PRG-SCHULTZ INTERNATIONAL, INC.
As filed with the Securities and Exchange Commission on June 1, 2007
Registration No. 333-134698
UNITED STATES SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
POST-EFFECTIVE AMENDMENT NO. 1
to
FORM S-1
on
FORM S-3
REGISTRATION STATEMENT UNDER THE SECURITIES ACT OF 1933
PRG-SCHULTZ INTERNATIONAL, INC.
(Exact name of registrant as specified in its charter)
541600
(Primary Standard Industrial Classification Code Number)
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GEORGIA
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58-2213805 |
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(State or other jurisdiction of incorporation or organization)
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(I.R.S. Employer Identification No.) |
PRG-SCHULTZ INTERNATIONAL, INC.
600 Galleria Parkway
Suite 100
Atlanta, Georgia 30339
(770) 779-3900
(Address,
including zip code, telephone number, including area code, of registrants principal
executive offices)
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COPIES TO: |
Victor A. Allums
Senior Vice President
PRG-Schultz International, Inc.
600 Galleria Parkway
Suite 100
Atlanta, Georgia 30339
(770) 779-3900
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David W. Ghegan, Esq.
Troutman Sanders LLP
600 Peachtree Street, NE
Suite 5200
Atlanta, Georgia 30308
(404) 885-3139 |
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(Name, address, including zip code, and telephone number, including
area code, of agent for service) |
Approximate Date of Commencement of Proposed Sale To The Public: From time to time after
this Registration Statement becomes effective.
If any of the securities being registered on this Form are to be offered on a delayed or
continuous basis pursuant to Rule 415 under the Securities Act of 1933, check the following box. þ
If this Form is filed to register additional securities for an offering pursuant to Rule
462(b) under the Securities Act, please check the following box and list the Securities Act
registration statement number of the earlier effective registration statement for the same
offering. o
If this Form is a post-effective amendment filed pursuant to Rule 462(c) under the Securities
Act, check the following box and list the Securities Act registration statement number of the
earlier effective registration statement for the same offering. o
If this Form is a post-effective amendment filed pursuant to Rule 462(d) under the Securities
Act, check the following box and list the Securities Act registration statement number of the
earlier effective registration statement for the same offering. o
EXPLANATORY NOTE
The purpose of this Post-Effective Amendment No. 1 on Form S-3 constitutes a post-effective amendment to Registrants
Registration Statement on Form S-1, declared effective by the Securities and Exchange Commission on August 15, 2006, and is
being filed for the purpose of converting the Registration Statement on Form S-1 into a Registration Statement on Form S-3.
All filing fees payable in connection with the registration of the
securities covered hereby were previously paid in connection
with the filing on Form S-1.
THE INFORMATION IN THIS PROSPECTUS IS INCOMPLETE AND MAY BE CHANGED. THE SELLING SECURITYHOLDERS
MAY NOT SELL THESE SECURITIES UNTIL THE REGISTRATION STATEMENT FILED WITH THE SECURITIES AND
EXCHANGE COMMISSION IS EFFECTIVE. THIS PROSPECTUS IS NOT AN OFFER TO SELL THESE SECURITIES AND IS
NOT SOLICITING AN OFFER TO BUY THESE SECURITIES IN ANY STATE WHERE THE OFFER OR SALE IS NOT
PERMITTED.
SUBJECT TO COMPLETION, DATED JUNE 1, 2007
PROSPECTUS
PRG-SCHULTZ INTERNATIONAL, INC.
$24,400,314 in Principal Amount of 11.0% Senior Notes Due 2011
$22,816,767 in Principal Amount of 10.0% Senior Convertible Notes Due 2011
34,901 Shares ($4,571,343 Liquidation Preference, which may increase
to up to $6,500,912 to
satisfy dividends payable) of 9.0% Senior Series A
Convertible Participating Preferred Stock, and
3,561 Shares of Common Stock, No Par Value Per Share
This prospectus relates to the potential offer and sale from time to time of the
above-referenced securities by the securityholders identified on page [80] of this prospectus or in
any accompanying post-effective amendment or supplement to this prospectus. This prospectus may
also be used by the selling securityholders to offer:
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up to $10,893,990 in principal amount of additional 10.0% senior convertible
notes that may be issued in payment of interest on outstanding 10.0% senior convertible
notes; |
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up to 7,474,920 shares of common stock issuable upon conversion of the 10.0%
senior convertible notes and/or 9.0% senior series A preferred stock. |
On March 17, 2006, we closed an exchange offer in which we issued, in exchange for
$124,530,000 aggregate principal amount of our 43/4% Convertible Subordinated Notes due 2006,
$51,635,846 in principal amount of our 11% senior notes due 2011, $59,774,400 of our 10% senior
convertible notes due 2011, and 124,530 shares ($14,943,600 liquidation preference) of our 9%
senior series A convertible preferred stock. Selling securityholders may use this prospectus to
resell up to $24,400,314 of the senior notes, $22,816,767 of the senior convertible notes,
34,901 shares of the senior series A preferred stock, 3,561 shares of common stock, any
additional senior convertible notes issued in payment of interest on the senior convertible notes
registered, and common stock issuable upon conversion of the convertible notes, and the common
stock issuable upon conversion of the senior series A preferred stock.
None of the senior notes, the senior convertible notes or the senior series A convertible
preferred stock are listed for trading on any exchange or quotation system. Our common stock is
traded on The Nasdaq Global Market under the symbol PRGX. On May 31, 2007, the last reported
sales price of our common stock on The Nasdaq Global Market was $16.35 per share.
We will not receive any proceeds from the sale by the selling securityholders of the notes or
preferred stock or of common stock issuable upon conversion of the notes and preferred stock. Other
than selling commissions and fees and stock transfer taxes, we will pay all expenses of the
registration of the notes and the common stock and the other expenses specified in the registration
rights agreement.
Investing in the notes and preferred stock and the common stock issuable upon conversion of
the notes involves risks that are described in the Risk Factors section beginning on page 9 of
this prospectus.
NEITHER THE SECURITIES AND EXCHANGE COMMISSION NOR ANY STATE SECURITIES COMMISSION HAS
APPROVED OR DISAPPROVED OF THESE SECURITIES OR PASSED UPON THE ACCURACY OR ADEQUACY OF THIS
PROSPECTUS. ANY REPRESENTATION TO THE CONTRARY IS A CRIMINAL OFFENSE.
The date of this prospectus is June 1, 2007.
TABLE OF CONTENTS
As used in this prospectus, the terms we, us and our refer to PRG-Schultz
International, Inc., a Georgia corporation (PRG-Schultz), and its subsidiaries unless otherwise
stated.
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SUMMARY
This summary may not contain all of the information that you should consider before
investing in our notes.
The Company
We are the leading worldwide provider of recovery audit services to large and mid-size
businesses and government agencies having numerous payment transactions with many vendors. We serve
clients in over 30 countries. Businesses and government agencies with substantial volumes of
payment transactions involving multiple vendors, numerous discounts and allowances, fluctuating
prices and complex pricing arrangements or rate structures find it difficult to process every
payment correctly. Although the vast majority of payment transactions are processed correctly, a
small number of errors occur. These errors include, but are not limited to, missed or inaccurate
discounts, allowances and rebates, vendor pricing errors and duplicate payments. In the aggregate,
these transaction errors can represent significant amounts of cash flow for our clients. The
errors are caused by factors such as communication failures between the purchasing and accounts
payable departments, complex pricing arrangements or rate structures, personnel turnover and
changes in information and accounting systems.
Our trained, experienced industry specialists use sophisticated proprietary technology and
advanced recovery techniques and methodologies to identify overpayments to vendors. Our industry
specialists also review our clients current practices and processes related to procurement and
other expenses to manage and reduce expense levels, and also apply industry best practices to help
improve our clients business and efficiencies.
Our principal executive offices are located at 600 Galleria Parkway, Suite 100, Atlanta,
Georgia 30339, and our telephone number is (770) 779-3900.
The Offering
The following is a brief summary of the terms of this offering. For a more complete
description see Description of the Notes and Description of Capital Stock below.
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Issuer
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PRG-Schultz International, Inc. |
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Senior Notes offered
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$24,400,314 aggregate principal amount of 11.0% senior notes due March
15, 2011. |
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Senior Convertible Notes offered
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$22,816,767 aggregate principal amount of 10.0% senior convertible notes
due on March 15, 2011, plus up to $10,893,990 aggregate principal amount of
senior notes that may be issued in payment of interest on the senior
convertible notes registered. |
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Senior Series A Convertible Preferred Stock offered
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34,901 shares ($4,571,343 aggregate liquidation preference) of 9.0%
senior series A convertible preferred stock. The liquidation preference may
increase to up to $6,500,912 in satisfaction of dividends otherwise
payable in cash on the series A convertible preferred stock. |
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Common Stock offered
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3,561 shares, plus up to 7,474,920 shares that may be issued upon
conversion of senior convertible notes or senior series A convertible
preferred stock. |
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Securities offered by
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Selling securityholders named herein. See Selling Securityholders. |
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Registration rights
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We have filed with the SEC the registration statement of which this
prospectus is a part pursuant to a registration rights agreement with the
original purchasers of certain of the securities. We have agreed to keep
the registration statement effective for five years or until such earlier
date when the selling securityholders are able to sell their securities
immediately pursuant to Rule 144(k) under the Securities Act of 1933. If we
do not comply with these registration obligations, we will be required to
pay liquidated damages to the selling securityholders. See Description of
the NotesRegistration Rights. |
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Use of proceeds
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We will not receive any of the proceeds from the sale of the securities
offered by this prospectus. |
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Trading
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We do not intend to list the notes or preferred stock on any national
securities exchange, including The Nasdaq Global Market. Our common stock
is quoted on The Nasdaq Global Market under the symbol PRGX. |
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Risk factors
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There are risks associated with this investment. You should examine the
factors discussed in Risk Factors and elsewhere in this prospectus and
consider them carefully before deciding to invest in the notes or the
common stock issuable upon conversion of the notes. |
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Summary Description of the Securities Offered
Summary Description of the 11% Senior Notes
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SECURITIES OFFERED
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$24,400,314 aggregate principal amount of 11.0% Senior Notes due 2011. |
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MATURITY DATE
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March 15, 2011 |
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INTEREST RATE
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11.0% per annum on the principal amount, payable semiannually on March 15 and September 15 of
each year, beginning on September 15, 2006. After an event of default, interest will accrue
at a rate of 13.0% until all defaults are cured or waived. |
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RANKING
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The senior notes are: |
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senior in right of payment to all existing and future subordinated
indebtedness of the company, if any; |
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effectively (but not expressly) subordinated to our existing and future
secured indebtedness to the extent of the collateral securing that indebtedness and to the
existing and future liabilities of our subsidiaries, which includes our senior secured credit
facility and any permitted refinancings thereof; and |
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pari passu in right of payment with the senior convertible notes and any
future senior indebtedness of the company. |
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None of our subsidiaries is obligated for the payment of obligations under the senior notes. |
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CERTAIN MATERIAL
COVENANTS AND
RESTRICTIONS
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The indenture governing the senior notes includes covenants that limit our ability and
the ability of each of our restricted subsidiaries to: |
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incur, assume, or guarantee additional debt and issue or sell preferred
stock; |
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pay dividends on, redeem or repurchase our capital stock; |
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make investments; |
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create or permit certain liens; |
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use the proceeds from sales of assets and subsidiary stock; |
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enter into transactions with affiliates; |
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incur any indebtedness that is contractually subordinated to any other
indebtedness unless subordinated in right of payment to the senior notes on substantially
identical terms; and |
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consolidate or merge or sell all or substantially all of our assets. |
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See Description of the Notes Senior Notes Certain Covenants. |
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OPTIONAL REDEMPTION
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Subject
to noncompliance with the terms of our senior credit facility, we may redeem all or part of the senior notes at any time upon not less than 30 nor more than
60 days notice at the following redemption prices, plus accrued and unpaid interest, if any,
to the particular redemption date beginning on the issue date and each of the other following
indicated periods: |
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Redemption Period |
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Percentage |
Issue Date through March 14, 2007 |
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104.00 |
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March 15, 2007 through March 14, 2008 |
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102.00 |
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March 15, 2008 and thereafter |
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100.00 |
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See Description of the Notes New Senior Notes Optional Redemption. |
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CHANGE IN CONTROL
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Upon a change in control, each holder of the senior
notes will have the right to require us to repurchase
some or all of its senior notes at a purchase price
equal to 100% of the principal amount of the senior
notes plus accrued and unpaid interest, if any, to the
date of purchase. See Description of the Notes
Senior Notes Repurchase at the Option of Holders
Change in Control. |
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MANDATORY OFFER TO
PURCHASE
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In the event that we consummate an asset sale permitted
by the senior notes indenture governing the senior
notes, any proceeds in excess of $10 million will be
required to be paid to the holders of senior notes to
purchase the maximum amount of senior notes and other
indebtedness that is pari passu to the senior notes.
The offer price to holders of senior notes will be equal
to 100% of the principal amount, plus accrued and unpaid
interest, if any, to the date of purchase. See
Description of the Notes Senior Notes Repurchase at
the Option of Holders Asset Sales. |
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LISTING
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The senior notes will not be listed for trading on any
national securities exchange or authorized for quotation
on any automated quotation system. |
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BOOK ENTRY;
DELIVERY AND FORM
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The senior notes initially will be held only through DTC. |
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ORIGINAL ISSUE
DISCOUNT
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For U.S. federal income tax purposes, the senior notes
were issued with original issue discount to the extent
the principal amount of such notes exceeded their issue
price (basically, their fair market value at issuance).
Any original issue discount generally will be required
to be included in your gross income as interest on a
constant yield basis over the term of the notes,
regardless of your regular method of accounting for U.S.
federal income tax purposes. Accordingly, you may be
required to include interest income prior to the receipt
of a corresponding amount of cash. See Material United
States Federal Income Tax Consequences Consequences of
Ownership and Disposition of Notes. |
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Summary Description of the 10% Senior Convertible Notes
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SECURITIES OFFERED
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$22,816,767 aggregate principal amount of 10.0% Senior
Convertible Notes due 2011, plus up to $10,893,990 additional
principal amount of 10.0% Senior Convertible Notes that may be
issued in payment of interest on the Senior Convertible Notes we are
registering. |
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MATURITY DATE
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March 15, 2011 |
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INTEREST RATE
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10.0% per year on the principal amount, payable semiannually on
March 15 and September 15 of each year, beginning on September 15,
2006. Interest may be paid at our option by issuance of additional
senior convertible notes. |
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RANKING
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The senior convertible notes are: |
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senior unsecured obligations of the company; |
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senior in right of payment to all existing and
future subordinated indebtedness of the company, if any; |
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effectively (but not expressly) subordinated to our
existing and future secured indebtedness to the extent of the
collateral securing that indebtedness and to the existing and future
liabilities of our subsidiaries, which includes our senior secured
credit facility and any permitted refinancings thereof; and |
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pari passu in right of payment with the senior
notes and any future senior indebtedness of the company.
None of our subsidiaries will be obligated for the payment of
our obligations under the senior convertible notes. |
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CONVERSION RIGHTS
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The senior convertible notes are convertible, at the option of the
holder prior to maturity, into approximately 153.85 shares of our
common stock per $1,000 principal amount of senior convertible notes
at a conversion price of $6.50 per share, subject to certain
anti-dilution adjustments. |
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OPTIONAL REDEMPTION
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Subject
to compliance with the terms of our senior credit facility, we may not call the senior convertible notes for redemption unless
the senior notes have been paid in full and the conversion rights
date shall have occurred. On or after the conversion rights date and
the date on which all senior notes have been paid in full, we may
redeem the senior convertible notes, in whole or in part, at a
redemption price of 100% of the principal amount of senior
convertible notes to be redeemed, plus accrued and unpaid interest
on the senior convertible notes to be redeemed to the applicable
redemption date. See Description of the Notes Senior Convertible
Notes Optional Redemption. |
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CHANGE IN CONTROL
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Upon a change of control, each holder of the senior convertible
notes will have the right to require us to repurchase some or all of
its senior convertible notes at a purchase price equal to 100% of
the principal amount of the senior convertible notes plus accrued
and unpaid interest to the date of purchase. See Description of the
Notes Senior Convertible Notes Repurchase at Option of Holders
Upon a Change in Control. |
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LISTING
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The senior convertible notes will not be listed for trading on any
national securities exchange or authorized for quotation on any
automated quotation system. |
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BOOK ENTRY;
DELIVERY AND FORM
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The senior convertible notes initially will be held only through DTC. |
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ORIGINAL ISSUE
DISCOUNT
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Due to our ability to pay interest on the senior convertible notes
in additional senior convertible notes, the senior convertible notes
will be treated for U.S. federal income tax purposes as having been
issued with original issue discount equal to at least the amount
of stated interest payable over the term of the notes. Such original
issue discount (inclusive of all stated interest) generally would be
required to be included in your gross income on a constant yield
basis over the term of the notes, regardless of your regular method
of accounting for U.S. federal income tax purposes. Accordingly, you
may be required to include interest income prior to the receipt of a
corresponding amount of cash. See Material United States Federal
Income Tax Consequences Consequences of Ownership and Disposition
of the Notes. |
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Summary Description of the 9% Series A Convertible Preferred Stock
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SECURITIES OFFERED
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34,901 shares ($4,571,343 aggregate liquidation preference) of 9.0% Senior
Series A Convertible Participating Preferred Stock. The liquidation preference
may increase to up to $6,500,912 in satisfaction of dividends otherwise payable
in cash on the Senior Series A Convertible Participating Preferred Stock we are
registering. |
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DIVIDENDS
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Cumulative annual dividends at a rate of 9.0% of the then-effective liquidation
preference per share payable in cash if and when declared (subject to accretion
if undeclared, as described below), on March 15 and September 15 of each year,
commencing on September 15, 2006. The liquidation preference will be increased
by any dividends not declared on any dividend payment date. In addition, if any
dividends or distributions are paid on the companys common stock (other than a
dividend or distribution paid solely in additional shares of the companys
common stock), the holders of series A convertible preferred stock will be paid
dividends or distributions per share of series A convertible preferred stock in
an amount equal to what such holder would have received had it converted its
shares of series A convertible preferred stock into shares of common stock of
the company immediately prior to the record date for the payment of such
dividend or distribution. |
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LIQUIDATION PREFERENCE
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$130.9803 per share as of March 15,
2007, subject to accretion as described above. |
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RANKING
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The series A convertible preferred stock ranks (i) junior to all indebtedness of
the company, (ii) senior to the common stock of the company with respect to
dividends and amounts payable upon the liquidation or winding up of the company
and to all other classes or series of the companys common equity and to all
equity securities the terms of which specifically provide that such equity
securities rank junior to the series A convertible preferred stock, (iii) on a
parity with the series B convertible preferred stock and all other equity
securities issued by the company, subject to the consent of the required holders
of the series A convertible preferred stock, other than those securities
described in clauses (ii) and (iv), and (iv) junior to all equity securities
issued by the company, subject to the consent of the required holders of the
series A convertible preferred stock, the terms of which specifically provide
that such equity securities rank senior to such series A convertible preferred
stock. |
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CONVERSION RIGHTS
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Each share of the series A convertible preferred stock is convertible, at any
time, into a number of shares of common stock of the company equal to the
then-effective liquidation preference thereof divided by the conversion price of
$2.8405 (subject to certain additional anti-dilution adjustments). The
conversion price was negotiated with the Ad hoc committee composed of holders of
the companys convertible notes due 2006. |
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OPTIONAL REDEMPTION
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Subject to compliance with the
terms of our senior credit facility, we may redeem the series A convertible preferred stock, in whole or in part, at
the liquidation preference, together with accrued and undeclared dividends
through the redemption date, at any time, subject to the prior or concurrent
repayment in full of all outstanding senior notes and senior convertible notes. |
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MANDATORY
REDEMPTION
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On March 15, 2011, we must redeem all outstanding shares of series A convertible
preferred stock for an amount per share equal to the then-effective liquidation
preference, including any accrued and undeclared dividends from the most recent
dividend payment date to the date of redemption. |
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VOTING RIGHTS
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Except as otherwise required by law, each share of series A convertible
preferred |
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stock will vote on all matters with the companys common stock on an
as converted basis. |
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The series A convertible preferred stock will also be entitled to vote
separately as a class, together with the series B convertible preferred stock,
if any, and any other series of preferred stock ranking on parity with the
series A convertible preferred stock, on certain matters. See Description of
Capital Stock 9.0% Senior Series A Convertible Participating Preferred Stock
Voting Rights. |
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LISTING
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The series A convertible preferred stock will not be listed for trading on any
national securities exchange or authorized for quotation on any automated
quotation system.
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BOOK-ENTRY;
DELIVERY AND FORM
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The series A convertible preferred stock initially will be held only through DTC. |
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CERTAIN TAX
CONSEQUENCES
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Certain U.S. federal income tax consequences of purchasing, owning and disposing
of the series A convertible preferred stock and any common stock received upon
its conversion are described in Material United States Federal Income Tax
Consequences Consequences of Ownership and Disposition of New Preferred Stock
or Common Stock, including the potential for the receipt of constructive
distributions prior to the receipt of a corresponding amount of cash. |
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RISK FACTORS
An investment in the securities offered by this prospectus involves a high degree of
risk. You should carefully consider the following factors and other information in this prospectus
before deciding to purchase the notes or our preferred or common stock. These risks and
uncertainties are not the only ones we face. Others that we do not know about now, or that we do
not now think are important, may impair our business or the trading price of our notes or our
preferred or common stock.
Risks Related to Our Business
We have a history of losses and may not be able to improve our performance to achieve
profitability.
We reported net losses of $21.1 million, $207.7 million, $71.5 million, and $160.8 million for
the years ended December 31, 2006, 2005, 2004 and 2003, respectively. There is no guarantee that
our ongoing cost reduction efforts or attempts to increase our revenues will be successful. If we
are not able to successfully reduce costs and/or increase revenues, we may not be able to operate
profitability in the future or generate sufficient cash to fund our operations and pay our
indebtedness.
We believe that our core accounts payable recovery audit business will continue to decline.
Therefore, we must continue to diligently manage our costs and successfully grow other business
lines in order to stabilize and increase our revenues and improve our profitability.
As our clients improve their systems and processes, fewer transactional errors occur. In
addition, many of our clients have internal staffs that audit the same transactions before we do.
As the skills, experience and resources of our clients internal recovery audit staffs improve,
they will identify more overpayments themselves and reduce our audit recovery opportunities. Based
on these and other factors, we currently believe that our core accounts payable recovery audit
business will continue to experience revenue declines over the long-term. In order to stabilize and
increase our revenues and return to profitability, we must continue our cost reduction efforts
(which includes emphasizing larger accounts that provide a greater return on the resources required
for the account) and grow our other lines of business, such as our Medicare audit work. These other
lines of business are still in the early stages of development, and there can be no guarantee that
they will ultimately succeed.
We depend on our largest clients for significant revenues, so losing a major client could adversely
affect our revenues.
We generate a significant portion of our revenues from our largest clients. For the years
ended December 31, 2006, 2005, and 2004, our two largest clients accounted for approximately 13.3%,
13.8% and 13.8% of our revenues from continuing operations, respectively. If we lose any of our
major clients, our results of operations could be materially and adversely affected by the loss of
revenue unless we acquire new business to replace such clients.
Client and vendor bankruptcies and financial difficulties could reduce our earnings.
Our clients generally operate in intensely competitive environments and, accordingly,
bankruptcy filings by our clients are not uncommon. Bankruptcy filings by our large clients or the
significant vendors who supply them or unexpectedly large vendor claim chargebacks lodged against
one or more of our larger clients, could have a materially adverse effect on our financial
condition and results of operations. Similarly, our inability to collect our accounts receivable
due to the financial difficulties of one or more of our large clients could adversely affect our
financial condition and results of operations.
If a client files for bankruptcy, we could be subject to an action to recover certain payments
received in the 90 days prior to the bankruptcy filing as preference payments. If we are
unsuccessful in defending against such claims, we would be required to make unbudgeted cash
payments which could strain our financial liquidity and our earnings would be reduced.
For example, on April 1, 2003, Fleming Companies, one of our larger U.S. Accounts Payable
Services clients at the time filed for Chapter 11 bankruptcy reorganization. During the quarter
ended March 31, 2003, we received
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approximately $5.6 million in payments on account from Fleming. On January 24, 2005, we
received a demand from the Fleming Post Confirmation Trust (PCT), a trust which was created
pursuant to Flemings Chapter 11 reorganization plan to represent the client, for preference
payments received by us. The demand stated that the PCTs calculation of the preferential payments
was approximately $2.9 million. We disputed the claim. Later in 2005, the PCT filed suit against
us seeking to recover approximately $5.6 million in payments that were made to us by Fleming during
the 90 days preceding Flemings bankruptcy filing, and that are alleged to be avoidable either as
preferences or fraudulent transfers under the Bankruptcy Code. We believe that we have valid
defenses to certain of the PCTs claims in the proceeding. In December 2005, the PCT offered to
settle the case for $2 million. We countered with an offer to waive its bankruptcy claim and to pay
the PCT $250,000. The PCT rejected our settlement offer, and although the parties have agreed to
settlement mediation, the litigation is ongoing.
