UNITED STATES SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
---------------------
FORM 10-K/A
AMENDMENT NO. 2
(MARK ONE)
[X] ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(D) OF THE SECURITIES
EXCHANGE ACT OF 1934
FOR THE FISCAL YEAR ENDED DECEMBER 31, 1997
OR
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(D) OF THE SECURITIES
EXCHANGE ACT OF 1934
FOR THE TRANSITION PERIOD FROM _____________ TO ___________
COMMISSION FILE NUMBER 0-28000
THE PROFIT RECOVERY GROUP
INTERNATIONAL, INC.
(Exact name of registrant as specified in its charter)
GEORGIA 58-2213805
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification No.)
2300 WINDY RIDGE PARKWAY 30339-8426
SUITE 100 NORTH (Zip Code)
ATLANTA, GEORGIA
(Address of principal executive offices)
REGISTRANT'S TELEPHONE NUMBER, INCLUDING AREA CODE: (770) 779-3900
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
None
- --------------------------------------------------------------------------------
The Registrant is hereby filing Amendment No. 2 to Form 10-K for the fiscal
year ended December 31, 1997 for the purpose of including Items 10 through 13 of
Part III.
538268.2
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PART III
ITEM 10. DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT.
Each of the individuals listed below is currently a director of the
Company. The name and age of each director, his principal occupation, and the
period during which he has served as a director is set forth below:
Directors
NAME OF DIRECTOR AGE SERVICE AS DIRECTOR POSITION
- ---------------- --- ------------------- --------
Stanley B. Cohen(1)(2) 54 Since November 1990 Director
John M. Cook (1) 55 Since November 1990 Chairman of the Board,
Chief Executive Officer
and Director
Marc S. Eisenberg 42 Since October 1997 President of the
Directorate of Alma and
Director
Jonathan Golden(1)(3) 60 Since November 1990 Director
Garth H. Greimann(2)(3) 43 Since April 1995 Director
Fred W.I. Lachotzki 51 Since January 1996 Director
E. James Lowrey(2)(3) 70 Since December 1995 Director
Michael A. Lustig 43 Since January 1998 President and Director
John M. Toma(1) 52 Since November 1990 Vice Chairman and
Director
- ----------
(1) Member of the Executive Committee.
(2) Member of the Audit Committee.
(3) Member of the Compensation Committee.
The employment histories of the Company's directors are set forth below:
Stanley B. Cohen has served as a Director of the Company since its founding
in 1990. Mr. Cohen is the Chairman of the Board, Chief Executive Officer and
President of both Advisory Services, Ltd. ("ASL") and SBC Financial Corporation
("SBC"). These companies provide certain financial consulting and investment
services to the Company and certain of its executive officers. In addition, Mr.
Cohen is President of Capital Advisory Corporation, a financial advisory
company.
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John M. Cook is Chairman of the Board, Chief Executive Officer and a
Director of the Company and has served in such capacities since founding the
Company in November 1990. Mr. Cook served as President of the Company from
November 1990 through January 1998. Prior to forming the Company, Mr. Cook
served as President and Chief Operating Officer of Roy Greene Associates, Inc.
("Roy Greene Associates") from 1989 to 1990. From 1987 to 1989, Mr. Cook served
as Senior Vice President of Caldor Stores, Inc., a division of May Department
Stores Co. ("May"). From 1982 to 1987, Mr. Cook served in a similar capacity for
Kaufmann's Department Stores, Inc., also a division of May.
Marc S. Eisenberg has served as President of the Directorate of Alma since
the closing of the purchase of 98.4% of Financiere Alma, S.A. and its
subsidiaries (collectively "Alma") on October 7, 1997 and a Director of the
Company since October 15, 1997. Prior to October 1997, Mr. Eisenberg served as
President of Alma since its founding in 1996.
Jonathan Golden has served as a Director of the Company since its founding
in 1990 and provides consulting services to the Company through Jonathan Golden,
P.C., a wholly owned professional corporation ("JGPC"). Mr. Golden also serves
through JGPC as a partner in the Atlanta, Georgia law firm of Arnall, Golden &
Gregory, LLP which provides legal services to the Company. Mr. Go den also
serves as a director for SYSCO Corporation ("SYSCO"), a distributor of food and
related products.
Garth H. Greimann has served as a Director of the Company since April 1995.
