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UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
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FORM 8-K
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CURRENT REPORT
PURSUANT TO SECTION 13 OR 15(D) OF THE
SECURITIES EXCHANGE ACT OF 1934
Date of Report (Date of earliest event reported): JULY 19, 2005
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PRG-SCHULTZ INTERNATIONAL, INC.
(Exact name of registrant as specified in its charter)
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GEORGIA 000-28000 58-2213805
(State or Other Jurisdiction (Commission File Number) (IRS Employer
of Incorporation) Identification No.)
600 GALLERIA PARKWAY, SUITE 100
(Address of principal executive office) (zip code)
Registrant's telephone number, including area code: (770) 779-3900
N/A
(Former name or former address, if changed since last report)
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Check the appropriate box below if the Form 8-K filing is intended to
simultaneously satisfy the filing obligation of the registrant under any of the
following provisions (see General Instruction A.2. below):
[_] Written communications pursuant to Rule 425 under the Securities Act (17
CFR 230.425)
[_] Soliciting material pursuant to Rule 14a-12 under the Exchange Act (17 CFR
240.14a-12)
[_] Pre-commencement communications pursuant to Rule 14d-2(b) under the
Exchange Act (17 CFR 240.14d-2(b))
[_] Pre-commencement communications pursuant to Rule 13e-4(c) under the
Exchange Act (17 CFR 240.13e-4(c))
ITEM 1.01. ENTRY INTO A MATERIAL DEFINITIVE AGREEMENT.
See Item 5.02 below, the contents of which are incorporated herein by reference,
for the terms of Mr. McCurry's employment agreement, including the attached
forms of option and indemnification agreement, a copy of which is filed herewith
as Exhibit 99.3 and incorporated by reference herein.
See Item 8.01 below, the contents of which are incorporated herein by reference,
for the terms of Mr. Cole's form of retainer agreement, including the attached
forms of option and indemnification agreement, a copy of which is filed herewith
as Exhibit 99.2 and incorporated by reference herein.
See Item 1.02 below, the contents of which are incorporated herein by reference,
for the terms of Mr. Cook's and Mr. Toma's severance.
Beginning with the next meeting of the Board of Directors, or a committee
thereof, or of the Company's shareholders following July 19, 2005, Mr. Greimann
will be compensated as a non-employee director pursuant to the Company's
standard arrangements for all non-employee directors other than the Presiding
Director and Chairman of the Board, as described in the Company's proxy
statement for its 2005 annual meeting of shareholders under the heading
"Information about the Board of Directors and Committees of the Board--Director
Compensation." See Item 8.01 below regarding the assumption of the duties of
Presiding Director by Mr. Cole.
ITEM 1.02. TERMINATION OF A MATERIAL DEFINITIVE AGREEMENT.
Termination of Mr. Toma's Employment Agreement and Approval of Severance
On July 19, 2005, as announced in the press release filed as Exhibit 99.1 hereto
and incorporated herein by reference, John Toma, Vice Chairman, gave notice of
termination of his employment agreement with PRG-Schultz USA, Inc., a wholly
owned subsidiary of PRG-Schultz International, Inc. (the "Company"), and the
Company accepted his resignation. The Compensation Committee of the Board has
approved and the independent members of the Board have ratified severance
payments to be made to Mr. Toma, subject to him and the Company agreeing in
principle upon the terms of a separation and release agreement which will set
forth Mr. Toma's severance benefits and contain standard releases and covenants.
Mr. Toma's resignation as Vice Chairman is effective as of July 25, 2005, and
his last day of employment will be July 31, 2005.
Pursuant to his severance, conditioned upon successful negotiation of a
separation and release agreement, Mr. Toma will be entitled to receive the
following:
1. In equal bi-weekly installments consistent with the Company's payroll
practices, commencing February 1, 2006, $1,502,304.08 to be paid over two (2)
years from that date.
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2. Upon expiration of COBRA coverage for either of Mr. Toma or his spouse or
both (as applicable), PRG Schultz USA shall assist Mr. Toma and/or his spouse in
obtaining an individual health insurance policy which provides health coverage
on terms substantially similar to those provided under COBRA coverage (the
"Individual Replacement Policy"). PRG Schultz USA shall pay all premiums for any
Individual Replacement Policy for Mr. Toma and his spouse up to $20,000 per
calendar year in the aggregate, which maximum amount shall be increased each
calendar year commencing January 1, 2003, by a percentage equal to the
percentage increase in the consumer price index occurring since January 1, 2002.