Our strategic business initiatives may not be successful.
Our objective is to build on our position as the leading worldwide provider of recovery audit
services. Our strategic plan to achieve these objectives focuses on a series of initiatives
designed to maintain our dedicated focus on clients and rekindle our growth. Recently, we have
implemented a number of strategic business initiatives that are designed to reduce costs and
stabilize revenues.
These initiatives are ongoing and the results of the strategy and implementation will not be
known until some time in the future. Each of the initiatives requires sustained management focus,
organization and coordination over time, as well as success in building relationships with third
parties. If we are unable to implement the strategy successfully, our results of operations and
cash flows could be adversely affected. In addition, successful implementation of the strategy may
require material increases in costs and expenses.
We have incurred significant costs in establishing the necessary resources to provide services for
Medicare audit recovery work, and to date, have not generated material revenues from this business.
As part of a pilot program to use recovery auditing to recover overpayments on behalf of
taxpayers, the Centers for Medicare & Medicaid Services, CMS, the federal agency that administers
the Medicare program, awarded us a three-year contract, effective March 28, 2005, to provide
recovery audit services in connection with the State of Californias Medicare spending. We have
expended substantial resources in connection with preparing for and performing the CMS audit
services. While we believe this contract is a significant opportunity for us, to date the work has
not generated material revenues and there is no guarantee that actual revenues will justify the
required expenditures. In addition, as a result of the complex regulations governing Medicare
payments, and the complexity of Medicare data, systems and processes, generally, it may be more
difficult and may take longer to achieve recoveries than in other areas of our business.
We may be unable to protect and maintain the competitive advantage of our proprietary technology
and intellectual property rights.
Our operations could be materially and adversely affected if we are not able to protect our
proprietary software, audit techniques and methodologies, and other proprietary intellectual
property rights. We rely on a combination of trade secret and copyright laws, nondisclosure and
other contractual arrangements and technical measures to protect our proprietary rights. Although
we presently hold U.S. and foreign registered trademarks and U.S. registered copyrights on certain
of our proprietary technology, we may be unable to obtain similar protection on our other
intellectual property. In addition, our foreign registered trademarks may not receive the same
enforcement protection as our U.S. registered trademarks.
Additionally, we generally enter into nondisclosure agreements with our employees,
consultants, clients and potential clients. We also limit access to, and distribution of, our
proprietary information. Nevertheless, we may be unable to deter misappropriation or unauthorized
dissemination of our proprietary information, detect unauthorized use and take appropriate steps to
enforce our intellectual property rights. Even though we take care to protect our own intellectual
property, there is no guarantee that our competitors will not independently develop technologies
that are substantially equivalent or superior to our technology. Moreover, although we believe that
our services and products do not infringe on the intellectual property rights of others, we are
also subject to the risk that someone else will assert a claim against us in the future for
violating their intellectual property rights.
10
Our failure to retain the services of key members of management and highly skilled personnel could
adversely impact our continued success.
Our continued success depends largely on the efforts and skills of our executive officers and
key employees. As such, we have entered into employment agreements with key members of management.
While these employment agreements limit the ability of key employees to directly compete with us in
the future, nothing prevents them from leaving our company.
In addition, our current financial and operational condition, including, but not limited to
our liquidity concerns, makes it especially challenging to attract and retain highly qualified
skilled auditors in an industry where competition for skilled personnel is intense. Accordingly,
our future performance also depends, in part, on the ability of our management team to work
together effectively, manage our workforce, and retain highly qualified personnel.
We rely on international operations for a significant portion of our revenues.
Approximately 47.2% of our revenues from continuing operations were generated from
international operations in 2006. International operations are subject to numerous risks,
including:
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political and economic instability in the international markets we serve; |
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difficulties in staffing and managing foreign operations and in collecting accounts receivable; |
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fluctuations in currency exchange rates, particularly weaknesses in the British
pound, the euro, the Canadian dollar, the Mexican peso, and the Brazilian real and
other currencies of countries in which we transact business, which could result in
currency translations that materially reduce our revenues and earnings; |
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costs associated with adapting our services to our foreign clients needs; |
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unexpected changes in regulatory requirements and laws; |
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expenses and legal restrictions associated with transferring earnings from our
foreign subsidiaries to us; |
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burdens of complying with a wide variety of foreign laws and labor practices; |
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business interruptions due to widespread disease, potential terrorist activities, or
other catastrophes; |
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reduced or limited protection of our intellectual property rights; and |
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longer accounts receivable cycles. |
Because we expect a significant portion of our revenues to continue to come from international
operations, the occurrence of any of these events could materially and adversely affect our
business, financial condition and results of operations.
The market for providing disbursement audit services to commercial clients in the U.S. is rapidly
declining.
We currently serve the substantial majority of our U.S. commercial accounts payable services
clients using a disbursement audit service model that typically entails acquisition from the client
of limited purchase data and an audit focus on a select few recovery categories. We believe that
the market for providing disbursement audit services to commercial entities in the United States is
rapidly declining. Similar to the decline in our core accounts payable recovery audit business, we
will need to continue to successfully implement our cost savings efforts and grow our other lines
of business in order to stabilize and increase our revenues to replace declining revenues from this
business.
Our U.S. commercial accounts payable services business is subject to price pressure.
The substantial majority of our domestic commercial accounts payable services clients are
currently served using a disbursement audit service model which typically entails obtaining limited
purchase data from the client and an audit focus on a select few recovery categories. The
disbursement audit business is highly competitive and barriers to entry are relatively low. We
believe that the low barriers to entry result from limited technology
11
infrastructure requirements, the minimal need for audit data that is difficult to extract from
the clients systems, and an audit focus on a select few recovery categories. As a result of the
low barriers to entry, our domestic commercial accounts payable services business is subject to
intense price pressure from our competition. Such price pressure could cause our profit margins to
decline and have a materially adverse effect on our business, financial condition, and results of
operations.
Generally our client contracts contain provisions under which the client may terminate the
agreement prior to the completion of the agreement.
Many of our client contracts contain provisions that would permit the client to terminate the
contract without cause prior to the completion of the term of the agreement by providing us with
relatively short prior written notice of the termination. As a result, the existence of
contractual relationships with our clients is not an assurance that we will continue to provide
services for our clients through the entire terms of their respective agreements. If clients
representing a significant portion of our revenues terminated their agreements unexpectedly, we may
not, in the short-term, be able to replace the revenues and earnings from such contracts which
would have a material adverse effect on our operations and financial results. In addition, client
contract terminations could also harm our reputation within the industry which could negatively
impact our ability to obtain new clients.
Our failure to comply with applicable governmental privacy laws and regulations could substantially
impact our business, operations and financial condition.
We are subject to extensive and evolving federal, state and foreign privacy laws and
regulations. Changes in privacy laws or regulations or new interpretations of existing laws or
regulations could have a substantial effect on our operating methods and costs. Failure to comply
with such regulations could result in the termination or loss of contracts, the imposition of
contractual damages, civil sanctions, or in certain circumstances, criminal penalties, any of which
could have a material adverse effect on our results of operations, financial condition, business
and prospects. Determining compliance with such regulations is complicated by the fact that many
of these laws and regulations have not been fully interpreted by governing regulatory authorities
or the courts and many of the provisions of such laws and regulations are open to a wide range of
interpretations. There can be no assurance that we are or have been in compliance with all
applicable existing laws and regulations or that we will be able to comply with new laws or
regulations.
Proposed legislation by the European Union, if enacted as currently drafted, will have a materially
adverse impact on Meridians operations.
The European Union has currently proposed legislation that would remove the need for suppliers
to charge value-added taxes on the supply of services to clients within the European Union. It is
difficult to estimate whether and/or when the proposed legislation would be enacted and
implemented. Management believes that the proposed legislation, if enacted as currently drafted,
when implemented would have a materially adverse impact on the results of operations of our
Meridian segment and would also negatively affect our consolidated results of operations.
12
Our revenues from certain clients and VAT authorities may change markedly from year to year.
We examine merchandise procurements and other payments made by business entities such as
manufacturers, distributors and service firms. To date, services to these types of clients have
tended to be either periodic (typically, every two or three years) or rotational in nature with
different divisions of a given client often audited in pre-arranged annual sequences. Accordingly,
revenues derived from a given client may change markedly from year to year depending on factors
such as the size and nature of the client division under audit.
Meridians revenue recognition policy causes its revenues to vary markedly from period to
period as well. Meridian defers recognition of revenues to the accounting period in which cash is
both received from the foreign governmental agencies reimbursing VAT claims and transferred to
Meridians clients. The timing of reimbursement of VAT claims by the various European tax
authorities with which Meridian files claims can differ significantly by country.
The ownership change that occurred as a result of the exchange offer limits our ability to use our
net operating losses.
We have substantial tax loss and credit carryforwards for U.S. federal income tax purposes. On
March 17, 2006, as a result of its financial restructuring, we experienced an ownership change as
defined under Section 382 of the Internal Revenue Code (IRC). This ownership change resulted in
an annual IRC Section 382 limitation that mathematically limits the use of certain tax attribute
carryforwards. Of the $34.1 million of U.S. federal net loss
carryforwards available to us, $27.1
million of the loss carryforwards are subject to an annual usage limitation of $1.4 million. The
ownership change resulted in the write-off of approximately $72.6 million in previously incurred
and unexpired federal net operating loss carryforward amounts and the write-off of approximately
$7.4 million in future tax deductions related to certain built-in losses associated with intangible
and fixed assets. In addition, the following write-offs also took place in 2006 as a result of the
ownership change: $34.1 million in unexpired capital loss carryforwards, $14.3 million in unexpired
foreign tax credit carryforwards, and $0.2 million in unexpired R&D credit carryforward amounts.
Approximately $191.9 million of previously incurred and unexpired state net operating losses were
also written off as a result of this ownership change.
We believe such limitations and loss of these carryforwards will significantly increase our
projected future tax liability.
We may not be allowed to deduct interest with respect to our senior convertible notes issued in the
exchange offer.
For U.S. federal income tax purposes, no deduction is allowed for interest paid or accrued
with respect to convertible debt if it is substantially certain that the holders will voluntarily
convert the debt into equity. The proper application of this provision in the case of our senior
convertible notes is subject to varying interpretations, depending in part on facts and
circumstances existing on the date the exchange offer was completed. We currently intend to take the position that we are
entitled to interest deductions in respect of our senior convertible notes. Nevertheless, there is
no assurance that the Internal Revenue Service, IRS, would not take a contrary position, or that
any change in facts and circumstances would not result in us changing our position.
In addition, even if not disallowed, any interest deductions with the respect to our senior
convertible notes would cease upon an actual conversion of our senior convertible notes into stock.
13
Future impairment of goodwill, other intangible assets and long-lived assets would reduce our
future earnings.
During the fourth quarter of 2005, we recorded a goodwill impairment charge of $166.0 million
and an impairment charge of $4.4 million relating to our intangible trade name value. Adverse
future changes in the business environment or in our ability to perform audits successfully and
compete effectively in our market could result in additional impairment of goodwill, other
intangible assets or long-lived assets, which could materially adversely impact future earnings. As
of December 31, 2006, our goodwill and other intangible assets totaled $27.7 million. We must
perform annual assessments to determine whether some portion, or all, of our goodwill, intangible
assets and other long-term assets are impaired. Annual impairment testing under SFAS No. 142 could
result in a determination that our goodwill or other intangible assets have been further impaired,
and annual impairment testing under SFAS No. 144 could result in a determination that our other
long-lived assets have been impaired. Any future impairment of goodwill, other intangible assets or
long-lived assets would reduce future earnings.
We may not be able to continue to compete successfully with other businesses offering recovery
audit services, including client internal recovery audit departments.
The recovery audit industry is highly competitive. Our principal competitors for accounts
payable recovery audit services include numerous smaller firms. Because these firms tend to be
privately owned, we do not have access to their financial statements, so we cannot be certain as to
whether we can continue to compete successfully with our competitors. In recent years, revenues
from our core accounts payable recovery audit business have declined, and are expected to continue
to decline, due in part to our clients continuing development of their own internal recovery audit
capabilities. In addition, the trend toward more effective internal recovery audit departments
diminishes claims available for us to identify in our recovery audits and is likely to continue to
negatively impact our future revenues.
We have previously reported material weaknesses in our internal control over financial reporting,
and any unidentified material weaknesses could cause us to fail to meet our SEC and other reporting
requirements.
In connection with an evaluation of the effectiveness of our internal control over financial
reporting for the year ended December 31, 2005, management determined that material weaknesses
existed with respect to our internal controls over revenue recognition and company level controls,
including the expertise of the accounting and finance staff. Management believes that during 2006
significant progress was made in remediating these material weaknesses. However, we can provide no
assurances that these material weaknesses have been fully corrected or that additional material
weaknesses or significant deficiencies in our internal control over financial reporting will not be
discovered in the future. If we fail to remediate any such material weaknesses, our operating
results or client relationships could be adversely affected or we may fail to meet our SEC
reporting requirements or our financial statements may contain a material misstatement.
Internal control over financial reporting cannot provide absolute assurance of achieving
financial reporting objectives or of preventing fraud due to its inherent limitations, regardless
of how well designed or implemented. Internal control over financial reporting is a process that
involves human diligence and compliance and is subject to lapses in judgment and breakdowns
resulting from human failures. Because of these limitations, there is a risk that material
misstatements or instances of fraud may not be prevented or detected on a timely basis by our
internal control over financial reporting.
The terms of our senior credit facility place restrictions on us, which create risks of default and
reduce our flexibility.
Our current senior credit facility contains a number of affirmative, negative, and financial
covenants, which limit our ability to take certain actions and require us to comply with specified
financial ratios and other performance covenants. For example, we are
currently prohibited from paying cash dividends on our series A
convertible preferred stock which results in an increase in the
liquidation preference on each dividend payment date. In addition, we
may not redeem our senior notes or our senior convertible notes
unless we are in compliance with the terms of our senior credit
facility. No assurance can be provided that we will not
violate the covenants of our senior credit facility in the future. If we are unable to comply with
our financial covenants in the future, our lenders could pursue their contractual remedies under
the credit facility, including requiring the immediate repayment in full of all amounts
outstanding, if any. Additionally, we cannot be certain that, if the lenders demanded immediate
repayment of any amounts outstanding, we would be able to secure adequate or timely replacement
financing on acceptable terms or at all. Additionally, if the lenders accelerated repayment demand
is subsequently made and we are unable to
14
honor it, cross-default language contained in the indentures underlying our
separately-outstanding senior notes and senior convertible notes due March 2011, could also be
triggered, potentially accelerating the required repayment of those notes as well. In such an
instance, there can likewise be no assurance that we will be able to secure additional financing
that would be required to make such a rapid repayment.
Our substantial leverage could materially adversely impact our financial health.
We
are highly leveraged. As of March 31, 2007, our total outstanding debt and redeemable
preferred stock was approximately $139.2 million and we reported a shareholders deficit of
approximately $99.5 million. In addition, as of March 31, 2007 we had a maximum of $16.3 million
of additional available borrowings under our senior credit facility. The instruments governing the
notes and preferred stock issued in our recent financial restructuring and our senior credit
facility also allow the issuance of additional indebtedness under certain circumstances.
Our substantial indebtedness could adversely affect our financial health by, among other
things:
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increasing our vulnerability to adverse economic conditions or increases in
prevailing interest rates, particularly with respect to any of our borrowings at
variable interest rates; |
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limiting our ability to obtain any additional financing we may need to operate,
develop and expand our business; |
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requiring us to dedicate a substantial portion of any cash flow from operations to
service our debt, which reduces the funds available for operations and future business
opportunities; and |
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potentially making us more highly leveraged than our competitors, which could
potentially decrease our ability to compete in our industry. |
We will have significant interest, dividend, principal and redemption payments under the notes
and preferred stock issued in the exchange offer coming due in the next four years. Our ability to
make payments due on the notes and preferred stock and on our debt will depend upon our future
operating performance, which is subject to general economic and competitive conditions and to
financial, business and other factors, many of which we cannot control. If the cash flow from our
operating activities is insufficient, we may take actions such as delaying or reducing capital
expenditures, attempting to restructure or refinance our debt, selling assets or operations or
seeking additional equity capital. Some or all of these actions may not be sufficient to allow us
to service our debt obligations and we could be required to file for bankruptcy. Further, we may be
unable to take any of these actions on satisfactory terms, in a timely manner or at all. In
addition, our credit agreements and indentures may limit our ability to take several of these
actions. Our failure to generate sufficient funds to pay our debts or to undertake any of these
actions successfully could materially adversely affect our business, results of operations and
financial condition.
Risks Related to the Notes, the Preferred Stock and our Common Stock
An active trading market for the notes and preferred stock may not develop, and holders of the
notes and preferred stock may not be able to sell their securities when they want and, if they do
sell, they may not be able to receive the price they want.
The notes and preferred stock are not listed for trading on any national securities exchange
or authorized to be quoted in any inter-dealer quotation system of any national securities
association, and we do not intend to apply for any such listing or quotation. We do not know the
extent to which investor interest will lead to the development of a trading market for the notes or
preferred stock or how liquid any such market might be. Moreover, the liquidity of any market for
the securities will also depend upon the number of holders of the securities, our financial
performance, the market for similar securities and the interest of securities dealers in making a
market in the securities. We cannot assure investors that an active trading market will develop or,
if it does, at what prices these securities may trade. Therefore, holders of the notes and
preferred stock may not be able to sell the securities when they want and, if they do sell, they
may not be able to receive the price they want.
The senior convertible notes and the senior note were issued with original issue discount, which
will constitute taxable income to the holder over the term of the notes.
15
Both the senior convertible notes and the senior notes were issued at a discount from their
principal amount. In addition, in respect of the senior convertible notes, we have the right to pay
all stated interest in cash or additional notes. Consequently, the senior convertible notes and the
senior notes were issued with original issue discount (or OID) for U.S. federal income tax
purposes. You will be required to include any such OID (including the stated interest on the senior
convertible notes) in your income as it accrues for U.S. federal income tax purposes, even if no
cash payment is received by you. Any payment of stated interest on the senior convertible notes
will not be separately taxable to you. In contrast, the stated interest on the senior notes will be
includible as interest income by you in accordance with your regular method of accounting for U.S.
federal income tax purposes. See Material United States Federal Income Tax Consequences
Consequences of Ownership and Disposition of the Notes.
Adjustment to the conversion price of the senior convertible notes or the preferred stock may
result in a taxable deemed distribution to you.
The conversion prices of the senior convertible notes and series A convertible preferred stock
are subject to adjustment under certain circumstances, such as in the event of certain cash or
property distributions with respect to shares of our common stock. The presence or absence of an
adjustment to the conversion prices at which such notes or stock are convertible may result in
constructive distributions to the holders of such securities, or in certain cases to existing
common stockholders, which would be taxable similar to an ordinary distribution on stock.
Our holding company structure results in substantial structural subordination and may affect our
ability to make payments on the notes.
We are a holding company and we conduct all of our operations through our subsidiaries. As a
result, our ability to meet our debt service obligations, including our obligations under the
notes, substantially depends upon our subsidiaries cash flow and payment of funds to us by our
subsidiaries as dividends, loans, advances or other payments. Our subsidiaries payment of
dividends or making of loans, advances or other payments may be subject to contractual restrictions
or other limitations.
The notes are also effectively subordinated to all existing and future indebtedness and other
liabilities of our subsidiaries, including our senior credit
facility. At March 31, 2007, our
subsidiaries had aggregate liabilities of over $130 million. We expect that our subsidiaries will
continue to incur additional indebtedness from time to time. Any right we may have to receive
assets of our subsidiaries upon their liquidation or reorganization, and your resulting rights to
participate in those assets, would be effectively subordinated to the claims of our subsidiaries
creditors.
Our articles of incorporation, bylaws, shareholder rights plan and Georgia law may inhibit a change
of control that shareholders may favor.
Our articles of incorporation and bylaws and Georgia law contain provisions that may delay,
deter or inhibit a future acquisition not approved by our Board of Directors. This could occur even
if our shareholders receive attractive offers for their shares or if a substantial number, or even
a majority, of our shareholders believe the takeover is in their best interest. These provisions
are intended to encourage any person interested in acquiring us to negotiate with and obtain the
approval of our Board of Directors in connection with the transaction. Provisions that could delay,
deter or inhibit a future acquisition include the following:
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a classified Board of Directors; |
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the requirement that our shareholders may only remove directors for cause; |
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specified requirements for calling special meetings of shareholders; and |
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the ability of the Board of Directors to consider the interests of various
constituencies, including our employees, clients and creditors and the local community,
in making decisions. |
Our articles of incorporation also permit the Board of Directors to issue shares of preferred
stock with such designations, powers, preferences and rights as it determines, without any further
vote or action by our shareholders. In addition, we have in place a poison pill shareholders
rights plan that could trigger a dilutive issuance of common stock upon substantial purchases of
our common stock by a third party that are not approved by the Board
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of Directors. These provisions also could discourage bids for our shares of common stock at a
premium and have a materially adverse effect on the market price of our common stock.
Our stock price has been and may continue to be volatile.
Our common stock is currently traded on The Nasdaq Global Market System. The trading price of
our common stock has been and may continue to be subject to large fluctuations. Our stock price may
increase or decrease in response to a number of events and factors, including:
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issuance of additional common stock on exercise of conversion rights of our senior
convertible notes or our convertible preferred stock; |
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future announcements concerning us, key clients or competitors; |
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quarterly variations in operating results and liquidity; |
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changes in financial estimates and recommendations by securities analysts; |
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developments with respect to technology or litigation; |
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the operating and stock price performance of other companies that investors may deem
comparable to our company; |
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acquisitions and financings; and |
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sales and purchases of blocks of stock by insiders. |
Fluctuations in the stock market, generally, also impact the volatility of our stock price.
General stock market movements may adversely affect the price of our common stock, regardless of
our operating performance.
Issuance of shares of our common stock upon conversion of our preferred stock and senior
convertible notes and pursuant to our new management incentive plan will dilute our common stock.
Our convertible notes and preferred stock, upon full conversion, would represent in excess of
a majority of our outstanding common stock, based on the current number of shares of common stock
outstanding. In addition, in order to retain key executive employees, in 2006, we adopted a new
management incentive plan, pursuant to which certain senior management employees have received
phantom shares of stock that are partially payable in common stock. We have reserved 10% of our
outstanding common stock on a fully-diluted basis, as measured on the dates of distribution, to
settle phantom shares under the management incentive plan. In addition, we may need to issue
additional equity securities in the future in order to execute our business plan or for other
reasons, which could lead to further dilution to holders of our common stock. This dilution of our
common stock could depress the price of our common stock.
17
FORWARD-LOOKING STATEMENTS
This prospectus contains certain forward-looking statements and information made by us that
are based on the beliefs of our respective management as well as estimates and assumptions made by
and information currently available to our management. The words could, may, might, will,
would, shall, should, pro forma, potential, pending, intend, believe, expect,
anticipate, estimate, plan, future and other similar expressions generally identify
forward-looking statements, including, in particular, statements regarding future services, market
expansion and pending litigation. These forward-looking statements are made pursuant to the safe
harbor provisions of the Private Securities Litigation Reform Act of 1995. Investors are cautioned
not to place undue reliance on these forward-looking statements. Such forward-looking statements
reflect the views of our management at the time such statements are made and are subject to a
number of risks, uncertainties, estimates and assumptions, including, without limitation, in
addition to those identified in the text surrounding such statements, those identified under Risk
Factors and elsewhere in this prospectus.
In addition, important factors to consider in evaluating such forward-looking statements
include changes or developments in United States and international economic, market, legal or
regulatory circumstances, changes in our business or growth strategy or an inability to execute our
strategy due to changes in our industry or the economy generally, the emergence of new or growing
competitors, the actions or omissions of third parties, including suppliers, customers, competitors
and United States and foreign governmental authorities, and various other factors. Should any one
or more of these risks or uncertainties materialize, or the underlying estimates or assumptions
prove incorrect, actual results may vary significantly and markedly from those expressed in such
forward-looking statements, and there can be no assurance that the forward-looking statements
contained in this prospectus will in fact occur.
Given these uncertainties, you are cautioned not to place undue reliance on our
forward-looking statements. We disclaim any obligation to announce publicly the results of any
revisions to any of the forward-looking statements contained in this prospectus, to reflect future
events or developments.
