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UNITED STATES SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
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FORM 10-K
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(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
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THE PROFIT RECOVERY GROUP
INTERNATIONAL, INC.
(Exact name of registrant as specified in its charter)
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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)
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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 on May 14, 1998.
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THE PROFIT RECOVERY GROUP INTERNATIONAL, INC.
FORM 10-K
DECEMBER 31, 1997
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Part I
Item 1. Business.................................................... 1
Item 2. Properties.................................................. 10
Item 3. Legal Proceedings........................................... 10
Item 4. Submission of Matters to a Vote of Security Holders......... 10
Part II
Item 5. Market for Registrant's Common Equity and Related
Stockholder Matters....................................... 11
Item 6. Selected Consolidated Financial Data........................ 12
Item 7. Management's Discussion and Analysis of Financial Condition
and Results of Operations................................. 13
Item 7A. Quantitative and Qualitative Disclosures About Market
Risk...................................................... 20
Item 8. Financial Statements and Supplementary Data................. 21
Item 9. Changes in and Disagreements with Accountants on Accounting
and Financial Disclosure.................................. 43
Part III
Item 10. Directors and Executive Officers of the Registrant.......... 43
Item 11. Executive Compensation...................................... 43
Item 12. Security Ownership of Certain Beneficial Owners and
Management................................................ 43
Item 13. Certain Relationships and Related Transactions.............. 43
Part IV
Item 14. Exhibits, Financial Statement Schedules, and Reports on Form
8-K....................................................... 43
Signatures............................................................... 47
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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, 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> 11
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> 12
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.
ITEM 2. PROPERTIES
The Company's principal executive office is located in approximately 55,000
square feet of office space in Atlanta, Georgia. The Company subleases this
space through December 30, 2002 and has an option to renew the lease for five
years contingent upon the prime lease being renewed. The Company leases 25,000
square feet of office and warehouse space in Bentonville, Arkansas. This lease
has an initial five-year term that commenced on April 19, 1996, with an option
to renew for an additional five-year period. The Company leases 27,500 square
feet of office space in Levallois-Perret, France. This lease has a nine-year
term that commenced on January 1, 1997, with the Company having the right to
terminate the lease without penalty after the fourth and sixth years. In
addition, the Company maintains 45 other offices in close proximity to certain
of its larger clients. The leases for these offices vary in term and range from
1,000 to 10,000 square feet. The Company is negotiating a five-year lease for an
additional 15,000 square feet of space in Phoenix, Arizona. The Company
anticipates that additional space will be required as business expands and
believes that it will be able to obtain suitable space as needed. See Note 4 of
Notes to Consolidated Financial Statements of the Company.
ITEM 3. LEGAL PROCEEDINGS
The Company is not a party to any legal proceedings, individually or in the
aggregate, that it believes could have a material adverse effect on its
business, financial condition or results of operations.
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
During the fiscal fourth quarter covered by this report, no matter was
submitted to a vote of security holders of the Company.
10
<PAGE> 13
PART II
ITEM 5. MARKET FOR REGISTRANT'S COMMON EQUITY AND RELATED STOCKHOLDER MATTERS
The Company's common stock is traded under the symbol "PRGX" on The Nasdaq
Stock Market (Nasdaq). During 1995 and the first quarter of 1996, the Company's
predecessors paid dividends and distributions to then-current equity owners
totalling $10.7 million and $4.9 million, respectively. The Company has not paid
cash dividends since its March 26, 1996 initial public offering and does not
intend to pay cash dividends in the foreseeable future. Moreover, restrictive
covenants included in the Company's bank credit facility specifically prohibit
payment of cash dividends. At January 31, 1998, there were approximately 1,200
beneficial holders of the Company's common stock and 123 holders of record. The
following table sets forth, for the quarters indicated, the range of high and
low prices for the Company's common stock as reported by Nasdaq since the
Company's initial public offering.
<TABLE>
<CAPTION>
1997 CALENDAR QUARTER HIGH LOW
- --------------------- ------- -------
<S> <C> <C> <C> <C>
1st Quarter................................................. $18 1/4 $11 1/16
2nd Quarter................................................. 16 1/8 11 3/4
3rd Quarter................................................. 20 1/8 13 5/8
4th Quarter................................................. 19 1/2 13 7/8
</TABLE>
<TABLE>
<CAPTION>
1996 CALENDAR QUARTER
- ---------------------
<S> <C> <C> <C> <C>
1st Quarter (From March 26, 1996 through March 31, 1996).... $16 1/2 $11 (1)
2nd Quarter................................................. 22 1/2 15 1/4
3rd Quarter................................................. 24 1/4 11 1/2
4th Quarter................................................. 21 1/2 11 1/4
</TABLE>
- ---------------
(1) Initial public offering price.
11
<PAGE> 14
ITEM 6. SELECTED CONSOLIDATED FINANCIAL DATA
The following table sets forth selected consolidated financial data for the
Company as of and for the five years ended December 31, 1997. Such historical
consolidated financial data as of and for the five years ended December 31, 1997
have been derived from the Company's Consolidated Financial Statements and Notes
thereto, which Consolidated Financial Statements have been audited by KPMG Peat
Marwick LLP, independent auditors. The audited Consolidated Balance Sheets as of
December 31, 1997 and 1996 and the related Consolidated Statements of Earnings,
Shareholders' Equity (Deficit) and Cash Flows for each of the years in the
three-year period ended December 31, 1997 and the report thereon, which in 1997
is based partially upon the report of other auditors, are included elsewhere
herein. The selected pro forma Statements of Earnings data for the four years
ended December 31, 1996 are unaudited. The data presented below should be read
in conjunction with the Consolidated Financial Statements and Notes thereto and
other financial information appearing elsewhere in this Form 10-K including
Management's Discussion and Analysis of Financial Condition and Results of
Operations.
<TABLE>
<CAPTION>
YEARS ENDED DECEMBER 31,
------------------------------------------------
1997(1) 1996 1995(2) 1994 1993
-------- ------- ------- ------- -------
(IN THOUSANDS, EXCEPT PER SHARE DATA)
<S> <C> <C> <C> <C> <C>
STATEMENTS OF EARNINGS DATA:
HISTORICAL
Revenues................................... $112,363 $77,330 $56,031 $34,690 $25,262
Cost of revenues........................... 57,726 40,330 30,554 18,163 13,299
Selling, general and administrative
expenses................................. 37,254 25,961 19,035 12,343 8,899
Restructuring costs(3)..................... 1,208 -- -- -- --
-------- ------- ------- ------- -------
Operating income...................... 16,175 11,039 6,442 4,184 3,064
Interest (expense), net.................... (403) (100) (1,630) (544) (874)
Debt refinancing expenses.................. -- -- -- -- 414
-------- ------- ------- ------- -------
Earnings before income taxes.......... 15,772 10,939 4,812 3,640 1,776
Income taxes(4)............................ 6,149 7,789 305 -- --
-------- ------- ------- ------- -------
Net earnings.......................... $ 9,623 $ 3,150 $ 4,507 $ 3,640 $ 1,776
======== ======= ======= ======= =======
Cash dividends per share................... $ -- $ .28 $ .93 $ .10 $ --
======== ======= ======= ======= =======
PRO FORMA(5)
Historical earnings before income taxes.... $10,939 $ 4,812 $ 3,640 $ 1,776
Pro forma income taxes..................... 4,271 1,877 1,420 692
------- ------- ------- -------
Pro forma net earnings................ $ 6,668 $ 2,935 $ 2,220 $ 1,084
======= ======= ======= =======
PER SHARE
Earnings (pro forma earnings for 1996 and
1995) per share -- basic................. $ .52 $ .41 $ .24
======== ======= =======
Earnings (pro forma earnings for 1996 and
1995) per share -- diluted............... $ .51 $ .39 $ .21
======== ======= =======
</TABLE>
<TABLE>
<CAPTION>
DECEMBER 31,
-------------------------------------------------
1997(1) 1996(6) 1995 1994 1993
--------- ------- ------- ------- -------
(IN THOUSANDS)
<S> <C> <C> <C> <C> <C>
BALANCE SHEET DATA:
Cash and cash equivalents.................. $ 19,386 $16,891 $ 642 $ 1,284 $ 98
Working capital............................ 34,563 30,004 6,738 4,889 2,068
Total assets............................... 133,885 68,318 30,268 13,779 11,045
Long-term debt, excluding current
installments............................. 24,365 692 17,629 2,741 4,256
Loans from shareholders.................... -- -- 1,075 1,075 208
Total shareholders' equity (deficit)....... 63,072 40,559 (3,402) 2,356 (167)
</TABLE>
- ---------------
(1) During 1997, the Company completed five acquisitions including Shaps Group,
Inc. (January), Accounts Payable Recovery Services, Inc. (February), The
Hale Group (May), 98.4% of Financiere Alma, S.A.
12
<PAGE> 15
and its subsidiaries (October) and TradeCheck, LLC (November). See Note 8
of Notes to Consolidated Financial Statements.
(2) Effective January 1, 1995, the Company acquired Fial & Associates, Inc. See
Note 8 of Notes to Consolidated Financial Statements.
(3) Includes a $1.2 million charge to restructure and realign certain facets of
the European management structure in recognition of emerging developments
such as the Alma acquisition. See Note 14 of the Notes to Consolidated
Financial Statements of the Company.
(4) In April 1995, the Company's predecessors reorganized and its international
entities became C corporations. Additionally, in connection with the
Company's March 1996 initial public offering, all domestic entities became
C corporations. As a result of these conversions to C corporations, the
Company incurred charges to operations of $305,000 in 1995 and $3.7 million
in 1996 for cumulative deferred income taxes. The Company's 1996 provision
for income taxes of $7.8 million consists of the above-mentioned $3.7
million charge for cumulative deferred income taxes combined with $4.1
million in tax provisions at a 39.0% composite effective rate for the three
quarters subsequent to the March 26, 1996 initial public offering.
(5) The Company's predecessor entities prior to its initial public offering on
March 26, 1996 generally were either corporations electing to be taxed as
Subchapter S corporations or partnerships. As a result, any income tax
liabilities were the responsibilities of the respective shareholders and
partners. Pro forma net earnings reflect, where applicable, a provision for
income taxes to include the additional tax expense as if the Company had
been subject to federal and state income taxes for all periods presented
rather than the individual shareholders and partners.
(6) Balance Sheet Data as of December 31, 1996 reflect the receipt of net
proceeds from the Company's March 26, 1996 initial public offering together
with the partial use of such proceeds to repay substantially all debt
obligations other than certain convertible debentures which were converted
to equity immediately prior to the offering. See Note 7 of Notes to
Consolidated Financial Statements.
ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS
OVERVIEW
The Company is a leading provider of accounts payable and other recovery
audit services to large retailers, wholesale distributors, healthcare providers,
technology companies and other large transaction-intensive companies, as well as
to certain governmental agencies. In businesses with large purchase volumes and
continuously fluctuating 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 receives a contractually negotiated percentage of
amounts recovered.
The earliest of the Company's predecessors was formed in November 1990, and
in early 1991 acquired the operating assets of Roy Greene Associates, Inc. and
Bottom Line Associates, Inc., which were formed in 1971 and 1985, respectively.
In January 1995, the Company purchased certain assets of Fial & Associates,
Inc., a direct U.S. competitor. In January 1997, the Company acquired the net
operating assets of Shaps Group, Inc., a California-based company providing
recovery audit services to manufacturers and distributors of technology
products. In February 1997, the Company acquired all of the common stock of
Accounts Payable Recovery Services, Inc., a Texas-based company providing
recovery audit services to healthcare entities and energy companies. In May
1997, the Company acquired all of the common stock of The Hale Group, a
California-based company that also provides recovery audit services to
healthcare entities. In October 1997, the Company acquired 98.4% of Alma, a
Paris-based recovery audit firm specializing in identifying and recovering
various types of French corporate tax overpayments. In November 1997, the
Company acquired the net operating assets of TradeCheck, LLC, a Washington-based
recovery audit firm
13
<PAGE> 16
specializing in ocean freight shipments. The Company intends to continue
pursuing domestic and international strategic acquisitions, including direct
competitors and complementary businesses.
RESULTS OF OPERATIONS
The following table sets forth the percentage of revenues represented by
certain items in the Company's Consolidated Statements of Earnings for the
periods indicated:
<TABLE>
<CAPTION>
YEARS ENDED DECEMBER 31,
--------------------------
1997 1996 1995
------ ------ ------
<S> <C> <C> <C>
HISTORICAL
Revenues................................................ 100.0% 100.0% 100.0%
Cost of revenues........................................ 51.4 52.1 54.5
Selling, general and administrative expenses............ 33.2 33.6 34.0
Restructuring costs..................................... 1.0 -- --
----- ----- -----
Operating income................................ 14.4 14.3 11.5
Interest (expense), net................................. 0.4 0.2 2.9
----- ----- -----
Earnings before income taxes.................... 14.0 14.1 8.6
Income taxes............................................ 5.4 10.0 0.6
----- ----- -----
Net earnings.................................... 8.6% 4.1% 8.0%
===== ===== =====
PRO FORMA
Historical earnings before income taxes................. 14.1% 8.6%
Pro forma income taxes.................................. 5.5 3.3
----- -----
Pro forma net earnings.......................... 8.6% 5.3%
===== =====
</TABLE>
1997 COMPARED WITH 1996
Revenues. The Company's revenues consist principally of contractual
percentages of overpayments recovered for clients that are primarily in the
retailing industry. Revenues increased 45.3% to $112.4 million for 1997, up from
$77.3 million in 1996.
Domestic revenues increased 30.2% to $81.7 million in 1997, up from $62.7
million in 1996. Of this 30.2% increase (i) 9.0% was contributed by existing
clients served in both the 1996 and 1997 periods; (ii) 13.3% was contributed by
the four recovery audit firms acquired in 1997; and (iii) 7.9% resulted from
provision of services to new clients (net of the effect of revenues in 1996 from
clients not served in 1997).
The Company considers international operations to be all operations located
outside of the United States. International revenues increased 109.9% to $30.7
million in 1997, up from $14.6 million in 1996. Of this 109.9% increase (i)
45.3% was contributed by operations of Alma subsequent to this October 1997
acquisition and (ii) 64.6% resulted from existing operations, primarily from
services provided to new clients. The Company continues to believe that the rate
of growth for its international operations will significantly exceed its rate of
domestic revenue growth for the foreseeable future if the revenue effect of
acquired businesses is excluded.
Cost of Revenues. Cost of revenues consists principally of commissions
paid or payable to the Company's auditors based primarily upon the level of
overpayment recoveries, and salaries and bonuses paid or payable to divisional
and regional managers. Also included in cost of revenues are other direct costs
incurred by these personnel including rental of field offices, travel and
entertainment, telephone, utilities, maintenance and supplies, and clerical
assistance. Cost of revenues as a percentage of revenues decreased to 51.4% in
1997 from 52.1% in 1996.
Domestically, cost of revenues as a percentage of revenues increased
slightly to 53.1% in 1997 from 52.7% in 1996. This increase related primarily to
cost of revenues associated with revenues subsequently recognized on claims in
process acquired as part of the Company's May 1997 acquisition of The Hale
Group. These
14
<PAGE> 17
claims carried higher auditor compensation rates than those customarily paid by
the Company. The remainder of these claims in progress is expected to be
resolved in 1998.
Internationally, cost of revenues as a percentage of revenues decreased to
46.8% in 1997, from 49.7% in 1996. This reduction was due in part to the
operations of Alma during the fourth quarter of 1997 which were conducted at a
cost of revenue percentage of 44.2%. Excluding Alma's revenues and cost of
revenues from the Company's 1997 international operations, international cost of
revenues as a percentage of revenues would have been 47.5%, or a 2.2% reduction
from 1996. This improvement resulted primarily from gross margin expansions
during 1997 in the Company's more established international locations.
Selling, General and Administrative Expenses. Selling, general and
administrative expenses include the expenses of sales and marketing activities,
information technology services and the corporate data center, human resources,
legal and accounting, administration, headquarters-related depreciation of
property and equipment and amortization of intangibles. Selling, general and
administrative expenses as a percentage of revenues decreased to 33.2% in 1997,
from 33.6% in 1996.
Domestic selling, general and administrative expenses as a percentage of
revenues increased to 30.6% in 1997, up from 30.2% in 1996. The Company's 1997
domestic selling, general and administrative expense percentage is higher than
the comparable percentage in 1996 due to increased expenditures for various 1997
initiatives such as significantly expanded training programs and period costs
associated with intensified mergers and acquisition efforts.
Internationally, selling, general and administrative expenses as a
percentage of revenues decreased to 40.0% in 1997, down significantly from 47.9%
in 1996. This reduction was due in part to the operations of Alma during the
fourth quarter of 1997 which were conducted at a selling, general and
administrative percentage of 26.9%. Excluding Alma's revenues and selling,
general and administrative expenses from the Company's 1997 international
operations, international selling, general and administrative expenses as a
percentage of revenues would have been 43.6%, or a 4.3% reduction from 1996.
This improvement resulted primarily from various components of fixed costs being
spread over a rapidly growing revenue base.
In connection with acquired businesses, the Company has recorded intangible
assets including goodwill and deferred non-compete costs. Amortization of these
intangible assets totaled $1.9 million in 1997 and $1.2 million in 1996.
Restructuring Costs. In recognition of emerging developments such as the
Alma acquisition, the Company restructured and realigned certain facets of its
European management structure in the fourth quarter of 1997 and incurred a
pre-tax charge to earnings of $1.2 million. This charge consisted of employment
termination costs directly applicable to four of the Company's senior European
executives and residual contract costs due to an independent European advisor
for services no longer required by the Company. Of the $1.2 million charge,
$683,000 had been paid through December 31, 1997, and the remaining $525,000 is
currently estimated to be paid by June 30, 1998.
Operating Income. Operating income increased 46.5% to $16.2 million in
1997, up from $11.0 million in 1996. As a percentage of total revenues,
operating income increased to 14.4% of revenues in 1997, up slightly from 14.3%
in 1996. Excluding the effect of the $1.2 million nonrecurring pre-tax
restructuring charge on 1997 operations, operating income would have been $17.4
million or 15.5% of total revenues.
Interest Expense, Net. Interest expense, net, increased to $403,000 in
1997, up from $100,000 in 1996. Interest expense, net, for 1997 consisted of (i)
interest expense of $730,000, comprised primarily of interest on $24.8 million
of bank borrowings outstanding since October 1997 which were used to finance a
portion of the Alma acquisition, net of (ii) $327,000 of interest income derived
primarily from overnight investments.
Earnings Before Income Taxes. Earnings before income taxes increased 44.2%
to $15.8 million, up from $10.9 million in 1996. As a percentage of total
revenues, earnings before income taxes were 14.0% in 1997, down slightly from
14.1% in 1996. Excluding the effect of the $1.2 million nonrecurring pre-tax
restructuring on 1997 operations, earnings before income taxes as a percentage
on total revenues would have been 15.1%.
15
<PAGE> 18
Income Taxes. The Company's predecessor entities prior to its initial
public offering on March 26, 1996 generally were either corporations electing to
be taxed as Subchapter S corporations or partnerships. As a result, any income
tax liabilities were the responsibilities of the respective shareholders and
partners. In connection with the initial public offering, all domestic entities
became C corporations. As a result of these conversions to C corporations, the
Company incurred a charge to operations of $3.7 million in the first quarter of
1996 for cumulative deferred income taxes.
The provisions for income taxes for all periods subsequent to March 31,
1996 consist of federal, state and foreign income taxes at the Company's
composite effective rate of 39.0%. The Company's 1996 provision for income taxes
of $7.8 million consists of the above-mentioned $3.7 million charge for
cumulative deferred income taxes combined with $4.1 million in tax provisions at
a 39.0% composite effective rate for the three quarters subsequent to the March
26, 1996 initial public offering.
Pro Forma Income Taxes. The results of operations for 1996 have been
adjusted on a pro forma basis to reflect federal, state and foreign income taxes
at a composite effective rate of 39.0% as if the Company's predecessors had been
C corporations throughout the year.
1996 COMPARED WITH 1995
Revenues. Revenues increased 38.0% to $77.3 million for 1996, up from
$56.0 million in 1995. Of this $21.3 million increase, $13.7 million, or 64.3%,
related to existing and new domestic accounts and $7.6 million, or 35.7%,
related to revenue growth from international operations. Domestic revenue growth
in 1996 of $13.7 million consisted of $5.7 million related to 35 new client
accounts and $8.0 million related to provision of additional services to
existing accounts.
International revenues grew 108.1% to $14.6 million for 1996, up from $7.0
million for 1995. International revenues grew from 12.5% of total revenues in
1995 to 18.9% during 1996.
Cost of Revenues. Cost of revenues decreased to 52.1% of revenues in 1996,
down from 54.5% for 1995.
Domestically, the Company's cost of revenues as a percentage of revenues
decreased to 52.7% of revenues in 1996, down from 55.6% for 1995 due primarily
to Fial & Associates contracts-in-progress acquired in January 1995. These
auditor contracts, substantially all of which were concluded by December 31,
1995, carried higher auditor compensation rates than those customarily paid by
the Company. Excluding the effect of this temporary $1.9 million rate-related
differential, domestic cost of revenues as a percentage of domestic revenues
would have been 51.7% in 1995.
Internationally, cost of revenues increased to 49.7% of international
revenues in 1996, up from 47.2% during 1995. This increase resulted from an
increase in initial auditor compensation guarantees resulting from various new
markets entered by the Company in 1996.
Selling, General and Administrative Expenses. Selling, general and
administrative expenses as a percentage of revenues decreased to 33.6% in 1996
from 34.0% in 1995.
Domestic selling, general and administrative expenses as a percentage of
domestic revenues were relatively flat at 30.2% in 1996 and 30.4% in 1995. The
Company's domestic selling, general and administrative expenses grew during 1996
at a rate approximately commensurate with its domestic revenue growth due
primarily to space, equipment and personnel additions at its corporate
headquarters facility in Atlanta, Georgia.
International selling, general and administrative expenses decreased to
47.9% of international revenues in 1996, down from 58.7% during 1995 due
principally to the 108.1% growth in international revenues in 1996 without a
proportionate increase in selling, general and administrative expenses.
Amortization of intangible assets totaled $1.2 million in both 1996 and
1995.
Operating Income. Operating income increased 71.4% to $11.0 million in
1996, up from $6.4 million in 1995. Operating income was 14.3% and 11.5% of
revenues for 1996 and 1995, respectively. Excluding the effect of the temporary
$1.9 million auditor compensation rate differential relating to
contracts-in-progress
16
<PAGE> 19
acquired in January 1995 from Fial & Associates, operating income for 1995 would
have been $8.3 million, or 15.0% of revenues.
Interest Expense, Net. Interest expense, net, decreased to $100,000 in
1996, down from $1.6 million in 1995. Interest expense, net, for 1996 consisted
of $495,000 of net interest expense incurred in the first quarter prior to the
Company's March 26, 1996 initial public offering, less $395,000 of net interest
income derived primarily from the net initial public offering proceeds during
the remaining three quarters of the year.
Earnings Before Income Taxes. Earnings before income taxes increased
127.3% to $10.9 million, up from $4.8 million in 1995. As a percentage of total
revenues, earnings before income taxes were 14.1% in 1996 and 8.6% in 1995.
Excluding the effect of the temporary $1.9 million auditor compensation rate
differential relating to contracts-in-progress acquired in January 1995 from
Fial & Associates, earnings before income taxes for 1995 would have been $6.7
million, or 12.1% of revenues.
Income Taxes. The predecessor business entities that comprised the Company
generally were either Subchapter S corporations or partnerships. As a result,
income tax liabilities were the responsibilities of the respective shareholders
and partners. In April 1995, the Company's predecessors reorganized and its
international entities became C corporations. Additionally, in connection with
the Company's March 1996 initial public offering, all domestic entities became C
corporations. As a result of these conversions to C corporations, the Company
incurred charges to operations of $305,000 in 1995 and $3.7 million in 1996 for
cumulative deferred income taxes. The Company's 1996 provision for income taxes
of $7.8 million consists of the above-mentioned $3.7 million charge for
cumulative deferred income taxes combined with $4.1 million in tax provisions at
a 39.0% composite effective rate for the three quarters subsequent to the March
26, 1996 initial public offering.
Pro Forma Income Taxes. The results of operations for 1996 and 1995 have
been adjusted on a pro forma basis to reflect federal, state and foreign income
taxes at a composite effective rate of 39.0% as if the Company's predecessors
had been C corporations throughout such periods.
QUARTERLY RESULTS
The following tables set forth certain unaudited quarterly financial data
for each of the Company's last eight quarters and such data expressed as a
percentage of the Company's revenues for the respective quarters. The
information has been derived from unaudited consolidated financial statements
that, in the opinion of management, reflect all adjustments (consisting only of
normal recurring adjustments) necessary for a fair presentation of such
quarterly information. The operating results for any quarter are not necessarily
indicative of the results to be expected for any future period.
<TABLE>
<CAPTION>
1997 QUARTER ENDED 1996 QUARTER ENDED
-------------------------------------- --------------------------------------
MAR. 31 JUNE 30 SEPT. 30 DEC. 31 MAR. 31 JUNE 30 SEPT. 30 DEC. 31
------- ------- -------- ------- ------- ------- -------- -------
(IN THOUSANDS)
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Revenues.......................... $20,960 $25,858 $29,627 $35,918 $15,615 $17,963 $21,964 $21,788
Cost of revenues.................. 11,529 13,331 14,693 18,173 8,623 9,480 11,002 11,225
Selling, general and
administrative expenses......... 8,196 8,723 8,790 11,545 6,031 6,040 6,623 7,267
Restructuring costs............... -- -- -- 1,208 -- -- -- --
------- ------- ------- ------- ------- ------- ------- -------
Operating income......... 1,235 3,804 6,144 4,992 961 2,443 4,339 3,296
Interest income (expense), net.... 63 55 14 (535) (495) 106 162 127
------- ------- ------- ------- ------- ------- ------- -------
Earnings before income
taxes.................. 1,298 3,859 6,158 4,457 466 2,549 4,501 3,423
Income taxes...................... 506 1,491 2,400 1,752 3,700 994 1,759 1,336
------- ------- ------- ------- ------- ------- ------- -------
Net earnings (loss)...... $ 792 $ 2,368 $ 3,758 $ 2,705 $(3,234) $ 1,555 $ 2,742 $ 2,087
======= ======= ======= ======= ======= ======= ======= =======
PRO FORMA
Historical earnings before
income taxes.................. $ 466
Pro forma income taxes.......... 182
-------
Pro forma net earnings... $ 284
=======
</TABLE>
17
<PAGE> 20
<TABLE>
<CAPTION>
1997 QUARTER ENDED 1996 QUARTER ENDED
-------------------------------------- --------------------------------------
MAR. 31 JUNE 30 SEPT. 30 DEC. 31 MAR. 31 JUNE 30 SEPT. 30 DEC. 31
------- ------- -------- ------- ------- ------- -------- -------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Revenues.................................... 100.0% 100.0% 100.0% 100.0% 100.0% 100.0% 100.0% 100.0%
Cost of revenues............................ 55.0 51.6 49.6 50.6 55.2 52.8 50.1 51.5
Selling, general and administrative
expenses.................................. 39.1 33.7 29.7 32.1 38.6 33.6 30.1 33.4
Restructuring costs......................... -- -- -- 3.4 -- -- -- --
----- ----- ----- ----- ----- ----- ----- -----
Operating income................... 5.9 14.7 20.7 13.9 6.2 13.6 19.8 15.1
Interest income (expense), net.............. 0.3 0.2 0.1 (1.5) (3.2) 0.6 0.7 0.6
----- ----- ----- ----- ----- ----- ----- -----
Earnings before income taxes....... 6.2 14.9 20.8 12.4 3.0 14.2 20.5 15.7
Income taxes................................ 2.4 5.8 8.1 4.9 23.7 5.5 8.0 6.1
----- ----- ----- ----- ----- ----- ----- -----
Net earnings (loss)................ 3.8% 9.1% 12.7% 7.5% (20.7)% 8.7% 12.5% 9.6%
===== ===== ===== ===== ===== ===== ===== =====
PRO FORMA
Historical earnings before income taxes... 3.0%
Pro forma income taxes.................... 1.2
-----
Pro forma net earnings............. 1.8%
=====
</TABLE>
The Company has experienced and expects to continue to experience
significant seasonality in its business. The Company typically realizes higher
revenues and operating income in the last two quarters of its fiscal year. This
trend is expected to continue and reflects the inherent purchasing and
operational cycles of the retailing industry, which is the principal industry
served by the Company. The Company's October 1997 acquisition of Alma is not
expected to affect this trend because Alma historically has experienced similar
seasonality in its revenues and operating income. Should the Company not
continue to realize increased revenues in future third and fourth quarter
periods, profitability for any affected quarter and the entire year could be
materially and adversely affected due to ongoing selling, general and
administrative expenses that are largely fixed over the short term.
LIQUIDITY AND CAPITAL RESOURCES
Through December 31, 1996, the Company's predecessors had acquired and
assimilated three operating companies and financed these acquisitions primarily
through a combination of bank and seller financing. Ongoing Company operations
and capital requirements prior to the Company's initial public offering were met
primarily with cash flows provided by operating activities and, to a lesser
extent, with the proceeds from bank and shareholder loans. On April 1, 1996, the
Company received its $34.8 million portion of the proceeds (net of underwriting
discounts and commissions) from its initial public offering. Of these proceeds,
approximately $1.1 million was subsequently utilized to pay expenses of the
offering, approximately $4.9 million was used to pay previously declared and
unpaid Subchapter S shareholder distributions and partnership distributions, and
approximately $14.6 million was used to pay principal and accrued interest on
substantially all outstanding interest-bearing debt (other than that portion of
certain convertible debt that was converted to Common Stock concurrent with the
initial public offering). All of the residual $14.2 million of net proceeds were
subsequently used to expand international operations, to acquire complementary
businesses and for general corporate purposes.
During October 1997, the Company increased its credit facility with
NationsBank, N.A. from $20.0 million to $30.0 million. The credit facility
permits the Company to borrow up to $30.0 million on a term loan basis to
finance mergers and acquisitions. Alternatively, the Company, at its option, may
utilize up to $10.0 million as a revolving line of credit for working capital
and utilize the remaining $20.0 million for mergers and acquisitions. Borrowings
under the credit facility can be made through September 1999. As of January 31,
1998, the Company had outstanding principal borrowings of $24.8 million under
the credit facility which accrue interest at LIBOR plus 1.75% per annum. Such
borrowings were made in October 1997 in connection with the financing of the
Alma acquisition.
Net cash provided by operating activities was $8.2 million, $1.9 million
and $2.5 million for 1997, 1996 and 1995, respectively.
18
<PAGE> 21
Net cash used in investing activities was $30.8 million, $5.1 million and
$2.6 million for 1997, 1996 and 1995, respectively. During 1997, the Company
spent $26.1 million (net of cash acquired) as the cash portion of consideration
paid for four recovery audit firms.
Net cash provided by financing activities was $25.0 million in 1997 and
$19.4 million in 1996. Net cash used in financing activities was $586,000 in
1995. Net cash provided by financing activities in 1997 consists primarily of
$24.8 million borrowed from NationsBank, N.A. in October 1997 to finance a
portion of the Alma acquisition. Net cash provided by financing activities in
1996 reflects proceeds from the Company's initial public offering, net of
repayments of debt and other obligations paid from those proceeds.
During 1997, the Company acquired five recovery audit firms. The Company is
pursuing, and intends to continue to pursue, the acquisition of domestic and
international businesses including both direct competitors and businesses
providing other types of recovery services. Future acquisitions may include much
larger businesses than those acquired to date. There can be no assurance,
however, that the Company will be successful in consummating further
acquisitions due to factors such as receptivity of potential acquisition
candidates and valuation issues. Additionally, there can be no assurance that
future acquisitions, if consummated, can be successfully assimilated into the
Company. See "Forward-Looking Statements."
The Company is currently contemplating a public offering of approximately
2,000,000 shares of common stock. The Company anticipates that the proceeds from
this offering will be used to repay all outstanding indebtedness under its
credit facility with NationsBank, N.A., for international expansion, potential
future acquisitions and general corporate purposes, including working capital.
Even if the public offering is not consummated, the Company nevertheless
believes that its current working capital, its existing line of credit and cash
flow generated from future operations will be sufficient to meet the Company's
working capital and capital expenditure requirements through December 31, 1998
unless one or more acquisitions are consummated which require the Company to
seek additional debt or equity financing.
NEW ACCOUNTING STANDARDS
Statement of Financial Accounting Standards No. 130, "Reporting
Comprehensive Income," establishes standards for reporting and display of
comprehensive income and its components (revenues, expenses, gains and losses)
in a full set of general purpose financial statements. This Statement requires
that all items that are required to be recognized under accounting standards as
components of comprehensive income be reported in a financial statement that is
displayed with the same prominence as other financial statements. The Company
believes that its components of comprehensive income will consist principally of
traditionally-determined net income and foreign currency translation
adjustments. This Statement is effective for fiscal years beginning after
December 15, 1997. Reclassification of financial statements for earlier periods
provided for comparative purposes is required.
Statement of Financial Accounting Standards No. 131, "Disclosures about
Segments of an Enterprise and Related Information" establishes revised standards
for the manner in which public business enterprises report information about
operating segments. The Company does not believe that this Statement will
significantly alter the segment disclosures it currently provides. This
Statement is effective for fiscal years beginning after December 15, 1997.
YEAR 2000 ISSUE
Many existing computer programs use only two digits to identify a year in
the date field. These programs were designed and developed without considering
the impact of the upcoming change in the century. If not corrected, many
computer applications could fail or create erroneous results by or at the year
2000.
The Company believes that its principal year 2000 exposure is confined to
one accounting subsystem which is currently under intense review by outside
consultants. The Company believes that this subsystem will be revised or
replaced within the next 12 months. Consulting costs to revise or replace this
subsystem have not been estimated, but are not anticipated to be material to the
Company's business, operations or financial condition.
19
<PAGE> 22
FORWARD-LOOKING STATEMENTS
Statements made in this 1997 Form 10-K that state the Company's or
management's intentions, hopes, beliefs, expectations or predictions of the
future are forward-looking statements within the meaning of the Private
Securities Litigation Reform Act of 1995. It is important to note that the
Company's actual results could differ materially from those contained in such
forward-looking statements. Additional information concerning factors that could
cause actual results to differ materially from those in forward-looking
statements is contained from time to time in the Company's SEC filings,
including the Risk Factors section of the Company's Prospectus dated July 29,
1997, included in its registration statement on Form S-3 (file number
333-31805).
ITEM 7A. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
The Company has not conducted transactions, established commitments or
entered into relationships requiring disclosures beyond those provided elsewhere
in this Form 10-K.
20
<PAGE> 23
ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA
INDEX TO CONSOLIDATED FINANCIAL STATEMENTS
<TABLE>
<CAPTION>
PAGE
NUMBER
------
<S> <C>
Independent Auditors' Reports............................... 22
Consolidated Statements of Earnings for the Years ended
December 31, 1997, 1996 and 1995.......................... 24
Consolidated Balance Sheets as of December 31, 1997 and
1996...................................................... 25
Consolidated Statements of Shareholders' Equity (Deficit)
for the Years ended December 31, 1997, 1996 and 1995...... 26
Consolidated Statements of Cash Flows for the Years ended
December 31, 1997, 1996 and 1995.......................... 27
Notes to Consolidated Financial Statements.................. 28
</TABLE>
21
<PAGE> 24
INDEPENDENT AUDITORS' REPORT
The Board of Directors and Shareholders
The Profit Recovery Group International, Inc.:
We have audited the accompanying Consolidated Balance Sheets of The Profit
Recovery Group International, Inc. and subsidiaries as of December 31, 1997 and
1996, and the related Consolidated Statements of Earnings, Shareholders' Equity
(Deficit), and Cash Flows for each of the years in the three-year period ended
December 31, 1997. These consolidated financial statements are the
responsibility of the Company's management. Our responsibility is to express an
opinion on these consolidated financial statements based on our audits. We did
not audit the consolidated financial statements of Financiere Alma, S.A. and
subsidiaries, which financial statements reflect total assets constituting 12%
and total revenues constituting 6% in 1997 of the related consolidated totals.
Those financial statements where audited by other auditors whose report has been
furnished to us, and our opinion, insofar as it relates to the amounts included
for Financiere Alma, S.A. and subsidiaries, is based solely on the report of the
other auditors.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audits and the report of the other auditors provide a
reasonable basis for our opinion.
In our opinion, based on our audits and the report of the other auditors,
the consolidated financial statements referred to above present fairly, in all
material respects, the financial position of The Profit Recovery Group
International, Inc. and subsidiaries as of December 31, 1997 and 1996, and the
results of their operations and their cash flows for each of the years in the
three-year period ended December 31, 1997 in conformity with generally accepted
accounting principles.
KPMG Peat Marwick LLP
Atlanta, Georgia
January 31, 1998
22
<PAGE> 25
INDEPENDENT AUDITORS' REPORT
The Directors and Shareholders of
Financiere Alma, S.A.
We have audited the accompanying consolidated balance sheet of Financiere
Alma, S.A. and subsidiaries as of December 31, 1997 and the related consolidated
statements of earnings, shareholders' equity and cash flows for the three months
ended December 31, 1997. These financial statements are the responsibility of
the Company's management. Our responsibility is to express an opinion on these
financial statements based on our audit.
We conducted our audit in accordance with auditing standards generally
accepted in the United States. Those standards require that we plan and perform
the audit to obtain reasonable assurance about whether the financial statements
are free of material misstatement. An audit includes examining, on a test basis,
evidence supporting the amounts and disclosures in the financial statements. An
audit also includes assessing the accounting principles used and significant
estimates made by management, as well as evaluating the overall financial
statement presentation. We believe that our audit provides a reasonable basis
for our opinion.
In our opinion, the consolidated financial statements referred to above
present fairly, in all material respects, the financial position of Financiere
Alma, S.A. and subsidiaries as of December 31, 1997, and the results of their
operations and their cash flows for the three months ended December 31, 1997 in
conformity with accounting principles generally accepted in the United States.
ERNST & YOUNG Entrepreneurs
Department d'E&Y Audit
Any Antola
Paris, France
January 31, 1998
23
<PAGE> 26
THE PROFIT RECOVERY GROUP INTERNATIONAL, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF EARNINGS
<TABLE>
<CAPTION>
YEARS ENDED DECEMBER 31,
------------------------------
1997 1996 1995
-------- ------- -------
(IN THOUSANDS, EXCEPT PER
SHARE DATA)
<S> <C> <C> <C>
HISTORICAL
Revenues.................................................... $112,363 $77,330 $56,031
Cost of revenues............................................ 57,726 40,330 30,554
Selling, general, and administrative expenses (Note 2)...... 37,254 25,961 19,035
Restructuring costs (Note 14)............................... 1,208 -- --
-------- ------- -------
Operating income.................................. 16,175 11,039 6,442
Interest (expense), net (Note 2)............................ (403) (100) (1,630)
-------- ------- -------
Earnings before income taxes...................... 15,772 10,939 4,812
Income taxes (Note 5)....................................... 6,149 7,789 305
-------- ------- -------
Net earnings...................................... $ 9,623 $ 3,150 $ 4,507
======== ======= =======
PRO FORMA
Historical earnings before income taxes..................... $10,939 $ 4,812
Pro forma income taxes (Note 5)............................. 4,271 1,877
------- -------
Pro forma net earnings............................ $ 6,668 $ 2,935
======= =======
PER SHARE (NOTE 13)
Earnings (pro forma earnings for 1996 and 1995) per
share -- basic............................................ $ .52 $ .41 $ .24
======== ======= =======
Earnings (pro forma earnings for 1996 and 1995) per
share -- diluted.......................................... $ .51 $ .39 $ .21
======== ======= =======
</TABLE>
See accompanying Notes to Consolidated Financial Statements.