Upon Mr. Toma and/or his wife becoming enrolled for Medicare coverage, the
obligation of PRG Schultz USA with respect to the Individual Replacement Policy
shall terminate but PRG Schultz USA shall become responsible for paying (or
reimbursing Mr. Toma and/or his spouse for) any premiums required by Medicare
for Part A or B coverage and for any premiums associated with any supplemental
individual insurance policy selected and obtained by Mr. Toma and/or his spouse
for each up to the age of 80, respectively. In no event, however, shall PRG
Schultz USA's obligation pursuant to the immediately preceding sentence exceed
$20,000 per year, as adjusted by the CPI escalator described above. PRG Schultz
USA's obligations with respect to Mr. Toma and/or his spouse under this
paragraph shall terminate upon Mr. Toma or his spouse becoming covered under a
group health plan sponsored by any other employer due to the employment of Mr.
Toma or his spouse.
If a separation and release agreement is successfully negotiated, the
obligations set forth in 1. and 2. above will be in full satisfaction of, and in
lieu of, any and all obligations previously owed to Mr. Toma by the Company
pursuant to his employment agreement and/or change of control agreement with the
Company, the provisions of which were previously disclosed in Company filings
with the SEC.
In addition, as a condition to his receipt of the severance, Mr. Toma must
acknowledge that his restricted stock award of 40,000 shares of Company common
stock granted on February 14, 2005 will automatically be forfeited and cancelled
as of July 31, 2005, and he will agree to forfeit and cancel as of July 31, 2005
certain of his vested Company stock options. All of Mr. Toma's remaining options
to purchase Company stock are also vested and will remain exercisable through
their natural terms.
The foregoing terms are concurrently being negotiated between Mr. Toma and the
Company.
There are no material relationships between Mr. Toma and the Company other than
Mr. Toma's position with the Company, his ownership of Company securities, and
as otherwise disclosed in the Company's proxy statement for its annual meeting
of shareholders held May 3, 2005, under the headings "Executive Compensation,"
"Certain Transactions" and "Ownership of Directors, Principal Shareholders and
Certain Executive Officers," which disclosures are incorporated by reference
herein.
Termination of Mr. Cook's Employment Agreement and Approval of Severance
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As previously disclosed in a Report on Form 8-K filed on June 8, 2005, Mr. Cook
had announced his intent to retire and resign from the Board upon the Company's
hiring of a new Chief Executive Officer. On July 19, 2005, concurrently with the
Board's appointment of Mr. McCurry, Mr. Cook tendered his resignation from the
Board and as President and Chief Executive Officer, effective July 25, 2005. Mr.
Cook's last day of employment will be July 31, 2005. The Compensation Committee
of the Board has approved and the independent members of the Board have
ratified, severance payments to be made to Mr. Cook, subject to him and the
Company agreeing in principle upon the terms of a separation and release
agreement which will set forth Mr. Cook's severance benefits and contain
standard releases and covenants.
Pursuant to his severance, conditioned upon successful negotiation of a
separation and release agreement, Mr. Cook will be entitled to receive the
following:
1. In equal bi-weekly installments consistent with the Company's payroll
practices, commencing February 1, 2006, $5,512,423.14 to be paid over three (3)
years from that date.
2. Upon expiration of COBRA coverage for either of Mr. Cook or his spouse or
both (as applicable), PRG Schultz USA shall assist Mr. Cook and/or his spouse in
obtaining an individual health insurance policy which provides health coverage
on terms substantially similar to those provided under COBRA coverage (the
"Individual Replacement Policy"). PRG Schultz USA shall pay all premiums for any
Individual Replacement Policy for Mr. Cook and his spouse up to $25,000 per
calendar year in the aggregate, which maximum amount shall be increased each
calendar year commencing January 1, 2003, by a percentage equal to the
percentage increase in the consumer price index occurring since January 1, 2002.
Upon Mr. Cook and/or his wife becoming enrolled for Medicare coverage, the
obligation of PRG Schultz USA with respect to the Individual Replacement Policy
shall terminate but PRG Schultz USA shall become responsible for paying (or
reimbursing Mr. Cook and/or his spouse for) any premiums required by Medicare
for Part A or B coverage and for any premiums associated with any supplemental
individual insurance policy selected and obtained by Mr. Cook and/or his spouse
for each up to the age of 80, respectively. In no event, however, shall PRG
Schultz USA's obligation pursuant to the immediately preceding sentence exceed
$25,000 per year, as adjusted by the CPI escalator described above. PRG Schultz
USA's obligations with respect to Mr. Cook and/or his spouse under this
paragraph shall terminate upon Mr. Cook or his spouse becoming covered under a
group health plan sponsored by any other employer due to the employment of Mr.