18
RATIO OF EARNINGS TO FIXED CHARGES
Our ratio of earnings to fixed charges for each of the three months ended March 31, 2007
and 2006 and for the last five fiscal years is as follows:
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Three Months |
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Ended March 31, |
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Years Ended December 31, |
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2007 |
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2006 |
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2006 |
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2005 |
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2004 |
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2003 |
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2002 |
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Less |
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Less |
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Less |
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Less |
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1.5x |
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than 1 |
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than 1 |
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than 1 |
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1.1x |
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than 1 |
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4.4x |
Deficiency in millions of
dollars if less than 1 |
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$9.7 |
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$19.1 |
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$204.7 |
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$197.9 |
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We define earnings as earnings (loss) before discontinued operations, extraordinary
items, interest expense, amortization of discounts and premiums related to indebtedness, taxes and
the estimated portion of rent expense under operating leases representative of interest. Fixed
charges consist of interest expense (including amortization of discounts and premiums related to
indebtedness), dividends on mandatorily redeemable preferred stock, taxes and the estimated portion
of rent expenses under operating leases representative of interest.
USE OF PROCEEDS
The selling securityholders will receive all of the proceeds from the sale under this
prospectus of the notes and the common stock issuable upon conversion of the notes. We will not
receive any proceeds.
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DESCRIPTION OF THE NOTES
The senior notes and senior convertible notes were issued under indentures between us and U.S.
Bank, National Association, as trustee. A copy of the indentures for each of the senior notes and
senior convertible notes is filed as an exhibit to the registration statement of which this
prospectus forms a part. We have summarized portions of the indentures below. This summary is not
complete. We urge you to read the indentures because those documents define your rights as a holder
of the senior notes and senior convertible notes. You can find the definitions of certain terms
used in these descriptions under the subheadings Certain Definitions. Terms not defined in
these descriptions have the meanings given to them in the respective indenture. In this section,
the words we, us, our or PRG do not include any current or future subsidiary of PRG-Schultz
International, Inc.
Senior Notes
General
The senior notes:
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are senior unsecured obligations of PRG; |
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are senior in right of payment to all existing and future subordinated
Indebtedness of PRG, if any; |
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are effectively (but not expressly) subordinated to our existing and future
secured Indebtedness to the extent of the collateral securing that Indebtedness, and to the
existing and future liabilities of our subsidiaries, which includes our senior secured
credit facility and any permitted refinancings thereof; and |
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are pari passu in right of payment with our senior convertible notes and any
future senior Indebtedness of PRG. |
None of our Subsidiaries is obligated for the payment of our obligations under the senior
notes. As of the date of the senior notes indenture, all of our Subsidiaries were Restricted
Subsidiaries. However, under certain circumstances, we will be permitted to designate certain of
our Subsidiaries as Unrestricted Subsidiaries. Our Unrestricted Subsidiaries will not be subject
to any of the restrictive covenants in the senior notes indenture.
Principal, Maturity and Interest
As of December 31, 2006, senior notes in the aggregate principal amount of $51,455,517 were
outstanding. The senior notes will mature on March 15, 2011, unless earlier redeemed by us or
repurchased at the option of the holders upon the occurrence of a Change in Control or certain
Asset Sales as described below under the subheadings Optional Redemption and Repurchase at
the Option of the Holders.
The senior notes bear interest at the rate of 11.0% per annum from the date of issuance of the
senior notes, or from the most recent date to which interest has been paid or provided for. Upon
the occurrence of and continuance of an Event of Default, interest will accrue at a rate of 13.0%
until all Events of Default have been waived or cured. Interest will be payable semi-annually on
March 15 and September 15 of each year, commencing September 15, 2006 to holders of record at the
close of business on the preceding March 1 and September 1, respectively.
Interest will be computed on the basis of a 360-day year comprised of twelve 30-day months. In
the event of the payment at maturity, purchase by us at the option of the holder or redemption by
us of any senior notes, interest will cease to accrue on such senior notes under the terms of and
subject to the conditions of the senior notes indenture.
If any interest payment date or maturity date of a senior note or date for repurchase of a
senior note at the option of the holder following a Change in Control or Asset Sale Offer is not a
business day, then payment of the principal, premium, if any, and interest due on that date may be
made on the next business day. In that case, no interest will accrue on the amount payable for the
period from and after the applicable interest payment date, maturity date or repurchase date, as
the case may be.
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Transfer, Payment and Form
The senior notes have been issued in book-entry form and are evidenced by one or more global
certificates, which we sometimes refer to as global notes, registered in the name of Cede & Co.,
as nominee for The Depository Trust Company (DTC). Except in limited circumstances, holders of
interests in global notes are not entitled to receive senior notes in definitive certificated form
registered in their names and will not be considered registered owners or holders of the global
note under the indenture for any purpose.
Principal will be payable, and the senior notes, in certificated form, may be presented for
registration of transfer and exchange, without service charge, at our office or agency in New York
City, which shall initially be at the office of U.S. Bank National Association. See Global
Notes; Book-Entry Form.
Payment of interest on global notes will be made to DTC or its nominee. Payment of interest on
senior notes in definitive certificated form will be made against presentation of those senior
notes at the agency referred to in the preceding paragraph or, at our option, by mailing checks
payable to the persons entitled to that interest to their addresses as they appear in the note
register. A holder of senior notes with an aggregate principal amount in excess of $5 million may
be paid by wire transfer in immediately available funds at the election of such holder.
Ranking
The right to payment on the senior notes of principal, premium (if any), interest, and
liquidated damages, if any, is pari passu with respect to payment of all senior Indebtedness of
PRG, including all of our secured Indebtedness, the senior convertible notes and all of our general
unsecured obligations, whether outstanding on the date of the senior notes indenture or thereafter
incurred.
The senior notes are, however, effectively (though not expressly) subordinated to all
liabilities and obligations of our Subsidiaries under our senior secured credit facility, trade
payables and lease obligations, if any, and similarly are effectively subordinated to obligations
of PRG under our senior secured credit facility in a principal amount not to exceed $47.5 million
to the extent the value of our assets securing such obligations. The secured debt under our senior secured
credit facility is an obligation of PRG and most of our Subsidiaries and is secured by liens and
security interests on substantially all of our assets, including the stock of PRGs Subsidiaries
and any intercompany claims PRG may have against its Subsidiaries. Any right by us to receive the
assets of any of our Subsidiaries upon the liquidation or reorganization thereof, and, because the
senior notes are solely the obligations of PRG, the consequent right of the holders of the senior
notes to participate in these assets, will be effectively (though not expressly) subordinated to
the claims of that Subsidiarys creditors including trade creditors, except to the extent that we
are recognized as a creditor of such Subsidiary, in which case our claims would still be
subordinate to any security interests in the assets of such Subsidiary and any Indebtedness of such
Subsidiary senior to that held by us. Moreover, PRGs only source of cash or assets, before or
after an insolvency event or before or after liquidation of the Subsidiaries is from dividends on
the Subsidiaries stock, the payment of interest or principal on intercompany claims, or fees for
services provided to the Subsidiaries.
In addition, the senior notes indenture explicitly provides that the effective subordination
described above shall apply even if a court at some future date determines to pierce the corporate
veil between PRG and its Subsidiaries or substantively consolidate the assets and liabilities of
PRG and its Subsidiaries. In such event, as between the senior secured credit facility and the
senior notes, the senior secured credit facility would be entitled to receive from such
consolidated entities the value it would have received through the liens on the stock of PRGs
Subsidiaries (including the proceeds from any sale of such Subsidiaries) and/or the assets of such
Subsidiaries as if the corporate veil had not been pierced or substantive consolidation had not
been granted.
Holding Company Structure
We are a holding company with no material assets other than the ownership of the Capital Stock
of our Subsidiaries. Our Subsidiaries are separate and distinct legal entities and have no
obligation, contingent or otherwise, to pay any amounts due pursuant to the senior notes or to make
any funds available for paying such amounts, whether by dividends, loans or other payments. In
addition, the payment of dividends and the making of
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loans and advances to us by our Subsidiaries may be subject to statutory, contractual or other
restrictions and are dependent upon the earnings or financial condition of those Subsidiaries and
subject to various business considerations. As a result, we may be unable to gain access to the
cash flow or assets of our Subsidiaries.
Paying Agent and Registrar for the Notes
The trustee is currently acting as paying agent and registrar for the senior notes. We may
change the paying agent or registrar without prior notice to the holders of the senior notes, and
PRG or any of our Subsidiaries may act as paying agent or registrar.
We are obligated to pay reasonable compensation to the trustee and to indemnify the trustee
against certain losses, liabilities or expenses incurred by it in connection with its duties
relating to the senior notes. The trustees claims for such payments will generally be senior to
those of the holders of the senior notes in respect of all funds collected or held by the trustee.
Optional Redemption
There
is no sinking fund for the senior notes. Subject to compliance with
the terms of our senior credit facility, we may redeem all or part of the senior notes
at any time upon not less than 30 nor more than 60 days prior notice at the following redemption
prices plus accrued and unpaid interest on the senior notes to be redeemed to the applicable
redemption date, if redeemed during the periods beginning on the Issue Date and each of the other
following indicated periods, subject to the rights of holders on the relevant record date to
receive interest on the relevant interest payment date:
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Issue Date through March 14, 2007 |
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104.00 |
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March 15, 2007 through March 14, 2008 |
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102.00 |
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March 15, 2008 and thereafter |
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100.00 |
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Unless we default in the payment of the redemption price, interest will cease to accrue on the
senior notes or portions thereof called for redemption on the applicable redemption date.
If we do not redeem all of the senior notes, the trustee will select the senior notes to be
redeemed in principal amounts of $1,000 or whole multiples of $1,000 by lot, on a pro rata basis or
in accordance with any other method the trustee considers fair and appropriate. If any senior notes
are to be redeemed in part only, a senior note or notes in principal amount equal to the unredeemed
principal portion thereof will be issued.
Repurchase at the Option of Holders
Change in Control
If a Change in Control occurs, each holder of senior notes will have the right to require us
to repurchase all of such holders senior notes not previously called for redemption, or any
portion of those senior notes that is equal to $1,000 or a whole multiple of $1,000, on the date
that is 45 days (or if that 45th day is not a business day, the next succeeding business day) after
the date we give notice of the Change in Control at a repurchase price equal to 100% of the
principal amount of the senior notes to be repurchased, together with interest accrued and unpaid
to, but excluding, the repurchase date; provided that, if such repurchase date is an interest
payment date, then the interest payable on such date shall be payable to the holder of record at
the close of business on the relevant record date and the repurchase price shall not include such
interest payment.
Within 30 days after the occurrence of a Change in Control, we are required to give notice to
all holders of record of senior notes, as provided in the senior notes indenture, of the occurrence
of the Change in Control and of their resulting repurchase right. We must also deliver a copy of
our notice to the trustee. In order to exercise the repurchase right, a holder of senior notes must
deliver, on or before the 45th day after the date of our notice of the Change in Control, written
notice to the trustee of the holders exercise of its repurchase right, together with the senior
notes with respect to which the right is being exercised.
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A holder may withdraw the notice at any time prior to the close of business on the repurchase
date by delivering a written notice of withdrawal to the trustee as provided in the senior notes
indenture.
Under the senior notes indenture, a Change in Control of PRG will be deemed to have occurred
at such time after the original issuance of the senior notes when the following has occurred:
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the acquisition by any person, including any syndicate or group deemed to be a
person under Section 13(d)(3) of the Exchange Act, of beneficial ownership, directly or
indirectly, through a purchase, merger or other acquisition transaction or series of
transactions, of shares of our capital stock entitling that person to exercise 50% or more
of the total voting power of all shares of our capital stock entitled to vote generally in
elections of directors, other than any acquisition by us, any of our subsidiaries or any of
our employee benefit plans; |
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our consolidation or merger with or into any other person, any merger of
another person into us, or any conveyance, transfer, sale, lease or other disposition of
all or substantially all of our properties and assets to another person, other than: |
(1) any transaction (A) that does not result in any reclassification, conversion, exchange
or cancellation of outstanding shares of our capital stock and (B) pursuant to which holders of
our capital stock immediately prior to the transaction are entitled to exercise, directly or
indirectly, 50% or more of the total voting power of all shares of our capital stock entitled to
vote generally in the election of directors of the continuing or surviving person immediately
after the transaction; or
(2) any merger solely for the purpose of changing our jurisdiction of incorporation and
resulting in a reclassification, conversion or exchange of outstanding shares of (A) common
stock solely into shares of common stock of the surviving entity, (B) series A convertible
preferred stock solely into shares of a series of preferred stock of the surviving entity having
the same designations, rights and privileges with respect to such surviving entity as the series
A convertible preferred stock has with respect to us, and (C) the series B convertible preferred
stock solely into shares of a series of preferred stock of the surviving entity having the same
designations, rights and privileges with respect to such surviving entity as the series B
convertible preferred stock has with respect to us;
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during any consecutive two-year, period, individuals who at the beginning of
that two-year period constituted our Board of Directors (together with any new directors
whose election to our Board of Directors, or whose nomination for election by our
shareholders, was approved by a vote of a majority of the directors then still in office
who were either directors at the beginning of such period or whose election or nomination
for election was previously so approved) cease for any reason to constitute a majority of
our Board of Directors then in office; or |
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we are liquidated or dissolved or our shareholders pass a resolution approving
a plan of liquidation or dissolution. |
Beneficial ownership shall be determined in accordance with Rule 13d-3 promulgated by the SEC
under the Exchange Act. The term person includes any syndicate or group that would be deemed to
be a person under Section 13(d)(3) of the Exchange Act.
Rule 13e-4 under the Exchange Act requires the dissemination of information to securityholders
if an issuer tender offer occurs and may apply, if the repurchase option becomes available to
holders of the senior notes. We will comply with this rule to the extent applicable at that time.
We may, to the extent permitted by applicable law, at any time purchase the senior notes in
the open market or by tender at any price or by private agreement. Any senior note so purchased by
us may, to the extent permitted by applicable law, be reissued or resold or may be surrendered to
the trustee for cancellation. Any notes surrendered to the trustee may not be reissued or resold
and will be canceled promptly.
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Our ability to repurchase senior notes upon the occurrence of a Change in Control is subject
to important limitations. We cannot assure you that we would have the financial resources, or would
be able to arrange financing, to pay the repurchase price for all the senior notes that might be
delivered by holders of notes seeking to exercise the repurchase right. Any failure by us to
repurchase the senior notes when required following a Change in Control would result in an event of
default under the senior notes indenture.
Any such default may, in turn, cause a default under existing or other Indebtedness.
Asset Sales
In the event that we consummate an Asset Sale permitted by the terms and conditions of the
senior notes indenture and the aggregate amount of Excess Proceeds therefrom exceeds $10 million,
within twenty business days thereof, we will make an Asset Sale Offer in accordance with the
procedures set forth in the senior notes indenture to all holders of senior notes and all holders
of other indebtedness that is pari passu with the senior notes containing provisions similar to
those set forth in the senior notes indenture with respect to offers to purchase or redeem with the
proceeds of sales of assets to purchase the maximum principal amount of senior notes and such other
pari passu indebtedness that may be purchased out of the Excess Proceeds. The offer price in any
Asset Sale Offer will be equal to 100% of the principal amount plus accrued and unpaid interest to
the date of purchase and will be payable in cash. If any Excess Proceeds remain after consummation
of an Asset Sale Offer, we may use those Excess Proceeds for any purpose not otherwise prohibited
by the senior notes indenture.
If the aggregate principal amount of the senior notes and other pari passu indebtedness
tendered into such Asset Sale Offer exceeds the amount of Excess Proceeds, the trustee shall select
the senior notes and such other pari passu Indebtedness to be purchased on a pro rata basis. Upon
completion of each Asset Sale Offer, the amount of Excess Proceeds will be reset at zero.
We will comply with the requirements of Rule 14e-1 under the Exchange Act and any other
securities laws and regulations thereunder to the extent those laws and regulations are applicable
in connection with each repurchase of senior notes pursuant to an Asset Sale Offer. To the extent
that the provisions of any securities laws or regulations conflict with the provisions of the
senior notes indenture, we will comply with the applicable securities laws and regulations and will
not be deemed to have breached our obligations under the senior notes indenture by virtue of such
compliance.
Certain Covenants
Restricted Payments
We will not, and will not permit any of our Restricted Subsidiaries to, directly or
indirectly:
(i) declare or pay any dividend or make any other payment or distribution on account of our
or any of our Restricted Subsidiaries Equity Interests (including, without limitation, any
payment in connection with any merger or consolidation involving us or any of our Restricted
Subsidiaries) or to the direct or indirect holders of our or any of our Restricted Subsidiaries
Equity Interests in their capacity as such, other than
(A) dividends or distributions payable in Equity Interests (other than Disqualified
Stock of us); or
(B) dividends or distributions by a Restricted Subsidiary; provided, that, in the case
of any dividend or distribution payable on or in respect of any class or series of
securities issued by a Restricted Subsidiary that is not wholly owned by PRG or another
Restricted Subsidiary, PRG or a Restricted Subsidiary receives at least its pro rata share
of such dividend or distribution in accordance with its Equity Interests in such class or
series of securities;
(ii) purchase, redeem or otherwise acquire or retire for value (including, without
limitation, in connection with any merger or consolidation involving PRG) any Equity Interests
of PRG or any direct or indirect parent of PRG;
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(iii) make any payment on or with respect to, or purchase, redeem, defease or otherwise
acquire or retire for value any Indebtedness of PRG or any Restricted Subsidiary that is
contractually subordinated to the senior notes (excluding any intercompany Indebtedness between
or among us and any of our Restricted Subsidiaries), except (A) a payment of interest or
principal at the Stated Maturity thereof or (B) the purchase, repurchase or other acquisition of
any such Indebtedness in anticipation of satisfying a sinking fund obligation, principal
installment or final maturity, in each case, due within one year of the date of such purchase,
repurchase or other acquisition; or
(iv) make any Restricted Investment (all such payments and other actions set forth in these
clauses (i) through (iv) being collectively referred to as Restricted Payments).
The foregoing provisions will not prohibit the following Restricted Payments:
(1) the making of any Restricted Payment in exchange for, or out of the net cash proceeds
of the substantially concurrent sale (other than to a Restricted Subsidiary of PRG) of, Equity
Interests of PRG (other than Disqualified Stock) or from the substantially concurrent
contribution of common equity capital to us;
(2) the redemption, repurchase or other acquisition or retirement of Indebtedness of us or
any Restricted Subsidiary that is contractually subordinated to the senior notes (excluding any
intercompany Indebtedness between or among us and any of our Restricted Subsidiaries) made by
exchange for, or out of the proceeds of the substantially concurrent issuance or sale of, new
Indebtedness of us which is incurred in compliance with the covenant described below under
Incurrence of Indebtedness and Issuance of Preferred Stock so long as:
(A) the principal amount of such new Indebtedness does not exceed the principal amount
of (or accreted value, if applicable), plus any accrued and unpaid interest on the
subordinated Indebtedness being so redeemed, repurchased, acquired or retired, plus the
amount of any reasonable premium required to be paid under the terms of the instrument
governing the subordinated Indebtedness being so redeemed, repurchased, acquired or retired,
plus reasonable fees and expenses incurred in connection with the issuance of such new
Indebtedness,
(B) such Indebtedness is subordinated to the senior notes at least to the same extent
as such subordinated Indebtedness so redeemed, repurchased, acquired or retired,
(C) such Indebtedness has a final scheduled maturity date equal to or later than the
final scheduled maturity date of the subordinated Indebtedness being so redeemed,
repurchased, acquired or retired, and
(D) such Indebtedness has a Weighted Average Life to Maturity equal to or greater than
the remaining Weighted Average Life to Maturity of the subordinated Indebtedness being so
redeemed, repurchased, acquired or retired;
(3) a Restricted Payment to pay for the repurchase, retirement or other acquisition or
retirement of Equity Interests of PRG held by any future, present or former employee, director
or consultant of us, any of our Subsidiaries or any of our direct or indirect parents pursuant
to any management equity plan or stock option plan or any other management or employee benefit
plan or agreement; provided, however, that the aggregate Restricted Payments made under this
clause (3) do not exceed in any calendar year $1.0 million (with unused amounts in any calendar
year being carried over to succeeding calendar years);
(4) repurchases of Equity Interests deemed to occur upon cashless exercise of stock options
or warrants if such Equity Interests represent a portion of the exercise price of such options
or warrants or cash payments made to satisfy tax obligations in accordance with the management
incentive plan; or
(5) the repurchase, redemption or other acquisition or retirement of any subordinated
Indebtedness pursuant to the provisions similar to those described under Redemption at the
Option of Holders Change in Control and Asset Sales; provided that all senior notes
tendered by holders in connection with a Change in Control or an Asset Sale Offer, as
applicable, have been repurchased, redeemed, acquired or retired.
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Provided, however, that at the time of, and after giving effect to, any Restricted Payment
permitted under clauses (3) or (5) above, no Default or Event of Default shall have occurred and be
continuing or would occur as a consequence thereof.
The amount of all Restricted Payments (other than cash) will be the Fair Market Value on the
date of the Restricted Payment of the asset(s) or securities proposed to be transferred or issued
by us or such Restricted Subsidiary, as the case may be, pursuant to the Restricted Payment. The
Fair Market Value of any assets or securities that are required to be valued by this covenant will
be determined by our Board of Directors whose resolution with respect thereto will be delivered to
the Trustee in the event that the Fair Market Value exceeds $10.0 million.
The Company will not permit any Unrestricted Subsidiary to become a Restricted Subsidiary
except pursuant to the last sentence of the definition of Unrestricted Subsidiary. For purposes
of designating any Restricted Subsidiary as an Unrestricted Subsidiary, all outstanding Investments
by PRG and the Restricted Subsidiaries (except to the extent repaid) in the Subsidiary so
designated will be deemed to be Restricted Payments in an amount equal to the lesser of (i) the
Fair Market Value of our Investment in such Subsidiary as of the date of such redesignation and
(ii) such Fair Market Value as of the date on which such Subsidiary was originally designated as an
Unrestricted Subsidiary after the Issue Date, determined in accordance with the preceding
paragraph. Such designation will be permitted only if a payment of such amount would be permitted
at such time pursuant to the definition of Permitted Investments, and if such Subsidiary
otherwise meets the definition of an Unrestricted Subsidiary. Unrestricted Subsidiaries will not be
subject to any of the restrictive covenants set forth in the senior notes indenture.
Incurrence of Indebtedness and Issuance of Preferred Stock
We will not, and will not permit any of our Restricted Subsidiaries to, directly or
indirectly, create, incur, issue, assume, guarantee or otherwise become directly or indirectly
liable, contingently or otherwise, with respect to (collectively, incur) any Indebtedness
(including Acquired Debt), and we will not issue any Disqualified Stock and will not permit any of
our Restricted Subsidiaries to issue any shares of preferred stock; provided, however, that the
foregoing restrictions shall not prohibit us and our Restricted Subsidiaries from incurring any of
the following items of Indebtedness or issuances of Disqualified Stock or preferred stock
(collectively, Permitted Debt):
(i) Indebtedness incurred under the Credit Facilities (including the related Guarantees
thereof and fees, expenses and accrued interest related thereto), the principal amount of which
(with letters of credit being deemed to have a principal amount equal to the maximum potential
liability of us and our Restricted Subsidiaries thereunder) does not exceed $47.5 million
outstanding at any one time under this clause (i), less the aggregate amount of all Net Proceeds
of Asset Sales applied by us or any of our Restricted Subsidiaries since the Issue Date to repay
any term Indebtedness with the effect of permanently reducing such term Indebtedness and
revolving credit Indebtedness under a Credit Facility and effect a corresponding commitment
reduction thereunder pursuant to the covenant described under Asset Sales (it being
understood that a temporary reduction of revolving credit Indebtedness with Net Proceeds pending
application thereof as permitted by such covenant shall not reduce the amounts available for
borrowing under this clause (i));
(ii) the incurrence by us of Indebtedness represented by the senior notes and the senior
convertible notes and, if applicable, the series A convertible preferred stock and series B
convertible preferred stock;
(iii) the issuance by any of our Restricted Subsidiaries to us or to any of our Restricted
Subsidiaries of shares of preferred stock; provided, however, that:
(A) any subsequent issuance or transfer of Capital Stock that results in any such
preferred stock being held by a Person other than us or a Restricted Subsidiary; and
(B) any sale or other transfer of any such preferred stock to a Person that is not
either us or a Restricted Subsidiary, will be deemed, in each case, to constitute an
issuance of such preferred stock by such Restricted Subsidiary that was not permitted by
this clause (iii);
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(iv) the Guarantee by us or any of our Restricted Subsidiaries of Indebtedness of us or our
Restricted Subsidiary that was permitted to be incurred by another provision of this covenant;
(v) Existing Indebtedness (other than Indebtedness described in clause (i) above);
(vi) Indebtedness (including Capital Lease Obligations), Disqualified Stock and preferred
stock incurred by us or any of our Restricted Subsidiaries, to finance the purchase, lease,
construction or improvement of property (real or personal) or equipment that is used or useful
in a Permitted Business, in an aggregate principal amount which, when aggregated with the
principal amount of all other Indebtedness, Disqualified Stock and preferred stock then
outstanding and incurred pursuant to this clause (vi) does not exceed at any time in the
aggregate outstanding $10.0 million;
(vii) Indebtedness incurred by any Restricted Subsidiary constituting reimbursement
obligations with respect to letters of credit issued in the ordinary course of business;
provided, however, that upon the drawing of such letters of credit or the incurrence of such
Indebtedness, such obligations are reimbursed within 30 days following such drawing or
incurrence; provided, further, that any such Indebtedness outstanding and incurred pursuant to
this clause (vii) does not exceed at any time in the aggregate outstanding $5.0 million;
(viii) the incurrence by us or any Restricted Subsidiary of Permitted Refinancing
Indebtedness in exchange for, or the net proceeds of which are used to extend, refund,
refinance, defease, renew or replace, any Indebtedness, Disqualified Stock or preferred stock
incurred under clauses (ii), (v) and (vi) above, this clause (viii) and clause (ix) below or any
Permitted Refinancing Indebtedness incurred in exchange for, or the net proceeds of which are
used to extend, refund, refinance, defease, renew or replace, such Indebtedness, Disqualified
Stock or preferred stock including additional Indebtedness, Disqualified Stock or preferred
stock incurred to pay premiums (including tender premiums), defeasance costs and fees in
connection therewith prior to its respective maturity;
(ix) Indebtedness of us owed to and held by any Restricted Subsidiary or Indebtedness of a
Restricted Subsidiary owed to and held by us or any other Restricted Subsidiary; provided,
however, that any subsequent issuance or transfer of any Capital Stock or any other event that
results in any such Restricted Subsidiary ceasing to be a Restricted Subsidiary or any
subsequent transfer of such Indebtedness (except to us or a Restricted Subsidiary) shall be
deemed, in each case, to constitute an incurrence of such Indebtedness by the issuer thereof;
and
(x) the incurrence by us or any of the Restricted Subsidiaries of Indebtedness,
Disqualified Stock or preferred stock in an aggregate principal amount at any time outstanding
under this clause (x) not to exceed $7.5 million.
