income Security
Act of 1974, as amended ("ERISA").
(iii) The Company and Employee shall treat its obligations under
this Section 12 hereof as maintained for a select group of management or highly
compensated employees exempt from Parts 2, 3 and 4 of Title I of ERISA. The
Company shall comply with the reporting and disclosure requirements of Part 1 of
Title I of ERISA in accordance with U.S. Department of Labor Regulation
ss.2520.104-23.
(f) Nonassignability. The rights Employee and Employee's Beneficiary to
payments pursuant to this Section 12 hereof are not subject in any manner to
anticipation, alienation, sale, transfer, assignment, pledge, encumbrance
attachment, or garnishment by creditors of Employee or Employee's Beneficiary.
13. Remedies.
(a) Employee acknowledges and agrees that, by virtue of the duties and
responsibilities attendant to Employee's employment by the Company and the
special knowledge of the Company's and its Affiliates' affairs, business,
clients and operations that Employee has and will have as a consequence of such
employment, irreparable loss and damage will be suffered by the Company and its
Affiliates if Employee should breach or violate any of the covenants and
agreements contained in Sections 6, 7, 8, or 9 hereof; and Employee further
acknowledges and agrees that each of such covenants is reasonably necessary to
protect and preserve the Company and its Affiliates. Employee, therefore, agrees
and consents that, in addition to any other remedies available to it, the
Company shall be entitled to specific performance by temporary as well as
permanent injunction to prevent a breach or contemplated breach by Employee of
any of the covenants or agreements contained in such Sections.
(b) The existence of any claim, demand, action or cause of action that
Employee may have against the Company, whether predicated upon this Agreement or
otherwise, shall not
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constitute a defense to the enforcement by the Company of any of the covenants
contained in Sections 6, 7, 8, or 9 hereof.
(c) Nothing contained in this Agreement shall limit, abridge or modify
the rights of the parties under applicable trade secret, trademark, copyright or
patent law or under the laws of unfair competition.
(d) In the event a court of competent jurisdiction determines that
Employee has breached any of the foregoing covenants contained in Sections 6, 7,
8, or 9 hereof, Employee shall pay all costs of enforcement of the foregoing
covenants, including, but not limited to, court costs and reasonable attorney's
fees.
14. Termination.
(a) This Agreement may be terminated by the Company for "cause" upon
delivery of notice of termination to Employee. As used herein, "cause" shall
mean (i) fraud, dishonesty, gross negligence, willful misconduct, commission of
a felony or an act of moral turpitude, or (ii) engaging in activities prohibited
by Sections 6, 7, 8, or 9 hereof, or any other material breach of this
Agreement.
(b) Employee may, without cause, terminate this Agreement by giving to
the Company thirty (30) days' written notice in the manner specified in Section
18 hereof and such termination shall be effective on the thirtieth (30th) day
following the date of such notice or such earlier date as the Company shall
specify. The Company may, without cause, terminate this Agreement by giving to
Employee thirty (30) days' written notice in the manner specified in Section 18
hereof and such termination shall be effective on the thirtieth (30th) day
following the date of such notice. At the option of the Company, Employee shall
cease performing Employee's duties hereunder on such earlier date as the Company
may specify in its notice of termination.
(c) In the event of Employee's Disability, physical or mental, the
Company shall have the right, subject to all applicable laws, including without
limitation, the Americans with Disabilities Act ("ADA"), to terminate Employee's
employment immediately. For purposes of this Agreement, the term "Disability"
shall mean Employee's inability or expected inability (or a combination of both)
to perform the services required of Employee hereunder due to illness, accident
or any other physical or mental incapacity for an aggregate of ninety (90) days
within any period of one hundred eighty (180) consecutive days during which this
Agreement is in effect, as agreed by the parties or as determined pursuant to
the next sentence. If there is a dispute between the Company and Employee or
Employee's legal representative as to whether a Disability exists, then such
issue shall be decided by a medical doctor selected by the Company and a medical
doctor selected by Employee or Employee's legal representative (or, in the event
that such doctors fail to agree, then in the majority opinion of such doctors
and a third medical doctor chosen by such doctors). Each party shall pay all
costs associated with engaging the medical doctor selected by such party and the
parties shall each pay one-half (1/2) of the costs associated with engaging any
third medical doctor.
