<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 MAY 11, 1999
---------------------
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
Ritz-Carlton Hotel, Buckhead, 3434 Peachtree Road, NE, Atlanta, Georgia, on May
11, 1999 at 9:00 a.m., for the following purposes:
1. To elect two Class I directors to serve until the Annual Meeting of
Shareholders held in 2000 and until their successors are elected and
qualified.
2. To elect one Class II director to serve until the Annual Meeting of
Shareholders held in 2001 and until his successor is elected and qualified.
3. To elect four Class III directors to serve until the Annual Meeting
of Shareholders held in 2002 and until their successors are elected and
qualified.
4. To consider a proposal to approve an amendment to The Profit
Recovery Group International, Inc. Stock Incentive Plan, which increases by
1,750,000 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 number of shares of Company Common Stock
currently available for issuance thereunder.
5. To transact such other business as may properly come before the
meeting or any adjournments thereof.
The Proxy Statement dated April 5, 1999 is attached. Only record holders of
the Company's Common Stock, no par value per share, at the close of business on
March 26, 1999, 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: April 5, 1999
A copy of the Annual Report of The Profit Recovery Group International,
Inc. for the year ended December 31, 1998 containing financial statements is
enclosed.
<PAGE> 3
LOGO THE PROFIT RECOVERY GROUP INTERNATIONAL
2300 WINDY RIDGE PARKWAY
SUITE 100 NORTH
ATLANTA, GA 30339-8426
---------------------
PROXY STATEMENT
FOR ANNUAL MEETING OF SHAREHOLDERS
APRIL 5, 1999
---------------------
GENERAL INFORMATION
This Proxy Statement is furnished in connection with the solicitation by
the Board of Directors of The Profit Recovery Group International, Inc. ("PRG"
or the "Company") of proxies for use at the 1999 Annual Meeting of Shareholders
to be held on May 11, 1999, at 9:00 a.m., at the Ritz-Carlton Hotel, Buckhead,
3434 Peachtree Road, N.E., 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 April 5, 1999. 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 March 26, 1999 (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 26,968,739 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 amendment to The Profit
Recovery Group International, Inc. Stock Incentive Plan (the "Stock 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, (i) the two nominees in Class I; (ii) the nominee in Class II and
(iii) the four nominees in Class III receiving the highest vote totals will be
elected as directors of the Company at the Annual Meeting. It is expected that
shares beneficially owned by executive officers and directors of the Company,
which in the aggregate represent approximately 21.6% of the outstanding shares
of Common Stock, will be voted in favor of management's nominees for director
and in favor of the amendment to the Stock Incentive Plan. 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 proposal to approve the amendment to the Stock 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, and FOR the proposal
to approve the amendment to the Stock Incentive Plan which provides for an
increase by 1,750,000 shares of the number of shares of Common Stock which may
be issued thereunder.
ELECTION OF DIRECTORS
The Company currently has ten directors. The Board authorized an increase
in the number of directors to 12 and has nominated Thomas S. Robertson and
Jackie M. Ward to fill the newly created directorships. 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 to serve for the three-year term or portion thereof applicable to the
class for which such directors are nominated or until their successors are
elected and qualified. At the Annual Meeting, the Shareholders will elect two
directors to serve as Class I directors, one director to serve as a Class II
director and four directors to serve as Class III directors.
Marc Eisenberg and Ronald K. Loder were previously elected by the Board of
Directors as Class I directors and are therefore required to be elected by the
Shareholders at the Annual Meeting, while Mr. Lowrey, who was formerly a Class
III director, has been reclassified as a Class II director and must also be
elected by the Shareholders at the Annual Meeting, since his term as a director
will expire at that time. The terms of Messrs. Lachotzki and Lustig, currently
serving as Class III directors, will expire at the Annual Meeting, and they must
be elected by the Shareholders at the meeting. Ms. Ward and Mr. Robertson, who
are not currently directors of the Company, have been nominated for election as
Class III directors at the Annual Meeting.
The proxy holders intend to vote FOR election of all the nominees named
below as directors of the Company, unless otherwise specified in the proxy.
Directors of the Company elected at the Annual Meeting to be held on May 11,
1999 to serve as Class I directors will serve one year or until their successors
are elected and qualified. The director elected to serve as a Class II director
will serve for two years or until his successor is elected and qualified. Those
directors elected to serve as Class III directors will serve for three years or
until their successors are elected and qualified. Any incumbent director
subsequently elected as a Class I, II, or III director will serve as a director
for three years or until such director's successor is 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
2
<PAGE> 5
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.
With the exception of Mr. Robertson and Ms. Ward, who are nominated for
election to the Board for the first time, each of the individuals listed below
as nominees for the Board of Directors was a director of the Company during
1998. The name and age of each director and the period during which he has
served as a director is set forth below:
Class I Director Nominees
<TABLE>
<CAPTION>
NAME OF NOMINEE AGE SERVICE AS NOMINEE
- --------------- --- ------------------
<S> <C> <C>
Marc Eisenberg.............................................. 43 Since October 1997
Ronald K. Loder............................................. 44 Since October 1998
</TABLE>
Class II Director Nominee
<TABLE>
<CAPTION>
NAME OF NOMINEE AGE SERVICE AS DIRECTOR
--------------- --- -------------------
<S> <C> <C>
E. James Lowrey(2)(3)....................................... 71 Since December 1995
</TABLE>
Class III Director Nominees
<TABLE>
<CAPTION>
NAME OF NOMINEE AGE SERVICE AS DIRECTOR
--------------- --- -------------------
<S> <C> <C>
Fred W. I. Lachotzki........................................ 52 Since January 1996
Michael A. Lustig........................................... 43 Since January 1998
Thomas S. Robertson......................................... 56 --
Jackie M. Ward.............................................. 59 --
</TABLE>
Directors Continuing in Office
<TABLE>
<CAPTION>
NAME OF DIRECTOR AGE SERVICE AS DIRECTOR
---------------- --- -------------------
<S> <C> <C>
John M. Cook(1)............................................. 56 Since November 1990
Stanley B. Cohen(1)(2)...................................... 55 Since November 1990
Jonathan Golden(1)(3)....................................... 61 Since November 1990
Garth H. Greimann(2)(3)..................................... 44 Since April 1995
John M. Toma(1)............................................. 53 Since November 1990
</TABLE>
- ---------------
(1) Member of the Executive Committee.
