<PAGE> 1
SCHEDULE 14A
(RULE 14A-101)
INFORMATION REQUIRED IN PROXY STATEMENT
SCHEDULE 14A INFORMATION
PROXY STATEMENT PURSUANT TO SECTION 14(A) OF THE SECURITIES
EXCHANGE ACT OF 1934 (AMENDMENT NO. )
Filed by the Registrant [X]
Filed by a Party other than the Registrant [ ]
Check the appropriate box:
<TABLE>
<S> <C>
[ ] Preliminary Proxy Statement [ ] Confidential, for Use of the Commission Only (as
permitted by Rule 14a-6(e)(2))
[X] Definitive Proxy Statement
[ ] Definitive Additional Materials
[ ] Soliciting Material Pursuant to Rule 14a-11(c) or Rule 14a-12
</TABLE>
THE PROFIT RECOVERY GROUP INTERNATIONAL, INC.
- --------------------------------------------------------------------------------
(Name of Registrant as Specified In Its Charter)
- --------------------------------------------------------------------------------
(Name of Person(s) Filing Proxy Statement, if other than the Registrant)
Payment of Filing Fee (Check the appropriate box):
[X] No fee required.
[ ] Fee computed on table below per Exchange Act Rules 14a-6(i)(1) and 0-11.
(1) Title of each class of securities to which transaction applies:
(2) Aggregate number of securities to which transaction applies:
(3) Per unit price or other underlying value of transaction computed
pursuant to Exchange Act Rule 0-11 (set forth the amount on which the
filing fee is calculated and state how it was determined):
(4) Proposed maximum aggregate value of transaction:
(5) Total fee paid:
[ ] Fee paid previously with preliminary materials:
[ ] Check box if any part of the fee is offset as provided by Exchange Act Rule
0-11(a)(2) and identify the filing for which the offsetting fee was paid
previously. Identify the previous filing by registration statement number,
or the Form or Schedule and the date of its filing.
(1) Amount Previously Paid:
(2) Form, Schedule or Registration Statement No.:
(3) Filing Party:
(4) Date Filed:
<PAGE> 2
(LOGO The Profit Recovery Group International)
2300 WINDY RIDGE PARKWAY
SUITE 100 NORTH
ATLANTA, GA 30339-8426
---------------------
NOTICE OF ANNUAL MEETING OF SHAREHOLDERS
TO BE HELD JUNE 15, 1998
---------------------
TO THE SHAREHOLDERS OF
THE PROFIT RECOVERY GROUP INTERNATIONAL, INC.:
NOTICE IS HEREBY GIVEN that the Annual Meeting of Shareholders of THE
PROFIT RECOVERY GROUP INTERNATIONAL, INC. (the "Company") will be held at the
Harvey Hotel, 6345 Powers Ferry Road, Atlanta, Georgia, on June 15, 1998 at 9:00
a.m., Atlanta time, for the following purposes:
1. To elect three Class II directors to serve until the Annual Meeting
of Shareholders held in 2001 and until their successors are elected and
qualified.
2. To consider a proposal to approve The Profit Recovery Group
International, Inc. Stock Incentive Plan, which increases by one million
shares the number of shares of Company Common Stock which may be granted
under stock options, stock appreciation rights, and other stock awards as
compared to the Company's existing 1996 Stock Option Plan.
3. To consider a proposal to approve The Profit Recovery Group
International, Inc. Executive Incentive Plan.
4. To transact such other business as may properly come before the
meeting or any adjournments thereof.
The Proxy Statement dated May 15, 1998, is attached. Only record holders of
the Company's Common Stock, no par value per share, at the close of business on
April 30, 1998, will be eligible to vote at the meeting.
If you are not able to attend the meeting, please execute, complete, date
and return the proxy in the enclosed envelope. If you attend the meeting, you
may revoke the proxy and vote in person.
By Order of the Board of Directors:
/s/ John M. Cook
JOHN M. COOK
Chairman of the Board
and Chief Executive Officer
Date: May 15, 1998
A copy of the Annual Report of The Profit Recovery Group International,
Inc. for the year ended December 31, 1997 containing financial statements is
enclosed.
<PAGE> 3
[The Profit Recovery Group International LOGO]
2300 WINDY RIDGE PARKWAY
SUITE 100 NORTH
ATLANTA, GA 30339-8426
---------------------
PROXY STATEMENT
FOR ANNUAL MEETING OF SHAREHOLDERS
MAY 15, 1998
---------------------
GENERAL INFORMATION
This Proxy Statement is furnished in connection with the solicitation by
the Board of Directors of The Profit Recovery Group International, Inc. ("PRGX"
or the "Company") of proxies for use at the 1998 Annual Meeting of Shareholders
to be held on June 15, 1998, at 9:00 a.m., Atlanta time, at the Harvey Hotel,
6345 Powers Ferry Road, Atlanta, Georgia. Where appropriate, all references
herein to the Company shall also be deemed to be references to the Company's
predecessors.
This Proxy Statement and the accompanying form of proxy are being first
mailed to shareholders on or about May 15, 1998. The shareholder giving the
proxy may revoke it at any time before it is exercised at the meeting by: (i)
delivering to the Secretary of the Company a written instrument of revocation
bearing a date later than the date of the proxy; (ii) duly executing and
delivering to the Secretary a subsequent proxy relating to the same shares; or
(iii) attending the meeting and voting in person (attendance at the meeting will
not in and of itself constitute revocation of a proxy). Any proxy which is not
revoked will be voted at the Annual Meeting in accordance with the shareholder's
instructions. If a shareholder returns a properly signed and dated proxy card
but does not mark any choices on one or more items, his or her shares will be
voted in accordance with the recommendations of the Board of Directors as to
such items. The proxy card gives authority to the proxies to vote shares in
their discretion on any other matter properly presented at the Annual Meeting.
Proxies will be solicited from the Company's shareholders by mail. The
Company will pay all expenses in connection with the solicitation, including
postage, printing and handling and the expenses incurred by brokers, custodians,
nominees and fiduciaries in forwarding proxy material to beneficial owners. The
Company does not intend to employ a proxy solicitation firm to solicit proxies
in connection with the Annual Meeting. It is possible that directors, officers
and regular employees of the Company may make further solicitation personally or
by telephone, telegraph or mail. Directors, officers and regular employees of
the Company will receive no additional compensation for any such further
solicitation.
Only holders (the "Shareholders") of record of the Company's Common Stock,
no par value per share, at the close of business on April 30, 1998 (the "Record
Date"), are entitled to notice of, and to vote at, the Annual Meeting. On the
Record Date, the Company had outstanding a total of 21,717,061 shares of Common
Stock. Each such share will be entitled to one vote (non-cumulative) on each
matter to be considered at the Annual Meeting. A majority of the outstanding
shares of Common Stock, present in person or represented by proxy at the Annual
Meeting, will constitute a quorum for the transaction of business at the Annual
Meeting.
Votes cast by proxy or in person at the Annual Meeting will be counted by
the person or persons appointed by the Company to act as election inspectors for
the meeting. Prior to the meeting, the inspector(s) will sign an oath to perform
their duties in an impartial manner and to the best of their abilities. The
inspector(s) will ascertain the number of shares outstanding and the voting
power of each of such shares,
<PAGE> 4
determine the shares represented at the meeting and the validity of proxies and
ballots, count all votes and ballots and perform certain other duties as
required by law.
The affirmative vote of holders of a majority of the outstanding shares of
Common Stock of the Company entitled to vote and present in person or by proxy
at the Annual Meeting is required for approval of The Profit Recovery Group
International, Inc. Stock Incentive Plan (the "Stock Incentive Plan") and for
approval of The Profit Recovery Group International, Inc. Executive Incentive
Plan (the "Executive Incentive Plan"). Nominees for election as directors will
be elected by a plurality of the votes cast by the holders of shares entitled to
vote in the election. Accordingly, the three nominees receiving the highest vote
totals will be elected as directors of the Company at the Annual Meeting. It is
expected that shares held by executive officers and directors of the Company,
which in the aggregate represent approximately 41.6% of the outstanding shares
of Common Stock, will be voted in favor of each proposal. With respect to
election of directors, abstentions, votes "withheld" and broker non-votes will
be disregarded and have no effect on the outcome of the vote. With respect to
the proposals to approve the Stock Incentive Plan and the Executive Incentive
Plan, abstentions will have the effect of a vote against the proposals and
broker non-votes will be disregarded and will have no effect on the outcome of
the votes. There are no rights of appraisal or similar dissenters' rights with
respect to any matter to be acted upon pursuant to this Proxy Statement.