24
<PAGE> 27
THE PROFIT RECOVERY GROUP INTERNATIONAL, INC. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
<TABLE>
<CAPTION>
DECEMBER 31,
----------------------
1997 1996
---------- ---------
(IN THOUSANDS, EXCEPT
SHARE AND PER SHARE
DATA)
<S> <C> <C>
ASSETS
Current assets:
Cash and cash equivalents................................. $ 19,386 $16,891
Receivables:
Billed contract receivables............................. 12,100 3,864
Unbilled contract receivables........................... 41,771 30,734
Employee advances....................................... 2,299 1,363
-------- -------
Total receivables.................................. 56,170 35,961
-------- -------
Refundable income taxes................................... -- 2,049
Prepaid expenses and other current assets................. 2,430 528
-------- -------
Total current assets............................... 77,986 55,429
-------- -------
Property and equipment:
Computer and other equipment.............................. 10,658 5,753
Furniture and fixtures.................................... 2,111 1,569
Leasehold improvements.................................... 1,760 1,183
-------- -------
14,529 8,505
Less accumulated depreciation and amortization............ 5,760 2,272
-------- -------
8,769 6,233
-------- -------
Noncompete agreements, less accumulated amortization of
$3,797 in 1997 and $2,759 in 1996......................... 3,471 4,509
Deferred loan costs, less accumulated amortization of $40 in
1997 and $8 in 1996....................................... 24 56
Goodwill, less accumulated amortization of $986 in 1997 and
$157 in 1996.............................................. 39,591 393
Deferred income taxes (Note 5).............................. 3,585 1,174
Other assets................................................ 459 524
-------- -------
$133,885 $68,318
======== =======
LIABILITIES AND SHAREHOLDERS' EQUITY
Current liabilities:
Notes payable to bank..................................... $ 81 $ --
Current installments of long-term debt (Note 3)........... 1,428 79
Accounts payable and accrued expenses..................... 4,835 1,383
Accrued payroll and related expenses...................... 26,075 16,356
Deferred income taxes (Note 5)............................ 9,917 7,607
Deferred revenue.......................................... 1,087 --
-------- -------
Total current liabilities.......................... 43,423 25,425
Long-term debt, excluding current installments (Note 3)..... 24,365 692
Deferred compensation (Note 6).............................. 2,563 1,642
Other long-term liabilities................................. 462 --
-------- -------
Total liabilities.................................. 70,813 27,759
-------- -------
Shareholders' equity (Notes 3 and 9):
Preferred stock, no par value. Authorized 1,000,000
shares; none issued or outstanding in 1997 and 1996..... -- --
Common stock, no par value; $.001 stated value per share.
Authorized 60,000,000 shares; issued and outstanding
19,193,676 shares in 1997 and 17,649,152 shares in
1996.................................................... 19 18
Additional paid-in capital................................ 48,195 34,188
Cumulative translation adjustments........................ (1,149) (31)
Retained earnings......................................... 16,007 6,384
-------- -------
Total shareholders' equity......................... 63,072 40,559
Commitments (Notes 2, 3, 4 and 8)
-------- -------
$133,885 $68,318
======== =======
</TABLE>
See accompanying Notes to Consolidated Financial Statements.
25
<PAGE> 28
THE PROFIT RECOVERY GROUP INTERNATIONAL, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF SHAREHOLDERS' EQUITY (DEFICIT)
YEARS ENDED DECEMBER 31, 1997, 1996 AND 1995
<TABLE>
<CAPTION>
RETAINED TOTAL
ADDITIONAL CUMULATIVE EARNINGS SHAREHOLDERS'
COMMON PAID-IN SUBSCRIPTIONS TRANSLATION (ACCUMULATED EQUITY
STOCK CAPITAL RECEIVABLE ADJUSTMENTS DEFICIT) (DEFICIT)
------ ---------- ------------- ----------- ------------ -------------
(IN THOUSANDS)
<S> <C> <C> <C> <C> <C> <C>
BALANCE AT DECEMBER 31,
1994....................... $ 57 $ -- $(3) $ (56) $ 2,358 $ 2,356
Net earnings................. -- -- -- -- 4,507 4,507
Proceeds from subscription
receivable................. -- -- 3 -- -- 3
Effect of reorganization
(Note 1(a))................ -- (1,550) -- -- 1,550 --
Distributions................ -- -- -- -- (10,716) (10,716)
Cumulative translation
adjustments................ -- -- -- 5 -- 5
Issuance of common stock in
acquisition of Fial &
Associates, Inc............ 1 442 -- -- -- 443
---- -------- --- ------- ------- -------
BALANCE AT DECEMBER 31,
1995....................... 58 (1,108) -- (51) (2,301) (3,402)
Net earnings................. -- -- -- -- 3,150 3,150
Effect of stock split........ (57) 57 -- -- -- --
Issuance of shares under
employee stock option
plans...................... -- 132 -- -- -- 132
Tax effect of issuance of
option shares to
employees.................. -- 115 -- -- -- 115
Effect of reorganization,
including termination of
Subchapter S and
partnership status (Note
1(a))...................... 2 (10,464) -- 51 10,411 --
Distributions................ -- -- -- -- (4,876) (4,876)
Cumulative translation
adjustments................ -- -- -- (31) -- (31)
Issuance of common stock..... 4 34,008 -- -- -- 34,012
Conversion of 5% convertible
debentures................. 11 11,448 -- -- -- 11,459
---- -------- --- ------- ------- -------
BALANCE AT DECEMBER 31,
1996....................... 18 34,188 -- (31) 6,384 40,559
Net earnings................. -- -- -- -- 9,623 9,623
Issuance of shares under
employee stock option
plans...................... -- 366 -- -- -- 366
Tax effect of issuance of
option shares to
employees.................. -- 263 -- -- -- 263
Cumulative translation
adjustments................ -- -- -- (1,118) -- (1,118)
Issuance of common stock in
acquisitions of
businesses................. 1 13,378 -- -- -- 13,379
---- -------- --- ------- ------- -------
BALANCE AT DECEMBER 31,
1997....................... $ 19 $ 48,195 $-- $(1,149) $16,007 $63,072
==== ======== === ======= ======= =======
</TABLE>
See accompanying Notes to Consolidated Financial Statements.
26
<PAGE> 29
THE PROFIT RECOVERY GROUP INTERNATIONAL, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
<TABLE>
<CAPTION>
YEARS ENDED DECEMBER 31,
-----------------------------
1997 1996 1995
-------- -------- -------
(IN THOUSANDS)
<S> <C> <C> <C>
Cash flows from operating activities:
Net earnings.............................................. $ 9,623 $ 3,150 $ 4,507
Adjustments to reconcile net earnings to net cash provided
by operating activities:
Depreciation and amortization........................... 4,755 2,460 1,810
Loss on sale of property and equipment.................. 26 -- 79
Deferred compensation expense........................... 920 606 474
Deferred income taxes................................... 1,703 6,823 305
Foreign translation adjustments......................... (1,118) (31) 5
Changes in assets and liabilities, net of effect of
acquisition:
Receivables........................................... (12,388) (16,237) (6,755)
Refundable income taxes............................... 1,325 (2,049) --
Prepaid expenses and other current assets............. (929) (226) (237)
Other assets.......................................... 20 (316) (132)
Accounts payable and accrued expenses................. (452) (816) 957
Accrued payroll and related expenses.................. 4,644 8,520 1,518
Deferred revenue...................................... 103 -- --
Other long-term liabilities........................... (16) -- --
-------- -------- -------
Net cash provided by operating activities.......... 8,216 1,884 2,531
-------- -------- -------
Cash flows from investing activities:
Purchases of property and equipment....................... (4,655) (5,076) (2,048)
Acquisition of businesses................................. (26,096) -- (550)
Net decrease in notes receivable from affiliates.......... -- -- 11
-------- -------- -------
Net cash used in investing activities.............. (30,751) (5,076) (2,587)
-------- -------- -------
Cash flows from financing activities:
Net increase in (repayments of) note payable to bank...... (66) (1,763) 1,763
Proceeds from issuance of long-term debt.................. 24,750 -- 12,800
Proceeds from loans from shareholders..................... -- 2,600 --
Repayments of long-term debt.............................. (20) (7,104) (2,853)
Payments of deferred loan costs........................... -- -- (1,000)
Repayments of loans from shareholders..................... -- (3,675) (580)
Net proceeds from common stock............................ 366 34,259 1
Distributions............................................. -- (4,876) (10,717)
-------- -------- -------
Net cash provided by (used in) financing
activities....................................... 25,030 19,441 (586)
-------- -------- -------
Net change in cash and cash equivalents............ 2,495 16,249 (642)
Cash and cash equivalents at beginning of year.............. 16,891 642 1,284
-------- -------- -------
Cash and cash equivalents at end of year.................... $ 19,386 $ 16,891 $ 642
======== ======== =======
Supplemental disclosure of cash flow information:
Cash paid during the year for interest.................... $ 592 $ 1,091 $ 1,207
======== ======== =======
Cash paid during the year for income taxes, net of refunds
received................................................ $ 3,266 $ 3,585 $ --
======== ======== =======
Supplemental disclosure of noncash investing and financing
activities:
In 1997 the Company purchased all the outstanding stock of
four companies and the majority of the outstanding stock
of a foreign company. In conjunction with the
acquisitions, the Company assumed liabilities as
follows:
Fair value of assets acquired........................... $ 50,619
Cash paid for the acquisitions.......................... (26,096)
Fair value of Shares issued for acquisitions............ (13,379)
--------
Liabilities assumed................................ $ 11,144
========
</TABLE>
See accompanying Notes to Consolidated Financial Statements.
27
<PAGE> 30
THE PROFIT RECOVERY GROUP INTERNATIONAL, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
DECEMBER 31, 1997, 1996 AND 1995
(1) SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
(a) Description of Business and Basis of Presentation
Description of Business
The principal business of The Profit Recovery Group International, Inc. and
subsidiaries (the "Company") is providing 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. The Company provides its services throughout
North America, Western Europe, and Southeast Asia.
On March 26, 1996, the Company completed the initial public offering of its
common stock.
Basis of Presentation
Prior to a reorganization in April 1995, the Company was a combination of
the following eight entities with common control: The Profit Recovery Group,
Inc. ("PRG"); The Profit Recovery Group International, L.P. ("PRG L.P."); PRG
International Inc.; The Profit Recovery Group Asia, Inc. ("Asia"); The Profit
Recovery Group Canada, Inc. ("Canada"); The Profit Recovery Group France, Inc.
("France"); The Profit Recovery Group Mexico, Inc. ("Mexico"); and The Profit
Recovery Group U.K., Inc. ("UK").
The April 1995 reorganization principally included the contribution of the
capital stock in Asia, Canada, France, Mexico, and the UK (collectively referred
to as the "Foreign Operating Companies") to a newly formed subsidiary of PRG
L.P., PRG International Holding Co. ("PRG Holdco"). Subsequent to this
reorganization, the Company was a combination of the following three entities
with common ownership: The Profit Recovery Group International I, Inc.
("PRGI" -- formerly PRG), PRG L.P., and PRG Holdco and its five wholly owned
subsidiaries, which are the Foreign Operating Companies. All reorganization
transactions were between parties under common control and, accordingly, were
accounted for in a manner similar to that in a pooling-of-interests.
In connection with the Company's March 1996 initial public offering of its
common stock, a further reorganization was effected. Immediately subsequent to
this reorganization, the Company consisted of The Profit Recovery Group
International, Inc. as the publicly traded parent company and seven wholly owned
subsidiaries: PRGI, Asia, Canada, France, Mexico, UK, and The Profit Recovery
Group Belgium, Inc. ("Belgium"). All reorganization transactions were between
parties under common control and, accordingly, were accounted for in a manner
similar to that in a pooling-of-interests. Upon completion of the March 1996
reorganization, United States operations were conducted through PRGI and the
international operations through the other six subsidiaries. Various additional
operating entities, both domestic and international, have been acquired or
established subsequent to the March 1996 reorganization.
(b) Principles of Consolidation
The consolidated financial statements of the Company in 1997 and 1996, and
the combined financial statements of the Company for 1995 include the financial
statements of the aforementioned entities. All significant intercompany balances
and transactions have been eliminated in consolidation or combination.
Management of the Company has made a number of estimates and assumptions
relating to the reporting of assets and liabilities and the disclosure of
contingent assets and liabilities to prepare these financial statements in
conformity with generally accepted accounting principles. Actual results could
differ from those estimates. A material estimate that is particularly
susceptible to change is the estimation of uncollectible claims (see (c) Revenue
Recognition).
28
<PAGE> 31
THE PROFIT RECOVERY GROUP INTERNATIONAL, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
(c) Revenue Recognition
The Company's revenues are based on specific contracts with its clients.
Such contracts generally specify (a) time periods covered by the audit, (b)
nature and extent of audit services to be provided by the Company, (c) client's
duties in assisting and cooperating with the Company, and (d) fee payable to the
Company expressed as a specified percentage of the amounts recovered by the
client resulting from liability overpayment claims identified. In addition to
contractual provisions, most clients also establish specific procedural
guidelines which the Company must satisfy prior to submitting claims for client
approval. These guidelines are unique to each client and impose specific
requirements on the Company such as adherence to vendor interaction protocols,
provision of advance written notification to vendors of forthcoming claims,
securing written claim validity concurrence from designated client personnel
and, in limited cases, securing written claim validity concurrence from the
involved vendors. The Company defers revenue recognition until client
guidelines, of whatever nature, have been satisfied.
Accepted claims basis of revenue recognition
With respect to accounts payable and ancillary audit services for
retailers, wholesale distributors and governmental agencies (the Company's
historical client base), the Company recognizes revenues at the time overpayment
claims are presented to and approved by its clients, as adjusted for estimated
uncollectible claims.
For accounts payable and ancillary audit services provided to retailers,
wholesale distributors and governmental agencies, the Company believes that it
has completed substantially all contractual obligations to its client at the
time an identified and documented claim which satisfies all client-imposed
guidelines is presented to, and approved by, appropriate client personnel. The
Company further believes that at the time a claim is submitted and accepted by
its client, such claim represents a valid overpayment due to the client from its
vendor. Accordingly, the Company believes that it is entitled to its fee upon
acceptance of such claim by its client, subject to (a) customary and routine
claim disallowance adjustments by the vendor resulting primarily from the
receipt of previously unknown information, and (b) applicable laws.
Disallowances of client-approved claims are susceptible to experience-based
estimation.
The Company's standard client contract for accounts payable and ancillary
audit services provided to retailers, wholesale distributors and governmental
agencies imposes a duty on the client to process promptly all claims against
vendors. In the interest of vendor relations, however, many clients modify the
standard client contract with the Company to provide that they retain discretion
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.
Submitted claims for accounts payable and ancillary audit services provided
to retailers, wholesale distributors and governmental agencies that are not
approved by clients for whatever reason are not considered when recognizing
revenues. Estimated uncollectible claims are initially established, and
subsequently adjusted, for each individual client based on historical collection
rates, types of claims identified, current industry conditions, and other
factors which, in the opinion of management, deserve recognition. The Company
records revenues for accounts payable and ancillary audit services provided to
retailers, wholesale distributors and governmental agencies at estimated net
realizable value without reserves. Accordingly, adjustments to uncollectible
claim estimates are directly charged or credited to earnings, as appropriate.
Approved claims for accounts payable and ancillary audit services provided
to retailers, wholesale distributors and governmental agencies are processed by
clients and generally taken as credits against outstanding payables or future
purchases from the vendors involved. Once credits are taken, the Company
29
<PAGE> 32
THE PROFIT RECOVERY GROUP INTERNATIONAL, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
invoices its clients for a contractually stipulated percentage of the amounts
recovered. The Company's contract receivables for accounts payable and ancillary
audit services provided to retailers, wholesale distributors and governmental
agencies are largely unbilled because it does not control (a) the timing of a
client's claims processing activities, or (b) the timing of a client's payments
for current and future purchases. In the Company's experience, material
receivables are expected to be collected within one year after such receivables
are recorded.
During 1997, 1996 and 1995, revenues derived from accounts payable and
ancillary services provided to retailers, wholesale distributors and
governmental agencies represented 86.7%, 100.0% and 100.0%, respectively, of
total revenues for such years.
Invoice basis of revenue recognition
With regard to accounts payable and other recovery audit services provided
to most entities other than retailers, wholesale distributors and governmental
agencies, the Company recognizes revenues primarily when it invoices clients for
its portion of amounts already recovered. This deferral of revenue recognition
for these types of clients results principally from the Company's lack of a
historical experience base to accurately estimate uncollectible claims. Revenues
recognized in 1997 on the invoice basis represented 13.3% of total revenues for
the year. The Company did not serve entities other than retailers, wholesale
distributors and governmental agencies (the Company's historical client base) in
either 1996 or 1995.
(d) Cash Equivalents
Cash equivalents at December 31, 1997 and 1996 consisted of $2.5 million
and $11.9 million, respectively, of reverse repurchase agreements with
NationsBank, N.A. (South) which were fully collateralized by United States of
America Treasury Notes in the possession of such bank. The reverse repurchase
agreement in effect on December 31, 1997, matured and was settled on January 2,
1998. In addition, certain of the Company's French subsidiaries at December 31,
1997 had cash equivalents of $4.7 million in temporary investments held at a
French bank.
The Company does not intend to take possession of collateral securities on
future reverse repurchase agreement transactions conducted with banking
institutions of national standing. The Company does insist, however, that all
such agreements provide for full collateralization using obligations of the
United States of America having a current market value equivalent to or
exceeding the reverse repurchase agreement amount.
(e) Property and Equipment
Property and equipment are stated at cost. Depreciation is provided using
the straight-line method over the estimated useful lives of the assets.
Leasehold improvements are amortized using the straight-line method over the
shorter of the lease term or estimated life of the asset.
(f) Direct Expenses
Direct expenses incurred during the course of the accounts payable audits
and other recovery audit services are expensed as incurred.
Non-management auditor compensation expense for substantially all of the
Company's domestic auditors and certain of its international auditors is
recorded at the time of related revenue recognition and subsequently paid as
such revenue is collected. Previously established auditor compensation accruals
are subsequently adjusted on a monthly basis to correspond with adjustments to
uncollectible claim estimates. In certain of the Company's international
locations fixed salaries are paid to non-management auditors. All non-auditor
Company employees are compensated on the basis of salary and in certain cases,
bonuses, which are charged to operations as incurred.
30
<PAGE> 33
THE PROFIT RECOVERY GROUP INTERNATIONAL, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
(g) Software Development Costs
Software development costs related to the development of the Company's
proprietary audit software are expensed as incurred.
(h) Intangibles
Goodwill. Goodwill represents the excess of the purchase price over the
estimated fair market value of net assets of acquired businesses. The Company
evaluates the unique relevant aspects of each individual acquisition when
establishing an appropriate goodwill amortization period, and amortizes all
goodwill amounts on a straight-line basis. Goodwill recorded as of December 31,
1997 is being amortized over periods ranging from seven to 20 years. The Company
assesses the recoverability of this intangible asset by determining whether the
amortization of the goodwill balance over its remaining life can be recovered
through undiscounted future operating cash flows of the acquired operation. The
amount of goodwill impairment, if any, is measured based on projected discounted
future operating cash flows using a discount rate reflecting the Company's
average cost of funds. The assessment of the recoverability of goodwill will be
impacted if estimated future operating cash flows are not achieved.
Noncompete Agreements. Noncompete agreements are recorded at cost and are
amortized on a straight-line basis over the terms of the respective agreements.
Deferred Loan Costs. Deferred loan costs are recorded at cost and are
amortized on a straight-line basis over the terms of the respective loan
agreements.
(i) Income Taxes
The Company's predecessors (prior to April 24, 1995 for international
entities and March 28, 1996 for domestic entities) consisted of Subchapter S
corporations and a partnership. As such, the Federal and state income taxes with
regard to these entities historically have been the responsibility of the
respective shareholders and partners. The results of operations for all periods
presented which include operations prior to April 1, 1996 have been adjusted on
a pro forma basis to reflect Federal and state income taxes at a composite rate
of 39% as if the Company's predecessors had been C corporations throughout such
periods.
In the second quarter of 1995, the Company's predecessors reorganized and
its international entities became C corporations. Additionally, in connection
with the Company's March 1996 initial public offering, all domestic entities
became C corporations. As a result of these conversions to C corporations, the
Company incurred charges to operations of $305,000 in the second quarter of 1995
and $3.7 million in the first quarter of 1996 for cumulative deferred income
taxes.
Income taxes are accounted for under the asset and liability method.
Deferred tax assets and liabilities are recognized for the future tax
consequences attributable to differences between the financial statement
carrying amounts of existing assets and liabilities and their respective tax
bases and operating loss and tax credit carryforwards. Deferred tax assets and
liabilities are measured using enacted tax rates expected to apply to taxable
income in the years in which those temporary differences are expected to be
recovered or settled. The effect on deferred tax assets and liabilities of a
change in tax rates is recognized in income in the period that includes the
enactment date.
(j) Foreign Currency Translation
The local currency has been used as the functional currency in the
countries in which the Company conducts business outside of the United States.
The assets and liabilities denominated in foreign currency are translated into
U.S. dollars at the current rate of exchange at the balance sheet date and
revenues and expenses are translated at the average monthly exchange rates. The
translation gains and losses are included as
31
<PAGE> 34
THE PROFIT RECOVERY GROUP INTERNATIONAL, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
a separate component of shareholders' equity. Transaction gains and losses
included in results of operations are not material.
(k) Earnings (Pro Forma Earnings) Per Share
Effective December 31, 1997, the Company adopted Statement of Financial
Accounting Standards ("SFAS") No. 128, "Earnings per Share." This pronouncement
required the restatement of all prior-period earnings per share data presented
to conform to its provisions. Basic earnings (pro forma earnings) per share is
computed by dividing net earnings (pro forma earnings) by the weighted average
number of shares of common stock outstanding during the year. Diluted earnings
(pro forma earnings) per share is computed by dividing net earnings (pro forma
earnings) by the sum of (1) the weighted average number of shares of common
stock outstanding during the period (2) the dilutive effect of the assumed
exercise of stock options using the treasury stock method and (3) dilutive
effect of other potentially dilutive securities.
For all periods prior to April 1, 1996, diluted pro forma earnings per
share has been computed by dividing the pro forma net earnings, which gives
effect to pro forma income taxes, by the weighted average number of common and
potential common shares outstanding during the period, after giving effect to
the reorganization enacted at the time of the Company's March 1996 initial
public offering. For purposes of determining the weighted average number of
common and potential common shares for all periods prior to April 1, 1996, the
Company has followed required supplementary guidance contained in Securities and
Exchange Commission Staff Accounting Bulletin Topic 4D and has treated all
common shares, warrants, options, and convertible debentures issued within one
year prior to its initial public offering as exercised and outstanding, using
the treasury stock method, regardless if the effect was antidilutive. In
addition, the aforementioned computation includes the equivalent number of
common shares derived from dividing the $4.9 million in 1996 dividends and
distributions by $11.00 per share.
(l) Employee Stock Options
Prior to January 1, 1996, the Company accounted for its stock option plan
in accordance with the provisions of Accounting Principles Board ("APB") Opinion
No. 25, "Accounting for Stock Issued to Employees," and related interpretations.
As such, compensation expense would be recorded on the date of grant only if the
current market price of the underlying stock exceeded the exercise price. On
January 1, 1996, the Company adopted SFAS No. 123, "Accounting for Stock-Based
Compensation", which permits entities to recognize as expense over the vesting
period the fair value of all stock-based awards on the date of grant.
Alternatively, SFAS No. 123 also allows entities to continue to apply the
provisions of APB Opinion No. 25 and provide pro forma net income and pro forma
earnings per share disclosures for employee stock option grants made in 1995 and
future years as if the fair-value-based method defined in SFAS No. 123 had been
applied. The Company has elected to continue to apply the provisions of APB
Opinion No. 25 and provide the pro forma disclosures of SFAS No. 123.
(2) RELATED PARTY TRANSACTIONS
Prior to the Company's March 1996 initial public offering, the Company
periodically borrowed funds from its principal shareholders. These loans were
evidenced by promissory notes bearing interest at market rates. All loans from
shareholders were repaid in full immediately subsequent to the Company's initial
public offering.
Interest expense on loans from shareholders for the years ended December
31, 1996 and 1995 was approximately $38,000 and $140,000, respectively.
Financial advisory and management services historically have been provided
to the Company by two directors who are also shareholders of the Company. In
addition, a director elected in 1995 provided
32
<PAGE> 35
THE PROFIT RECOVERY GROUP INTERNATIONAL, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
management advisory services to the Company from July 1995 through December
1996, but no longer provided such services effective January 1, 1997. Such
services by directors aggregated $165,000 in 1997, $293,000 in 1996, and
$406,000 in 1995. The Company has agreed to pay the above-mentioned two
directors a minimum of $140,000 in 1998 for financial advisory and management
services.
(3) LONG-TERM DEBT
Long-term debt at December 31, 1997 and 1996 is summarized as follows:
<TABLE>
<CAPTION>
1997 1996
------- ----
(IN THOUSANDS)
<S> <C> <C>
Term bank loan with interest at LIBOR plus 1.75% (7.69% at
December 31, 1997), interest only payments through
September 1998, and monthly principal payments of $412,500
plus interest due commencing October 1998 and continuing
through September 2001; remaining unpaid balance due
September 2001............................................ $24,750 $ --
5.05% promissory note, principal and interest payable in
annual installments of $100,000 beginning December 1998
and continuing through December 2009...................... 790 771
Term loan with interest of PIBOR plus 1.25% (3.7% at
December 31, 1997) requiring quarterly payments of 44,704
French Francs, or $7,465 at December 31, 1997, including
interest, with final payment due April 2000............... 198 --
Other....................................................... 55 --
------- ----
25,793 771
Less current installments................................... 1,428 79
------- ----
Long-term debt, excluding current installments.... $24,365 $692
======= ====
</TABLE>
During October 1997, the Company increased its credit facility with
NationsBank, N.A. from $20.0 million to $30.0 million. The credit facility
permits the Company to borrow up to $30.0 million on a term loan basis to
finance mergers and acquisitions. Alternatively, the Company, at its option, may
utilize up to $10.0 million as a revolving line of credit for working capital
and utilize the remaining $20.0 million for mergers and acquisitions. Borrowings
under the credit facility can be made through September 1999 although repayment
of individual term loan borrowings made before or during September 1999 are
repayable over 48 months. As of December 31, 1997, the Company had outstanding
principal borrowings of $24.8 million under the credit facility. Such borrowings
were made in October 1997 in connection with the financing of the Financiere
Alma, S.A. and subsidiaries acquisition (see note 8). The credit facility is
secured by substantially all assets of the Company and interest on borrowings
can be tied to either prime or LIBOR at the Company's discretion. The Company is
required to repay all amounts outstanding under the revolving line of credit
portion of the aggregate credit facility and to refrain from borrowing any
amounts under such line of credit portion for at least a 30-consecutive-day
period each year. The credit facility requires an annual commitment fee of 1/4
of 1% and contains customary covenants, including financial ratios and the
prohibition of cash dividend payments to shareholders. At December 31, 1997, the
Company was in compliance with all such covenants.
Approximate future minimum annual principal payments for long-term debt for
each of the five years subsequent to December 31, 1997 are as follows (in
thousands):
<TABLE>
<S> <C>
1998........................................................ $ 1,428
1999........................................................ 5,108
2000........................................................ 5,046
2001........................................................ 13,673
2002........................................................ 64
</TABLE>
33
<PAGE> 36
THE PROFIT RECOVERY GROUP INTERNATIONAL, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
In December 1995, the Company extinguished a noncompete agreement
obligation. Such extinguishment resulted in a loss which was not material.
(4) LEASE COMMITMENTS
The Company is committed under noncancelable operating lease arrangements
for facilities and equipment. Rent expense for 1997, 1996, and 1995 was $3.0
million, $2.5 million, and $1.0 million, respectively. The future minimum annual
lease payments under these leases by year are summarized as follows (in
thousands):
<TABLE>
<CAPTION>
YEAR ENDING DECEMBER 31,
- ------------------------
<S> <C>
1998........................................................ $ 3,697
1999........................................................ 2,799
2000........................................................ 1,980
2001........................................................ 1,535
2002........................................................ 800
Thereafter.................................................. 3,932
-------
$14,743
=======
</TABLE>
(5) INCOME TAXES
HISTORICAL
Prior to the April 1995 reorganization, the historical income taxes were
the responsibility of the shareholders and partners (see Note 1(i) Income
Taxes). In connection with the April 1995 reorganization, the Company
established a net deferred tax liability of approximately $305,000 as a charge
to the 1995 Consolidated Statement of Earnings related to the five Foreign
Operating Companies' termination of the Subchapter S corporation status. The
results of operations for the five Foreign Operating Companies from May 1995 to
December 1995 represented a taxable loss which was fully offset by a deferred
income tax valuation allowance. Such amounts and related deferred income tax
temporary differences were not significant.
In connection with the Company's March 1996 initial public offering, a
further reorganization occurred and the Subchapter S corporation status or
partnership status of all then remaining entities that comprised the Company was
terminated. These terminations resulted in the establishment of an additional
deferred tax liability of approximately $3.7 million and a corresponding charge
to the 1996 Consolidated Statement of Earnings.
34
<PAGE> 37
THE PROFIT RECOVERY GROUP INTERNATIONAL, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
The provision for income taxes for the years ended December 31, 1997 and
1996 consists of the following (in thousands):
<TABLE>
<CAPTION>
1997 1996
------ ------
<S> <C> <C>
Current:
Federal................................................... $1,171 $ 413
State..................................................... 375 153
Foreign................................................... 2,900 400
------ ------
4,446 966
------ ------
Deferred:
Federal................................................... 921 5,997
State..................................................... 184 826
Foreign................................................... 598 --
------ ------
1,703 6,823
------ ------
Total............................................. $6,149 $7,789
====== ======
</TABLE>
A reconciliation of income tax expense at the Federal statutory rates of
35% and 34% to actual tax expense for the years ended December 31, 1997 and
1996, respectively, follows (in thousands):
<TABLE>
<CAPTION>
1997 1996
------ ------
<S> <C> <C>
Income taxes at Federal statutory rate...................... $5,520 $3,719
Establishment of deferred tax liability due to termination
of Subchapter S corporation status and partnership
status.................................................... -- 3,700
State income taxes, net of Federal income tax benefit....... 363 646
Pro forma income taxes that were the responsibility of the
shareholders and partners................................. -- (158)
Other, net.................................................. 266 (118)
------ ------
$6,149 $7,789
====== ======
</TABLE>
35
<PAGE> 38
THE PROFIT RECOVERY GROUP INTERNATIONAL, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
A summary of the components of deferred tax liabilities and assets as of
December 31, 1997 and 1996 follows (in thousands):
<TABLE>
<CAPTION>
1997 1996
------- -------
<S> <C> <C>
Deferred tax liabilities:
Contract receivables...................................... $16,974 $11,987
Accelerated depreciation for tax purposes................. 532 234
Goodwill.................................................. 177 154
------- -------
Gross deferred tax liabilities.................... 17,683 12,375
------- -------
Deferred tax assets:
Cash to accrual conversion from termination of Subchapter
S and partnership status............................... 309 419
Accounts payable and accrued expenses..................... 438 --
Accrued payroll and related expenses...................... 5,912 3,961
Deferred compensation..................................... 961 875
Noncompete agreements..................................... 848 410
Deferred revenues......................................... 577 --
Deferred loan costs....................................... 182 277
Net operating loss carryforward of foreign subsidiary..... 385 --
Foreign tax credit carryforwards.......................... 1,554 --
Other..................................................... 185 --
------- -------
Gross deferred tax assets......................... 11,351 5,942
------- -------
Net deferred tax liabilities...................... $ 6,332 $ 6,433
======= =======
</TABLE>
In assessing the realizability of deferred tax assets, the Company's
management considers whether it is more likely than not that some portion or all
of the deferred tax assets will not be realized. No valuation allowances were
deemed necessary since all deductible temporary differences are expected to be
utilized primarily against reversals of taxable temporary differences, and net
operating loss carryforwards and foreign tax credit carryforwards are expected
to be utilized through related future taxable and foreign source earnings. The
Company has no undistributed earnings of foreign subsidiaries, but does have a
net operating loss carryforward of $1.1 million which can be utilized
indefinitely against future taxable earnings of a foreign subsidiary, to the
extent there is no significant change in the ownership of the foreign
subsidiary. The Company's management believes the net operating loss
carryforward will be fully utilized against the forecasted future taxable
earnings of the foreign subsidiary. The Company has foreign income tax credit
carryforwards amounting to $1.6 million, of which $400,000 will expire in 2001
and $1.2 million will expire in 2002. The Company expects to generate sufficient
foreign-sourced income by implementing reasonable tax planning strategies to
fully utilize the foreign income tax credit carryforwards.
(UNAUDITED) PRO FORMA
The pro forma provision for income taxes reflects the income taxes as if
the Company were subject to all Federal and state income taxes for all periods
presented that include operations prior to April 1, 1996, rather than primarily
by the individual shareholders and partners. All pro forma income taxes have
been calculated using a 39% composite effective rate.
(6) EMPLOYEE BENEFIT PLANS
The Company maintains a 401(k) Plan in accordance with Section 401(k) of
the Internal Revenue Code, which allows eligible participating employees to
defer receipt of a portion of their compensation up to
36
<PAGE> 39
THE PROFIT RECOVERY GROUP INTERNATIONAL, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
15% and contribute such amount to one or more investment funds. Employee
contributions are matched by the Company in a discretionary amount to be
determined by the Company each plan year up to $450 per participant. The Company
may also make discretionary contributions to the Plan as determined by the
Company each plan year. Company matching funds and discretionary contributions
vest at the rate of 20% each year beginning after the participants' first year
of service. Company contributions were approximately $130,000 in 1997, $114,000
in 1996 and $33,000 in 1995.
The Company also maintains deferred compensation arrangements for certain
key officers and executives. Total expense related to these deferred
compensation arrangements was approximately $920,000, $606,000, and $340,000 in
1997, 1996, and 1995, respectively.
Effective May 15, 1997, the Company established an employee stock purchase
plan pursuant to Section 423 of the Internal Revenue Code of 1986, as amended.
The plan covers 750,000 shares of the Company's common stock which may be
authorized but unissued shares, reacquired shares or shares bought on the open
market. The initial purchase period began on July 1, 1997 and ended on December
31, 1997. On January 19, 1998, share certificates for 32,348 shares were issued
to employees who were initial purchase period participants. The Company is not
required to recognize compensation expense related to this plan.
(7) COMMON STOCK
The following presents the common stock at December 31, 1995 for each
combined entity:
<TABLE>
<S> <C>
Common stock:
The Profit Recovery Group International I, Inc. (formerly
The Profit Recovery Group, Inc.) authorized 10,000,000
shares with $.01 par value; issued and outstanding
5,740,000 shares at December 31, 1995 and 5,380,000
shares at December 31, 1994............................ $57,400
PRG International Holding Co. -- authorized 1,000 shares
with $1.00 par value; issued and outstanding 1,000
shares at December 31, 1995............................ 1,000
-------
$58,400
=======
</TABLE>
In connection with the April 1995 reorganization, the Company issued an
additional 480,000 shares of common stock in PRGI to the existing shareholders,
formed PRG Holdco with 1,000 shares of common stock, and consolidated the five
Foreign Operating Companies into PRG Holdco.
Subsequent to the Company's March 1996 initial public offering of its
common stock, all entities that comprise the Company are wholly owned
subsidiaries of the publicly traded parent company, The Profit Recovery Group
International, Inc., whose common stock is reflected in shareholders' equity on
the accompanying December 31, 1997 and 1996 Consolidated Balance Sheets.
Concurrent with the Company's initial public offering, The Profit Recovery Group
International, Inc. declared a two-for-one stock split effected in the form of a
stock dividend. All share and pro forma per share information has been adjusted
to reflect the effect of the stock split.
Immediately prior to the Company's March 26, 1996 initial public offering
of its common stock, holders of the $12.7 million in convertible debentures
elected to convert $12.3 million into equity of the Company. The remaining
debentures together with accrued interest on the entire $12.7 million were paid
in April 1996 with a portion of the initial public offering proceeds.
Additionally, $817,000 in deferred loan costs directly related to the debentures
was reclassified as a reduction in shareholders' equity concurrent with the
conversion of the debentures. In connection with the debentures origination, an
investment banking firm received a warrant to purchase 63,530 shares of PRGI's
common stock for $5.89 per share. This warrant was exercised in full immediately
prior to the Company's initial public offering.
37
<PAGE> 40
THE PROFIT RECOVERY GROUP INTERNATIONAL, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
The Company's initial public offering of its common stock was declared
effective by the United States Securities and Exchange Commission on March 26,
1996, and public trading in the registered shares commenced March 27, 1996. The
initial public offering consisted of 4.6 million shares priced at $11 per share
with the Company selling 3.4 million newly issued shares and certain
shareholders selling 1.2 million existing shares. The Company received $34.8
million as its portion of the proceeds (net of underwriting discounts and
commissions, but prior to offering expenses). On April 18, 1996, the Company
received notification from its initial public offering underwriting syndicate
that the syndicate had exercised its full over-allotment option to purchase an
additional 690,000 shares of Company common stock. All of these shares were then
sold to the underwriting syndicate by certain selling shareholders. The Company
received no proceeds from the sale of such shares.
Although the Company has issued no preferred stock through December 31,
1997, and has no present intentions to issue any preferred stock, such stock may
be issued at any time or from time to time in one or more series with such
designations, powers, preferences, rights, qualifications, limitations and
restrictions (including dividend, conversion and voting rights) as may be
determined by the Company's Board of Directors, without any further vote or
action by the shareholders.
(8) ACQUISITIONS
Effective January 1, 1995, PRGI acquired certain assets of Fial &
Associates, Inc., primarily consisting of contract receivables, net of related
commissions liabilities, with an estimated fair value of approximately $444,000,
and entered into a noncompete agreement for seven years with the former owner of
Fial, with an estimated fair value of $6.0 million. In exchange for the assets
and the noncompete agreement, PRGI issued 240,000 shares of PRGI's common stock,
paid $1.6 million in cash, and incurred an obligation of approximately $5.0
million. In the opinion of the Company's management, the common stock had an
estimated fair value of $1.85 per share. The acquisition was accounted for under
the purchase method of accounting and resulted in goodwill of $550,000 which is
being amortized over seven years using the straight-line method. Fial's
principal business was similar to PRGI's business. Fial provided its services
throughout the United States.
On January 2, 1997, the Company acquired the net operating assets of Shaps
Group, Inc., a California-based company providing recovery audit services to
manufacturers, and distributors of high technology products. The Company issued
375,000 shares of its common stock in the transaction which was accounted for as
a pooling-of-interests. Since prior years' financial positions and results of
operations of Shaps Group, Inc. are not material in relation to the Company's
historical financial statements, the Company did not restate its prior years'
consolidated financial statements.
On February 11, 1997, the Company acquired all of the common stock of
Accounts Payable Recovery Services, Inc., a Texas-based company providing
recovery audit services to healthcare entities and energy companies. This
transaction was accounted for as a purchase with consideration of $2.0 million
in cash and 130,599 shares of the Company's common stock valued at $15.25 per
share. This acquisition resulted in goodwill of $3.9 million which is being
amortized over 15 years using the straight-line method.
On May 23, 1997, the Company acquired all of the common stock of The Hale
Group, a California-based company providing recovery audit services to
healthcare entities. This transaction was accounted for as a purchase with
consideration of $1.1 million in cash and 74,998 shares of the Company's common
stock valued at $13.38 per share. This acquisition resulted in goodwill of $2.1
million which is being amortized over 15 years using the straight-line method.
On October 7, 1997, the Company acquired 98.4% of Financiere Alma, S.A. and
subsidiaries ("Alma"), a privately held recovery audit firm based in Paris,
France. This transaction was accounted for as a purchase with consideration of
$24.6 million in cash and approximately 859,000 restricted, unregistered shares
of the Company's common stock with an aggregate estimated fair value of $10.0
million, based on an independent external valuation. The Company has an
obligation to acquire the remaining interest in Alma by January 1999
38
<PAGE> 41
THE PROFIT RECOVERY GROUP INTERNATIONAL, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
for $398,000 in cash and 13,900 unregistered shares of the Company's common
stock. This acquisition resulted in goodwill of $33.0 million which is being
amortized over 20 years using the straight-line method.
On November 21, 1997, the Company acquired the net operating assets of
TradeCheck, LLC, a Washington-based recovery audit firm specializing in ocean
freight shipments. This transaction was accounted for as a purchase with
consideration of $700,000 in cash and 40,000 shares of the Company's common
stock valued at $14.375 per share. This acquisition resulted in goodwill of $1.1
million which is being amortized over 15 years using the straight-line method.
Results of operations for all 1997 acquisitions accounted for under the
purchase method of accounting have been included in the 1997 Consolidated
Statement of Earnings from their respective dates of acquisition with the
exception of the October 7, 1997 acquisition of Alma, which was included
effective October 1, 1997.
The following represents the summary (unaudited) pro forma results of
operations as if the Alma acquisition had occurred at the beginning of 1996. The
pro forma results are not necessarily indicative of the results that will occur
in the future.