(2) Member of the Audit Committee.
(3) Member of the Compensation Committee.
Stanley B. Cohen is the President and sole director/shareholder of SBC
Financial Corporation ("SBC") and until March 31, 1999, was the President and
sole director/shareholder of Advisory Services, Ltd. ("ASL"). These companies
provide certain financial consulting and investment services to PRG and certain
of its executive officers. In addition, until December 31, 1998, Mr. Cohen was
President of Capital Advisory Corporation, a financial advisory company.
John M. Cook is Chairman of the Board and Chief Executive Officer of PRG
and has served in such capacities since founding PRG in November 1990. Mr. Cook
served as President of PRG from November 1990 through January 1998. Prior to
forming PRG, Mr. Cook served as President and Chief Operating Officer of 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.
Marc Eisenberg has served as President of the Directorate of Alma since the
acquisition of Alma by PRG in October 1997. Prior to October 1997, Mr. Eisenberg
served as President of Alma since its founding in 1986.
3
<PAGE> 6
Jonathan Golden has served as a Director of PRG since its founding in 1990
and provides consulting services to PRG through Jonathan Golden, P.C., a wholly
owned professional corporation ("JGPC"). Mr. Golden also serves through his
professional corporation as a partner in the Atlanta, Georgia law firm of
Arnall, Golden & Gregory, LLP, which provides legal services to PRG. Mr. Golden
also serves as a director for SYSCO Corporation, a distributor of food and
related products.
Garth H. Greimann has served since 1989 in two management positions, most
recently as Managing Director, of Berkshire Partners LLC, a private equity
investment firm that manages five investment funds. Mr. Greimann also has served
as a Managing Director of Third Berkshire Associates, A Limited Partnership,
which is the general partner of Berkshire Fund III, A Limited Partnership.
Berkshire Fund III makes private equity and equity-related investments in
established middle market companies. Prior to 1996, Mr. Greimann was an
individual general partner of Berkshire Fund III, A Limited Partnership. 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.
Fred W.I. Lachotzki has served since 1989 as a professor at Nijenrode
University, The Netherlands Business School, in The Netherlands, most recently
as a Philip Morris Professor of Strategic Entrepreneurship. Mr. Lachotzki also
serves as a director of NVS 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.
Ronald K. Loder joined PRG in August 1998 as President and Chief Executive
Officer of the Company's Loder Drew Division as a result of its acquisition by
PRG. Prior to joining PRG, Mr. Loder was President and Chief Executive Officer
of Loder, Drew & Associates, Inc., which he co-founded in 1985.
E. James Lowrey served as Executive Vice President -- Finance and
Administration of SYSCO Corporation from 1978 until his retirement in 1993 and
was a director of SYSCO Corporation 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. In January 1999 Mr. Lustig was elected to the additional position of
Chief Operating Officer. 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.
Thomas S. Robertson is the Dean of the Goizueta Business School at Emory
University, a position he assumed in July 1998. Prior to taking this position at
Emory University, he was a member of the faculty of the London Business School,
with his most recent position being Deputy Dean.
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. Mr. Toma is
married to the sister of Maria A. Neff, an executive officer of the Company.
Jackie M. Ward is President and Chief Executive Officer of Computer
Generation Incorporated, a provider of turn-key telecommunications systems
products and data processing services that she co-founded in 1968. She serves as
a director of BankAmerica Corporation, a banking and financial services company,
Equifax, Inc., a provider of credit and payment information services, Flowers
Industries, Inc., a producer of baked foods, Matria Healthcare, Inc., a provider
of specialized home healthcare services, Premiere Technologies, Inc., a provider
of enhanced communication services, SCI Systems, Inc., a diversified electronics
manufacturer, and Trigon Healthcare, Inc., a managed healthcare company.
Except as described above, no family relationship exists among any of the
directors and executive officers of the Company.
4
<PAGE> 7
INFORMATION ABOUT THE BOARD OF DIRECTORS
AND COMMITTEES OF THE BOARD
MEETINGS OF THE BOARD OF DIRECTORS
During 1998, there were nine meetings of the Board of Directors. Each
incumbent director who was a director during 1998 attended more than 75% of 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 of options under the Company's Stock Incentive Plan to Directors
not employed by the Company to purchase from 2,500 to 7,500 shares of Common
Stock; 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. As a result of the 56.9% increase in 1998 earnings per share over 1997
earnings per share, each of the five non-employee directors was awarded options
to purchase 7,500 shares of Common Stock at $37.44 per share.
Jonathan Golden, a director of the Company, provides consulting services to
the Company through JGPC. Mr. Golden is the sole shareholder of JGPC. During
1998 the Company paid JGPC aggregate consulting fees of approximately $70,000.