RECOMMENDATION OF THE BOARD OF DIRECTORS
The Board of Directors of the Company recommends a vote FOR the election of
each of the nominees named below for election as director, FOR the proposal to
approve the Stock Incentive Plan and FOR the proposal to approve the Executive
Incentive Plan.
ELECTION OF DIRECTORS
The Company currently has nine directors. The Board is divided into three
classes of directors, designated as Class I, Class II and Class III. The three
classes serve staggered three-year terms. Shareholders annually elect directors
of one of the three classes to serve for three years or until their successors
are elected and qualified. At the Annual Meeting, the Shareholders will elect
three directors to serve as Class II directors.
The proxy holders intend to vote FOR election of the nominees named below
(who are currently members of the Board) as directors of the Company, unless
otherwise specified in the proxy. Directors of the Company elected at the Annual
Meeting to be held on June 15, 1998 will hold office until the Annual Meeting in
2001 or until their successors are elected and qualified. Each of the nominees
has consented to serve on the Board of Directors, if elected. Should any nominee
for the office of director become unable to accept nomination or election, which
is not anticipated, it is the intention of the persons named in the proxy,
unless otherwise specifically instructed in the proxy, to vote for the election
of such other person as the Board of Directors may recommend.
Each of the individuals listed below as nominees for the Board of Directors
was a director of the Company during 1997. 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:
Class II Director Nominees
<TABLE>
<CAPTION>
NAME OF NOMINEE AGE SERVICE AS DIRECTOR POSITION
- --------------- --- ------------------- --------
<S> <C> <C> <C>
Stanley B. Cohen(1)(2)................. 54 Since November 1990 Director
Jonathan Golden(1)(3).................. 60 Since November 1990 Director
Garth H. Greimann(2)(3)................ 43 Since April 1995 Director
</TABLE>
2
<PAGE> 5
Directors Continuing in Office
<TABLE>
<CAPTION>
NAME OF DIRECTOR AGE SERVICE AS DIRECTOR POSITION
- ---------------- --- ------------------- --------
<S> <C> <C> <C>
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
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
</TABLE>
- ---------------
(1) Member of the Executive Committee.
(2) Member of the Audit Committee.
(3) Member of the Compensation Committee.
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.
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. Golden 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.
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
Intervention SA, a wholly-owned subsidiary of the Company in Levallois-Perret,
France ("Alma"), since its founding in 1986, and a Director of the Company since
October 15, 1997.
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
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<PAGE> 6
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 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.
No family relationship exists among any of the directors and executive
officers of the Company.
INFORMATION ABOUT THE BOARD OF DIRECTORS
AND COMMITTEES OF THE BOARD
MEETINGS OF THE BOARD OF DIRECTORS
During 1997, there were five meetings of the Board of Directors. Each
incumbent director who was a director during 1997 attended all meetings of the
Board of Directors and any committees on which that director served.
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 Company's 1996 Stock Option 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 five
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
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<PAGE> 7
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 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 income tax 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 approximate equivalent of $54,000 as of April 30, 1998).
Pursuant to the Registration Rights Agreement dated April 29, 1995 between
predecessors of the Company, Third Berkshire Fund III, A Limited Partnership,
Prudential Securities Incorporated, Mr. Greimann and certain other affiliates of
Third Berkshire Associates, the general partner of Third Berkshire Fund III, A
Limited Partnership, the Company is obligated to pay certain expenses incurred
by Mr. Greimann in connection with the exercise of rights under the Registration
Rights Agreement. See "Ownership of Directors, Principal Shareholders and
Certain Executive Officers."
AUDIT COMMITTEE
The Company's Audit Committee consists of three outside directors: Mr.
Cohen, Mr. Greimann and Mr. Lowrey. The Audit Committee met two times in 1997.
The Audit Committee reviews the general scope of the Company's annual audit and
the nature of services to be performed for the Company in connection therewith,
acting as liaison between the Board of Directors and the independent auditors.
The Audit Committee also formulates and reviews various Company policies,
including those relating to accounting practices and the internal control
structure of the Company. In addition, the Audit Committee is responsible for
recommending, reviewing and monitoring the performance of the Company's
independent auditors.
COMPENSATION COMMITTEE
The Company has a Compensation Committee currently consisting of three
directors: Mr. Golden, Mr. Greimann and Mr. Lowrey. The Compensation Committee
met four times in 1997. The Compensation Committee is responsible for reviewing
and establishing the annual compensation for all executive officers, including
the salary and the compensation package of each such officer. A portion of the
compensation package may include an incentive award. The Compensation Committee
also administers the Company's benefit plans, including the 1996 Stock Option
Plan, the Management and Professional Incentive Plan and the Company's Employee
Stock Purchase Plan; provided, however, that the Board of Directors has
delegated all rights to determine awards of stock-based compensation to
individuals who file reports pursuant to Section 16 of the Securities Exchange
Act of 1934, as amended (the "Exchange Act"), to a subcommittee of the
Compensation Committee consisting of Messrs. Greimann and Lowrey, each of whom
is a "non-employee" director, as such term is defined in Rule 16b-3 promulgated
pursuant to the Exchange Act and is an "outside"
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<PAGE> 8
director, as such term is defined in the regulations promulgated pursuant to
Section 162(m) of the Internal Revenue Code of 1986, as amended (the "Code").
NOMINATING COMMITTEE
The Company does not have a standing nominating committee of the Board of
Directors.
Notwithstanding anything to the contrary which is or may be set forth in
any of the Company's filings under the Securities Act of 1933, as amended, or
the Securities Exchange Act of 1934, as amended, that might incorporate Company
filings, including this proxy statement, in whole or in part, the following
Report and the Performance Graph contained on page 25 shall not be incorporated
by reference into any such filings.
REPORT OF THE COMPENSATION COMMITTEE ON
EXECUTIVE COMPENSATION
The Compensation Committee is composed entirely of directors who are not
employed by the Company. The Committee considers and establishes compensation
policies and approves benefit plans as well as specifically setting salary,
annual incentive levels, and long-term incentive levels for the Chief Executive
Officer and other members of executive management.
COMPENSATION PHILOSOPHY
The Compensation Committee continued to refine the Company's executive
compensation program in 1997. The changes were necessary to continue the
transition toward greater levels of performance-based compensation, and to
reduce the Company's traditional reliance on relatively high levels of base
salary. Specifically, annual fixed salaries were held constant for several
members of executive management, and increased emphasis was placed on
performance-based incentives and stock option grants. The Compensation Committee
believes that these changes were necessary to align more closely the financial
interests of the Company's executive officer group with those of the Company's
shareholders.
The following objectives were used by the Compensation Committee in
designing the Company's 1997 executive compensation program. The compensation
program must:
- Attract, motivate and retain key executives;
- Align key management and shareholder interests; and
- Provide incentives that reward executive management performance only if
the Company's performance meets or exceeds planned results.
During 1997, certain information was used by the Compensation Committee to
guide decisions concerning executive compensation, including recovery audit
industry practices, compensation surveys with respect to companies of similar
size and growth, peer group surveys, and experience of the Committee members.
EXECUTIVE COMPENSATION PROGRAM
The 1997 executive compensation program consisted of base salary, annual
incentives, and long-term remuneration in the form of deferred compensation
arrangements and non-qualified stock options.
Base Salary
The recovery auditing industry in general and the Company in particular
traditionally have compensated key executives primarily on the basis of cash,
generally consisting of salary and performance-based incentives. Additionally,
to attract talented field managers to home office positions, it has historically
been necessary for the Company to maintain or increase the levels of
remuneration being paid to these individuals, who generally are highly
compensated. Prior to 1997, these two factors over time had significantly
elevated the base compensation levels required to staff the Company's key
management positions. As a result of becoming a publicly traded company,
however, the Compensation Committee decided to reduce the level of emphasis on
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<PAGE> 9
base salary throughout the Company's management groups in favor of greater
levels of long-term compensation such as stock options. The Compensation
Committee believes that having greater levels of each manager's compensation "at
risk" serves to align more closely management's interests with those of the
Company's shareholders.
In determining the appropriate base salary levels for 1997, the
Compensation Committee considered several factors, including current industry
practices, external market surveys of similarly sized companies, and review of
peer group compensation. For 1997, base salaries were set by the Compensation
Committee for members of executive management with the following factors in
mind: (i) the fact that rapidly growing responsibilities and complexities are
inherent in key positions, (ii) the need to retain key executives within the
Company, and (iii) the need to attract new talent as the Company continues to
grow. All of these factors were considered subjectively with no particular
emphasis or weight given to any one factor.