<TABLE>
<CAPTION>
YEARS ENDED
DECEMBER 31,
-------------------
1997 1996
-------- -------
<S> <C> <C>
Revenues.................................................... $127,409 $98,586
======== =======
Net earnings................................................ $ 9,432 $ 2,500
======== =======
Pro forma net earnings...................................... $ 9,432 $ 6,018
======== =======
Earnings (pro forma net earnings for 1996) per share:
Basic..................................................... $ .49 $ .36
======== =======
Diluted................................................... $ .48 $ .33
======== =======
</TABLE>
All businesses acquired by the Company during 1997, other than Alma,
previously maintained their respective accounting records using the cash basis
of accounting. Accordingly, it is not practicable to provide accrual basis pro
forma results of operations which include these entities. The Company believes,
however, that pro forma accrual basis results of operations for these entities,
if determined, would not be significant, either individually or in the
aggregate.
(9) STOCK OPTION PLAN
The Company's 1996 Stock Option Plan ("Plan") has authorized the grant of
options to purchase 3,500,000 shares of the Company's common stock to key
employees and directors. All options granted through December 31, 1997 have
10-year terms and vest and become fully exercisable on a ratable basis over four
or five years of continued employment.
Pro forma information regarding net earnings and earnings per share is
required by SFAS No. 123, and has been determined as if the Company had
accounted for its employee stock options under the fair value method of that
Statement. The fair value for these options was estimated at the date of grant
using a Black-Scholes option pricing model with the following weighted-average
assumptions for 1997, 1996 and 1995:
<TABLE>
<CAPTION>
1997 1996 1995
------- ------- -------
<S> <C> <C> <C>
Risk-free interest rates.................................... 6.17% 6.26% 6.06%
Dividend yields............................................. -- -- --
Volatility factor of expected market price.................. .537 .396 .396
Weighted-average expected life of option.................... 6 years 6 years 6 years
</TABLE>
39
<PAGE> 42
THE PROFIT RECOVERY GROUP INTERNATIONAL, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
The Black-Scholes option valuation model was developed for use in
estimating the fair value of traded options which have no vesting restrictions
and are fully transferable. In addition, option valuation models require the
input of highly subjective assumptions, including the expected stock price
volatility. Because the Company's employee stock options have characteristics
significantly different from those of traded options, and because changes in the
subjective input assumptions can materially affect the fair value estimate, in
management's opinion, the existing models do not necessarily provide a reliable
single measure of the fair value of its employee stock options.
For purposes of pro forma disclosures, the estimated fair value of the
options is amortized to expense over the options' vesting period. The Company's
pro forma information for the years ended December 31, 1997, 1996 and 1995
follows (in thousands, except for pro forma earnings per share information):
<TABLE>
<CAPTION>
1997 1996 1995
------- ------- -------
<S> <C> <C> <C>
Historical earnings before income taxes................... $15,772 $10,939 $ 4,812
Income taxes (pro forma income taxes for 1996 and 1995)... 6,149 4,271 1,877
------- ------- -------
Net earnings (pro forma net earnings for 1996 and 1995)
before pro forma effect of compensation expense
recognition provisions of SFAS No. 123.................. 9,623 6,668 2,935
Pro forma effect of compensation expense recognition
provisions of SFAS No. 123.............................. 1,382 504 111
------- ------- -------
Pro forma net earnings.................................... $ 8,241 $ 6,164 $ 2,824
======= ======= =======
Pro forma net earnings per share:
Basic................................................... $ .45 $ .38 $ .24
======= ======= =======
Diluted................................................. $ .44 $ .36 $ .21
======= ======= =======
</TABLE>
A summary of the Company's stock option activity and related information
for the years ended December 31 follows:
<TABLE>
<CAPTION>
1997 1996 1995
--------------------- --------------------- -------------------
WEIGHTED- WEIGHTED- WEIGHTED-
AVERAGE AVERAGE AVERAGE
EXERCISE EXERCISE EXERCISE
OPTIONS PRICE OPTIONS PRICE OPTIONS PRICE
--------- --------- --------- --------- ------- ---------
<S> <C> <C> <C> <C> <C> <C>
Outstanding -- beginning of
year...................... 1,258,030 $ 9.60 633,000 $ 5.53 -- $ --
Granted..................... 1,030,263 15.47 677,030 13.16 633,000 5.53
Exercised................... (65,100) 5.36 (28,000) 5.30 -- --
Forfeited................... (15,300) 13.60 (24,000) 5.94 -- --
--------- --------- -------
Outstanding -- end of
year...................... 2,207,893 $12.44 1,258,030 $ 9.60 633,000 $5.53
========= ========= =======
Exercisable at end of
year...................... 287,946 $ 9.12 94,400 $ 5.30 -- $ --
Weighted average fair value
of options granted during
year...................... $ 8.96 $ 6.44 $ 2.67
</TABLE>
Exercise prices for options outstanding as of December 31, 1997 ranged from
$5.30 to $19.88 per share. The weighted average remaining contract life of those
options was 8.6 years. Of the 2,207,893 options outstanding at December 31,
1997, 527,600 were granted at prices below the Company's initial public offering
price of $11.00 per share and 1,680,293 were granted at prices equal to or
greater than $11.00.
The 527,600 options outstanding at December 31, 1997 which were priced
below $11.00 per share carried a weighted-average exercise price of $5.60 per
share and had a weighted-average remaining contract life of 7.5 years. They
included 135,040 exercisable options at a price of $5.30 per share.
40
<PAGE> 43
THE PROFIT RECOVERY GROUP INTERNATIONAL, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
The 1,680,293 options outstanding at December 31, 1997 which were priced at
or above $11.00 per share carried a weighted-average exercise price of $14.59
per share and had a weighted-average remaining contract life of 9.0 years. They
included 131,706 options that were exercisable at a weighted-average price of
$13.21 per share.
(10) MAJOR CLIENTS
The Company had two major clients during 1997, each of which provided
revenues in excess of 10% of total revenues. Both major clients are mass
merchandisers operating in the retail industry.
During the years ended December 31, 1997, 1996, and 1995, the Company
derived 10.4%, 14.4% and 12.7%, respectively, of its total revenues from its
historically largest client. Additionally, during 1997 the Company derived 12.3%
of its total revenues from another client due in large part to a nonrecurring
situation involving concurrent audits of multiple years.
(11) INTERNATIONAL SEGMENTS
The Company has operations outside the United States. The following is a
summary of geographic area information, as measured by the area of
revenue-producing operations, for the years ended December 31, 1997, 1996, and
1995 (in thousands):
<TABLE>
<CAPTION>
1997 1996 1995
-------- ------- -------
<S> <C> <C> <C>
Revenues:
United States (U.S.)................................... $ 81,653 $62,701 $49,002
North America, excluding U.S........................... 10,907 7,811 3,778
Western Europe......................................... 17,233 4,422 2,422
Asia-Pacific........................................... 2,570 2,396 829
-------- ------- -------
Total.......................................... $112,363 $77,330 $56,031
======== ======= =======
Operating income (loss):
United States (U.S.)................................... $ 12,109 $10,680 $ 6,854
North America, excluding U.S........................... 2,971 899 30
Western Europe......................................... 3,541 (238) (137)
Asia-Pacific........................................... (2,446) (302) (305)
-------- ------- -------
Total.......................................... $ 16,175 $11,039 $ 6,442
======== ======= =======
Identifiable assets:
United States (U.S.)................................... $ 74,876 $59,237 $27,244
North America, excluding U.S........................... 5,362 4,593 1,541
Western Europe......................................... 50,942 2,155 851
Asia-Pacific........................................... 2,705 2,333 632
-------- ------- -------
Total.......................................... $133,885 $68,318 $30,268
======== ======= =======
</TABLE>
(12) FAIR VALUE OF FINANCIAL INSTRUMENTS
The carrying amounts for cash and cash equivalents, receivables, note
payable to bank, accounts payable and accrued expenses, accrued payroll and
related expenses, and deferred revenue approximate fair value because of the
short maturity of these instruments.
The fair values of each of the Company's long-term debt instruments are
based on the amount of future cash flows associated with each instrument
discounted using the Company's current borrowing rate for similar debt
instruments of comparable maturity. The estimated fair value of the Company's
long-term debt
41
<PAGE> 44
THE PROFIT RECOVERY GROUP INTERNATIONAL, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
instruments at December 31, 1997 and 1996 was $25.9 million and $675,000,
respectively, and the carrying value of the Company's long-term debt at December
31, 1997 and 1996 was $25.8 million and $771,000, respectively.
Fair value estimates are made at a specific point in time, based on
relevant market information about the financial instrument. These estimates are
subjective in nature and involve uncertainties and matters of significant
judgment and therefore cannot be determined with precision. Changes in
assumptions could significantly affect the estimates.
(13) EARNINGS PER SHARE
The following table sets forth the computations of basic and diluted
earnings per share for the years ended December 31, 1997, 1996 and 1995 (in
thousands except for earnings per share information):
<TABLE>
<CAPTION>
1997 1996 1995
------- ------- -------
<S> <C> <C> <C>
Numerator:
Numerator for basic earnings (pro forma earnings for 1996
and 1995) per share.................................... $ 9,623 $ 6,668 $ 2,935
Interest accrued on convertible debt, net of income
taxes.................................................. -- 97 258
------- ------- -------
Numerator for diluted earnings (pro forma earnings for
1996 and 1995) per share.............................. $ 9,623 $ 6,765 $ 3,193
======= ======= =======
Denominator:
Denominator for basic earnings (pro forma earnings for
1996 and 1995) per share -- weighted-average shares
outstanding........................................... 18,415 16,268 12,000
Effect of dilutive securities:
Employee stock options............................... 494 545 348
Convertible debt..................................... -- 539 2,157
Common equivalent shares from the distribution
payable ($4,875,576) divided by the initial public
offering price of $11 per share (and weighted since
the initial public offering)........................ -- 105 443
------- ------- -------
Denominator for diluted earnings (pro forma
earnings for 1996 and 1995) per share........... 18,909 17,457 14,948
======= ======= =======
Earnings (pro forma earnings for 1996 and 1995) per
share -- basic............................................ $ .52 $ .41 $ .24
======= ======= =======
Earnings (pro forma earnings for 1996 and 1995) per
share -- diluted.......................................... $ .51 $ .39 $ .21
======= ======= =======
</TABLE>
Options to purchase 473,000 shares of common stock, at prices ranging from
$16.00 to $19.88 per share, were outstanding during 1997 but were excluded from
the computation of diluted earnings per share because the options' exercise
price was greater than the average market price of the common shares and,
therefore, the effect would be antidilutive.
(14) RESTRUCTURING COSTS
In recognition of emerging developments such as the Alma acquisition, the
Company restructured and realigned certain facets of its European management
structure in the fourth quarter of 1997 and incurred a pre-tax charge to
earnings of $1.2 million. This charge consisted of employment termination costs
directly applicable to four of the Company's senior European executives and
residual contract costs due to an independent European advisor for services no
longer required by the Company. Of the $1.2 million charge, $683,000 had been
paid through December 31, 1997, and the remaining $525,000 is currently
estimated to be paid by June 30, 1998.
42
<PAGE> 45
ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND
FINANCIAL DISCLOSURE
Not applicable.
PART III
Pursuant to Instruction G(3) to Form 10-K, the information required in
Items 10 through 13 is incorporated by reference from the Company's definitive
proxy statement, which is expected to be filed pursuant to Regulation 14A on or
before April 10, 1998.
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
<TABLE>
<C> <S> <C>
+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.
</TABLE>
43
<PAGE> 46
+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.
+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 I, Inc. and SBC
Financial Corporation, Jonathan Golden, P.C. and Berkshire
Partners.
+10.10 -- Form of Indemnification 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.
44
<PAGE> 47
+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.
***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 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.
45
<PAGE> 48
<TABLE>
<C> <S> <C>
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; description of 1998 compensation arrangement between
Registrant and Mr. Kramer.
++10.39 -- Employment Arrangement between Registrant and Clinton
McKellar, Jr.; Compensation Arrangement between Registrant
and Mr. McKellar; 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).
</TABLE>
- ---------------
+ 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 sec.sec. 200.80 and 230.406 has
been granted regarding certain portions of the indicated Exhibit, which
portions have been filed separately with the Commission.
++ To be filed by amendment.
+++ Confidential treatment pursuant to 17 CFR sec.sec. 200.80 and 240.24b-2
has been requested 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.
**** 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.
46
<PAGE> 49
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.
February 13, 1998 By: /s/ JOHN M. COOK
------------------------------------
John M. Cook
Chairman of the Board
and Chief Executive Officer
Pursuant to the requirements of the Securities Exchange Act of 1934, this
report has been signed below by the following persons on behalf of the
registrant and in the capacities and on the date indicated.
<TABLE>
<CAPTION>
SIGNATURE TITLE DATE
--------- ----- ----
<C> <S> <C>
/s/ JOHN M. COOK Chairman of the Board and February 13, 1998
- ----------------------------------------------------- Chief Executive Officer
John M. Cook (Principal Executive
Officer)
/s/ DONALD E. ELLIS, JR. Senior Vice President -- February 13, 1998
- ----------------------------------------------------- Finance, Treasurer and
Donald E. Ellis, Jr. Chief Financial Officer
(Principal Financial
Officer)
/s/ MICHAEL R. MELTON Vice President -- Finance February 13, 1998
- ----------------------------------------------------- (Principal Accounting
Michael R. Melton Officer)
/s/ STANLEY B. COHEN Director February 13, 1998
- -----------------------------------------------------
Stanley B. Cohen
/s/ MARC EISENBERG Director February 13, 1998
- -----------------------------------------------------
Marc Eisenberg
/s/ JONATHAN GOLDEN Director February 13, 1998
- -----------------------------------------------------
Jonathan Golden
/s/ GARTH H. GREIMANN Director February 13, 1998
- -----------------------------------------------------
Garth H. Greimann
/s/ FRED W.I. LACHOTZKI Director February 13, 1998
- -----------------------------------------------------
Fred W.I. Lachotzki
/s/ E. JAMES LOWREY Director February 13, 1998
- -----------------------------------------------------
E. James Lowrey
</TABLE>
47
<PAGE> 50
<TABLE>
<CAPTION>
SIGNATURE TITLE DATE
--------- ----- ----
<C> <S> <C>
/s/ MICHAEL A. LUSTIG Director February 13, 1998
- -----------------------------------------------------
Michael A. Lustig
/s/ JOHN M. TOMA Vice Chairman and February 13, 1998
- ----------------------------------------------------- Director
John M. Toma
</TABLE>
48
<PAGE> 1
EXHIBIT 10.30
LEASE AGREEMENT
by and between
WILDWOOD ASSOCIATES
("Landlord")
and
THE PROFIT RECOVERY GROUP INTERNATIONAL I, INC.
("Tenant")
dated
January 30, 1998
for
Suite Number 140
containing
9,615 square feet of Rentable Floor Area
Term: Ending December 30, 2002
2300 Windy Ridge Parkway
Atlanta, Georgia 30339
<PAGE> 2
TABLE OF CONTENTS
<TABLE>
<CAPTION>
Page
----
<S> <C>
1. Certain Definitions..........................................................................1
2. Lease of Premises............................................................................2
3. Term.........................................................................................2
4. Possession...................................................................................3
5. Rental Payments..............................................................................3
6. Base Rental..................................................................................4
7. Rent Escalation..............................................................................4
8. Additional Rental............................................................................5
9. Operating Expenses...........................................................................7
10. Tenant Taxes; Rent Taxes...................................................................11
11. Payments...................................................................................12
12. Late Charges...............................................................................12
13. Use Rules..................................................................................12
14. Alterations................................................................................13
15. Repairs....................................................................................13
16. Landlord's Right of Entry..................................................................14
17. Insurance..................................................................................14
18. Waiver of Subrogation......................................................................16
19. Default....................................................................................16
20. Waiver of Breach...........................................................................19
21. Assignment and Subletting..................................................................19
22. Destruction................................................................................20
24. Services by Landlord.......................................................................21
25. Attorneys' Fees and Homestead..............................................................22
26. Time.......................................................................................22
27. Subordination and Attornment...............................................................22
28. Estoppel Certificates......................................................................23
29. No Estate..................................................................................24
30. Cumulative Rights..........................................................................24
31. Holding Over...............................................................................24
32. Surrender of Premises......................................................................24
33. Notices....................................................................................25
34. Damage or Theft of Personal Property.......................................................25
35. Eminent Domain.............................................................................25
36. Parties....................................................................................27
37. Liability of Tenant........................................................................27
39. Force Majeure..............................................................................28
40. Landlord's Liability.......................................................................28
41. Landlord's Covenant of Quiet Enjoyment.....................................................28
42. Security Deposit...........................................................................29
</TABLE>
i
<PAGE> 3
<TABLE>
<S> <C>
43. Hazardous Substances.......................................................................29
44. Submission of Lease........................................................................30
45. Severability...............................................................................30
46. Entire Agreement...........................................................................30
47. Headings...................................................................................30
48. Broker.....................................................................................30
49. Governing Law..............................................................................31
50. Special Stipulations.......................................................................31
51. Authority..................................................................................31
52. Financial Statements.......................................................................31
54. ERISA Compliance...........................................................................32
</TABLE>
Rules and Regulations
Exhibit "A" - Legal Description of Land
Exhibit "B" - Floor Plan
Exhibit "C" - Supplemental Notice
Exhibit "D" - Landlord's Construction
Exhibit "E" - Building Standard Services
Exhibit "F" - Guaranty - Intentionally Omitted
Exhibit "G" - Special Stipulations
ii
<PAGE> 4
\
LEASE AGREEMENT
THIS LEASE AGREEMENT ("Lease"), is made and entered into this 30th day of
January, 1998, by and between Landlord and Tenant.
W I T N E S S E T H:
1. Certain Definitions. For purposes of this Lease, the following terms
shall have the meanings hereinafter ascribed thereto:
(a) Landlord: WILDWOOD ASSOCIATES, a Georgia general partnership
(b) Landlord's Address:
Wildwood Associates
2500 Windy Ridge Parkway
Suite 1600
Atlanta, Georgia 30339-5683
Attn: Corporate Secretary
(c) Tenant: THE PROFIT RECOVERY GROUP INTERNATIONAL I, INC.
(d) Tenant's Address:
2300 Windy Ridge Parkway
Suite 300 - North
Atlanta, Georgia 30339-5683
(e) Building Address:
2300 Windy Ridge Parkway
Atlanta, Georgia 30339
(f) Suite Number: 140 - South Tower
(g) Rentable Floor Area of Demised Premises:
9,615 square feet, consisting of 8,414 square feet on the 1st
floor of the Building, and 1,201 square feet on the 2nd floor
of the Building.
(h) Rentable Floor Area of Building:
618,540 square feet.
<PAGE> 5
(i) Lease Term: From the Rental Commencement Date (hereinafter
defined) and expiring on December 30, 2002.
(j) Base Rental Rate: $15.80 per square foot of Rentable Floor
Area of Demised Premises per year, subject to adjustments as set forth in
Article 7 below.
(k) Rental Commencement Date: The earlier of (x) April 1, 1998, or
(y) the date upon which Tenant takes possession and occupies the Demised
Premises; provided that if the Demised Premises are not ready for
occupancy on the date set forth in (x) above due to delays not caused by
Tenant or its employees, agents or contractors, then the date set forth
in (x) above shall be postponed to the date on which the Demised Premises
are ready for occupancy.
(l) Rent Deposit: $17,867.88 (Article 5[c])
(m) Construction Allowance: $21.00 per square foot of Rentable
Floor Area.
(n) Security Deposit: Intentionally Deleted.
(o) Broker(s): Cousins Properties Incorporated ("CPI") and Carter
& Associates
2. Lease of Premises. Landlord, in consideration of the covenants and
agreements to be performed by Tenant, and upon the terms and conditions
hereinafter stated, does hereby rent and lease unto Tenant, and Tenant does
hereby rent and lease from Landlord, certain premises (the "Demised Premises")
in the building (hereinafter referred to as "Building") located on that certain
tract of land (the "Land") more particularly described on Exhibit "A" attached
hereto and by this reference made a part hereof, which Demised Premises are
outlined in red or crosshatched on the floor plan attached hereto as Exhibit "B"
and by this reference made a part hereof, with no easement for light, view or
air included in the Demised Premises or being granted hereunder. The "Project"
is comprised of the Building, the Land, the Building's parking facilities, any
walkways, covered walkways, tunnels or other means of access to the Building and
the Building's parking facilities, all common areas, including any lobbies or
plazas, and any other improvements or landscaping on the Land. The Project is
located in the development known as "Wildwood Office Park".
3. Term. The term of this Lease ("Lease Term") shall commence on the date
first hereinabove set forth, and, unless sooner terminated as provided in this
Lease, shall end on the expiration of the period designated in Article 1(i)
above, which period shall commence on the Rental Commencement Date, unless the
Rental Commencement Date shall be other than the first day of a calendar month,
in which event such period shall commence on the first day of the calendar month
following the month in which the Rental Commencement Date occurs. Promptly after
the Rental Commencement Date Landlord shall send to Tenant a Supplemental Notice
in
2
<PAGE> 6
the form of Exhibit "C" attached hereto and by this reference made a part
hereof, specifying the Rental Commencement Date, the date of expiration of the
Lease Term in accordance with Article 1(i) above and certain other matters as
therein set forth.
4. Possession. The obligations of Landlord and Tenant with respect to the
initial leasehold improvements to the Demised Premises are set forth in Exhibit
"D" attached hereto and by this reference made a part hereof. Taking of
possession by Tenant shall be deemed conclusively to establish that Landlord's
construction obligations with respect to the Demised Premises have been
completed in accordance with the plans and specifications approved by Landlord
and Tenant and that the Demised Premises, to the extent of Landlord's
construction obligations with respect thereto, are in good and satisfactory
condition, subject to completion of any incomplete or corrective items specified
in a "punch list" approved by Landlord and Tenant.
5. Rental Payments.
(a) Commencing on the Rental Commencement Date, and continuing
thereafter throughout the Lease Term, Tenant hereby agrees to pay all
Rent due and payable under this Lease. As used in this Lease, the term
"Rent" shall mean the Base Rental, Tenant's Forecast Additional Rental,
Tenant's Additional Rental, and any other amounts that Tenant assumes or
agrees to pay under the provisions of this Lease that are owed to
Landlord, including without limitation any and all other sums that may
become due by reason of any default of Tenant or failure on Tenant's part
to comply with the agreements, terms, covenants and conditions of this
Lease to be performed by Tenant. Base Rental together with Tenant's
Forecast Additional Rental shall be due and payable in twelve (12) equal
installments on the first day of each calendar month, commencing on the
Rental Commencement Date and continuing thereafter throughout the Lease
Term and any extensions or renewals thereof, and Tenant hereby agrees to
pay such Rent to Landlord at Landlord's address as provided herein (or
such other address as may be designated in writing by Landlord from time
to time) monthly in advance. Tenant shall pay all Rent and other sums of
money as shall become due from and payable by Tenant to Landlord under
this Lease at the times and in the manner provided in this Lease, without
demand, set-off or counterclaim.
(b) If the Rental Commencement Date is other than the first day of
a calendar month or if this Lease terminates on other than the last day
of a calendar month, then the installments of Base Rental and Tenant's
Forecast Additional Rental for such month or months shall be prorated on
a daily basis and the installment or installments so prorated shall be
paid in advance. Also, if the Rental Commencement Date occurs on other
than the first day of a calendar year, or if this Lease expires or is
terminated on other than the last day of a calendar year, Tenant's
Additional Rental shall be prorated for such commencement or termination
year, as the case may be, by multiplying such Tenant's Additional Rental
by a fraction, the numerator of which shall be the number of days of the
Lease Term (from and after the Rental Commencement Date) during the
commencement or expiration or termination year, as the case may be, and
the
3
<PAGE> 7
denominator of which shall be 365, and the calculation described in
Article 8 hereof shall be made as soon as possible after the expiration
or termination of this Lease, Landlord and Tenant hereby agreeing that
the provisions relating to said calculation shall survive the expiration
or termination of this Lease.
(c) As security for Tenant's obligations to take possession of the
Demised Premises in accordance with the terms of this Lease and to comply
with all of Tenant's covenants, warranties and agreements hereunder,
Tenant has deposited with Landlord the sum set forth in Article 1(l)
above. Such amount shall be applied by Landlord to the first monthly
installment(s) of Base Rental as they become due hereunder. In the event
Tenant fails to take possession of the Demised Premises as aforesaid or
otherwise fails to comply with any of Tenant's covenants, warranties or
agreements hereunder, said sum shall be retained by Landlord for
application in reduction, but not in satisfaction, of damages suffered by
Landlord as a result of such breach by Tenant. Landlord shall not be
required to keep such deposit separate from its general accounts.
6. Base Rental. Subject to adjustments in accordance with Article 7
below, from and after the Rental Commencement Date Tenant shall pay to Landlord
a base annual rental (herein called "Base Rental") equal to the Base Rental Rate
set forth in Article 1(j) above multiplied by the Rentable Floor Area of Demised
Premises set forth in Article 1(g) above.
7. Rent Escalation.
(a) As used in this Article 7, the term "Lease Year" shall mean
the twelve month period commencing on the Rental Commencement Date, or,
if the Rental Commencement Date is not on the first day of a calendar
month, commencing on the first day of the first calendar month following
the Rental Commencement Date, and each successive twelve month period
thereafter during the Lease Term. The term "Subsequent Year" shall mean
each Lease Year of the Lease Term following the first Lease Year. The
term "Prior Year" shall mean the Lease Year prior to each Subsequent
Year. The term "Index" shall mean the Consumer Price Index for all Urban
Consumers (U.S. City Average; Base 1982-84=100), published by the Bureau
of Labor Statistics of the United States Department of Labor. The term
"Base Month" shall mean the calendar month which is two (2) months prior
to the month during which this Lease is fully executed by Landlord and
Tenant. The term "Comparison Month" shall mean the calendar month which
is two (2) months prior to the first full month of each Subsequent Year
in question.
(b) On the first day of each Subsequent Year, the Base Rental Rate
shall be increased to an amount equal to the Base Rental Rate for the
first Lease Year ($15.80) as set forth in Article 1(j) above, plus an
amount equal to the product of ten (10) times the percentage increase in
the Index for the Comparison Month as compared to the Index for the Base
Month, multiplied by the Base Rental Rate for the first Lease Year
($15.80); provided, however, in no event shall the Base Rental Rate for a
Subsequent Year be less than the Base Rental Rate applicable to the Prior
Year and in no event shall the Base
4
<PAGE> 8
Rental Rate for the Subsequent Year be greater than the following amounts
for the Lease Years shown:
<TABLE>
<S> <C>
Second Lease Year $16.27
Third Lease Year $16.76
Fourth Lease Year $17.27
Fifth Lease Year $17.78
</TABLE>
(c) If the Bureau of Labor Statistics should discontinue the
publication of the Index, or publish the same less frequently, or alter
the same in some manner, then Landlord shall adopt a substitute Index or
substitute procedure which reasonably reflects and monitors consumer
prices.
8. Additional Rental.
(a) For purposes of this Lease, "Tenant's Forecast Additional
Rental" shall mean Landlord's reasonable estimate of Tenant's Additional
Rental for the coming calendar year or portion thereof. If at any time it
appears to Landlord, in Landlord's reasonable judgment, that Tenant's
Additional Rental for the current calendar year will vary from Landlord's
estimate by more than five percent (5%), Landlord shall have the right to
revise, by written notice to Tenant, its estimate for such year, and
subsequent payments by Tenant for such year shall be based upon such
revised estimate of Tenant's Additional Rental. Failure to make a
revision contemplated by the immediately preceding sentence shall not
prejudice Landlord's right to collect the full amount of Tenant's
Additional Rental. Prior to the Rental Commencement Date and thereafter
prior to the beginning of each calendar year during the Lease Term,
including any extensions thereof, Landlord shall present to Tenant a
statement of Tenant's Forecast Additional Rental for such calendar year;
provided, however, that if such statement is not given prior to the
beginning of any calendar year as aforesaid, Tenant shall continue to pay
during the next ensuing calendar year on the basis of the amount of
Tenant's Forecast Additional Rental payable during the calendar year just
ended until the month after such statement is delivered to Tenant.
(b) For purposes of this Lease, "Tenant's Additional Rental" shall
mean for each calendar year (or portion thereof) the Operating Expense
Amount (defined below) multiplied by the number of square feet of
Rentable Floor Area of Demised Premises. As used herein, "Operating
Expense Amount" shall mean an amount equal to (x) plus (y), where:
(x) equals the amount of Operating Expenses (as defined below) for
such calendar year divided by the greater of (i) 95% of the number
of square feet of Rentable Floor Area of the Building, or (ii) the
total number of square feet of Rentable Floor Area occupied in the
Building for such calendar year on an average annualized basis;
provided, however, if the Operating Expenses actually
5
<PAGE> 9
incurred by Landlord are lower than would be incurred if at least
95% of the Building were occupied or if Landlord shall not furnish
any particular item(s) of work or services (the cost of which
would otherwise be included within Operating Expenses) to portions
of the Building because (A) such portions are not occupied, (B)
such item of work or services is not required or desired by the
tenant of such portion, (C) such tenant is itself obtaining such
item of work or services, or (D) of any other reason, then
appropriate adjustments shall be made to determine Operating
Expenses for such calendar year as though the Building were
actually occupied to the extent of the greater of (i) or (ii)
above and as though Landlord had furnished such item of work or
services to the greater of (i) or (ii) above; and
(y) equals a management fee contribution equal to three percent
(3%) of Tenant's Base Rental (on a per square foot basis) plus
three percent (3%) of the per square foot amount described in (x).
(c)(i) Within one hundred fifty (150) days after the end of the
calendar year in which the Rental Commencement Date occurs and of
each calendar year thereafter during the Lease Term, or as soon
thereafter as practicable, Landlord shall provide Tenant an
itemized statement showing the Operating Expenses for said
calendar year, as prepared by a certified public accounting firm
designated by Landlord, and a statement prepared by Landlord
comparing Tenant's Forecast Additional Rental with Tenant's
Additional Rental. In the event Tenant's Forecast Additional
Rental exceeds Tenant's Additional Rental for said calendar year,
Landlord shall credit such amount against Rent next due hereunder
or, if the Lease Term has expired or is about to expire, refund
such excess to Tenant within thirty (30) days if Tenant is not in
default under this Lease (in the instance of a default such excess
shall be held as additional security for Tenant's performance, may
be applied by Landlord to cure any such default, and shall not be
refunded until any such default is cured). In the event that the
Tenant's Additional Rental exceeds Tenant's Forecast Additional
Rental for said calendar year, Tenant shall pay Landlord, within
thirty (30) days of receipt of the statement, an amount equal to
such difference. The provisions of this Lease concerning the
payment or refund of Tenant's Additional Rental shall survive the
expiration or earlier termination of this Lease.
(ii) If Tenant has not received a Statement of Operating Expenses
by the end of the calendar year following the calendar year in
which said statement is due from Landlord, it shall be
conclusively presumed that Landlord has waived its claim against
Tenant for Tenant's share of any additional Operating Expenses
that would have been set forth in such statement, except for any
Operating Expenses which are adjusted or billed to Landlord by a
third-party after such period would have otherwise expired, which
Operating Expenses may be billed by Landlord within eighteen (18)
months of the receipt of such bill or adjustment by Landlord.
6
<PAGE> 10
(d) For so long as Tenant is not in default under this Lease,
Landlord's books and records pertaining to the calculation of Operating
Expenses for any calendar year within the Lease Term may be audited by an
authorized representative of Tenant at Tenant's expense, at any time
within twelve (12) months after the end of each such calendar year;
provided that Tenant shall give Landlord not less than twenty (20) days'
prior written notice of any such audit. For purposes hereof, an
authorized representative of Tenant shall mean a bona fide employee of
Tenant, any of the "big six" accounting firms, or any other party
reasonably approved in writing by Landlord. In no event shall an
authorized representative of Tenant include the owner of any office
building in the metropolitan Atlanta, Georgia area or any affiliate of
such owner. Prior to the commencement of such audit, Tenant shall cause
its authorized representative to agree in writing for the benefit of
Landlord that such representative will keep the results of the audit
confidential and that such representative will not disclose or divulge
the results of such audit except to Tenant and Landlord and except in
connection with any dispute between Landlord and Tenant relating to
Operating Expenses. Such audit shall be conducted during reasonable
business hours at Landlord's office where Landlord's books and records
are maintained. If Tenant causes a written audit report to be prepared by
its authorized representative following any such audit, Tenant shall
provide Landlord with a copy of such report promptly after receipt
thereof by Tenant. If Landlord's calculation of Tenant's Additional
Rental for the audited calendar year was incorrect, then Tenant shall be
entitled to a prompt refund of any overpayment or Tenant shall promptly
pay to Landlord the amount of any underpayment, as the case may be. If
Landlord's books and records show an over-billing by Landlord of five
percent (5%) or more to Tenant, Landlord shall pay all reasonable costs
incurred by Tenant in performing such inspection and/or audit, up to, but
not in excess of, Five Hundred and No/100 Dollars ($500.00).
9. Operating Expenses.
(a) For the purposes of this Lease, "Operating Expenses" shall
mean all expenses, costs and disbursements (but not specific costs billed
to specific tenants of the Building) of every kind and nature, computed
on the accrual basis, relating to or incurred or paid in connection with
the ownership, management, operation, repair and maintenance of the
Project, including but not limited to, the following:
(1) wages, salaries and other costs of all on-site and
off-site employees engaged either full or part-time in the operation,
management, maintenance or access control of the Project, including
taxes, insurance and benefits relating to such employees, allocated based
upon the time such employees are engaged directly in providing such
services;
(2) the cost of all supplies, tools, equipment and
materials used in the operation, management, maintenance and access
control of the Project;
7
<PAGE> 11
(3) the cost of all utilities for the Project, including
but not limited to the cost of electricity, gas, water, sewer services
and power for heating, lighting, air conditioning and ventilating;
(4) the cost of all maintenance and service agreements for
the Project and the equipment therein, including but not limited to
security service, garage operators, window cleaning, elevator
maintenance, HVAC maintenance, janitorial service, waste recycling
service, landscaping maintenance and customary landscaping replacement;
(5) the cost of repairs and general maintenance of the
Project;
(6) amortization (together with reasonable financing
charges, whether or not actually incurred) of the cost of acquisition
and/or installation of capital investment items (including security and
energy management equipment), amortized over their respective useful
lives, which are installed for the purpose of reducing operating
expenses, promoting safety, complying with governmental requirements, or
maintaining the first-class nature of the Project;
(7) the cost of casualty, rental loss, liability and other
insurance applicable to the Project and Landlord's personal property used
in connection therewith;
(8) the cost of trash and garbage removal, air quality
audits, vermin extermination, and snow, ice and debris removal;
(9) the cost of legal and accounting services incurred by
Landlord in connection with the management, maintenance, operation and
repair of the Project, excluding the owner's or Landlord's general
accounting, such as partnership statements and tax returns, and excluding
services described in Article 9(b)(14) below;
(10) all taxes, assessments and governmental charges,
whether or not directly paid by Landlord, whether federal, state, county
or municipal and whether they be by taxing districts or authorities
presently taxing the Project or by others subsequently created or
otherwise, and any other taxes and assessments attributable to the
Project or its operation (and the costs of contesting any of the same),
including business license taxes and fees, excluding, however, taxes and
assessments imposed on the personal property of the tenants of the
Project, federal and state taxes on income, death taxes, franchise taxes,
and any taxes (other than business license taxes and fees) imposed or
measured on or by the income of Landlord from the operation of the
Project; and it is agreed that Tenant will be responsible for ad valorem
taxes on its personal property and on the value of the leasehold
improvements in the Demised Premises to the extent that the same exceed
Building Standard allowances, if said taxes are based upon an assessment
which includes the cost of such leasehold improvements in excess of
Building Standard allowances (and if the taxing authorities do not
separately assess Tenant's leasehold improvements,
8
<PAGE> 12
Landlord may make an appropriate allocation of the ad valorem taxes
allocated to the Project to give effect to this sentence);
(11) the cost of operating the management office for the
Project and an equitable portion of the cost of operating the management
office for Wildwood Office Park, including in each case the cost of
office supplies, bulletins or newsletters distributed to tenants,
postage, telephone expenses, maintenance and repair of office equipment,
non-capital investment equipment, amortization (together with reasonable
financing charges) of the cost of capital investment equipment, and rent;
and
(12) the pro rata share applicable to the Project of the
sum of (i) the actual costs of operation, maintenance, repair and
replacement of the landscaping and irrigation systems now or hereafter
located along Windy Ridge Parkway, Windy Hill Road, Wildwood Parkway,
Wildwood Plaza, the right-of-way areas of Powers Ferry Road adjoining
Wildwood Office Park, and all future roadways, whether public or private,
constructed in Wildwood Office Park, together with the landscaped median
strips and shoulders of such roadways (but not including the landscaping
and irrigation system located on the shoulder of any roadway contiguous
to a site upon which construction of improvements has commenced) and any
and all light systems located on or in any rights-of-way for private
roads within the Wildwood Office Park; (ii) ad valorem taxes on any
private roadways now or hereafter located within Wildwood Office Park and
on any medians adjacent to public roads if such medians are not included
in public road rights-of-way; (iii) the actual costs of ownership,
operation, maintenance, repair and replacement of office park signage for
Wildwood Office Park and any underground sanitary sewer lines, storm
water drainage lines, electric lines, gas lines, water lines, telephone
lines and communication lines serving the Wildwood Office Park which are
located across, through and under any public or private roadways now or
hereafter located within Wildwood Office Park, except for any such
utility facilities serving solely another project within Wildwood Office
Park; (iv) the actual costs of ownership, operation, maintenance, repair
and replacement of any private transportation system and equipment from
time to time provided or made available to the developed portions of
Wildwood Office Park, including but not limited to ad valorem taxes on
personal property or equipment, electricity, fuel, painting and cleaning
costs; (v) the actual costs and expenses of ownership and operation of
any security patrols or services, if any, from time to time provided to
Wildwood Office Park in general, but excluding any such security patrols
or services provided solely to another project within Wildwood Office
Park; and (vi) such other reasonable, actual costs and expenses incurred
by Landlord as "Owner" of the Project under and pursuant to that certain
Master Declaration of Covenants and Cross-Easements for Wildwood Office
Park dated as of January 23, 1991, recorded in Deed Book 5992, page 430,
Cobb County, Georgia records, as modified, amended or supplemented from
time to time (the "Master Declaration"). The share of the foregoing costs
which are applicable to the Project shall be determined in accordance
with the Master Declaration.
9
<PAGE> 13
Landlord shall not employ or contract with any affiliated entity in the
performance of any work or services which are included in Operating
Expenses unless the cost of same is no greater than the reasonable cost
of same if such work or services were provided by a non-affiliated entity
of the same or similar quality and reputation as the entity affiliated
with Landlord. For the purposes of this provision, an "affiliated entity"
shall include (i) an entity owned by Landlord or any principal of
Landlord, or (ii) any person or entity having common ownership or control
with Landlord or any principal of Landlord.
Notwithstanding anything to the contrary provided in this Lease, (i) all
capital investment items which fall within the definition of "Operating
Expenses" shall be amortized with reasonable financing rates over the
useful life of the item and included in Operating Expenses in
installments based on amortization; and (ii) any maintenance or repair or
operating service or work procured by Landlord for the Project shall be
provided at competitive rates.
Operating Expenses shall be "net" only, and for that purpose shall be
reduced by the amounts of any reimbursement, refund or credit actually
received by Landlord with respect to any item of cost that is included in
Operating Expenses, including, but not limited to, heating, ventilating,
air conditioning and electricity. If any such reimbursement, refund or
credit is actually received or receivable by Landlord in a later year, it
shall be applied against the Operating Expenses for such later year;
provided, however, that, if the Term of this Lease has expired, Tenant's
share of such item shall be refunded by Landlord to Tenant within thirty
(30) days after receipt by Landlord.