The Company currently pays JGPC a consulting fee of $3,000 per month. The
consulting agreement may be terminated by either party for any reason upon not
less than 30 days prior notice. In addition, the Company has paid the law firm
of Arnall, Golden & Gregory, LLP, of which JGPC serves as a partner,
compensation for legal services rendered since 1991 and expects to continue
utilizing this firm's services in the 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 1998 for these income tax services was
approximately $4,000.
Stanley B. Cohen, a director of the Company, provides financial advisory
services to the Company through SBC and until March 31, 1999, provided financial
and investment advisory services to the Company and certain of its executive
officers through ASL. Mr. Cohen is the President and sole director/shareholder
of SBC and until March 31, 1999, was the President and sole director/shareholder
of ASL. During 1998, the Company paid SBC aggregate consulting fees of
approximately $70,000 and paid ASL consulting fees of approximately $24,000 for
providing financial advisory services to the Company and to certain of the
Company's executive officers. The Company expects to continue utilizing the
services of SBC in the future. The Company currently pays SBC a consulting fee
of $3,000 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 1998 for these income tax services was
approximately $9,500.
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 $53,600 as of March 26, 1999).
5
<PAGE> 8
AUDIT COMMITTEE
The Company's Audit Committee consists of three outside directors: Messrs.
Cohen, Greimann and Lowrey. The Audit Committee met two times in 1998. 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: Messrs. Golden, Greimann and Lowrey. The Compensation Committee met
six times in 1998. 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 Stock Incentive
Plan, the Executive Incentive 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"
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 1998. 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 some 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.
6
<PAGE> 9
The following objectives were used by the Compensation Committee in
designing the Company's 1998 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 1998, 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 1998 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 audit 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. 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 public company, however, the Compensation Committee decided to reduce
the level of emphasis on 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 1998, the
Compensation Committee considered several factors, including current industry
practices, external market surveys of similarly sized companies, and review of
peer group compensation. For 1998, 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.
Based on these considerations, in 1998 the annual salaries of Mr. Cook
(Chief Executive Officer), Mr. Toma (Vice Chairman), Mr. Kramer (Chief
Information Officer) and Mr. Ellis (Chief Financial Officer) were not increased.
The 1998 annual salary of Mr. Lustig (President and Chief Operating Officer) was
increased to reflect a promotion.
Annual Incentive Compensation
The 1998 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 1998 annual
incentive compensation for Messrs. Cook, Toma and Lustig was based solely on
Company pro forma earnings per share attainment. Annual incentive compensation
in 1998 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 1998 annual incentives for each executive
officer contained threshold targets for each incentive component to ensure that
no annual
7
<PAGE> 10
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 Stock Incentive Plan (as successor
in interest to the 1996 Stock Option Plan). All executive officers have received
option grants under the Stock Incentive Plan. The use of stock options is meant
to align the interests of key executives and shareholders. All options granted
to executive officers under the Stock Incentive Plan through March 26, 1999 have
been at fair market value on date of the grant. Subject to two exceptions, all
option grants vest ratably over five years of continuous employment with the
Company. The exceptions are as follows: (i) a 1998 grant for Mr. Lustig that
vests over a four-year period and (ii) a 1999 grant to Mr. Kramer that vests
over a two-year period. The Compensation Committee grants options to key
employees of the Company, including the 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.
In August 1998, the Company made an award to Mr. Lustig an award under the
Company's Stock Incentive Plan of 42,000 restricted shares of Common Stock which
are subject to a prohibition on transfer of unvested shares. The shares awarded
vest at the rate of 6,000 shares on each successive anniversary of the award.
Vesting will be accelerated upon a change in control of the Company or if Mr.
Lustig is not selected to succeed Mr. Cook as Chief Executive Officer of the
Company. This award was made to provide a longer-term incentive for Mr. Lustig
to continue his employment with the Company.
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.
Compensation of Chief Executive Officer
On March 20, 1996, Mr. Cook signed a revised employment agreement with the
Company. This agreement currently expires in the year 2003, 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.
The Compensation Committee decided not to increase Mr. Cook's annual salary
for 1998 in order to emphasize performance based compensation.
8
<PAGE> 11
An annual incentive compensation arrangement pursuant to the Management and
Professional Incentive Plan was established for Mr. Cook pursuant to which he
was eligible to earn an annual cash incentive of up to 150% of his annual salary
if the Company achieved certain pro forma earnings per share goals for 1998. The
target goal for 1998 was established at $0.76 per share, which represented a
38.2% increase over the Company's 1997 pro forma earnings per share of $0.55 per
share. The Company achieved earnings per share of $0.80 in 1998, which
represented a 45.4% increase over the Company's 1997 pro forma earnings per
share. Mr. Cook earned a cash bonus of $359,800 (103% of his base salary) for
1998 performance.
Mr. Cook's employment agreement provided that option grants would be made
with respect to 1998 if earnings per share exceeded the level achieved in 1997
by certain specified percentages, generally 30% or greater. The Company's 1998
pro forma earnings per share achievement entitled Mr. Cook to a grant effective
as of December 31, 1998 of options to purchase 120,000 shares of Common Stock at
$37.44 per share, which represented the fair market value of the Company's
common stock on that date. The options granted pursuant to this employment
agreement provision vest ratably and prospectively over five years.
COMPENSATION COMMITTEE
E. James Lowrey, Chairman
Jonathan Golden
Garth H. Greimann
9
<PAGE> 12
EXECUTIVE COMPENSATION
The following table sets forth the compensation paid or accrued by the
Company to the Chief Executive Officer and the other four most highly paid
executive officers of the Company in 1998 (the "Named Executive Officers"). The
information presented is for the years ended December 31, 1998, 1997 and 1996.