As a result of the foregoing, in 1997 the base salaries of Mr. Cook (Chief
Executive Officer) and Mr. Toma (Vice Chairman) were frozen as compared to 1996.
The 1997 annual salaries of Mr. Ellis (Chief Financial Officer), Mr. Mills
(Senior Vice President -- Corporate Development) and Mr. Lustig (President) were
increased to reflect either a merit increase, additional responsibilities or
promotion.
Annual Incentive Compensation
The 1997 annual incentives for executive management pursuant to the
Company's Management and Professional Incentive Plan included several
performance criteria: Company pro forma earnings per share, Company revenues,
Company operating income, functional expense control, cash collections, and
receivables levels. The Management and Professional Incentive Plan was designed
to align pay more directly to financial results, with increases and decreases in
incentive pay from year to year tied to financial targets achieved and missed,
respectively. Components of each executive officer's annual incentive
compensation were established by the Compensation Committee. The 1997 annual
incentive compensation for Mr. Cook was based solely on Company pro forma
earnings per share attainment. Annual incentive compensation in 1997 for the
other executive officers was based on factors such as pro forma earnings per
share, Company operating income, functional expense control and specific
business objectives. The 1997 annual incentives for each executive officer
contained threshold targets for each incentive component to ensure that no
annual incentive compensation would be earned for substandard performance.
Additionally, maximum compensation limits were in effect for each incentive
component pertaining to each executive officer.
Deferred Compensation
The Company historically has provided, and continues to provide,
non-qualified deferred compensation arrangements for certain executive officers.
The purpose of these arrangements is to assist in the retention of these
executives by allowing a portion of their total compensation to be deferred
along with a full or partial matching obligation by the Company. In most
instances, the matching obligation vests over a series of years of continuing
employment with the Company. Each executive officer negotiated the deferred
compensation component of his compensation package when he entered into his
employment agreement with the Company. Mr. Cook does not have a deferred
compensation element in his employment agreement. Since deferred compensation is
accrued and paid in accordance with provisions of the related employment
agreements, no additional determinations with respect to this compensation
component are made by the Compensation Committee.
Other Long-Term Incentive Compensation
The Company's shareholders approved an additional long-term incentive
program through the adoption of the Company's 1996 Stock Option Plan (as
successor in interest to the 1995 Stock Option Plan established by a predecessor
of the Company). All executive officers have received option grants under the
1996 Stock Option Plan. The use of stock options is meant to align the interests
of key executives and shareholders. Subject to one exception, all options
granted to executive officers under the 1996 Stock Option Plan through April 30,
1998 have been at fair market value on date of grant, and vest ratably over five
years of continuous employment with the Company. The exception is a performance
grant for Mr. Lustig that vests over a four-year period. The Compensation
Committee grants options to key employees of the Company, including the
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<PAGE> 10
executive officers, based upon the following subjective factors: current
position, level of performance, potential for future responsibilities, and the
number of vested and unvested options already held. The size of the grant is
intended to create meaningful opportunities for stock ownership for the
executive officers.
Compliance with Code Section 162(m)
The maximum amount which an employer may claim as a compensation deduction
with respect to certain employees in a given fiscal year, pursuant to Section
162(m) of the Code, as amended, is $1.0 million, unless an exemption for
performance-based compensation is met. The Compensation Committee believes it is
unlikely that any executive officers of the Company will, in the near future,
receive in excess of $1.0 million in aggregate compensation, other than those
individuals with respect to whom the performance-based compensation exemption
has been satisfied; however, the Compensation Committee has reviewed the
potential effect of Section 162(m) on the 1996 Stock Option Plan and has
recommended to the Board that the 1996 Stock Option Plan be renamed, amended,
restated and submitted to the Company's shareholders for approval in order to
bring it into compliance with the performance-based compensation exemption with
respect to future compensation. In addition, the Compensation Committee has
recommended that a new Executive Incentive Plan be adopted effective January 1,
1999 for the Chief Executive Officer of the Company and certain other senior
executives and that such plan be submitted to the Company's Shareholders for
approval to bring this plan into compliance with the Section 162(m) exemption
for performance-based compensation. See "Proposal to Approve The Profit Recovery
Group International, Inc. Stock Incentive Plan" and "Proposal to Approve The
Profit Recovery Group International, Inc. Executive Incentive Plan."
Compensation of Chief Executive Officer
On March 20, 1996, Mr. Cook signed a revised employment agreement with the
Company. This agreement expires in the year 2002, but provides for automatic
one-year renewals upon 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.
As a result of the previously discussed intent of the Compensation
Committee to emphasize performance based compensation over base salary, Mr.
Cook, working in concert with the Compensation Committee, agreed to freeze his
base salary in 1997 as part of the revised employment agreement. In place of his
frozen base salary, a performance based incentive plan was established.
An annual incentive compensation arrangement pursuant to the Management and
Professional Incentive Plan was established for Mr. Cook commencing in 1997
pursuant to which he was eligible to earn an annual cash incentive of up to 150%
of his base salary if the Company achieved certain pro forma earnings per share
goals. The threshold goal for 1997 was established at $0.46 per share, which
represented an 18.0% increase over the Company's 1996 pro forma earnings per
share of $0.39. The Company achieved pro forma earnings per share of $0.55 in
1997, which represented a 41.0% increase over the Company's 1996 pro forma
earnings per share, and Mr. Cook earned an intermediate level bonus of $350,000
with respect to such year.
Mr. Cook's employment agreement also provides that further option grants
will be made annually through 1998 if earnings per share exceed the level
achieved in the immediately preceding year by certain specified percentages,
generally 30% or greater. The Company's 1997 pro forma earnings per share
achievement entitled Mr. Cook to a grant on December 31, 1997 of options to
purchase 86,663 shares of Common Stock at $17.75 per share, which represented
the fair market value of the Company's common stock on that date. The December
31, 1997 options granted pursuant to this employment agreement provision, and
any similar future grants, vest ratably and prospectively over five years.
COMPENSATION COMMITTEE
E. James Lowrey, Chairman
Jonathan Golden
Garth H. Greimann
8
<PAGE> 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 YEAR SALARY(2) BONUS COMPENSATION(3) (# OF SHARES) COMPENSATION(1)(4)
- ----------------- ---- --------- -------- --------------- ------------- ------------------
<S> <C> <C> <C> <C> <C> <C>
John M. Cook.................... 1997 $350,012 $350,000 $ -- 86,663 $ 18,402
Chairman of the Board 1996 356,731 262,500 -- 223,530 15,475
and Chief Executive Officer 1995 695,000 -- -- -- 115,000
John M. Toma.................... 1997 305,994 114,750 -- -- 57,180
Vice Chairman 1996 307,609 122,400 -- 100,000 67,050
1995 374,000 -- -- -- 4,000
Michael A. Lustig............... 1997 264,596 90,100 -- 135,000 20,000
President(5) 1996 211,269 67,302 -- 51,500 20,000
Donald E. Ellis, Jr. ........... 1997 172,115 64,922 -- -- 26,446
Senior Vice President, 1996 160,000 56,000 -- 10,000 26,446
Chief Financial Officer 1995 131,000 13,000 22,000 120,000 26,000
and Treasurer(6)
Tony G. Mills................... 1997 156,461 56,281 -- -- 1,784
Senior Vice President -- 1996 150,000 57,000 -- 60,000 3,003
Corporate Development(6) 1995 36,346 -- -- 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.
(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:
<TABLE>
<CAPTION>
1997 1996 1995
------ ------ --------
<S> <C> <C> <C>
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
</TABLE>
(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.
9
<PAGE> 12
(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 $12,050, respectively.
(5) Mr. Lustig was employed by the Company in January 1996.
(6) Amounts shown for 1995 reflect compensation for Mr. Ellis from March 1,
1995, when he began employment with the Company, and for Mr. Mills from
October 15, 1995, when he began employment with the Company.
OPTION GRANTS TABLE
The following table sets forth certain information regarding options
granted to the Named Executive Officers during the year ended December 31, 1997.
No separate stock appreciation rights ("SARs") were granted during 1997.
STOCK OPTION GRANTS IN LAST FISCAL YEAR
<TABLE>
<CAPTION>
POTENTIAL REALIZABLE
PERCENT OF VALUE AT ASSUMED
NUMBER OF TOTAL ANNUAL RATES OF STOCK
SECURITIES OPTIONS EXERCISE PRICE APPRECIATION FOR
UNDERLYING GRANTED TO OR BASE OPTION TERM
OPTIONS EMPLOYEES PRICE EXPIRATION -----------------------
NAME GRANTED IN 1997 ($/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 $2,451,603
Michael A. Lustig................. 60,000(1) 6.0 14.75 01/03/07 556,572 1,410,462
75,000(2) 7.5 17.75 12/31/07 837,216 2,121,670
</TABLE>
- ---------------
(1) Options are non-qualified options granted under the 1996 Stock Option Plan.