(b) For purposes of this Lease, and notwithstanding anything in
any other provision of this Lease to the contrary, "Operating Expenses"
shall not include the following:
(1) the cost of any special work or service performed for
any tenant (including Tenant) at such tenant's cost;
(2) the cost of installing, operating and maintaining any
specialty service, such as an observatory, broadcasting facility,
luncheon club, restaurant, cafeteria, retail store, sundry shop,
newsstand, or concession, but only to the extent such costs exceed those
which would normally be expected to be incurred had such space been
general office space;
(3) the cost of correcting defects in construction;
(4) compensation paid to officers and executives of
Landlord (but it is understood that the office park manager, the on-site
building manager and other on-site employees below the grade of building
manager may carry a title such as vice president and the salaries and
related benefits of these officers/employees of Landlord would be
allowable Operating Expenses under Article 9[a][1] above);
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(5) the cost of any items for which Landlord is reimbursed
by insurance, condemnation or otherwise, except for costs reimbursed
pursuant to provisions similar to Articles 8 and 9 hereof;
(6) the cost of any additions, changes, replacements and
other items which are made in order to prepare for a new tenant's
occupancy;
(7) the cost of repairs incurred by reason of fire or other
casualty reimbursed by insurance proceeds under policies maintained by
Landlord;
(8) insurance premiums to the extent Landlord may be
directly reimbursed therefor, except for premiums reimbursed pursuant to
provisions similar to Articles 8 and 9 hereof;
(9) interest on debt or amortization payments on any
mortgage or deed to secure debt (except to the extent specifically
permitted by Article 9[a]) and rental under any ground lease or other
underlying lease;
(10) any real estate brokerage commissions or other costs
incurred in procuring tenants or any fee in lieu of such commission;
(11) any advertising expenses incurred in connection with
the marketing of any rentable space;
(12) rental payments for base building equipment such as
HVAC equipment and elevators;
(13) any expenses for repairs or maintenance which are
covered by warranties and service contracts, to the extent such
maintenance and repairs are made at no cost to Landlord;
(14) legal expenses arising out of the construction of the
improvements on the Land or the enforcement of the provisions of any
lease affecting the Land or Building, including without limitation this
Lease; and
(15) management fees (Tenant's obligation for a management
fee contribution is set forth in Article 8[b][y] above).
10. Tenant Taxes; Rent Taxes. Tenant shall pay promptly when due all
taxes directly or indirectly imposed or assessed upon Tenant's gross sales,
business operations, machinery, equipment, trade fixtures and other personal
property or assets, whether such taxes are assessed against Tenant, Landlord or
the Building. In the event that such taxes are imposed or assessed against
Landlord or the Building Landlord, within thirty (30) days after receipt, shall
furnish
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Tenant with all applicable tax bills, public charges and other assessments or
impositions and Tenant shall forthwith pay the same directly to the taxing
authority, with reasonable evidence of such payment provided to Landlord. In
addition, in the event there is imposed at any time a tax upon and/or measured
by the rental payable by Tenant under this Lease, whether by way of a sales or
use tax or otherwise, Tenant shall be responsible for the payment of such tax
and shall pay the same on or prior to the due date thereof; provided, however,
that the foregoing shall not include any inheritance, estate, succession,
transfer, gift or income tax imposed on or payable by Landlord.
11. Payments. All payments of Rent and other payments to be made to
Landlord shall be made on a timely basis and shall be payable to Landlord or as
Landlord may otherwise designate in writing. All such payments shall be mailed
or delivered to Landlord's Address designated in Article 1(b) above or at such
other place as Landlord may designate from time to time in writing. If mailed,
all payments shall be mailed in sufficient time and with adequate postage
thereon to be received in Landlord's account by no later than the due date for
such payment. Tenant agrees to pay to Landlord Fifty Dollars ($50.00) for each
check presented to Landlord in payment of any obligation of Tenant which is not
paid by the bank on which it is drawn, together with interest from and after the
due date for such payment at the rate of twelve percent (12%) per annum on the
amount due.
12. Late Charges. Any Rent or other amounts payable to Landlord under
this Lease, if not paid by the fifth day of the month for which such Rent is
due, or by the due date specified on any invoices from Landlord for any other
amounts payable hereunder, shall incur a late charge of Fifty Dollars ($50.00)
for Landlord's administrative expense in processing such delinquent payment and
in addition thereto shall bear interest at the rate of twelve percent (12%) per
annum from and after the due date for such payment. In no event shall the rate
of interest payable on any late payment exceed the legal limits for such
interest enforceable under applicable law.
13. Use Rules. The Demised Premises shall be used for any lawful use, but
subject to and in accordance with all applicable laws, ordinances, rules and
regulations of governmental authorities, any limitations or restrictions imposed
by other tenants or users of the Building from time, and the Rules and
Regulations attached hereto and made a part hereof. The occupancy rate of the
Demised Premises shall in no event be more than one (1) person per 200 square
feet of Rentable Floor Area within the Demised Premises. Tenant covenants and
agrees to abide by the Rules and Regulations in all respects as now set forth
and attached hereto or as hereafter promulgated by Landlord; provided, however,
that Landlord shall provide Tenant with at least thirty (30) days prior written
notice of any such new Rule and Regulation, and no such new Rule and Regulation
shall materially and adversely affect Tenant's rights hereunder. Landlord shall
have the right at all times during the Lease Term to publish and promulgate and
thereafter enforce such reasonable, uniform and non-discriminatory rules and
regulations or changes in the existing Rules and Regulations as it may
reasonably deem necessary in its sole discretion to protect the tenantability,
safety, operation, and welfare of the Demised Premises, the Project and Wildwood
Office Park.
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14. Alterations. Except for any initial improvement of the Demised
Premises pursuant to Exhibit "D", which shall be governed by the provisions of
said Exhibit "D", Tenant shall not make, suffer or permit to be made any
alterations, additions or improvements to or of the Demised Premises or any part
thereof, or attach any fixtures or equipment thereto, without first obtaining
Landlord's written consent, which consent shall not be unreasonably withheld,
conditioned or delayed. Any such alterations, additions or improvements to the
Demised Premises consented to by Landlord shall be made by either (i) a
contractor selected by Tenant and consented to by Landlord (which consent shall
not be unreasonably withheld, conditioned or delayed by Landlord), or (ii) by
Landlord or under Landlord's supervision for Tenant's account, and Tenant shall
reimburse Landlord for all costs thereof (including a reasonable charge for
Landlord's overhead), as Rent, within ten (10) days after receipt of a
statement. All such alterations, additions and improvements shall become
Landlord's property at the expiration or earlier termination of the Lease Term
and shall remain on the Demised Premises without compensation to Tenant unless
Landlord elects by notice to Tenant to have Tenant remove such alterations,
additions and improvements, in which event, notwithstanding any contrary
provisions respecting such alterations, additions and improvements contained in
Article 32 hereof, Tenant shall promptly restore, at its sole cost and expense,
the Demised Premises to its condition prior to the installation of such
alterations, additions and improvements, normal wear and tear excepted.
Notwithstanding the above, Tenant shall be entitled to make non-structural
alterations which do not affect the Building systems, so long as such
alterations do not exceed Ten Thousand and No/100 Dollars ($10,000.00) in cost
with notice to, but without the need for the prior consent of, Landlord. In such
event, Tenant shall provide Landlord with the as-built plans of such
alterations, if any are prepared.
15. Repairs.
(a) Landlord shall maintain in good order and repair (as compared
to other first-class properties of similar quality in the area of the
Building), subject to normal wear and tear and subject to casualty and
condemnation, the Building (excluding the Demised Premises and other
portions of the Building leased to other tenants), the Building parking
facilities, the public areas and the landscaped areas. Notwithstanding
the foregoing obligation, the cost of any repairs or maintenance to the
foregoing necessitated by the intentional acts or gross negligence of
Tenant or its agents, contractors, employees, invitees, licensees,
tenants or assigns, shall be borne solely by Tenant and shall be deemed
Rent hereunder and shall be reimbursed by Tenant to Landlord within
thirty (30) days of written demand. Landlord shall not be required to
make any repairs or improvements to the Demised Premises except
structural repairs necessary for safety and tenantability. Landlord shall
keep in good order and repair the roof, floor slab, gutters, downspouts,
drains and leaders, load bearing structures and exterior walls of the
Premises, all utility lines and systems up to their point of entry into
the Premises, and all lines and systems within the Premises that do not
exclusively serve the Premises.
(b) Tenant covenants and agrees that it will take good care of the
Demised Premises and all alterations, additions and improvements thereto
and will keep and
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maintain the same in good condition and repair, except for normal wear
and tear. Tenant shall as soon as reasonably practical report, in
writing, to Landlord any defective or dangerous condition known to
Tenant. To the fullest extent permitted by law, Tenant hereby waives all
rights to make repairs at the expense of Landlord as may be provided by
any law, statute or ordinance now or hereafter in effect. Landlord has no
obligation and has made no promise to alter, remodel, improve, repair,
decorate or paint the Demised Premises or any part thereof, except as
specifically and expressly herein set forth.
(c) Notwithstanding anything to the contrary provided in this
Lease, Landlord shall make all necessary repairs and replacements to the
fire protection sprinklers and systems serving the Demised Premises, all
utility lines and systems up to their point of entry into the Demised
Premises and all pipes, conduits, wires and other lines running through
the Demised Premises which do not exclusively serve the Demised Premises,
with the cost thereof bring an Operating Expense, to the extent and as
chargeable under Article 9 herein.
16. Landlord's Right of Entry. Landlord shall retain duplicate keys to
all doors of the Demised Premises and Landlord and its agents, employees and
independent contractors shall have the right to enter the Demised Premises at
reasonable hours and upon reasonable prior notice (except in an emergency, for
which no prior notice is required) to inspect and examine same, to make repairs,
additions, alterations, and improvements, to exhibit the Demised Premises to
mortgagees, prospective mortgagees, purchasers or tenants, and to inspect the
Demised Premises to ascertain that Tenant is complying with all of its covenants
and obligations hereunder, all without being liable to Tenant in any manner
whatsoever for any damages arising therefrom; provided, however, that Landlord
shall, except in case of emergency, afford Tenant such prior notification of an
entry into the Demised Premises as shall be reasonably practicable under the
circumstances. Landlord shall use its reasonable efforts not to unreasonably
disrupt or disturb Tenant's use of the Demised Premises during such entry or
inspections. Landlord shall be allowed to take into and through the Demised
Premises any and all materials that may be required to make such repairs,
additions, alterations or improvements. During such time as such work is being
carried on in or about the Demised Premises, the Rent provided herein shall not
abate, and Tenant waives any claim or cause of action against Landlord for
damages by reason of interruption of Tenant's business or loss of profits
therefrom because of the prosecution of any such work or any part thereof.
17. Insurance. Tenant shall procure at its expense and maintain
throughout the Lease Term a policy or policies of special form/all-risk
insurance insuring the full replacement cost of its furniture, equipment,
supplies, and other property owned, leased, held or possessed by it and
contained in the Demised Premises, together with the excess value of the
improvements to the Demised Premises over the Construction Allowance, and
worker's compensation insurance as required by applicable law. Tenant shall also
procure at its expense and maintain throughout the Lease Term a policy or
policies of commercial general liability insurance, insuring Tenant, Landlord
and any other person reasonably designated by Landlord, against any and all
liability
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for injury to or death of a person or persons and for damage to property
occasioned by or arising out of any construction work being done on the Demised
Premises, or arising out of the condition, use, or occupancy of the Demised
Premises, or in any way occasioned by or arising out of the activities of
Tenant, its agents, contractors, employees, guests, or licensees in the Demised
Premises, or other portions of the Building, the Project or Wildwood Office
Park, the limits of such policy or policies to be in combined single limits for
both damage to property and personal injury and in amounts not less than Three
Million Dollars ($3,000,000) for each occurrence. Such insurance shall, in
addition, extend to any liability of Tenant arising out of the indemnities
provided for in this Lease. Tenant shall also carry such other types of
insurance in form and amount which Landlord shall reasonably deem to be prudent
for Tenant to carry, should the circumstances or conditions so merit Tenant
carrying such type of insurance. All insurance policies procured and maintained
by Tenant pursuant to this Article 17 shall name Landlord and any additional
parties reasonably designated by Landlord as additional insured, shall be
carried with companies licensed to do business in the State of Georgia having a
rating from Best's Insurance Reports of not less than A-/X, and shall be
non-cancelable and not subject to material change except after thirty (30) days'
written notice to Landlord. Such policies or duly executed certificates of
insurance with respect thereto, accompanied by proof of payment of the premium
therefor, shall be delivered to Landlord prior to the Rental Commencement Date,
and renewals of such policies shall be delivered to Landlord at least thirty
(30) days prior to the expiration of each respective policy term.
Landlord shall procure and maintain at its expense (but with the expense
to be included in Operating Expenses) throughout the Lease Term a policy or
policies of special form/all-risk (including rent loss coverage) real and
personal property insurance covering the Project (including the leasehold
improvements in the Demised Premises up to the amount of the Construction
Allowance, but excluding Tenant's personal property and equipment), in an amount
equal to the full insurable replacement cost thereof as such may increase from
time to time (but such insurance may provide for a commercially reasonable
deductible), and in an amount sufficient to comply with any co-insurance
requirements in such policy, and a policy of workers' compensation insurance, if
any, as required by applicable law. In addition, Landlord shall procure and
maintain at its expense (but with the expense to be included in Operating
Expenses) and shall thereafter maintain throughout the Lease Term, a commercial
general liability insurance policy covering the Project with combined single
limits for both damage to property and personal injury of not less than Three
Million Dollars ($3,000,000) per occurrence, subject to annual aggregate limits
of not less than Five Million Dollars ($5,000,000). Landlord may also carry such
other types of insurance in form and amounts which Landlord shall determine to
be appropriate from time to time, and the cost thereof shall be included in
Operating Expenses. All such policies procured and maintained by Landlord
pursuant to this Article 17 shall be carried with companies licensed to do
business in the State of Georgia. Any insurance required to be carried by
Landlord hereunder may be carried under blanket policies covering other
properties of Landlord and/or its partners and/or their respective related or
affiliated corporations so long as such blanket policies provide insurance at
all times for the Project as required by this Lease.
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18. Waiver of Subrogation. Landlord and Tenant shall each have included
in all policies of fire, extended coverage, business interruption and loss of
rents insurance respectively obtained by them covering the Demised Premises, the
Building and contents therein, a waiver by the insurer of all right of
subrogation against the other in connection with any loss or damage thereby
insured against. Any additional premium for such waiver shall be paid by the
primary insured. To the full extent permitted by law, Landlord and Tenant each
waives all right of recovery against the other for, and agrees to release the
other from liability for, loss or damage to the extent such loss or damage (a)
is covered by valid and collectible insurance in effect at the time of such loss
or damage (or required to be in effect at the time of such loss or damage), or
(b) would be covered by the insurance required to be maintained under this Lease
by the party seeking recovery.
19. Default.
(a) The following events shall be deemed to be events of default
by Tenant under this Lease: (i) Tenant shall fail to pay any installment
of Rent or any other charge or assessment against Tenant pursuant to the
terms hereof within five (5) days after the date notice of such late
payment is received by Tenant; provided, however, if more than two (2)
payments due of Tenant hereunder in any one (1) calendar year are not
made until after notice of such late payment is received by Tenant, then
it shall be an event of default hereunder by Tenant if any subsequent
payment due of Tenant hereunder in the same calendar year is not made
within ten (10) days of the date when due; (ii) Tenant shall fail to
comply with any term, provision, covenant or warranty made under this
Lease by Tenant, other than the payment of the Rent or any other charge
or assessment payable by Tenant, and shall not cure such failure within
fifteen (15) days after notice thereof to Tenant, or such longer period
as is necessary to cure such default, provided Tenant is diligently
pursuing same, and such cure is effectuated in any event within sixty
(60) days after notice thereof is given to Tenant; (iii) Tenant or any
guarantor of this Lease shall make a general assignment for the benefit
of creditors, or shall admit in writing its inability to pay its debts as
they become due, or shall file a petition in bankruptcy, or shall be
adjudicated as bankrupt or insolvent, or shall file a petition in any
proceeding seeking any reorganization, arrangement, composition,
readjustment, liquidation, dissolution or similar relief under any
present or future statute, law or regulation, or shall file an answer
admitting or fail timely to contest the material allegations of a
petition filed against it in any such proceeding; (iv) a proceeding is
commenced against Tenant or any guarantor of this Lease seeking any
reorganization, arrangement, composition, readjustment, liquidation,
dissolution or similar relief under any present or future statute, law or
regulation, and such proceeding shall not have been dismissed within
ninety (90) days after the commencement thereof; (v) a receiver or
trustee shall be appointed for all or substantially all of the assets of
Tenant or of any guarantor of this Lease; (vi) Tenant shall fail to take
possession of the Demised Premises as provided in this Lease; (vii)
Tenant shall do or permit to be done anything which creates a lien upon
the Demised Premises or the Project and such lien is not removed or
discharged within fifteen (15) days after Tenant is provided notice of
the filing thereof; (viii) Tenant shall fail to return a properly
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executed instrument to Landlord in accordance with the provisions of
Article 27 hereof within the time period provided for such return
following Landlord's request for same as provided in Article 27 and such
failure continues for ten (10) days after notice of such failure is
provided to Tenant; or (ix) Tenant shall fail to return a properly
executed estoppel certificate to Landlord in accordance with the
provisions of Article 28 hereof within the time period provided for such
return following Landlord's request for same as provided in Article 28
and such failure continues for ten (10) days after notice of such failure
is provided to Tenant.
(b) Upon the occurrence of any of the aforesaid events of default,
Landlord shall have the option to pursue any one or more of the following
remedies without any further notice or demand whatsoever: (i) terminate
this Lease, in which event Tenant shall immediately surrender the Demised
Premises to Landlord and if Tenant fails to do so, Landlord may without
prejudice to any other remedy which it may have for possession or
arrearages in Rent, enter upon and take possession of the Demised
Premises and expel or remove Tenant and any other person who may be
occupying said Demised Premises or any part thereof without being liable
for prosecution or any claim of damages therefor; Tenant hereby agreeing
to pay to Landlord on demand the amount of all loss and damage which
Landlord may suffer by reason of such termination, whether through
inability to relet the Demised Premises on satisfactory terms or
otherwise; (ii) terminate Tenant's right of possession (but not this
Lease) and enter upon and take possession of the Demised Premises and
expel or remove Tenant and any other person who may be occupying said
Demised Premises or any part thereof, by entry, dispossessory suit or
otherwise, without thereby releasing Tenant from any liability hereunder,
without terminating this Lease, and without being liable for prosecution
or any claim of damages therefor and, if Landlord so elects, make such
alterations, redecorations and repairs as, in Landlord's judgment, may be
necessary to relet the Demised Premises, and Landlord may, but shall be
under no obligation to do so, relet the Demised Premises or any portion
thereof in Landlord's or Tenant's name, but for the account of Tenant,
for such term or terms (which may be for a term extending beyond the
Lease Term) and at such rental or rentals and upon such other terms as
Landlord may deem advisable, with or without advertisement, and by
private negotiations, and receive the rent therefor, Tenant hereby
agreeing to pay to Landlord the deficiency, if any, between all Rent
reserved hereunder and the total rental applicable to the Lease Term
hereof obtained by Landlord re-letting, and Tenant shall be liable for
Landlord's expenses in redecorating and restoring the Demised Premises
and all costs incident to such re-letting, including broker's commissions
and lease assumptions, and in no event shall Tenant be entitled to any
rentals received by Landlord in excess of the amounts due by Tenant
hereunder; or (iii) enter upon the Demised Premises without being liable
for prosecution or any claim of damages therefor, and do whatever Tenant
is obligated to do under the terms of this Lease; and Tenant agrees to
reimburse Landlord on demand for any expenses including, without
limitation, reasonable attorneys' fees which Landlord may incur in thus
effecting compliance with Tenant's obligations under this Lease and
Tenant further agrees that Landlord shall not be liable for any damages
resulting to Tenant from such action, except
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to the extent expressly arising under Article 37 herein. If this Lease is
terminated by Landlord as a result of the occurrence of an event of
default, Landlord may declare to be due and payable immediately, the
present value (calculated with a discount factor of eight percent [8%]
per annum) of the difference between (x) the entire amount of Rent and
other charges and assessments which in Landlord's reasonable
determination would become due and payable during the remainder of the
Lease Term determined as though this Lease had not been terminated
(including, but not limited to, increases in Rent pursuant to Article 7
hereof), and (y) the then fair market rental value of the Demised
Premises for the remainder of the Lease Term. Upon the acceleration of
such amounts, Tenant agrees to pay the same at once, together with all
Rent and other charges and assessments theretofore due, at Landlord's
address as provided herein, it being agreed that such payment shall not
constitute a penalty or forfeiture but shall constitute liquidated
damages for Tenant's failure to comply with the terms and provisions of
this Lease (Landlord and Tenant agreeing that Landlord's actual damages
in such event are impossible to ascertain and that the amount set forth
above is a reasonable estimate thereof).
(c) Pursuit of any of the foregoing remedies shall not preclude
pursuit of any other remedy herein provided or any other remedy provided
by law or at equity, nor shall pursuit of any remedy herein provided
constitute an election of remedies thereby excluding the later election
of an alternate remedy, or a forfeiture or waiver of any Rent or other
charges and assessments payable by Tenant and due to Landlord hereunder
or of any damages accruing to Landlord by reason of violation of any of
the terms, covenants, warranties and provisions herein contained. No
reentry or taking possession of the Demised Premises by Landlord or any
other action taken by or on behalf of Landlord shall be construed to be
an acceptance of a surrender of this Lease or an election by Landlord to
terminate this Lease unless written notice of such intention is given to
Tenant. Forbearance by Landlord to enforce one or more of the remedies
herein provided upon an event of default shall not be deemed or construed
to constitute a waiver of such default. In determining the amount of loss
or damage which Landlord may suffer by reason of termination of this
Lease or the deficiency arising by reason of any reletting of the Demised
Premises by Landlord as above provided, allowance shall be made for the
expense of repossession. Tenant agrees to pay to Landlord all reasonable,
actual costs and expenses incurred by Landlord in the enforcement of this
Lease, including, without limitation, the fees of Landlord's attorneys as
provided in Article 25 hereof.
(d) The abandonment or vacation of the Demised Premises shall not
be an event of default by Tenant under this Lease, but in the event
Tenant shall abandon or vacate the Demised Premises, unless due to a
casualty, condemnation or remodeling (which remodeling is being
diligently prosecuted), Landlord may, at any time while such abandonment
or vacation of the Demised Premises is continuing, notify Tenant of
Landlord's election to terminate this Lease, in which event this Lease
shall terminate on the date so selected by Landlord in Landlord's written
election to terminate this Lease, and on the date so set forth in
Landlord's written election, this Lease shall terminate and
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come to an end as though the date selected by Landlord were the last day
of the natural expiration of the Lease Term; provided, however, that no
such termination shall affect or limit any obligations or liabilities of
Tenant arising or accruing under this Lease prior to the effective date
of any such termination; and provided further that Tenant may rescind
Landlord's election by (i) notifying Landlord in writing, within ten (10)
days after receipt of Landlord's written election to terminate this
Lease, that Tenant will reoccupy the Demised Premises for business
purposes and (ii) in fact, so reoccupying the Demised Premises for
business purposes within sixty (60) days thereafter, or such other
reasonably practical time period, if longer, but not to exceed one
hundred twenty (120) days.
20. Waiver of Breach. No waiver of any breach of the covenants,
warranties, agreements, provisions, or conditions contained in this Lease shall
be construed as a waiver of said covenant, warranty, provision, agreement or
condition or of any subsequent breach thereof, and if any breach shall occur and
afterwards be compromised, settled or adjusted, this Lease shall continue in
full force and effect as if no breach had occurred.
21. Assignment and Subletting. (a) Tenant shall not, without the prior
written consent of Landlord, which consent shall not be unreasonably withheld,
conditioned or delayed, assign this Lease or any interest herein or in the
Demised Premises, or mortgage, pledge, encumber, hypothecate or otherwise
transfer or sublet the Demised Premises or any part thereof or permit the use of
the Demised Premises by any party other than Tenant. Consent to one or more such
transfers or subleases shall not destroy or waive this provision, and all
subsequent transfers and subleases shall likewise be made only upon obtaining
the prior written consent of Landlord, which consent shall not be unreasonably
withheld, conditioned or delayed. Without limiting the foregoing prohibition, in
no event shall Tenant assign this Lease or any interest herein, whether
directly, indirectly or by operating of law, or sublet the Demised Premises or
any part thereof or permit the use of the Demised Premises or any part thereof
by any party (i) if the proposed assignee or subtenant is a party who would (or
whose use would) detract from the character of the Building as a first-class
building, such as, without limitation, a dental, medical or chiropractic office
or a governmental office, (ii) if the proposed use of the Demised Premises shall
involve an occupancy rate of more than one (1) person per 200 square feet of
Rentable Floor Area within the Demised Premises, (iii) if the proposed
assignment or subletting shall be to a governmental subdivision or agency or any
person or entity who enjoys diplomatic or sovereign immunity, (iv) if such
proposed assignee or subtenant is an existing tenant of the Building, or (v) if
such proposed assignment, subletting or use would contravene any restrictive
covenant (including any exclusive use) granted to any other tenant of the
Building. Sublessees or transferees of the Demised Premises for the balance of
the Lease Term shall become directly liable to Landlord for all obligations of
Tenant hereunder, without relieving Tenant (or any guarantor of Tenant's
obligations hereunder) of any liability therefor, and Tenant shall remain
obligated for all liability to Landlord arising under this Lease during the
entire remaining Lease Term. Landlord may, as a prior condition to considering
any request for consent to an assignment or sublease, require Tenant to obtain
and submit current financial statements of any proposed subtenant or assignee.
In the event Landlord consents to an assignment or sublease, Tenant shall pay to
Landlord a fee to cover Landlord's accounting costs plus any legal fees actually
incurred by Landlord as a result
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of the assignment or sublease, such legal fees charged to Tenant not to exceed
Five Hundred and No/100 Dollars ($500.00) per occurrence or request. Landlord
may require an additional security deposit from the assignee or subtenant as a
condition of its consent. Fifty percent (50%) of any net costs of subletting
(including alteration or modification of the Demised Premises) consideration, in
excess of the Rent and other charges and sums due and payable by Tenant under
this Lease, paid to Tenant by any assignee of this Lease for its assignment, or
by any sublessee under or in connection with its sublease, or otherwise paid to
Tenant by another party for use and occupancy of the Demised Premises or any
portion thereof, shall be promptly remitted by Tenant to Landlord as additional
rent hereunder and Tenant shall have no right or claim thereto as against
Landlord. No assignment of this Lease consented to by Landlord shall be
effective unless and until Landlord shall receive an original assignment and
assumption agreement, in form and substance reasonably satisfactory to Landlord,
signed by Tenant and Tenant's proposed assignee, whereby the assignee assumes
due performance of this Lease to be done and performed for the balance of the
then remaining Lease Term of this Lease. No subletting of the Demised Premises,
or any part thereof, shall be effective unless and until there shall have been
delivered to Landlord an agreement, in form and substance satisfactory to
Landlord, signed by Tenant and the proposed sublessee, whereby the sublessee
acknowledges the right of Landlord to continue or terminate any sublease, in
Landlord's sole discretion, upon termination of this Lease, and such sublessee
agrees to recognize and attorn to Landlord in the event that Landlord elects
under such circumstances to continue such sublease.
(b) Tenant shall have the right to assign the Lease or sublet the Demised
Premises, or any part thereof, without Landlord's consent, but subject to
Landlord's rights to notice and prohibition contained herein, to any parent,
subsidiary, affiliate or controlled corporation or to corporation which Tenant
may be converted or which it may merge. Tenant shall have the obligation to
notify Landlord of its intent of any such arrangement, and if Landlord
reasonably determines that the proposed assignee or sublessee is engaged in a
business which would materially interfere with the operation of the Building or
that permitting the assignment or subletting would cause a violation by Landlord
of its obligations under any lease covering a portion of the Building, Landlord
shall have the right to prohibit such arrangement based upon the issue of the
business of the proposed assignee or sublessee or the compatibility of the
proposed assignee or sublessee with the businesses in the Building.
22. Destruction.
(a) If the Demised Premises are damaged by fire or other casualty,
the same shall be repaired or rebuilt as speedily as practical under the
circumstances at the expense of the Landlord (subject to subparagraph [c]
below), unless this Lease is terminated as provided in this Article 22,
and during the period required for restoration, a just and proportionate
part of Base Rental shall be abated until the Demised Premises are
repaired or rebuilt substantially to the condition which existed
immediately prior to such casualty.
(b) If the Demised Premises are (i) damaged to such an extent that
repairs cannot, in Landlord's judgment, be completed within one (1) year
after the date of the
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casualty or (ii) damaged or destroyed as a result of a risk which is not
insured under standard special form/all-risk insurance policies, or (iii)
damaged or destroyed during the last eighteen (18) months of the Lease
Term, or if the Building is damaged in whole or in part (whether or not
the Demised Premises are damaged), to such an extent that the Building
cannot, in Landlord's judgment, be operated economically as an integral
unit, then and in any such event Landlord may at its option terminate
this Lease by notice in writing to the Tenant within sixty (60) days
after the date of such occurrence. If the Demised Premises are damaged to
such an extent that repairs cannot, in Landlord's judgment, be completed
within one (1) year after the date of the casualty or if the Demised
Premises are substantially damaged during the last eighteen (18) months
of the Lease Term, then in either such event Tenant may elect to
terminate this Lease by notice in writing to Landlord within fifteen (15)
days after the date of such occurrence. Unless Landlord or Tenant elects
to terminate this Lease as hereinabove provided, this Lease will remain
in full force and effect and Landlord shall repair such damage at its
expense to the extent required in this Article as expeditiously as
possible under the circumstances.
(c) If Landlord should elect or be obligated pursuant to
subparagraph (a) above to repair or rebuild because of any damage or
destruction, Landlord's obligation shall be limited to the original
Building and the leasehold improvements in the Demised Premises (to the
extent such leasehold improvements can be restored for the amount of the
Construction Allowance applicable thereto) and shall not extend to any
furniture, equipment, supplies or other personal property owned or leased
by Tenant, its employees, contractors, invitees or licensees. If the cost
of performing such repairs and restoration exceeds the actual proceeds of
insurance paid or payable to Landlord on account of such casualty, or if
Landlord's mortgagee or the lessor under a ground or underlying lease
shall require that any insurance proceeds from a casualty loss be paid to
it, Landlord may terminate this Lease unless Tenant, within fifteen (15)
days after demand therefor, deposits with Landlord a sum of money
sufficient to pay the difference between the cost of repair and the
proceeds of the insurance available to Landlord for such purpose.
(d) In no event shall Landlord be liable for any loss or damage
sustained by Tenant by reason of casualties mentioned hereinabove or any
other accidental casualty.
23. Landlord's Lien. INTENTIONALLY DELETED
24. Services by Landlord. Landlord shall provide the Building Standard
Services described on Exhibit "E" attached hereto and by reference made a part
hereof. So long as no event of default on the part of Tenant exists hereunder
and the Lease is in full force and effect, Landlord shall provide at no
additional out-of-pocket expense to Tenant, three (3) reserved parking spaces,
in the area designated for reserved parking by Landlord, as such area may be
changed by Landlord from time to time.
25. Attorneys' Fees and Homestead. If any Rent or other debt owing by
Tenant to Landlord hereunder is collected by or through an outside
attorney-at-law, Tenant agrees to pay an
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additional amount equal to Landlord's reasonable attorney's fees actually
incurred. If Landlord uses the services of any outside attorney in order to
secure compliance with any other provisions of this Lease, to recover damages
for any breach or default of any other provisions of this Lease, or to terminate
this Lease or evict Tenant, Tenant shall reimburse Landlord upon demand for any
and all reasonable, actual attorney's fees and expenses so incurred by Landlord.
Tenant waives all homestead rights and exemptions which it may have under any
law as against any obligation owing under this Lease, and assigns to Landlord
its homestead and exemptions to the extent necessary to secure payment and
performance of its covenants and agreements hereunder. If any action or
proceeding is commenced by Tenant to enforce the terms of the Lease, and Tenant
prevails in any such action, Landlord shall pay Tenant's reasonable attorney's
fees actually incurred, in connection with such action or proceeding.
26. Time. Time is of the essence of this Lease and whenever a certain day
is stated for payment or performance of any obligation of Tenant or Landlord,
the same enters into and becomes a part of the consideration hereof.
27. Subordination and Attornment.
(a) Tenant agrees that this Lease and all rights of Tenant
hereunder are and shall be subject and subordinate to any ground or
underlying lease which may now or hereafter be in effect regarding the
Project or any component thereof, to any mortgage now or hereafter
encumbering the Demised Premises or the Project or any component thereof,
to all advances made or hereafter to be made upon the security of such
mortgage, to all amendments, modifications, renewals, consolidations,
extensions, and restatements of such mortgage, and to any replacements
and substitutions for such mortgage. The terms of this provision shall be
self-operative and no further instrument of subordination shall be
required. Tenant, however, upon written request of any party in interest,
shall execute within fifteen (15) days of notice of such request such
instrument or certificates as may be reasonably required to carry out the
intent hereof, whether said requirement is that of Landlord or any other
party in interest, including, without limitation, any mortgagee.
(b) If any mortgagee or lessee under a ground or underlying lease
elects to have this Lease superior to its mortgage or lease and signifies
its election in the instrument creating its lien or lease or by separate
recorded instrument, then this Lease shall be superior to such mortgage
or lease, as the case may be. The term "mortgage", as used in this Lease,
includes any deed to secure debt, deed of trust or security deed and any
other instrument creating a lien in connection with any other method of
financing or refinancing. The term "mortgagee", as used in this Lease,
refers to the holder(s) of the indebtedness secured by a mortgage.
(c) In the event any proceedings are brought for the foreclosure
of, or in the event of exercise of the power of sale under, any mortgage
covering the Demised Premises or the Project, or in the event the
interests of Landlord under this Lease shall be
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transferred by reason of deed in lieu of foreclosure or other legal
proceedings, or in the event of termination of any lease under which
Landlord may hold title, Tenant shall, at the option of the transferee or
purchaser at foreclosure or under power of sale, or the lessor of the
Landlord upon such lease termination, as the case may be (sometimes
hereinafter called "such person"), attorn to such person and shall
recognize and be bound and obligated hereunder to such person as the
Landlord under this Lease; provided, however, that no such person shall
be (i) bound by any payment of Rent for more than one (1) month in
advance, except prepayments in the nature of security for the performance
by Tenant of its obligations under this Lease (and then only if such
prepayments have been deposited with and are under the control of such
person); (ii) bound by any amendment or modification of this Lease made
without the express written consent of the mortgagee or lessor of the
Landlord, as the case may be; (iii) obligated to cure any defaults under
this Lease of any prior landlord (including Landlord); (iv) liable for
any act or omission of any prior landlord (including Landlord); (v)
subject to any offsets or defenses which Tenant might have against any
prior landlord (including Landlord); or (vi) bound by any warranty or
representation of any prior landlord (including Landlord) relating to
work performed by any prior landlord (including Landlord) under this
Lease. Tenant agrees to execute any reasonable attornment agreement not
in conflict herewith requested by Landlord, the mortgagee or such person.
Tenant's obligation to attorn to such person shall survive the exercise
of any such power of sale, foreclosure or other proceeding. Tenant agrees
that the institution of any suit, action or other proceeding by any
mortgagee to realize on Landlord's interest in the Demised Premises or
the Building pursuant to the powers granted to a mortgagee under its
mortgage, shall not, by operation of law or otherwise, result in the
cancellation or termination of the obligations of the Tenant hereunder.
Landlord and Tenant agree that notwithstanding that this Lease is
expressly subject and subordinate to any mortgages, any mortgagee, its
successors and assigns, or other holder of a mortgage or of a note
secured thereby, may sell the Demised Premises or the Building, in the
manner provided in the mortgage and may, at the option of such mortgagee,
its successors and assigns, or other holder of the mortgage or note
secured thereby, make such sale of the Demised Premises or Building
subject to this Lease.
28. Estoppel Certificates. Within fifteen (15) days after written request
therefor by Landlord, Tenant agrees to execute and deliver to Landlord in
recordable form an estoppel certificate, in a reasonable form, addressed to
Landlord, any mortgagee or assignee of Landlord's interest in, or purchaser of,
the Demised Premises or the Building or any part thereof, certifying (if such be
the case) that this Lease is unmodified and is in full force and effect (and if
there have been modifications, that the same is in full force and effect as
modified and stating said modifications); that there are no defenses or offsets
against the enforcement thereof or stating those claimed by Tenant; and stating
the date to which Rent and other charges have been paid. Such certificate shall
also include such other information as may reasonably be required by such
mortgagee, proposed mortgagee, assignee, purchaser or Landlord. Any such
certificate may be relied upon by Landlord, any mortgagee, proposed mortgagee,
assignee, purchaser and any other party to whom such certificate is addressed.
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29. No Estate. This Lease shall create the relationship of landlord and
tenant only between Landlord and Tenant and no estate shall pass out of
Landlord. Tenant shall have only an usufruct, not subject to levy and sale and
not assignable in whole or in part by Tenant except as herein provided.
30. Cumulative Rights. All rights, powers and privileges conferred
hereunder upon the parties hereto shall be cumulative to, but not restrictive
of, or in lieu of those conferred by law.
31. Holding Over. If Tenant remains in possession after expiration or
termination of the Lease Term with or without Landlord's written consent, Tenant
shall become a tenant-at-sufferance, and there shall be no renewal of this Lease
by operation of law. During the period of any such holding over, all provisions
of this Lease shall be and remain in effect except that the monthly rental shall
be one hundred fifty percent (150%) of the amount of Rent (including any
adjustments as provided herein) payable for the last full calendar month of the
Lease Term including renewals or extensions, for the first three (3) months of
any such holdover, and then double the amount of such Rent thereafter. The
inclusion of the preceding sentence in this Lease shall not be construed as
Landlord's consent for Tenant to hold over.
32. Surrender of Premises. Except as provided in Article 14 herein, upon
the expiration or other termination of this Lease, Tenant shall quit and
surrender to Landlord the Demised Premises and every part thereof and all
alterations, additions and improvements thereto, broom clean and in good
condition and state of repair, reasonable wear and tear only excepted. If Tenant
is not then in default, Tenant shall remove all personalty and equipment not
attached to the Demised Premises which it has placed upon the Demised Premises,
and Tenant shall restore the Demised Premises to the condition immediately
preceding the time of placement thereof, less reasonable wear and tear. If
Tenant shall fail or refuse to remove all of Tenant's effects, personalty and
equipment from the Demised Premises upon the expiration or termination of this
Lease for any cause whatsoever or upon the Tenant being dispossessed by process
of law or otherwise, such effects, personalty and equipment shall be deemed
conclusively to be abandoned and may be appropriated, sold, stored, destroyed or
otherwise disposed of by Landlord without written notice to Tenant or any other
party and without obligation to account for them. Tenant shall pay Landlord on
demand any and all reasonable expenses incurred by Landlord in the removal of
such property, including, without limitation, the cost of repairing any damage
to the Building or Project caused by the removal of such property and storage
charges (if Landlord elects to store such property), less any amounts actually
received by Landlord in connection with the disposition of such property, which
Landlord may dispose of in Landlord's sole and absolute discretion. The
covenants and conditions of this Article 32 shall survive any expiration or
termination of this Lease.
33. Notices. All notices required or permitted to be given hereunder
shall be in writing and may be delivered in person to either party or may be
sent by courier or by United States Mail, certified, return receipt requested,
postage prepaid. Any such notice shall be deemed
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received by the party to whom it was sent (i) in the case of personal delivery
or courier delivery, on the date of delivery to such party, and (ii) in the case
or certified mail, the date receipt is acknowledged on the return receipt for
such notice or, if delivery is rejected or refused or the U.S. Postal Service is
unable to deliver same because of changed address of which no notice was given
pursuant hereto, the first date of such rejection, refusal or inability to
deliver. All such notices shall be addressed to Landlord or Tenant at their
respective address set forth hereinabove or at such other address as either
party shall have theretofore given to the other by notice as herein provided.
Tenant hereby designates and appoints as its agent to receive notice of all
distraint proceedings and all other notices required under this Lease, to
Charles I. Pollack, Esq., Silfen, Segal, Fryer & Shuster, P.C., 1050 Crown
Pointe Parkway, Suite 410, Atlanta, GA 30338.
34. Damage or Theft of Personal Property. All personal property brought
into Demised Premises by Tenant, or Tenant's employees or business visitors,
shall be at the risk of Tenant only, and Landlord shall not be liable for theft
thereof or any damage thereto occasioned by any act of co-tenants, occupants,
invitees or other users of the Building or any other person. Landlord shall not
at any time be liable for damage to any property in or upon the Demised
Premises, which results from power surges or other deviations from the constancy
of electrical service or from gas, smoke, water, rain, ice or snow which issues
or leaks from or forms upon any part of the Building or from the pipes or
plumbing work of the same, or from any other place whatsoever, except to the
extent such liability would arise under Article 37 herein.