SUMMARY COMPENSATION TABLE
<TABLE>
<CAPTION>
LONG-TERM
COMPENSATION
ANNUAL COMPENSATION(1) ------------------------
-------------------------------------------- RESTRICTED SECURITIES
SALARY BONUS OTHER ANNUAL STOCK UNDERLYING ALL OTHER
NAME AND POSITION YEAR ($)(2)(3) ($)(3) COMPENSATION($)(4) AWARD($)(5) OPTIONS(#) COMPENSATION($)(6)
- ----------------- ---- ------------ -------- ------------------ ----------- ---------- ------------------
<S> <C> <C> <C> <C> <C> <C> <C>
John M. Cook................ 1998 $350,012 $359,800 $ -- $ -- 120,000 $ 9,124
Chairman of the Board 1997 350,012 350,000 -- -- 86,663 18,402
and Chief Executive
Officer 1996 356,731 262,500 -- -- 223,530 15,475
John M. Toma................ 1998 305,994 125,827 -- -- 80,000 58,952
Vice Chairman 1997 305,994 114,750 -- -- -- 57,180
1996 307,609 122,400 -- -- 100,000 67,050
Michael A. Lustig........... 1998 299,538 154,200 -- 981,750 340,000 42,230
President and Chief
Operating 1997 264,596 90,100 -- -- 135,000 20,000
Officer 1996 211,269 67,302 -- -- 51,500 20,000
Robert G. Kramer(7)......... 1998 225,000 52,043 65,528 -- -- 25,000
Executive Vice President
and 1997 42,900 3,629 -- -- -- 5,208
Chief Information Officer
Donald E. Ellis, Jr......... 1998 175,000 71,393 -- -- 15,000 26,446
Senior Vice President,
Chief 1997 172,115 64,922 -- -- -- 26,446
Financial Officer and 1996 160,000 56,000 -- -- 10,000 26,446
Treasurer
</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 by the Named Executive Officers to the Company's
401(k) Plan during the years presented.
(3) Includes amounts that the Named Executive Officers have elected to defer
under the deferred compensation program for such officers.
(4) Includes $50,328 for relocation and $14,600 for car allowance for Mr.
Kramer.
(5) As of December 31, 1998, the only restricted stock held by the Named
Executive Officers were 42,000 shares of Common Stock awarded to Mr. Lustig
in August 1998. At December 31, 1998 these shares had a value of $1,572,480.
These shares vest ratably over seven years of continued employment unless
either a change in control occurs, in which case all unvested shares
immediately vest, or Mr. Lustig does not succeed Mr. Cook as Chief Executive
Officer of the Company, in which case all unvested shares immediately vest
270 days after the appointment of another person as Chief Executive Officer
of the Company. If the Company declares any dividends or distributions with
respect to such restricted shares, Mr. Lustig will be entitled to receive
such dividends or distributions.
(6) Consists of:
(a) Premiums for supplemental term life insurance paid by the Company on
behalf of Mr. Lustig -- $1,330 for 1998; and Mr. Ellis -- $1,446 for
each of 1998, 1997 and 1996.
10
<PAGE> 13
(b) Annual contributions by the Company to the deferred compensation
programs for the Named Executives.
Deferred Compensation
<TABLE>
<CAPTION>
1998 1997 1996
------- ------- -------
<S> <C> <C> <C>
Mr. Cook....................................... $ - $ - $ -
Mr. Toma....................................... 55,000 55,000 56,000
Mr. Lustig..................................... 40,000 20,000 20,000
Mr. Kramer..................................... 25,000 5,208 -
Mr. Ellis...................................... 25,000 25,000 25,000
</TABLE>
(c) Annual matching contributions to the Company's 401(k) Plan made by the
Company on behalf of Messrs. Cook, Toma and Lustig: for 1998 -- $900
each, for 1997 -- $450 each and for 1996 -- $450 for Messrs. Cook and
Toma only.
(7) Amounts shown for 1997 reflect compensation for Mr. Kramer from October 13,
1997 when he began employment with the Company.
OPTION GRANTS TABLE
The following table sets forth certain information regarding options
granted to the Named Executive Officers during the year ended December 31, 1998.
No separate stock appreciation rights were granted during 1998.
STOCK OPTION GRANTS IN LAST FISCAL YEAR
<TABLE>
<CAPTION>
POTENTIAL REALIZABLE
NUMBER OF PERCENT OF VALUE AT ASSUMED
SECURITIES TOTAL ANNUAL RATES OF STOCK
UNDERLYING OPTIONS EXERCISE PRICE APPRECIATION FOR
OPTIONS GRANTED TO OR BASE OPTION TERM
GRANTED EMPLOYEES PRICE EXPIRATION -----------------------
NAME (#)(1) IN 1998 ($/SH) DATE 5%($) 10%($)
- ---- ---------- ---------- -------- ---------- ---------- ----------
<S> <C> <C> <C> <C> <C> <C>
John M. Cook.................. 120,000 7.0% $37.44 12/31/08 $2,825,498 $7,160,366
John M. Toma.................. 25,000 1.6% 15.75 08/21/08 247,627 627,536
55,000 3.3% 37.44 12/31/08 1,295,020 3,281,834
Michael A. Lustig............. 250,000 14.6% 23.38 01/27/08 3,675,103 9,313,433
90,000(2) 5.4% 37.44 12/31/08 2,119,123 5,370,275
Donald E. Ellis, Jr........... 15,000 1.0% 15.75 01/27/08 148,576 376,522
</TABLE>
- ---------------
(1) Unless otherwise footnoted, options are non-qualified options granted under
the Stock Incentive Plan. All options have ten-year terms and 20% becomes
exercisable on the anniversary of grant and an additional 20% becomes
exercisable on each grant date anniversary thereafter; provided, however,
that Mr. Cook's options will vest automatically upon the occurrence of
certain events. See "-- Employment Agreements."