All options have ten-year terms and vest as follows: 20% becomes exercisable
on the anniversary of grant and an additional 20% becomes exercisable on
each grant date anniversary thereafter; provided, however, that Mr. Cook's
options will vest automatically upon the occurrence of certain events. See
"-- Employment Agreements."
(2) Options are non-qualified options granted under the 1996 Stock Option Plan.
All options have ten-year terms and vest as follows: 25% becomes exercisable
on the anniversary of grant and an additional 25% becomes exercisable on
each grant date anniversary thereafter.
OPTION EXERCISES AND YEAR-END VALUE TABLE
None of the Named Executive Officers held or exercised SARs during 1997.
The following table sets forth certain information regarding options exercised
during the year ended December 31, 1997, and unexercised options held at
year-end, by each of the Named Executive Officers.
OPTION VALUES AT DECEMBER 31, 1997
<TABLE>
<CAPTION>
NUMBER OF SECURITIES
SHARES UNDERLYING UNEXERCISED VALUE OF UNEXERCISED
ACQUIRED OPTIONS AT FISCAL YEAR-END IN-THE-MONEY OPTIONS AT
ON VALUE (#) FISCAL YEAR-END ($)(1)
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.
10
<PAGE> 13
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 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 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 Code,
and all outstanding options immediately become vested. "Good Reason" means any
of the following occurring without the employee's consent: (i) the assignment of
duties or a position or title inconsistent with or lower than the duties,
position or title provided in the employee's 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 also has 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 nor 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 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 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. 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 also has agreed to provide Mr. Toma with certain other personal
benefits. Upon
11
<PAGE> 14
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 also will 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).
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
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 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. 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 also has 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 elected to reduce his annual bonus
by up to $25,000 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
$25,000 per year to such deferred compensation program, which amounts will vest
over a ten-year period. 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 also has 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 also will 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 March 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. 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 also has 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 Stock Option 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 April 15, 1998, options for 2,512,393
shares were
12
<PAGE> 15
outstanding (after adjustment for forfeitures) and options for 144,700 shares
had been exercised. Options may be granted under the 1996 Stock Option Plan to
key employees, officers or directors of and consultants and advisors to, the
Company and its subsidiaries. The Company estimates that, as of April 15, 1998,
approximately 700 employees (including officers) and five non-officer directors
of the Company were eligible to participate in the 1996 Stock Option Plan.
Unless sooner terminated by the Board, the 1996 Stock Option Plan terminates in
January 2006. The Board of Directors has approved certain amendments to the 1996
Stock Option Plan which would, among other things, increase by one million
shares the number of shares eligible for issuance thereunder and allow for the
grant of SARs and other stock awards thereunder in addition to options. See
"Proposal to Approve The Profit Recovery Group International, Inc. Stock
Incentive Plan."
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 April
15, 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 a participant's elective deferrals and/or may make 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.
CERTAIN TRANSACTIONS
The following members of Mr. Cook's immediate family are employed by the
Company as field auditors or audit managers and received compensation in 1997 in
the approximate amounts set forth beside their names: David H. Cook,
brother -- $229,000 consisting of $175,000 salary and $54,000 bonus; Harriette
L. Cook, sister-in-law -- $90,000 salary; Pamela M. Cook, sister -- $145,000
consisting of $115,000 salary and $30,000 bonus; Patricia Sluiter,
sister -- $158,000 in commissions; Allen R. Sluiter, brother-in-law -- $176,000
in commissions; and M. Christine Cook, daughter -- $77,000 in commissions.
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" for a discussion of certain additional
transactions.
13
<PAGE> 16
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. Eisenberg filed a late Form 3 and Mr. Kramer
filed one late Form 4 to report one transaction.
PROPOSAL TO APPROVE THE PROFIT RECOVERY GROUP INTERNATIONAL, INC.
STOCK INCENTIVE PLAN
THE BOARD OF DIRECTORS RECOMMENDS A VOTE "FOR" THIS PROPOSAL.
In January 1996, the Board and the shareholders approved the 1996 Stock
Option Plan. As of April 15, 1998, options for 2,512,393 shares were outstanding
under the 1996 Stock Option Plan (after adjustment for forfeitures) and 144,700
options had been exercised. Unless sooner terminated by the Board, the 1996
Stock Option Plan terminates in January 2006. As of April 15, 1998, an
additional 842,907 shares remained available under the 1996 Stock Option Plan
for issuance in connection with future option grants thereunder. Subject to
shareholder approval, the Board has approved certain amendments to the 1996
Stock Option Plan and has renamed it The Profit Recovery Group International,
Inc. Stock Incentive Plan. The material amendments to the 1996 Stock Option Plan
provide for an increase by one million shares of the number of shares of Company
Common Stock which may be granted thereunder and provide for the grant of SARs
and other awards of Common Stock ("Stock Awards") thereunder, in addition to
options to purchase Common Stock. SARs provide participants the opportunity to
receive, in cash or shares of Common Stock, value equal to all or a portion of
the excess of the fair market value of a specified number of shares of Common
Stock at the time of exercise over an exercise price established by the
Compensation Committee. The material provisions of the Stock Incentive Plan are
summarized below.
ELIGIBILITY FOR PARTICIPATION UNDER THE STOCK INCENTIVE PLAN
Options, SARs and Stock Awards may be granted under the Stock Incentive
Plan to key employees, officers or directors of, and consultants and advisors
to, the Company and its subsidiaries. The Company estimates that, as of the date
of this Proxy Statement, approximately 700 employees (including officers) and
five non-officer directors of the Company are eligible to participate in the
Stock Incentive Plan. Nothing contained in the Stock Incentive Plan or in any
agreement entered into pursuant thereto may confer upon any person any right to
continue as director, officer or employee of the Company or its subsidiaries or
as a consultant or advisor, or limit in any way any right of shareholders or of
the Board, as applicable, to remove such person.
SHARES RESERVED UNDER THE STOCK INCENTIVE PLAN; INDIVIDUAL GRANT LIMITS
The Stock Incentive Plan provides for the grant of awards to acquire a
maximum of 4,500,000 shares of Common Stock (including options for shares
subject to previous grants under the Company's 1996 Stock Option Plan), subject
to adjustment in the event of stock dividends, stock splits, combination of
shares, recapitalizations, or other changes in the outstanding Common Stock.
Shares issued under the Stock Incentive Plan may consist, in whole or in part,
of authorized and unissued shares, treasury shares or shares purchased on the
open market. The maximum number of SARs and shares subject to options that may
be granted to any one individual during any consecutive 12-month period under
the Stock Incentive Plan is 500,000. The maximum number of shares that may be
granted to any one individual pursuant to Stock Awards during any consecutive
12-month period is 500,000 shares.
14
<PAGE> 17
The Stock Incentive Plan permits the grant of incentive stock options
("ISOs"), non-qualified stock options ("NSOs"), SARs and Stock Awards at the
discretion of the Compensation Committee of the Board of Directors.
PURPOSE OF THE STOCK INCENTIVE PLAN
The Company desires to attract and retain persons of skill and experience
and to encourage their highest levels of performance on behalf of the Company
and its subsidiaries. The Stock Incentive Plan accordingly affords eligible
persons the opportunity to acquire stock rights in the Company. A portion of the
options issued pursuant to the Stock Incentive Plan may constitute ISOs within
the meaning of Section 422 of the Code or any succeeding provisions. The Stock
Incentive Plan is not qualified under Section 401(a) of the Code and is not
subject to the provisions of the Employee Retirement Income Security Act of
1974.
DURATION OF THE STOCK INCENTIVE PLAN
Awards may be granted pursuant to the Stock Incentive Plan from time to
time prior to the earliest of (1) the date next preceding that date which is ten
years from the date of approval thereof by the Company's shareholders; or (2)
the date on which all shares available for issuance under the Stock Incentive
Plan have been issued.
ADMINISTRATION OF THE STOCK INCENTIVE PLAN
The Stock Incentive Plan is administered by the Compensation Committee.