Cook or his spouse.
If a separation and release agreement is successfully negotiated, the
obligations set forth in 1. and 2. above will be in full satisfaction of, and in
lieu of, any and all obligations previously owed to Mr. Cook by the Company
pursuant to his employment agreement with the Company, the provisions of which
were previously disclosed in Company filings with the SEC.
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In addition, as a condition to his receipt of the severance, Mr. Cook must agree
to forfeit and cancel as of July 31, 2005 the following Company stock options,
which either are currently vested or will vest upon the termination of his
employment: (i) 110,295 shares dated December 31, 1996 with an exercise price of
$10.6667 per share, (ii) 129,995 shares dated December 31, 1997 with an exercise
price of $11.8333 per share, and (iii) 200,000 shares dated January 24, 2002
with an exercise price of $9.28 per share. All of Mr. Cook's remaining options
to purchase Company stock are also vested and will remain exercisable through
their natural terms.
The foregoing terms are concurrently being negotiated between Mr. Cook and the
Company.
There are no material relationships between Mr. Cook and the Company other than
Mr. Cook's position with the Company, his ownership of Company securities, and
as otherwise disclosed in the Company's proxy statement for its annual meeting
of shareholders held May 3, 2005, under the headings "Executive Compensation,"
"Certain Transactions" and "Ownership of Directors, Principal Shareholders and
Certain Executive Officers," which disclosures are incorporated by reference
herein.
ITEM 2.02 RESULTS OF OPERATIONS AND FINANCIAL CONDITION.
The information provided pursuant to this Item 2.02 is to be considered "filed"
under the Securities Exchange Act of 1934 ("Exchange Act") and incorporated by
reference into those filings of the Company that provide for the incorporation
of all reports and documents filed by the Company under the Exchange Act.
On July 20, 2005, The Company issued a press release announcing, among other
things, its preliminary results for the quarter ended June 30, 2005. The Company
hereby incorporates by reference herein the information set forth in its Press
Release dated July 20, 2005, a copy of which is attached hereto as Exhibit 99.1.
Except as otherwise provided in the press release, the press release speaks only
as of the date of such press release and such press release shall not create any
implication that the affairs of the Company have continued unchanged since such
date.
Except for the historical information contained in this Item 2.02, the
statements made by the Company are forward-looking statements that involve risks
and uncertainties. All such statements are subject to the safe harbor created by
the Private Securities Litigation Reform Act of 1995. The company's future
financial performance could differ significantly from the expectations of
management and from results expressed or implied in the Press Release. See the
risk factors contained in the Press Release for a discussion of certain risks
and uncertainties that may impact such forward looking statements. For further
information on other risk factors, please refer to the "Risk Factors" contained
in the Company's Form 10-K for the year ended December 31, 2004 and Form 10-Q
for the quarter ended March 31, 2005, filed with the Securities and Exchange
Commission. The Company disclaims any obligation or duty to update or modify
these forward-looking statements.
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ITEM 5.02. DEPARTURE OF DIRECTORS OR PRINCIPAL OFFICERS;
ELECTION OF DIRECTORS; APPOINTMENT OF PRINCIPAL OFFICERS
Appointment of President and Chief Executive Officer and Director
On July 19, 2005, as announced in the press release filed as Exhibit 99.1 hereto
and incorporated herein by reference, the Company's Board of Directors appointed
James B. McCurry to serve as the Company's President and Chief Executive
Officer, effective July 25, 2005. On the same date, also effective July 25,
2005, the Board appointed Mr. McCurry to fill the vacancy left on the Board due
to Mr. Cook's resignation. Mr. McCurry has not been named to, and there are no
current plans to name him to, any Board committees.
Mr. McCurry's Business Experience.
Mr. McCurry, age 56, served as President of the Printing Division of Kinko's, a
wholly owned subsidiary of FedEx Corporation from March 2003 to May 2005,
serving as a consultant to that company from that time to date. From May 2001
until March 2003, Mr. McCurry was an independent management consultant, except
for his tenure as chief executive officer of Broder Brothers, a privately owned
wholesale distributor of imprintable sportswear from July to October of 2002.