For purposes of determining compliance with this covenant, in the event that an item of
Indebtedness, Disqualified Stock or preferred stock meets the criteria of more than one of the
categories of Permitted Debt described in clauses (i) through (x) in the immediate preceding
paragraph above, we, in our sole discretion, will classify or reclassify such item of Indebtedness,
Disqualified Stock or preferred stock (or any portion thereof) and will only be required to include
the amount and type of such Indebtedness, Disqualified Stock or preferred stock in one of the above
clauses. For purposes of determining compliance with this covenant, at the time of incurrence, we
will be entitled to divide and classify an item of Indebtedness in more than one of the types of
Indebtedness described above.
Accrual of interest, the accretion of accreted value and the payment of interest in the form
of additional Indebtedness, Disqualified Stock or preferred stock will not be deemed to be an
incurrence of Indebtedness, Disqualified Stock or preferred stock for purposes of this covenant.
For purposes of determining compliance with any U.S. dollar-denominated restriction on the
incurrence of Indebtedness, the U.S. dollar-equivalent principal amount of Indebtedness denominated
in a foreign currency shall be calculated based on the relevant currency exchange rate in effect on
the date such Indebtedness was incurred, in the case of term debt, or first committed, in the case
of revolving credit debt; provided that if such Indebtedness is
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incurred to refinance other Indebtedness denominated in a foreign currency, and such refinancing
would cause the applicable U.S. dollar denominated restriction to be exceeded if calculated at the
relevant currency exchange rate in effect on the date of such refinancing, such U.S.
dollar-denominated restriction shall be deemed not to have been exceeded so long as the principal
amount of such refinancing Indebtedness does not exceed the principal amount of such Indebtedness
being refinanced. The principal amount of any Indebtedness incurred to refinance other
Indebtedness, if incurred in a different currency from the Indebtedness being refinanced, shall be
calculated based on the currency exchange rate applicable to the currencies in which such
respective Indebtedness is denominated that is in effect on the date of such refinancing.
Notwithstanding the foregoing, we will not, directly or indirectly, incur any Indebtedness
(including Permitted Debt) that is contractually subordinated in right of payment to any other
Indebtedness of PRG unless such Indebtedness is also contractually subordinated in right of payment
to the senior notes on substantially identical terms.
The amount of any Indebtedness outstanding as of any date will be:
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the accreted value of the Indebtedness, in the case of any Indebtedness issued
with original issue discount; |
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the principal amount of the Indebtedness, in the case of any other
Indebtedness; and |
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in respect of Indebtedness of another Person secured by a Lien on the assets of
the specified Person, the lesser of: (A) the Fair Market Value of such assets at the date
of determination; and (B) the amount of the Indebtedness of the other Person. |
Asset Sales
We will not, and will not permit any of our Restricted Subsidiaries to, consummate an Asset
Sale unless:
(i) we (or the Restricted Subsidiary, as the case may be) receive consideration at the time
of the Asset Sale at least equal to the Fair Market Value of the assets or Capital Stock issued
or sold or otherwise disposed of; and
(ii) at least 75% of the consideration received in the Asset Sale by PRG or such Restricted
Subsidiary is in the form of cash. For purposes of this provision (but not the definition of Net
Proceeds), each of the following will be deemed to be cash:
(A) Cash Equivalents;
(B) any liabilities, as shown on our most recent consolidated balance sheet, of us or
any Restricted Subsidiary (other than contingent liabilities and liabilities that are by
their terms subordinated to the senior notes) that are assumed by the transferee of any such
assets pursuant to a customary assumption agreement that releases us or such Restricted
Subsidiary from further liability; and
(C) any securities, notes or other obligations received by us or any such Restricted
Subsidiary from such transferee that are, within 180 days of the Asset Sale, converted by us
or such Restricted Subsidiary into cash, to the extent of the cash received in that
conversion.
Within 365 days after the receipt of any Net Proceeds from an Asset Sale, we (or our
applicable Restricted Subsidiary, as the case may be) may apply such Net Proceeds at our option:
(i) to repay or prepay Indebtedness of PRG or our Restricted Subsidiaries and, if such
Indebtedness repaid is revolving credit Indebtedness, to correspondingly reduce commitments with
respect thereto; or
(ii) to acquire (or enter into a definitive agreement to acquire, the closing of which is
expected to occur no later than 455 days following the receipt of such Net Proceeds) all or
substantially all of the assets of, or any Capital Stock of, another Person engaged in a
Permitted Business (if, after giving effect to any such acquisition
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of Capital Stock, such Person is or becomes a Restricted Subsidiary of PRG), or to invest in
productive assets of a kind used or usable by us or our Restricted Subsidiaries in a Permitted
Business.
Pending the final application of any Net Proceeds, PRG may temporarily reduce revolving credit
borrowings or otherwise invest the Net Proceeds in any manner that is not prohibited by the senior
notes indenture.
Any net proceeds from asset sales that are not applied or invested as provided above will
constitute Excess Proceeds to be used to repurchase all or part of the senior notes or other
indebtedness that is pari passu with the senior notes. See Repurchase at the Option of Holders
Asset Sales.
Transactions with Affiliates
We will not, and will not permit any of our Restricted Subsidiaries to, make any payment to,
or sell, lease, transfer or otherwise dispose of any of its properties or assets to, or purchase
any property or assets from, or enter into or make or amend any transaction, contract, agreement,
understanding, loan, advance or guarantee with, or for the benefit of, any Affiliate of PRG (each,
an Affiliate Transaction), unless:
(i) the Affiliate Transaction is on terms that are no less favorable to us or the relevant
Restricted Subsidiary than those that would have been obtained in a comparable transaction by us
or such Restricted Subsidiary with an unrelated Person; and
(ii) we deliver to the trustee:
(A) with respect to any Affiliate Transaction or series of related Affiliate
Transactions involving aggregate consideration in excess of $3.0 million, a resolution of
our Board of Directors set forth in an Officers Certificate certifying that such Affiliate
Transaction complies with clause (i) of this covenant and that such Affiliate Transaction
has been approved by a majority of the disinterested members of the Board of Directors of
PRG; and
(B) with respect to any Affiliate Transaction or series of related Affiliate
Transactions involving aggregate consideration in excess of $10.0 million, an opinion as to
the fairness to PRG or such Subsidiary of such Affiliate Transaction from a financial point
of view issued by an accounting, appraisal or investment banking firm of national standing.
The following items will not be deemed to be Affiliate Transactions and, therefore, will not be
subject to the provisions of this covenant:
(i) any consulting or employment agreement or arrangements, incentive compensation plan,
stock option or stock ownership plan, employee benefit plan, severance arrangements, officer or
director indemnification agreement or any similar arrangement entered into by us or any of our
Restricted Subsidiaries for the benefit of directors, officers, employees and consultants of us
or a direct or indirect parent of us and payments and transactions pursuant thereto, including
without limitation, pursuant to the management incentive plan;
(ii) transactions between or among PRG and/or our Restricted Subsidiaries;
(iii) transactions with a Person (other than an Unrestricted Subsidiary of us) that is an
Affiliate of us solely because we own, directly or through a Restricted Subsidiary, an Equity
Interest in, or control, such Person;
(iv) payment of reasonable directors fees to Persons who are not employees of us; and
(v) any Investment of us or any of our Restricted Subsidiaries existing on the date of the
senior notes indenture and any extension, modification or renewal of such existing Investments,
to the extent not involving any additional Investment other than as the result of the accrual or
accretion of interest or original issue discount or the issuance of pay-in-kind securities, in
each case pursuant to the terms of such Investments as in effect on the date of the senior notes
indenture.
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Limitation on Liens
We will not, and will not permit any of our Restricted Subsidiaries to, create, incur, assume
or otherwise cause or suffer to exist or become effective any Lien of any kind securing
Indebtedness upon any of their property or assets, now owned or hereafter acquired, other than
Permitted Liens, unless all payments due on the senior notes are secured on an equal and ratable
basis with the obligations so secured until such time as such obligations are no longer secured by
a Lien; provided that if such Indebtedness is by its terms expressly subordinated to the senior
notes, the Lien securing such Indebtedness shall be subordinate and junior to the Lien securing the
senior notes with the same relative priority as such subordinate or junior Indebtedness shall have
with respect to the senior notes.
Business Activities
We will not, and will not permit any of our Restricted Subsidiaries to, engage in any business
other than Permitted Businesses, except to such extent as would not be material to us and our
Restricted Subsidiaries taken as a whole.
Payments for Consent
We will not, and will not permit any of our Restricted Subsidiaries to, directly or
indirectly, pay or cause to be paid any consideration to or for the benefit of any holder of senior
notes for or as an inducement to any consent, waiver or amendment of any of the terms or provisions
of the senior notes indenture or the senior notes unless such consideration is offered to be paid
and is paid to all holders that consent, waive or agree to amend in the time frame set forth in the
solicitation documents relating to such consent, waiver or agreement.
Consolidation, Mergers and Sales of Assets
PRG shall not consolidate with, merge or amalgamate with or into any other Person or convey,
transfer or lease the properties and assets of PRG and its Restricted Subsidiaries, taken as a
whole, substantially as an entirety to any Person, unless:
(i) either (A) PRG shall be the continuing corporation or (B) the Person (if other than
PRG) formed by such consolidation or into which PRG is merged or amalgamated or the Person which
acquires by conveyance, transfer or lease the properties and assets of PRG substantially as an
entirety (1) shall be organized and validly existing under the laws of the United States or any
state thereof or the District of Columbia and (2) shall expressly assume, by a supplemental
indenture executed and delivered to the trustee in form reasonably satisfactory to the trustee,
all of the obligations of PRG under the senior notes and the senior notes indenture;
(ii) at the time of such transaction, no Event of Default and no event which, after notice
or lapse of time, would become an Event of Default, shall have happened and be continuing; and
(iii) we shall have delivered to the trustee an Officers Certificate and an Opinion of
Counsel, each stating that such consolidation, merger, amalgamation, conveyance, transfer or
lease and, if a supplemental indenture is required in connection with such transaction, such
supplemental indenture complies with the terms of this covenant and that all conditions
precedent herein provided for relating to such transaction have been satisfied.
For purposes of the foregoing, the transfer (by lease, assignment, sale or otherwise) of the
properties and assets of one or more Subsidiaries (other than to us or another Subsidiary), which,
if such assets were owned by us, would constitute all or substantially all of the properties and
assets of us, shall be deemed to be the transfer of all or substantially all of the properties and
assets of PRG.
Event of Default
Each of the following constitutes an Event of Default under the senior notes indenture:
(1) our failure to pay when due the principal of or premium, if any, on any of the senior
notes at maturity, upon redemption or exercise of a repurchase right or otherwise;
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(2) our failure to pay an installment of interest (including Registration Delay Payments,
if any) on any of the senior notes that continues for 30 days after the date when due;
(3) our failure to perform or observe any other term, covenant or agreement contained in
the senior notes or the senior notes indenture for a period of 30 days after written notice of
such failure, requiring us to remedy the same, shall have been given to us by the trustee or to
us and the trustee by the holders of at least 25% in aggregate principal amount of the senior
notes then outstanding;
(4) our failure to give the notice required by the senior notes indenture regarding any
Change in Control or Asset Sale Offer within the time period prescribed by the senior notes
indenture after the occurrence of such Change in Control or Asset Sale;
(5) (A) one or more defaults in the payment of principal of or premium, if any, on any of
our or our Restricted Subsidiaries indebtedness aggregating $5.0 million or more, when the same
becomes due and payable at the scheduled maturity thereof, and such default or defaults shall
have continued after any applicable grace period and shall not have cured or waived within a
thirty day period after the date of such default or (B) any of our or our Restricted
Subsidiaries indebtedness aggregating $5.0 million or more shall have been accelerated or
otherwise declared due and payable, or required to be prepaid or repurchased (other than by
regularly scheduled required payment) prior to the scheduled maturity thereof and such
acceleration is not rescinded or annulled within a 30 day period after the date of such
acceleration;
(6) final unsatisfied judgments not covered by insurance aggregating in excess of $5.0
million rendered against us or any of our Restricted Subsidiaries and not stayed, bonded or
discharged within 60 days;
(7) certain events of our bankruptcy, insolvency or reorganization or that of any
Significant Subsidiaries, including our filing of a voluntary petition seeking liquidation,
reorganization arrangement, readjustment of debts or for any other relief under the federal
bankruptcy code; or
(8) one or more defaults under the convertible notes indenture with respect to the senior
convertible notes should have occurred and be continuing.
The senior notes indenture provides that the trustee shall, within 90 days of the occurrence
of an Event of Default, give to the registered holders of the senior notes notice of all uncured
defaults known to it, but the trustee shall be protected in withholding such notice if it, in good
faith, determines that the withholding of such notice is in the best interest of such registered
holders, except in the case of a default in the payment of the principal of, or premium, if any, or
interest on, any of the senior notes when due or in the payment of any redemption or repurchase
obligation.
If an Event of Default specified in clause (7) above occurs and is continuing, then
automatically the principal of all the senior notes and the accrued and unpaid interest thereon
shall become immediately due and payable. If an Event of Default shall occur and be continuing,
other than with respect to clause (7) above, the default not having been cured or waived as
provided under Modifications and Waiver below, the trustee or the holders of at least 25% in
aggregate principal amount of the senior notes then outstanding may declare the senior notes due
and payable at their principal amount together with accrued and unpaid interest, and thereupon the
trustee may, at its discretion, proceed to protect and enforce the rights of the holders of senior
notes by appropriate judicial proceedings. Such declaration may be rescinded or annulled with the
written consent of the holders of a majority in aggregate principal amount of the senior notes then
outstanding upon the conditions provided in the senior notes indenture.
The senior notes indenture contains a provision entitling the trustee, subject to the duty of
the trustee during default to act with the required standard of care, to be indemnified by the
holders of senior notes before proceeding to exercise any right or power under the senior notes
indenture at the request of such holders. The senior notes indenture provides that, subject to
certain limitations, the holders of a majority in aggregate principal amount of the senior notes
then outstanding through their written consent may direct the time, method and place of conducting
any proceeding for any remedy available to the trustee or exercising any trust or power conferred
upon the trustee.
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We will be required to furnish annually to the trustee a statement as to the fulfillment of
our obligations under the senior notes indenture.
Modifications and Waiver
The senior notes indenture, including the terms and conditions of the senior notes, may be
modified or amended by us and the trustee, without the consent of the holder of any senior note,
for the purposes of, among other things:
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adding to our covenants for the benefit of the holders of senior notes; |
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surrendering any right or power conferred upon us; |
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complying with the requirements of the SEC in order to effect or maintain the
qualification of the indenture under the Trust Indenture Act of 1939, as amended; |
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curing any ambiguity, omission, inconsistency or correcting or supplementing
any defective provision contained in the senior notes indenture; |
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complying with the covenant described under Consolidations, Mergers and
Sales of Assets; or |
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adding or modifying any other provisions which we and the trustee may deem
necessary or desirable and which will not adversely affect the interests of the holders of
senior notes. |
Modifications and amendments to the senior notes indenture or to the terms and conditions of
the senior notes may also be made, and noncompliance by us may be waived, with the written consent
of the holders of at least a majority in aggregate principal amount of the senior notes at the time
outstanding or by the adoption of a resolution at a meeting of holders at which a quorum is present
by at least a majority in aggregate principal amount of the senior notes represented at the
meeting.
However, no such modification, amendment or waiver may, without the written consent of the
holder of each senior note affected:
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change the maturity of the principal of or any installment of interest on
(including Registration Delay Payments, if any), any senior note, including payment of
Registration Delay Payments, if any; |
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reduce the principal amount of, or any premium, if any, on any senior note; |
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reduce the interest rate or interest on (including Registration Delay Payments, if any), any senior note; |
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change the currency of payment of principal of, premium, if any, or interest of any senior note; |
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impair the right to institute suit for the enforcement of any payment on or
with respect to any senior note; or |
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reduce the percentage in aggregate principal amount of senior notes outstanding
necessary to modify or amend the senior notes indenture or to waive any past default. |
Satisfaction and Discharge
We may discharge our obligations under the senior notes indenture while senior notes remain
outstanding, subject to certain conditions, if:
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all outstanding senior notes will become due and payable at their scheduled maturity within 60 days; or |
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all outstanding senior notes are scheduled for redemption within 60 days; |
and, in either case, we have deposited with the trustee for the purpose of making such principal or
redemption payment an amount sufficient to pay and discharge all outstanding senior notes on the
date of their scheduled maturity or the scheduled date of redemption.
Governing Law
The senior notes indenture and the senior notes are governed by, and construed in accordance
with, the law of the State of New York.
Information Concerning the Trustee
U.S. Bank National Association, as trustee under the senior notes indenture, has been
appointed by us as paying agent and registrar with regard to the senior notes. The trustee or its
affiliates may from time to time in the future provide banking and other services to us in the
ordinary course of their business.
Certain Definitions
Set forth below are certain of the defined terms used in the covenants and other provisions of
the senior notes indenture. Reference is made to the senior notes indenture for the full definition
of all such terms as well as any other capitalized terms used herein for which no definition is
provided.
Acquired Debt means, with respect to any specified Person:
(i) Indebtedness of any other Person existing at the time such other Person is merged with
or into or became a Restricted Subsidiary of such specified Person, whether or not such
Indebtedness is incurred in connection with, or in contemplation of, such other Person merging
with or into, or becoming a Restricted Subsidiary of, such specified Person; and
(ii) Indebtedness secured by a Lien encumbering any asset acquired by such specified
Person.
Affiliate of any specified Person means any other person directly or indirectly controlling
or controlled by or under direct or indirect common control with such specified person. For
purposes of this definition, control when used with respect to any specified person means the
power to direct or cause the direction of the management and policies of such person, directly or
indirectly, whether through the ownership of voting securities, by contract or otherwise; and the
terms controlling and controlled have meanings correlative to the foregoing.
Asset Sale means:
(i) the sale, lease, conveyance or other disposition of any property or assets of PRG or
any Restricted Subsidiary; or
(ii) the issuance of Equity Interests in PRG or in any of PRGs Restricted Subsidiaries or
the sale of Equity Interests in any of its Restricted Subsidiaries.
Notwithstanding the preceding, none of the following items will be deemed to be an Asset Sale:
(a) any single transaction or series of related transactions that involves assets having a
Fair Market Value of less than $10.0 million;
(b) a transfer of assets between or among PRG and its Restricted Subsidiaries;
(c) an issuance of Equity Interests by a Restricted Subsidiary of PRG to PRG or to a
Restricted Subsidiary of PRG;
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(d) the licensing on a non-exclusionary basis of intellectual property or other general
intangibles to third persons on customary terms as determined by the Board of Directors in good
faith and the ordinary course of business;
(e) the sale or disposition in the ordinary course of business of any property or equipment
that has become damaged, worn-out or obsolete, in the ordinary course of business;
(f) to the extent allowable under Section 1031 of the Internal Revenue Code of 1986, any
exchange of like property for use in a Permitted Business;
(g) the sale or other disposition of cash or Cash Equivalents;
(h) a Restricted Payment that does not violate the covenant set forth under Certain
Covenants Restricted Payments or a Permitted Investment;
(i) the sale, lease, sub-lease, license, sub-license, consignment, conveyance or other
disposition of equipment, inventory or other assets in the ordinary course of business,
including leases with respect to facilities that are temporarily not in use or pending their
disposition, or accounts receivable in connection with the compromise, settlement or collection
thereof;
(j) the creation of a Lien (but not the sale or other disposition of property subject to
such Lien); or
(k) the sale of all or substantially all of the assets of PRG and its Subsidiaries in
compliance with the covenant described under Certain Covenants Consolidations, Mergers and
Sales of Assets.
Board of Directors means either the Board of Directors of PRG or any duly authorized
committee of such board.
Board Resolution means a resolution duly adopted by the Board of Directors, a copy of which,
certified by the Secretary or an Assistant Secretary of PRG to be in full force and effect on the
date of such certification, shall have been delivered to the Trustee.
Capital Lease Obligation means, at the time any determination is to be made, the amount of
the liability in respect of a capital lease that would at that time be required to be capitalized
on a balance sheet prepared in accordance with GAAP, and the Stated Maturity thereof shall be the
date of the last payment of rent or any other amount due under such lease prior to the first date
upon which such lease may be prepaid by the lessee without payment of a penalty.
Capital Stock of any corporation means any and all shares, interests, rights to purchase,
warrants, options, participations or other equivalents of or interests in (however designated)
stock issued by that corporation.
Cash Equivalents means:
(i) United States dollars;
(ii) securities issued or directly and fully guaranteed or insured by the United States
government or any agency or instrumentality of the United States government (provided that the
full faith and credit of the United States is pledged in support of those securities) having
maturities of not more than 360 days from the date of acquisition;
(iii) certificates of deposit and eurodollar time deposits with maturities of six months or
less from the date of acquisition, bankers acceptances with maturities not exceeding six months
and overnight bank deposits, in each case, with any lender party to the Credit Agreement or with
any domestic commercial bank having capital and surplus in excess of $500.0 million and a
Thomson Bank Watch Rating of B or better at the time of acquisition;
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(iv) repurchase obligations for underlying securities of the types described in
clauses (ii) and (iii) above entered into with any financial institution meeting the
qualifications specified in clause (iii) above;
(v) commercial paper having at the time of acquisition one of the two highest ratings
obtainable from Moodys Investors Service, Inc. or Standard & Poors Rating Service and, in each
case, maturing within nine months after the date of acquisition;
(vi) securities issued by any state of the United States of America or any political
subdivision of any such state or any public instrumentality thereof maturing within one year
from the date of
(vii) acquisition thereof and at the time of acquisition thereof, having one of the two
highest ratings obtainable from either Standard & Poors Rating Services or Moodys Investors
Service, Inc.;
(viii) money market funds at least 95% of the assets of which constitute Cash Equivalents
of the kinds described in clauses (1) through (6) of this definition; and
(ix) local currencies held by PRG or any of its Restricted Subsidiaries, from time to time
in the ordinary course of business and consistent with past practice.
Common Stock means the Common Stock, without par value, of PRG authorized on the Issue Date
or any stock of any class of Capital Stock of a successor to PRG which has no preference in respect
of dividends or of amounts payable in the event of any voluntary or involuntary liquidation,
dissolution or winding up of such successor to PRG.
Credit Agreement means the Credit Agreement, dated as of March 17, 2006, by and among
PRG-Schultz USA, Inc., as borrower, PRG and certain Subsidiaries, as guarantors, and Ableco Finance
LLC, as lender and agent thereunder.
Credit Facilities means one or more debt facilities (including, without limitation, the
Credit Agreement), indentures or commercial paper facilities, in each case, with banks or other
institutional lenders or a trustee providing for revolving credit loans, term loans, receivables
financing (including through the sale of receivables to such lenders or to special purpose entities
formed to borrow from such lenders against such receivables) or letters of credit or issuances of
notes, in each case, as amended, restated, modified, renewed, refunded, replaced (whether upon or
after termination or otherwise), substituted or refinanced (including by means of sales of debt
securities to institutional investors) in whole or in part from time to time.