(2) These options have ten-year terms and vest as follows: 25% becomes
exercisable on the anniversary of grant and an additional 25% becomes
exercisable on each grant date anniversary thereafter.
11
<PAGE> 14
OPTION EXERCISES AND YEAR-END VALUE TABLE
None of the Named Executive Officers held or exercised SARs during 1998.
The following table sets forth certain information regarding options exercised
during the year ended December 31, 1998, and unexercised options held at
year-end, by each of the Named Executive Officers.
AGGREGATED OPTION EXERCISES IN 1998 AND OPTION VALUES AT DECEMBER 31, 1998
<TABLE>
<CAPTION>
NUMBER OF SECURITIES VALUE OF UNEXERCISED
SHARES UNDERLYING UNEXERCISED IN-THE-MONEY OPTIONS AT
ACQUIRED OPTIONS AT FISCAL YEAR-END FISCAL YEAR-END
ON VALUE (#) ($)(1)
EXERCISE REALIZED --------------------------- ---------------------------
NAME (#) ($) EXERCISABLE UNEXERCISABLE EXERCISABLE UNEXERCISABLE
- ---- -------- -------- ----------- ------------- ----------- -------------
<S> <C> <C> <C> <C> <C> <C>
John M. Cook..................... - $ - 106,745 323,448 $2,558,067 $4,689,951
John M. Toma..................... - - 40,000 140,000 1,057,520 2,128,370
Michael A. Lustig................ 10,600 154,300 41,800 474,100 884,458 6,361,006
Robert G. Kramer................. 7,000 28,000 125,566 502,264
Donald E. Ellis, Jr.............. 28,000 665,300 - 69,000 - 2,026,572
</TABLE>
- ---------------
(1) Calculated based on a fair market value of $37.44 per share of Common Stock
at December 31, 1998, less the applicable exercise prices.
EMPLOYMENT AGREEMENTS
The Company has entered into an employment agreement, as amended, with John
M. Cook that currently expires December 31, 2003. 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 1999 through 2003, Mr. Cook will receive an annual base salary of
$400,000 and an annual bonus of up to 150% of his base salary based upon the
Company's performance for the respective year. For 1999, the Compensation
Committee determined that Mr. Cook also is eligible to receive options with
respect to up to a maximum of 300,000 shares of Common Stock if 1999 earnings
per share are greater than 150% of 1998 earnings per share. Should 1999 earnings
per share be at least 125% of 1998 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 1999 earnings per share are between 126% and
149% of 1998 earnings per share. Any options so granted to Mr. Cook shall be
granted at fair market value as of the end of 1999 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, Robert G. Kramer, and Donald E. Ellis, Jr., each of which
will expire December 31, 1999 and provides for automatic one-year renewals upon
the expiration of each year of employment, subject to prior notice of
12
<PAGE> 15
nonrenewal by the Board of Directors. Messrs. Toma, Lustig, Ellis and Kramer
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.
For 1999 Mr. Toma will receive a base salary of $325,000 with a maximum
potential bonus of 60% of his base salary based upon the Company's 1999
performance. The Compensation Committee determined that Mr. Toma is eligible to
receive additional options with respect to up to a maximum of 150,000 shares of
Common Stock if 1999 earnings per share are 150% or more of 1998 earnings per
share. Should 1999 earnings per share be at least 125% of 1998 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 1999 earnings
per share are between 126% and 149% of 1998 earnings per share. Any options so
granted to Mr. Toma shall be granted at fair market value as of the end of 1999
and will vest over a five-year period at 20% per year. In addition, the Company
has agreed to make annual contributions in the amount of $55,000 per year to a
deferred compensation program for Mr. Toma, which amounts will vest 50%
immediately and the remainder over a ten-year period. 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
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).
For 1999, the Compensation Committee increased Mr. Lustig's annual base
salary to $325,000 with a maximum potential bonus of 75% of his base salary
based upon the Company's performance for 1999. The Compensation Committee has
determined that Mr. Lustig also is eligible to receive additional options up to
a maximum of 225,000 shares of Common Stock if 1999 earnings per share are 150%
or more of 1998 earnings per share. Should 1999 earnings per share be at least
125% of 1998 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 1999 earnings per share are between 126% and 149% of 1998
earnings per share. Any options so granted to Mr. Lustig shall be granted at
fair market value as of the end of 1999, and will vest over a five-year period
at 20% per year. Beginning in 1998, Mr. Lustig has elected to reduce his annual
base salary by $40,000 and to contribute such amount to a deferred compensation
program for his benefit, which amount vests immediately. In addition, the
Company has agreed to make annual matching contributions in the amount of
$40,000 per year to such deferred compensation program, which amounts will vest
over a ten-year period. 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. In August 1998 Mr. Lustig was awarded
42,000 restricted shares of Common Stock subject to a prohibition on transfer of
unvested shares. Under the terms of the award, so long as Mr. Lustig remains
employed by the Company the shares vest ratably over seven years, unless either
a change in control occurs, in which case all unvested shares immediately vest,
or Mr. Lustig does not succeed Mr. Cook as Chief Executive Officer, in which
case all unvested shares immediately vest 270 days after the appointment of
another person as Chief Executive Officer of the Company. 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.