From May 2000 until May 2001, he was Chief Executive Officer of an e-commerce
subsidiary of Fleming Companies, Inc. From July 1997 until May 2000, Mr. McCurry
was a partner with Bain & Company, an international management consulting firm
specializing in corporate strategy. Mr. McCurry has also served as a member of
the Board of Directors of Interstate Hotels and Resorts, Inc., a New York Stock
Exchange listed company, since 1998.
Mr. McCurry's Employment Contract.
On July 20, 2005 the Company and Mr. McCurry entered into an employment
agreement with an effective date of July 25, 2005 and containing the following
material terms:
1. Appointment. Mr. McCurry will serve as President and Chief Executive
Officer of the Company. The Board is obligated to nominate him to the
Board. Subject to shareholder elections, he will serve on the Board through
the time of his employment, with no additional compensation for services as
a director.
2. Share Ownership Program. Mr. McCurry will be obligated to participate in
any share ownership program for officers or directors adopted by the
Company.
3. Base Salary. Mr. McCurry's initial salary will be $500,000 per year. The
Compensation Committee may increase his salary, but may not decrease his
salary unless the Company institutes a salary reduction generally
applicable to senior executives of the Company.
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4. Annual Bonuses. For fiscal year 2005, Mr. McCurry is entitled to receive
a bonus equal to 70% of his base salary ($350,000), prorated based on the
number of days he is employed during the year. For fiscal year 2006 and
thereafter, Mr. McCurry will be eligible to earn an annual performance
bonus as follows:
o Upon the achievement of annual "target" performance goals, to be set
by the Compensation Committee in advance of each fiscal year, a bonus
equal to 70% of his salary.
o Upon the achievement of annual "maximum" performance goals, to be set
by the Compensation Committee, a bonus equal to 140% of base salary.
o If the Company's performance falls between the "target" and "maximum"
performance goals, he will receive an amount between 70% and 140% of
his salary, according to a formula to be set by the Compensation
Committee.
5. Inducement Stock Option Grant. Mr. McCurry is entitled to receive a
stock option to purchase 2 million shares of the Company's Common Stock,
which will be awarded outside of the Company's shareholder-approved stock
incentive plan, pursuant to an exemption from the Nasdaq National Market
shareholder approval requirements that is available for qualified
inducement grants. The option will not constitute an incentive stock option
under Section 422 of the Internal Revenue Code of 1986. The option will be
issued on July 29, 2005, following the setting of the exercise price at the
closing price of the Common Stock on the NASDAQ National Market on that
date. The Company is required to file a Registration Statement on Form S-8
with respect to the option and the underlying shares of common stock as
soon as practicable. The form of the option agreement is attached as an
exhibit to Mr. McCurry's employment agreement, which is filed as Exhibit
99.3 hereto and is incorporated by reference herein. The option will be
subject to the following additional terms:
o Time Vesting. One of two tranches of the option, representing the
right to purchase 500,000 shares, will become exercisable on July 29,
2006, if Mr. McCurry has remained continuously employed by the Company
as of that date.
o Performance Vesting. The second tranche (the balance of the option),
representing the right to purchase 1.5 million shares, will be subject
to specific performance criteria and become exercisable in three
tiers, as follows:
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o Tier 1, representing the right to purchase 500,000 shares, will
become exercisable at any time after July 29, 2006, if the
closing market price per share of the Company's Common Stock is
$4.50 (Target A) or higher for 45 consecutive trading days after
July 29, 2006.
o Tier 2, representing the right to purchase an additional 500,000
shares, will become exercisable at any time after July 29, 2007,
if the closing market price per share of the Company's Common
Stock is $6.50 (Target B) or higher for 45 consecutive trading
days after July 29, 2007.
o Tier 3, representing the right to purchase the final 500,000
shares, will become exercisable at any time after July 29, 2008,
if the closing market price per share of the Company's Common
Stock is $8.00 (Target C) or higher for 45 consecutive trading
days after July 29, 2008.