Mr. Greimann joined Berkshire Partners, a general partnership, in 1989 and
served as a general partner from 1994 until February 1996, when Berkshire
Partners was succeeded by Berkshire Partners LLC (Berkshire Partners, a general
partnership, and Berkshire Partners LLC are collectively referred to as
"Berkshire Partners"). Mr. Greimann has served as a member of Berkshire Partners
LLC since February 1996, and as a general partner of Third Berkshire Associates,
A Limited Partnership ("Third Berkshire Associates"), the general partner of
Berkshire Fund III, since 1994. From 1982 to 1989, Mr. Greimann held various
positions with The First National Bank of Boston (the "Bank"), most recently as
Vice President of the Bank's Acquisition Finance Division, and served in the
Bank's offices in Korea and Taiwan. Mr. Greimann also serves as a director of
Trico Marine Services, Inc., an operator of marine vessels active in offshore
energy exploration and production activities, and of Crown Castle International
Corporation, a provider of infrastructure and related support services to the
wireless communications industry.
Fred W.I. Lachotzki has served as a Director of the Company since January
1996. Since 1989, Mr. Lachotzki has served as a Professor of Business Policy at
Nijenrode University, The Netherlands Business School, in The Netherlands. Mr.
Lachotzki also serves as a director of Virgin Blockbuster NV, a chain of music
superstores, NVS Salland Verzekeringen, an insurance company specializing in
healthcare, and Merison Holding NV, a supplier of non-food products to
supermarket chains and owner of a franchised chain of electronics retail stores.
E. James Lowrey has served as a Director of the Company since December
1995. Mr. Lowrey served as Executive Vice President -- Finance and
Administration of SYSCO from 1978 until his retirement in 1993 and was a
director of SYSCO from 1981 to 1993. He currently serves as a director of
Riviana Foods, Inc., a processor and distributor of rice and other food
products.
Michael A. Lustig joined the Company in 1996 as Senior Vice President --
Operations. Mr. Lustig was promoted to Executive Vice President in July 1996,
and to President -- PRG Worldwide Accounts Payable Audit Operations in January
1997. In January 1998, Mr. Lustig was elected President of the Company and
elected as a Director of the Company. Prior to joining the Company, Mr. Lustig
worked for The Actava Group, Inc. (formerly Fuqua Industries, Inc.) from 1980 to
1995 where he held various officer positions, most recently as Senior Vice
President of Corporate Development.
John M. Toma was elected Vice Chairman of the Company in January 1997.
Prior to that, he was Executive Vice President -- Administration of the Company
and had served in such capacity since 1992. Mr. Toma has served as a Director of
the Company since its founding in November 1990 and as Senior Vice President --
Administration
538268.2
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of the Company from 1990 to 1992. Prior to forming the Company, Mr. Toma served
as Senior Vice President -- Administration of Roy Greene Associates from 1989 to
1990. Prior to joining Roy Greene Associates, Mr. Toma served as Operating Vice
President of Caldor Stores, Inc., a division of May.
Executive Officers
Each of the executive officers of the Company was elected by the Board of
Directors to serve until the Board of Directors' meeting immediately following
the next annual meeting of the shareholders or until his earlier removal by the
Board or his resignation. The following table lists the executive officers of
the Company and their ages, offices with the Company, and the date from which
they have continually served in their present offices with the Company:
<TABLE>
<CAPTION>
YEAR FIRST
ELECTED TO
NAME AGE OFFICE WITH REGISTRANT PRESENT OFFICE
---- --- ---------------------- --------------
<S> <C> <C> <C>
John M. Cook.............. 55 Chairman of the Board, Chief Executive Officer 1990
and Director
John M. Toma.............. 52 Vice Chairman and Director 1997
Michael A. Lustig......... 42 President and Director 1998
Robert G. Kramer.......... 54 Executive Vice President and Chief Information Officer 1997
Donald E. Ellis, Jr. ..... 46 Senior Vice President-Finance, Treasurer 1995
and Chief Financial Officer
Clinton McKellar, Jr. .... 51 Senior Vice President, General Counsel and Secretary 1997
Tony G. Mills............. 41 Senior Vice President-- Corporate Development 1997
David A. Brookmire........ 45 Senior Vice President-- Human Resources 1995
</TABLE>
The employment histories of those executive officers who are not also directors
are set forth below:
Robert G. Kramer joined the Company in October 1997 as Executive Vice
President and Chief Information Officer. Prior to joining the Company, Mr.