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(d) In the event this Agreement is terminated, all provisions hereof
relating to any actions, including those of payment or compliance with
covenants, subsequent to termination shall survive such termination.
15. Successors and Assigns. This Agreement may not be assigned by
Employee. This Agreement may be assigned by the Company to any Affiliate without
the consent of Employee. The provisions of this Agreement shall be binding upon
Employee's heirs and legal representatives.
16. Severability. In the event that one or more of the words, phrases,
sentences, clauses, sections, subdivisions or subparagraphs contained herein
shall be held invalid, this Agreement shall be construed as if such invalid
portion had not been inserted, and if such invalidity shall be caused by the
length of any period of time, the number or location of Clients, the size of any
area, or the description of the duties of Employee set forth in any part hereof,
such period of time, number or location of Clients, area, or description of
duties, or any combination thereof, shall be considered to be reduced to a
period, number, location, area or description which would cure such invalidity.
17. Submission to Jurisdiction. Except as otherwise expressly provided
herein, this Agreement shall be governed by and construed under the laws of the
State of Georgia. Employee hereby agrees to submit to the jurisdiction of the
courts of the State of Georgia and the federal courts within the State of
Georgia and hereby appoints the Secretary of State of the State of Georgia as
agent for the purpose of receiving service of process in respect of any
proceeding in connection herewith. The parties agree that notwithstanding
anything contained herein to the contrary, the Company shall have the right to
bring suit against Employee for any breach or threatened breach of Sections 6,
7, 8 or 9 of this Agreement and the enforcement of Section 6 (and the related
remedies provisions set forth in Section 13 of this Agreement) shall be governed
by and construed under the law of the state in which such suit is brought by the
Company, and Employee hereby agrees to submit to the jurisdiction of the courts
of the State of Georgia and of any state within which Employee resides or is
alleged to be breaching any of Sections 6 through 9 of this Agreement and the
federal courts within such states, provided, however, that in any suit brought
in any state for purposes of enforcing any of Employee's covenants contained in
Sections 6 through 9 of this Agreement, the substantive law of the State of
Georgia shall govern all provisions hereof other than Sections 6, 13 and 17 of
this Agreement.
18. Notices. Any notice to be given under this Agreement shall be given in
writing and may be effected by personal delivery or by placing such in the
United States certified mail, return receipt requested and addressed as set
forth below, or as otherwise addressed as specified by the parties by notice
given in like manner:
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If to Company: The Profit Recovery Group International I, Inc.
2300 Windy Ridge Parkway
Suite 100 North
Atlanta, Georgia 30339-8426
Attention: President
If to Employee: At the address specified below Employee's signature.
19. Required Deductions or Withholdings. All amounts payable to Employee
pursuant to the Employment Agreement and Compensation Agreement shall have
deducted or withheld therefrom by the Company such amount or amounts as may be
required to be so deducted or withheld pursuant to applicable federal, state or
local laws.
20. Entire Agreement and Amendment. The Employment Agreement, the
Compensation Agreement, the Plan and such other documents as may be referenced
by such documents (the "Referenced Documents"), constitute the entire agreement
of the parties hereto with respect to the subject matter hereof and, except as
specifically provided herein or in the Compensation Agreement, the Plan and the
Referenced Documents, supersedes all prior discussions, understandings and
agreements among the parties hereto. Any such prior agreements shall, from and
after the Effective Date, be null and void. This Agreement may not be changed
orally, but only by an agreement in writing signed by the party against whom
enforcement of any waiver, change, modification, extension or discharge is
sought. Time is of the essence of this Agreement and each and every Section and
subsection hereof.
21. Waiver. The waiver by one party of a breach of any provision of this
Agreement by the other party shall not operate or be construed as a waiver of
any subsequent breach of the same or any other provision by the other party.
22. Authorization. The Company represents and warrants to Employee that
this Agreement has been authorized and approved by all necessary corporate
actions.
23. Affiliates. As used herein, "Affiliates" shall mean PRGX, and all
entities, whether now or hereafter existing, 51% or more of the outstanding
capital stock of which is owned by any combination of the Company and/or any
Affiliate and which are engaged in substantially the same business as the
Business of the Company regardless of the industry segment of its Clients and/or
which provide services or employees to the Company or any Affiliate in
connection with the operations thereof.