Default or default means any event which is, or after notice or passage of time or both
would be, an Event of Default.
Disqualified Stock means any Capital Stock that, by its terms (or by the terms of any
security into which it is convertible, or for which it is exchangeable, in each case, at the option
of the holder of the Capital Stock), or upon the happening of any event, matures or is mandatorily
redeemable, pursuant to a sinking fund obligation or otherwise, or redeemable at the option of the
holder of the Capital Stock, in whole or in part, on or prior to the date that is 91 days after the
date on which the senior notes mature. Notwithstanding the preceding sentence, any Capital Stock
that would constitute Disqualified Stock solely because the holders of the Capital Stock have the
right to require PRG to repurchase such Capital Stock upon the occurrence of a change of control or
an asset sale will not constitute Disqualified Stock if the terms of such Capital Stock provide
that PRG may not repurchase or redeem any such Capital Stock pursuant to such provisions unless
such repurchase or redemption complies with the covenant set forth under Certain Covenants
Incurrence of Indebtedness and Issuance of Preferred Stock. The amount of Disqualified Stock
deemed to be outstanding at any time for purposes of the senior notes indenture will be the maximum
amount that PRG and its Restricted Subsidiaries may become obligated to pay upon the maturity of,
or pursuant to any mandatory redemption provisions of, such Disqualified Stock, exclusive of
accrued dividends.
Equity Interests means Capital Stock and all warrants, options or other rights to acquire
Capital Stock (but excluding any debt security that is convertible into, or exchangeable for,
Capital Stock).
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Existing Indebtedness means Indebtedness of PRG and its Restricted Subsidiaries in existence
on the Issue Date.
Fair Market Value means the value that would be paid by a willing buyer to an unaffiliated
willing seller in a transaction not involving distress or necessity of either party, determined in
good faith by the Board of Directors of PRG (unless otherwise provided in the senior notes
indenture).
GAAP means United States generally accepted accounting principles as in effect from time to
time.
Guarantee means a guarantee (other than by endorsement of negotiable instruments for
collection in the ordinary course of business), direct or indirect, contingent or otherwise, in any
manner (including, without limitation, letters of credit and reimbursement agreements in respect
thereof), of all or any part of any Indebtedness.
Hedging Obligations means, with respect to any specified Person, the obligations of such
Person under:
(i) interest rate swap agreements (whether from fixed to floating or from floating to
fixed), interest rate cap agreements, interest rate collar agreements and other agreements or
arrangements designated for the purpose of fixing, hedging or swapping interest rate risk;
(ii) other agreements or arrangements designed to manage interest rates or interest rate
risk; and
(iii) other agreements or arrangements designed to protect such Person against fluctuations
in currency exchange rates or commodity prices.
Holder means a person in whose name a senior note is registered on the Registrars books.
Indebtedness means, with respect to any Person, without duplication:
(i) all indebtedness, obligations and other liabilities, contingent or otherwise, of such
Person for borrowed money (including overdrafts) or for the deferred purchase price of property
or services, if and to the extent such obligations, liabilities or indebtedness would appear as
a liability of such Person on a balance sheet prepared in accordance with GAAP, excluding any
trade payables and other accrued current liabilities incurred in the ordinary course of
business, but including, without limitation, all obligations, contingent or otherwise, of such
Person in connection with any letters of credit and acceptances issued under letter of credit
facilities, acceptance facilities or other similar facilities;
(ii) all obligations of such Person evidenced by bonds, credit or loan agreements, notes,
debentures or other similar instruments;
(iii) indebtedness of such Person created or arising under any conditional sale or other
title retention agreement with respect to property acquired by such person (even if the rights
and remedies of the seller or lender under such agreement in the event of default are limited to
repossession or sale of such property), if and to the extent such obligations, liabilities or
indebtedness would appear as a liability of such Person on a balance sheet prepared in
accordance with GAAP, but excluding trade payables arising in the ordinary course of business;
(iv) all obligations and liabilities, contingent or otherwise, in respect of Capital Lease
Obligations of such Person;
(v) all Hedging Obligations of such Person;
(vi) all indebtedness referred to in (but not excluded from) the preceding clauses (i)
through (v) of other persons and all dividends of other persons, the payment of which is secured
by (or for which the holder of such indebtedness has an existing right, contingent or otherwise,
to be secured by) any Lien or with respect to property (including, without limitation, accounts
and contract rights) owned by such person, even though such
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person has not assumed or become liable for the payment of such indebtedness (the amount of such
obligation being deemed to be the lesser of the value of such property or asset or the amount of
the obligation so secured);
(vii) all guarantees by such Person of indebtedness referred to in this definition or of
any other Person; and
(viii) any and all refinancings, replacements, deferrals, renewals, extensions and
refundings of or amendments, modifications or supplements to, any indebtedness, obligation or
liability of the kind described in clauses (i) through (vii) above.
Interest Payment Date means the Stated Maturity of an installment of interest on the senior
notes.
Interest Rate means 11.0% per annum.
Investments means, with respect to any Person, all direct or indirect investments by such
Person in other Persons (including Affiliates of such Person) in the forms of loans (including
Guarantees or other obligations), advances or capital contributions (excluding (i) commission,
travel and similar advances to officers and employees made in the ordinary course of business and
(ii) extensions of credit to customers or advances, deposits or payment to or with suppliers,
lessors or utilities or for workers compensation, in each case, that are incurred in the ordinary
course of business and recorded as accounts receivable, prepaid expenses or deposits on the balance
sheet of such Person prepared in accordance with GAAP), purchases or other acquisitions for
consideration of Indebtedness, Equity Interests or other securities, together with all items that
are or would be classified as investments on a balance sheet prepared in accordance with GAAP. If
PRG or any Restricted Subsidiary of PRG sells or otherwise disposes of any Equity Interests of any
direct or indirect Restricted Subsidiary of PRG such that, after giving effect to any such sale or
disposition, such Person is no longer a Subsidiary of PRG, PRG will be deemed to have made an
Investment on the date of any such sale or disposition equal to the Fair Market Value of PRGs
Investments in such Subsidiary that were not sold or disposed of in an amount determined as
provided in the penultimate paragraph of the covenant described under Certain Covenants
Restricted Payments. Except as otherwise provided in the senior notes indenture, the amount of an
Investment will be determined at the time the Investment is made and without giving effect to
subsequent changes in value.
Issue Date of any senior note means March 17, 2006.
Lien means, with respect to any asset, any mortgage, lien, pledge, charge, security interest
or encumbrance of any kind in respect of such asset given to secure Indebtedness, whether or not
filed, recorded or otherwise perfected under applicable law (including any conditional sale or
other title retention agreement, any lease in the nature thereof, any option or other agreement to
sell or give a security interest in and any filing of or agreement to give any financing statement
under the Uniform Commercial Code (or equivalent statutes) of any jurisdiction with respect to any
such lien, security interest).
Net Proceeds means the aggregate cash proceeds received by PRG or any of its Restricted
Subsidiaries in respect of any Asset Sale (including, without limitation, any cash received upon
the sale or other disposition of any non-cash consideration, including Designated Non-cash
Consideration, received in any Asset Sale), net of the direct costs relating to such Asset Sale,
including, without limitation, legal, accounting and investment banking fees, appraisal and
insurance adjuster fees and sales commissions, and any relocation expenses incurred as a result of
the Asset Sale, taxes paid or payable as a result of the Asset Sale, in each case, after taking
into account, without duplication, (1) any amounts required to be applied to the repayment of
Indebtedness, other than revolving credit Indebtedness unless there is a required reduction in
commitments, secured by a Lien on the asset or assets that were the subject of such Asset Sale, (2)
any reserve or payment with respect to liabilities associated with such asset or assets and
retained by PRG or a Restricted Subsidiary after such sale or other disposition thereof, including,
without limitation, severance costs, pension and other post-employment benefit liabilities and
liabilities related to environmental matters or against any indemnification obligations associated
with such transaction, (3) any reserves for adjustment in respect of the sale price of such asset
established in accordance with GAAP, and (4) any cash escrows in connection with purchase price
adjustments, reserves or indemnities (until released).
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Non-Recourse Debt means Indebtedness:
(1) as to which neither PRG nor any of its Restricted Subsidiaries (a) provides credit
support of any kind (including any undertaking, agreement or instrument that would constitute
Indebtedness), (b) is directly or indirectly liable as a guarantor or otherwise, or (c)
constitutes the lender;
(2) no default with respect to which (including any rights that the holders of the
Indebtedness may have to take enforcement action against an Unrestricted Subsidiary) would
permit upon notice, lapse of time or both any holder of any other Indebtedness of PRG or any of
its Restricted Subsidiaries to declare a default on such other Indebtedness or cause the payment
of the Indebtedness to be accelerated or payable prior to its Stated Maturity; and
(3) as to which (a) the explicit terms provide that there is no recourse against any assets
of PRG or any of its Restricted Subsidiaries or (b) the lenders have been notified in writing
that they will not have any recourse to the stock or assets of PRG or any of its Restricted
Subsidiaries.
Permitted Business means any business engaged in by PRG or any of its Restricted
Subsidiaries on the Issue Date and any business or other activities that are reasonably similar,
ancillary, complementary or related to, or a reasonable extension, development or expansion of, the
businesses in which PRG and its Restricted Subsidiaries are engaged on the Issue Date.
Permitted Investments means:
(1) any Investment in PRG or in a Restricted Subsidiary of PRG;
(2) any Investment in Cash Equivalents;
(3) any Investment by PRG or any Restricted Subsidiary of PRG in a Person, if as a result
of such Investment:
(A) such Person becomes a Restricted Subsidiary of PRG; or
(B) such Person is merged, consolidated or amalgamated with or into, or transfers or
conveys substantially all of its assets to, or is liquidated into, PRG or a Restricted
Subsidiary of PRG;
(4) any Investment made as a result of the receipt of non-cash consideration from (a) an
Asset Sale that was made pursuant to and in compliance with the covenant set forth under
Certain Covenants Assets Sales hereof or (b) a sale or other disposition of assets not
constituting an Asset Sale;
(5) any acquisition of assets or Capital Stock solely in exchange for the issuance of
Equity Interests (other than Disqualified Stock) of PRG or a direct or indirect parent of PRG;
(6) any Investment acquired by PRG or any of its Restricted Subsidiaries:
(A) in exchange for any other Investment or accounts receivable held by PRG or any such
Restricted Subsidiary in connection with or as a result of a bankruptcy, workout,
reorganization or recapitalization of a Person or the good faith settlement of delinquent
obligations of a Person or of a litigation, arbitration or other dispute, or
(B) as a result of a foreclosure by PRG or any of its Restricted Subsidiaries with
respect to any secured Investment or other transfer of title with respect to any secured
Investment in default;
(7) Investments represented by Hedging Obligations;
(8) repurchases or redemptions of the senior convertible notes and the senior notes;
38
(9) repurchases or redemptions of PRGs Series A Preferred Stock or Series B Preferred
Stock;
(10) any Investment of PRG or any of its Restricted Subsidiaries existing on the date of
the senior notes indenture and any extension, modification or renewal of such existing
Investments, to the extent not involving any additional Investment other than as the result of
the accrual or accretion of interest or original issue discount or the issuance of pay-in-kind
securities, in each case pursuant to the terms of such Investments as in effect on the date of
the senior notes indenture;
(11) Guarantees otherwise permitted by the terms of the senior notes indenture;
(12) receivables owing to PRG or any Restricted Subsidiary, prepaid expenses, and deposits,
if created, acquired or entered into in the ordinary course of business;
(13) payroll, business-related travel, and similar advances to cover matters that are
expected at the time of such advances to be ultimately treated as expenses for accounting
purposes and that are made in the ordinary course of business;
(14) Investments resulting from the acquisition of a Person, otherwise permitted by the
senior notes indenture, which Investments at the time of such acquisition were held by the
acquired Person and were not acquired in contemplation of the acquisition of such Person; and
(15) Investments in a Permitted Business having an aggregate Fair Market Value outstanding
at any one time not to exceed $10.0 million.
Permitted Liens means:
(1) Liens for taxes, assessments or governmental charges or levies not yet due and payable
or delinquent and Liens for taxes, assessments or governmental charges or levies, which are
being contested in good faith by appropriate proceedings;
(2) Liens in respect of property of PRG or any Restricted Subsidiary imposed by law, which
were incurred in the ordinary course of business and do not secure Indebtedness for borrowed
money, such as carriers, warehousemens, materialmens, landlords and mechanics Liens,
maritime Liens and other similar Liens arising in the ordinary course of business;
(3) Liens securing Existing Indebtedness on property of PRG or any Restricted Subsidiary
existing on the Issue Date;
(4) easements, rights-of-way, restrictions (including zoning restrictions), covenants,
encroachments, protrusions and other similar charges or encumbrances, and minor title
deficiencies on or with respect to any real property, in each case whether now or hereafter in
existence, not (i) securing Indebtedness, (ii) individually or in the aggregate materially
impairing the value or marketability of such real property and (iii) individually or in the
aggregate materially interfering with the conduct of the business of PRG and its Restricted
Subsidiaries at such real property;
(5) Liens arising out of judgments or awards not resulting in an Event of Default and in
respect of which PRG or any Restricted Subsidiary shall in good faith be prosecuting an appeal
or proceedings for review in respect of which there shall be secured a subsisting stay of
execution pending such appeal or proceedings;
(6) Liens (other than any Lien imposed by the United States Employee Retirement Income
Security Act of 1974, as amended) (i) imposed by law or deposits made in connection therewith in
the ordinary course of business in connection with workers compensation, unemployment insurance
and other types of social security or public utility obligations, (ii) incurred in the ordinary
course of business to secure the performance of tenders, statutory obligations (other than
excise taxes), surety, stay, customs and appeal bonds, statutory bonds, bids, leases, government
contracts, trade contracts, performance and return of money bonds and other similar
39
obligations (exclusive of obligations for the payment of borrowed money) or (iii) arising by
virtue of deposits made in the ordinary course of business to secure liability for premiums to
insurance carriers;
(7) Leases with respect to the properties of PRG or any Restricted Subsidiary, in each case
entered into in the ordinary course of PRG or Restricted Subsidiarys business, so long as they
do not, individually or in the aggregate, (i) interfere in any material respect with the
ordinary conduct of the business of PRGs and the Restricted Subsidiaries and (ii) materially
impair the use (for its intended purposes) or the value of the property subject thereto;
(8) Liens securing the Indebtedness (including all obligations in respect thereof)
described in clause (i) under the definition of Permitted Debt under Certain Covenants
Incurrence of Indebtedness and Issuance of Preferred Stock and Hedging Obligations, subject to
the limitations set forth in clause (x) under the definition of Permitted Debt under Certain
Covenants Incurrence of Indebtedness and Issuance of Preferred Stock, payable to any lender
or holder of such Indebtedness or an Affiliate thereof to the extent such Hedging Obligations
are secured by Liens on assets also securing such Indebtedness (including all obligations in
respect thereof);
(9) Liens arising out of conditional sale, title retention, consignment or similar
arrangements for the sale of goods entered into by PRG or any Restricted Subsidiary in the
ordinary course of business in accordance with the past practices;
(10) Liens securing Indebtedness incurred pursuant to clause (vi) of the definition of
Permitted Debt under the covenant Certain Covenants Incurrence of Indebtedness and Issuance
of Preferred Stock; provided that (i) the Indebtedness secured by any such Lien (including
refinancings thereof) does not exceed 100% of the cost (including fees and premiums in
connection with such transactions) of the property being acquired, leased or otherwise financed
at the time of the incurrence of such Indebtedness and (ii) any such Liens attach only to the
property being financed pursuant to such Indebtedness and do not encumber any other property of
PRG or any Restricted Subsidiary;
(11) bankers Liens, rights of setoff and other similar Liens existing solely with respect
to cash and Cash Equivalents on deposit in one or more accounts maintained by PRG or any
Restricted Subsidiary, in each case granted in the ordinary course of business in favor of the
bank or banks with which such accounts are maintained, securing amounts owing to such bank with
respect to cash management and operating account arrangements, including those involving pooled
accounts and netting arrangements; provided that in no case shall any such Liens secure (either
directly or indirectly) the repayment of any Indebtedness;
(12) Liens securing Acquired Debt (and any Permitted Refinancing Indebtedness which
refinances such Acquired Debt) incurred in accordance with the definition of Permitted Debt
under the covenant Certain Covenants Incurrence of Indebtedness and Issuance of Preferred
Stock; provided that (i) such Liens secured the Acquired Debt at the time of and prior to the
incurrence of such Acquired Debt by PRG or a Restricted Subsidiary and were not granted in
connection with, or in anticipation of the incurrence of such Acquired Debt by PRG or a
Restricted Subsidiary and (ii) such Liens do not extend to or cover any property of PRG or its
Restricted Subsidiaries other than the property that secured the Acquired Debt prior to the time
such Indebtedness became Acquired Debt of PRG or Restricted Subsidiary;
(13) licenses of the patents, patent applications, trademarks, trademark applications,
service marks, service mark applications, trade names, copyrights, trade-secrets, know-how and
processes, granted by PRG or any Restricted Subsidiary in the ordinary course of business and
not interfering in any material respect with the ordinary conduct of the business of PRG and its
Restricted Subsidiaries;
(14) Liens in favor of PRG or any Restricted Subsidiary;
(15) Liens on Equity Interests in any Unrestricted Subsidiaries that secure Indebtedness of
such Unrestricted Subsidiary;
40
(16) Liens securing Permitted Refinancing Indebtedness; provided that the terms of such
Liens are not less favorable to the Holders in any material respect, taken as a whole, as
compared to the terms of the Liens (if any) securing such refinanced Indebtedness;
(17) Liens extending, renewing or replacing, in whole or in part, any of the Liens referred
to above, so long as that Lien does not extend to any other property (other than improvements,
accessions, proceeds or dividends or distributions with respect thereto); and
(18) Liens securing Indebtedness incurred pursuant to clause (x) of the definition of
Permitted Debt under the covenant Certain Covenants Incurrence of Indebtedness and Issuance
of Preferred Stock.
Permitted Refinancing Indebtedness means:
(i) any Indebtedness of any of PRG or its Restricted Subsidiaries issued in exchange for,
or the net proceeds of which are used to renew, refund, refinance, replace, defease or discharge
other Indebtedness of any of PRGs or its Restricted Subsidiaries; provided that:
(A) the principal amount (or accreted value, if applicable) of such Permitted
Refinancing Indebtedness does not exceed the principal amount (or accreted value, if
applicable) of the Indebtedness renewed, refunded, refinanced, replaced, defeased or
discharged (plus all accrued interest on the Indebtedness and the amount of all fees and
expenses, including the amount of any reasonably determined premium and defeasance costs,
incurred in connection therewith and other amounts necessary to accomplish such
refinancing);
(B) such Permitted Refinancing Indebtedness has a final maturity date equal to or later
than the final maturity date of, and has a Weighted Average Life to Maturity equal to or
greater than the Weighted Average Life to Maturity of, the Indebtedness being renewed,
refunded, refinanced, replaced, defeased or discharged; and
(C) if the Indebtedness being renewed, refunded, refinanced, replaced, defeased or
discharged is subordinated in right of payment to the senior notes, such Permitted
Refinancing Indebtedness and is subordinated in right of payment to the senior notes on
terms at least as favorable to the Holders as those contained in the documentation governing
the Indebtedness being renewed, refunded, refinanced, replaced, defeased or discharged; and
(ii) any Disqualified Stock of PRG or preferred stock of any of PRGs Restricted
Subsidiaries issued in exchange for, or the net proceeds of which are used to extend, refinance,
renew, refund, replace, defease or discharge other Indebtedness or Disqualified Stock of PRG or
preferred stock of any of PRGs Restricted Subsidiaries (other than Indebtedness or Disqualified
Stock held by PRG or any of its Restricted Subsidiaries including intercompany Indebtedness);
provided that:
(A) the liquidation or face value of such Permitted Refinancing Indebtedness does not
exceed the principal amount (or accreted value, if applicable) of the Indebtedness, or the
liquidation or face value of the Disqualified Stock, as applicable, so renewed, refunded,
refinanced, replaced, defeased or discharged (plus all accrued interest or dividends thereon
and the amount of any reasonably determined premium incurred in connection therewith);
(B) such Permitted Refinancing Indebtedness has a final redemption date equal to or
later than the final maturity or redemption date of, and has a Weighted Average Life to
Maturity equal to or greater than the Weighted Average Life to Maturity of, the Indebtedness
or Disqualified Stock being renewed, refunded, refinanced, replaced, defeased or discharged;
and
(C) such Permitted Refinancing Indebtedness is subordinated in right of payment to the
senior notes on terms at least as favorable to the Holders as those contained in the
documentation governing the Indebtedness or Disqualified Stock being renewed, refunded,
refinanced, replaced, defeased or discharged.
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Person or person means any individual, corporation, limited liability company,
partnership, joint venture, association, joint-stock company, trust, unincorporated organization,
or government or any agency or political subdivision thereof, including any subdivision or ongoing
business of any such entity or substantially all of the assets of any such entity, subdivision or
business.
principal of a Note means the principal amount due on the Stated Maturity of the principal
payment of such senior note as set forth on the face of the senior note.
Registration Rights Agreement means that certain Registration Rights Agreement dated as of
the Issue Date, by and among PRG and certain holders listed on Exhibit A thereto.
Restricted Investment means an Investment other than a Permitted Investment.
Restricted Subsidiary of a Person means any Subsidiary of the referent Person that is not an
Unrestricted Subsidiary.
Series A Convertible Preferred Stock means PRGs Senior Series A Convertible Participating
Preferred Stock.
Series B Convertible Preferred Stock means PRGs Senior Series B Convertible Participating
Preferred Stock.
Significant Subsidiary means a Subsidiary of PRG, including its Subsidiaries, which meets
any of the following conditions:
(i) PRGs and its other Subsidiaries Investments in and advances to the Subsidiary exceed
10.0% of the total assets of PRG and its Subsidiaries consolidated as of the end of any two of
the three most recently completed fiscal years; or
(ii) PRGs and its other Subsidiaries proportionate share of the total assets of the
Subsidiary exceeds 10.0% of the total assets of PRG and its Subsidiaries consolidated as of the
end of any two of the three most recently completed fiscal years; or
(iii) PRGs and its other Subsidiaries equity in the income from continuing operations
before income taxes, extraordinary items and cumulative effect of a change in accounting
principles of the Subsidiary exceeds 10.0% of such income of PRG and its Subsidiaries
consolidated as of the end of any two of the three most recently completed fiscal years.
Stated Maturity means, with respect to any installment of interest or principal on any
series of Indebtedness, the date on which the payment of interest or principal was scheduled to be
paid in the documentation governing such Indebtedness as of the date of the senior notes indenture,
and will not include any contingent obligations to repay, redeem or repurchase any such interest or
principal prior to the date originally scheduled for the payment thereof.
Subsidiary means (i) a corporation, a majority of whose Capital Stock with voting power,
under ordinary circumstances, to elect directors is, at the date of determination, directly or
indirectly owned by PRG, by one or more Subsidiaries of PRG or by PRG and one or more Subsidiaries
of PRG, (ii) a partnership in which PRG or a Subsidiary of PRG holds a majority interest in the
equity capital or profits of such partnership, or (iii) any other person (other than a corporation)
in which PRG, a Subsidiary of PRG or PRG and one or more Subsidiaries of PRG, directly or
indirectly, at the date of determination, has (x) at least a majority ownership interest or (y) the
power to elect or direct the election of a majority of the directors or other governing body of
such person.
Unrestricted Subsidiary means any Subsidiary of PRG that is designated by the Board of
Directors of PRG as an Unrestricted Subsidiary pursuant to a resolution of the Board of Directors,
but only to the extent that such Subsidiary:
(i) has no Indebtedness other than Non-Recourse Debt;
42
(ii) except as permitted by the covenant described under Transactions with Affiliates,
is not party to any agreement, contract, arrangement or understanding with PRG or any Restricted
Subsidiary of PRG unless the terms of any such agreement, contract, arrangement or understanding
are no less favorable to PRG or such Restricted Subsidiary than those that might be obtained at
the time from Persons who are not Affiliates of PRG;
(iii) is a Person with respect to which neither PRG nor any of its Restricted Subsidiaries
has any direct or indirect obligation (a) to subscribe for additional Equity Interests or (b) to
maintain or preserve such Persons financial condition or to cause such Person to achieve any specified levels
of operating results; and
(iv) has not guaranteed or otherwise directly or indirectly provided credit support for any
Indebtedness of PRG or any of its Restricted Subsidiaries unless such Guarantee or credit
support is released upon its designation as an Unrestricted Subsidiary.
The Board of Directors of PRG may designate any Unrestricted Subsidiary to be a Restricted
Subsidiary; provided that, immediately after giving effect to such designation, no Default or Event
of Default shall have occurred and be continuing.