Kramer had worked for Home Shopping Network, Inc. since 1996 as Executive Vice
President and Chief Information Officer. From 1994 to 1996, Mr. Kramer served as
Executive Vice President and Chief Information Officer with Hanover Direct,
Inc., a direct specialty retailer.
Donald E. Ellis, Jr. joined the Company in 1995 as Senior Vice
President-Finance, Treasurer and Chief Financial Officer. From 1993 to 1995, Mr.
Ellis served as Vice President -- Finance, Treasurer and Chief Financial Officer
of Information America, Inc., a provider of on-line computer information
services, and from 1991 to 1993, he was an independent financial consultant.
From 1987 to 1991, Mr. Ellis served in various positions with KnowledgeWare,
Inc., a supplier of application software, most recently as Senior Vice
President, Chief Financial Officer, Secretary and Treasurer. Mr. Ellis is a
certified public accountant.
Clinton McKellar, Jr. joined the Company in June 1997 as Senior Vice
President, General Counsel and Secretary. Prior to joining the Company, from
1989 to May 1997, Mr. McKellar served as Vice President, General Counsel and
Secretary of Engraph, Inc., a manufacturer of consumer product packaging.
Tony G. Mills was elected Senior Vice President -- Corporate Development
and Assistant Secretary in June 1997. Prior to that, he was Senior Vice
President -- Legal Affairs, General Counsel and Secretary and had served in that
capacity since joining the Company in October 1995. For 11 years prior to
joining the Company, Mr. Mills was a shareholder in the Atlanta, Georgia law
firm of Silfen, Segal, Fryer & Shuster, P.C. ("SSFS") and provided legal
services to the Company through that firm since 1990. Mr. Mills remained as Of
Counsel to SSFS through January 1996.
538268.2
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<PAGE>
David A. Brookmire joined the Company in 1995 as Senior Vice President --
Human Resources. From 1987 to 1995, Mr. Brookmire held various positions with
Digital Communications Associates, Inc. (now Attachmate Corp.), most recently as
Vice President -- Human Resources.
No family relationship exists among any of the directors and executive
officers of the Company.
Section 16(a) Beneficial Ownership Reporting Compliance
Section 16(a) of the Exchange Act requires the Company's executive officers
and directors and persons who beneficially own more than 10% of the Company's
stock to file initial reports of ownership and reports of changes in ownership
with the Securities and Exchange Commission. Executive officers, directors and
greater than 10% beneficial owners are required by SEC regulations to furnish
the Company with copies of all Section 16(a) forms they file.
Based solely on its review of copies of forms received by it pursuant to
Section 16(a) of the Securities Exchange Act of 1934, as amended, or written
representations from certain reporting persons, the Company believes that with
respect to 1997, all Section 16(a) filing requirements applicable to its
executive officers, directors and greater than 10% beneficial owners were
complied with, except that Mr. Marc S. Eisenberg filed a late Form 3.
ITEM 11. EXECUTIVE COMPENSATION
The following table sets forth the compensation paid or accrued by the
Company to the Chief Executive Officer and the other four most highly paid
executive officers of the Company in 1997 (the "Named Executive Officers"). The
information presented is for the years ended December 31, 1997, 1996 and 1995.