24. Counterparts. This Agreement may be executed in one or more
counterparts, each of which shall be deemed an original and together which shall
constitute one and the same instrument.
25. Pronouns. All personal pronouns in this Agreement and the Compensation
Agreement, whether used in the masculine, feminine or neuter gender shall
include all other genders, and the singular shall include the plural and the
plural shall include the singular.
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IN WITNESS WHEREOF, the parties hereto have executed this Agreement as of the
date first written above.
COMPANY:
THE PROFIT RECOVERY GROUP
INTERNATIONAL I, INC.
By: S/
------------------------------------------
David A. Brookmire, Senior Vice President-
Human Resources
EMPLOYEE:
S/
--------------------------------------- (SEAL)
Clinton McKellar, Jr.
2672 Birchwood Drive, N.E.
Atlanta, GA 30305
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COMPENSATION AGREEMENT
THIS COMPENSATION AGREEMENT ("Agreement") is made this 12th day of
February, 1998 effective as of June 16, 1997 (the "Effective Date"), by and
between THE PROFIT RECOVERY GROUP INTERNATIONAL I, INC., a Georgia corporation
(the "Company") and CLINTON McKELLAR, JR., a resident of the State of Georgia
(the "Employee").
W I T N E S S E T H:
WHEREAS, the parties hereto are party to that certain Employment Agreement,
dated the date hereof and effective as of the Effective Date (the "Employment
Agreement") whereby the Company employs Employee as Senior Vice President,
General Counsel and Secretary of the Company and Employee accepts such
employment in accordance with the terms thereof; and
WHEREAS, the Employment Agreement provides that the compensation payable to
Employee shall be as set forth herein (any terms capitalized but not otherwise
defined herein shall have the meanings given to them in the Employment
Agreement).
NOW, THEREFORE, in consideration of the foregoing and of the mutual
promises and covenants contained herein and other good and valuable
consideration, the receipt and sufficiency of which are hereby acknowledged, the
parties agree as follows:
1. Compensation. For services rendered by Employee under the Employment
Agreement during the term thereof, Employee shall be entitled to receive the
following compensation, subject to the terms hereof, provided that Base Salary
(as defined below) may be reviewed annually and modified by the Company in
writing prior to the commencement of any Term Year and the Bonus (as defined
below) may be modified in accordance with the terms hereof:
(a) Base Salary. One Hundred Fifteen Thousand and No/100 ($115,000.00)
Dollars on an annual basis ("Base Salary") shall be payable in accordance with
the Company's customary payroll procedures. For purposes of this Agreement, the
term "Adjusted Base Salary" shall mean and refer to the sum of Employee's Base
Salary and Ten Thousand and No/100 ($10,000.00) Dollars (such Ten Thousand and
No/100 ($10,000.00) Dollars, together with interest accrued thereon as
hereinafter provided, is hereinafter referred to as the "Salary Deferred
Compensation Credit"). Employee's Salary Deferred Compensation Credit shall not
be paid to Employee but such amount shall instead be deferred and credited to
Employee's Account (as defined in Section 12(a) of the Employment Agreement) as
deferred compensation in accordance with Section 12 of the Employment Agreement.
In the event of termination of Employee's employment under the Employment
Agreement during any Term Year due to (a) termination by the Company without
cause as a result of Employee's position being eliminated or combined with
another position (as determined by the Company in its sole discretion), or (b)
Employee's death, Disability or Retirement (as such terms are defined in the
Employment Agreement), a prorated
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portion of the Salary Deferred Compensation Credit shall be credited to
Employee's Account in respect of the month in which such termination occurs
based upon the ratio of the number of days in such month that Employee was an
Employee of the Company to the total number of calendar days in such month and
no further credit shall be made for any subsequent period. In the event of
termination of Employee's employment under the Employment Agreement for any
reason other than as set forth in the immediately preceding sentence, no portion
of the Salary Deferred Compensation Credit shall be credited to Employee's
Account in respect of the month in which such termination occurs or any
subsequent period, and the amount that would have otherwise been credited to
Employee's Account pursuant to the immediately preceding sentence in respect of
the month in which such termination occurs will instead be paid to Employee as
additional Base Salary.