Subject to the terms of the Stock Incentive Plan, in administering the Stock
Incentive Plan and the awards granted under the Stock Incentive Plan, the
Compensation Committee shall have the authority to (1) determine the employees
of the Company and its subsidiaries to whom ISOs may be granted, and to
determine the directors, officers and employees of the Company and its
subsidiaries and the consultants and advisors, to whom NSOs, SARs and Stock
Awards may be granted; (2) determine the time or times at which awards may be
granted; (3) determine the number of shares subject to each award and, for
options and SARs, the exercise price thereof; (4) determine whether each option
granted shall be an ISO or a NSO; (5) determine the time or times when each
option and SAR shall become exercisable and the duration of the exercise period;
(6) determine whether restrictions are to be imposed on shares subject to
options and the nature of such restrictions; (7) determine whether and under
what circumstances cash payments shall be made upon the termination of options
or SARs, and whether and under what circumstances stock acquired pursuant to the
exercise of an option or SAR shall be repurchased by the Company; (8) determine
the terms of any Stock Awards; and (9) interpret the Stock Incentive Plan and
prescribe and rescind rules and regulations, if any, relating to and consistent
with the Stock Incentive Plan; provided, however, that the Board of Directors
has delegated all rights to determine awards of stock-based compensation to
individuals who file reports pursuant to Section 16 of the Exchange Act to a
subcommittee of the Compensation Committee (the "Subcommittee") consisting of at
least two directors, each of whom is a "nonemployee" director, as such term is
defined in Rule 16b-3 promulgated pursuant to the Exchange Act and is an
"outside" director, as defined in the regulations promulgated pursuant to
Section 162(m) of the Code.
The current Compensation Committee members are Mr. Lowrey, Chairman, Mr.
Golden and Mr. Greimann. Under the Stock Incentive Plan, acts by a majority of
the Compensation Committee, or acts reduced to or approved in writing by a
majority of the members of the Compensation Committee, shall be the valid acts
of the Compensation Committee.
No members of the Board of Directors or the Compensation Committee shall be
liable for any action or determination made in good faith with respect to the
Stock Incentive Plan or any stock options granted under it. No member of the
Board or the Compensation Committee shall be liable for any act or omission of
any other member of the Board or the Compensation Committee or for any act or
omission on his own part, including but not limited to the exercise of any power
or discretion given to him under the Stock Incentive Plan, except those
resulting from his own gross negligence or willful misconduct. In addition to
such other rights of indemnification as he may have as a member of the Board or
Compensation Committee, each
15
<PAGE> 18
member of the Board and the Compensation Committee shall be entitled to
indemnification by the Company with respect to administration of the Stock
Incentive Plan and the granting of rights and benefits under it.
AMENDMENT OF THE STOCK INCENTIVE PLAN
The Stock Incentive Plan may be terminated or amended by the Board of
Directors at any time, except that the following actions may not be taken
without shareholder approval: (a) materially altering the number of shares that
may be issued under the Stock Incentive Plan (except by certain adjustments
under the Stock Incentive Plan); (b) materially modifying the persons or classes
of persons eligible to participate in the Stock Incentive Plan; (c) materially
increasing the benefits accruing to participants under the Stock Incentive Plan;
(d) modifying the exercise price at which options and SARs may be offered
(except by adjustment pursuant to the Stock Incentive Plan); and (e) extending
the maximum option period under, or the term of, the Stock Incentive Plan.
Awards may not be granted under the Stock Incentive Plan after the date of
termination of the Stock Incentive Plan, but options and SARs granted prior to
that date shall continue to be exercisable according to their terms.
NEW PLAN BENEFITS
During 1997 and from January 1, 1998 through April 15, 1998, the number and
exercise price of options granted to executive officers as a group,
non-executive directors and non-executive employees pursuant to the Company's
1996 Stock Option Plan were as set forth below. See "Stock Option Grants in Last
Fiscal Year" Table above for discussion regarding number of securities
underlying options granted to the Named Executive Officers. Mr. Cook is eligible
to receive, annually, options to purchase up to 150,000 shares of Common Stock
if the Company achieves certain earnings per share increases. For 1998, Mr.
Lustig and Mr. Toma are eligible to receive options to purchase up to 125,000
and 75,000 shares, respectively, if the Company achieves certain earnings per
share increases. See "Executive Compensation -- Employment Agreements." For a
discussion of potential future grants to the Non-Executive Director Group, see
"Director Compensation."
<TABLE>
<CAPTION>
FROM JANUARY 1, 1998
THROUGH APRIL 15, 1998
1997 ---------------------------
--------------------------- EXERCISE PRICE
EXERCISE PRICE OR RANGE OF
NUMBER OF OR RANGE OF NUMBER OF EXERCISE
GROUP OPTIONS EXERCISE PRICES OPTIONS PRICES
- ----- --------- --------------- --------- ---------------
<S> <C> <C> <C> <C>
Executive Officer Group........................ 296,663 $12.50-$19.50 80,000 $15.75
Non-Executive Director Group................... -- N/A -- N/A
All Employees excluding Executive Officer
Group........................................ 519,437 $12.50-$17.75 281,500 $15.75
</TABLE>
GRANT OF STOCK OPTIONS AND SARS
The Compensation Committee may grant stock options and SARs to eligible
persons in such amounts and on such terms not inconsistent with the Stock
Incentive Plan as it may deem appropriate up to the number of shares remaining
subject to the Stock Incentive Plan. The Company and each eligible person shall
execute an agreement providing for the grant of stock options or SARs in
accordance with the pertinent provisions of the Stock Incentive Plan. No
consideration shall be paid in connection with any such grant unless the sale of
shares is made simultaneously with the grant.
OPTION AND SAR EXERCISE PRICE
The exercise price per share for the shares subject to ISOs, NSOs and SARs
shall be at whatever price is approved by the Compensation Committee; provided,
however, that, in general, the exercise price per share for the shares subject
to ISOs shall be not less than the fair market value per share of Common Stock
on the grant date, except that in the case of an ISO to be granted to an
employee owning more than 10% of the total combined voting power of all classes
of stock of the Company, the exercise price per share shall be not less than
110% of the fair market value per share of Common Stock on the grant date. The
"fair market value" shall be the closing price of the Common Stock on the Nasdaq
National Market on the day of grant or if no
16
<PAGE> 19
sale of the Common Stock has been made on such date, on the next preceding day
on which there was such a sale.
VESTING OF OPTIONS
Unless otherwise provided by the Compensation Committee, options granted
under the Stock Incentive Plan will generally vest at the rate of 20% per annum
over a five-year period so that all options are vested after five years. The
Compensation Committee has the authority to accelerate or waive the vesting
period for any option granted under the Stock Incentive Plan upon the attainment
of performance goals established by the Compensation Committee for the
grantee(s). In the event of a change of control, the Compensation Committee may
also accelerate the vesting of outstanding options under the Stock Incentive
Plan.
ADJUSTMENTS TO EXERCISE PRICE AND NUMBER OF SHARES
If the shares of Common Stock are subdivided or combined, or a stock
dividend is declared and paid, the number of shares of Common Stock subject to
the Stock Incentive Plan and to the individual limits thereunder deliverable
upon the exercise of Stock Options or SARs and subject to Stock Awards shall be
increased or decreased proportionately, and the purchase price per share of
options and SARs shall be adjusted to reflect such subdivision, combination or
stock dividend. If, while unexercised options or SARs remain outstanding under
the Stock Incentive Plan, the Company proposes to merge or consolidate with
another corporation, whether or not the Company is to be the surviving
corporation, or if the Company proposes to liquidate or sell or otherwise
dispose of substantially all of its assets, or substantially all of the
outstanding shares of stock of the Company are to be sold, then the Compensation
Committee may, in its sole discretion, either (i) make appropriate provision for
the protection of any such outstanding options and SARs by the substitution on
an equitable basis of appropriate stock of the surviving corporation or its
parent in the merger or consolidation or other reorganized corporation that will
be issuable in respect to the shares of Common Stock of the Company subject to
such options and SARs, provided that, with respect to ISOs, such provision shall
satisfy the requirement that no additional benefits shall be conferred upon
optionees as a result of such substitution within the meaning of Section 424(a)
of the Code, and that the excess of the aggregate fair market value of the
shares subject to the options immediately after such substitution over the
purchase price thereof is not more than the excess of the aggregate fair market
value of the shares subject to such options immediately before such substitution
over the purchase price thereof, or (ii) upon written notice to the grantees,
provide that all unexercised options and SARs must be exercised within a
specified number of days of the date of such notice or they will be terminated.
In any such case, the Compensation Committee may, in its discretion, accelerate
the date on which outstanding options and SARs become exercisable. In no event,
however, shall the Compensation Committee be obligated to take any action as a
result of any such transaction, it being acknowledged that it is in the
Compensation Committee's sole discretion to determine if, and to what extent,
any such action shall be taken.