The Compensation Committee will have discretion to accelerate the
exercisability of any or all of the performance-based tranche without
regard to whether the price targets have been met.
o Acceleration. The exercisability of the option will accelerate under
certain circumstances as follows:
o If Mr. McCurry's employment is terminated by the Company without
Cause or by Mr. McCurry for Good Reason (each as defined in the
employment agreement), the following portions of the
performance-based tranche of his option will become exercisable:
* all shares underlying any tier for which the target price
has been met for 45 consecutive trading days; PLUS
* a prorated portion of Tier 2, based on the extent to which
the Company's Common Stock attained a market price exceeding
Target A for at least 45 consecutive trading days; PLUS
* a prorated portion of Tier 3, based on the extent to which
the Company's Common Stock attained a market price exceeding
Target B for at least 45 consecutive trading days.
o Upon a Change in Control (as defined in Mr. McCurry's employment
agreement), or if the Company ceases to be a reporting company under
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the Exchange Act, as amended, any portion of the time-vesting tranche
not yet vested will become exercisable.
o Upon a Change in Control (as defined in Mr. McCurry's employment
agreement), or if the Company ceases to be a reporting company under
the Exchange Act, as amended, a prorated portion of the
performance-based tranche will become exercisable, based upon the
extent to which the transaction price per share (or if there is no
transaction resulting in the Company ceasing to be a reporting
company, the closing price of the Company's common stock immediately
preceding its ceasing to be a reporting company) exceeds the target
price set for the vesting of the relevant tier.
o Term. The option will expire on July 29, 2012, except as follows:
o Unvested (i.e., not yet exercisable) portions of the option will
be forfeited upon termination of employment, except to the extent
accelerated as provided above.
o Vested portions that have not yet been exercised will remain
exercisable:
* for 75 calendar days following termination of employment for
any reason other than death, disability or for Cause; and
* for one year following termination of employment due to
death or disability.
o Vested portions will be forfeited on the date of termination, if
termination is for Cause.
o Transferability. The option may only be transferred by will or by the
laws of descent and distribution, or for no consideration to or for
the benefit of certain specified members of Mr. McCurry's immediate
family.
6. Standard Benefits. Mr. McCurry will be eligible to participate in the
Company's standard benefits package, on the same basis as other senior
executives of the Company.
7. Vacation. Mr. McCurry will be entitled to four weeks of paid vacation
per year.
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8. Indemnification. The Company and Mr. McCurry have entered into an
indemnification agreement that provides that Mr. McCurry shall be
indemnified by the Company with respect to certain expenses and liabilities
incurred by him because he is an officer or director of the Company or is
acting at its request; provided that he acted in good faith and in a manner
he reasonably believed to be in or not opposed to the best interests of the
Company, and with respect to any criminal action or proceeding, he had no
reasonable cause to believe his conduct was unlawful. Mr. McCurry is also
entitled to receive advances from the Company with respect to expenses
incurred in connection with the foregoing upon providing the Company with a
written request for same and providing certain representations in
connection therewith. The form of the indemnification agreement is attached
as an exhibit to Mr. McCurry's employment agreement, a copy of which is
filed as Exhibit 99.3 hereto, and is incorporated by reference herein.
9. Professional Fees. The Company will reimburse Mr. McCurry for his
reasonable professional fees and costs incurred in connection with the
negotiation and execution of his employment agreement, up to $15,000.
10. Term. The agreement expires on July 25, 2008, subject to automatic
renewal for a one-year term unless either party has given the other 30
days' written notice.
11. Severance. Mr. McCurry will be entitled to certain severance payments
if his employment is terminated: (i) by the Company without "Cause," as
that term is defined in his agreement, or (ii) by Mr. McCurry for "Good
Reason," as that term is defined in his agreement. In either instance, Mr.
McCurry's severance benefits will be as follows:
o Lump Sum Payment. If his employment terminates within the first
sixteen (16) months, he will be entitled to a lump sum payment equal
to .125 times the number of months he has worked for the Company,
further multiplied by his "Average Annual Compensation." "Average
Annual Compensation" means:
o Salary. If his employment terminates during fiscal year 2005, his
base salary in 2005; OR, if his employment terminates after
December 31, 2005, the average of his base salary for the final
two fiscal years of his employment, including the year in which
his employment terminates; PLUS
o Bonus. If his employment terminates before January 1, 2007, 70%
of his base salary for fiscal year 2005 (prorated based on the
number of days employed during 2005, if his employment terminates
during 2005); OR, if his employment terminates during fiscal year
2007, any actual annual bonus paid with respect to fiscal year
2006; OR, if his employment terminates after December 31, 2007,
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the average of any actual annual bonuses paid or payable with
respect to the last two full fiscal years immediately prior to
the year in which his employment terminates.
If his employment terminates more than 16 months following the date of
his appointment, his lump sump payment will equal two times his
Average Annual Compensation.
Other Benefits. Mr. McCurry will be entitled to continue participation in
the Company's medical and dental plans until the earlier of (a) his
coverage under another employer's (or any other) medical or dental plans
and (b) the second anniversary of the termination of his employment.