35. Eminent Domain.
(a) If all or part of the Demised Premises shall be taken for any
public or quasi-public use by virtue of the exercise of the power of
eminent domain or by private purchase in lieu thereof, this Lease shall
terminate as to the part so taken as of the date of taking, and, in the
case of a partial taking, either Landlord or Tenant shall have the right
to terminate this Lease as to the balance of the Demised Premises by
written notice to the other within thirty (30) days after such date;
provided, however, that a condition to the exercise by Tenant of such
right to terminate shall be that the portion of the Demised Premises
taken shall be of such extent and nature as substantially to handicap,
impede or impair Tenant's use of the balance of the Demised Premises, as
reasonably determined by Tenant. If title to so much of the Building is
taken that a reasonable amount of reconstruction thereof will not in
Landlord's sole discretion result in the Building being a practical
improvement and reasonably suitable for use for the purpose for which it
is designed, then this Lease shall terminate on the date that the
condemning authority actually takes possession of the part so condemned
or purchased.
(b) If this Lease is terminated under the provisions of this
Article 35, Rent shall be apportioned and adjusted as of the date of
termination. Tenant shall have no claim against Landlord or against the
condemning authority for the value of any leasehold estate or for the
value of the unexpired Lease Term provided that the foregoing shall not
preclude any claim that Tenant may have against the condemning authority
for the
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unamortized cost of leasehold improvements, to the extent the same were
installed at Tenant's expense (and not with the proceeds of the
Construction Allowance), or for loss of business, moving expenses or
other consequential damages, in accordance with subparagraph (d) below.
(c) If there is a partial taking of the Building and this Lease is
not thereupon terminated under the provisions of this Article 35, then
this Lease shall remain in full force and effect, and Landlord shall,
within a reasonable time thereafter, repair or reconstruct the remaining
portion of the Building to the extent necessary to make the same a
complete architectural unit; provided that in complying with its
obligations hereunder Landlord shall not be required to expend more than
the net proceeds of the condemnation award which are paid to Landlord.
Rent shall equitably abate during the period of reconstruction with
respect to any portion of the Demised Premises which are rendered
unsuitable for Tenant's business, as reasonably determined by Tenant.
However, if all or any portion of the Building or the Project shall be
taken, and such taking shall, in Tenant's reasonable judgment,
substantially handicap, impede or impair Tenant's use of the Demised
Premises, Tenant shall have the right to terminate this Lease by written
notice to Landlord within thirty (30) days after the date of such taking
or purchase.
(d) All compensation awarded or paid to Landlord upon a total or
partial taking of the Demised Premises or the Building shall belong to
and be the property of Landlord without any participation by Tenant;
provided, however, that should Landlord receive a lump award which
expressly includes compensation for (i) Tenant's loss of business, (ii)
damage to, and the cost of removal of, trade fixtures, furniture and
other personal property belonging to Tenant, or (iii) the cost of any
leasehold improvements installed at Tenant's expense, Landlord shall
promptly deliver to Tenant the portion of the award which represents
compensation for such items. Nothing herein shall be construed to
preclude Tenant from prosecuting any claim directly against the
condemning authority for loss of business, for damage to, and cost of
removal of, trade fixtures, furniture and other personal property
belonging to Tenant, and for the unamortized cost of leasehold
improvements to the extent same were installed at Tenant's expense (and
not with the proceeds of the Construction Allowance), provided, however,
that no such claim shall diminish or adversely affect Landlord's award.
In no event shall Tenant have or assert a claim for the value of any
unexpired term of this Lease. Subject to the foregoing provisions of this
subparagraph (d), Tenant hereby assigns to Landlord any and all of its
right, title and interest in or to any compensation awarded or paid as a
result of any such taking.
(e) Notwithstanding anything to the contrary contained in this
Article 35, if, during the Lease Term, the use or occupancy of any part
of the Building or the Demised Premises shall be taken or appropriated
temporarily for any public or quasi-public use under any governmental
law, ordinance, or regulations, or by right of eminent domain, this Lease
shall be and remain unaffected by such taking or appropriation and Tenant
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shall continue to pay in full all Rent payable hereunder by Tenant during
the Lease Term. In the event of any such temporary appropriation or
taking, Tenant shall be entitled to receive that portion of any award
which represents compensation for the loss of use or occupancy of the
Demised Premises during the Lease Term, and Landlord shall be entitled to
receive that portion of any award which represents the cost of
restoration and compensation for the loss of use or occupancy of the
Demised Premises after the end of the Lease Term.
36. Parties. The term "Landlord", as used in this Lease, shall include
Landlord and its assigns and successors. It is hereby covenanted and agreed by
Tenant that should Landlord's interest in the Demised Premises cease to exist
for any reason during the Lease Term, then notwithstanding the happening of such
event, this Lease nevertheless shall remain in full force and effect, and Tenant
hereby agrees to attorn to the then owner of the Demised Premises. The term
"Tenant" shall include Tenant and its heirs, legal representatives and
successors, and shall also include Tenant's assignees and sublessees, if this
Lease shall be validly assigned or the Demised Premises sublet for the balance
of the Lease Term or any renewals or extensions thereof. In addition, Landlord
and Tenant covenant and agree that Landlord's right to transfer or assign
Landlord's interest in and to the Demised Premises, or any part or parts
thereof, shall be unrestricted, and that in the event of any such transfer or
assignment by Landlord which includes the Demised Premises, Landlord's
obligations to Tenant hereunder shall cease and terminate, and Tenant shall look
only and solely to Landlord's assignee or transferee for performance thereof.
Notwithstanding the foregoing, Landlord shall not be released from such
liability under any of its covenants and obligations contained in or derived
from this Lease arising out of any acts, occurrences or omissions occurring
after the consummation of such transfer or assignment unless the transferee or
assignee of the Demised Premises shall assume obligations of Landlord under this
Lease. Furthermore, in no event shall Landlord be released from any obligations
or liabilities accruing prior to the date of such transfer or assignment.
37. Liability. Except to the extent covered by and actually funded under
any of the insurance provided or to be provided under the provisions of Articles
17 and 18 hereof, Tenant hereby indemnifies Landlord from and agrees to hold
Landlord harmless against, any and all liability, loss, cost, damage or expense,
including, without limitation, court costs and reasonable attorneys' fees
actually incurred, imposed on Landlord by any person whomsoever, caused by the
gross negligence or willful misconduct of Tenant, or any of its partners,
employees, contractors, servants, agents, subtenants, or legal representatives,
acting within the scope of their authority. Except to the extent covered by and
actually funded under any of the insurance provided or to be provided under the
provisions of Articles 17 and 18 hereof, Landlord hereby indemnifies Tenant
from, and agrees to hold Tenant harmless against, any and all liability, loss,
cost, damage or expense, including without limitation, court costs and
reasonable attorneys' fees, imposed on Tenant by any person whomsoever, caused
by the gross negligence or willful misconduct of Landlord, or any of its
partners, employees, contractors, servants, agents or legal representatives,
acting within the scope of their authority. Notwithstanding any provision of
this Lease to the contrary, in no event shall Landlord or Tenant have any
liability to the other party for lost profits. The provisions of this Article 37
shall survive the expiration or any termination of this Lease.
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38. Relocation of the Premises. INTENTIONALLY DELETED.
39. Force Majeure. In the event of strike, lockout, labor trouble, civil
commotion, Act of God, or any other cause beyond a party's control (collectively
"force majeure") resulting in the Landlord's inability to supply the services or
perform the other obligations required of Landlord hereunder, this Lease shall
not terminate and Tenant's obligation to pay Rent and all other charges and sums
due and payable by Tenant shall not be affected or excused and Landlord shall
not be considered to be in default under this Lease. If, as a result of force
majeure, Tenant is delayed in performing any of its obligations under this
Lease, and to pay Rent and all other charges and sums payable by Tenant
hereunder, Tenant's performance shall be excused for a period equal to such
delay and Tenant shall not during such period be considered to be in default
under this Lease with respect to the obligation, performance of which has thus
been delayed.
40. Landlord's Liability. Landlord shall have no personal liability with
respect to any of the provisions of this Lease. If Landlord is in default with
respect to its obligations under this Lease, Tenant shall look solely to the
equity of Landlord in and to the Building and the Land described in Exhibit "A"
hereto for satisfaction of Tenant's remedies, if any. It is expressly understood
and agreed that Landlord's liability under the terms of this Lease shall in no
event exceed the amount of its interest in and to said Land and Building. In no
event shall any partner of Landlord nor any joint venturer in Landlord, nor any
officer, director or shareholder of Landlord or any such partner or joint
venturer of Landlord be personally liable with respect to any of the provisions
of this Lease.
41. Landlord's Covenant of Quiet Enjoyment. Provided Tenant performs the
terms, conditions and covenants of this Lease, and subject to the terms and
provisions hereof, Landlord covenants and agrees to take all necessary steps to
secure and to maintain for the benefit of Tenant the quiet and peaceful
possession of the Demised Premises, for the Lease Term, without hindrance, claim
or molestation by Landlord or any other person lawfully claiming under Landlord.
42. Security Deposit. INTENTIONALLY DELETED.
43. Hazardous Substances. Tenant hereby covenants and agrees that Tenant
shall not cause or permit any "Hazardous Substances" (as hereinafter defined) to
be generated, placed, held, stored, used, located or disposed of at the Project
or any part thereof, except for Hazardous Substances as are commonly and legally
used or stored as a consequence of using the Demised Premises for general office
and administrative purposes, but only so long as the quantities thereof do not
pose a threat to public health or to the environment or would necessitate a
"response action", as that term is defined in CERCLA (as hereinafter defined),
and so long as Tenant strictly complies or causes compliance with all applicable
governmental rules and regulations concerning the use, storage, production,
transportation and disposal of such Hazardous Substances. Promptly upon receipt
of Landlord's request, Tenant shall submit to Landlord true and correct copies
of any reports filed by Tenant with any governmental or quasi-governmental
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authority regarding the generation, placement, storage, use, treatment or
disposal of Hazardous Substances on or about the Demised Premises. For purposes
of this Article 43, "Hazardous Substances" shall mean and include those elements
or compounds which are contained in the list of Hazardous Substances adopted by
the United States Environmental Protection Agency (EPA) or in any list of toxic
pollutants designated by Congress or the EPA or which are defined as hazardous,
toxic, pollutant, infectious or radioactive by any other federal, state or local
statute, law, ordinance, code, rule, regulation, order or decree regulating,
relating to or imposing liability (including, without limitation, strict
liability) or standards of conduct concerning, any hazardous, toxic or dangerous
waste, substance or material, as now or at any time hereinafter in effect
(collectively "Environmental Laws"). Tenant hereby agrees to indemnify Landlord
and hold Landlord harmless from and against any and all losses, liabilities,
including strict liability, damages, injuries, expenses, including reasonable
attorneys' fees, costs of settlement or judgment and claims of any and every
kind whatsoever paid, incurred or suffered by, or asserted against, Landlord by
any person, entity or governmental agency for, with respect to, or as a direct
or indirect result of, the presence in, or the escape, leakage, spillage,
discharge, emission or release from, the Demised Premises of any Hazardous
Substances (including, without limitation, any losses, liabilities, including
strict liability, damages, injuries, expenses, including reasonable attorneys'
fees, costs of any settlement or judgment or claims asserted or arising under
the Comprehensive Environmental Response, Compensation and Liability Act
["CERCLA"], any so-called federal, state or local "Superfund" or "Superlien"
laws or any other Environmental Law); provided, however, that the foregoing
indemnity is limited to matters arising solely from Tenant's violation of the
covenant contained in this Article. The obligations of Tenant under this Article
shall survive any expiration or termination of this Lease.
44. Submission of Lease. The submission of this Lease for examination
does not constitute an offer to lease and this Lease shall be effective only
upon execution hereof by Landlord and Tenant.
45. Severability. If any clause or provision of this Lease is illegal,
invalid or unenforceable under present or future laws, the remainder of this
Lease shall not be affected thereby, and in lieu of each clause or provision of
this Lease which is illegal, invalid or unenforceable, there shall be added as a
part of this Lease a clause or provision as nearly identical to the said clause
or provision as may be legal, valid and enforceable.
46. Entire Agreement. This Lease contains the entire agreement of the
parties and no representations, inducements, promises or agreements, oral or
otherwise, between the parties not embodied herein shall be of any force or
effect. No failure of Landlord to exercise any power given Landlord hereunder,
or to insist upon strict compliance by Tenant with any obligation of Tenant
hereunder, and no custom or practice of the parties at variance with the terms
hereof, shall constitute a waiver of Landlord's right to demand exact compliance
with the terms hereof. This Lease may not be altered, waived, amended or
extended except by an instrument in writing signed by Landlord and Tenant. This
Lease is not in recordable form, and Tenant agrees not to record or cause to be
recorded this Lease or any short form or memorandum thereof.
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47. Headings. The use of headings herein is solely for the convenience of
indexing the various paragraphs hereof and shall in no event be considered in
construing or interpreting any provision of this Lease.
48. Broker. CPI HAS REPRESENTED LANDLORD IN THIS TRANSACTION, AND CARTER
& ASSOCIATES HAS REPRESENTED TENANT IN THIS TRANSACTION. BROKER(S) (AS DEFINED
IN ARTICLE 1[O]) IS (ARE) ENTITLED TO A LEASING COMMISSION FROM LANDLORD BY
VIRTUE OF THIS LEASE, WHICH LEASING COMMISSION SHALL BE PAID BY LANDLORD TO
BROKER(S) IN ACCORDANCE WITH THE TERMS OF A SEPARATE AGREEMENT BETWEEN LANDLORD
AND BROKER(S). Tenant hereby authorizes Broker(s) and Landlord to identify
Tenant as a tenant of the Building and to state the amount of space leased by
Tenant in advertisements and promotional materials relating to the Building.
Tenant represents and warrants to Landlord that (except with respect to any
Broker[s] identified in Article 1[o] hereinabove) no broker, agent, commission
salesperson, or other person has represented Tenant in the negotiations for and
procurement of this Lease and of the Demised Premises and that (except with
respect to any Broker[s] identified in Article 1[o] hereinabove) no commissions,
fees, or compensation of any kind are due and payable in connection herewith to
any broker, agent, commission salesperson, or other person as a result of any
act or agreement of Tenant. Tenant agrees to indemnify and hold Landlord
harmless from all loss, liability, damage, claim, judgment, cost or expense
(including reasonable attorneys' fees and court costs) suffered or incurred by
Landlord as a result of a breach by Tenant of the representation and warranty
contained in the immediately preceding sentence or as a result of Tenant's
failure to pay commissions, fees, or compensation due to any broker who
represented Tenant, whether or not disclosed, or as a result of any claim for
any fee, commission or similar compensation with respect to this Lease made by
any broker, agent or finder (other than the Broker[s] identified in Article 1[o]
hereinabove) claiming to have dealt with Tenant, whether or not such claim is
meritorious. Tenant shall cause any agent or broker representing Tenant to
execute a lien waiver to and for the benefit of Landlord, waiving any and all
lien rights with respect to the Building and Land which such agent or broker has
or might have under Georgia law.
49. Governing Law. The laws of the State of Georgia shall govern the
validity, performance and enforcement of this Lease.
50. Special Stipulations. The special stipulations attached hereto as
Exhibit "G" are hereby incorporated herein by this reference as though fully set
forth (if none, so state).
51. Authority. If Tenant executes this Lease as a corporation, each of
the persons executing this Lease on behalf of Tenant does hereby personally
represent and warrant that Tenant is a duly incorporated or a duly qualified (if
a foreign corporation) corporation and is fully authorized and qualified to do
business in the State in which the Demised Premises are located, that the
corporation has full right and authority to enter into this Lease, and that each
person signing on behalf of the corporation is an officer of the corporation and
is authorized to sign on behalf of the corporation. If Tenant signs as a
partnership, joint venture, or sole
30
<PAGE> 34
proprietorship or other business entity (each being herein called "Entity"),
each of the persons executing on behalf of Tenant does hereby covenant and
warrant that Tenant is a duly authorized and existing Entity, that Tenant has
full right and authority to enter into this Lease, that all persons executing
this Lease on behalf of the Entity are authorized to do so on behalf of the
Entity, and that such execution is fully binding upon the Entity and its
partners, joint venturers, or principal, as the case may be. Upon the request of
Landlord, Tenant shall deliver to Landlord reasonable documentation satisfactory
to Landlord evidencing Tenant's compliance with this Article, and Tenant agrees
to promptly execute all necessary and reasonable applications or documents as
reasonably requested by Landlord, required by the jurisdiction in which the
Demised Premises is located, to permit the issuance of necessary permits and
certificates for Tenant's use and occupancy of the Demised Premises.
52. Financial Statements. Upon Landlord's written request therefor, but
not more often than once per year, Tenant shall promptly furnish to Landlord a
financial statement with respect to Tenant for its most recent fiscal year
prepared in accordance with generally accepted accounting principles and
certified to be true and correct by Tenant, which statement Landlord agrees to
keep confidential and not use except in connection with proposed sale or loan
transactions.
53. Joint and Several Liability. INTENTIONALLY DELETED.
54. ERISA Compliance. Tenant represents to Landlord that Tenant is not an
"employee benefit plan", a "plan" or a "governmental plan" as defined below or
an entity whose assets constitute "plan assets" as defined below. The term
"employee benefit plan" means an "employee benefit plan" as defined in Section
3(3) of the Employment Retirement Income Security Act of 1974, as amended
("ERISA"), which is subject to Title I of ERISA. The term "plan" means a "plan"
as defined in Section 4975(e)(i) of the Internal Revenue Code of 1986, as
amended. The term "governmental plan" means a "governmental plan" within the
meaning of Section 3(32) of ERISA. The term "plan assets" means "plan assets" of
one or more plans within the meaning of 2a C.F.R. 2510.3-101.
IN WITNESS WHEREOF, the parties have hereunto set their hands and seals
as of the day, month and year first above written.
"LANDLORD":
WILDWOOD ASSOCIATES,
a Georgia general partnership
By: Cousins Properties Incorporated,
Managing General Partner
By: /s/
-----------------------------
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<PAGE> 35
Its: Vice President
(CORPORATE SEAL)
"TENANT":
THE PROFIT RECOVERY GROUP INTERNATIONAL
I, INC.
By: /s/
--------------------------------------
Its: Senior Vice President
and Chief Financial Officer
Attest: /s/
--------------------------------------
Its: Secretary
(CORPORATE SEAL)
32
<PAGE> 36
RULES AND REGULATIONS
1. No sign, picture, advertisement or notice visible from the exterior of
the Demised Premises shall be installed, affixed, inscribed, painted or
otherwise displayed by Tenant on any part of the Demised Premises or the
Building unless the same is first approved by Landlord. Any such sign,
picture, advertisement or notice approved by Landlord shall be painted or
installed for Tenant at Tenant's cost by Landlord or by a party approved
by Landlord, which approval shall not be unreasonably withheld,
conditioned or delayed. No awnings, curtains, blinds, shades or screens
shall be attached to or hung in, or used in connection with any window or
door of the Demised Premises without the prior consent of the Landlord,
which approval shall not be unreasonably withheld, conditioned or
delayed, including approval by the Landlord of the quality, type, design,
color and manner of attachment. In the event of any breach of the
foregoing, Landlord may remove the applicable item, and Tenant agrees to
pay the cost and expense of such removal.
2. Tenant agrees that its use of electrical current shall never exceed the
capacity of existing feeders, risers or wiring installation.
3. The Demised Premises shall not be used for storage of merchandise held
for sale to the general public. Tenant shall not do or permit to be done
in or about the Demised Premises or Building anything which shall
increase the rate of insurance on said Building or obstruct or interfere
with the rights of other lessees of Landlord or annoy them in any way,
including, but not limited to, using any musical instrument, making loud
or unseemly noises, or singing, etc. The Demised Premises shall not be
used for sleeping or lodging. No cooking or related activities shall be
done or permitted by Tenant in the Demised Premises except with
permission of Landlord. Tenant will be permitted to use for its own
employees within the Demised Premises a small microwave oven and
Underwriters' Laboratory approved equipment for brewing coffee, tea, hot
chocolate and similar beverages, provided that such use is in accordance
with all applicable federal, state, county and city laws, codes,
ordinances, rules and regulations, and provided that such use shall not
result in the emission of odors from the Demised Premises into the common
area of the Building. No vending machines of any kind will be installed,
permitted or used on any part of the Demised Premises without the prior
consent of Landlord, which approval shall not be unreasonably withheld,
conditioned or delayed. No part of said Building or Demised Premises
shall be used for gambling, immoral or other unlawful purposes. No
intoxicating beverage shall be sold in said Building or Demised Premises
without prior written consent of the Landlord. No area outside of the
Demised Premises shall be used for storage purposes at any time.
4. No birds or animals of any kind shall be brought into the Building (other
than trained assist dogs required to be used by the visually impaired).
No bicycles, motorcycles or other motorized vehicles shall be brought
into the Building.
<PAGE> 37
5. The sidewalks, entrances, passages, corridors, halls, elevators, and
stairways in the Building shall not be obstructed by Tenant or used for
any purposes other than those for which same were intended as ingress and
egress. No windows, floors or skylights that reflect or admit light into
the Building shall be covered or obstructed by Tenant, and no articles
shall be placed on the window sills of the Building. Toilets, wash basins
and sinks shall not be used for any purpose other than those for which
they were constructed, and no sweeping, rubbish, or other obstructing or
improper substances shall be thrown therein. Any damage resulting to
them, or to heating apparatus, from misuse by Tenant or its employees,
shall be borne by Tenant.
6. Only one key for each office in the Demised Premises will be furnished
Tenant without charge. Landlord may make a reasonable charge for any
additional keys. No additional lock, latch or bolt of any kind shall be
placed upon any door nor shall any changes be made in existing locks
without written consent of Landlord and Tenant shall in each such case
furnish Landlord with a key for any such lock. Notwithstanding anything
to the contrary contained herein, Landlord's use of any keys or
electronic access pass to the Demised Premises shall be coordinated with
Tenant (except in the case of emergency), and Landlord shall use
reasonable efforts to secure such keys or other access devices to prevent
unauthorized use of same. At the termination of the Lease, Tenant shall
return to Landlord all keys furnished to Tenant by Landlord, or otherwise
procured by Tenant, and in the event of loss of any keys so furnished,
Tenant shall pay to Landlord the cost thereof.
7. Landlord shall have the right to prescribe the weight, position and
manner of installation of heavy articles such as safes, machines and
other equipment brought into the Building. Tenant shall not allow the
building structure within the Demised Premises, nor shall Tenant cause
the elevators of the Building, to be loaded beyond rated capacities. No
safes, furniture, boxes, large parcels or other kind of freight shall be
taken to or from the Demised Premises or allowed in any elevator, hall or
corridor except at times allowed by Landlord. Tenant shall make prior
arrangements with Landlord for use of freight elevator for the purpose of
transporting such articles and such articles may be taken in or out of
said Building only between or during such hours as may be arranged with
and designated by Landlord. The persons employed to move the same must be
approved by Landlord, which approval shall not be unreasonably withheld,
conditioned or delayed. Landlord reserves the right to inspect and, where
deemed appropriate by Landlord, to open all freight coming into the
Building and to exclude from entering the Building all freight which is
in violation of any of these Rules and Regulations and all freight as to
which inspection is not permitted. No hand trucks shall be used in
passenger elevators. All hand trucks used by Tenant or its service
providers for the delivery or receipt of any freight shall be equipped
with rubber tires.
8. Tenant shall not cause or permit any gases, liquids or odors to be
produced upon or permeate from the Demised Premises, and no flammable,
combustible or explosive fluid,
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<PAGE> 38
chemical or substance shall be brought into the Building. Smoking shall
not be permitted in any common areas of the Building or the Project or in
any premises within the Building; provided, however, smoking shall be
permitted in any premises of the Building where the tenant of such
premises makes arrangements with Landlord for the installation at such
tenant's cost of filtration or other equipment which in Landlord's
judgment is adequate to prevent smoke from leaving such premises and
entering the common areas or other premises of the Building. Until such
approved equipment is installed, smoking shall not be permitted in a
tenant's premises. If Tenant shall assert that the air quality in the
Demised Premises is unsatisfactory or if Tenant shall request any air
quality testing within the Demised Premises, Landlord may elect to cause
its consultant to test the air quality within the Demised Premises and to
issue a report regarding same. If the report from such tests indicates
that the air quality within the Demised Premises is comparable to the air
quality of other first-class office buildings in the market area of the
Building, or if the report from such tests indicates that the air quality
does not meet such standard as a result of the activities caused or
permitted by Tenant in the Demised Premises, Tenant shall reimburse
Landlord for all costs of the applicable tests and report. Additionally,
in the event Tenant shall cause or permit any activity which shall
adversely affect the air quality in the Demised Premises, in the common
area of the Building or in any premises within the Building, Tenant shall
be responsible for all costs of remedying same.
9. Every person, including Tenant, its employees and visitors, entering and
leaving the Building may be questioned by a watchman as to that person's
business therein and may be required to sign such person's name on a form
provided by Landlord for registering such person; provided that, except
for emergencies or other extraordinary circumstances, such procedures
shall not be required between the hours of 7:00 a.m. and 7:00 p.m., on
all days except Saturdays, Sundays and Holidays. Landlord may also
implement a card access security system to control access to the Building
during such other times. Landlord shall not be liable for excluding any
person from the Building during such other times, or for admission of any
person to the Building at any time, or for damages or loss for theft
resulting therefrom to any person, including Tenant.
10. Unless agreed to in writing by Landlord, Tenant shall not employ any
person other than Landlord's contractors for the purpose of cleaning and
taking care of the Demised Premises, excluding those vendors used by
Tenant for security purposes. Cleaning service will not be furnished on
nights when rooms are occupied after 6:30 p.m., unless, by agreement in
writing, service is extended to a later hour for specifically designated
rooms. Landlord shall not be responsible for any loss, theft, mysterious
disappearance of or damage to, any property, however occurring. Only
persons authorized by the Landlord may furnish ice, drinking water,
towels, and other similar services within the Building and only at hours
and under regulations fixed by Landlord.
11. No connection shall be made to the electric wires or gas or electric
fixtures, without the consent in writing on each occasion of Landlord.
All glass, locks and trimmings in or upon the doors and windows of the
Demised Premises shall be kept whole and in good
3
<PAGE> 39
repair. Tenant shall not injure, overload or deface the Building, the
woodwork or the walls of the Demised Premises, nor permit upon the
Demised Premises any noisome, noxious, noisy or offensive business.
12. If Tenant requires wiring for a bell or buzzer system, such wiring shall
be done by the electrician of the Landlord only, and no outside wiring
men shall be allowed to do work of this kind unless by the written
permission of Landlord or its representatives, which permission shall not
be unreasonably withheld, conditioned or delayed. If telegraph or
telephonic service is desired, the wiring for same shall be approved by
Landlord, and no boring or cutting for wiring shall be done unless
approved by Landlord or its representatives, as stated. The electric
current shall not be used for power or heating unless written permission
to do so shall first have been obtained from Landlord or its
representatives in writing, and at an agreed cost to Tenant.
13. Tenant and its employees and invitees shall observe and obey all parking
and traffic regulations as imposed by Landlord. All vehicles shall be
parked only in areas designated therefor by Landlord.
14. Canvassing, peddling, soliciting and distribution of handbills or any
other written materials in the Building are prohibited, and Tenant shall
cooperate to prevent the same.
15. Tenant agrees to participate in the waste recycling programs implemented
by Landlord for the Building, including any programs and procedures for
recycling writing paper, computer paper, shipping paper, boxes,
newspapers and magazines and aluminum cans; provided, however, Tenant
shall not be obligated to participate in any such program which, in
Tenant's reasonable judgment, compromises its internal security, or is
necessary to prevent disclosure of its trade secrets or other proprietary
information. If Landlord elects to provide collection receptacles for
recyclable paper and/or recyclable aluminum cans in the Demised Premises,
Tenant shall designate an appropriate place within the Demised Premises
for placement thereof, and Tenant shall cause its employees to place
their recyclable papers and/or cans into the applicable such receptacles
on a daily basis.
16. Any special work or services requested by Tenant to be provided by
Landlord shall be provided by Landlord only upon request received at the
Project management office. Building personnel shall not perform any work
or provide any services outside of their regular duties unless special
instructions have been issued from Landlord or its managing agent.
17. Landlord shall have the right to change the name of the Building and to
change the street address of the Building, provided that in the case of a
change in the street address, Landlord shall give Tenant not less than
180 days' prior notice of the change, unless the change is required by
governmental authority.
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<PAGE> 40
18. The directory of the Building will be provided for the display of the
name and location of the tenants. Any additional name which Tenant shall
desire to place upon said directory must first be approved by Landlord,
and if so approved, a reasonable charge will be made therefor.
19. Landlord may waive any one or more of these Rules and Regulations for the
benefit of any particular lessee, but no such waiver by Landlord shall be
construed as a waiver of such Rules and Regulations in favor of any other
lessee, nor prevent Landlord from thereafter enforcing any such Rules and
Regulations against any or all of the other lessees of the Building.
20. These Rules and Regulations are supplemental to, and shall not be
construed to in any way modify or amend, in whole or in part, the terms,
covenants, agreements and conditions of any lease of any premises in the
Building.
21. Landlord reserves the right to make such other and reasonable uniform,
non-discriminatory Rules and Regulations as in its judgment may from time
to time be needed for the safety, care and cleanliness of the Building,
the Land and Wildwood Office Park, and for the preservation of good order
therein.
5
<PAGE> 41
EXHIBIT "A"
Legal Description of Land
The following is a description of a tract of land lying and being in Land
Lots 941, 985 and 986, 17th district, 2nd Section, Cobb County, Georgia, and
being more particularly described as follows:
To find the TRUE POINT OF BEGINNING, begin at the corner common to Land
Lots 941, 940, 987, and 986 of the 17th District, 2nd Section, Cobb County,
Georgia, and running thence along the north land lot line of said Land Lot 941,
(being the south land lot line of said Land Lot 940) North 89 degrees 36
minutes West, a distance of 527.94 feet to a point on said common land lot
line; thence leaving said common land lot line dividing said Land Lots 941 and
940 and running South 11 degrees 36 minutes East, a distance of 730.0 feet to a
point located on the northwesterly right-of-way line of Windy Hill Road; thence
South 07 degrees 01 minutes 30 seconds East, a distance of 119.65 feet to a
point on the southwesterly right-of-way line of said Windy Hill Road; thence,
continuing along said right-of-way South 88 degrees 33 minutes 25 seconds East,
a distance of 86.59 feet to a point; thence along an arc of curve to the left
(which has a radius of 525.00 feet and a chord distance of 305.17 feet along a
chord bearing of North 74 degrees 32 minutes 48 seconds East), an arc distance
of 309.64 feet to a point, said point being THE TRUE POINT OF BEGINNING.
Thence, continuing along said Windy Hill Road right-of-way (having a variable
right-of-way width) along an arc of curve to the left (which has a radius of
525.00 feet and a chord distance of 218.51 feet along a chord bearing of North
45 degrees 38 minutes 22 seconds East), an arc distance of 220.11 feet to a
point; thence, North 33 degrees 37 minutes 44 seconds East, a distance of
152.45 feet to a point; thence, North 50 degrees 57 minutes East, a distance of
134.42 feet to a point; thence, leaving said right-of-way of Windy Hill Road
South 62 degrees 57 minutes East, a distance of 735.00 feet to a point; thence,
South 44 degrees 03 minutes West, a distance of 295.00 feet to a point; thence,
South 09 degrees 03 minutes West, a distance of 395.00 feet to a point; thence,
South 53 degrees 57 minutes East, a distance of 210.00 feet to a point; thence,
South 42 degrees 28 minutes East, a distance of 100.00 feet to a point; thence,
South 03 degrees 11 minutes 06 seconds West, a distance of 101.72 feet to a
point on the north right-of-way of Windy Ridge Parkway (having a variable
right-of-way width); thence, continuing along said right-of-way along an arc of
curve to the right (which curve has a radius of 301.00 feet and a chord
distance of 92.15 feet along a chord bearing of North 70 degrees 52 minutes 19
seconds West) an arc distance of 92.52 feet to a point; thence, North 62
degrees 04 minutes West, a distance of 92.52 feet to a point; thence, North 62
degrees 04 minutes West, a distance of 74.71 feet to a point on the
intersection of said right-of-way with the northeast right-of-way of Windy
Ridge Parkway extension (having a varying right-of-way width); thence,
continuing along said right-of-way along an arc of curve to the right (which
has a radius of 200.00 feet and a chord distance of 158.69 feet along a chord
bearing of North 38 degrees 41 minutes 37 seconds West), an arc distance of
163.17 feet to a point; thence, North 15 degrees 19 minutes 15 seconds West, a
distance of 67.75 feet to a point; thence, along an arc of curve to the left
(which has a radius of 290.00 feet and a chord distance of 266.21 feet along a
chord bearing of North 42 degrees 38 minutes 33 second West), an arc distance
of 276.58 feet to a point; thence North 69 degrees 57
<PAGE> 42
minutes 51 seconds West, a distance of 261.61 feet to a point; thence, along an
arc of curve to the right (which has a radius of 425.00 feet and a chord
distance of 331.65 feet along a chord bearing of North 46 degrees 59 minutes 56
seconds West), an arc distance of 340.70 feet to a point; thence North 24
degrees 02 minutes West, a distance of 83.26 feet to a point; thence, North 16
degrees 48 minutes 29 seconds East, a distance of 30.08 feet to a point on the
southwesterly right-of-way of Windy Hill Road, and THE TRUE POINT OF BEGINNING.
Said tract containing 536.631 square feet or 12.319 acres more or less.
2
<PAGE> 43
EXHIBIT "B"
Floor Plan
<PAGE> 44
EXHIBIT "C"
SUPPLEMENTAL NOTICE
Re: Lease dated as of _____, 1998, by and between WILDWOOD ASSOCIATES,
as Landlord, and THE PROFIT RECOVERY GROUP INTERNATIONAL I, INC.,
as Tenant.
Dear Sirs:
Pursuant to Article 3 of the captioned Lease, please be advised as
follows:
1. The Rental Commencement Date is the ____ day of _______, 199__, and
the expiration date of the Lease Term is the _____ day of ________, ____,
subject however to the terms and provisions of the Lease.
2. Terms denoted herein by initial capitalization shall have the meanings
ascribed thereto in the Lease.
"LANDLORD":
WILDWOOD ASSOCIATES,
a Georgia general partnership
By: Cousins Properties Incorporated,
Managing General Partner
By: _______________________________
Its: _______________________________
(CORPORATE SEAL)
<PAGE> 45
EXHIBIT "D"
LANDLORD'S CONSTRUCTION
1. Landlord and Tenant, at Tenant's sole cost and expense, shall cause to be
prepared by Tenant's architect and/or designer and/or engineer the
following:
(a) Schematic partition plans and layout based on Tenant's
requirements.
(b) Complete, finished, detailed architectural drawings and
specifications for Tenant's partition layout, reflected ceiling
and other installations for the work to be done by Landlord under
Paragraphs 2 and 3 hereof, which shall be prepared by Tenant's
designer or architect.
(c) Complete mechanical and electrical plans and specifications where
necessary for installation of air conditioning system and
ductwork, heating, electrical, plumbing and other mechanical plans
for the work to be done by Landlord under Paragraphs 2 and 3
hereof, which shall be prepared by Tenant's architect and/or
designer.
(d) Any subsequent modifications to the drawings and specifications
requested by Tenant.
All such plans and specifications are expressly subject to Landlord's
approval and shall comply with all applicable laws, rules and
regulations. Tenant covenants and agrees to cause said plans and
specifications to be delivered to Landlord on or before January 30, 1998,
and, upon approval by Landlord, Landlord will cause said plans to be
filed at Tenant's sole cost and expense with the appropriate governmental
agencies in such form (building notice, alteration or other form) as
Landlord may direct. The Demised Premises shall be deemed "ready for
occupancy" (as that term is used in Article 1[k] of this Lease) when
Landlord's construction, as provided in Paragraphs 2 and 3 hereof, is
substantially completed. In any dispute as to when construction has been
substantially completed, the determination of Landlord's architect or
designer shall be final and binding upon the parties.
2. Landlord agrees, at its sole expense and without charge to Tenant, to
supply and/or install the following work in the Demised Premises (the
following describes the scope of the "building standard" work which will
be provided by Landlord at its expense in accordance with the
specifications for the Building):
<PAGE> 46
(a) Air conditioning
An air conditioning system, including diffusers and returns,
capable of maintaining 78 degrees F when outside temperature is 92
degrees F (summer) and 72 degrees F when outside temperature is 17
degrees F (winter). Air conditioning design basis is 3.25 watts
per usable square foot lighting and power load, based upon an
occupancy rate of one (1) person per 100 rentable square feet and
venetian blinds drawn with slats tilted against the sun at not
less than 45 degrees from horizontal. Landlord will provide the
building standard number of thermostats, which number varies
depending on the location of the Demised Premises on the
applicable floor of the Building.
(b) Electrical
(1) One (1) recessed (or surface mounted if required by
building conditions) 3 tube fluorescent parabolic light
fixture 2' x 4' (or 2' x 2' if required by building
conditions) for each 90 square feet of rentable area,
stacked on the floor. All fixtures must conform in layout
and spacing to the ceiling modules and shall run in the
same direction.
(2) An electrical distribution system above the ceiling for
power (120/208 volts) at a capacity of 1.54 watts per
square foot of rentable space circuited at 8 outlets per 15
AMP circuit.
(c) Ceiling
(1) Acoustical ceiling tile stacked on the floor.
(2) A mechanically suspended ceiling support system designed to
utilize 2' x 2' lay-in acoustical tile throughout the
office area.
(d) Sprinkler system
A complete sprinkler system including chrome semi-recessed
sprinkler heads at a rate of approximately one (1) sprinkler head
per 225 square feet of rentable area installed in accordance with
Landlord's standard grid pattern.
(e) The inside of the Building's perimeter walls which shall be
sheetrocked, taped and bedded only, and the corridor side of the
walls of any corridors which are used in common by Tenant and
other tenants and occupants of the Building.
(f) Venetian blinds on all exterior windows in accordance with
Landlord's standard specifications.
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<PAGE> 47
(g) Incorporation of Tenant's name into the main building directory.
(h) Install an exterior fire door from the portion of the Demised
Premises located on the first floor, together with such exterior
stairways as are necessitated thereby.
3. Tenant shall, in conformance with working drawings and specifications,
prepared by Tenant's planners and approved by Landlord, which approval
shall not be unreasonably withheld, conditioned or delayed, provide and
install the following work:
(a) Air conditioning. Any modifications to or deviations from building
standard air conditioning system including but not limited to
capacity beyond design standards, provisions for supplying air
conditioning beyond Building Operating Hours as stated in this
Lease and/or providing nonstandard equipment such as acoustical
dampers, special diffusers and returns, direct equipment
connections or special thermostats.
(b) Electrical.
(1) All light switches.
(2) All electrical outlets.
(3) All telephone outlets.
(4) All nonstandard light fixtures and any increase to the
number of building standard light fixtures and related
circuitry, panel boards, etc.
(5) Any provision for supplying power to the Demised Premises
beyond the watts per rentable square foot specified in the
Building Standard Services or circuiting at less than 8
outlets per 15 AMP circuit, including necessary metering to
measure excess electrical usage.
(6) All exit light fixtures and exit signs.
(c) Ceiling construction. Installation of ceiling tiles and any
modification to or deviation from the building standard ceiling
construction.
(d) Sprinkler system. Any modification to or deviation from the
building standard sprinkler system including relocations of or
additions to the number of sprinkler heads provided or the
provision of a non-standard sprinkler head.
(e) All plumbing work for facilities such as toilets and sinks in the
Demised Premises.
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<PAGE> 48
(f) All partitions including finish, the tenant side of the common
corridor walls which are within the Demised Premises, including
the finish thereof, and the finish to the inside of the Building's
perimeter walls.
(g) All doors and frames.
(h) All hardware.
(i) All floor finish including base.
(j) Any special construction as shown on the drawings and
specifications approved by Landlord.
(k) Tenant's identification sign conforming to Landlord's standards,
at entrances to Demised Premises.
(l) All fire alarm devices, including speakers, required within the
Demised Premises by applicable building code.
4. Tenant shall pay to a tenant coordinator designated by Landlord, a fee
for construction coordination in an amount equal to 1% of the cost of the
work described in Paragraphs 1 and 3 hereof. The failure to pay such fee
promptly after being billed therefor shall constitute a default under
this Lease.