DURATION AND TERMINATION OF OPTIONS AND SARS
Each option and SAR expires on the date specified by the Compensation
Committee, but not more than (i) ten years from the grant date in the case of
NSOs and SARs, (ii) ten years from the grant date in the case of ISOs generally,
and (iii) five years from the grant date in the case of ISOs granted to an
employee owning more than 10% of the total combined voting power of all classes
of stock of the Company. If approved by the Compensation Committee, after
request by the grantee, ISOs may be converted into NSOs and the term of such
option may be extended.
MEANS OF EXERCISE OF OPTIONS AND SARS
Options and SARs are exercised by giving written notice to the Company at
its principal office address, accompanied, in the case of an option, by full
payment of the purchase price therefor and the applicable withholding tax,
either (a) in United States dollars in cash or by check, or (b) if permitted by
the Compensation Committee, the delivery of shares of Common Stock having a fair
market value equal as of the
17
<PAGE> 20
date of the exercise to the cash exercise price of the option; provided,
however, that such shares must have been held for at least six months.
NON-TRANSFERABILITY OF OPTIONS, SARS AND STOCK AWARDS
No option, SAR or Stock Award is transferable except by will or by the laws
of descent and distribution, and all options and SARs are exercisable, during
the lifetime of the grantee, only by the grantee or the grantee's guardian or
legal representative. Shares subject to options, SARs or Stock Awards granted
under the Stock Incentive Plan that have lapsed or terminated may again be
subject to awards thereunder.
RESTRICTIONS ON STOCK AWARDS
Each Stock Award shall be subject to such conditions, restrictions and
contingencies as the Compensation Committee shall determine. These may include
continuous service and/or the achievement of specified performance measures. The
performance measures that may be used by the Compensation Committee for such
Stock Awards shall be measured by revenues, income, or such other criteria as
the Committee may specify. If the right to become vested in a Stock Award
granted under the Stock Incentive Plan is conditioned on the completion of a
specified period of service with the Company and its subsidiaries, without
achievement of performance measures or other objectives being required as a
condition of vesting, then the required period of service for vesting shall be
not less than three years (subject to acceleration of vesting, to the extent
permitted by the Compensation Committee, in the event of the participant's
death, disability, change in control or involuntary termination).
TAX TREATMENT
The following discussion addresses certain anticipated federal income tax
consequences to recipients of awards made under the Stock Incentive Plan. It is
based on the Code and interpretations thereof as in effect on the date of this
Proxy Statement. This summary is not intended to be exhaustive and, among other
things, does not describe state, local or foreign tax consequences.
A company, such as the Company, for which an individual is performing
services will generally be allowed to deduct amounts that are includable in the
income of such individual as compensation income in the Company's taxable year
in which the employee's taxable year of inclusion ends, provided that such
amounts qualify as reasonable compensation for the services rendered. This
general rule will apply to the deductibility of a participant's compensation
income resulting from participation in the Stock Incentive Plan. The timing and
amount of deductions available to the Company as a result of the Stock Incentive
Plan will, therefore, depend upon the timing and amount of compensation income
recognized by a participant as a result of participation in the Stock Incentive
Plan. The following discusses the timing and amount of compensation income which
will be recognized by participants and the accompanying deduction which will be
available to the Company.
Incentive Stock Options. A participant to whom an ISO which qualifies
under Section 422 of the Code is granted generally will not recognize
compensation income (and the Company will not be entitled to a deduction) upon
the grant or the exercise of the option. To obtain nonrecognition treatment on
exercise of an ISO, however, the participant must be an employee of the Company
or a subsidiary continuously from the date of grant of the option until three
months prior to the exercise of the option. If termination of employment is due
to disability of the participant, ISO treatment will be available if the option
is exercised within one year of termination. If an option originally designated
as an ISO is exercised after these periods, the option will be treated as a NSO
for income tax purposes and compensation income will be recognized by the
participant (and a deduction will be available to the Company) in accordance
with the rules discussed below concerning NSOs.
The Code provides that ISO treatment will not be available to the extent
that the fair market value of shares subject to ISOs (determined as of the date
of grant of the ISOs) which become exercisable for the first time during any
calendar year exceeds $100,000. If the $100,000 limitation is exceeded, the
options in excess of the limitation are treated as NSOs when exercised.
18
<PAGE> 21
While a participant may not recognize compensation income upon exercise of
an ISO, the excess of the fair market value of the shares of Common Stock
received over the exercise price for the option is an adjustment for alternative
minimum tax purposes and can affect the optionee's alternative minimum tax
liability under applicable provisions of the Code. The increase, if any, in an
optionee's alternative minimum tax liability resulting from exercise of an ISO
will not, however, create a deductible compensation expense for the Company.
When a participant sells shares of Common Stock received upon exercise of
an ISO more than one year after the exercise of the option and more than two
years after the grant of the option, the participant will normally not recognize
any compensation income, but will instead recognize capital gain or loss from
the sale in an amount equal to the difference between the sales price for the
shares of Common Stock and the option exercise price. If, however, a participant
sells the shares of Common Stock within one year after exercising the ISO or
within two years after the grant of the ISO, the participant will recognize
compensation income (and the Company will be entitled to a deduction) in an
amount equal to the lesser of (i) the excess, if any, of the fair market value
of the shares of Common Stock on the date of exercise of the option over the
option exercise price, and (ii) the excess, if any, of the sale price for the
shares over the option exercise price. Any other gain or loss on such sales (in
addition to the compensation income mentioned previously) will normally be
capital gain or loss.
Nonqualified Stock Options. A participant to whom a NSO is granted will
not normally recognize income at the time of grant of the option. When a
participant exercises a NSO, the participant will generally recognize
compensation income (and the Company will be entitled to a deduction) in an
amount equal to the excess, if any, of the fair market value of the shares of
Common Stock when acquired over the option exercise price. The amount of gain or
loss recognized by a participant from a subsequent sale of shares of Common
Stock acquired from the exercise of a NSO will be equal to the difference
between the sales price for the shares of Common Stock and the sum of the
exercise price of the option plus the amount of compensation income recognized
by the participant upon exercise of the option.
SARs. The recipient of an SAR generally will not recognize any
compensation income upon grant of the SAR. At the time of exercise of an SAR,
however, the recipient should recognize compensation income in an amount equal
to the amount of cash, or the fair market value of the shares, received.
Restricted Stock Awards. If stock received pursuant to a stock award made
through the Stock Incentive Plan is subject to a substantial restriction on
continued ownership which is dependent upon the recipient continuing to perform
services for the Company or its affiliated companies (a "substantial risk of
forfeiture"), the participant should not recognize compensation income upon
receipt of the shares of Common Stock unless he/she makes a so-called "83(b)
election" as discussed below. Instead, the participant will recognize
compensation income (and the Company will be entitled to a deduction) when the
shares of Common Stock are no longer subject to a substantial risk of
forfeiture, in an amount equal to the fair market value of the stock at that
time. Absent a participant making an 83(b) election, dividends paid with respect
to shares of Common Stock which are subject to a substantial risk of forfeiture
will be treated as compensation income for the participant (and a compensation
deduction will be available to the Company for the dividend) until the shares of
Common Stock are no longer subject to a substantial risk of forfeiture.
Different tax rules will apply to a participant who receives shares of
Common Stock subject to a risk of forfeiture if the participant files an
election pursuant to Section 83(b) of the Code (an "83(b) election"). If, within
30 days of receipt of the shares of Common Stock, a participant files an 83(b)
election with the Internal Revenue Service and the Company, then,
notwithstanding that the shares of Common Stock are subject to a risk of
forfeiture, the participant will recognize compensation income upon receipt of
the shares of Common Stock (and the Company will be entitled to a deduction) in
an amount equal to the fair market value of the stock at the time of the award.
If the 83(b) election is made, any dividends paid with respect to the shares of
Common Stock will not result in compensation income for the participant (and
will not entitle the Company to a deduction). Rather, the dividends paid will be
treated as any other dividends paid with respect to Common Stock, as ordinary
income which is not compensation.
19
<PAGE> 22
TAX WITHHOLDING
Whenever the Company proposes, or is required, to distribute shares of
Common Stock under the Stock Incentive Plan, the Company may require the
recipient to satisfy any Federal, state and local tax withholding requirements
prior to the delivery of any certificate for such shares or, in the discretion
of the Committee, the Company may withhold from the shares to be delivered
shares sufficient to satisfy all or a portion of such tax withholding
requirements.