However, if his continued participation is barred, he is entitled to
receive, during that same period, monthly reimbursement for any premiums
paid by him to obtain comparable benefits.
12. COBRA Premiums. Until the expiration of any applicable waiting periods
necessary for Mr. McCurry to commence participation in the Company's
healthcare plans, the Company shall reimburse him for the amounts paid by
him on account of premiums to FedEx Kinko's in connection with his rights
under COBRA to maintain the healthcare benefits provided to him under FedEx
Kinko's healthcare plans.
13. Additional Covenants. The agreement contains restrictive covenants,
including non-compete and anti-solicitation provisions extending two years
after termination of his employment, as well as standard confidentiality
obligations.
14. Release. In order to collect any severance benefits, Mr. McCurry is
obligated to sign and return a release agreement, the form of which is
attached to Mr. McCurry's employment agreement, a copy of which is filed as
Exhibit 99.3 to this Form 8-K and is incorporated by reference herein.
Pursuant to the release agreement, Mr. McCurry releases all current or
future claims, known or unknown, arising on or before the date of the
release against the Company or any direct and indirect subsidiary, parent,
affiliated, or related company of the Company, or their respective officers
or directors.
Certain Relationships and Transactions.
There are no material relationships between Mr. McCurry and the Company other
than Mr. McCurry's position with the Company, his ownership of Company
securities, and as otherwise disclosed above.
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ITEM 5.03. AMENDMENTS TO ARTICLES OF INCORPORATION OR BYLAWS; CHANGE IN FISCAL
YEAR.
Effective July 19, 2005, the Board of Directors of the Company amended the
Company's Bylaws to change the title of Article 6 to "Chairman of the Board and
Officers" from its previous title, "Officers," and to delete Section 6.2 in its
entirety and replace it with the following:
"6.2 Chairman of the Board. If a Chairman of the Board is elected by the
directors, the Chairman will preside at all meetings of shareholders and
directors and shall have and perform such other duties as from time to time may
be assigned by the Board of Directors. The Chairman of the Board shall not be
deemed an officer of the Corporation unless designated as such by a resolution
of the Board of Directors."
The prior text of Section 6.2 read as follows:
"6.2 Chairman of the Board. If a Chairman of the Board is elected by the
directors, the Chairman shall preside at all meetings of shareholders and
directors, and, unless otherwise provided by law, when the signature of the
President is required the Chairman shall possess the same power as the President
to sign all certificates, contracts, and other instruments of the Corporation.
The Chairman shall have such other powers and duties as the Board may prescribe
from time to time."
A copy of the Bylaw amendment is attached as Exhibit 3.1 hereto and is
incorporated by reference herein.
ITEM 8.01. OTHER EVENTS.
Designation of Chairman of the Board
In connection with Mr. Cook's retirement from office and from the Board of
Directors, on July 19, 2005, the Board designated Mr. Cole to serve as Chairman
of the Board, effective July 25, 2005. Mr. Cole will assume the duties of
Presiding Director, which were previously performed by Mr. Greimann. Mr. Cole
will not be an officer or employee of the Company, and as described under Item
5.03 above, the Company has amended its Bylaws to provide that the Chairman of
the Board position is not an officer position unless so designated by the Board.
Mr. Cole's Retainer Agreement
The terms under which Mr. Cole has accepted the enhanced duties of the Chairman
position, and his resulting director compensation, are set forth in a retainer
agreement to be formally executed with an effective date of July 25, 2005. A
copy of the retainer agreement, including the option agreement and
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indemnification agreement that are attached as exhibits thereto, is filed as
Exhibit 99.2 to this Form 8-K and incorporated by reference herein. The material
terms of Mr. Cole's retainer agreement are as follows:
1. Appointment. Mr. Cole will serve as Chairman of the Board until his
successor is appointed, and the terms of the retainer agreement will govern
his duties and compensation until such time, or, if sooner, until the 2008
annual meeting of shareholders.
2. Duties. Mr. Cole has agreed to undertake on behalf of the Board certain
duties and obligations as more particularly set forth in the retainer
agreement. Among these undertakings, Mr. Cole has committed to regularly
attend and preside at Company shareholders' meetings and Board meetings;
serve on and preside over appropriate committees as reasonably requested by
the Board; set meeting schedules; establish meeting agendas (in
consultation with the CEO); set and establish agendas for regularly
scheduled executive sessions of the non-employee and independent members of
the Board; lead the Board in the exercise of its corporate oversight
functions, including assignment of specific tasks to Board committees or
individual members of the Board; manage information flow to the Board to
facilitate appropriate understanding of and discussion regarding matters of
interest or concern to the Board; be available to the Company at mutually
convenient times and places; attend external meetings and presentations (as
appropriate and convenient); and advise the CEO regarding the corporate
strategy and business plan of the Company and its divisions and
subsidiaries, including efforts to improve the operating and financial
performance of the Company and efforts to develop and grow the Company's
business. The final approval of the Company's business plan and corporate
strategy remain subject to full Board approval, however.