5. Tenant shall not make any alterations, additions or improvements in or to
the Demised Premises without Landlord's prior written consent, which
consent shall not be unreasonably withheld. Except for construction as
provided in Paragraphs 2 and 3 hereof, the Demised Premises are delivered
to Tenant "as is" without any warranty or representation whatsoever,
except for those warranties provided by the contractor performing the
work or the manufacturer supplying any goods or materials used in the
work. Any alterations, additions or improvements requested by Tenant and
approved by Landlord shall be performed (i) by Landlord's contractor or
another contractor approved by Landlord, which approval shall not be
unreasonably withheld, conditioned or delayed, (ii) in a good and
workmanlike manner, and (iii) in accordance with all applicable codes,
laws, ordinances, rules and regulations of governmental authorities
having jurisdiction over the Demised Premises.
6. Any approval by Landlord of or consent by Landlord to any plans,
specifications or other items to be submitted to and/or reviewed by
Landlord pursuant to this Lease shall be deemed to be strictly limited to
an acknowledgement of approval or consent by Landlord thereto and,
whether or not the work is performed by Landlord or by Tenant's
contractor, such approval or consent shall not constitute the assumption
by Landlord of any responsibility for the accuracy, sufficiency or
feasibility of any plans, specifications or other such items and shall
not imply any acknowledgement, representation or warranty by
4
<PAGE> 49
Landlord that the design is safe, feasible, structurally sound or will
comply with any legal or governmental requirements, and Tenant shall be
responsible for all of the same.
7. The Construction Allowance shall be funded in accordance with the terms
of Attachment "1" to this Exhibit "D".
8. Landlord will require a high grade, first-class operation to be conducted
in the Demised Premises. Tenant's work shall be performed in a
first-class manner, using new and first-class, quality materials.
Tenant's work shall be constructed and installed in accordance with all
applicable laws, ordinances, codes and rules and regulations of
governmental authorities. Tenant shall promptly correct any of Tenant's
work which is not in conformance therewith.
9. Tenant's contract parties and subcontractors shall be subject to
administrative supervisions by Landlord in their use of the Building and
their relationship with Contractor, or contractors of other tenants in
the Building. The entry by Tenant and/or its contract parties into the
Demised Premises for the performance of Tenant's work shall be subject to
all of the terms and conditions of the Lease except the payment of Rent.
10. Tenant's work shall be coordinated and conducted to maintain harmonious
labor relations and not (a) to interfere unreasonably with or to delay
the completion of any work being performed by any other tenant in the
Building; or (b) to interfere with or disrupt the use and peaceful
enjoyment of other retail or office tenants in the Building.
11. Tenant and Tenant's contract parties shall perform their work, including
any storage for construction purposes, within the Demised Premises only.
Tenant shall be responsible for removal, as needed, from the Demised
Premises and the Building of all trash, rubbish, and surplus materials
resulting from any work being performed in the Demised Premises. Tenant
shall exercise extreme care and diligence in removing such trash,
rubbish, or surplus materials from the Demised Premises to avoid
littering, marring, or damaging any portion of the Building. If any such
trash, rubbish, or surplus materials are not promptly removed from the
Building in accordance with the provisions hereof or if any portion of
the Building is littered, marred, or damaged, Landlord may cause same to
be removed or repaired, as the case may be, at Tenant's cost and expense.
If Landlord incurs any costs or expenses in performing the above, Tenant
shall pay Landlord the amount of any such cost and expenses promptly upon
demand therefor.
12. Tenant shall provide or cause to be provided with respect to all such
work to be performed by Tenant with respect to the Demised Premises the
following types of insurance:
(i) At all times during the period between the commencement of
such work and the date such work is completed and Tenant
commences occupancy of the Demised Premises, Tenant shall
maintain or cause to be maintained, casualty insurance in
"Builders Risk" form, covering Landlord, Landlord's agents,
architects, and Tenant and Tenant's contractors and
subcontractors,
5
<PAGE> 50
as their interest may appear, against loss or damage by
fire, vandalism, and malicious mischief and other such
risks as are customarily covered by the so-called "broad
form extended coverage endorsement" upon all the work in
place and all materials stored at the Demised Premises and
all materials, equipment and supplies of all kinds incident
to the work and builder's machinery, tools and equipment
while on the Demised Premises, or when adjacent thereto,
all on a completed value basis to the full insurable value
at all times. Said Builder's Risk insurance shall contain
an express waiver of any right of subrogation by the
insurer against Landlord, its agents, employees and
contractors;
(ii) Liability insurance as required by the Lease; and
(iii) Statutory Workers' Compensation as required by the State of
Georgia or the local municipality having jurisdiction.
All insurance policies procured and maintained pursuant to this Paragraph shall
name Landlord as additional insured, shall be carried with companies licensed to
do business in the State of Georgia reasonably satisfactory to Landlord and
shall be non-cancelable except after twenty (20) days written notice to
Landlord. Such policies or duly executed certificates of insurance with respect
thereto shall be delivered to Landlord before the commencement of the work, and
renewals thereof as required shall be delivered to Landlord at least thirty (30)
days prior to the expiration of each respective policy term.
13. Tenant shall indemnify and hold harmless Landlord, and any of Landlord's
contractors, agents and employees from and against any and all losses,
damages, costs (including costs of suits and attorneys' fees),
liabilities, or causes of action arising out of or relating to the
performance of the work to be performed by Tenant with respect to the
Demised Premises, including but not limited to mechanics', materialmen's
or other liens or claims (and all costs or expenses associated therewith)
asserted, filed or arising out of any such work. All materialmen,
contractors, artisans, mechanics, laborers and other parties hereafter
contracting with Tenant or Tenant's contractor for the furnishing of any
labor, services, materials, suppliers or equipment with respect to the
work are hereby charged with notice that they must look solely to Tenant
for payment of same. Without limiting the generality of the foregoing,
Tenant shall repair or cause to he repaired at its expense all damage
caused by Tenant's contractor, its subcontractors or their employees
acting within the scope of their employment or agency. Tenant shall
promptly pay to Landlord, upon notice thereof from Landlord, any costs
incurred by Landlord to repair any such damage caused by Tenant's
contractor or any costs incurred by Landlord in requiring the Tenant's
contractor's compliance with any Building rules. In connection with any
and all claims against Landlord or any of its agents, contractors or
employees by any employee of Tenant's contractor, any subcontractor,
anyone directly or indirectly employed by any of them, or anyone for
whose acts Tenant's contractor or any subcontractor may he liable, the
indemnification obligations of Tenant's contractor and any subcontractor
under the agreements hereinabove referred to in this subparagraph shall
not he limited in any way by any limitation on the amount or type of
damages, compensation or benefits payable by or
6
<PAGE> 51
for Tenant's contractor or subcontractor under worker's compensation
acts, disability benefit acts, or other employee benefit acts.
14. At the request of Landlord, Tenant shall, at Tenant's sole cost and
expense, provide evidence in form and content approved by Landlord, which
approval shall not be unreasonably withheld or delayed (including, but
not limited to, certificates and affidavits of Tenant, Tenant's
contractor or such other persons as Landlord may reasonably require)
showing:
(a) That all outstanding claims for labor, materials and
fixtures have been paid;
(b) That there are no liens outstanding against the Demised
Premises arising out of or in connection with the work; and
(c) That all construction prior to the date thereof has been
done substantially in accordance with the plans and
specifications approved by Landlord ("Architect's
Certificate of Completion").
15. Any approval by Landlord of or consent by Landlord to any plans,
specifications or other items to be submitted to and/or reviewed by
Landlord pursuant to this Lease shall be deemed to be strictly limited to
an acknowledgment of approval or consent by Landlord thereto and, whether
or not the work is performed by Landlord or by Tenant's contractor, such
approval or consent shall not constitute the assumption by Landlord of
any responsibility for the accuracy, sufficiency or feasibility of any
plans, specifications or other such items and shall not imply any
acknowledgment, representation or warranty by Landlord that the design is
safe, feasible, structurally sound or will comply with any legal or
governmental requirements, and Tenant shall be responsible for all of the
same.
16. Landlord shall pay the Construction Allowance owed to Tenant within
thirty (30) days of receipt of all of the following: 1) lien waivers, 2)
Architects Certificate of Completion, and 3) Certificate of Occupancy.
7
<PAGE> 52
ATTACHMENT 1
TENANT BUILDING STANDARDS
<TABLE>
<S> <C>
Tenant Entry Doors: 3' x 8'-10" 5 ply plain-sliced cherry veneer
flush solid core door in 2" hollow metal
frame. (These are not pre-stocked).
Interior Doors: No Building Standard, however subject to
Cousin's review and approval. Whenever
possible, we prefer the doors to match the
tenant entry doors.
Hardware: Lever and Lock sets:
Passage set: Corbin/Russwin ML2210 CSA
US26D (Satin Chrome)
Lock set: Corbin/Russwin ML2251 CSA
US26D
Ceiling System: 24" x 24", 15/16" wide acoustical grid with
Armstrong Tegular Cirrus, Travertone #589
(grid in place/tiles stacked on the floor)
Light Fixtures: 24" x 48" fluorescent light fixture with (18)
cell parabolic lens and electronic ballasts
(stacked on the floor)
Standard Demising and
Corridor Partitions: One hour fire rated partition:
3-5/8" metal studs with 5/8" fire code
gypsum wallboard each side. (Walls shall be
installed tight to curtain wall/mullions
utilizing foam or double adhesive tape;
screws are unacceptable).
Multi-Tenant Elevator
Lobbies: Base building granite floor border
specification: Rosa Sardo, Flame Finish
Base Building scored gypsum wallboard
pilaster and ceiling details. (Lobby carpet
and wall paint/wallcovering may be selected
by full floor tenants)
Blinds: Base building horizontal mini blinds in color
to match base building curtain wall system.
</TABLE>
<PAGE> 53
ATTACHMENT 1
REQUIRED PROCEDURES FOR TENANTS WHO CONTRACT
THEIR OWN CONSTRUCTION WORK
- --------------------------------------------------------------------------------
The following information must be submitted to and approved by Cousins
prior to construction commencement:
- - Two (2) sets of complete architectural and engineering construction drawings.
Cousins requests the retention of the preferred building consulting engineer,
Barrett, Woodyard & Associates, Inc.
- - Name of proposed General Contractor (or bidding General Contractors and their
project contacts)
- - Name of proposed subcontractors and project contacts. (Please note that
Cousins maintains a restricted bid list for Mechanical, Electrical, Fire
Protection and Fire Alarm subcontractors in order to maintain continuity and
integrity in the critical base building systems. Tenants may not contract
outside these lists. The list of subcontractors shall be issued upon request.)
- - Proposed project schedule
- - Confirmation that the Contractor is in receipt of, and has read, the Rules of
the Site for Tenant Contractor's Work.
The following information must be submitted at project completion and prior
to Cousins' release of tenant allowance funds:
- - Two (2) sets of as-built mechanical, electrical, plumbing and structural (if
applicable) as-built drawings
- - Test and Balance Reports
- - Operations and maintenance manuals for all special equipment
- - Copy of Certificate of Occupancy
- - Final Lien Waivers
- - Other requested information as listed in the Rules and Regulations
- - Letter certifying that the fire alarm as well as any fail safe security
systems (if applicable) have been tested.
<PAGE> 54
EXHIBIT "E"
BUILDING STANDARD SERVICES
Landlord shall furnish the following services to Tenant during the
Lease Term (the "Building Standard Services"):
(a) Common-use restrooms (with cold and tempered domestic water) and
toilets at locations provided for general use and as reasonably deemed by
Landlord to be in keeping with the first-class standards of the Building.
(b) Subject to curtailment as required by governmental laws, rules or
mandatory regulations and subject to the design conditions set forth in
paragraph 2(a) of Exhibit "D" attached hereto, central heat and air conditioning
in season, at such temperatures and in such amounts as are reasonably deemed by
Landlord to be in keeping with the first-class standards of the Building. Such
heating and air conditioning shall be furnished between 8:00 a.m. and 6:00 p.m.
on weekdays (from Monday through Friday, inclusive) and between 8:00 a.m. and
1:00 p.m. on Saturdays, all exclusive of Holidays, as defined below (the
"Building Operating Hours").
(c) Electric lighting service for all public areas and special service
areas of the Building in the manner and to the extent reasonably deemed by
Landlord to be in keeping with the first-class standards of the Building.
(d) Janitor service shall be provided five (5) days per week, exclusive
of Holidays (as hereinbelow defined), in a manner that Landlord reasonably deems
to be consistent with the first-class standards of the Building.
(e) Security services for the Building comparable as to coverage,
control and responsiveness (but not necessarily as to means for accomplishing
same) to other similarly sized first-class, multi-tenant office buildings in
suburban Atlanta, Georgia; provided, however, Landlord shall have no
responsibility to prevent, and shall not be liable to Tenant for, any liability
or loss to Tenant, its agents, employees and visitors arising out of losses due
to theft, burglary, or damage or injury to persons or property caused by persons
gaining access to the Building and/or the Demised Premises, and Tenant hereby
releases Landlord from all liability for such losses, damages or injury.
(f) Sufficient electrical capacity at the building core electrical
panels to operate (i) incandescent lights, typewriters, calculating machines,
photocopying machines and other machines of the same low voltage electrical
consumption (120/208 volts), provided that the total rated electrical design
load for said lighting and machines of low electrical voltage shall not exceed
1.54 watts per square foot of rentable area; and (ii) lighting (277/480 volts),
provided that the total rated electrical design load for said lighting shall not
exceed 2.0 watts per square foot of
<PAGE> 55
rentable area (each such rated electrical design load to be hereinafter referred
to as the "Building Standard Rated Electrical Design Load").
Should Tenant's total rated electrical design load exceed the Building
Standard Rated Electrical Design Load for either low or high voltage electrical
consumption, or if Tenant's electrical design requires low voltage or high
voltage circuits in excess of Tenant's share of the Building Standard circuits,
Landlord will (at Tenant's expense) install such additional circuits and
associated high voltage panels and/or additional low voltage panels with
associated transformers (which additional circuits, panels and transformers
shall be hereinafter referred to as the "Additional Electrical Equipment"). If
the Additional Electrical Equipment is installed because Tenant's low or high
voltage rated electrical design load exceeds the applicable Building Standard
Rated Electrical Design Load, then a meter shall also be added (at Tenant's
expense) to measure the electricity used through the Additional Electrical
Equipment.
The design and installation of any Additional Electrical Equipment (or
any related meter) required by Tenant shall be subject to the prior approval of
Landlord (which approval shall not be unreasonably withheld). All expenses
incurred by Landlord in connection with the review and approval of any
Additional Electrical Equipment shall also be reimbursed to Landlord by Tenant.
Tenant shall also pay on demand the actual metered cost of electricity consumed
through the Additional Electrical Equipment (if applicable), plus any actual
accounting expenses incurred by Landlord in connection with the metering
thereof.
Tenant agrees that if Tenant uses data processing or other electronic
equipment which incorporates the use of switched mode power supplies or any
other type device causing harmonic distortion on Landlord's power distribution
system, Tenant shall install filters at Tenant's cost to eliminate the harmonic
distortion. In addition, any damage to Landlord's equipment resulting from
harmonic distortion caused by Tenant's electronic equipment shall be repaired at
Tenant's expense. Total harmonic distortion shall not exceed thirteen percent
(13%).
If any of Tenant's electrical equipment requires conditioned air in
excess of Building Standard air conditioning, the same shall be installed by
Landlord (on Tenant's behalf), and Tenant shall pay all design, installation,
metering and operating costs relating thereto.
If Tenant requires that certain areas within Tenant's Demised Premises
must operate in excess of the normal Building Operating Hours (as hereinabove
defined), the electrical service to such areas shall be separately circuited and
metered (at Tenant's expense) such that Tenant shall be billed the costs
associated with electricity consumed during hours other than Building Operating
Hours.
(g) All Building Standard fluorescent bulb replacement in all areas and
all incandescent bulb replacement in public areas, toilet and restroom areas,
and stairwells.
(h) Non-exclusive multiple cab passenger service to the floor(s) of the
Demised Premises during Building Operating Hours (as hereinabove defined) and at
least one (1) cab
2
<PAGE> 56
passenger service to the floor(s) on which the Demised Premises are located
twenty-four (24) hours per day and non-exclusive freight elevator service during
Building Operating Hours (all subject to temporary cessation for ordinary repair
and maintenance and during times when life safety systems override normal
building operating systems) with such freight elevator service available at
other times upon reasonable prior notice and the payment by Tenant to Landlord
of any additional expense actually incurred by Landlord in connection therewith.
To the extent the services described above require electricity and
water supplied by public utilities, Landlord's covenants thereunder shall only
impose on Landlord the obligation to use its reasonable efforts to cause the
applicable public utilities to furnish same. Except for deliberate and willful
acts of Landlord, failure by Landlord to furnish the services described herein,
or any cessation thereof, shall not render Landlord liable for damages to either
person or property, nor be construed as an eviction of Tenant, nor work an
abatement of rent, nor relieve Tenant from fulfillment of any covenant or
agreement hereof. In addition to the foregoing, should any of the equipment or
machinery, for any cause, fail to operate, or function properly, Tenant shall
have no claim for rebate of rent or damages on account of an interruption in
service occasioned thereby or resulting therefrom; provided, however, Landlord
agrees to use reasonable efforts to promptly repair said equipment or machinery
and to restore said services during normal business hours.
The following dates shall constitute "Holidays" as that term is used in
this Lease: New Year's Day, Memorial Day, Independence Day, Labor Day,
Thanksgiving Day, Christmas, and any other holiday generally recognized as such
by landlords of office space in the metropolitan Atlanta office market, as
determined by Landlord in good faith. If in the case of any specific holiday
mentioned in the preceding sentence, a different day shall be observed than the
respective day mentioned, then that day which constitutes the day observed by
national banks in Atlanta, Georgia on account of said holiday shall constitute
the Holiday under this Lease.
3
<PAGE> 57
EXHIBIT "F"
GUARANTY
INTENTIONALLY OMITTED
<PAGE> 58
EXHIBIT "G"
Special Stipulations
<PAGE> 1
* REGISTRANT SEEKS CONFIDENTIAL TREATMENT OF THE MARKED
OMITTED INFORMATION PURSUANT TO RULE 24b-2 UNDER THE
SECURITIES AND EXCHANGE ACT OF 1934, AS AMENDED, AND 17
C.F.R. SECTION 200.80 (b)(4). UNREDACTED COPIES OF THIS
EXHIBIT HAVE BEEN FILED SEPARATELY WITH THE SECURITIES
AND EXCHANGE COMMISSION.
EXHIBIT 10.31
SERVICES AGREEMENT
Agreement entered into this 7th day of April, 1993 by and between Kmart
Corporation, having its address at 3100 W. Big Beaver Troy, MI (hereinafter
referred to as "Kmart") and The Profit Recovery Group, Inc./Roy Greene
Associates, having its address at 1250 Powers Ferry Road, Marietta, GA 30067
(hereinafter referred to as "Contractor")
WHEREAS, the Contractor is engaged in the business of providing audit
services regarding utility and telecommunications expenses and desires to audit
Kmart's and any of Kmart's subsidiaries' and/or affiliates' utility and
telecommunications expenses, as requested by Kmart; and
WHEREAS, Kmart desires to designate certain of such expenses for the
Contractor to audit pursuant to this Agreement;
NOW THEREFORE, in consideration of the premises and mutual promises and
conditions herein contained, the parties agree as follows:
The Contractor will perform services set forth in this Agreement as
requested by Kmart on behalf of Kmart or any of its subsidiaries and/or
affiliates which Kmart so designates upon notice to the Contractor. If Kmart
designates that any of its subsidiaries and/or affiliates participate in this
Agreement references to "Kmart" hereafter in this Agreement shall refer to Kmart
or any such applicable subsidiaries and/or affiliates for which the Contractor
performs services, as applicable. The Contractor understands and agrees,
however, that each entity for which the Contractor performs services is solely
liable for its own performance under this Agreement.
1. Reasonable Care
The services, products, material and/or equipment described herein will
be provided by the Contractor at the above premises of Kmart at the
times and in the manner set forth herein. Reasonable care and its best
efforts shall be utilized by the Contractor in the performance of this
Agreement.
2. Term/Termination
The term of this Agreement shall be for a period of one (1) year from
the date indicated above. If the Contractor performs services pursuant
hereto at Kmart's request beyond such one (1) year period, this
Agreement shall renew on a month to month basis. Notwithstanding the
foregoing, each party reserves the right to terminate this Agreement
upon notice to the party in the event the other party breaches or fails
to perform any of its obligations in any material respect, attempts to
assign or otherwise transfer it rights, obligations or duties under
this agreement, or in the event the other party becomes insolvent or
proceedings are instituted by or against such party under any provision
of any federal or state bankruptcy or insolvency laws. In addition,
either party may terminate this Agreement at any time without cause
upon seven (7) days notice to the other party. Upon termination, there
shall be nothing due from Kmart to the Contractor beyond any fees due
for services
<PAGE> 2
performed at the date of termination. The Contractor shall remove all
of its equipment and material from the above premises within three (3)
days of the date of termination.
3. Compliance with all Laws
The Contractor shall be responsible for and does represent that it
shall comply with all federal, state and local laws, rules and
regulations applicable to this Agreement or the performance thereof.
4. Indemnification/Insurance
The Contractor shall reimburse, indemnify, defend and hold Kmart
harmless from and against any damage, loss expense or penalty, or any
claim or action therefor, by or on behalf of any person, arising out of
the performance or failure of performance of this Agreement or due to
any acts or omissions by the Contractor or its employees including but
not limited to, the Contractor's employees' payroll claims (wage
claims, claims for taxes required to be withheld from wages, social
security, etc.) unemployment compensation claims injury or death claims
and all similar claims, even if alleged to have occurred by an act of
negligence or wilful misconduct of Kmart. The Contractor in addition
agrees to obtain and keep in force property damage and bodily injury
liability insurance, naming Kmart as an Insured, and employee fidelity
insurance and shall also maintain Worker's Compensation Insurance as
required by all applicable federal, state or other laws including
Employer's liability insurance. Contractor shall provide evidence of
all insurance listed above at the request of Kmart.
5. Contractor's Forms
Any provisions of Contractor's proposals, contracts, invoices, billing
statement, acknowledgment forms or any other documents which are
inconsistent with the provisions of this Agreement shall be of no force
or effect.
6. Independent Contractor
The Contractor is and at all times shall be an independent contractor
in performance of this Agreement. The Contractor will exercise control
over its employees and shall be solely responsible for the verification
of identity and employment eligibility, for the payment of any wages,
salaries or other remuneration of its employees and for the payment of
any payroll taxes, contributions for unemployment insurance, social
security, pensions or annuities which are imposed and a result of the
employment of its employees.
7. No Modification
No modification, alteration or amendment of this Agreement shall be
binding on Kmart unless in writing and sent by a duly authorized
representative of Kmart.
2
<PAGE> 3
8. No Assignment
The Contractor may not assign or otherwise transfer its rights,
obligations or duties under this Agreement.
9. Entire Agreement
This Agreement shall be the entire agreement between Kmart and the
Contractor with regard to the subject matter hereof. This Agreement
shall supersede all prior understandings, agreements contracts or
arrangements between the parties.
10. Costs and Expenses
All costs, charges and expenses incurred in connection with the
Contractor's performance of this Agreement shall be borne by the
Contractor.
11. Description of Services
Description of services to be supplied by the Contractor, along with
the times and manner of Contractor's performance, are:
a. Utility Expense Audit
At Kmart's request, Contractor shall audit utility expenses,
including billings for electricity, water, sewerage, natural
gas and fuels, as specified by Kmart.
Services Provided. Contractor shall provide the following
services in accordance with the Utility Proposal attached
hereto as Exhibit A and which is incorporated herein by this
reference:
1. Examination of monthly utility charges for services
to determine compliance or possible overpayments,
underpayments and assurance of exact billing for
services of respective utilities. Contractor shall
work directly with the utilities to obtain lower
rates;
2. An initial examination of Kmart's previous twelve
(12) months utility bills. Where overcharges are
identified, Contractor shall audit prior fiscal
and/or calendar years for possible refunds.
Contractor shall copy, box, and ship all documents at
its expense;
3. A continuing analysis of Kmart's future utility bills
for the next eighteen (18) months to ensure that
savings realized continue through the duration of the
payment calculation;
4. Contractor will present to Kmart a final report of
recommendations with a thorough break down by
utility, location and a detailed listing of the total
available savings. Any recommendations submitted are
3
<PAGE> 4
subject to Kmart's approval, and once implemented
shall be deemed accepted.
5. Contractor's services will be carried out at such
location(s) as Kmart will designate.
6. Contractor's audit practices limit any disturbances
to Kmart's operation except to answer occasional
questions relating to Kmart's utility services and
operations. This agreement may include any present
facilities and any additional locations Kmart
acquires, as specified by Kmart.
b. Telecommunications Expense Audit
At Kmart's request, contractor shall audit billings and
inventory for telecommunications expenses, as specified by
Kmart.
Services Provided. Contractor shall provide the following
services in accordance with the Utility Proposal attached
hereto as Exhibit B and which is incorporated herein by this
reference:
1. Contractor shall examine monthly telephone charges to
determine possible overpayments or credits due for
discontinued services, and to assure exact billing
for installed services.
2. Contractor shall negotiate with the telephone
companies, other communications carriers, and service
organizations to have the overcharges removed from
service billings and to recover refunds/credits for
past overcharges.
3. Contractor shall review Kmart's present billings to
determine if any changes can be made to the service
type or configuration to enable Kmart to achieve cost
reductions in the future. Formal recommendations will
be presented for any such changes and action will be
taken only with Kmart's express approval.
4. Contractor shall provide Kmart without cost,
information about potential areas of expense control,
where it appears that such information would benefit
Kmart's operation.
5. Contractor shall present to Kmart a final Management
Summary of the audit results, which provides a
detailed listing by vendor, type of service,
telephone account number and location.
6. Contractor's services shall be carried out at such
location(s) as Kmart may designate.
4
<PAGE> 5
12. Payment
Kmart agrees to pay Contractor the fee for the services described in
item 11 above, after being invoiced in accordance with the provisions
of item 13 below. Payments shall be made as follows:
a. Utility Expense Audit
Contractor's fee for these services will be paid from the
recoveries and reduced future costs. There are two levels to
the fee structure, these are:
1. Credits & Refunds
Contractor shall document all claims for the specific
amounts as they are received by Kmart. Contractor's
compensation for credits and refunds will be thirty
percent (30%) of all collected claims. Contractor
shall invoice for claims once claims are collected by
Kmart and Kmart shall pay within sixty (60) days of
receipt of invoice.
2. Cost Reductions
Contractor shall compute and document Kmart's
calendar 1992 Average Monthly Cost for Utilities,
broken down into summer and winter rates, as
applicable, and taking into account seasonal rate
changes and high energy fluctuations that occur
monthly (the "1992 Average Monthly Cost").
Based on Kmart's 1992 usage, Contractor shall prepare
documents and all claims for reduction or elimination
of future costs associated with a rate change. The
Monthly "Utility Cost Reduction" is defined as any
savings realized by Kmart on or before December 31,
1994, based on Kmart's 1992 usage and rates.
Contractor's Fee shall be thirty percent (30%) of the
Monthly Utility Cost Reduction multiplied by eighteen
(18) months. Contractor shall issue an invoice to
Kmart for Contractor's Fee. Payment of invoices are
due within sixty (60) days from Kmart's receipt of
Contractor's invoice accompanied by complete
documentation satisfactory to Kmart establishing the
Monthly Utility Cost Reduction provided that
Contractor continues to perform all services set
forth under Section II herein and Kmart continues to
realize the Monthly Cost Reduction for the full
eighteen (18) months. Kmart reserves the right to
deduct from any future payments due Contractor any
savings that do not continue through the full
eighteen (18) month period. Kmart shall not be liable
to Contractor for any costs or fees associated with
savings which are first realized after December 31,
1994.
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<PAGE> 6
b. Telecommunications Expense Audit
Contractor's fee for these services will be invoiced as
follows:
Where action is taken by Contractor which results in refunds
or credits for past overcharges, Contractor's fee shall be
thirty percent 30% of recovered monies. An invoice will be
rendered after the credit or refunds are received and Kmart
shall pay within sixty (60) days of receipt of such invoice.
Refunds or credits may include the following:
* Overbillings
* Telephone company errors (incorrect tariff applications,
mileage calculations, taxes, existing discount applications)
Where a recommendation is made by Contractor which results
within twelve (12) months after the recommendation is made in
the monthly reduction of on-going cost and such
recommendations is approved in writing by Kmart and
implemented by Contractor ("Monthly Telecommunication Cost
Reduction"), Contractor's Fee for the agreed upon savings will
be thirty percent (30%) of the Monthly Telecommunication Cost
Reduction multiplied by eighteen (18) months. Recommendations
may include but are not limited to the following:
* Reductions in facilities and/or in the monthly costs of
facilities and services (on a per location basis, as requested
by Kmart)
* Removal of unused facilities
* Maximizing volume discounts
* Reduction in local usage cost
* Maintenance agreement optimization
Contractor shall issue an invoice to Kmart for Contractor's
Fee with documentation acceptable to Kmart proving the Monthly
Telecommunication Cost Reduction. Payment of Contractor's
invoices are due within sixty (60) days from date of Kmart's
receipt of invoice provided that Contractor continues to
perform all services set forth under Section II herein and
Kmart continues to realize the Monthly Telecommunication Cost
Reduction.
c. Contractors Fees for both Utility and Telecommunications
The aforestated fees shall remain fixed for the full duration of this
Agreement unless the parties mutually agree in writing to another fee.
The fee for Contractor's services hereunder is contingent and is only
due to the extent that Kmart continues to realize such Monthly Cost
Reductions for the full eighteen (18) months after the Contractor's
recommendation.
Contractor shall refund to Kmart, or, at Kmart's option, Kmart shall
deduct from any amounts due Contractor, any portion of Contractor's Fee
paid by Kmart which
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<PAGE> 7
represents any savings which are not actually realized by Kmart
throughout the full eighteen (18) month period.
13. Invoicing
All invoices presented to Kmart shall set forth the following
information: Name and address of the Contractor; Duns number (if the
Contractor has been assigned a Duns number): Invoice number; Date and
dollar amount of fee due as well as any supporting documentation as
required by Kmart.
14. Confidentiality
Contractor agrees not to disclose to any third party any information
whatsoever acquired in the process in examining documents and records
under this Agreement or otherwise acquired in the performance of this
Agreement except with the prior written consent of Kmart which may be
withheld for any reason.
15. Nonexclusive
The Contractor understands and agrees that this is a nonexclusive
agreement and that Kmart is not guaranteeing to the Contractor any
level of business. Kmart may, in its sole discretion, offer to the
Contractor for audit whatever expenses it chooses to refer.
16. Contractor understands and agrees that all information, documentation
and other materials which Contractor obtains from Kmart and/or the
utility and or telecommunications service provider pursuant to this
Agreement belongs to Kmart. Contractor shall deliver all such
information, documentation and other materials to Kmart when Contractor
has completed each audit hereunder or upon termination of this
Agreement, whichever occurs first.
ATTEST KMART CORPORATION
By: /s/
- ---------------------------------- ----------------------------------
Profit Recovery Group, Inc.
- ---------------------------------- -------------------------------------
(Contractor)
By: /s/
----------------------------------
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<PAGE> 8
ADDENDUM TO SERVICES AGREEMENT
DATED APRIL 7, 1993 BY AND BETWEEN
KMART CORPORATION ("KMART") AND
THE PROFIT RECOVERY GROUP
INTERNATIONAL, INC. ("CONTRACTOR")
The parties hereto hereby agree that the agreement described above ("Agreement")
is amended as follows to include Contractor's performance of Primary Audit
Services of various accounts payable media, including advertising,
transportation, expense, utilities, allowances, deals, etc. (not meant to be a
complete listing for review), for the fiscal years 1996, 1997, and 1998, all of
which Kmart shall determine in its sole discretion.
1.) Paragraphs 11 and 12 of the Agreement are deleted in their entireties and
are replaced with the following paragraphs:
"Additional Services Provided.
Contractor shall provide the following services:
a) Examination of Kmart's Accounts Payable operation at Contractor's own
expense to determine whether or not and to what extent overpayments and/or
under deductions have been made. Contractor agrees to reimburse Kmart for
any supply and/or data gathering costs associated with these audits. All
significant expenses to be pre-approved by Profit Recovery Group;
b) Writing chargebacks and submitting them with supporting data to Kmart's
Accounts Payable Manager (or whomever else Kmart designates) within the
guidelines to be established by Kmart for verification and processing;
c) Semi-annually, Contractor shall provide a computer analysis of audit
results with a breakdown by vendor, type of deduction, department, and a
summary of the audit results by type (Management Summary). Contractor
shall review with Kmart any control and operational weaknesses observed,
and make practical recommendations for correcting them;
d) Contractor shall comply with all monthly reporting requirements as set
forth on page 2 in the September 19, 1996 "Request for Proposal" as well
as with all modifications to such requirements requested by Kmart;
e) Provide Kmart, without cost, information about customs of the trade and
especially commendable practices or systems where it appears that such
information would benefit Kmart. Contractor shall also provide Kmart any
other information of like nature which Kmart may desire that does not
infringe upon Profit Recovery Group/Client confidentiality agreements;
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<PAGE> 9
f) Contractor is responsible for the safekeeping of Kmart documents and data
files and shall return any or all documents to Kmart upon request within
10 days of receipt of request;
g) The operation of Kmart's Accounts Payable Department shall not be
disturbed except to answer an occasional question relating to systems,
practices and filing. Chargebacks and supporting data shall be prepared by
Contractor for processing by Kmart through its customary procedures;
h) Contractor's services shall be carried out at such location(s) as Kmart
may designate and shall comply with reasonable site modifications as
requested by Kmart;
i) Choice of Law. The formation, construction and performance of this
agreement shall be construed in accordance with the laws of the State of
Michigan, and Contractor agrees to exercise any right or remedy hereunder
in the State of Michigan courts of Oakland County, Michigan or the United
States District Court in Detroit, Michigan;
j) This Agreement shall be the entire agreement between Kmart and the
Contractor with regard to the subject matter hereof. This Agreement shall
supersede all prior understandings, agreements, contracts or arrangements
between the parties. Any provisions of Contractor's proposals, contracts,
invoices, billing statements, acknowledgment forms or any other documents
which are not consistent with the provisions of the Agreement and this
Addendum shall be of no force or effect.
"Duties.
a) Kmart agrees to furnish to Contractor, as available, all records which
Kmart determines are necessary to perform a full service audit, including
hard copy, microfilm, microfiche and electronic records, invoices, and
other documentation, including buyers files. Contractor shall determine
whether payments made on behalf of Kmart to vendors exceeded amounts that
were properly invoiced to Kmart. Contractor shall refer all suspected
overpayment/under-deduction claims to Kmart. All claims against vendors
for reimbursement of or credits for excess payments shall be processed by
Kmart as set forth in paragraph (b) above.
b) Contractor shall follow the audit time table (Audit Schedule) to be
established by Kmart at Kmart's sole discretion. Kmart agrees that its
self audit program shall be completed for the time periods released for
Contractor review per the Audit Schedule, with the exception that the
Statement Audit shall require additional review with Kmart to avoid
duplicate deductions for various potentially deferred Kmart deductions.
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<PAGE> 10
Fees:
The sole and exclusive fee arrangement between Contractor and Kmart for any and
all services of any type performed by Contractor is as follows:
Contractor's fee for these services shall be [*] percent ([*]%) of
recovered moneys up to $[*], [*] percent ([*]%) of recovered moneys
from $[*] to $[*] and [*] percent ([*]%) of recovered moneys in excess
of $[*]. Contractors fee shall be invoiced monthly and shall be
calculated on claims collected less paybacks and adjustments. Payment
terms for fee billings are thirty (30) days from the date of Kmart's
receipt of invoice. This fee shall remain fixed for the full duration
of this Agreement including any extensions or renewals thereto unless
the parties mutually agree in writing to another fee. Contractor shall
not be entitled to a fee based on deductions until such deduction is
collected by Kmart or invoices identified by Contractor which are
actually deferred deductions to be later processed by Kmart. The fee
for Contractor's services hereunder is contingent and is only due to
the extent that Contractor identifies and prepares deduction vouchers
which are deducted from the applicable vendor account. If for any
reason a deduction, claim or invoice, as applicable, is later reversed,
charged back to or be paid back by Kmart, Contractor shall immediately
refund to Kmart, or at Kmart's option, Kmart shall deduct from amounts
due Contractor, any fee Contractor has received in connection with such
deduction, claim or invoice, upon receipt of Kmart's notice thereof.
Contractor will in all events be entitled to the fees set forth above
with respect to all monies collected (or credits received) following
the termination of this Agreement with respect to Contractor's efforts
while this Agreement is in effect.
Reserves:
As a protection against claim reversals, all invoices must reflect a 20% reserve
holdback of claims balance to be invoiced. These amounts shall be released
subsequent to the completion of the audit year involved pending a review period
(not to exceed 3 months) for any vendor chargebacks for invalid claims."
2.) The following paragraphs are also added to the Agreement:
"Contractor agrees not to disclose to any third party any information whatsoever
acquired in the process in examining documents and records under this Agreement
or otherwise acquired in the performance of this Agreement except with the prior
written consent of Kmart which may be withheld for any reason."
"Kmart's trademarks, trade names, service marks, label designs, product
identifications, art work and other symbols and devices associated with Kmart
(the "Kmart Marks") are and shall remain Kmart's property. Contractor
acknowledges Kmart's ownership and exclusive right to use the Kmart Marks.
Contractor shall not use the Kmart Marks in any way, shape, manner or form,
except as provided in the Agreement."
* Confidential treatment requested.
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<PAGE> 11
"During the term of this Agreement only, Contractor is authorized to use the
forms furnished by Customer (the "Kmart Forms") for the specific purpose of this
Agreement and for no other purpose, whatsoever. Upon termination of this
Agreement, Contractor shall immediately return all copies of and halt all use of
the Kmart Forms. Contractor shall not permit any Kmart Forms to be used except
by Contractor's own employees for the specific purpose of this Agreement."
"Contractor acknowledges and agrees that serious and irreparable harm may be
inflicted on Kmart by any unauthorized use of the Kmart Marks or Kmart Forms,
and acknowledges that such injury cannot be compensated by payment of money
damages alone. Contractor, therefore, consents to immediate entry of a
restraining order of injunction in any court of competent jurisdiction to
prohibit and halt any unauthorized use of the Kmart Marks and/or Kmart Forms by
Contractor or any use by Contractor which is not in accordance with the terms of
this Agreement."
"Contractor understands and agrees that: (1) Kmart may, within its sole and
absolute discretion, choose not to pursue any claim, deduction, chargeback or
invoice submitted and/or suggested by Contractor, and shall not owe anything to
Contractor as a result thereof; and (2) Kmart may use any number of other
parties to perform secondary audits following the completion by Contractor of
its primary audit, without giving rise to any claim or obligation to
Contractor."
"Contractor agrees that any and all information in any form that is provided to
Contractor or any Contractor representative by Kmart as part of this Agreement
is provided and received in confidence, and Contractor shall at all times
preserve and protect the confidentiality of such information, and of any other
proprietary or non-public information of or relating to Kmart or its related
companies of which Contractor or any Contractor representative becomes aware or
acquires during the performance of this Agreement. Contractor also agrees that
it shall take all necessary steps to ensure that such confidential information
shall not be, except as required by law, disclosed to, or used by any person,
association or entity, except Contractor's own employees, and then only to the
extent necessary to perform this Agreement; provided, however, that Contractor
may use any information obtained in connection with performing its audit to
update Contractor's databases, including its National Deal Pricing Information
Database. Further, Contractor and Kmart each agree to keep the financial terms
of this Agreement strictly confidential. The confidentiality and non-disclosure
obligations contained herein shall survive and continue after termination of
this Agreement or any related Agreements the parties may execute, and shall bind
Contractor's and Kmart's legal representatives, successors and assigns."
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This Addendum is in addition to the Agreement and shall not alter or amend the
Agreement except to add the additional services set forth herein (the
"Additional Services"). All of the terms and conditions of the Agreement except
sections 11 and 12 are incorporated into and shall apply to this Addendum to
Services Agreement.
Agreed to this 28 day of January, 1997
Kmart Corporation Contractor
The Profit Recovery Group International, Inc.