SUMMARY COMPENSATION TABLE
<TABLE>
<CAPTION>
Long-Term
Compensation
Annual Compensation(1) Securities
--------------------- Underlying
Other Annual Options All Other
Name and Position Salary(2) Year Bonus Compensation(3) (# of Shares) Compensation(1)(4)
----------------- --------- ---- ----- --------------- ------------- ------------------
<S> <C> <C> <C> <C> <C> <C>
John M. Cook.............. $ 350,012 1997 $350,000 $ -- 86,663 $ 18,402
Chairman of the Board 356,731 1996 262,500 -- 223,530 15,475
and Chief Executive Officer 695,000 1995 -- -- -- 115,000
John M. Toma.............. 305,994 1997 114,750 -- -- 57,180
Vice Chairman 307,609 1996 122,400 -- 100,000 67,050
374,000 1995 -- -- -- 4,000
Michael A. Lustig......... 264,596 1997 90,100 -- 135,000 20,000
President(5) 211,269 1996 67,302 -- 27,500 20,000
Donald E. Ellis, Jr....... 172,115 1997 64,922 -- -- 26,446
Senior Vice President- 160,000 1996 56,000 -- 10,000 26,446
Finance, Treasurer and 131,000 1996 13,000 22,000 120,000 26,000
Chief Financial Officer (6)
Tony G. Mills............. 156,461 1997 56,281 -- -- 1,784
Senior Vice President - 150,000 1996 57,000 -- 60,000 3,003
Corporate Development (6) 36,346 1995 -- -- 20,000 523
</TABLE>
- ----------
(1) The compensation described in this table does not include medical, group
life insurance or other benefits received by the Named Executive Officers
which are available generally to all salaried employees of the Company and
certain perquisites and other personal benefits, securities or property
received by the Named Executive Officers which do not exceed the lesser of
$50,000 or 10% of any such officer's salary and bonus disclosed in this
table.
538268.2
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<PAGE>
(2) Includes contributions made to the Company's 401(k) Plan during the years
presented.
(3) Consisted of $12,500 for car allowance and $9,500 for financial advisory
services received by Mr. Ellis.
(4) Consists of:
(a) Premiums for supplemental term life insurance paid by the Company in
the approximate amounts set forth below:
1997 1996 1995
---- ---- ----
Mr. Cook $ -- $ -- $ 102,000
Mr. Toma -- -- 4,000
Mr. Lustig -- -- --
Mr. Ellis 1,446 1,446 1,000
Mr. Mills 1,784 3,003 523
(b) Deferred compensation accrued in the consolidated financial statements
of the Company on behalf of Messrs. Toma, Lustig and Ellis in the
amounts of $55,000, $20,000 and $25,000, respectively, in 1997 and
1996; and Mr. Ellis in the amount of $25,000 in 1995.
(c) Legal expenses paid by the Company in 1995 on behalf of Mr. Cook in
the amount of $13,000.
(d) Tax preparation expenses paid by the Company in 1997 on behalf of
Messrs. Cook and Toma in the amount of $18,402 and $2,180,
respectively; and in 1996 on behalf of Messrs. Cook and Toma in the
amount of $15,475 and $12,050, respectively.
(5) Mr. Lustig was employed by the Company in January 1996.
(6) Amounts shown for 1995 reflect compensation for Mr. Ellis from March 1,
1995, when he began employment with the Company, and for Mr. Mills from
October 15, 1995, when he began employment with the Company.
OPTION GRANTS TABLE
The following table sets forth certain information regarding options
granted to the Named Executive Officers during the year ended December 31, 1997.
No separate stock appreciation rights ("SARs") were granted during 1997.
538268.2
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<PAGE>
<TABLE>
<CAPTION>
STOCK OPTION GRANTS IN LAST FISCAL YEAR
Percent of Potential Realizable Value a
Number of Total Assumed Annual Rates of
Securities Options Exercise Stock Price Appreciation for
Underlying Granted to or Base Option Term
Options Employees Price Expiration -----------------------------
Name Granted in 1997 ($/Sh) Date 5% 10%
- ------------------ ------------ -------------- ----------- ----------- ----------- -------------
<S> <C> <C> <C> <C> <C> <C>
John M. Cook . . . . 86,663(1) 8.7% $17.75 12/31/07 $967,409 $2,451,603
Michael A. Lustig. . 60,000(1) 6.0 14.75 01/03/07 556,572 1,410,462
75,000(2) 7.5 17.75 12/31/07 837,216 2,121,670
</TABLE>
- ----------
(1) Options are non-qualified options granted under the 1996 Plan. All options
have ten year terms and vest as follows: 20% becomes exercisable on the
anniversary of grant and an additional 20% becomes exercisable on each
grant date anniversary thereafter; provided, however, that Mr. Cook's
options will vest automatically upon the occurrence of certain events. See
"-- Employment Agreements."
(2) Options are non-qualified options granted under the 1996 Plan. All options
have ten year terms and vest as follows: 25% becomes exercisable on the
anniversary of grant and an additional 25% becomes exercisable on each
grant date anniversary thereafter.