(b) Bonus. An annual bonus ("Bonus") in an amount determined and payable
as provided herein for each Term Year during the term of the Employment
Agreement; provided, however, that Employee shall be entitled to a Bonus if
certain Performance Goal Attainment Measures (as set forth in Exhibit 1 hereto)
are achieved by Employee and the Company. The amount of any Bonus will depend on
which Performance Goal Payout Level (as defined in Exhibit 1 hereto) Employee
and the Company have attained. On the date hereof, the Performance Goal
Attainment Measures and related provisions applicable to Employee hereunder are
set forth in the "Incentive Summary" attached as Exhibit 1 hereto, which may be
superseded by the terms of any subsequent Incentive Summary which may be
prepared and delivered to Employee by the Company. Said Exhibit 1, together with
the Company records referenced therein, are hereby incorporated herein by
reference and any such subsequent Incentive Summary shall automatically be
incorporated herein in lieu thereof upon its delivery to Employee.
In the event the Effective Date is a date other than January 1, then Employee's
Base Salary, Adjusted Base Salary, Salary Deferred Compensation Credit and Bonus
for the initial Term Year shall be prorated based on the ratio of the number of
days in the initial Term Year commencing on the Effective Date to the number of
days in the calendar year in which the Effective Date falls.
(c) Automobile Allowance. For each full month of each Term Year, Employee
shall be provided an automobile allowance equal to one-twelfth (1/12) of Ten
Thousand and No/100 ($10,000.00) Dollars, payable in accordance with the
Company's customary procedures, which amount shall be reviewed annually and may
be modified in writing prior to the commencement of any Term Year.
2. Termination. This Agreement shall terminate effective upon termination
of the Employment Agreement; provided, however, that all provisions hereof
relating to any actions, including those of payment, subsequent to termination
shall survive such termination.
3. Incorporation by Reference. The provisions of the Employment Agreement
are hereby incorporated herein by reference.
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4. Successors and Assigns. This Agreement may not be assigned by Employee.
In the event that the Employment Agreement is assigned by the Company, this
Agreement shall also be assigned to the assignee thereof.
5. Counterparts. This Agreement may be executed in one or more
counterparts, each of which shall be deemed an original and together which shall
constitute one and the same instrument.
IN WITNESS WHEREOF, the parties hereto have executed this Agreement as of
the date first written above.
COMPANY:
THE PROFIT RECOVERY GROUP
INTERNATIONAL I, INC.
By: S/
-------------------------------------------
David A. Brookmire, Senior Vice President -
Human Resources
EMPLOYEE:
S/
---------------------------------- (SEAL)
Clinton McKellar, Jr.
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Exhibit 1
1997 PRG Executive Incentive
Plan Summary
Annual Payout
Objective
o To motivate and reward outstanding performance, and to reinforce and
support PRG's strategic plans and financial goals.
o Attract and retain highly talented associates by offering a
competitive total compensation package.
Plan Payouts
o Incentive awards under the plan will be based upon year-to-date base
salary earnings for the period January 1, 1997 - December 31, 1997.
o Incentive plan measurements/goals and levels of payout are shown on
the attached incentive summary. Also attached are definitions for each
of the measurement categories.
o One-fifth of the payout is attributable to meeting each of the four
quarters' goals in each category of measurement, and one-fifth is
attributable to meeting the annual goals for each category of
measurement.
o Incentive payments will be paid within 60 days following the end of
the fiscal year. Participants must be actively employed in order to
receive awards. Exceptions may be made in terminations due to
retirement, disability, or death.
o Participants must have satisfactory performance at the time payments
are made to be eligible. Participants on performance plans are not
eligible to receive payments.
Part-Year Participation
o If an associate becomes eligible for the PRG Executive Incentive Plan
after January 1, 1997, he/she may be eligible for a prorated payout
based on the date of entry into the Plan.
o Prorated payouts will be based on year-to-date Adjusted Base Salary
from the date of entry into the Plan. Entry into the Plan must be
prior to October 1, 1997 for participation in the Plan during 1997.
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Management of the Plan
o The plan is effective from January 1, 1997 through December 31, 1997.
o Overall responsibility for the plan resides with the Chairman and
Chief Executive Officer, Chief Financial Officer, and Senior Vice
President Human Resources, and payments are subject to Board of
Directors' approval.
o Management reserves the right to amend the plan, with regard to
participation, procedures, awards and any other provisions. This
includes revision of financial targets in the event of business or
organizational change deemed to warrant such action.