Notice of any such designation by the Board of Directors of PRG shall be provided by PRG to
the Trustee by promptly filing with the Trustee a copy of the resolution adopted by the Board of
Directors of PRG giving effect to such designation and an Officers Certificate certifying that
such designation complied with the foregoing provisions, as applicable.
Weighted Average Life to Maturity means, when applied to any Indebtedness at any date, the
number of years obtained by dividing:
(i) the sum of the products obtained by multiplying (a) the amount of each then remaining
installment, sinking fund, serial maturity or other required payments of principal, including
payment at final maturity, in respect of the Indebtedness, by (b) the number of years
(calculated to the nearest one-twelfth) that will elapse between such date and the making of
such payment; by
(ii) then outstanding principal amount of such Indebtedness.
Senior Convertible Notes
General
The senior convertible notes
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are senior unsecured obligations of PRG; |
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are senior in right of payment to all existing and future subordinated Indebtedness of PRG, if any; |
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are effectively (but not expressly) subordinated to our existing and future
secured Indebtedness to the extent of the collateral securing that Indebtedness, and to the
existing and future liabilities of our Subsidiaries, including our senior secured credit
facility; and |
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are pari passu in right of payment with the senior notes and any future senior
Indebtedness of PRG. |
None of our Subsidiaries will be obligated for the payment of our obligations under the senior
convertible notes.
Principal, Maturity and Interest
There
were senior convertible notes in the aggregate principal amount of
$61,954,838 outstanding as of March 31, 2007.
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The senior convertible notes will mature on March 15, 2011, unless earlier redeemed by us,
repurchased at the option of the holders upon the occurrence of a Change in Control described below
under the subheadings Optional Redemption and Repurchase at the Option of the Holders Upon a
Change in Control, or converted into shares of common stock.
The senior convertible notes bear interest at the rate of 10.0% per annum from the date of
issuance of the senior convertible notes, or from the most recent date to which interest has been
paid or provided for. Interest will be payable semi-annually on March 15 and September 15 of each
year, commencing September 15, 2006 to holders of record at the close of business on the preceding
March 1 and September 1, respectively.
Interest on the senior convertible notes shall be paid either in cash or, at the election of
PRG, in the form of additional senior convertible notes of like tenor and issued to the holder in
the amount of such interest payable on such interest payment date.
Interest will be computed on the basis of a 360-day year comprised of twelve 30-day months. In
the event of the payment at maturity, purchase by us at the option of the holder or redemption by
us of any senior convertible notes, interest will cease to accrue on such senior convertible notes
under the terms of and subject to the conditions of the senior convertible notes indenture.
If any interest payment date or maturity date of a senior convertible note or date for
repurchase of a senior convertible note at the option of the holder following a Change in Control
is not a business day, then payment of the principal, premium, if any, and interest due on that
date may be made on the next business day. In that case, no interest will accrue on the amount
payable for the period from and after the applicable interest payment date, maturity date or
repurchase date, as the case may be.
Transfer, Payment and Form
The senior convertible notes have been issued in book-entry form and are evidenced by one or
more global certificates, which we sometimes refer to as global notes, registered in the name of
Cede & Co., as nominee for DTC. Except in limited circumstances, holders of interests in global
notes are not entitled to receive senior notes in definitive certificated form registered in their
names and will not be considered registered owners or holders of the global note under the
indenture for any purpose.
Principal is payable, and the senior convertible notes, in certificated form, may be presented
for registration of transfer and exchange, without service charge, at our office or agency in New
York City, which shall initially be at the office of U.S. Bank National Association. See Global
Notes; Book-Entry Form.
Payment of interest on global notes will be made to DTC or its nominee. Payment of cash
interest on senior convertible notes in definitive certificated form will be made against
presentation of those senior convertible notes at the agency referred to in the preceding paragraph
or, at our option, by mailing checks payable to the persons entitled to that interest to their
addresses as they appear in the note register. A holder of senior convertible notes with an
aggregate principal amount in excess of $5 million may be paid by wire transfer in immediately
available funds at the election of such holder. Payment of interest in the form of additional
senior convertible notes will be made in respect of global notes by increasing the principal amount
thereof, and in respect of senior convertible notes in definitive certificated form by issuance of
additional senior convertible notes in definitive certificated form payable to the persons entitled
to that interest at their address as they appear in the note register or against presentation of
those senior convertible notes at the agency referred to in the preceding paragraph.
Ranking
The right to payment on the senior convertible notes of principal, premium (if any), interest,
and liquidated damages, if any, is pari passu with respect to payment of all senior Indebtedness of
PRG, including all of our secured Indebtedness, the senior notes and all of our general unsecured
obligations, whether outstanding on the date of the senior convertible notes indenture or
thereafter incurred.
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The senior convertible notes are, however, effectively (though not expressly) subordinated to
all liabilities and obligations of our Subsidiaries under our senior secured credit facility, trade
payables and lease obligations, if any, and similarly are effectively subordinated to obligations
of PRG under our senior secured credit facility in a principal amount not to exceed $47.5 million
to the extent of our assets securing such obligations. The secured debt under our senior secured
credit facility is the obligation of PRG and most of our Subsidiaries and is secured by liens and
security interests on substantially all of our assets, including the stock of PRGs Subsidiaries
and any intercompany claims PRG may have against its Subsidiaries. Any right by us to receive the
assets of any of our Subsidiaries upon the liquidation or reorganization thereof, and, because the
senior notes are solely the obligations of PRG, the consequent right of the holders of the senior
convertible notes to participate in these assets, will be effectively (though not expressly)
subordinated to the claims of that Subsidiarys creditors, including trade creditors, except to the
extent that we are recognized as a creditor of such Subsidiary, in which case our claims would
still be subordinate to any security interests in the assets of such Subsidiary and any
Indebtedness of such Subsidiary senior to that held by us. Moreover, PRGs only source of cash or
assets, before or after an insolvency event or before or after liquidation of the Subsidiaries is
from dividends on the Subsidiaries stock, the payment of interest or principal on intercompany
claims, or fees for services provided to the Subsidiaries.
In addition, the convertible notes indenture explicitly provides that the effective
subordination described above shall apply even if a court at some future date determines to pierce
the corporate veil between PRG and its Subsidiaries or substantively consolidate the assets and
liabilities of PRG and its Subsidiaries. In such event, as between the senior secured credit
facility and the senior convertible notes, the senior secured credit facility would be entitled to
receive from such consolidated entities the value it would have received through the liens on the
stock of PRGs Subsidiaries (including the proceeds from any sale of such Subsidiaries) and/or the
assets of such Subsidiaries as if the corporate veil had not been pierced or substantive
consolidation had not been granted.
Holding Company Structure
We are a holding company with no material assets other than the ownership of the Capital Stock
of our Subsidiaries. Our Subsidiaries are separate and distinct legal entities and have no
obligation, contingent or otherwise, to pay any amounts due pursuant to the senior convertible
notes or to make any funds available for paying such amounts, whether by dividends, loans or other
payments. In addition, the payment of dividends and the making of loans and advances to us by our
Subsidiaries may be subject to statutory, contractual or other restrictions and are dependent upon
the earnings or financial condition of those Subsidiaries and subject to various business
considerations. As a result, we may be unable to gain access to the cash flow or assets of our
Subsidiaries.
Paying Agent and Registrar for the Notes
The trustee is currently acting as paying agent and registrar for the senior convertible
notes. We may change the paying agent or registrar without prior notice to the holders of the
senior convertible notes, and PRG or any of our Subsidiaries may act as paying agent or registrar.
We are obligated to pay reasonable compensation to the trustee and to indemnify the trustee
against certain losses, liabilities or expenses incurred by it in connection with its duties
relating to the senior convertible notes. The trustees claims for such payments will generally be
senior to those of the holders of the senior convertible notes in respect of all funds collected or
held by the trustee.
Restrictive Covenants
The convertible notes indenture does not contain any covenants or other provisions to afford
protection to holders of the senior convertible notes in the event of a highly leveraged
transaction or a Change in Control of PRG except to the extent described under Repurchase at
Option of Holders Upon a Change in Control below.
Conversion Rights
The senior convertible notes are convertible into shares of our common stock at a current
conversion price of $6.50 per share of common stock, which conversion price provides a conversion
rate of approximately 153.8462 shares of common stock per $1,000 principal amount of senior
convertible notes, subject to adjustment as described
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below. Holders may convert the senior convertible notes only in denominations of $1,000 and whole
multiples of $1,000. Except as described below, no payment or other adjustment will be made on
conversion of any senior convertible notes for interest accrued thereon or for dividends on common
stock.
If senior convertible notes are converted after a record date for an interest payment but
prior to the next interest payment date, those senior convertible notes, other than senior
convertible notes called for redemption, will receive interest payable on such senior convertible
notes on the corresponding interest payment date notwithstanding the conversion. Such senior
convertible notes, upon surrender, must be accompanied by funds equal to the interest payable to
the record holder on the next interest payment date on the principal amount so converted. No
payment will be required from a holder if we exercise our right to redeem such notes on a
redemption date that occurs after a record date and on or prior to the third business day after
that interest payment date. We are not required to issue fractional shares of common stock upon
conversion of senior convertible notes and instead will pay a cash adjustment in an amount equal to
the same fraction of the conversion price at the time of such payment. In the case of senior
convertible notes called for redemption, conversion rights will expire at the close of business on
the business day preceding the date fixed for redemption, unless we default in the payment of the
redemption price.
A holder may exercise the right of conversion by delivering the senior convertible note to be
converted, duly endorsed or assigned as provided in the indenture, to the specified office of a
conversion agent, with a completed notice of conversion, together with any funds that may be
required as described in the preceding paragraph. The conversion date will be the date on which the
senior convertible notes, the notice of conversion and any required funds have been so delivered. A
holder delivering a senior convertible note for conversion will not be required to pay any taxes or
duties relating to the issuance or delivery of the common stock for such conversion, but will be
required to pay any tax or duty which may be payable relating to any transfer involved in the
issuance or delivery of the common stock in a name other than the holder of the senior convertible
note. Certificates representing shares of common stock will be issued or delivered only after all
applicable taxes and duties, if any, payable
by the holder have been paid.
The conversion price for conversions to common stock will be adjusted for certain future
events, including:
(i) the issuance of our common stock as a dividend or distribution on our common stock;
(ii) certain subdivisions and combinations of our common stock;
(iii) the issuance to all holders of our common stock of certain rights, options or
warrants to purchase our common stock or securities convertible into our common stock (or having
a conversion price per share) less than the lower of the current market price (as defined in the
indenture) of our common stock or the conversion price then in effect;
(iv) the dividend or other distribution to all holders of our common stock of shares of our
capital stock or the capital stock of any of our subsidiaries, other than our common stock, or
evidences of our Indebtedness or our assets, including securities, but excluding (a) those
rights, options and warrants referred to in clause (iii) above, (b) dividends and distributions
in connection with a reclassification, change, consolidation, merger, combination, sale or
conveyance resulting in a change in the conversion consideration pursuant to the third
succeeding paragraph below or (c) dividends or distributions paid exclusively in cash;
(v) dividends or other distributions consisting exclusively of cash to all holders of our
common stock excluding any cash that is distributed upon a reclassification or change of our
common stock, merger, consolidation, statutory share exchange, combination, sale or conveyance
as described in the third succeeding paragraph below or as part of a distribution referred to in
clause (iv) above to the extent that such distributions, combined together with (A) all other
such all-cash distributions made within the preceding 12 months for which no adjustment has been
made plus (B) any cash and the fair market value of other consideration paid for any tender or
exchange offers by us or any of our subsidiaries for our common stock concluded within the
preceding 12 months for which no adjustment has been made, exceeds 10% of our market
capitalization on the record date for such distribution; market capitalization is the product of
then current market price of our common stock and the number of shares of our common stock then
outstanding; and
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(vi) the purchase of our common stock pursuant to a tender offer or exchange offer made by
us or any of our subsidiaries which involves an aggregate consideration that, together with (A)
any cash and the fair market value of any other consideration paid in any other tender offer or
exchange offer by us or any of our subsidiaries for our common stock expiring within the 12
months preceding such tender offer or exchange offer for which no adjustment has been made plus
(B) the aggregate amount of any all-cash distributions referred to in clause (v) above to all
holders of our common stock within 12 months preceding the expiration of that tender offer or
exchange offer for which no adjustment has been made, exceeds 10% of our market capitalization
on the expiration of such tender offer or exchange offer.
In the event that we pay a dividend or make a distribution on shares of our common stock
consisting of capital stock of, or similar equity interests in, as described in clause (iv) above,
a subsidiary or other business unit of ours, the conversion rate will be adjusted based on the
market value of the securities so distributed relative to the market value of our common stock, in
each case based on the average sale prices of those securities for the 10 trading days commencing
on and including the fifth trading day after the date on which ex-dividend trading commences for
such dividend or distribution on The Nasdaq Global Market or such other national or regional
exchange or market on which the securities are then listed or quoted.
No adjustment in the conversion price will be required unless such adjustment would require a
change of at least 1% in the conversion price then in effect at such time. Any adjustment that
would otherwise be required to be made shall be carried forward and taken into account in any
subsequent adjustment. Except as stated above, the conversion price will not be adjusted for the
issuance of common stock or any securities convertible into or exchangeable for our common stock or
carrying the right to purchase any of the foregoing.
In the case of:
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any reclassification or change of our common stock (other than changes
resulting from a subdivision or combination); |
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a consolidation, merger or combination involving us; |
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a sale or conveyance to another corporation of all or substantially all of our property and assets; or |
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any statutory share exchange; |
in each case as a result of which holders of our common stock are entitled to receive stock, other
securities, other property or assets (including cash or any combination thereof) with respect to or
in exchange for our common stock, the holders of the senior convertible notes then outstanding will
be entitled thereafter to convert such senior convertible notes into the kind and amount of shares
of stock, other securities or other property or assets (including cash or any combination thereof)
which they would have owned or been entitled to receive upon such reclassification or change of our
common stock, consolidation, merger, combination, sale, conveyance or statutory share exchange had
such notes been converted into our common stock immediately prior to such transaction. We may not
become a party to any such transaction unless its terms are consistent with the foregoing.
If a taxable distribution to holders of our common stock or transaction occurs which results
in any adjustment of the conversion price, the holders of senior convertible notes may, in certain
circumstances, be deemed to have received a distribution subject to United States income tax as a
dividend. In certain other circumstances, the absence of such an adjustment may result in a taxable
dividend to the holders of common stock. See United States Federal Income Tax Considerations.
Optional Redemption
There
is no sinking fund for the senior convertible notes. Subject to
compliance with the terms of our senior credit facility, we may not call the senior
convertible notes for redemption unless the senior notes have been paid in full (the Optional
Redemption Condition). On or after the first date on which the Optional Redemption Condition has
occurred, we may redeem all or part of the senior convertible notes at any time upon not less than
30 nor more than 60 days prior notice at a redemption price of 100% of the principal amount
thereof plus accrued and unpaid interest to the date of redemption.
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Unless we default in the payment of the redemption price, interest will cease to accrue on the
senior convertible notes or portions thereof called for redemption on the applicable redemption
date.
If we do not redeem all of the senior convertible notes, the trustee will select the senior
convertible notes to be redeemed in principal amounts of $1,000 or whole multiples of $1,000 by
lot, on a pro rata basis or in accordance with any other method the trustee considers fair and
appropriate. If any senior convertible notes are to be redeemed in part only, a senior convertible
note or notes in principal amount equal to the unredeemed principal portion thereof will be issued.
Repurchase at Option of Holders Upon a Change in Control
If a Change in Control occurs, each holder of senior convertible notes will have the right to
require us to repurchase all of such holders senior convertible notes not previously called for
redemption, or any portion of those senior convertible notes that is equal to $1,000 or a whole
multiple of $1,000, on the date that is 45 days (or if that 45th day is not a business day, the
next succeeding business day) after the date we give notice of the Change in Control at a
repurchase price equal to 100% of the principal amount of the senior convertible notes to be
repurchased, together with interest accrued and unpaid to, but excluding, the repurchase date;
provided that, if such repurchase date is an interest payment date, then the interest payable on
such date shall be payable to the holder of record at the close of business on the relevant record
date and the repurchase price shall not include such interest payment.
Within 30 days after the occurrence of a Change in Control, we are required to give notice to
all holders of record of senior convertible notes, as provided in the convertible notes indenture,
of the occurrence of the Change in Control and of their resulting repurchase right. We must also
deliver a copy of our notice to the trustee. In order to exercise the repurchase right, a holder of
senior convertible notes must deliver, on or before the 45th day after the date of our notice of
the Change in Control, written notice to the trustee of the holders exercise of its repurchase
right, together with the senior convertible notes with respect to which the right is being
exercised.
A holder may withdraw the notice at any time prior to the close of business on the repurchase
date by delivering a written notice of withdrawal to the trustee as provided in the senior
convertible notes indenture.
Under the senior convertible notes indenture, a Change in Control of PRG will be deemed to
have occurred at such time after the original issuance of the senior convertible notes when the
following has occurred:
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the acquisition by any person, including any syndicate or group deemed to be a
person under Section 13(d)(3) of the Exchange Act, of beneficial ownership, directly or
indirectly, through a purchase, merger or other acquisition transaction or series of
transactions, of shares of our capital stock entitling that person to exercise 50% or more
of the total voting power of all shares of our capital stock entitled to vote generally in
elections of directors, other than any acquisition by us, any of our subsidiaries or any of
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our consolidation or merger with or into any other person, any merger of
another person into us, or any conveyance, transfer, sale, lease or other disposition of
all or substantially all of our properties and assets to another person, other than: |
(1) any transaction (A) that does not result in any reclassification, conversion,
exchange or cancellation of outstanding shares of our capital stock and (B) pursuant to
which holders of our capital stock immediately prior to the transaction are entitled to
exercise, directly or indirectly, 50% or more of the total voting power of all shares of our
capital stock entitled to vote generally in the election of directors of the continuing or
surviving person immediately after the transaction; or
(2) any merger solely for the purpose of changing our jurisdiction of incorporation and
resulting in a reclassification, conversion or exchange of outstanding shares of (A) common
stock solely into shares of common stock of the surviving entity, (B) series A convertible
preferred stock solely into shares of a series of preferred stock of the surviving entity
having the same designations, rights and privileges with respect to
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such surviving entity as the series A convertible preferred stock has with respect to us,
and (C) the series B convertible preferred stock solely into shares of a series of preferred
stock of the surviving entity having the same designations, rights and privileges with
respect to such surviving entity as the series B convertible preferred stock has with
respect to us;
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during any consecutive two-year, period, individuals who at the beginning of
that two-year period constituted our Board of Directors (together with any new directors
whose election to our Board of Directors, or whose nomination for election by our
shareholders, was approved by a vote of a majority of the directors then still in office
who were either directors at the beginning of such period or whose election or nomination
for election was previously so approved) cease for any reason to constitute a majority of
our Board of Directors then in office; or |
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we are liquidated or dissolved or our shareholders pass a resolution approving
a plan of liquidation or dissolution. |
Beneficial ownership shall be determined in accordance with Rule 13d-3 promulgated by the SEC
under the Exchange Act. The term person includes any syndicate or group that would be deemed to
be a person under Section 13(d)(3) of the Exchange Act.
Rule 13e-4 under the Exchange Act requires the dissemination of information to securityholders
if an issuer tender offer occurs and may apply, if the repurchase option becomes available to
holders of the senior convertible notes. We will comply with this rule to the extent applicable at
that time.
We may, to the extent permitted by applicable law, at any time purchase the senior convertible
notes in the open market or by tender at any price or by private agreement. Any senior convertible
note so purchased by us may, to the extent permitted by applicable law, be reissued or resold or
may be surrendered to the trustee for cancellation. Any notes surrendered to the trustee may not be
reissued or resold and will be canceled promptly.
Our ability to repurchase senior convertible notes upon the occurrence of a Change in Control
is subject to important limitations. We cannot assure you that we would have the financial
resources, or would be able to arrange financing, to pay the repurchase price for all the senior
convertible notes that might be delivered by holders of notes seeking to exercise the repurchase
right. Any failure by us to repurchase the senior convertible notes when required following a
Change in Control would result in an event of default under the convertible notes indenture.
Any such default may, in turn, cause a default under existing or other Indebtedness.
Event of Default
Each of the following constitutes an Event of Default under the senior convertible notes
indenture:
(1) our failure to pay when due the principal of or premium, if any, on any of the senior
convertible notes at maturity, upon redemption or exercise of a repurchase right or otherwise;
(2) our failure to pay an installment of interest (including Registration Delay Payments,
if any) on any of the senior convertible notes that continues for 30 days after the date when
due;
(3) our failure to deliver shares of common stock together with cash in lieu of fractional
shares, if any, when such shares or cash are required to be delivered for conversion of a senior
convertible note and such failure continues for 10 days after such delivery date;
(4) our failure to perform or observe any other term, covenant or agreement contained in
the senior convertible notes or the convertible notes indenture for a period of 30 days after
written notice of such failure, requiring us to remedy the same, shall have been given to us by
the trustee or to us and the trustee by the holders of at least 25% in aggregate principal
amount of the senior convertible notes then outstanding;
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(5) our failure to give the notice required by the senior convertible notes indenture
regarding any offer to purchase upon a Change in Control within the time period prescribed by
the convertible notes indenture after the occurrence of such Change in Control;
(6) (A) one or more defaults in the payment of principal of or premium, if any, on any
of our or our Subsidiaries Indebtedness aggregating $5.0 million or more, when the same becomes
due and payable at the scheduled maturity thereof, and such default or defaults shall have
continued after any applicable grace period and shall not have cured or waived within a 30 day
period after the date of such default or (B) any of our or our Subsidiaries Indebtedness
aggregating $5.0 million or more shall have been accelerated or otherwise declared due and
payable, or required to be prepaid or repurchased (other than by regularly scheduled required
payment) prior to the scheduled maturity thereof and such acceleration is not rescinded or
annulled within a 30 day period after the date of such acceleration;
(7) final unsatisfied judgments not covered by insurance aggregating in excess of $5.0
million rendered against us or any of our subsidiaries and not stayed, bonded or discharged
within 60 days; or
(8) certain events of our bankruptcy, insolvency or reorganization or that of any
Significant Subsidiaries, including our filing of a voluntary petition seeking liquidation,
reorganization arrangement, readjustment of debts or for any other relief under the federal
bankruptcy code.
The convertible notes indenture provides that the trustee shall, within 90 days of the
occurrence of an Event of Default, give to the registered holders of the senior convertible notes
notice of all uncured defaults known to it, but the trustee shall be protected in withholding such
notice if it, in good faith, determines that the withholding of such notice is in the best interest
of such registered holders, except in the case of a default in the payment of the principal of, or
premium, if any, or interest on, any of the senior convertible notes when due or in the payment of
any redemption or repurchase obligation.
If an Event of Default specified in clause (8) above occurs and is continuing, then
automatically the principal of all the senior convertible notes and the accrued and unpaid interest
thereon shall become immediately due and payable. If an Event of Default shall occur and be
continuing, other than with respect to clause (8) above, the default not having been cured or
waived as provided under Modifications and Waiver below, the trustee or the holders of at least
25% in aggregate principal amount of the senior convertible notes then outstanding may declare the
senior convertible notes due and payable at their principal amount together with accrued and unpaid
interest, and thereupon the trustee may, at its discretion, proceed to protect and enforce the
rights of the holders of senior convertible notes by appropriate judicial proceedings. Such
declaration may be rescinded or annulled with the written consent of the holders of a majority in
aggregate principal amount of the senior convertible notes then outstanding upon the conditions
provided in the convertible notes indenture.
The convertible notes indenture contains a provision entitling the trustee, subject to the
duty of the trustee during default to act with the required standard of care, to be indemnified by
the holders of senior convertible notes before proceeding to exercise any right or power under the
convertible notes indenture at the request of such holders. The convertible notes indenture
provides that, subject to certain limitations, the holders of a majority in aggregate principal
amount of the senior convertible notes then outstanding through their written consent may direct
the time, method and place of conducting any proceeding for any remedy available to the trustee or
exercising any trust or power conferred upon the trustee.
We will be required to furnish annually to the trustee a statement as to the fulfillment of
our obligations under the convertible notes indenture.
Consolidation, Mergers and Sales of Assets
The convertible notes indenture also provides that PRG shall not consolidate with, merge or
amalgamate with or into any other Person or convey, transfer or lease the properties and assets of
PRG and its Subsidiaries, taken as a whole, substantially as an entirety to any Person, unless:
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(i) either (A) PRG shall be the continuing corporation or (B) the Person (if other than
PRG) formed by such consolidation or into which PRG is merged or amalgamated or the Person which
acquires by conveyance, transfer or lease the properties and assets of PRG substantially as an
entirety (1) shall be organized and validly existing under the laws of the United States or any
state thereof or the District of Columbia and (2) shall expressly assume, by a supplemental
indenture executed and delivered to the trustee in form reasonably satisfactory to the trustee,
all of the obligations of PRG under the senior convertible notes and the convertible notes
indenture;
(ii) at the time of such transaction, no Event of Default and no event which, after
notice or lapse of time, would become an Event of Default, shall have happened and be
continuing; and
(iii) we shall have delivered to the trustee an Officers Certificate and an Opinion
of Counsel, each stating that such consolidation, merger, amalgamation, conveyance, transfer or
lease and, if a supplemental indenture is required in connection with such transaction, such
supplemental indenture complies with the terms of this covenant and that all conditions
precedent herein provided for relating to such transaction have been satisfied.