For 1999, Mr. Ellis 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 1999. On January 19, 1999, the Compensation Committee
granted Mr. Ellis options to purchase 20,000 shares of Common Stock at a
purchase price of $33.25 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
13
<PAGE> 16
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 1999, the Compensation Committee increased Mr. Kramer's base salary to
$235,000 (effective March 1, 1999). Mr. Kramer elected to defer payment of
$25,000 of his base salary pursuant to a deferred compensation plan. Pursuant to
Mr. Kramer's employment agreement, for 1999, he will receive a bonus of up to
40% of his annual salary based in part upon the Company's performance for the
year. On January 19, 1999 the Compensation Committee granted Mr. Kramer options
to purchase 20,000 shares of Common Stock at a purchase price per share of
$33.25 per share, vesting over a two-year period at 20% on the first anniversary
of the Grant Date and 100% on the second anniversary of the Grant Date. In
addition, the Company agreed to make annual matching contributions in the
aggregate amount of $25,000 per year to Mr. Kramer's deferred compensation
program, which amounts vest over a ten-year period. Mr. Kramer will be entitled
to receive his vested deferred compensation upon termination of his employment
for any reason other than cause, including death or disability. The Company also
has agreed to provide Mr. Kramer with certain other personal benefits. Upon
termination, other than for cause or by voluntary resignation, Mr. Kramer will
receive severance payments equal to six months' adjusted annual base salary.
STOCK INCENTIVE PLAN
On June 15, 1998, the Company, with the approval of its shareholders,
adopted its Stock Incentive Plan. The Stock Incentive Plan provides for the
grant of options to acquire a maximum of 4,500,000 shares of Common Stock,
subject to certain adjustments. As of March 26, 1999, options for 3,838,953
shares were outstanding (after adjustment for forfeitures) and options for
350,540 shares had been exercised. Options 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
March 26, 1999, approximately 1,400 employees (including officers) and five
non-officer directors of the Company were eligible to participate in the Stock
Incentive Plan. Unless sooner terminated by the Board, the Plan terminates in
June 2008. The Company is proposing an amendment to the Stock Incentive Plan to
increase by 1,750,000 the number of shares authorized for issuance thereunder.
See "Proposal to Approve Increase In Authorized Shares Under 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 March
26, 1999 approximately 1,200 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 savings deferrals
of from 1% to 15% of their compensation each year,
14
<PAGE> 17
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
Mr. Loder owns 75% of the common stock of Camino Capistrano Corporation,
formerly known as Loder, Drew & Associates, Inc. ("Loder Drew"). Under the terms
of the Earnout Agreement dated as of July 1, 1998 between the Company and Loder
Drew in connection with the acquisition of substantially all the assets of Loder
Drew, Camino Capistrano Corporation is eligible to receive from the Company two
additional cash payments for the periods ending December 31, 1998 and 1999 if
certain earnings targets are achieved by the Loder Drew division of the Company.
The Loder Drew division achieved its earnings targets for the first earnout
period, which ended December 31, 1998, and Camino Capistrano Corporation was
paid $30,000,000 on March 29, 1999.
The following members of Mr. Cook's immediate family are employed by the
Company as field auditors or audit managers and received compensation in 1998 in
the approximate amounts set forth beside their names: David H. Cook,
brother -- $193,000 consisting of $175,000 salary and $18,000 bonus; Harriette
L. Cook, sister-in-law -- $90,000 salary; Pamela M. Cook, sister -- $116,000
consisting of $115,000 salary and $1,000 bonus; Patricia Sluiter,
sister -- $69,000 in commissions; Allen R. Sluiter, brother-in-law -- $101,000
in commissions; and M. Christine Cook, daughter -- $52,000 in commissions.
Mr. Toma's sister-in-law, Maria A. Neff, is employed with the Company as
Senior Vice President of Human Resources. For 1998, the Company paid Ms. Neff
compensation of approximately $105,000.
See "Director Compensation" for a discussion of certain additional
transactions.
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 1998, all Section 16(a) filing requirements applicable to its
executive officers, directors and greater than 10% beneficial owners were
complied with.
PROPOSAL TO APPROVE INCREASE IN AUTHORIZED SHARES UNDER
THE PROFIT RECOVERY GROUP INTERNATIONAL, INC.
STOCK INCENTIVE PLAN
THE BOARD OF DIRECTORS RECOMMENDS A VOTE "FOR" THIS PROPOSAL.
In June 1998, the Board and the Company's shareholders approved the Stock
Incentive Plan. As of March 26, 1999, options for 3,838,953 shares were
outstanding under the Stock Incentive Plan (after adjustment for forfeitures)
and options to purchase 350,540 shares of Common Stock had been exercised.
Unless sooner terminated by the Board, the Stock Incentive Plan terminates in
June 2008. As of March 26, 1999, an additional 310,507 shares remained available
under the Stock Incentive Plan for issuance in
15
<PAGE> 18
connection with future option grants thereunder. Subject to shareholder
approval, the Board has approved an amendment to the Stock Incentive Plan which
provides for an increase by 1,750,000 shares of the number of shares of Company
Common Stock that may be granted thereunder. The material provisions of the
Stock Incentive Plan are summarized below.
ELIGIBILITY FOR PARTICIPATION UNDER THE STOCK INCENTIVE PLAN
Options, stock appreciation rights ("SARs") and stock awards ("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 1,400 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 a 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 currently 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.