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1997 Incentive Plan Measures - Executive
Definitions of Categories
A) EPS - Earnings per share of PRGX as recorded in quarterly/annual
consolidated financial statements reported in the Company's quarterly
10Q and annual 10K. Measurements will be quarterly based upon
threshold, target, and stretch quarterly goals, however, payouts on EPS
will only be annual.
B) Function Expenses - In order to control expenses, this ties to cost
center budgets. Target achievement is measured on a quarterly basis,
however, year end will have threshold, target, and stretch achievement
levels.
If expenses are at/under budget each quarter, 20% of target bonus is
paid. At the end of the year, if at/under budget for:
2 quarters Threshold level is met
3 quarters Target level is met
4 quarters Stretch level is met
All bonus payments relating to Function Expenses will be made annually.
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Attachment A
Clinton McKellar, Jr.
1997 Incentive Summary
Payout Levels
(expressed as a percentage of Adjusted Base Salary)
Threshold 15%
Target 35%
Stretch 50%
Goal Attainment Measures
Qtrly EPS 75%
Qtrly Function Expenses (Legal) 25%
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DESCRIPTION OF 1998 COMPENSATION ARRANGEMENT BETWEEN
MR. CLINTON MCKELLAR, JR. AND REGISTRANT
The following describes certain compensation arrangements between the
Registrant and Mr. McKellar for calendar year 1998.
The Company has entered into an employment agreement with Mr. McKellar
that currently expires June 15, 1998. The employment agreement provides for
automatic one-year renewals upon the expiration of each year of employment,
subject to prior notice of nonrenewal by the Board of Directors. For 1998, the
Compensation Committee of the Board of Directors (the "Compensation Committee")
set Mr. McKellar's annual base salary at $132,000 (effective March 1, 1998).
Pursuant to Mr. McKellar's employment agreement, for 1998, he will receive a
bonus of up to 50% of his base salary based in part upon the Company's
performance for 1998. On January 27, 1998, the Compensation Committee granted
Mr. McKellar options to purchase 10,000 shares of Common Stock at a purchase
price of $15.75 per share, vesting over a five-year period at 20% per year.
Beginning in 1998, the Compensation Committee has determined that the Company
will make annual contributions in the amount of $10,000 per year to a deferred
compensation program for Mr. McKellar, which amounts will vest over a ten-year
period at 10% per year. Mr. McKellar will be entitled to receive his deferred
compensation upon termination of his employment for any reason, other than for
cause, including death or disability. The Company has also agreed to provide Mr.
McKellar with certain other personal benefits. Upon termination, other than for
cause or by voluntary resignation, Mr. McKellar will receive severance payments
equal to 6 months' base salary and certain other personal benefits. Mr. McKellar
has agreed not to compete with the Company or to solicit any clients or
employees of the Company for a period of 18 months following termination of his
employment.
SUBSIDIARIES OF REGISTRANT EXHIBIT 21.1
NAME OF SUBSIDIARY STATE OF INCORPORATION
The Profit Recovery Group International I, Inc............ Georgia
The Profit Recovery Group Asia, Inc....................... Georgia
The Profit Recovery Group Canada, Inc..................... Georgia
The Profit Recovery Group France, Inc..................... Georgia
The Profit Recovery Group Mexico, Inc..................... Georgia
The Profit Recovery Group U.K., Inc....................... Georgia
The Profit Recovery Group Belgium, Inc.................... Georgia
The Profit Recovery Group Australia, Inc.................. Georgia
The Profit Recovery Group New Zealand, Inc................ Georgia
The Profit Recovery Group Netherlands, Inc................ Georgia
The Profit Recovery Group Germany, Inc. .................. Georgia
The Profit Recovery Group South Africa, Inc............... Georgia
PRG International Holding Company, Inc. .................. Georgia
The Profit Recovery Group Singapore PTE Ltd............... (1)
PRG France S.A. .......................................... (2)
Financiere Alma S.A....................................... (2)
Alma Intervention, S.A.................................... (2)
B&F Associes, S.A.R.L..................................... (2)
Club Affairs Alma, S.A.R.L................................ (2)
______________
(1) A Singapore private limited company and a wholly-owned subsidiary of The
Profit Recovery Group Asia, Inc.
(2) A French corporation