Mr. Cole has acknowledged that his duties as Chairman are expected to
require commitment of the equivalent of two days per week of his business
time and attention over the first six months of his service as Chairman,
one to two days per week for the following six months, and one day per week
thereafter. However, Mr. Cole's duties may at times require more or less
than that time commitment.
3. Non-executive Status. Mr. Cole will not be an employee or agent of the
Company with authority to bind the Company in any respect. As Chairman, Mr.
Cole will not participate in any employee benefit plans or receive any
other benefits of employment.
4. Cash Retainer. Upon his appointment, Mr. Cole became entitled to receive
an initial cash retainer fee of $42,000, in recognition of the significant
amount of time recently spent by him in fulfilling Board duties following
the announcement by Mr. Cook of his impending retirement. In addition,
while he serves as Chairman of the Board, he will be entitled to a monthly
cash retainer fee, payable on the first day of each month, in the following
amounts:
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o From August 1, 2005 through December 31, 2005, $42,000 per month;
o From January 1, 2006 through June 30, 2006, $16,000 per month;
and
o From July 1, 2006 and thereafter, $12,500 per month.
5. Option Grant. In addition, Mr. Cole is entitled to receive a
non-qualified option to purchase 450,000 shares of the common stock of the
Company. The option will be issued on July 29, 2005, pursuant to the
Company's Stock Incentive Plan, and the exercise price will be set at the
closing price of the Company's common stock on the Nasdaq National Market
on that date. The terms of Mr. Cole's option grant are summarized below:
o Time-vesting. The time-vesting tranche of his option,
representing the right to purchase 150,000 shares, will become
exercisable on the earlier of the 2006 annual meeting of
shareholders and June 30, 2006.
o Performance-vesting. The performance-vesting tranche,
representing the balance of his option, will be exercisable as
follows:
(a) Tier 1, representing the right to purchase 100,000
shares, will become exercisable at any time after the
earlier of the 2006 annual meeting of shareholders and June
30, 2006 (the "2006 Vesting Date"), if the Company attains
Target A for 45 consecutive trading days after the 2006
Vesting Date.
(b) Tier 2, representing the right to purchase an additional
100,000 shares, will become exercisable at any time after
the earlier of the 2006 Vesting Date, if the Company attains
Target B for 45 consecutive trading days after the 2006
Vesting Date. In addition, on the 2007 Vesting Date, as
defined below, if Target B has not been attained for
45consecutive trading days, but the Company's Common Stock
has exceeded Target A for 45 consecutive trading days, a
prorated portion of Tier 2 will become exercisable.
(c) Tier 3, representing the right to purchase an additional
100,000 shares, will become exercisable at any time after
the earlier of the 2007 annual meeting of shareholders and
June 30, 2007 (the "2007 Vesting Date"), if the Company
attains Target C for 45 consecutive trading days after the
2007 Vesting Date. On the 2007 Vesting Date, if Target C has
not been attained for 45 consecutive trading days, but the
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Company's Common Stock has exceeded Target B for 45
consecutive trading days, a prorated portion of Tier 3 will
become exercisable.
The Compensation Committee will have the discretion to direct
acceleration of the exercisability of any or all of the
performance-based tranche without regard to whether the price
targets have been met. However, if Mr. Cole is currently serving
on the Committee at the time, then any determination as to
acceleration will exclude him.
o Acceleration. Unvested portions of Mr. Cole's option will vest
without regard to the criteria set forth above under the
circumstances provided below :
o Death and Disability. If Mr. Cole ceases to be a director
due to death or disability, a prorated portion of the
time-vesting tranche, if not yet vested, will become
exercisable, based upon the number of days Mr. Cole served
as director. If he ceases to be a director due to death or
disability before that date that is 45 consecutive trading
days after the 2006 Vesting Date, the following portions of
the performance-based tranche will become exercisable: (A) a
prorated portion of Tier 1 based on dividing the days he
served in office by 365, if Target A was met for 45
consecutive trading days, plus (B) a prorated portion of
Tier 2 based on dividing the days he served in office by
365, if Target B was met was met for 45 consecutive trading
days. If he ceases to be a director prior to the date that
is 45 consecutive trading days after the 2007 Vesting Date,
then a prorated portion of Tier 3 based on dividing the days
he served in office by 730 will become exercisable, if
Target C was met for 45 consecutive days.
o Change in Control and Cessation of Public Reporting Status.