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 earlier of (1) June 14, 2008; 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
16
<PAGE> 19
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, and Messrs. Lowrey and Greimann comprise the
Subcommittee. 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 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.
AMENDED PLAN BENEFITS
During 1998, and from January 1, 1999 through March 26, 1999, 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
Stock Incentive Plan were as set forth below. See "Summary Compensation Table"
and "Stock Option Grants in Last Fiscal Year" Table above for discussion
regarding the Stock Award made to Mr. Lustig in 1998 and the number of
securities underlying options granted to the Named Executive Officers. Mr. Cook
is eligible to receive annually options to purchase up to 300,000 shares of
Common Stock if the Company achieves certain earnings per share increases. For
1999, Mr. Lustig and Mr. Toma are eligible to receive options to purchase up to
225,000 and 150,000 shares, respectively, if the Company achieves certain
17
<PAGE> 20
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, 1999
1998 THROUGH MARCH 26, 1999
--------------------------- ---------------------------
EXERCISE PRICE EXERCISE PRICE
NUMBER OF OR RANGE OF NUMBER OF OR RANGE OF
GROUP OPTIONS EXERCISE PRICES OPTIONS EXERCISE PRICES
- ----- --------- --------------- --------- ---------------
<S> <C> <C> <C> <C>
Executive Officer Group................ 772,500 $15.75 - $37.44 82,500 $33.25
Non-Executive Director Group........... 37,500 $37.44 - -
All Employees excluding Executive
Officer Group........................ 932,250 $15.75 - $37.44 217,250 $32.88 - $38.56
</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.
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 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
18
<PAGE> 21
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; provided, however, that 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 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 vesting is conditioned solely upon continuous
service, the vesting schedule for Stock Awards shall cover a period of 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.
19
<PAGE> 22
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.
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 sale (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.
20
<PAGE> 23
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 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.
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.
21
<PAGE> 24
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 March 26, 1999 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 MARCH 26, 1999(1)
------------------------
BENEFICIAL OWNER SHARES PERCENTAGE
- ---------------- ---------- -----------
<S> <C> <C>
John M. Cook(2)(3).......................................... 3,362,142 12.4
John M. Toma(4)............................................. 562,592 2.1
Michael A. Lustig(5)........................................ 111,180 *
Marc S. Eisenberg(6)........................................ 146 *
Ronald K. Loder............................................. 575,369 2.1
Robert G. Kramer(7)......................................... 8,612 *
Donald E. Ellis, Jr.(8)..................................... 29,000 *
Stanley B. Cohen(9)......................................... 510,000 1.9
Jonathan Golden(10)......................................... 882,928 3.3
Garth H. Greimann........................................... 7,661 *
Fred W. I. Lachotzki(11).................................... 16,000 *
E. James Lowrey(11)......................................... 6,500 *
All executive officers and directors as a group (16
Persons)(12).............................................. 6,187,265 22.6
</TABLE>
- ---------------
* Less than one percent.
(1) Applicable percentage of ownership at March 26, 1999 is based upon
27,968,739 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 Mr. Cook is 2300 Windy Ridge Parkway, Suite 100
North, Atlanta, Georgia 30339-8426.
(3) Includes 1,132,684 shares held by the Cook Family Limited Partnership, for
which Mr. Cook serves as the general partner, 150,000 shares held by the
Cook Family Grantor Retained Annuity Trust for which Mr. Cook is trustee
and has sole investment and voting power with respect to such shares and
97,361 shares held by M. Lucy Cook, his spouse. Also includes 136,745
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. Does not include 819,393 shares held for the benefit of
John M. Cook pursuant to a Grantor Retained Annuity Trust for which James
R. Cook is trustee and has sole investment and voting power with respect to
such shares and 819,393 shares held for the benefit of M. Lucy Cook
pursuant to a Grantor Retained Annuity Trust for which M. Christine Cook
and M. Thomas Cook are co-trustees and have sole investment and voting
power with respect to such shares.
(4) Includes 37,360 shares held for the benefit of Mr. Toma for which Maria A.
Neff and Dorothy M. Toma, Mr. Toma's spouse, serve as co-trustees and share
investment and voting power with respect to such shares. Includes 183,924
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
M. Toma, 4,488 shares held by the Mary Caitlin Cook Trust, of which Mr.
Toma is the trustee, and 65,000 shares
22
<PAGE> 25
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) Includes 57,550 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) 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.
(7) Includes 7,000 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.
(8) Represents 29,000 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 122,251 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 6,000 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) Includes options to purchase 367,095 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 1,195,998 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.
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 or her earlier removal
by the Board or his or her resignation. The following table lists the executive
officers of the Company and their ages and offices with the Company.
<TABLE>
<CAPTION>
NAME AGE OFFICE WITH REGISTRANT
- ---- --- ----------------------
<S> <C> <C>
John M. Cook............................... 56 Chairman of the Board, Chief Executive
Officer and Director
John M. Toma............................... 53 Vice Chairman and Director
Michael A. Lustig.......................... 43 President, Chief Operating Officer and
Director
Marc S. Eisenberg.......................... 43 President of the Directorate of Alma and
Director
Ronald K. Loder............................ 44 President and Chief Executive Officer of
Loder Drew Division
Robert G. Kramer........................... 55 Executive Vice President and Chief
Information Officer
Donald E. Ellis, Jr........................ 47 Senior Vice President, Chief Financial
Officer and Treasurer
Clinton McKellar, Jr....................... 52 Senior Vice President, General Counsel and
Secretary
Tony G. Mills.............................. 42 Senior Vice President -- Corporate
Development
Maria A. Neff.............................. 41 Senior Vice President -- Human Resources
David A. Brookmire......................... 46 Senior Vice President -- Strategic Planning
and Business Integration
</TABLE>
23
<PAGE> 26
The employment histories of those executive officers who are not also
directors are set forth below:
Robert G. Kramer joined PRG in October 1997 as Executive Vice
President and Chief Information Officer. Prior to joining PRG, 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.