UNFUNDED STATUS OF THE STOCK INCENTIVE PLAN
The Stock Incentive Plan is intended to constitute an "unfunded" plan for
incentive and deferred compensation. With respect to any payments not yet made
to a participant by the Company, nothing contained in the Stock Incentive Plan
shall give any such participant or optionee any rights that are greater than
those of a general creditor of the Company.
SHAREHOLDER APPROVAL
The Company hereby undertakes that in the event that the Shareholders do
not approve the Stock Incentive Plan, the Company will not make any grants
pursuant to the Stock Incentive Plan in any fiscal year to either (a) its Chief
Executive Officer or (b) any of the four highest compensated executive officers
of the Company during that year, other than the Chief Executive Officer, whose
aggregate salary and bonus exceed $100,000.
PROPOSAL TO APPROVE THE PROFIT RECOVERY GROUP INTERNATIONAL, INC.
EXECUTIVE INCENTIVE PLAN
THE BOARD OF DIRECTORS RECOMMENDS A VOTE "FOR" THIS PROPOSAL.
As noted in the Report of the Compensation Committee under "Compliance with
Code Section 162(m)" above, the Company has proposed a new Executive Incentive
Plan for its senior executives, to be effective January 1, 1999. Rather than
specifying a formula for determining the relative weights of performance
criteria used to determine incentive amounts, the Executive Incentive Plan, as
proposed, enables the Subcommittee, no later than 90 days after the beginning of
each fiscal year, to establish an incentive program within the general
parameters of the Executive Incentive Plan, which program may change from year
to year as the Subcommittee determines necessary to best meet the Company's
needs within the confines of the Executive Incentive Plan. Set forth below is a
description of the material features of the Company's Executive Incentive Plan.
ADMINISTRATION
The Executive Incentive Plan will be administered by the Subcommittee of
the Company's Compensation Committee, consisting of at least two directors, each
of whom is an "outside" director as such term is defined in the regulations
promulgated pursuant to Section 162(m) of the Code.
PARTICIPANTS
The Executive Incentive Plan provides for participation by senior
executives of the Company, as determined by the Subcommittee, which
determination is made prior to the start of each fiscal year. Currently, eight
executives would be eligible for selection by the Subcommittee for participation
in the Executive Incentive Plan, including the Chief Executive Officer and each
of the Named Executives. To the extent that these executives do not participate
in the Executive Incentive Plan, they will be eligible to participate in the
Company's existing Management and Professional Incentive Plan.
20
<PAGE> 23
METHOD OF OPERATION
No later than 90 days after the beginning of each fiscal year, the
Subcommittee, after consulting with the Company's Chief Executive Officer and
its Senior Vice President -- Human Resources, will determine the performance
criteria from those listed below which will be applicable to each participant
for such fiscal year, the maximum incentive which such participant may obtain,
and the relative weight of each of the performance criteria which are applied.
The performance criteria to be applied may include any combination of the
following and may vary from participant to participant: (a) increases in
quarterly and annual earnings per share of the Company, (b) increases in
quarterly and annual revenues of the Company, (c) increases in quarterly and
annual operating profit of the Company, (d) increases in quarterly and annual
revenues generated from various industry segments, (e) quarterly and annual
revenues derived from specified territories or clients, (f) increases in
quarterly and annual cash receipts derived from specified territories or
clients, (g) increases in quarterly and annual gross profits derived from
specified territories or clients, (h) control of expenses in various functional
areas, and (i) individual objectives based on quantitative goals set by the
participant and the Subcommittee. The annual incentives set for each participant
contain threshold targets for each incentive component to ensure that no annual
incentive compensation is earned for substandard performance. All incentives
under the Executive Incentive Plan will be paid within 60 days following the end
of the period with respect to which they are calculated.
MAXIMUM ANNUAL COMPENSATION
No participant in the Executive Incentive Plan may receive an incentive
with respect to any fiscal year which is in excess of 1% of the Company's gross
revenues during such year.
AMENDMENTS
The Executive Incentive Plan may be amended by the Board of Directors;
however once the Subcommittee has set performance goals and incentive targets
with respect to a participant for a specific fiscal year, such goals and targets
may not be amended in any manner which would increase the amount of the
incentive payable to the participant, and such goals or targets may not be
waived or decreased.
NEW PLAN BENEFITS
It is impossible to determine the benefits which will be paid to any
individuals with respect to 1998 pursuant to the Executive Incentive Plan should
it be approved by the Company's Shareholders. For informational purposes only,
the following table sets forth the dollar value of the bonuses paid to each of
the following with respect to 1997 pursuant to the Company's existing Management
and Professional Incentive Plan:
<TABLE>
<CAPTION>
NAME AND POSITION DOLLAR VALUE
- ----------------- ------------
<S> <C>
John M. Cook................................................ $ 350,000
Chairman of the Board and Chief Executive Officer
John M. Toma................................................ 114,750
Vice Chairman
Michael A. Lustig........................................... 90,100
President
Donald E. Ellis, Jr......................................... 64,922
Senior Vice President, Chief Financial Officer and
Treasurer
Tony G. Mills............................................... 56,281
Senior Vice President -- Corporate Development
Executive Officer Group..................................... 750,800
Non-Executive Officer Director Group........................ 0
All Employees excluding Executive Officer Group............. 2,505,330
</TABLE>
21
<PAGE> 24
SHAREHOLDER APPROVAL
The Company has undertaken that if the Executive Incentive Plan is not
approved by the Company's Shareholders, no bonuses will be paid in any given
year pursuant to the Executive Incentive Plan to (a) the Company's Chief
Executive Officer or (b) any of its four highest compensated individuals, other
than the Chief Executive Officer, whose aggregate salary and bonus during such
year exceeds $100,000.
OWNERSHIP OF DIRECTORS, PRINCIPAL SHAREHOLDERS
AND CERTAIN EXECUTIVE OFFICERS
The following table sets forth certain information regarding the beneficial
ownership of the Company's Common Stock as of April 15, 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.
<TABLE>
<CAPTION>
BENEFICIAL OWNERSHIP
AS OF 4/15/98(1)
----------------------
BENEFICIAL OWNER SHARES PERCENTAGE
- ---------------- --------- ----------
<S> <C> <C>
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)......................................... 6,500 *
Berkshire Fund III(12)...................................... 1,164,396 5.4
Bradley M. Bloom(12)(13)(15)................................ 1,225,471 5.6
Jane Brock-Wilson(12)(13)(15)............................... 1,225,471 5.6
Kevin T. Callaghan(12)(13)(15).............................. 1,225,471 5.6
J. Christopher Clifford(12)(13)(14)(15)..................... 1,225,471 5.6
Russell L. Epker(12)(13)(15)................................ 1,225,471 5.6
Carl Ferenbach(12)(13)(15).................................. 1,225,471 5.6
Garth H. Greimann(12)(13)(15)............................... 1,225,471 5.6
Richard K. Lubin (12)(13)(15)............................... 1,225,471 5.6
All executive officers and directors as a group (14
Persons)(16).............................................. 9,238,297 42.1
</TABLE>
- ---------------
* Less than one percent.
(1) Applicable percentage of ownership at April 15, 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.
(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
22
<PAGE> 25
general partner and 67,867 shares held by M. Lucy Cook, 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 mailing of
this Proxy Statement.
(4) Includes 38,233 shares held for the benefit of Mr. Toma for which Tony G.
Mills and Dorothy Toma, Mr. Toma's spouse, serve as co-trustees and 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 Dorothy
Toma, 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 mailing of this Proxy Statement.
(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 mailing of this Proxy Statement.
(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 mailing of this Proxy Statement.
(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 John M. Cook and M. Lucy Cook 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 mailing of this Proxy Statement.
(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.
(10) Includes 143,408 shares held for the benefit of Mr. Golden for which
Roberta P. Golden, Mr. Golden's spouse, is the trustee and has sole voting
and investment power.
(11) Includes 4,000 shares subject to options which are either currently
exercisable or will become exercisable within sixty (60) days of the date
of mailing of this Proxy Statement.
(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 ("Berkshire Partners"). The
Berkshire Partners each disclaim beneficial ownership of the shares owned
by Berkshire Fund III, except to the extent of their respective pecuniary
interests therein.
(14) Includes 8,764 shares held by Richard K. Lubin Daughters' Trust dtd 8/18/91
fbo Emily and Richard K. Lubin Daughters' Trust dtd 8/18/91 fbo Kate
(collectively, "Lubin Trusts"), for which Mr. Clifford serves as trustee
and shares voting and investment power.