For purposes of the foregoing, the transfer (by lease, assignment, sale or otherwise) of the
properties and assets of one or more Subsidiaries (other than to us or another Subsidiary), which,
if such assets were owned by us, would constitute all or substantially all of the properties and
assets of us, shall be deemed to be the transfer of all or substantially all of the properties and
assets of PRG.
Modifications and Waiver
The convertible notes indenture, including the terms and conditions of the senior convertible
notes, may be modified or amended by us and the trustee, without the consent of the holder of any
senior convertible note, for the purposes of, among other things:
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adding to our covenants for the benefit of the holders of senior convertible notes; |
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surrendering any right or power conferred upon us; |
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providing for conversion rights of holders if any reclassification or change of
our common stock or any consolidation, merger or sale of all or substantially all of our
assets; |
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reducing the conversion price or conversion rate, provided that such reduction
will not adversely affect the interest of holders in any material respect; |
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complying with the requirements of the SEC in order to effect or maintain the
qualification of the convertible notes indenture under the Trust Indenture Act of 1939, as
amended; |
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curing any ambiguity, omission, inconsistency or correcting or supplementing
any defective provision contained in the senior convertible notes indenture; |
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complying with the covenant described under Consolidations, Mergers and
Sales of Assets; or |
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adding or modifying any other provisions which we and the trustee may deem
necessary or desirable and which will not adversely affect the interests of the holders of
senior convertible notes. |
Modifications and amendments to the senior convertible notes indenture or to the terms and
conditions of the senior convertible notes may also be made, and noncompliance by us may be waived,
with the written consent of the holders of at least a majority in aggregate principal amount of the
senior convertible notes at the time outstanding or by the adoption of a resolution at a meeting of
holders at which a quorum is present by at least a majority in aggregate principal amount of the
senior convertible notes represented at the meeting.
However, no such modification, amendment or waiver may, without the written consent of the
holder of each senior convertible note affected:
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change the maturity of the principal of or any installment of interest on
(including Registration Delay Payments, if any), any senior convertible note, including
payment of Registration Delay Payments, if any; |
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reduce the principal amount of, or any premium, if any, on any senior
convertible note; |
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reduce the interest rate or interest on (including Registration Delay Payments,
if any), any senior convertible note; |
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change the currency of payment of principal of, premium, if any, or interest of
any senior convertible note; |
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impair the right to institute suit for the enforcement of any payment on or
with respect to any senior convertible note; or |
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reduce the percentage in aggregate principal amount of senior convertible notes
outstanding necessary to modify or amend the convertible notes indenture or to waive any
past default. |
Satisfaction and Discharge
We may discharge our obligations under the senior convertible notes indenture while senior
convertible notes remain outstanding, subject to certain conditions, if:
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all outstanding senior convertible notes will become due and payable at their
scheduled maturity within 60 days; or |
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all outstanding senior convertible notes are scheduled for redemption within 60
days; |
and, in either case, we have deposited with the trustee for the purpose of making such principal or
redemption payment an amount sufficient to pay and discharge all outstanding senior convertible
notes on the date of their scheduled maturity or the scheduled date of redemption.
Governing Law
The convertible notes indenture and the senior convertible notes will be governed by, and
construed in accordance with, the law of the State of New York.
Information Concerning the Trustee and Transfer Agent
U.S. Bank National Association, as trustee under the senior convertible notes indenture, has
been appointed by us as paying agent, conversion agent and registrar with regard to the senior
convertible notes. U.S. Bank Corporate Trust Services is the transfer agent and registrar for our
common stock. The trustee, the transfer agent or their affiliates may from time to time in the
future provide banking and other services to us in the ordinary course of their business.
Certain Definitions
Set forth below is certain of the defined terms used in the convertible notes indenture.
Reference is made to the convertible notes indenture for the full definition of all such terms as
well as any other capitalized terms used herein for which no definition is provided.
Board of Directors means either the Board of Directors of PRG or any duly authorized
committee of such board.
Board Resolution means a resolution duly adopted by the Board of Directors, a copy of which,
certified by the Secretary or an Assistant Secretary of PRG to be in full force and effect on the
date of such certification, shall have been delivered to the Trustee.
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Capital Lease Obligation means, at the time any determination is to be made, the amount of
the liability in respect of a capital lease that would at that time be required to be capitalized
on a balance sheet prepared in accordance with GAAP, and the Stated Maturity thereof shall be the
date of the last payment of rent or any other amount due under such lease prior to the first date
upon which such lease may be prepaid by the lessee without payment of a penalty.
Capital Stock of any corporation means any and all shares, interests, rights to purchase,
warrants, options, participations or other equivalents of or interests in (however designated)
stock issued by that corporation.
Common Stock means the Common Stock, without par value, of PRG authorized on the Issue Date
or any stock of any class of Capital Stock of a successor to PRG which has no preference in respect
of dividends or of amounts payable in the event of any voluntary or involuntary liquidation,
dissolution or winding up of such successor to PRG.
Default or default means any event which is, or after notice or passage of time or both
would be, an Event of Default.
Equity Interests means Capital Stock and all warrants, options or other rights to acquire
Capital Stock (but excluding any debt security that is convertible into, or exchangeable for,
Capital Stock).
Holder or means a person in whose name a senior convertible note is registered on the
Registrars books.
Indebtedness means, with respect to any Person, without duplication:
(i) all indebtedness, obligations and other liabilities, contingent or otherwise, of such
Person for borrowed money (including overdrafts) or for the deferred purchase price of property
or services, if and to the extent such obligations, liabilities or indebtedness would appear as
a liability of such Person on a balance sheet prepared in accordance with GAAP, excluding any
trade payables and other accrued current liabilities incurred in the ordinary course of
business, but including, without limitation, all obligations, contingent or otherwise, of such
Person in connection with any letters of credit and acceptances issued under letter of credit
facilities, acceptance facilities or other similar facilities;
(ii) all obligations of such Person evidenced by bonds, credit or loan agreements, notes,
debentures or other similar instruments;
(iii) indebtedness of such Person created or arising under any conditional sale or other
title retention agreement with respect to property acquired by such person (even if the rights
and remedies of the seller or lender under such agreement in the event of default are limited to
repossession or sale of such property), if and to the extent such obligations, liabilities or
indebtedness would appear as a liability of such Person on a balance sheet prepared in
accordance with GAAP, but excluding trade payables arising in the ordinary course of business;
(iv) all obligations and liabilities, contingent or otherwise, in respect of Capital
Lease Obligations of such Person;
(v) all Hedging Obligations (as defined in the convertible notes indenture) of such Person;
(vi) all indebtedness referred to in (but not excluded from) the preceding clauses (i)
through (v) of other persons and all dividends of other persons, the payment of which is secured
by (or for which the holder of such indebtedness has an existing right, contingent or otherwise,
to be secured by) any Lien or with respect to property (including, without limitation, accounts
and contract rights) owned by such person, even though such person has not assumed or become
liable for the payment of such indebtedness (the amount of such obligation being deemed to be
the lesser of the value of such property or asset or the amount of the obligation so secured);
(vii) all guarantees by such Person of indebtedness referred to in this definition or of
any other Person; and
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(viii) any and all refinancings, replacements, deferrals, renewals, extensions and
refundings of or amendments, modifications or supplements to, any indebtedness, obligation or
liability of the kind described in clauses (i) through (vii) above.
Interest Payment Date means the Stated Maturity of an installment of interest on the senior
convertible notes.
Interest Rate means 10.0% per annum.
Issue Date of any senior convertible note means March 17, 2006.
Lien means, with respect to any asset, any mortgage, lien, pledge, charge, security interest
or encumbrance of any kind in respect of such asset given to secure Indebtedness, whether or not
filed, recorded or otherwise perfected under applicable law (including any conditional sale or
other title retention agreement, any lease in the nature thereof, any option or other agreement to
sell or give a security interest in and any filing of or agreement to give any financing statement
under the Uniform Commercial Code (or equivalent statutes) of any jurisdiction with respect to any
such lien, security interest).
Person or person means any individual, corporation, limited liability company,
partnership, joint venture, association, joint-stock company, trust, unincorporated organization,
or government or any agency or political subdivision thereof, including any subdivision or ongoing
business of any such entity or substantially all of the assets of any such entity, subdivision or
business.
principal of a senior convertible note means the principal amount due on the Stated Maturity
of the principal payment of such senior convertible note as set forth on the face of the senior
convertible note.
Registration Rights Agreement means that certain Registration Rights Agreement dated as of
the Issue Date, by and among PRG and certain holders listed on Exhibit A thereto.
Registration Statement means the registration statement required to be filed pursuant to the
Registration Rights Agreement.
Series A Convertible Preferred Stock means PRGs 9.0% Senior Series A Convertible
Participating Preferred Stock.
Series B Convertible Preferred Stock means PRGs 10.0% Senior Series B Convertible
Participating Preferred Stock.
Significant Subsidiary means a Subsidiary of PRG, including its Subsidiaries, which meets
any of the following conditions:
(A) PRGs and its other Subsidiaries Investments in and advances to the Subsidiary exceed
10% of the total assets of PRG and its Subsidiaries consolidated as of the end of any two of the
three most recently completed fiscal years; or
(B) PRGs and its other Subsidiaries proportionate share of the total assets of the
Subsidiary exceeds 10% of the total assets of PRG and its Subsidiaries consolidated as of the end
of any two of the three most recently completed fiscal years; or
(C) PRGs and its other Subsidiaries equity in the income from continuing operations
before income taxes, extraordinary items and cumulative effect of a change in accounting
principles of the Subsidiary exceeds 10% of such income of PRG and its Subsidiaries consolidated
as of the end of any two of the three most recently completed fiscal years.
Stated Maturity means, with respect to any installment of interest or principal on any
series of Indebtedness, the date on which the payment of interest or principal was scheduled to be
paid in the documentation governing such Indebtedness as of the date of the senior convertible
notes indenture, and will not include any contingent obligations
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to repay, redeem or repurchase any such interest or principal prior to the date originally
scheduled for the payment thereof.
Subsidiary means (i) a corporation, a majority of whose Capital Stock with voting power,
under ordinary circumstances, to elect directors is, at the date of determination, directly or
indirectly owned by PRG, by one or more Subsidiaries of PRG or by PRG and one or more Subsidiaries
of PRG, (ii) a partnership in which PRG or a Subsidiary of PRG holds a majority interest in the
equity capital or profits of such partnership, or (iii) any other person (other than a corporation)
in which PRG, a Subsidiary of PRG or PRG and one or more Subsidiaries of PRG, directly or
indirectly, at the date of determination, has (x) at least a majority ownership interest or (y) the
power to elect or direct the election of a majority of the directors or other governing body of
such person.
Global Notes; Book-Entry Form
Except as noted below, all senior notes and senior convertible notes are evidenced by one or
more global notes.
Each global note is deposited with, or on behalf of, a custodian for DTC and registered in the name
of Cede & Co., as nominee of DTC.
Except as set forth below, the global note may be transferred, in whole and not in part,
solely to DTC or another nominee of DTC or to a successor of DTC or its nominee. Beneficial
interests in the global notes may not be exchanged for certificated senior notes or senior
convertible notes except in the limited circumstances described below.
As described above, beneficial interests in the global notes generally may not be exchanged
for certificated senior notes or senior convertible notes. However, the indenture provides that we
will execute and the trustee will authenticate and deliver certificated senior notes or senior
convertible notes in exchange for interests in the global notes, if:
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the depositary for the global notes notifies us that it is unwilling or unable
to continue as depositary for the global notes or the depositary for the global notes is no
longer eligible or in good standing under the Securities Exchange Act of 1934 or any other
applicable statute or regulation and we do not appoint a successor depositary within 90
days after we receive that notice or become aware of that ineligibility, |
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we in our sole discretion determine that the senior notes or senior convertible
notes will no longer be represented by global notes, or |
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an event of default with respect to the senior notes or senior convertible
notes has occurred and is continuing. |
We anticipate that those certificated senior notes and senior convertible notes will be
registered in such name or names as DTC instructs the trustee and that those instructions will be
based upon directions received by DTC from its participants with respect to ownership of beneficial
interest in the global notes. Neither we nor the trustee shall be liable for any delay by DTC or
any participant or indirect participant in identifying the beneficial owners of the related notes
and each of them may conclusively rely on, and will be protected in relying on, instructions from
DTC for all purposes, including with respect to the registration and delivery, and the respective
principal amounts, of the certificated senior notes or senior convertible notes to be issued.
A holder may hold its interest in a global note directly through DTC if such holder is a
participant in DTC, or indirectly through organizations that are participants in DTC, which are
referred to as participants. Transfers between participants will be effected in the ordinary way
in accordance with DTC rules and will be settled in clearing house funds. The laws of some states
require that certain persons take physical delivery of securities in definitive form.
As a result, the ability to transfer beneficial interests in the global note to such persons
may be limited.
Persons who are not participants may beneficially own interests in a global note held by DTC
only through participants, or certain banks, brokers, dealers, trust companies and other parties
that clear through or maintain a
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custodial relationship with a participant, either directly or indirectly, which are referred to as
indirect participants. So long as Cede & Co., as the nominee of DTC, is the registered owner of a
global note, Cede & Co., for all purposes, will be considered the sole holder of such global note.
Except as provided below, owners of beneficial interests in a global note will:
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not be entitled to have certificates registered in their names; |
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not receive physical delivery of certificates in definitive registered form; and |
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not be considered registered owners or holders of the global note under the indenture for any purpose. |
We will pay interest on and the redemption price of a global note to Cede & Co., as the
registered owner of the global note, by wire transfer of immediately available funds on each
interest payment date or the redemption or repurchase date, as the case may be.
Neither we, the trustee nor any paying agent will be responsible or liable:
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for the records relating to, or payments made on account of, beneficial
ownership interests in a global note; or |
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for maintaining, supervising or reviewing any records relating to the
beneficial ownership interests. |
We have been informed that DTCs practice is to credit participants accounts on any payment
date with payments in amounts proportionate to their respective beneficial interests in the
principal amount represented by a global note as shown on the records of DTC, unless DTC has reason
to believe that it will not receive payment on that payment date. Payments by participants to
owners of beneficial interests in the principal amount represented by a global note held through
participants will be the responsibility of the participants, as is now the case with securities
held for the accounts of customers registered in street name.
Because DTC can only act on behalf of participants, who in turn act on behalf of indirect
participants, the ability of a person having a beneficial interest in the principal amount
represented by the global note to pledge such interest to persons or entities that do not
participate in the DTC system, or otherwise take actions in respect of such interest, may be
affected by the lack of a physical certificate evidencing its interest.
Neither we, the trustee, the registrar, the paying agent nor the conversion agent will have
any responsibility for the performance by DTC or its participants or indirect participants of their
respective obligations under the rules and procedures governing their operation. DTC has advised us
that it will take any action permitted to be taken by a holder of senior notes or senior
convertible notes, including the presentation of senior notes or senior convertible notes for
exchange, only at the direction of one or more participants to whose account with DTC interests in
the global note are credited, and only in respect of the principal amount of the senior notes or
senior convertible notes represented by the global note as to which the participant or participants
has or have given such direction.
DTC has advised us that it is:
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a limited purpose trust company organized under the laws of the State of New York; |
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a banking organization within the meaning of the New York Banking Law; |
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a member of the Federal Reserve System; |
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a clearing corporation within the meaning of the Uniform Commercial Code; and |
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a clearing agency registered pursuant to the provisions of Section 17A of the Exchange Act. |
DTC was created to hold securities for its participants and to facilitate the clearance and
settlement of securities transactions between participants through electronic book-entry changes to
the accounts of its participants.
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Participants include securities brokers, dealers, banks, trust companies, clearing corporations and
other organizations. Some of the participants or their representatives, together with other
entities, own DTC. Indirect access to the DTC system is available to others such as banks, brokers,
dealers and trust companies that clear through or maintain a custodial relationship with a
participant, either directly or indirectly.
DTC has agreed to the foregoing procedures to facilitate transfers of interests in a global
note among participants. However, DTC is under no obligation to perform or continue to perform
these procedures, and may discontinue these procedures at any time. If DTC is at any time unwilling
or unable to continue as depositary and a successor depositary is not appointed by us within 90
days, we will issue notes in certificated form in exchange for global notes.
Registration Rights
We have entered into a registration rights agreement with certain holders of the notes and
preferred stock that may be deemed to be affiliates of the company that requires us to file a
registration statement relating to all senior notes, all senior convertible notes, all series A
convertible preferred stock and the common stock issuable upon conversion of the series A
convertible preferred stock or the senior convertible notes (as the case may be) held by such
holder no later than May 15, 2006. We have also agreed to use our reasonable best efforts to have
the registration statement declared effective no later than 150 days following the closing date of
the exchange offer. The registration statement of which this prospectus forms a part has been filed
to satisfy these obligations.
We are required to keep the registration statement effective until the earlier of (i) the
fifth anniversary of the date such registration statement is declared effective, and (ii) the date
as of which all of the holders party thereto have sold all of their registrable securities
thereunder pursuant to the registration statement, pursuant to Rule 144 under the Securities Act,
or such securities may be sold immediately and are no longer subject to volume or manner of sale
restrictions under Rule 144.
Upon a delay of filing or having the registration statement declared effective, then damages
(the Registration Delay Payments) will accrue (calculated as set forth in the registration rights
agreement) from and including the date on which any such Registration Delay shall occur to but
excluding the date on which all Registration Delays have been cured. During the continuation of
such delay, Registration Delay Payments will accrue at a rate of 0.05% per month during the 90-day
period immediately following the occurrence of such Registration Default and shall increase by
0.05% per month at the end of each subsequent 90-day period, but in no event shall such rate exceed
3.00% per annum. The Registration Delay Payments shall be due and payable with respect to the
senior notes and senior convertible notes on the next scheduled interest payment date. Failure by
us to make such payments when due may give rise to an event of default (subject to applicable grace
periods) under the senior notes indenture and the convertible notes indenture.
The summary herein of provisions of the registration rights agreement is subject to, and is
qualified in its entirety by reference to, all of the provisions of the registration rights
agreement, a copy of which is filed as an exhibit to the registration statement of which this
prospectus forms a part. Only holders of existing notes that may be deemed to be affiliates of PRG
and that executed the registration rights agreement are entitled to its benefits, including without
limitation, Registration Delay Payments, if any.
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DESCRIPTION OF CAPITAL STOCK
We are authorized to issue up to 50,000,000 shares of common stock, no par value, and
1,000,000 shares of preferred stock, no par value. The following description summarizes information
about our capital stock. You can obtain more information about our capital stock by reviewing our
articles of incorporation and bylaws, as well as the Georgia Business Corporation Code.
Common Stock
As
of March 31, 2007, there were approximately 8,767,345 shares of our common stock
outstanding, which were held by approximately 5,000 beneficial
holders and approximately 150 holders of record.
Holders of common stock are entitled to one vote for each share held of record on all matters
submitted to a vote of the shareholders. Holders of common stock do not have cumulative voting
rights. Subject to the preferences applicable to any outstanding preferred stock, including the
series A convertible preferred stock, if any, holders of common stock are entitled to receive
ratably such dividends, if any, as may be declared from time to time by the Board of Directors out
of funds legally available therefor. Except as otherwise required by law, the preferred stock will
be entitled to vote on all matters with the common stock on an as converted basis, including the
election of directors.
Upon any liquidation, dissolution or winding up, whether voluntary or involuntary, holders of
our common stock are entitled to receive pro rata all assets available for distribution to
shareholders after payment or provision for payment of our debts and other liabilities and the
liquidation preferences of any then outstanding preferred stock. There are no preemptive or other
subscription rights, conversion rights, or redemption or sinking fund provisions with respect to
shares of our common stock.
Except as otherwise provided by law or as may be provided by the resolutions of the Board of
Directors authorizing the issuance of any class or series of preferred stock, the holders of the
common stock shall be entitled to receive, on a pro-rata basis, when, as and if provided by the
Board of Directors, out of funds legally available therefor, dividends payable in cash, stock or
otherwise. Our credit facility currently prohibits the payment of dividends on the common stock.
Preferred Stock
We are authorized to issue up to 1,000,000 shares of preferred stock. 125,000 shares of
preferred stock have been designated 9.0% Senior Series A Convertible Participating Preferred Stock
and as of March 31, 2007, 67,815 shares are issued and outstanding. 264,000 shares of preferred
stock have been designated 10.0% Senior Series B Convertible Participating Preferred Stock and have
been reserved for issuance but no such shares are issued and outstanding. Because we have filed,
and the SEC has declared effective, the registration statement of which this prospectus is a part,
we do not expect to issue any series B convertible preferred stock. Subject to certain approval
rights of the series A convertible preferred stock and series B convertible preferred stock, if
any, additional shares of preferred stock may be issued at any time or from time to time in one or
more series with such designations, powers, preferences, rights, qualifications, limitations and
restrictions (including dividend, conversion and voting rights) as may be fixed by the Board of
Directors, without any further vote or action by the shareholders.
9.0% Senior Series A Convertible Participating Preferred Stock
General
Holders of shares of series A convertible preferred stock have no preemptive or sinking fund
rights. The shares of series A convertible preferred stock have been issued in book-entry form and
are evidenced by one or more global certificates registered in the name of Cede & Co., as nominee
for DTC. Except in limited circumstances, holders of interests in global certificates are not
entitled to receive shares of series A convertible preferred stock in definitive certificated form
registered in their names and will not be considered registered owners or holders of the global
certificates for any purpose.
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Ranking
The series A convertible preferred stock, with respect to dividend rights and the distribution
of assets upon the companys liquidation, dissolution or winding up, will rank (i) junior to all
indebtedness of the company; (ii) senior to all classes or series of the companys common stock and
to all other equity securities the terms of which specifically provide that such equity securities
rank junior to the series A convertible preferred stock (such equity securities being referred to
herein as junior stock); (iii) on a parity with the series B convertible preferred stock
described below and all other preferred equity securities issued by us, other than those equity
securities referred to in clauses (ii) and (iv) of this paragraph, which issuance shall be subject
to the receipt of the applicable consent of the holders of the series A convertible preferred stock
as described under Voting Rights below; and (iv) junior to all equity securities issued by the
company, the terms of which specifically provide that such equity securities rank senior to such
series A convertible preferred stock, which issuance shall be subject to the receipt of the
applicable consent of the holders of the series A convertible preferred stock as described under
Voting Rights below.
Dividends
The holders of shares of series A convertible preferred stock, in preference to the holders of
shares of any junior stock, shall be entitled to receive, when, as and if declared by the Board of
Directors of the company out of funds legally available therefor, cumulative dividends, at a rate
of 9.0% per annum of then-effective liquidation preference payable in cash semi-annually on March
15 and September 15 of each year commencing September 15, 2006. Declared dividends will be payable
in cash. Any undeclared dividends will increase the liquidation preference as of the applicable
dividend payment date.
In addition, if any dividends or distributions are paid on our common stock (other than a
dividend or distribution paid solely in additional shares of common stock), the holders of series A
convertible preferred stock will be paid dividends or distributions per share of series A
convertible preferred stock in an amount equal to what such holder would have received had it
converted its shares of series A convertible preferred stock into shares of common stock
immediately prior to the record date for the payment of such dividend or distribution.
We will prorate and compute any dividend payable for a partial dividend period on the basis of
a 360-day year consisting of twelve 30-day months. We will pay dividends to holders of record as
they appear in its share records at the close of business on the applicable dividend record date.
No dividend on the series A convertible preferred stock will be authorized or declared or paid
or set apart for payment if such authorization, declaration, payment or setting apart for payment
would violate any of our agreements or is restricted or prohibited by law. Notwithstanding the
foregoing, dividends on the series A convertible preferred stock will accrue whether or not we have
earnings, whether or not there are funds legally available for the payment of dividends and whether
or not such dividends are authorized or declared by our Board of Directors.
When dividends are not declared and paid in full (or a sum sufficient for such full payment is
not so set apart) on the series A convertible preferred stock and all other equity securities
ranking on a parity as to dividends with the series A convertible preferred stock (including the
series B convertible preferred stock, if any), all dividends declared upon the series A convertible
preferred stock and any other equity securities ranking on a parity as to dividends with the series
A convertible preferred stock shall be declared pro rata so that the amount of dividends declared
per share of series A convertible preferred stock and such other equity security shall in all cases
bear to each other the same ratio that accumulated dividends per share on the series A convertible
preferred stock and such other equity security bear to each other.