By: /s/ By: /s/
---------------------------- -----------------------------------------
Title: V.P. Controller Title: Executive Vice President
------------------------- --------------------------------------
Attest Attest
- -------------------------------- ---------------------------------------------
Page 5
<PAGE> 1
EXHIBIT 10.32
EMPLOYMENT AGREEMENT
THIS EMPLOYMENT AGREEMENT ("Agreement"), is made this 26th day of August,
1996, effective as of January 1, 1996 (the "Effective Date"), by and between THE
PROFIT RECOVERY GROUP INTERNATIONAL I, INC., a Georgia corporation (the
"Company") and TONY G. MILLS, 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 -- Legal
Affairs of the Company. Employee agrees to apply Employee's full time efforts to
the position and to perform Employee's work at all times to the best of
Employee's ability and at the direction of the Chief Executive Officer of the
Company. Employee will render to the Company at regular intervals set by the
Company, reports and accounting of the status and progress of any work Employee
is performing. The services Employee will provide for the Company are more
particularly described on Exhibit A attached hereto.
2. TERM. The initial term of this Agreement shall commence on January 1,
1996, and shall continue until December 31, 1996, unless sooner terminated as
hereinafter provided. Unless otherwise terminated pursuant to Section 14 hereof,
this Agreement shall automatically renew on a year-to-year basis at the end of
the initial term and each subsequent renewal term unless either party gives
written notice of non-renewal to the other at least ninety (90) days prior to
the end of the initial term or a renewal term. The initial term of this
Agreement and any subsequent one-year renewal period shall be deemed a "Term
Year."
3. SCOPE OF THE COMPANY'S ACTIVITIES. Employee acknowledges and agrees
that the Company conducts the following business in the following territories:
(a) Scope of the Company's Business. The Company is engaged in the
business of auditing accounts payable, paid bill files, promotional and
demonstrator agreements, personal property, real estate, sales and use tax
and other taxes, common area maintenance charges, telephone and other
utilities, sales promotion, advertising and cosmetic wage/commission
agreements of its Clients, as hereinafter defined, to identify and document
for subsequent charge back or credit over-payments and/or under deductions
(collectively, the "Audit Activities") and rendering management counseling
services associated with the Audit Activities (collectively, the "Business
of the Company").
(b) Location of the Company's Business. The Company actively conducts
business with its clients (herein referred to as "Clients") throughout the
United States, Australia, Belgium, Canada, France, Germany, Great Britain,
Hong Kong, Indonesia, Malaysia, Mexico, the Netherlands, New Zealand,
Singapore, Taiwan, and Thailand. The address of the Company's principal
office in Atlanta, Georgia where Employee provides substantially all of his
services on behalf of the Company is 2300 Windy Ridge Parkway, Suite 100,
North, Atlanta, Cobb County, Georgia 30339-8426 (the "Principal Office").
4. COMPENSATION. For services rendered by Employee under this Agreement
during the term hereof, Employee shall be entitled to receive the compensation
and benefits set forth in Sections 10, 11 or 12 hereof and in that certain
Compensation Agreement by and between Employee and the Company (the
"Compensation Agreement") which provides in part that as of the Effective Date
Employee's Base Salary (as defined therein) is One Hundred Fifty Thousand and
No/100 ($150,000.00) Dollars, subject to any future amendment of the
Compensation Agreement.
<PAGE> 2
5. STOCK OPTION. Employee and The Profit Recovery Group International,
Inc., a Georgia corporation ("PRGX") are party to one or more separate stock
option agreements in accordance with which Employee has been granted
non-qualified options to purchase Eighty Thousand (80,000) shares of PRGX Common
Stock under the 1996 Stock Option Plan (the "Plan").
6. SPECIFIC ACKNOWLEDGMENTS. Employee acknowledges that the Company has
expended and will continue to expend substantial time, money, effort and other
resources to develop its goodwill, clients, business sources and relationships
and that the Company has a legitimate business interest in protecting same. In
connection with Employee's employment by the Company as herein provided, the
Company will introduce Employee to its Clients, business sources and
relationships and will expend considerable time, effort and capital to train
Employee in the business of the Company. Employee further acknowledges that, by
virtue of Employee's employment with the Company, Employee will be in a position
of substantial responsibility and authority and will have frequent and
substantial contact with certain of the Company's Clients and business sources
and relationships. Employee further acknowledges that in Employee's capacity,
Employee will be privy to certain confidential information, Company secrets and
proprietary information not generally known or available to the Company's
competitors or the general public.
(a) Agreement Not to Compete -- Competing Businesses. Employee covenants
and agrees that during Employee's employment by the Company and for a period of
eighteen (18) months after the termination of Employee's employment for any
reason whatsoever, of such employment, he will not, without the prior written
consent of the Company signed by the President of the Company, directly or
indirectly, (i) for himself or (ii) as a consultant, management, supervisory or
executive employee or owner of a Competing Business, as hereinafter defined, or
(iii) as an independent contractor for a Competing Business, engage in any
business, within a radius of thirty (30) miles of the Principal Office, for
which Employee provides services which are the same or substantially similar to
his duties as Employee as herein described.
(b) Agreement Not to Solicit Clients. Employee covenants and agrees that
during Employee's employment by the Company and for a period of eighteen (18)
months after termination of Employee's employment for any reason whatsoever,
Employee will not, without the prior written consent of the Company signed by
the President of the Company, directly or indirectly, on Employee's behalf or on
behalf of a Competing Business, as hereinafter defined, solicit, divert or
appropriate, or attempt to solicit, divert or appropriate any of the Company's
Clients for whom Employee performed services or otherwise had direct contact,
influence and/or responsibility during the twenty-four (24) month period
immediately preceding the termination of Employee's employment with the Company
(or such shorter period if Employee is employed for less than 24 months) for the
purpose of providing services of the type identified in Section 3 (a) hereof.
Employee's covenants pursuant to this subsection (b) shall also apply to
prospective customers of the Company with respect to which Employee participated
in soliciting on behalf of the Company during the twenty-four (24) month period
immediately preceding the termination of Employee's employment with the Company
(or such shorter period if Employee is employed for less than 24 months).
(c) Agreement Not to Solicit Employees or Contractors. Employee covenants
and agrees that during Employee's employment by the Company and for a period of
eighteen (18) months after termination of Employee's employment for any reason
whatsoever, Employee will not, without the prior written consent of the Company
signed by the President of the Company, directly or indirectly, on Employee's
behalf or on behalf of others, solicit, entice, persuade or induce, or attempt
to solicit, entice, persuade or induce any person who is actively employed by,
or is performing services as an independent contractor for, the Company and (i)
who was employed by, or was performing services as an independent contractor
for, the Company at any time during which Employee was employed by the Company
and (ii) who reported to Employee or was within Employee's chain of
responsibility, or (iii) who had regular contact with Employee, to terminate his
or her employment or contractual arrangement with the Company or to become
employed or engaged by any person, firm or entity other than the Company, or
approach any such person for any of the foregoing purposes or authorize or
assist in the taking of any such action by any third party.
(d) Proprietary Information. All Proprietary Information, as hereinafter
defined, and all physical embodiments thereof received or developed by Employee
or disclosed to Employee while employed by the
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Company is confidential to and is and will remain the sole and exclusive
property of the Company. Except to the extent necessary to perform the duties
assigned to Employee by the Company, Employee will hold such Proprietary
Information in trust and in the strictest confidence, and will not use,
reproduce, distribute, disclose or otherwise disseminate the Proprietary
Information or any physical embodiments thereof and may in no event take any
action causing or fail to take the action necessary in order to prevent any
Proprietary Information disclosed to or developed by Employee to lose its
character or cease to qualify as Proprietary Information. The confidentiality
requirements and use restrictions contained in this subsection shall survive any
termination of Employee's employment with the Company but shall not apply (i) to
any information that falls into the public domain through no fault of Employee,
or (ii) to Proprietary Information which is not Trade Secrets, as hereinafter
defined, when a period of five (5) years has expired following the termination
of Employee's employment with Company. Upon request by the Company, and in any
event upon termination of Employee's employment with the Company for any reason,
Employee will promptly deliver to the Company all property belonging to the
Company, including without limitation all Proprietary Information (and all
physical embodiments thereof) then in Employee's custody, control, or
possession.
(e) Contracts or Other Agreements with Former Employer or
Business. Employee agrees that Employee will provide to the Company, upon the
execution of this Agreement, a copy of the pertinent portions of any employment
agreement or similar document executed by Employee with a former employer or any
other business. Employee warrants and represents that (i) the execution and
delivery of this Agreement by Employee and the performance of the obligations,
covenants and agreements contained herein, do not and will not conflict with or
result in any breach or violation of any of the terms and provisions of any
agreement, judgment, order, statute or other instrument or restriction of any
kind with respect to which Employee is bound, and (ii) Employee is not subject
to any restrictive covenant agreement, covenant not to compete, nonsolicitation
agreement or other agreement that would prohibit Employee from carrying out
Employee's duties hereunder.
(f) Definitions. - "Competing Business" means any business organization of
whatever form engaged, either directly or indirectly, in any business or
enterprise which is the same as, or substantially the same as, the Business of
the Company, as defined in Section 2(a) hereof.
- "Proprietary Information" means information related to the Company or its
Affiliates or clients (i) which derives economic value, actual or potential,
from not being generally known to or readily ascertainable by other persons who
can obtain economic value from its disclosure or use; and (ii) which is the
subject of efforts that are reasonable under the circumstances to maintain its
secrecy. Such Proprietary Information shall include information in any form or
media and shall not necessarily be in writing. Proprietary Information also
includes information which has been disclosed to the Company or its Affiliates
by a third party and which the Company or its Affiliates are obligated to treat
as confidential. Trade Secrets means Proprietary Information which meets the
foregoing criteria and which is also deemed to be a "Trade Secret" as that term
is defined in the Georgia Trade Secrets Act of 1990, O.C.G.A. sec. 10-1-760, et.
seq., including but not limited to technical and nontechnical data, formulas,
patterns, compilations, programs, devices, methods, techniques, drawings,
processes, financial data, financial plans, product plans, and lists of actual
or potential customers and suppliers. Proprietary Information may or may not be
marked by the Company or its Affiliates as "proprietary" or "secret" or with
other words or markings of similar meaning, and the failure of the Company to
make such notations upon the physical embodiments of any Proprietary Information
shall not affect the status of such information as Proprietary Information.
7. OWNERSHIP BY COMPANY. All software, computer diskettes, CDs, video
tapes, literature, cassettes, photographs, prints, slides, records, notes,
files, memoranda, reports, audit reports, price lists, client lists, documents,
and all copies thereof, equipment, and apparatus and like items relating to the
business of the Company, Proprietary Information or Trade Secrets which shall be
prepared by Employee or which shall be disclosed to or which shall come into
Employee's possession shall be and remain the sole and exclusive property of the
Company. Employee agrees that, upon the termination of employment with the
Company for any reason whatsoever, or at any other time upon request, Employee
will promptly deliver to the Company the originals and all copies of any of the
foregoing that are in Employee's possession, custody or control, and any other
property belonging to the Company.
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8. INVENTIONS. Employee agrees that, during the term of this Agreement,
Employee has a continuing duty to disclose to the Company any invention,
improvement, discovery, process, formula, code, program, system or method
(collectively, "Inventions") developed or being developed by Employee any time
during the term of Employee's employment, either solely by Employee or jointly
with others, whether or not such Inventions are assignable to the Company as set
forth below. Any Invention which Employee has conceived or made or may conceive
or make at any time while employed by the Company, either solely by Employee or
jointly with others, (a) which relate in any way to the actual Business of the
Company, or (b) which relate in any way to the actual or anticipated research or
development of the Company, or (c) which are suggested by or result from any
task assigned to Employee on behalf of the Company, shall be the sole and
exclusive property of the Company, and Employee hereby assigns to the Company
any right, title or interest Employee may have to such Invention. Furthermore,
any such Invention shall constitute Proprietary Information as set forth above.
At the request and expense of the Company, Employee will execute and deliver all
documents and will do such other acts as may be in the Company's opinion
necessary or desirable to secure to the Company or its nominee all right, title
and interest in and to any such Invention. The provisions of this Section shall
be binding upon Employee's heirs, legal representatives, successors and assigns.
9. COPYRIGHTS. Employee understands that any original works of authorship
fixed in tangible form, including, without limitation, computer software and
manuals, advertising material, and training material, prepared by Employee,
either solely or jointly with others, within the scope of Employee's employment
by the Company, constitute works made for hire as provided by law, so that such
works are owned by the Company. If, for any reason, a work of authorship by
Employee created during the term of Employee's employment by the Company and
related to the Business of the Company is considered other than a work for hire,
then Employee hereby assigns all Employee's right, title and interest in
copyrights to such works of authorship to the Company.
10. INSURANCE AND BENEFITS. (a) Subject to Employee being insurable at
standard rates as of the commencement of employment (or when coverage is applied
for, as applicable) and to the availability of such coverage from the Company's
customary insurance providers, the Company shall (i) obtain on Employee's behalf
life, disability, hospitalization and medical insurance coverage in accordance
with the Company's standard group coverage, (ii) pay the premiums, or reimburse
Employee for premiums paid, to obtain coverage as described below in addition to
the Company's standard group coverage in accordance with the Company's standard
policies and procedures: (A) basic term life insurance policy at the best
available rates for a fifteen (5) year level term type product, but not higher
than standard nonsmoker rates, in an amount of coverage equal to One Million
($1,000,000) Dollars, and (B) disability income insurance coverage, which, when
added to the standard group coverages, will provide a monthly benefit of sixty
(60%) of the sum of (x) Employee's current Base Salary, (y) any amount of Bonus
(as defined in the Compensation Agreement) payable to Employee, without
adjustment or deduction for any Bonus amount the payment of which was deferred
pursuant to this Agreement, for the Term Year preceding the Term Year in which
the disability occurs and (z) any amount of salary for the Term Year in which
the disability occurs the payment of which is deferred pursuant to this
Agreement, and (iii) share the cost of Employee's health insurance premiums in
accordance with the Company's standard employee policies and procedures. The
Company will reimburse Employee for any amount incurred in connection with an
annual physical examination not covered by insurance.
(b) Employee shall be provided an annual automobile allowance of Thirteen
Thousand and No/100 ($13,000.00) Dollars (the "Auto Allowance"), 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 beginning on or after January 1, 1997.
(c) 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 air travel at coach rate), subject to Employee's submission
of receipts therefor in accordance with the Company's normal
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practices and procedures. The Company shall also pay or reimburse Employee for
reasonable cellular phone usage for business purposes in such amounts as
Employee and the Company mutually agree.
(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.
(f) The Company shall pay or reimburse Employee for all licenses, dues and
fees to professional organizations, including but not limited to the State Bar
of Georgia, the American Bar Association and special sections of the foregoing,
subject to Employee's submission of receipts therefor. The Company shall also
pay or reimburse Employee for books and subscriptions to professional journals,
and all costs and expenses in connection with professional seminars, meetings
and continuing legal education, including but not limited to tuition and
registration fees, subject to Employee's submission of receipts therefor;
provided, however, that the Company shall only be responsible for the costs of
air travel, lodging and food for professional seminars, meetings and continuing
legal education held outside of the metropolitan Atlanta area upon obtaining the
prior approval of the Company.
11. PAYMENT OF COMPENSATION UPON TERMINATION. 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, Employee shall be entitled to
receive Employee's Base Salary prorated through the date of termination,
payable within sixty (60) days after termination and Employee shall not be
entitled to receive any Bonus or any other amount in respect of the Term
Year in which termination occurs or in respect of any subsequent years,
provided, however, that if Employee voluntarily resigns (including giving
notice of non-renewal to the Company pursuant to Section 2 hereof at
anytime after (i) John M. Cook ("Cook") ceases to serve as President and
the chief executive officer of the Company, or (ii) Cook (either directly
or together with his spouse and children) no longer owns a majority of all
of the issued and outstanding shares of stock in PRGX, in addition to
Employee's prorated Base Salary, Employee shall be entitled to receive a
Bonus for the Term Year in which such termination occurs prorated through
the effective date of such termination. The prorated Base Salary shall be
payable in a lump sum within 60 days after termination and the prorated
Bonus shall be payable in a lump sum within 90 days after the end of the
Term Year to which it relates.
(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
twelve (12) months of Base Salary at the rate then in effect if such
termination occurs on or before December 31, 1996, and nine (9) months of
Base Salary at the rate then in effect if such termination occurs after
December 31, 1996, and shall not be entitled to receive any other amount in
respect of the Term Year in which termination occurs or in respect of any
subsequent years. The prorated Base Salary shall be payable in a lump sum
within sixty (60) days after termination, the prorated Bonus shall be
payable in a lump sum within ninety (90) days after the end of the Term
Year to which it relates, and the severance payment shall be payable in
nine (9) or twelve (12), as appropriate 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 hereof,
it shall be deemed to be termination of Employee's employment by the
Company without cause and you shall be entitled to compensation and
benefits pursuant to this Section 11(b).
(c) In the event Employee's employment hereunder is terminated by
Employee's death, Employee's legal representative shall be entitled to
receive Base Salary and Bonus for the Term Year in which such termination
occurs prorated through the date of such termination and any other payments
specifically provided for herein in respect of death and shall not be
entitled to receive any other amount in respect of the Term Year in which
termination occurs or in respect of any subsequent years. The prorated Base
Salary shall be payable in a lump sum within sixty (60) days after
termination and the prorated
5
<PAGE> 6
Bonus shall be payable in a lump sum within ninety (90) days after the end
of the Term Year to which it relates.
(d) In the event Employee's employment hereunder is terminated for
Disability, Employee or Employee's legal representative shall be entitled
to receive (A) Base Salary and Bonus for the Term Year in which such
termination occurs prorated through the date of such termination, with the
prorated Base Salary and payable in a lump sum within sixty (60) days after
termination and the prorated Bonus payable in a lump sum within ninety (90)
days after the end of the Term Year to which it relates; and (B) Base
Salary at the rates in effect upon the date of such termination payable in
accordance with the Company's normal payroll procedure until the disability
payments provided for under any of the Company's standard group disability
insurance coverage provided pursuant to Section 10(a) hereof are scheduled
to commence (but in no event longer than ninety (90) days after the date of
Employee's termination) and shall not be entitled to receive any other
amount in respect of the Term Year in which termination occurs or in
respect of any subsequent years.
(e) Upon expiration or sooner termination of this Agreement for any
reason other than termination by the Company for cause the Company shall
continue to pay Employee's Auto Allowance in accordance with Section 2(b)
hereof and shall pay the premiums for COBRA coverage under the Company's
group health and major medical policy for the same period in which Employee
is entitled to receive severance payment hereunder.
(f) If Employee's employment hereunder terminates for any reason
during a Term Year, Employee will be paid within sixty (60) days of
termination for all unused vacation time accrued up to the date of
termination.
12. REMEDIES. (a) Employee acknowledges and agrees that, by virtue of the
duties and responsibilities attendant to Employee's employment by the Company
and the special knowledge of the Company's affairs, business, clients and
operations that Employee has and will have as a consequence of such employment,
irreparable loss and damage will be suffered by the Company if Employee should
breach or violate any of the covenants and agreements contained in Sections 6,
7, 8, or 9 hereof; and Employee further acknowledges and agrees that each of
such covenants is reasonably necessary to protect and preserve the Company.
Employee, therefore, agrees and consents that, in addition to any other remedies
available to it, the Company shall be entitled to specific performance by
temporary as well as permanent injunction to prevent a breach or contemplated
breach by Employee of any of the covenants or agreements contained in such
Sections.
(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.
13. 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 fraud, dishonesty, gross negligence, willful misconduct,
conviction of a felony or an act of moral turpitude (e.g., theft, embezzlement
and the like) or engaging in activities prohibited by Sections 6, 7, 8, or 9
hereof, or any other material breach of this Agreement. Notwithstanding anything
to the contrary contained in the immediately foregoing sentence, if the Company
asserts that Employee has committed a material breach of this Agreement which by
its nature is capable of being remedied, the Company shall not be entitled to
terminate Employee's employment for "cause" if Employee cures such breach within
30 days after receipt of written notice from the Company specifying in
reasonable detail the events or circumstances which constitute Employee's
failure to perform or other material breach and the steps deemed necessary by
the Company to cure same; provided, however, if the nature of the events or
circumstances which constitute such failure to perform or other material breach
are
6
<PAGE> 7
such that they cannot reasonably be cured within said 30 day period, the Company
shall not be entitled to terminate this Agreement for "cause" if Employee
commences to cure such events or circumstances within the aforesaid 30 day
period and diligently and continuously pursues same to completion but in any
event no later than 90 days after receipt of the written notice from the
Company.
(b) This Agreement may be terminated by the Company or Employee without
cause by giving the other party sixty (60) days prior written notice and such
termination shall be effective on the sixtieth (60th) day following receipt of
such notice or such earlier date as the parties shall mutually agree.
(c) In the event of Employee's Disability, physical or mental, the Company
shall have the right, subject to all applicable laws, including without
limitation, the Americans with Disabilities Act ("ADA"), to terminate Employee's
employment immediately. For purposes of this Agreement, the term "Disability"
shall mean Employee's inability, in the judgment in accordance with the ADA, of
both a medical doctor selected by the Company and a medical doctor selected by
Employee or Employee's legal representative (or, in the event that such doctors
fail to agree, then in the majority opinion of such doctors and a third medical
doctor chosen by such doctors) due to illness, accident or any other physical or
mental incapacity to perform the services required of Employee hereunder for an
aggregate of ninety (90) days within any period of one hundred eighty (180)
consecutive days during which this Agreement is in effect.
14. SUCCESSORS AND ASSIGNS. This Agreement may not be assigned by
Employee. This Agreement may be assigned by the Company.
15. 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.
16. SUBMISSION TO JURISDICTION. This Agreement shall be governed by and
construed under the laws of the State of Georgia. Employee hereby agrees to
submit to the jurisdiction of the courts of the State of Georgia or the federal
courts within the State of Georgia and hereby appoints the Secretary of State of
the State of Georgia as agent for the purpose of receiving service of process in
respect of any proceeding in connection herewith. Time is of the essence of this
Agreement and each and every Section and subsection hereof.
17. NOTICES. Any notice to be given under this Agreement shall be given in
writing and may be effected by personal delivery or by placing such in the
United States certified mail, return receipt requested and addressed as set
forth below:
If to Company: The Profit Recovery Group International I, Inc.
2300 Windy Ridge Parkway
Suite 100, North
Atlanta, Georgia 30339-8426
Attention: President
If to Employee: At the address specified below Employee's signature.
18. REQUIRED DEDUCTIONS OR WITHHOLDINGS. All amounts payable to Employee
pursuant to the Employment Agreement or the Compensation Agreement shall have
deducted or withheld therefrom by the Company such amount or amounts as may be
required to be so deducted or withheld pursuant to applicable federal, state or
local laws.
19. ENTIRE AGREEMENT AND AMENDMENT. The Employment Agreement, the
Compensation Agreement and the Plan constitute the entire agreement of the
parties hereto with respect to the subject matter hereof and supersedes all
prior discussions, understandings and agreements among the parties hereto. Any
such prior agreements other than the Plan shall, from and after the effective
date hereof, be null and void. This
7
<PAGE> 8
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.
20. 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.
21. AUTHORIZATION. The Company represents and warrants to Employee that
this Agreement has been authorized and approved by all necessary corporate
actions.
22. AFFILIATES. As used herein, "Affiliates" shall mean PRGX, The Profit
Recovery Group Asia, Inc., The Profit Recovery Group Australia, Inc., The Profit
Recovery Group Belgium, Inc., The Profit Recovery Group Canada, Inc., The Profit
Recovery Group France, Inc., The Profit Recovery Group, Germany, Inc., The
Profit Recovery Group Mexico, Inc., The Profit Recovery Group Netherlands, Inc.,
The Profit Recovery Group New Zealand, Inc., The Profit Recovery Group U.K.,
Inc., and all other entities, whether now or hereafter existing, fifty-one (51%)
percent or more of the outstanding capital stock of which is owned by any
combination of the Company and/or any of the foregoing entities and which are
engaged in substantially the same business as the Business of the Company and/or
which provide services or employees to the Company or any Affiliate in
connection with the operations thereof.
23. 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/ JOHN M. COOK
------------------------------------
John M. Cook,
Chief Executive Officer
EMPLOYEE:
/s/ TONY G. MILLS (SEAL)
--------------------------------------
Tony G. Mills
598 Ward-Meade Drive
Marietta, Georgia 30067
8
<PAGE> 9
COMPENSATION AGREEMENT
THIS COMPENSATION AGREEMENT ("Agreement") is made this 26th day of
August, 1996 effective as of January 1, 1996 (the "Effective Date"), by and
between THE PROFIT RECOVERY GROUP INTERNATIONAL I, INC., a Georgia corporation
(the "Company") and TONY G. MILLS, 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 August 26th, 1996 and effective as of the Effective Date (the
"Employment Agreement") whereby the Company employs Employee as Senior Vice
President-Legal Affairs and Employee accepts such employment in accordance with
the terms thereof; and
WHEREAS, the Employment Agreement provides that the compensation
payable to Employee shall be as set forth herein (any terms capitalized but not
otherwise defined herein shall have the meanings ascribed to them in the
Employment Agreement).
NOW, THEREFORE, in consideration of the foregoing and of the mutual
promises and covenants contained herein and other good and valuable
consideration the receipt and sufficiency of which are hereby acknowledged, the
parties hereto hereby agree as follows:
1. COMPENSATION. For services rendered by Employee under the Employment
Agreement during the term thereof, Employee shall be entitled to receive the
following compensation (subject to following sections), provided that such
compensation and Performance Goals (as defined below) may be reviewed annually
and modified by the Compensation Committee of the Board of Directors of the
Company (the "Committee") in writing prior to the commencement of any Term Year.
(a) Base Salary. One Hundred Fifty Thousand and No/100
($150,000.00) Dollars on an annual basis ("Base Salary") shall be payable in
accordance with the Company's customary payroll procedures.
(b) Bonus. An annual bonus ("Bonus") in an amount determined
as provided herein for each Term Year during the term of the Employment
Agreement, payable in a lump sum within ninety (90) days following the end of
each Term Year. The maximum potential Bonus shall be established from time to
time by mutual consent of the parties hereto, but, assuming no decrease in Base
Salary, shall not be less than Seventy-Five Thousand and No/100 ($75,000.00)
Dollars per Term Year without Employee's consent, provided, however, that
<PAGE> 10
Employee shall be entitled to a Bonus if and only if certain objective and
subjective Performance Goals (as hereinafter defined) are met by Employee and
the Company. The amount of any Bonus will depend on which level of Performance
Goals Employee and the Company have met. Schedule 1 attached hereto contains the
Performance Goals agreed to between the Company and Employee and an illustration
of how a Bonus may be achieved based on the Performance Goals.
(i) The "Performance Goals" shall consist of the
following:
A) "Earnings Per Share Goals" - based on the
earnings per share of the Company and its
Affiliates as of the end of each calendar
year as determined by KPMG Peat Marwick, or
the independent accounting firm then serving
the Company, in accordance with generally
accepted accounting principles; such
calculation for the year ending December 31,
1996 shall be determined before giving
effect to any net deferred tax liability
resulting from termination of the Subchapter
S and partnership status of the Company and
its Affiliates in connection with the
reorganization which preceded the initial
public offering of PRGX.
B) "Individual Performance Goals" - based on
factors to be agreed upon by Employee and
the Committee.
(ii) The levels of the Performance Goals are as follows:
A) "Threshold" - the minimum Performance Goal
to be achieved to receive any Bonus (15% of
Base Salary for each Term Year);
B) "Target" - the Performance Goal that
Employee and the Company agree is
realistically attainable (35% of Base Salary
for each Term Year); and
C) "Stretch" - the Performance Goal that will
provide the maximum Bonus (50% of Base
Salary for each Term Year).
(iii) Whether or not the Individual Performance Goals
have been achieved shall be solely in the judgment
of the Committee. The relative weight given to each
Performance Goal in calculating the Bonus shall be
reflected on Schedule 1 attached hereto or as
otherwise mutually agreed to in writing by Employee
and the Committee.
-2-
<PAGE> 11
2. TERMINATION. This Agreement shall terminate effect upon the
termination of the Employment Agreement; provided, however, that all provisions
hereof relating to any actions, including payment, subsequent to termination
shall survive such termination.
3. INCORPORATION BY REFERENCE. The provisions of the Employment
Agreement are hereby incorporated herein by reference.
4. SUCCESSORS AND ASSIGNS. This Agreement may not be assigned by
Employee. In the event that the Employment Agreement is assigned this Agreement
shall be assigned to the assignee thereof.
5. COUNTERPARTS. This Agreement may be executed in one or more
counterparts, each of which shall be deemed an original and together which
shall constitute one and the same instrument.
IN WITNESS WHEREOF, the parties hereto have executed this Agreement as
of the date first written above.
COMPANY:
THE PROFIT RECOVERY GROUP
INTERNATIONAL I, INC.
By: /s/ John M. Cook
-------------------------------------
John M. Cook, Chief Executive Officer
EMPLOYEE:
/s/ Tony G. Mills (SEAL)
---------------------------------
Tony G. Mills
-3-
<PAGE> 12
SCHEDULE 1
-4-
<PAGE> 13
1996 INCENTIVE PLAN - TONY MILLS
<TABLE>
<CAPTION>
Total
Corporate Incentive
Earnings Per Share MBO
(80% of Incentive) (20% of Incentive)
Performance Cumulative Target Payout Target Payout $
Level Percent
<S> <C> <C> <C> <C> <C> <C>
A1 B1
Threshold 15.0% $18,000 $ 4,500 $22,500
A2 B2
Target 35.0% $42,000 $10,500 $52,500
A3 B3
Maximum 50.0% $60,000 $15,000 $75,000
</TABLE>
EPS
A1=$.28/SHARE
A2=$.37/SHARE
A3=$.45/SHARE
MBO
B1=TBD
B2=TBD
B3=TBD
<PAGE> 14
DESCRIPTION OF 1998 COMPENSATION ARRANGEMENT BETWEEN
MR. TONY G. MILLS AND REGISTRANT
The following describes certain compensation arrangements between the
Registrant and Mr. Mills for calendar year 1998 which supplements the Employment
Agreement dated August 26, 1996 between Registrant and Mr. Mills and the
Compensation Agreement dated August 26, 1996 between Registrant and Mr. Mills.
The Company has entered into an employment agreement with Mr. Mills that
currently expires December 31, 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")
increased Mr. Mills' annual base salary to $170,000 (effective March 1, 1998).
Pursuant to Mr. Mills' 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. Mills options
to purchase 15,000 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. Mills, which amounts will vest over a ten-year period at 10% per
year. Mr. Mills 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. Mills with
certain other personal benefits. Upon termination, other than for cause or by
voluntary resignation, Mr. Mills will receive severance payments equal to nine
months' base salary and certain other personal benefits. Mr. Mills 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.
<PAGE> 1
EXHIBIT 10.33
EMPLOYMENT AGREEMENT
THIS EMPLOYMENT AGREEMENT ("Agreement"), is made this 23rd day of August,
1996, effective as of January 1, 1996 (the "Effective Date"), by and between THE
PROFIT RECOVERY GROUP INTERNATIONAL I, INC., a Georgia corporation (the
"Company") and DAVID A. BROOKMIRE, a resident of the State of Georgia (the
"Employee").
WITNESSETH:
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 -- Human
Resources of the Company. Employee agrees to apply Employee's full time efforts
to the position and to perform Employee's work at all times to the best of
Employee's ability and at the direction of the Chief Executive Officer of the
Company. Employee will render to the Company at regular intervals set by the
Company, reports and accounting of the status and progress of any work Employee
is performing.
2. TERM. The initial term of this Agreement shall commence on January 1,
1996, and shall continue until December 31, 1996, unless sooner terminated as
hereinafter provided. Unless otherwise terminated pursuant to Section 11 hereof,
this Agreement shall automatically renew on a year-to-year basis at the end of
the initial term and each subsequent renewal term unless either party gives
written notice of non-renewal to the other at least ninety (90) days prior to
the end of the initial term or a renewal term. The initial term of this
Agreement and any subsequent one-year renewal period shall be deemed a "Term
Year."
3. SCOPE OF THE COMPANY'S ACTIVITIES. Employee acknowledges and agrees
that the Company conducts the following business in the following territories:
(a) Scope of the Company's Business. The Company is engaged in the
business of auditing accounts payable, paid bill files, promotional and
demonstrator agreements, personal property, real estate, sales and use tax
and other taxes, common area maintenance charges, telephone and other
utilities, sales promotion, advertising and cosmetic wage/commission
agreements of its Clients, as hereinafter defined, to identify and document
for subsequent charge back or credit over-payments and/or under deductions
(collectively, the "Audit Activities"), and rendering management counseling
services associated with the Audit Activities (collectively, the "Business
of the Company").
(b) Location of the Company's Business. The Company actively conducts
business with its clients (herein referred to as "Clients") throughout the
United States, Australia, Belgium, Canada, France, Germany, Great Britain,
Hong Kong, Indonesia, Malaysia, Mexico, Netherlands, New Zealand,
Singapore, Taiwan, and Thailand. The address of the Company's principal
office in Atlanta, Georgia where Employee provides substantially all of his
services on behalf of the Company is 2300 Windy Ridge Parkway, Suite 100,
North, Atlanta, Cobb County, Georgia 30339-8426 (the "Principal Office").
4. COMPENSATION. For services rendered by Employee under this Agreement
during the term hereof, Employee shall be entitled to receive the compensation
and benefits set forth in Sections 10, 11 and 12 hereof and in that certain
Compensation Agreement by and between Employee and the Company (the
"Compensation Agreement"), which provides in part that as of the Effective Date
Employee's Base Salary (as defined therein) is One Hundred Twenty Thousand and
No/100 ($120,000.00) Dollars exclusive of Ten Thousand and No/100 ($10,000.00)
Dollars of salary to be deferred in accordance therewith, subject to any future
amendment of the Compensation Agreement.
<PAGE> 2
5. STOCK OPTION. Employee and The Profit Recovery Group International,
Inc., a Georgia corporation ("PRGX"), are party to one or more separate stock
option agreements in accordance with which Employee has been granted
non-qualified options to purchase PRGX Common Stock under the 1996 Stock Option
Plan (the "Plan").
6. SPECIFIC ACKNOWLEDGMENTS. Employee acknowledges that the Company has
expended and will continue to expend substantial time, money, effort and other
resources to develop its goodwill, clients, business sources and relationships
and that the Company has a legitimate business interest in protecting same. In
connection with Employee's employment by the Company as herein provided, the
Company will introduce Employee to its Clients, business sources and
relationships and will expend considerable time, effort and capital to train
Employee in the business of the Company. Employee further acknowledges that, by
virtue of Employee's employment with the Company, Employee will be in a position
of substantial responsibility and authority and will have frequent and
substantial contact with certain of the Company's Clients and business sources
and relationships. Employee further acknowledges that in Employee's capacity,
Employee will be privy to certain confidential information, Company secrets and
proprietary information not generally known or available to the Company's
competitors or the general public.
(a) Agreement Not to Compete -- Competing Businesses. Employee covenants
and agrees that during Employee's employment by the Company and for a period of
eighteen (18) months after the termination of Employee's employment for any
reason whatsoever, of such employment, he will not, without the prior written
consent of the Company signed by the President of the Company, directly or
indirectly, (i) for himself or (ii) as a consultant, management, supervisory or
executive employee or owner of a Competing Business, as hereinafter defined, or
(iii) as an independent contractor for a Competing Business, engage in any
business, within a radius of thirty (30) miles of the Principal Office, for
which Employee provides services which are the same or substantially similar to
his duties as Employee as herein described.
(b) Agreement Not to Solicit Clients. Employee covenants and agrees that
during Employee's employment by the Company and for a period of eighteen (18)
months after termination of Employee's employment for any reason whatsoever,
Employee will not, without the prior written consent of the Company signed by
the President of the Company, directly or indirectly, on Employee's behalf or on
behalf of a Competing Business, as hereinafter defined, solicit, divert or
appropriate, or attempt to solicit, divert or appropriate any of the Company's
Clients for whom Employee performed services or otherwise had direct contact,
influence and/or responsibility during the twenty-four (24) month period
immediately preceding the termination of Employee's employment with the Company
(or such shorter period if Employee is employed for less than 24 months) for the
purpose of providing services of the type identified in Section 3(a) hereof.
Employee's covenants pursuant to this subsection (b) shall also apply to
prospective customers of the Company with respect to which Employee participated
in soliciting on behalf of the Company during the twenty-four (24) month period
immediately preceding the termination of Employee's employment with the Company
(or such shorter period if Employee is employed for less than 24 months).
(c) Agreement Not to Solicit Employees or Contractors. Employee covenants
and agrees that during Employee's employment by the Company and for a period of
eighteen (18) months after termination of Employee's employment for any reason
whatsoever, Employee will not, without the prior written consent of the Company
signed by the President of the Company, directly or indirectly, on Employee's
behalf or on behalf of others, solicit, entice, persuade or induce, or attempt
to solicit, entice, persuade or induce any person who is actively employed by,
or is performing services as an independent contractor for, the Company and (i)
who was employed by, or was performing services as an independent contractor
for, the Company at any time during which Employee was employed by the Company
and (ii) who reported to Employee or was within Employee's chain of
responsibility, or (iii) who had regular contact with Employee, to terminate his
or her employment or contractual arrangement with the Company or to become
employed or engaged by any person, firm or entity other than the Company, or
approach any such person for any of the foregoing purposes or authorize or
assist in the taking of any such action by any third party.
(d) Proprietary Information. All Proprietary Information, as hereinafter
defined, and all physical embodiments thereof received or developed by Employee
or disclosed to Employee while employed by the
2
<PAGE> 3
Company is confidential to and is and will remain the sole and exclusive
property of the Company. Except to the extent necessary to perform the duties
assigned to Employee by the Company, Employee will hold such Proprietary
Information in trust and in the strictest confidence, and will not use,
reproduce, distribute, disclose or otherwise disseminate the Proprietary
Information or any physical embodiments thereof and may in no event take any
action causing or fail to take the action necessary in order to prevent any
Proprietary Information disclosed to or developed by Employee to lose its
character or cease to qualify as Proprietary Information. The confidentiality
requirements and use restrictions contained in this subsection shall survive any
termination of Employee's employment with the Company but shall not apply (i) to
any information that falls into the public domain through no fault of Employee,
or (ii) to Proprietary Information which is not Trade Secrets, as hereinafter
defined, when a period of five (5) years has expired following the termination
of Employee's employment with Company. Upon request by the Company, and in any
event upon termination of Employee's employment with the Company for any reason,
Employee will promptly deliver to the Company all property belonging to the
Company, including without limitation all Proprietary Information (and all
physical embodiments thereof) then in Employee's custody, control, or
possession.
(e) Contracts or Other Agreements with Former Employer or
Business. Employee agrees that Employee will provide to the Company, upon the
execution of this Agreement, a copy of the pertinent portions of any employment
agreement or similar document executed by Employee with a former employer or any
other business. Employee warrants and represents that (i) the execution and
delivery of this Agreement by Employee and the performance of the obligations,
covenants and agreements contained herein, do not and will not conflict with or
result in any breach or violation of any of the terms and provisions of any
agreement, judgment, order, statute or other instrument or restriction of any
kind with respect to which Employee is bound, and (ii) Employee is not subject
to any restrictive covenant agreement, covenant not to compete, nonsolicitation
agreement or other agreement that would prohibit Employee from carrying out
Employee's duties hereunder.
(f) Definitions. - "Competing Business" means any business organization of
whatever form engaged, either directly or indirectly, in any business or
enterprise which is the same as, or substantially the same as, the Business of
the Company, as defined in Section 2(a) hereof.
- "Proprietary Information" means information related to the Company or its
Affiliates or clients (i) which derives economic value, actual or potential,
from not being generally known to or readily ascertainable by other persons who
can obtain economic value from its disclosure or use; and (ii) which is the
subject of efforts that are reasonable under the circumstances to maintain its
secrecy. Such Proprietary Information shall include information in any form or
media and shall not necessarily be in writing. Proprietary Information also
includes information which has been disclosed to the Company or its Affiliates
by a third party and which the Company or its Affiliates are obligated to treat
as confidential. Trade Secrets means Proprietary Information which meets the
foregoing criteria and which is also deemed to be a "Trade Secret" as that term
is defined in the Georgia Trade Secrets Act of 1990, O.C.G.A. sec. 10-1-760, et.
seq., including but not limited to technical and nontechnical data, formulas,
patterns, compilations, programs, devices, methods, techniques, drawings,
processes, financial data, financial plans, product plans, and lists of actual
or potential customers and suppliers. Proprietary Information may or may not be
marked by the Company or its Affiliates as "proprietary" or "secret" or with
other words or markings of similar meaning, and the failure of the Company to
make such notations upon the physical embodiments of any Proprietary Information
shall not affect the status of such information as Proprietary Information.