OPTION EXERCISES AND YEAR-END VALUE TABLE
None of the Named Executive Officers held or exercised separate SARs during
1997. The following table sets forth certain information regarding options
exercised during the year ended December 31, 1997, and unexercised options held
at year-end, by each of the Named Executive Officers.
OPTION VALUES AT DECEMBER 31, 1997
<TABLE>
<CAPTION>
Value of Unexercised
In-the-Money Options at Fiscal
Shares Underlying Unexercised Year-End($)(1)
Acquired Options at
on Value Fiscal Year-End (#)
Exercise Realized ----------------------------- ---------------------------------
Name (#) ($) Exercisable Unexercisable Exercisable Unexercisable
------------- ---------- ---------- ------------- -------------- ---------------- ---------------
<S> <C> <C> <C> <C> <C> <C>
John M. Cook..... -- $ -- 44,706 265,487 $228,236 $912,942
John M. Toma..... -- -- 20,000 80,000 135,000 540,000
Michael A. Lustig -- -- 15,100 171,400 93,600 320,400
Donald E. Ellis, Jr. 24,000 280,800 2,000 80,000 13,500 950,400
Tony G. Mills -- -- 20,000 60,000 180,600 473,400
</TABLE>
- ----------
(1) CALCULATED BASED ON A FAIR MARKET VALUE OF $17.75 PER SHARE OF COMMON STOCK
AT DECEMBER 31, 1997, LESS THE APPLICABLE EXERCISE PRICES.
EMPLOYMENT AGREEMENTS
The Company has entered into an employment agreement, as amended, with John
M. 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
538268.2
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<PAGE>
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 has determined that Mr. Cook also is
eligible to receive options with respect to 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 (the
"Code"), and all outstanding options immediately become vested. For purposes of
Mr. Cook's employment agreement, "Good Reason" means, any of the following
occurring without the employee's consent; (i) the assignment of employee of
duties or a position or title inconsistent with or lower than the duties,
position or title provided in his Employment Agreement, (ii) a requirement that
employee perform a substantial portion of his duties outside Atlanta, Georgia,
(iii) a reduction of employee's compensation unless the Board or an appropriate
committee of the Board has authorized a general compensation decrease for all
executive officers of the Company; (iv) 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) 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.
The Company has also entered into employment agreements with John M. Toma,
Michael A. Lustig, Donald E. Ellis, Jr. and Tony G. Mills, each of which will
expire December 31, 1998 and 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. Messrs. Toma, Lustig, Ellis and Mills have 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 their respective employments.
Pursuant to Mr. Toma's employment agreement, for 1998, he will continue to
receive a base salary of $306,000, and 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 with respect to up to a
maximum of 75,000 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. 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, including
death or disability. 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."
In January 1998, Mr. Lustig was elected as President of the Company and was
elected to the Board of Directors of the Company. For 1998, 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
538268.2
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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.
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 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, including death or disability. 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 year's base salary. Mr. Ellis will also receive severance
payments equal to one year's base salary if he resigns for "Good Reason" (as
such term is similarly defined in Mr. Cook's employment agreement).
For 1998, 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.
1996 STOCK OPTION PLAN
In January 1996, the Company, with the approval of its shareholders,
adopted its 1996 Stock Option Plan (the "1996 Plan"). The 1996 Plan provides for
the grant of options to acquire a maximum of 3,500,000 shares of Common Stock,
subject to certain adjustments. As of March 31, 1998, options for 2,512,393
shares were outstanding (after adjustment for forfeitures) and 144,700 had been
exercised. Options may be granted under the 1996 Plan to key employees, officers
or directors of, and consultants and advisors to, the Company and its
subsidiaries. The Company estimates that, as of March 31, 1998, approximately
770 employees (including officers) and five non-officer directors of the Company
are eligible to participate in 1996 Plan. Unless sooner terminated by the Board,
the 1996 Plan terminates in January 2006.