(15) Includes shares held by each of the other Berkshire Partners as
follows -- Ms. Brock-Wilson (4,815 shares) and Messrs. Bloom (8,762
shares), Callaghan (4,815 shares), Clifford (7,477 shares), Epker (7,477
shares), Ferenbach (8,762 shares), Greimann (7,661 shares) and Lubin (no
shares); and shares held by the Lubin Trusts (8,764 shares), and three
other affiliates of Third Berkshire Associates (2,542 shares), for which
each of the Berkshire Partners holds shared voting power. Each of the
Berkshire Partners disclaims beneficial ownership of these shares, except
as to such shares held directly by such Berkshire Partner.
(16) Includes options to purchase 211,806 shares which are either currently
exercisable or will become exercisable within sixty (60) days of the date
of mailing of this Proxy Statement. 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 mailing of
this Proxy Statement.
23
<PAGE> 26
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 and 1990
Director
John M. Toma............ 52 Vice Chairman and Director 1997
Michael A. Lustig....... 43 President and Director 1998
Marc S. Eisenberg....... 42 President of the Directorate of Alma and Director 1997
Robert G. Kramer........ 54 Executive Vice President and Chief Information 1997
Officer
Donald E. Ellis, Jr..... 46 Senior Vice President, Chief Financial Officer and 1995
Treasurer
Clinton McKellar, Jr.... 51 Senior Vice President, General Counsel and 1997
Secretary
Tony G. Mills........... 41 Senior Vice President -- Corporate Development 1995
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. From 1987 to 1994, Mr.
Kramer served as Vice President Information Services for New Hampton, Inc.,
a catalog direct marketer.
Donald E. Ellis, Jr. joined the Company in 1995 as Senior Vice
President, Chief Financial Officer and Treasurer. 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 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.
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.
24
<PAGE> 27
PERFORMANCE GRAPH
Set forth below is a line-graph presentation comparing the cumulative
shareholder return on the Company's Common Stock (Nasdaq: PRGX), on an indexed
basis, against cumulative total returns of the Nasdaq Stock Market (U.S.
Companies) Index and the Hambrecht & Quist Technology Index. The graph assumes
that the value of the investment in the Common Stock in each index was $100 on
March 26, 1996. The Performance Graph shows total return on investment for the
period beginning March 26, 1996 (the date of the Company's initial public
offering) through December 31, 1997.
VALUE OF $100 INVESTED ON MARCH 26, 1996 AT:
<TABLE>
<CAPTION>
NASDAQ
STOCK HAMBRECHT
MEASUREMENT PERIOD MARKET- & QUIST
(FISCAL YEAR COVERED) PRGX US TECHNOLOGY
<S> <C> <C> <C>
3/26/96 100 100 100
12/31/96 145 118 123
12/31/97 161 145 144
</TABLE>
Total return assumes reinvestment of any dividends.
25
<PAGE> 28
INDEPENDENT PUBLIC ACCOUNTANTS
The accounting firm of KPMG Peat Marwick LLP are the independent certified
public accountants of the Company. Approval or selection of the independent
certified public accountants of the Company is not submitted for a vote at the
Annual Meeting of Shareholders. The Board of Directors of the Company has
historically selected the independent certified public accountants of the
Company, with the advice of the Audit Committee, and the Board believes that it
would be to the detriment of the Company and its shareholders for there to be
any impediment to the Board's exercising its judgment to remove the Company's
independent certified public accountants if, in its opinion, such removal is in
the best interest of the Company and its shareholders.
It is anticipated that a representative from the accounting firm of KPMG
Peat Marwick LLP will be present at the Annual Meeting of Shareholders to answer
appropriate questions and make a statement if the representative desires to do
so.
SHAREHOLDER PROPOSALS
Appropriate proposals of shareholders intended to be presented at the
Company's 1999 Annual Meeting of Shareholders must be received by the Company by
January 15, 1999 for inclusion in its Proxy Statement and form of proxy relating
to that meeting. If the date of the next Annual Meeting is advanced or delayed
by more than 30 calendar days from the date of the annual meeting to which this
Proxy Statement relates, the Company shall, in a timely manner, inform its
shareholders of the change, and the date by which proposals of shareholders must
be received.
UPON THE WRITTEN REQUEST OF ANY RECORD OR BENEFICIAL OWNER OF COMMON STOCK
OF THE COMPANY WHOSE PROXY WAS SOLICITED IN CONNECTION WITH THE 1998 ANNUAL
MEETING OF SHAREHOLDERS, THE COMPANY WILL FURNISH SUCH OWNER, WITHOUT CHARGE, A
COPY OF ITS ANNUAL REPORT ON FORM 10-K FOR THE YEAR ENDED DECEMBER 31, 1997
WITHOUT EXHIBITS. REQUESTS FOR A COPY OF SUCH ANNUAL REPORT ON FORM 10-K SHOULD
BE ADDRESSED TO DONALD E. ELLIS, JR., SENIOR VICE PRESIDENT, THE PROFIT RECOVERY
GROUP INTERNATIONAL, INC., 2300 WINDY RIDGE PARKWAY, SUITE 100 NORTH, ATLANTA,
GEORGIA 30339-8426.
IT IS IMPORTANT THAT PROXIES BE RETURNED PROMPTLY. SHAREHOLDERS WHO DO NOT
EXPECT TO ATTEND THE MEETING IN PERSON ARE URGED TO SIGN, COMPLETE, DATE AND
RETURN THE PROXY CARD IN THE ENCLOSED ENVELOPE, TO WHICH NO POSTAGE NEED BE
AFFIXED.
By Order of the Board of Directors:
/s/ JOHN M.COOK
JOHN M. COOK
Chairman of the Board
and Chief Executive Officer
Dated: May 15, 1998
26
<PAGE> 29
(The Profit Recovery Group International LOGO)
<PAGE> 30
APPENDIX
THE PROFIT RECOVERY GROUP INTERNATIONAL, INC.
PROXY SOLICITED ON BEHALF OF THE BOARD OF DIRECTORS
FOR USE AT THE ANNUAL MEETING ON JUNE 15, 1998
The undersigned Shareholder hereby appoints John M. Cook, Donald E. Ellis,
Jr., Clinton McKellar, Jr. or any of them, with full power of substitution, to
act as proxy for, and to vote the stock of, the undersigned at the Annual
Meeting of Shareholders of THE PROFIT RECOVERY GROUP INTERNATIONAL, INC. (the
"Company") to be held on June 15, 1998, and any adjournments thereof. The
undersigned acknowledges receipt of this Notice of Annual Meeting of
Shareholders and Proxy Statement, each dated May 15, 1998, and grants authority
to said proxies, or their substitutes, and ratifies and confirms all that said
proxies may lawfully do in the undersigned's name, place and stead. The
undersigned instructs said proxies to vote as indicated hereon. PLEASE VOTE,
SIGN, DATE AND RETURN THIS PROXY CARD PROMPTLY USING THE ENCLOSED ENVELOPE.
1. ELECTION OF CLASS II DIRECTORS.
[ ] FOR election of the individuals set forth below as Class II directors
(except as marked to the contrary)
[ ] REFRAIN FROM VOTING FOR election of the individuals set forth below as
directors
NOMINEES: Stanley B. Cohen, Jonathan Golden and Garth H. Greimann
(INSTRUCTION: To withhold authority to vote for any individual nominee(s),
write that person's name on the space provided below.)
- --------------------------------------------------------------------------------
(Continued on the Reverse Side)
2. Resolution to approve The Profit Recovery Group International, Inc. Stock
Incentive Plan, which increases by one million shares the number of
shares of Company Common Stock which may be granted under stock options,
stock appreciation rights, and other stock awards as compared to the
Company's existing 1996 Stock Option Plan.
<TABLE>
<S> <C> <C>
FOR [ ] AGAINST [ ] ABSTAIN [ ]
</TABLE>
3. Resolution to approve The Profit Recovery Group International, Inc.
Executive Incentive Plan.
<TABLE>
<S> <C> <C>
FOR [ ] AGAINST [ ] ABSTAIN [ ]
</TABLE>
4. Upon such other matters as may properly come before the meeting or any
adjournment thereof.
THE PROXIES SHALL VOTE AS SPECIFIED ABOVE, OR IF NO DIRECTION IS MADE, THIS
PROXY WILL BE VOTED FOR EACH OF THE LISTED PROPOSALS.
Dated: , 1998
--------------------
--------------------------------
(Signature)
--------------------------------
(Signature)
(Shareholders should sign
exactly as name appears on
stock. Where there is more than
one owner, each should sign.
Executors, Administrators,
Trustees and others signing in a
representative capacity should
so indicate.)
Please enter your Social
Security Number or Federal
Employer Identification Number
here:
--------------------------------