David A. Brookmire joined PRG 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. In September
1998 he was elected Senior Vice President -- Strategic Planning and
Business Integration.
Donald E. Ellis, Jr. joined PRG in 1995 as Senior Vice President,
Treasurer and Chief Financial Officer. From 1993 to 1995, Mr. Ellis served
as Vice President -- Finance, Treasurer and Chief Financial Officer of
Information America, Inc., a provider of on-line computer information
services, and from 1991 to 1993, he was an independent financial
consultant. Mr. Ellis is a certified public accountant.
Clinton McKellar, Jr. joined PRG in June 1997 as Senior Vice
President, General Counsel and Secretary. Prior to joining PRG, 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 has served as Senior Vice President -- Corporate
Development and Assistant Secretary since June 1997. Prior to that, he was
Senior Vice President -- Legal Affairs, General Counsel and Secretary and
had served in such capacities since joining PRG in October 1995. For 11
years prior to joining PRG, Mr. Mills was a shareholder in the Atlanta,
Georgia law firm of Silfen, Segal, Fryer & Shuster, P.C. and had provided
legal services to PRG through that firm since 1990. Mr. Mills remained as
Of Counsel to that firm through January 1996.
Maria A. Neff has served as Senior Vice President -- Human Resources
since September 1998. From 1991, when she joined PRG, until September 1998,
Ms. Neff held several management positions in operations, sales and
marketing and information technology. Ms. Neff is John M. Toma's
sister-in-law.
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: PRG), 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, 1998.
VALUE OF $100 INVESTED ON MARCH 26, 1996 AT:
<TABLE>
<CAPTION>
NASDAQ
STOCK HAMBRECHT
MEASUREMENT PERIOD MARKET- & QUIST
(FISCAL YEAR COVERED) PRG US TECHNOLOGY
<S> <C> <C> <C>
3/26/96 100 100 100
12/31/96 145 118 123
12/31/97 161 145 144
12/31/98 340 205 227
</TABLE>
Total return assumes reinvestment of any dividends.
25
<PAGE> 28
INDEPENDENT AUDITORS
The accounting firm of KPMG LLP are the independent auditors of the
Company. Approval or selection of the independent auditors 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 auditors 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 auditors 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
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 2000 Annual Meeting of Shareholders pursuant to Rule 14a-8 promulgated
under the Securities Exchange Act of 1934, as amended (the "Exchange Act"), must
be received by the Company by December 10, 1999 for inclusion in its Proxy
Statement and form of proxy relating to that meeting. In addition, all
shareholder proposals submitted outside of the shareholder proposal rules
promulgated pursuant to Rule 14a-8 under the Exchange Act must be received by
the Company by February 23, 2000 in order to be considered timely. If such
shareholder proposals are not timely received, proxy holders will have
discretionary voting authority with regard to any such shareholder proposals
which may come before the Annual Meeting. With regard to such shareholder
proposals, if the date of the 2000 Annual Meeting is subsequently advanced or
delayed by more than thirty days from the date of the 1999 Annual Meeting, the
Company shall, in a timely manner, inform stockholders of the change and the
date by which proposals 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 1999 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, 1998,
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: April 5, 1999
26
<PAGE> 29
(LOGO The Profit Recovery Group International, Inc.)
<PAGE> 30
THE PROFIT RECOVERY GROUP INTERNATIONAL, INC.
PROXY SOLICITED ON BEHALF OF THE BOARD OF DIRECTORS
FOR USE AT THE ANNUAL MEETING ON MAY 11, 1999
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 May 11, 1999, and any adjournments thereof. The
undersigned acknowledges receipt of this Notice of Annual Meeting of
Shareholders and Proxy Statement, each dated April 5, 1999, 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 Directors
<TABLE>
<S> <C> <C> <C> <C> <C>
[ ] FOR the nominees listed below [ ] FOR the nominees listed below [ ] WITHHOLD AUTHORITY to vote for
except as marked to the contrary all nominees listed below
</TABLE>
(Instruction: TO WITHHOLD AUTHORITY TO VOTE FOR ANY INDIVIDUAL NOMINEE,
strike a line through that nominee's name in the list below)
<TABLE>
<S> <C> <C> <C> <C>
CLASS I DIRECTORS Marc Eisenberg Ronald K. Loder
CLASS II DIRECTOR E. James Lowrey
CLASS III DIRECTORS Fred W. I. Lachotzki Michael A. Lustig Thomas S. Robertson Jackie M. Ward
</TABLE>
2. Resolution to approve an amendment to The Profit Recovery Group
International, Inc. Stock Incentive Plan, which increases by 1,750,000
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 number of shares currently authorized for issuance under the
Stock Incentive Plan.
FOR [ ] AGAINST [ ] ABSTAIN [ ]
3. 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 NOMINEES
AND FOR THE AMENDMENT TO THE STOCK INCENTIVE PLAN.
(Continued on the Reverse Side)
<PAGE> 31
Dated: ---------------- , 1999
------------------------------
(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:
------------------------------