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EMPLOYEE STOCK PURCHASE PLAN
In May 1997, the Company's shareholders approved the adoption of The Profit
Recovery Group International, Inc. Employee Stock Purchase Plan (the "Stock
Purchase Plan"). The Stock Purchase Plan is intended to be an "employee stock
purchase plan" as defined in Code Section 423. Under the Stock Purchase Plan,
eligible employees may authorize payroll deductions at the end of a semi-annual
purchase period of from one to ten percent of their compensation (as defined in
the Stock Purchase Plan), with a minimum deduction of ten dollars per payday and
a maximum aggregate deduction of $10,625 during each semi-annual purchase
period, to purchase Common Stock at a price of 85% of the fair market value
thereof as of the first Trading Day (as defined in the Stock Purchase Plan) of
the offering period. The aggregate number of shares of Common Stock which may be
purchased by all participants under the Stock Purchase Plan may not exceed
750,000, subject to certain adjustments. The Company estimates that, as of March
31, 1998, approximately 880 employees of the Company and its subsidiaries are
eligible to participate in the Stock Purchase Plan. The Stock Purchase Plan will
terminate at the option of the Company's Compensation Committee or, if earlier,
at the time purchase rights have been exercised for all shares of Common Stock
reserved for purchase under the Stock Purchase Plan.
THE COMPANY'S 401(K) PLAN
The Company assumed, effective immediately prior to completion of its
initial public offering, the 401(k) plan sponsored by a predecessor of the
Company. This plan (the "401(k) Plan") is a tax-qualified retirement plan
designed to meet the requirements of Sections 401(a) and 401(k) of the Code.
Under the 401(k) Plan, participants may elect to make pre-tax saving deferrals
of from 1% to 15% of their compensation each year, subject to annual limits on
such deferrals (e.g., $10,000 in 1998) imposed by the Code. The Company may also
in its discretion, on an annual basis, make a matching contribution with respect
to such participant elective deferrals and/or additional Company contributions.
The only form of benefit payment under the 401(k) Plan is a single lump-sum
payment equal to the balance in the participant's account. Under the 401(k)
Plan, the vested portion of a participant's accrued benefit is payable upon such
employee's termination of employment, attainment of age 59 1/2 (with respect to
100% vested accounts only), retirement, total and permanent disability or death.
DIRECTOR COMPENSATION
The Company compensates its non-employee directors $20,000 per year for
their service on the Board and any committee thereof. Non-employee directors
will be reimbursed for all out-of-pocket expenses, if any, incurred in attending
Board and committee meetings. The Board of Directors has approved an automatic
annual grant under the 1996 Plan to Directors not employed by the Company of
options to purchase from 2,500 to 7,500 shares of Common Stock. Beginning in
1998, grants will be made as of December 31 of each year; provided, however,
that no grants will be made in any year unless the Company's earnings per share
for such year shall have increased by at least 25% over the previous year. A 25%
increase in earnings per share will result in a grant of options to purchase
2,500 shares of Common Stock while each additional one percent increase in
earnings per share will result in a grant of options to purchase an additional
200 shares of Common Stock, up to a maximum annual grant of options to purchase
7,500 shares of Common Stock. The per share option exercise price will be the
closing price of the Company's Common Stock on The Nasdaq Stock Market on
December 31 of the year of grant, or if no sale of the Common Stock was made on
that date, on the next preceding date on which there was such a sale. Options
will vest in 20% increments over a period of 5 years.
Jonathan Golden, a director of the Company, provides consulting services to
the Company through JGPC. Mr. Golden is the sole shareholder of JGPC. During
1997 the Company paid JGPC aggregate consulting fees of approximately $70,000.
The Company currently pays JGPC a consulting fee of $5,800 per month. The
consulting agreement may be terminated by either party for any reason upon not
less than 30 days prior notice. In addition, the Company has paid the law firm
of Arnall, Golden & Gregory, LLP, of which JGPC serves as a partner,
compensation for legal services rendered since 1991 and expects to continue
utilizing this firm's services in the
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future. The Company also has paid the expenses of preparing certain annual
income tax returns for Mr. Golden. The amount paid by the Company in 1997 for
these income tax services was approximately $10,000.
Stanley B. Cohen, a director of the Company, provides financial and
investment advisory services to the Company and certain of its executive
officers through ASL and provides financial advisory services to the Company
through SBC. Mr. Cohen is the Chairman, President, Chief Executive Officer and
sole shareholder of ASL and SBC. During 1997, the Company paid SBC aggregate
consulting fees of approximately $70,000. The Company paid ASL consulting fees
of approximately $25,000 in 1997 for providing financial advisory services to
the Company and to certain of the Company's executive officers and expects to
continue utilizing the services of ASL and SBC in the future. The Company
currently pays SBC a consulting fee of $5,800 per month. The consulting
agreement may be terminated by either party for any reason upon not less than 30
days prior notice. The Company also has paid the expenses of preparing certain
annual income tax returns for Mr. Cohen. The amount paid by the Company in 1997
for these services was approximately $7,900.