Upon a Change in Control (as defined in Mr. Cole's option
agreement), or if the Company ceases to be a reporting
company under the Securities Exchange Act of 1934, as
amended, any portion of the time-vesting tranche not yet
vested will become exercisable, and a prorated portion of
the performance-based tranche will become exercisable, based
upon the extent to which the transaction price per share (or
if there is no transaction resulting in the Company ceasing
to be a reporting company, the closing price of the
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Company's common stock immediately preceding its ceasing to
be a reporting company) exceeds the target price set for the
vesting of the relevant tier.
o Term. Unless sooner terminated, the option will expire on July
29, 2012. The option will terminate earlier under the following
circumstances:
o Unvested portions of the option will be forfeited if Mr.
Cole's membership on the Board terminates for any reason.
o Vested portions that have not yet been exercised will remain
exercisable following termination of his service as Chairman
as follows:
* if his service terminates before the earlier of the
2006 annual meeting of shareholders and June 30, 2006,
for that number of days equal to 15 times the number of
months he has served as Chairman;
* if his service terminates after that date but prior to
the earlier of the 2007 annual meeting of shareholders
and June 30, 2007, for one year following termination
of his service;
* if his service terminates after that date but prior to
the earlier of the 2008 annual meeting of shareholders
and June 30, 2008, for 18 months following termination
of his service; and
* if his service terminates following that date, for two
years following termination of his service.
To the extent that he remains a member of the Board following his
retirement as Chairman, unvested options held by Mr. Cole will continue to
vest if the relevant criteria are met and will be subject to the
termination schedule set forth above for vested options.
6. Anti-Solicitation Covenant. Mr. Cole has also agreed not to solicit or
recruit any of the Company's employees while he is serving, or during two
years following termination of his service, as Chairman.
7. Professional Fees. The Company will reimburse Mr. Cole for his
reasonable professional fees incurred in connection with the negotiation
and execution of the retainer agreement up to a maximum of $15,000.
8. Indemnification. The Company and Mr. Cole have entered into an
indemnification agreement that provides that Mr. Cole shall be indemnified
by the Company with respect to certain expenses and liabilities incurred by
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him because he is Chairman of the Board or a director of the Company or is
acting at its request; provided that he acted in good faith and in a manner
he reasonably believed to be in or not opposed to the best interests of the
Company, and with respect to any criminal action or proceeding, he had no
reasonable cause to believe his conduct was unlawful. Mr. Cole is also
entitled to receive advances from the Company with respect to expenses
incurred in connection with the foregoing upon providing the Company with a
written request for same and providing certain representations in
connection therewith. The form of the indemnification agreement is attached
as an exhibit to Mr. Cole's retainer agreement, a copy of which is filed as
Exhibit 99.2 hereto, and is incorporated by reference herein.
There are no material relationships between Mr. Cole and the Company other than
Mr. Cole's service as a director and as Chairman of the Board and his ownership
of Company securities, as disclosed herein and in the Company's proxy statement
for its annual meeting of shareholders held May 3, 2005, under the heading
"Ownership of Directors, Principal Shareholders and Certain Executive Officers,"
which disclosures are incorporated by reference herein.
ITEM 9.01. FINANCIAL STATEMENTS AND EXHIBITS.
(a) Financial Statements of Businesses Acquired.
Not applicable.
(b) Pro Forma Financial Information.
Not applicable.
(c) Exhibits.
Exhibit
Number Description
----------- ----------------------------------------------------------
3.1 Bylaw amendment effective July 19, 2005
99.1 Press Release dated July 20, 2005
99.2 Form of Retainer Agreement between the Registrant and David
Cole to be dated effective July 25, 2005
99.3 Employment Agreement between the Registrant and James
McCurry dated July 20, 2005
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SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934,
PRG-Schultz International, Inc. has duly caused this report to be signed on its
behalf by the undersigned hereunto duly authorized.
PRG-SCHULTZ INTERNATIONAL, INC.
Date: July 25, 2005 By: /s/ Clinton McKellar, Jr.
---------------------------------
Clinton McKellar, Jr.
General Counsel and Secretary
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