7. OWNERSHIP BY COMPANY. All software, computer diskettes, CDs, video
tapes, literature, cassettes, photographs, prints, slides, records, notes,
files, memoranda, reports, audit reports, price lists, client lists, documents,
and all copies thereof, equipment, and apparatus and like items relating to the
business of the Company, Proprietary Information or Trade Secrets which shall be
prepared by Employee or which shall be disclosed to or which shall come into
Employee's possession shall be and remain the sole and exclusive property of the
Company. Employee agrees that, upon the termination of employment with the
Company for any reason whatsoever, or at any other time upon request, Employee
will promptly deliver to the Company the originals and all copies of any of the
foregoing that are in Employee's possession, custody or control, and any other
property belonging to the Company.
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8. INVENTIONS. Employee agrees that, during the term of this Agreement,
Employee has a continuing duty to disclose to the Company any invention,
improvement, discovery, process, formula, code, program, system or method
(collectively, "Inventions") developed or being developed by Employee any time
during the term of Employee's employment, either solely by Employee or jointly
with others, whether or not such Inventions are assignable to the Company as set
forth below. Any Invention which Employee has conceived or made or may conceive
or make at any time while employed by the Company, either solely by Employee or
jointly with others, (a) which relate in any way to the actual Business of the
Company, or (b) which relate in any way to the actual or anticipated research or
development of the Company, or (c) which are suggested by or result from any
task assigned to Employee on behalf of the Company, shall be the sole and
exclusive property of the Company, and Employee hereby assigns to the Company
any right, title or interest Employee may have to such Invention. Furthermore,
any such Invention shall constitute Proprietary Information as set forth above.
At the request and expense of the Company, Employee will execute and deliver all
documents and will do such other acts as may be in the Company's opinion
necessary or desirable to secure to the Company or its nominee all right, title
and interest in and to any such Invention. The provisions of this Section shall
be binding upon Employee's heirs, legal representatives, successors and assigns.
9. COPYRIGHTS. Employee understands that any original works of authorship
fixed in tangible form, including, without limitation, computer software and
manuals, advertising material, and training material, prepared by Employee,
either solely or jointly with others, within the scope of Employee's employment
by the Company, constitute works made for hire as provided by law, so that such
works are owned by the Company. If, for any reason, a work of authorship by
Employee created during the term of Employee's employment by the Company and
related to the Business of the Company is considered other than a work for hire,
then Employee hereby assigns all Employee's right, title and interest in
copyrights to such works of authorship to the Company.
10. INSURANCE AND BENEFITS. (a) Subject to Employee being insurable at
standard rates as of the commencement of employment (or when coverage is applied
for, as applicable) and to the availability of such coverage from the Company's
customary insurance providers, the Company shall (i) obtain on Employee's behalf
life, disability, hospitalization and medical insurance coverage in accordance
with the Company's standard group coverage, (ii) pay the premiums, or reimburse
Employee for premiums paid, to obtain, coverage as described below in addition
to the Company's standard group coverage in accordance with the Company's
standard policies and procedures: (A) basic term life insurance policy at the
best available rates for a fifteen (5) year level term type product, but not
higher than standard nonsmoker rates, in an amount of coverage equal to One
Million ($1,000,000) Dollars, and (B) disability income insurance coverage,
which, when added to the standard group coverages, will provide a monthly
benefit of sixty (60%) percent of the sum of (x) Employee's current Base Salary,
(y) any amount of Bonus (as defined in the Compensation Agreement) payable to
Employee, without adjustment or deduction for any Bonus amount the payment of
which was deferred pursuant to this Agreement for the Term Year preceding the
Term Year in which the disability occurs, and (z) any amount of salary for the
Term Year in which the disability occurs, the payment of which was deferred
pursuant to this Agreement, and (iii) share the cost of Employee's health
insurance premiums in accordance with the Company's standard employee policies
and procedures. The Company will reimburse Employee for any amount incurred in
connection with an annual physical examination not covered by insurance.
(b) Employee shall be provided an annual automobile allowance of Eight
Thousand and No/100 ($8,000.00) Dollars, payable in accordance with the
Company's customary procedures, which amount shall be reviewed annually and may
be modified in writing prior to the commencement of any Term Year.
(c) The Company will pay for an executive financial program for Employee as
provided by Advisory Services, Ltd.
(d) Employee shall be entitled to participate in any 401(k) Plan of the
Company generally available to other employees of the Company, except as may be
limited by applicable law or regulation.
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<PAGE> 5
(e) The Company shall pay Employee's reasonable travel and business
expenses (including air travel at coach rate), subject to Employee's submission
of receipts therefor in accordance with the Company's normal practices and
procedures.
(f) Any amounts the Company pays for insurance coverage or fringe benefits
that are supplemental or in addition to the Company's standard insurance
coverage or benefits shall be compensation in addition to Base Salary (but not
included within the definition of Base Salary) and shall be reflected on
Employee's W-2.
11. PAYMENT OF COMPENSATION UPON TERMINATION. In addition to any deferred
compensation to which Employee might be entitled pursuant to Section 12 hereof
following Employee's termination of employment, Employee shall receive the
following compensation upon the termination of Employee's employment hereunder:
(a) In the event Employee's employment hereunder is terminated for
cause or if Employee voluntarily resigns, Employee shall be entitled to
receive Employee's Base Salary prorated through the date of termination,
payable within sixty (60) days after termination and Employee shall not be
entitled to receive any Bonus, or any other amount in respect of the Term
Year in which termination occurs or in respect of any subsequent years.
(b) In the event Employee's employment hereunder is terminated by the
Company without cause, Employee shall be entitled to receive Base Salary
and Bonus for the Term Year in which such termination occurs prorated
through the date of such termination, plus a severance payment equal to six
(6) months of Base Salary at the rate then in effect and shall not be
entitled to receive any other amount in respect of the Term Year in which
termination occurs or in respect of any subsequent years. The prorated Base
Salary shall be payable in a lump sum within sixty (60) days after
termination, the prorated Bonus shall be payable in a lump sum within
ninety (90) days after the end of the Term Year to which it relates, and
the severance payment shall be payable in six (6) equal monthly
installments commencing on the last day of the first month following
termination.
(c) In the event Employee's employment hereunder is terminated by
Employee's death, Employee's legal representative shall be entitled to
receive Base Salary and Bonus for the Term Year in which such termination
occurs prorated through the date of such termination and any other payments
specifically provided for herein in respect of death and shall not be
entitled to receive any other amount in respect of the Term Year in which
termination occurs or in respect of any subsequent years. The prorated Base
Salary shall be payable in a lump sum within sixty (60) days after
termination and the prorated Bonus shall be payable in a lump sum within
ninety (90) days after the end of the Term Year to which it relates.
(d) In the event Employee's employment hereunder is terminated for
Disability, Employee or Employee's legal representative shall be entitled
to receive (A) Base Salary and Bonus for the Term Year in which such
termination occurs prorated through the date of such termination, with the
prorated Base Salary payable to Employee payable in a lump sum within sixty
(60) days after termination and the prorated Bonus payable in a lump sum
within ninety (90) days after the end of the Term Year to which it relates;
and (B) Base Salary at the rates in effect upon the date of such
termination payable in accordance with the Company's normal payroll
procedure until the disability payments provided for under any of the
Company's standard group disability insurance coverage provided pursuant to
Section 10(a) hereof are scheduled to commence (but in no event longer than
ninety (90) days after the date of Employee's termination) and shall not be
entitled to receive any other amount in respect of the Term Year in which
termination occurs or in respect of any subsequent years.
(e) In the event the Employment 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.
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<PAGE> 6
(f) If Employee's employment hereunder terminates for any reason
during a Term Year, Employee will be paid within sixty (60) days of
termination for all unused vacation time accrued up to the date of
termination.
12. DEFERRED COMPENSATION. (a) Annual Deferred Compensation Credit. An
account ("Employee's Account") shall be maintained on the books and records of
the Company for the purposes hereinafter provided. As of March 31, 1996, the
amount credited to Employee's Account, whether vested or unvested (the "Credit
Balance"), equals $2,534.73 (including $17.31 in accrued interest). As of the
end of each Term Year beginning with the Term Year ending December 31, 1996, the
Credit Balance of Employee's Account shall be increased by an amount equal to
the sum of (i) the Salary Deferred Compensation Credit (as defined in the
Compensation Agreement) for such Term Year, and (ii) Ten Thousand and No/100
($10,000.00) Dollars (the "Company Deferred Compensation Credit"). In the event
of the termination of Employee's employment hereunder for any reason prior to
the end of any Term Year, however, no credits shall be made to Employee's
Account with respect to a Company Deferred Compensation Credit for such Term
Year. Employee's Account shall also be credited from and after the date hereof
with an amount computed like interest on the credit balance of Employee's
Account at the Prime Rate (as hereinafter defined). For these purposes, the
Salary Deferred Compensation Credit and all interest so accrued on the credit
balance of Employee's Account shall be deemed to be credited to Employee's
Account as of the end of each month of each Term Year, and the Company Deferred
Compensation Credit shall be deemed to be credited to Employee's Account as of
December 31 of each Term Year, as provided in Section 12(b) hereof. As used in
this Agreement, the term "Prime Rate" means the rate publicly announced from
time to time by NationsBank, N.A. (South), Atlanta, Georgia, as its "prime
rate."
(b) Vesting. The provisions of this Section 12(b) shall determine the
portion of Employee's Account which is vested and eligible for payment in
accordance with Section 4(c) hereof.
(i) General Vesting Rule. Subject to the other provisions of this Section
12(b), Employee shall in all events be immediately vested in the portion of
Employee's Account attributable to all Salary Deferred Compensation Credits and
interest credited with respect thereto (as determined pursuant to Section 4(a)
hereof. Subject to the other provisions of this Section 12(b), Employee's right
to the portion of Employee's Account attributable to each Company Deferred
Compensation Credit and all interest credited with respect thereto (as
determined pursuant to Section 12(a) hereof) will vest as follows: (A)
Employee's rights shall be immediately vested as of the end of the Term Year for
which such amount is credited with respect to that portion of the Company
Deferred Compensation Credit equal to the product of ten (10%) percent of the
Company Deferred Compensation Credit multiplied by the number of calendar years
elapsed from the end of the calendar year in respect of which any funds were
first credited to Employee's Account to the Term Year for which such amount is
credited (except in the case of termination of Employee's employment hereunder
without cause, in which case vesting of the product described in this sentence
in respect to the Term Year in which termination without cause occurs will be
prorated through the date of termination), and (B) thereafter, Employee's rights
to the remainder of each Term Year's Company Deferred Compensation Credit shall
vest based on ten (10%) percent of the Balance for each subsequent year until
Employee is one hundred (100%) percent vested in such Company Deferred
Compensation Credit. As a result of clause (A) and clause (B) above, all
contributions shall be fully vested at the end of ten (10) Term Years.
(ii) Termination Due to Death or Disability. In the event of termination
of Employee's employment hereunder due to death or Disability, then
notwithstanding anything to the contrary in Section 12(b)(i) hereof, Employee,
in the event of Disability, or Employee's Beneficiary, in the event of
Employee's death, shall be vested in the Credit Balance of Employee's Account.
(iii) Termination for Gross Cause. Upon the termination of Employee's
employment hereunder for Gross Cause, notwithstanding anything to the contrary
in Section 12(b)(i), Employee shall be vested in the Salary Deferred
Compensation Credit in Employee's Account as of the end of the month preceding
such termination or resignation but shall not be vested in any portion of the
Company Deferred Compensation Credit, regardless of whether or not previously
vested, or any interest accrued thereon.
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<PAGE> 7
(iv) No Further Credits. Upon Employee's termination of employment under
the Employment Agreement for any reason, no further increase in the Credit
Balance shall be made to Employee's Account.
(c) Payments Following Termination of Employment. (i) Termination. In the
event of termination of Employee's employment hereunder for any reason, Employee
(or, in the event of Employee's death, Employee's Beneficiary) shall receive a
payment equal to the portion of the Credit Balance of Employee's Account which
is vested in accordance with Section 12(b) hereof within sixty (60) days after
the earlier to occur of (A) Employee's death, or (B) such termination of
Employee's employment.
(ii) Forfeiture of Balance of Employee's Account. The portion of the
Credit Balance of Employee's Account which is not vested in accordance with
Section 12(b) hereof following termination of Employee's employment hereunder
shall be forfeited and Employee shall not be entitled to any payment with
respect thereto.
(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
sec.2520.104-23.
(f) Nonassignability. The rights Employee and Employee's Beneficiary to
payments pursuant to this Section 12 hereof are not subject in any manner to
anticipation, alienation, sale, transfer, assignment, pledge, encumbrance
attachment, or garnishment by creditors of Employee or Employee's Beneficiary.
13. REMEDIES. (a) Employee acknowledges and agrees that, by virtue of the
duties and responsibilities attendant to Employee's employment by the Company
and the special knowledge of the Company's affairs, business, clients and
operations that Employee has and will have as a consequence of such employment,
irreparable loss and damage will be suffered by the Company if Employee should
breach or violate any of the covenants and agreements contained in Sections 6,
7, 8, or 9 hereof; and Employee further acknowledges and agrees that each of
such covenants is reasonably necessary to protect and preserve the Company.
Employee, therefore, agrees and consents that, in addition to any other remedies
available to it, the Company shall be entitled to specific performance by
temporary as well as permanent injunction to prevent a breach or contemplated
breach by Employee of any of the covenants or agreements contained in such
Sections.
(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.
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<PAGE> 8
(d) In the event a court of competent jurisdiction determines that Employee
has breached any of the foregoing covenants contained in Sections 6, 7, 8, or 9
hereof, Employee shall pay all costs of enforcement of the foregoing covenants,
including, but not limited to, court costs and reasonable attorney's fees.
14. TERMINATION. (a) This Agreement may be terminated by the Company for
"cause" upon delivery of notice of termination to Employee. As used herein,
"cause" shall mean (i) fraud, dishonesty, gross negligence, willful misconduct,
commission of a felony or act of moral turpitude (e.g. theft, embezzlement and
the like), or (ii) engaging in activities prohibited by Sections 6, 7, 8, or 9
hereof, or any other material breach of this Agreement, and "Gross Cause" shall
refer to any item or items listed in subclause 14(a)(i) immediately above.
(b) This Agreement may be terminated by the Company or Employee without
cause by giving the other party thirty (30) days prior written notice and such
termination shall be effective on the thirtieth (30th) day following receipt of
such notice or such earlier date as the parties shall mutually agree.
(c) In the event of Employee's Disability, physical or mental, the Company
shall have the right, subject to all applicable laws, including without
limitation, the Americans with Disabilities Act ("ADA"), to terminate Employee's
employment immediately. For purposes of this Agreement, the term "Disability"
shall mean Employee's inability, in the judgment in accordance with the ADA, of
both a medical doctor selected by the Company and a medical doctor selected by
Employee or Employee's legal representative (or, in the event that such doctors
fail to agree, then in the majority opinion of such doctors and a third medical
doctor chosen by such doctors) due to illness, accident or any other physical or
mental incapacity to perform the services required of Employee hereunder for an
aggregate of ninety (90) days within any period of one hundred eighty (180)
consecutive days during which this Agreement is in effect.
15. SUCCESSORS AND ASSIGNS. This Agreement may not be assigned by
Employee. This Agreement may be assigned by the Company.
16. SEVERABILITY. In the event that one or more of the words, phrases,
sentences, clauses, sections, subdivisions or subparagraphs contained herein
shall be held invalid, this Agreement shall be construed as if such invalid
portion had not been inserted, and if such invalidity shall be caused by the
length of any period of time, the number or location of Clients, the size of any
area, or the description of the duties of Employee set forth in any part hereof,
such period of time, number or location of Clients, area, or description of
duties, or any combination thereof, shall be considered to be reduced to a
period, number, location, area or description which would cure such invalidity.
17. SUBMISSION TO JURISDICTION. This Agreement shall be governed by and
construed under the laws of the State of Georgia. Employee hereby agrees to
submit to the jurisdiction of the courts of the State of Georgia or the federal
courts within the State of Georgia and hereby appoints the Secretary of State of
the State of Georgia as agent for the purpose of receiving service of process in
respect of any proceeding in connection herewith. Time is of the essence of this
Agreement and each and every Section and subsection hereof.
18. NOTICES. Any notice to be given under this Agreement shall be given in
writing and may be effected by personal delivery or by placing such in the
United States certified mail, return receipt requested and addressed as set
forth below:
If to Company: The Profit Recovery Group International I, Inc.
2300 Windy Ridge Parkway
Suite 100, North
Atlanta, Georgia 30339-8426
Attention: 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 or the Compensation Agreement shall have
deducted or withheld therefrom by the Company
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such amount or amounts as may be required to be so deducted or withheld pursuant
to applicable federal, state or local laws.
20. ENTIRE AGREEMENT AND AMENDMENT. The Employment Agreement, the
Compensation Agreement and the Plan constitute the entire agreement of the
parties hereto with respect to the subject matter hereof and supersedes all
prior discussions, understandings and agreements among the parties hereto. Any
such prior agreements other than the Plan shall, from and after the effective
date hereof, be null and void. This Agreement may not be changed orally, but
only by an agreement in writing signed by the party against whom enforcement of
any waiver, change, modification, extension or discharge is sought.
21. WAIVER. The waiver by one party of a breach of any provision of this
Agreement by the other party shall not operate or be construed as a waiver of
any subsequent breach of the same or any other provision by the other party.
22. AUTHORIZATION. The Company represents and warrants to Employee that
this Agreement has been authorized and approved by all necessary corporate
actions.
23. AFFILIATES. As used herein, "Affiliates" shall mean PRGX, The Profit
Recovery Group Asia, Inc., The Profit Recovery Group Australia, Inc., The Profit
Recovery Group Belgium, Inc., The Profit Recovery Group Canada, Inc., The Profit
Recovery Group France, Inc., The Profit Recovery Group Germany, Inc., The Profit
Recovery Group Mexico, Inc., The Profit Recovery Group Netherlands, Inc., The
Profit Recovery Group New Zealand, Inc., The Profit Recovery Group U.K., Inc.,
and all other entities, whether now or hereafter existing, fifty-one percent
(51%) or more of the outstanding capital stock of which is owned by any
combination of the Company and/or any of the foregoing entities and which are
engaged in substantially the same business as the Business of the Company and/or
which provide services or employees to the Company or any Affiliate in
connection with the operations thereof.
24. COUNTERPARTS. This Agreement may be executed in one or more
counterparts, each of which shall be deemed an original and together which shall
constitute one and the same instrument.
IN WITNESS WHEREOF, the parties hereto have executed this Agreement as of
the date first written above.
COMPANY:
THE PROFIT RECOVERY GROUP
INTERNATIONAL I, INC.
By: /s/ JOHN M. COOK
------------------------------------
John M. Cook
Chief Executive Officer
EMPLOYEE:
/s/ DAVID A. BROOKMIRE (SEAL)
--------------------------------------
David A. Brookmire
4155 Westchester Crossing
Roswell, GA 30075
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<PAGE> 10
COMPENSATION AGREEMENT
THIS COMPENSATION AGREEMENT ("Agreement") is made this 23rd day of
August, 1996 effective as of January 1, 1996 (the "Effective Date"), by and
between THE PROFIT RECOVERY GROUP INTERNATIONAL I, INC., a Georgia corporation
(the "Company") and DAVID A. BROOKMIRE, 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 August __, 1996 and effective as of the Effective Date (the
"Employment Agreement") whereby the Company employs Employee as Senior Vice
President-Human Resources and Employee accepts such employment in accordance
with the terms thereof; and
WHEREAS, the Employment Agreement provides that the compensation
payable to Employee shall be as set forth herein (any terms capitalized but not
otherwise defined herein shall have the meanings ascribed to them in the
Employment Agreement).
NOW, THEREFORE, in consideration of the foregoing and of the mutual
promises and covenants contained herein and other good and valuable
consideration the receipt and sufficiency of which are hereby acknowledged, the
parties hereto hereby agree as follows:
1. COMPENSATION. For services rendered by Employee under the
Employment Agreement during the term thereof, Employee shall be entitled to
receive the following compensation (subject to following sections), provided
that such compensation and Performance Goals (as defined below) may be reviewed
annually and modified by the Compensation Committee of the Board of Directors
of the Company (the "Committee") in writing prior to the commencement of any
Term Year.
(a) Base Salary. One Hundred Twenty Thousand and No/100
($120,000.00) 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(a)
of the Employment Agreement. In the event of termination of Employee's
employment under the Employment Agreement for any reason during any Term Year,
no portion of the Salary Deferred Compensation Credit shall be credited to
Employee's Account in respect of the month in which such termination occurs or
any subsequent period.
<PAGE> 11
(b) Bonus. An annual bonus ("Bonus") in an amount determined as provided
herein for each Term Year during the term of the Employment Agreement, payable
in a lump sum within ninety (90) days following the end of each Term Year. The
maximum potential Bonus shall be established from time to time by mutual
consent of the parties hereto, but, assuming no decrease in Base Salary, shall
not be less than Sixty-Five Thousand and No/100 ($65,000.00) Dollars per Term
Year without Employee's consent, provided, however, that Employee shall be
entitled to a Bonus if and only if certain objective and subjective Performance
Goals (as hereinafter defined) are met by Employee and the Company. The amount
of any Bonus will depend on which level of Performance Goals Employee and the
Company have met. Schedule 1 attached hereto contains the Performance Goals
agreed to between the Company and Employee and an illustration of how a Bonus
may be achieved based on the Performance Goals.
(i) The "Performance Goals" shall consist of the
following:
A) "Company Profit Goals" - based on the
achievement of operating profit thresholds
of the Company and its Affiliates (before
interest, taxes and amortization of
intangible assets) for the applicable Term
Year agreed upon by Employee and the
Committee; and
B) "Company Accrued Revenue" - based on accrued
annual revenues of the Company and its
Affiliates for the applicable Term Year; and
C) "Individual Performance Goals" - based on
factors to be agreed upon by Employee and
the Committee.
(ii) The levels of the Performance Goals are as follows:
A) "Threshold" - the minimum Performance Goal
to be achieved to receive any Bonus (15% of
Adjusted Base Salary for each Term Year);
B) "Target" - the Performance Goal that
Employee and the Committee agree is
realistically attainable (35% of Adjusted
Base Salary for each Term Year); and
C) "Stretch" - the Performance Goal that will
provide the maximum Bonus (50% of Adjusted
Base Salary for each Term Year).
(iii) Whether or not the Individual Performance Goals
have been achieved shall be solely in the judgment
of the Committee. The relative weight given to each
Performance Goal in calculating the Bonus shall be
reflected on Schedule 1 attached hereto or as
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otherwise mutually agreed to in writing by Employee
and the Committee.
(iv) Compliance with the Performance Goals described in
subsection (i) above and Schedule 1 attached hereto
for any Term Year shall be determined without
regard to the financial contribution of any merger
or acquisition which may be consummated by the
Company or its Affiliates subsequent to the date of
this Agreement; provided, however, that if any such
merger or acquisition should materially increase
Employee's duties or responsibilities, Employee and
the Committee shall in good faith consider an
appropriate modification to the Performance Goals
to equitably reflect Employee's additional duties
or responsibilities; provided further, however,
that the terms of this Agreement shall continue to
govern and control unless and until the parties
hereto execute and deliver an amendment to this
Agreement.
2. TERMINATION. This Agreement shall terminate effect upon the
termination of the Employment Agreement; provided, however, that all provisions
hereof relating to any actions, including payment, subsequent to termination
shall survive such termination.
3. INCORPORATION BY REFERENCE. The provisions of the Employment
Agreement are hereby incorporated herein by reference.
4. SUCCESSORS AND ASSIGNS. This Agreement may not be assigned by
Employee. In the event that the Employment Agreement is assigned this Agreement
shall be assigned to the assignee thereof.
5. COUNTERPARTS. This Agreement may be executed in one or more counter
parts, each of which shall be deemed an original and together which shall
constitute one and the same instrument.
-3-
<PAGE> 13
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/ John M. Cook
--------------------------------------
John M. Cook, Chief Executive Officer
EMPLOYEE:
/s/ David A. Brookmire (SEAL)
----------------------------------------
David A. Brookmire
-4-
<PAGE> 14
SCHEDULE 1
-5-
<PAGE> 15
1996 INCENTIVE PLAN - David Brookmire
<TABLE>
<CAPTION>
Total
Corporate Corporate Incentive
Accrued Revenue Operating Profit MBO
(33.33% of Incentive) (33.33% of Incentive) (33.33% of Incentive)
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Performance Cumulative Target Payout Target Payout Target Payout $
Level Percent
A1 B1 C1
Threshold 15.0% $6,500 $6,500 $6,500 $19,500
A2 B2 C2
Target 35.0% $15,166 $15,166 $15,168 $45,500
A3 B3 C3
Maximum 50.0% $21,666 $21,666 $21,668 $65,000
</TABLE>
<TABLE>
<CAPTION>
Revenue Operating Profit MBO
------- ---------------- ---
<S> <C> <C>
A1=$65.4mm B1=15.6% C1=TBD
A2=$72.6mm B2=17.7% C2=TBD
A3=$79.3mm B3=19.2% C3=TBD
</TABLE>
<PAGE> 16
DESCRIPTION OF 1998 COMPENSATION ARRANGEMENT BETWEEN
MR. DAVID A. BROOKMIRE AND REGISTRANT
The following describes certain compensation arrangements between the
Registrant and Mr. Brookmire for calendar year 1998 which supplements the
Employment Agreement dated August 23, 1996 between Registrant and Mr. Brookmire
and the Compensation Agreement dated August 23, 1996 between Registrant and Mr.
Brookmire.
The Company has entered into an employment agreement with Mr. Brookmire
that currently expires December 31, 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")
increased Mr. Brookmire's annual base salary to $152,000 (effective March 1,
1998). Pursuant to Mr. Brookmire'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. Brookmire's options to purchase 15,000 shares of Common Stock at a purchase
price of $15.75 per share, vesting over a five-year period at 20% per year. Mr.
Brookmire has elected to reduce his annual base salary by $10,000 per year and
to contribute such amount to a deferred contribution program for him, which
amount vests immediately. In addition, the Company will make annual matching
contributions in the amount of $10,000 per year to a such deferred compensation
program, which amounts will vest over a ten-year period at 10% per year. Mr.
Brookmire 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. Brookmire with certain
other personal benefits. Upon termination, other than for cause or by voluntary
resignation, Mr. Brookmire will receive severance payments equal to six months'
base salary. Mr. Brookmire 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.
<PAGE> 1
EXHIBIT 10.34
DESCRIPTION OF 1998-2002 COMPENSATION ARRANGEMENT BETWEEN
MR. JOHN M. COOK AND REGISTRANT
The following describes certain compensation arrangements between the
Registrant and Mr. Cook for calendar year 1998 which supplements the Employment
Agreement dated March 20, 1996 between Registrant and Mr. Cook.
The Company has entered into an employment agreement, as amended, with
Mr. Cook that currently expires December 31, 2002. The employment agreement
provides for automatic one-year renewals upon the expiration of each year of
employment (such that it always has a five-year term), subject to prior notice
of non-renewal by the Board of Directors. Pursuant to Mr. Cook's employment
agreement, for 1998 through 2002, Mr. Cook will receive an annual base salary of
$350,000 and an annual bonus of up to 150% of his base salary based upon the
Company's performance for the respective year. For 1998, the Compensation
Committee of the Board of Directors (the "Compensation Committee") has
determined that Mr. Cook also is eligible to receive options up to a maximum of
150,000 shares of Common Stock if 1998 earnings per share are 150% or more of
1997 earnings per share. Should 1998 earnings per share be at least 125% of 1997
earnings per share, Mr. Cook will be entitled to receive options to purchase an
additional 75,000 shares of Common Stock, and a prorated additional amount if
1998 earnings per share are between 126% and 149% of 1997 earnings per share.
Any options so granted to Mr. Cook shall be granted at fair market value as of
the end of 1998 and will vest over a five-year period at 20% per year. If Mr.
Cook is terminated other than for cause or if Mr. Cook resigns for "Good
Reason," he is eligible to receive a severance payment up to a maximum amount
not to be deemed an "excess parachute payment" under the Internal Revenue Code
of 1986, as amended, and all outstanding options immediately become vested. For
purposes of Mr. Cook's employment agreement "Good Reason" means, unless Mr. Cook
consents thereto, (i) the assignment of duties or a position or title
inconsistent with or lower than the duties, position or title provided in Mr.
Cook's employment agreement; (ii) the principal place where Mr. Cook is required
to perform a substantial portion of his duties is outside of Atlanta, Georgia;
(iii) the reduction of Mr. Cook's compensation unless the Board (or the
Compensation Committee) has authorized a general compensation decrease for all
executive employees of the Company; (iv) there is a merger, consolidation or
reorganization of the Company or any other transaction resulting in Mr. Cook
(together with his immediate family or trusts or limited partnerships
established for the benefit of Mr. Cook and/or such persons) owning in the
aggregate less than 20% of the voting control of the Company; or (v) there is a
sale or agreement to sell or a grant of an option to purchase all or
substantially all of the assets of the Company. Mr. Cook also is entitled to
receive certain supplemental insurance coverage and other personal benefits
under his employment agreement. Mr. Cook has agreed not to compete with the
Company or to solicit any of the Company's clients or employees for a period of
18 months following termination of employment.
<PAGE> 1
EXHIBIT 10.35
DESCRIPTION OF 1998 COMPENSATION ARRANGEMENT BETWEEN
MR. JOHN M. TOMA AND REGISTRANT
The following describes certain compensation arrangements between the
Registrant and Mr. Toma for calendar year 1998 which supplements the Employment
Agreement dated March 20, 1996 between Registrant and Mr. Toma and the
Compensation Agreement dated March 20, 1996 between Registrant and Mr. Toma.
The Company has entered into an employment agreement with Mr. Toma that
currently expires December 31, 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. Pursuant to Mr.
Toma's employment agreement, for 1998, he will continue to receive a base salary
of $306,000, and the Compensation Committee of the Board of Directors (the
"Compensation Committee") increased Mr. Toma's maximum potential bonus from 50%
of his base salary to 60% of his base salary based upon the Company's
performance for 1998. On January 27, 1998, the Compensation Committee granted
Mr. Toma options to purchase 25,000 shares of Common Stock at a purchase price
of $15.75 per share, vesting over a five-year period at 20% per year. For 1998,
the Compensation Committee has determined that Mr. Toma also is eligible to
receive additional options up to a maximum of 75,000 shares of Common Stock if
1998 earnings per share are 150% or more than 1997 earnings per share. Should
1998 earnings per share be at least 125% of 1997 earnings per share, Mr. Toma
will be entitled to receive options to purchase an additional 25,000 shares of
Common Stock, and a prorated additional amount if 1998 earnings per share are
between 126% and 149% of 1997 earnings per share. Any options so granted to Mr.
Toma shall be granted at fair market value as of the end of 1998, and will vest
over a five-year period at 20% per year. In addition, the Company has agreed to
make annual contributions in the amount of $55,000 per year to a deferred
compensation program for Mr. Toma, which amounts will vest 50% immediately and
the remainder over a ten-year period at 10% per year. Mr. Toma will be entitled
to receive his deferred compensation upon termination of his employment for any
reason, other than for cause or for "Good Reason", including death or
disability. For purposes of Mr. Toma's employment agreement "Good Reason"
means, unless Mr. Toma consents thereto, (i) the assignment of duties or a
position or title inconsistent with or lower than the duties, position or title
provided in Mr. Toma's employment agreement; (ii) the principal place where Mr.
Toma is required to perform a substantial portion of his duties is outside of
Atlanta, Georgia; (iii) the reduction of Mr. Toma's compensation unless the
Board (or the Compensation Committee) has authorized a general compensation
decrease for all executive employees of the Company; (iv) there is a merger,
consolidation or reorganization of the Company or any other transaction
resulting in Mr. Toma (together with his immediate family or trusts or limited
partnerships established for the benefit of Mr. Toma and/or such persons)
owning in the aggregate less than 20% of the voting control of the Company; or
(v) there is a sale or agreement to sell or a grant of an option to purchase
all or substantially all of the assets of the Company. The Company has also
agreed to provide Mr. Toma with certain other personal benefits. Upon
termination, other than for cause or by voluntary resignation, Mr. Toma will
receive severance payments equal to one year's base salary and other personal
benefits. Mr. Toma will also receive severance payments equal to one year's
base salary if he resigns for "Good Reason." Mr. Toma 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.
<PAGE> 1
EXHIBIT 10.36
DESCRIPTION OF 1998 COMPENSATION ARRANGEMENT BETWEEN
MR. MICHAEL A. LUSTIG AND REGISTRANT
The following describes certain compensation arrangements between the
Registrant and Mr. Lustig for calendar year 1998 which supplements the
Employment Agreement dated October 17, 1997 between Registrant and Mr. Lustig
and the Compensation Agreement dated October 17, 1997 between Registrant and Mr.
Lustig.
The Company has entered into an employment agreement with Mr. Lustig that
currently expires December 31, 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")
increased Mr. Lustig's annual base salary to $300,000 and increased his maximum
potential bonus from 50% to 75% of his base salary based upon the Company's
performance for 1998. The Compensation Committee has determined that Mr. Lustig
also is eligible to receive additional options up to a maximum of 125,000 shares
of Common Stock if 1998 earnings per share are 150% or more of 1997 earnings per
share. Should 1998 earnings per share be at least 125% of 1997 earnings per
share, Mr. Lustig will be entitled to receive options to purchase an additional
37,500 shares of Common Stock, and a prorated additional amount if 1998 earnings
per share are between 126% and 149% of 1997 earnings per share. Any options so
granted to Mr. Lustig shall be granted at fair market value as of the end of
1998, and will vest over a four-year period at 25% per year. Beginning in 1998,
Mr. Lustig has elected to reduce his annual base salary by $40,000 and to
contribute such amount to a deferred compensation program for his benefit, which
amount vests immediately. In addition, the Company has agreed to make annual
matching contributions in the amount of $40,000 per year to such deferred
compensation program, which amounts will vest over a ten-year period at 10% per
year. Mr. Lustig 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. Lustig with
certain other personal benefits. Upon termination, other than for cause or by
voluntary resignation, Mr. Lustig will receive severance payments equal to six
months' base salary. Mr. Lustig 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.
<PAGE> 1
EXHIBIT 10.37
DESCRIPTION OF 1998 COMPENSATION ARRANGEMENT BETWEEN
MR. DONALD E. ELLIS, JR. AND REGISTRANT
The following describes certain compensation arrangements between the
Registrant and Mr. Ellis for calendar year 1998 which supplements the Employment
Agreement dated March 20, 1996 between Registrant and Mr. Ellis.
The Company has entered into an employment agreement with Mr. Ellis that
currently expires December 31, 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. Pursuant to Mr.
Ellis' employment agreement, for 1998, he will continue to receive an annual
base salary of $175,000 and 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 of the Board of Directors (the "Compensation Committee")
granted Mr. Ellis options to purchase 15,000 shares of Common Stock at a
purchase price of $15.75 per share, vesting over a five-year period at 20% per
year. Mr. Ellis has elected to reduce his annual bonus by up to $25,000 and to
contribute such amount to a deferred compensation program for Mr. Ellis, which
amount vests immediately. In addition, the Company has agreed to make annual
matching contributions in the amount of $25,000 per year to such deferred
compensation program, which amounts will vest over a ten-year period at 10% per
year. Mr. Ellis will be entitled to receive his deferred compensation upon
termination of his employment for any reason, other than for cause or for "Good
Reason", including death or disability. For purposes of Mr. Ellis' employment
agreement "Good Reason" means, unless Mr. Ellis consents thereto, (i) the
assignment of duties or a position or title inconsistent with or lower than the
duties, position or title provided in Mr. Ellis' employment agreement; (ii) the
principal place where Mr. Ellis is required to perform a substantial portion of
his duties is outside of Atlanta, Georgia; (iii) the reduction of Mr. Ellis'
compensation unless the Board (or the Compensation Committee) has authorized a
general compensation decrease for all executive employees of the Company; (iv)
there is a merger, consolidation or reorganization of the Company or any other
transaction resulting in Mr. Ellis (together with his immediate family or trusts
or limited partnerships established for the benefit of Mr. Ellis and/or such
persons) owning in the aggregate less than 20% of the voting control of the
Company; or (v) there is a sale or agreement to sell or a grant of an option to
purchase all or substantially all of the assets of the Company. The Company has
also agreed to provide Mr. Ellis with certain other personal benefits. Upon
termination, other than for cause or by voluntary resignation, Mr. Ellis will
receive severance payments equal to one years' base salary. Mr. Ellis will also
receive severance payments equal to one year's base salary if he resigns for
"Good Reason." Mr. Ellis 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.
<PAGE> 1
SUBSIDIARIES OF REGISTRANT EXHIBIT 21.1
<TABLE>
<CAPTION>
NAME OF SUBSIDIARY STATE OF INCORPORATION
- ------------------ ----------------------
<S> <C>
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
Accounts Payable Recovery Services, 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)
Meridian VAT Reclaim France S.A.R.L. .................... (2)
Step S.A. ............................................... (2)
</TABLE>
- -----------
(1) A Singapore private limited company and a wholly-owned subsidiary of
The Profit Recovery Group Asia, Inc.
(2) A French corporation
<PAGE> 1
EXHIBIT 23.1
INDEPENDENT AUDITORS' CONSENT
The Board of Directors
The Profit Recovery Group International, Inc.:
We consent to incorporation by reference in the registration statements (Nos.
333-30885 and 333-08707) on Form S-8 of The Profit Recovery Group International,
Inc. of our report dated January 31, 1998, relating to the consolidated balance
sheets of The Profit Recovery Group International, Inc. and subsidiaries as of
December 31, 1997 and 1996, and the related consolidated statements of earnings,
shareholders' equity (deficit), and cash flows for each of the years in the
three-year period ended December 31, 1997, which report appears in the December
31, 1997 annual report on Form 10-K of The Profit Recovery Group International,
Inc.
KPMG Peat Marwick LLP
Atlanta, Georgia
February 12, 1998
<PAGE> 1
EXHIBIT 23.2
INDEPENDENT AUDITORS' CONSENT
The Board of Directors
The Profit Recovery Group International, Inc.:
We consent to incorporation by reference in the registration statements (Nos.
333-30885 and 333-08707) on Form S-8 of the Profit Recovery Group
International, Inc. of our report dated January 31, 1998 relating to the
consolidated balance sheet of Financiere Alma, S.A. and subsidiaries as of
December 31, 1997, and the related consolidated statements of earnings,
shareholders' equity, and cash flows for the three months ended December 31,
1997, which report appears in the December 31, 1997 annual report on Form 10-K
of The Profit Recovery Group International, Inc.
ERNST & YOUNG ENTREPRENEURS
Department d'E&Y Audit
Paris, France
February 12, 1998
Any Antola
<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND>
THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM THE
FINANCIAL STATEMENTS OF THE PROFIT RECOVERY GROUP INTERNATIONAL, INC. FOR THE
YEAR ENDED DECEMBER 31, 1997 AND IS QUALIFIED IN ITS ENTIRETY BY REFERENCE TO
SUCH FINANCIAL STATEMENTS.
</LEGEND>
<S> <C>
<MULTIPLIER> 1000
<PERIOD-TYPE> YEAR
<FISCAL-YEAR-END> DEC-31-1997
<PERIOD-START> JAN-01-1997
<PERIOD-END> DEC-31-1997
<CASH> 19,386
<SECURITIES> 0
<RECEIVABLES> 56,170
<ALLOWANCES> 0
<INVENTORY> 0
<CURRENT-ASSETS> 77,986
<PP&E> 14,529
<DEPRECIATION> 5,760
<TOTAL-ASSETS> 133,885
<CURRENT-LIABILITIES> 43,423
<BONDS> 24,365
0
0
<COMMON> 19
<OTHER-SE> 63,053
<TOTAL-LIABILITY-AND-EQUITY> 133,885
<SALES> 0
<TOTAL-REVENUES> 112,363
<CGS> 0
<TOTAL-COSTS> 57,726
<OTHER-EXPENSES> 38,462
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 403
<INCOME-PRETAX> 15,772
<INCOME-TAX> 6,149
<INCOME-CONTINUING> 9,623
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 9,623
<EPS-PRIMARY> .52
<EPS-DILUTED> .51
</TABLE>