The Company has also entered into a consulting agreement with Lieb Finance
S.A., a Luxembourg company of which Marc S. Eisenberg is the sole owner and
employee, to assist on strategic and long-term planning matters for the Company
and its affiliates in certain portions of Europe. The term of the consulting
agreement is for five years ending October 7, 2002. Under the consulting
agreement, Lieb Finance S. A. will receive an annual consulting fee of 325,000
French francs (the current approximate equivalent of $53,000 as of March 31,
1998).
538268.2
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ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT.
The following table sets forth certain information regarding the beneficial
ownership of the Company's Common Stock as of April 1, 1998 by: (i) each person
(or group of affiliated persons) known by the Company to be the beneficial owner
of more than 5% of the outstanding Common Stock; (ii) the Named Executive
Officers; (iii) each director of the Company; and (iv) all of the Company's
executive officers and directors as a group. Except as otherwise indicated in
the footnotes to this table, the Company believes that the persons named in this
table have sole voting and investment power with respect to all the shares of
Common Stock indicated.
Beneficial Ownership
As of 4/01/98(1)
--------------------
Beneficial Owner Shares Percentage
---------------- --------- ----------
John M. Cook(2)(3).......................... 4,029,398 18.5%
Cook Family Limited Partnership(2).......... 1,232,684 5.7
John M. Toma(2)(4).......................... 590,346 2.7
Donald E. Ellis, Jr.(5)..................... 28,000 *
Michael A. Lustig(6)........................ 28,130 *
Marc S. Eisenberg(7)........................ 0 *
Tony G. Mills(8)............................ 1,798,007 8.3
Stanley B. Cohen(2)(9)...................... 650,000 3.0
Jonathan Golden(2)(10)...................... 882,928 4.1
Fred W. I. Lachotzki(11).................... 14,000 *
E. James Lowrey(11)......................... 4,000 *
Berkshire Fund III(12)...................... 1,164,396 5.4
Bradley M. Bloom(12)(13).................... 1,173,158 5.4
Jane Brock-Wilson(12)(13)................... 1,169,211 5.4
Kevin T. Callaghan(12)(13).................. 1,169,211 5.4
J. Christopher Clifford(12)(13)............. 1,185,817 5.4
Russell L. Epker(12)(13).................... 1,171,873 5.4
Carl Ferenbach(12)(13)...................... 1,173,158 5.4
Garth H. Greimann(12)(13)................... 1,172,057 5.4
All executive officers and directors
as a group (14 Persons)(14)................. 9,193,384 41.9
- ----------
*Less than one percent.
(1) Applicable percentage of ownership at April 1, 1998 is based upon
21,715,461 shares of Common Stock outstanding. Beneficial ownership is
determined in accordance with the rules of the Securities and Exchange
Commission and includes voting and investment power with respect to the
shares shown as beneficially owned. Shares of Common Stock subject to
options currently exercisable or exercisable within sixty (60) days are
deemed outstanding for computing the percentage ownership of the person
holding such options, but are not deemed outstanding for computing the
percentage ownership of any other persons.
(2) The business address for the named individual or entity is 2300 Windy Ridge
Parkway, Suite 100 North, Atlanta, Georgia 30339-8426.
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(3) Does not include shares held for the benefit of John M. Cook or M. Lucy
Cook for which Tony G. Mills is the trustee and has the sole investment and
voting power with respect to such shares. Includes 1,232,684 shares held by
the Cook Family Limited Partnership, for which Mr. Cook serves as the
general partner and 67,867 shares held by his spouse. Also includes 134,000
shares owned by Cook Family Foundation, Inc., of which Mr. Cook, his spouse
and members of his immediate family are the directors and 74,706 shares
subject to options which either are currently exercisable or will become
exercisable within sixty (60) days of the date of this Annual Report.
(4) Includes 38,233 shares held for the benefit of Mr. Toma for which Tony G.
Mills and Mr. Toma's wife serve as co-trustees and the trustees share
investment and voting power with respect to such shares. Includes 218,870
shares held by the Toma Family Limited Partnership, for which Mr. Toma
serves as the general partner. Also includes 50,000 shares held by Mr.
Toma's wife, 3,901 shares held by the Mary Caitlin Cook Trust, of which Mr.
Toma is the trustee, and 40,000 shares subject to options which either are
exercisable or will become exercisable within sixty (60) days of the date
of this Annual Report.
(5) Represents 28,000 shares subject to options which are either currently
exercisable or will become exercisable within sixty (60) days of the date
of this Annual Report.
(6) Includes 27,100 shares subject to options which are either currently
exercisable or will become exercisable within sixty (60) days of the date
of this Annual Report.
(7) Excludes 421,138 shares in which Mr. Eisenberg has a pecuniary interest,
but as to which Mr. Eisenberg disclaims beneficial ownership. Such shares
are held pursuant to commercial relationship with the record owner. Mr.
Eisenberg has informed the Company that he neither has nor shares the
voting or investment power with respect to such shares and that he does not
have the right either to acquire such voting or investment power within
sixty (60) days or to terminate the commercial relationship with the record
holder within sixty (60) days.
(8) Includes shares held by trusts containing 1,697,774 shares for the benefit
of Mr. Cook and his spouse of which Mr. Mills is the sole trustee and by
trusts containing 78,233 shares for the benefit of Mr. Toma and certain
members of his immediate family of which Mr. Mills is a co-trustee. Also
includes 22,000 shares subject to options which are either currently
exercisable or will become exercisable within sixty (60) days of the date
of this Annual Report.
(9) Includes 188,472 shares held for the benefit of Mr. Cohen for which Shirley
L. Cohen, Mr. Cohen's spouse, is the trustee and has sole voting and
investment power with respect to such shares.
(10) Includes 143,408 shares held for the benefit of Mr. Golden for which
Roberta P. Golden is the trustee and has sole voting and investment power
with respect to such shares.
(11) Includes 2,000 shares subject to options which are either currently
exercisable or will become exercisable within sixty (60) days of the date
of this Annual Report.
(12) The business address for the named individual or entity is Suite 3300, One
Boston Place, Boston, Massachusetts 02108-4401.
(13) Includes 1,164,396 shares held by Berkshire Fund III, for which the general
partner is Third Berkshire Associates. Ms. Brock-Wilson and Messrs. Bloom,
Callaghan, Clifford, Epker, Ferenbach, Greimann and Lubin serve as general
partners of Third Berkshire Associates. These individuals each disclaim
beneficial ownership of the shares owned by Berkshire Fund III, except to
the extent of their respective pecuniary interests therein.
(14) Includes options to purchase 222,806 shares which are either currently
exercisable or will become exercisable
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within sixty (60) days of the date of this Annual Report. Does not include
715,887 shares subject to outstanding options which options are not
currently exercisable and will not become exercisable within sixty (60)
days of the date of this Annual Report.
ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS.
Several members of Mr. Cook's immediate family are employed with the
Company. John M. Cook's brother, David H. Cook, is a regional Vice President of
the Company. David Cook received compensation of approximately $228,000 in 1997.
John M. Cook's sister-in-law, Harriette L. Cook, is employed by the Company as a
Senior Auditor and received compensation of approximately $90,000 in 1997. John
M. Cook's sister, Pamela M. Cook, received approximately $145,000 in 1997 as a
Senior Auditor of Central Services for the Company. John M. Cook's sister,
Patricia Sluiter, is a Senior Auditor for the Company and was compensated
approximately $158,000 in 1997. John M. Cook's daughter, M. Christine Cook,
received compensation based on commissions of approximately $77,000 as a Manager
of Telecommunications for the Company in 1997. John M. Cook's brother-in-law,
Allen R. Sluiter, is a Senior Auditor for the Company and was compensated
approximately $176,000 in 1997.
Mr. Toma's sister-in-law, Marie Neff, is employed with the Company as Vice
President of Ancillary Services. For 1997, the Company paid Ms. Neff
compensation of approximately $130,000.
See "Director Compensation" under Item 11 for a discussion of certain
additional transactions.
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.
April 28, 1998 By: /s/ JOHN M. COOK
----------------
John M. Cook
Chairman of the Board
and Chief Executive Officer
538268.2