Except as provided in the immediately preceding paragraph, unless full cumulative dividends on
the series A convertible preferred stock have been or contemporaneously are authorized and paid or
authorized and a sum sufficient set apart for payment for all past distribution periods and then
current dividend period:
(i) no dividends, other than distributions in kind of common stock of the company or other shares of junior stock, may be authorized or paid or set aside for payment, and no other dividend may be authorized or made upon, shares of common stock of the company or any other shares of junior stock; and
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(ii) no shares of common stock or any other shares of junior stock may be redeemed,
purchased or otherwise acquired for any consideration (or any moneys be paid to or made
available for a sinking fund for the redemption of any such shares) by us or any of our
subsidiaries, except by conversion into or exchange for other junior stock.
Form and Denomination
Except in very limited circumstances, the shares of series A convertible preferred stock will
be evidenced by a global certificate that will be deposited with, or on behalf of, the Depository
Trust Company, or DTC, and registered in the name of Cede & Co. as DTCs nominee. Except as set
forth below, the global certificate may be transferred, in whole or in part, only to another
nominee of DTC or to a successor of DTC or its nominee. See Description of the Notes Global
Notes; Book-Entry Form for additional discussion of DTC.
Purchasers may hold their interests in the global certificate directly through DTC or
indirectly through organizations that are participants in DTC. Transfers between participants will
be effected in the ordinary way in accordance with DTC rules and will be settled in clearing house
funds. The laws of some states require that certain persons take physical delivery of securities in
definitive form. Consequently, the ability to transfer beneficial interests in the global
certificate to such persons may be limited.
Purchasers may beneficially own interests in the global certificate held by DTC only through
participants, or certain banks, brokers, dealers, trust companies and other parties that clear
through or maintain a custodial relationship with a participant, either directly or indirectly
through indirect participants. So long as Cede & Co., as the nominee of DTC, is the registered
owner of the global certificate, Cede & Co. for all purposes will be considered the sole holder of
the global certificate. Except as provided below, owners of beneficial interests in the global
certificate will:
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not be entitled to have certificates registered in their names; |
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not receive or be entitled to receive physical delivery of certificates in definitive form; and |
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not be considered the registered owners or holders of the series A convertible
preferred stock for any purpose. |
Payment of dividends on and the redemption price of the global certificate will be made to
Cede & Co. by wire transfer of immediately available funds. Neither we nor any paying agent will
have any responsibility or liability for any aspect of the records relating to or payments made on
account of beneficial ownership interests in the global certificate or for maintaining, supervising
or reviewing any records relating to such beneficial ownership interests.
We have been informed by DTC that, with respect to any payment of dividends on or the
redemption price of the global certificate, DTCs practice is to credit participants accounts on
the payment date with payments in amounts proportionate to their respective beneficial interests in
the series A convertible preferred stock represented by the global certificate as shown on the
records of DTC, unless DTC has reason to believe that it will not receive payment on such payment
date. Payments by participants to owners of beneficial interests in series A convertible preferred
stock represented by the global certificate held through such participants will be the
responsibility of such participants, as is now the case with securities held for the accounts of
customers registered in street name.
If you would like to convert your series A convertible preferred stock into common stock
pursuant to the terms of the series A convertible preferred stock, you should contact your broker
or other direct or indirect DTC participant to obtain information on procedures, including proper
forms and cut-off times, for submitting those requests.
Because DTC can only act on behalf of participants, who in turn act on behalf of indirect
participants and certain banks, the ability of a person having a beneficial interest in series A
convertible preferred stock represented by the global certificate to pledge such interest to
persons or entities that do not participate in the DTC system, or otherwise take actions in respect
of such interest, may be affected by the lack of a physical certificate evidencing such interest.
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Neither we, the transfer agent, registrar, paying agent nor conversion agent will have any
responsibility for the performance by DTC or its participants or indirect participants under the
rules and procedures governing their operations. DTC has advised us that it will take any action
permitted to be taken by a holder of series A convertible preferred stock only at the direction of
one or more participants to whose account with DTC interests in the global certificate are credited
and only in respect of the amount of shares of the series A convertible preferred stock represented
by the global certificate as to which the participant has given this direction.
Voting Rights
Each share of series A convertible preferred stock will have the number of votes that the
shares of common stock issuable upon conversion of a share of series A convertible preferred stock
would have (referred to herein as voting on an as converted basis. Currently, each share of
series A convertible preferred stock has approximately 46.111706 votes. The common stock, series A
convertible preferred stock and series B convertible preferred stock, if any, vote together as a
single class, except in the limited circumstances provided by the certificate of designation and
described in this section or as required under applicable law.
The terms of the series A convertible preferred stock provide that any amendment, modification
or repeal of the terms of our articles of incorporation including the terms of the certificate of
designation relating to the series A convertible preferred stock that would materially adversely
affect the powers, preferences or rights of the series A convertible preferred stock or the bylaws
including but not limited to modifications resulting from or in connection with any merger,
consolidation or sale of all or substantially all of our assets, will require the approval of
holders of at least a majority of the issued and outstanding shares of series A convertible
preferred stock and series B convertible preferred stock, if any, voting together as a separate
class. In addition, without the affirmative vote or consent of holders of at least a majority of
the outstanding shares of series A convertible preferred stock and series B convertible preferred
stock, if any, voting together as a separate class, we shall not authorize, create, or increase the
authorized or issued amount of, any class or series of equity securities ranking senior to or on
parity with the series A convertible preferred stock with respect to the payment of dividends or
the distribution of assets upon the voluntary or involuntary liquidation, dissolution or winding up
of the company.
We will cause a notice of any meeting at which holders of the series A convertible preferred
stock are entitled to vote to be given to each holder of record in accordance with its bylaws.
This notice will be given to DTC or its nominee as the sole record holder of the global
certificate. We anticipate that DTC and its direct participants will send notices to the holders
of beneficial interests in the global certificate, but we take no responsibility for the
performance of DTC or its participants regarding such notices.
Conversion Rights
The series A convertible preferred stock is convertible at the holders option at any time.
Each share of series A convertible preferred stock is currently convertible into approximately
46.111706 shares of our common stock, which is calculated by dividing effective liquidation
preference of each share of series A convertible preferred stock by the conversion price. The
current conversion price is $2.8405, subject to anti-dilution adjustments described below.
In order to effect a conversion of series A convertible preferred stock, a holder must deliver
a notice of conversion to us. Upon our receipt of the notice of conversion, the holders shares of
series A convertible preferred stock will immediately cease to have the rights and restrictions of
preferred stock, and the holder will immediately be deemed to have all the rights of a holder of
shares of common stock in accordance with the terms outlined above. We will deliver a copy of the
form of notice of conversion to each holder of series A convertible preferred stock prior to the
convening of the stockholders meeting to increase our authorized capital (described below), or at
any time at the request of a holder of series A convertible preferred stock.
The conversion price will be subject to adjustment in the event we (i) pay a dividend or
distribution solely in shares of common stock; (ii) subdivide our outstanding shares of common
stock into a greater number of shares of common stock, or (iii) combine our outstanding shares of
common stock into a smaller number of shares of common stock. Concurrently with the effectiveness
of any of the events described in clauses (i) through (iii), the conversion
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price in effect immediately prior thereto shall be adjusted by multiplying the conversion price in
effect immediately prior to such adjustment by a fraction of which the numerator shall be the
number of shares of common stock outstanding immediately prior to such adjustment and the
denominator shall be the number of shares of common stock outstanding immediately following such
adjustment. To the extent that we provide for antidilution adjustments in our new management
incentive plan that are more favorable than those in effect for the series A preferred stock, the
series A preferred stock will also receive the benefit of such adjustments.
In case of any reclassification of the common stock, any consolidation of the company with, or
merger of the company into, any other entity, any merger of any entity into the company (other than
a merger that does not result in reclassification, conversion, exchange or cancellation of the
outstanding shares of common stock), any sale or transfer of all or substantially all of our assets
or any compulsory share exchange whereby the common stock is converted into other certain
securities, cash or other property, then the holder of each share of series A convertible preferred
stock then outstanding shall have the right thereafter, during the period that the series A
convertible preferred stock shall be convertible, to convert that share only into the kind and
amount of securities, cash and other property receivable upon the reclassification, consolidation,
merger, sale, transfer or share exchange by a holder of the number of shares of common stock into
which one share of series A convertible preferred stock would have been convertible immediately
prior to the reclassification, consolidation, merger, sale, transfer or share exchange.
Liquidation Rights
The
series A convertible preferred stock issued in the exchange offer has
a liquidation preference of $130.9803 per share as of
March 15, 2007, subject to accretion.
Upon any voluntary or involuntary liquidation, dissolution or winding up of the company,
holders of series A convertible preferred stock will be entitled to receive out of the assets of
the company available for distribution to stockholders (after payment or provision for all of our
debts and other liabilities and preference payments to holders of equity securities ranking senior
to the series A convertible preferred stock but before any payment or provision for any junior
stock) an amount equal to the greater of:
(i) the amount per share of series A convertible preferred stock equal to then-effective
liquidation preference, plus any accrued and undeclared dividends to the date of payment; and
(ii) the amount per share the holder would have received in connection with such voluntary
or involuntary liquidation, dissolution or winding up of the company had such holder converted
such share of series A convertible preferred stock into shares of common stock immediately prior
to such event.
In any voluntary or involuntary liquidation, dissolution or winding up of the company its
assets are insufficient to make full payment of the liquidating distributions to holders of the
series A convertible preferred stock and any other shares of our equity securities ranking on a
parity with the series A convertible preferred stock as to liquidation rights (including the series
B convertible preferred stock, if any), then the holders of the series A convertible preferred
stock and parity shares will share ratably in any distribution of assets in proportion to the full
liquidating distributions to which they would otherwise be respectively entitled.
Optional Redemption
Subject
to compliance with the terms of our senior credit facility, we shall have the right to redeem the series A convertible preferred stock, in whole or in
part, at any time concurrently with or after all outstanding senior notes and senior convertible
notes have been repurchased, redeemed or otherwise repaid in full. Any such redemption shall be for
a cash amount per share equal to then-effective liquidation preference, together with any accrued
and undeclared dividends to the date of redemption. The holders option to convert shares of series
A convertible preferred stock into shares of common stock of the company will terminate at the
close of business on the business day preceding the optional redemption date, unless we default in
making any redemption payment upon such mandatory redemption date. Holders shall have the right to
exercise conversion rights in lieu of the receipt of the redemption payment up to and including
such date. We will provide notice of the optional redemption date at least 30 days in advance of
such date to all holders of series A convertible preferred stock showing on the stockholder records
as of such date and make such other public announcement as we deem reasonable.
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Mandatory Redemption
On March 15, 2011, we must redeem all outstanding shares of series A convertible preferred
stock for a cash redemption price per share equal to then-effective liquidation preference,
together with any accrued and undeclared dividends to the date of redemption.
The certificate of designation of the series A convertible preferred stock provides that if at
the mandatory redemption date, we do not have sufficient capital and surplus legally available to
redeem all the outstanding shares of series A convertible preferred stock, we will take all
reasonable measures permitted under the Georgia Business Corporation Code to increase the amount of
our capital and surplus legally available, and we will redeem as many shares of series A
convertible preferred stock as we may legally redeem, ratably (as nearly as may be practicable
without creating fractional shares) from the holders thereof in proportion to the number of shares
held by them, and shall thereafter from time to time, as soon as we shall have funds available
therefor, redeem as many shares of series A convertible preferred stock as we legally may until we
have redeemed all of the outstanding shares of series A convertible preferred stock.
The holders option to convert shares of series A convertible preferred stock into shares of
common stock of the company will terminate at the close of business on the business day preceding
the mandatory redemption date (subject to any extension necessary to permit the expiration of any
applicable waiting period under the Hart-Scott-Rodino Antitrust Improvements Act of 1976, as
amended (the HSR Act), if applicable), unless we default in making any redemption payment upon
such mandatory redemption date. Holders will have the right to exercise conversion rights in lieu
of the receipt of the redemption payment up to and including such date. We will provide notice of
the mandatory redemption date at least 30 days in advance of such date to all holders of series A
convertible preferred stock showing on the stockholder records as of such date and make such other
public announcement as we deem reasonable.
10.0% Senior Series B Convertible Participating Preferred Stock
We have designated 264,000 shares of preferred stock as 10.0% Senior Series B Convertible
Participating Preferred Stock pursuant to a certificate of designation adopted by resolution of
the Board of Directors. We refer to the 10.0% Senior Series B Convertible Participating Preferred
Stock as series B convertible preferred stock. Prior to the filing and initial effectiveness of
the registration statement of which this prospectus is a part, holders of the senior convertible
notes had the right to convert the senior convertible notes into shares of series B convertible
preferred stock. However, as a result of the initial effectiveness of the registration statement
and the approval of our shareholders in August 2006 of an increase in our authorized shares of
common stock, the senior convertible notes may only be converted into shares of our common stock
and we believe that no shares of series B convertible preferred stock will be issued.
Preferred Share Purchase Rights Plan
On July 31, 2000, our Board of Directors declared a dividend of one preferred share purchase
right for each outstanding share of common stock. Each right entitles the registered holder to
purchase from PRG, subject to the occurrence of certain events, one one-hundredth of a share of
participating preferred stock at an initial price of $100, subject to adjustment for stock splits,
reverse stock splits, and other recapitalizations and similar corporate events. Shares of our
common stock subsequently issued are to include an associated purchase right. The purchase rights,
until exercisable, cannot be transferred apart from their associated shares of common stock, except
upon redemption; transfer of shares of common stock also constitutes transfer of the associated
purchase rights.
The rights are not exercisable until the business day following the earliest of:
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a public announcement that a person or group of affiliated or associated
persons has acquired beneficial ownership of 15% or more of the outstanding shares of
common stock; and |
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either 10 business days following the commencement of, or announcement of an
intention to make, a tender offer or exchange offer the consummation of which would result
in the beneficial ownership by a person or |
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group of 15% or more of the outstanding shares of common stock, or such later date as may be
determined by the Board of Directors prior to any person or groups acquiring 15% or more of
the outstanding shares of common stock. |
The rights will have substantial anti-takeover effects, but do not prevent a takeover. The
rights may cause substantial dilution to a person or group that acquires 15% or more of the
outstanding shares of our common stock unless the rights are first redeemed or the acquisition is
approved by the Board of Directors.
In the event that any person or group of affiliated or associated persons acquires 15% or more
of the outstanding shares in a transaction that is not approved by our Board of Directors, we will
take such action as shall be necessary to ensure and provide that each right, other than rights
beneficially owned by the acquiring person, which rights shall become void, will constitute the
right to purchase, upon the exercise thereof in accordance with the terms of the rights agreement,
that number of shares of common stock or preferred shares having an aggregate market price (as
defined in the rights agreement) equal to twice the exercise price for an amount in cash equal to
then current exercise price.
At any time after any person or group becomes an acquiring person and prior to the acquisition
by such person or group of 50% or more of our outstanding common shares, our Board of Directors may
exchange all, but not less than all, of then outstanding rights, other than rights owned by such
person or group which will have become void, at an exchange ratio of one common share, or one
one-hundredth of a preferred share, per right, appropriately adjusted to reflect any stock split,
stock dividend or similar transaction occurring after the date the rights become exercisable.
Immediately upon such action by the Board of Directors, the right to exercise the rights will
terminate and each right will thereafter represent only the right to receive a number of shares of
common stock or one one-hundredths of a preferred share equal to the exchange ratio as described
above.
In the event that prior to the expiration of the rights we enter into a transaction in which,
directly or indirectly, we consolidate or merge or participate in a share exchange with any other
person or we shall sell or otherwise transfer 50% of our assets or 50% of our operating income or
cash flow, and at the time of the entry by us into the agreement with respect to such merger, sale
or transfer of assets, such other person controls the Board of Directors of PRG, we will take such
action as shall be necessary to ensure that each holder of a right, other than rights beneficially
owned by such other person, which will thereafter be void, will thereafter have the right to
receive, upon the exercise thereof at then current exercise price of the right, that number of
shares of common stock of the acquiring company which at the time of such transaction will have an
aggregate market price equal to twice the exercise price of the right for an amount in cash equal
to then current exercise price.
Prior to an occurrence described above, we may at our option redeem all, but not less than
all, of then outstanding rights at a price of $.001 per right. Immediately upon any redemption of
the rights, the right to exercise the rights will terminate and each right will thereafter
represent only the right to receive the redemption price in cash for each right so held. In
addition, the rights agreement provides that if the Board of Directors, at the time the decision to
redeem is made, includes any directors who were elected by the shareholders, but not nominated by
the Board of Directors in office immediately prior to their election, then redemption requires the
vote of the majority of the remaining directors.
Until a right is exercised, the holder thereof, as such, will have no rights as a shareholder,
including the right to vote or to receive dividends. Under the rights agreement, until the
occurrence of either of the events described above, the rights may be transferred only with the
common stock. The rights will expire on the earlier of action by the Board of Directors, the close
of business on August 14, 2010, the date on which the rights are redeemed as described above, or
the merger of PRG into another corporation pursuant to an agreement entered into when there is no
acquiring person unless such transaction would entitle our shareholders to shares of common stock
of the acquiring company as described above.
Certain Articles and Bylaw Provisions
Shareholders rights and related matters are governed by the Georgia Business Corporation Code
and our articles of incorporation and bylaws. Certain provisions of our articles of incorporation
and bylaws, which are
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summarized below, could either alone or in combination with each other, have the effect of
preventing a change in control of PRG or making changes in management more difficult.
Corporate Takeover Provisions
Our bylaws make applicable certain corporate takeover provisions authorized by the Georgia
Business Corporation Code relating to business combinations with interested shareholders. The
corporate takeover provisions are designed to encourage any person, before acquiring 10% of our
voting shares, to negotiate with and seek approval of our Board of Directors for the terms of any
contemplated business combination. The corporate takeover provisions will prevent for five years
certain business combinations with an interested shareholder (as defined in the corporate
takeover provisions) unless:
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prior to the time such shareholder became an interested shareholder, the Board
of Directors approved either the business combination or the transaction that resulted in
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in the transaction that resulted in the shareholder becoming an interested
shareholder, the interested shareholder became the beneficial owner of at least 90% of the
outstanding voting shares of PRG excluding, however, shares owned by our officers,
directors, affiliates, subsidiaries and certain employee stock plans, or |
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subsequent to becoming an interested shareholder, such shareholder acquired
additional shares resulting in the interested shareholder becoming the owner of at least
90% of our outstanding voting shares and the business combination being approved by the
holders of a majority of our voting shares, excluding from the vote the stock owned by the
interested shareholder or by our officers, directors, affiliates, subsidiaries and certain
employee stock plans. |
The corporate takeover provisions may be repealed only by the affirmative vote of:
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two-thirds of all directors who are unaffiliated with an interested
shareholder, and |
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a majority of all outstanding shares, excluding those held by affiliates of an
interested shareholder. Shareholders who became interested shareholders prior to the time
of the adoption of the corporate takeover provisions are not subject to such provisions. |
The proposed restructuring transactions will be approved by our Board of Directors such that
the corporate takeover provisions will not apply to them.
Classified Board of Directors
Our Board of Directors is divided into three classes of directors serving staggered terms of
three years each. As a result, it will be more difficult to change the composition of our Board of
Directors, which may discourage or make more difficult an attempt by a person or group of persons
to obtain control.
Transactions with Interested Shareholders
Our bylaws provide that we will be subject to the fair price provisions of the Georgia
Business Corporation Code (the fair price provisions). The fair price provisions require that
certain business combinations between PRG and shareholders who beneficially own ten percent or more
of our outstanding stock must satisfy certain conditions unless the business combination is:
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unanimously approved by members of the Board of Directors who are not
affiliated with the interested shareholder, or |
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recommended by two-thirds of such unaffiliated directors and approved by a
majority of outstanding shares, excluding those held by affiliates of the interested
shareholder. |
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The conditions to be satisfied require that:
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the aggregate of the cash and fair market value, as defined in the Georgia
Business Corporation Code, of property exchanged for shares is equal to the highest of: the
highest per share price paid by the interested shareholder within certain periods, the fair
market value of the shares on the day the interested transaction is announced, or the
highest preferential amount to which holders of such shares would be entitled upon
liquidation or dissolution; |
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the interested shareholder acquires the shares using the same form of
consideration as used in any prior acquisition of the shares; and |
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there have not been certain changes in our dividend policy or practice since
the interested shareholder became an interested shareholder. |
Special Meeting Call Restrictions
Under our articles of incorporation, special meetings of the shareholders may only be called
by the Chairman of the Board of Directors, the President, a majority of the Board of Directors or
upon the written demand of the holders of 35% of the outstanding shares of common stock entitled to
vote at any such meeting, provided that we have more than 100 shareholders. If we have 100 or
fewer shareholders, 25% of the holders of the outstanding shares of common stock entitled to vote
at a meeting may submit written demand for such meeting. This provision may make it more difficult
for shareholders to require us to call a special meeting of shareholders to consider any proposed
corporate action, including any sale of PRG, which may be favored by the shareholders.
Transfer Agent and Registrar
The transfer agent and registrar for our common stock and series A convertible preferred stock
is American Stock Transfer & Trust Company.
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MATERIAL UNITED STATES FEDERAL INCOME TAX CONSEQUENCES
The following is a general discussion of certain U.S. federal income tax considerations
relevant to holders of the notes, preferred stock and common stock into which the notes and
preferred stock may be converted. This discussion is based upon the Internal Revenue Code of 1986,
as amended (the Code), Treasury Regulations, Internal Revenue Service (IRS) rulings and judicial
decisions now in effect, all of which are subject to change (possibly, with retroactive effect) or
different interpretations. There can be no assurance that the IRS will not challenge one or more of
the tax consequences described herein, and we have not obtained, nor do we intend to obtain, a
ruling from the IRS with respect to the U.S. federal income tax consequences of acquiring or
holding the notes, preferred stock or common stock.
This discussion does not purport to deal with all aspects of U.S. federal income taxation that
may be relevant to a particular holder in light of the holders circumstances (for example, persons
subject to the alternative minimum tax provisions of the Code or a holder whose functional
currency is not the U.S. dollar). Also, it is not intended to be wholly applicable to all
categories of investors, some of which (such as dealers in securities or currencies, traders in
securities that elect to use a mark-to-market method of accounting, banks, thrifts, regulated
investment companies, insurance companies, tax-exempt organizations, and persons holding notes or
shares as part of a hedging or conversion transaction or straddle or persons deemed to sell notes
or shares under the constructive sale provisions of the Code) may be subject to special rules. This
discussion also does not consider any aspect of state, local or foreign law, or U.S. federal estate
and gift tax law as applicable to the holders of the notes, preferred stock or common stock into
which the notes and preferred stock may be converted.
In addition, this discussion is limited to purchasers of the notes and preferred stock who
will hold the notes and stock as capital assets within the meaning of Section 1221 of the Code
(generally, for investment).
All prospective purchasers of the notes and preferred stock are advised to consult their own
tax advisors regarding the U.S. federal, state, local and foreign tax consequences of the purchase,
ownership and disposition of the notes, preferred stock and common stock in their particular
situations.
U.S. Holders
As used herein, the term U.S. Holder means a beneficial holder of a note or stock that for
U.S. federal income tax purposes is (i) a citizen or resident (as defined in Section 7701(b) of the
Code) of the United States, (ii) a corporation, or an entity treated as a corporation, created or
organized under the laws of the United States or any political subdivision thereof, (iii) an estate
the income of which is subject to U.S. federal income taxation regardless of its source and (iv) in
general, a trust subject to the primary supervision of a court within the United States and the
control of a United States person as described in Section 7701(a)(30) of the Code. A Non-U.S.
Holder is any holder of a note or stock other than a U.S. Holder or a foreign or domestic
partnership.
If a partnership (including for this purpose any entity, domestic or foreign, treated as a
partnership for U.S. federal income tax purposes) is a beneficial owner of the notes, preferred
stock or common stock into which the notes and preferred stock may be converted, the U.S. federal
income tax treatment of a partner in the partnership generally will depend on the status of the
partner and the activities of the partnership. As a general matter, income earned through a foreign
or domestic partnership is attributed to its owners. A holder of the notes, preferred stock or
common stock into which the notes and preferred stock may be converted that is a partnership, and
partners in such partnership, should consult their individual tax advisors about the U.S. federal
income tax consequences of holding and disposing of the notes, preferred stock or common stock into
which the notes and preferred stock may be converted.
Consequences of Ownership and Disposition of Notes
Interest, Original Issue Discount and Liquidated Damages on the Senior Notes
A U.S. Holder will be required to include stated interest on the senior notes in income in
accordance with the U.S. Holders regular method of accounting.
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In addition, the senior notes were issued with original issue discount (OID). A debt
instrument generally has OID if its stated redemption price at maturity (in the case of the senior
notes, the principal amount of such notes) exceeds its issue price (discussed below) by more than
a de minimis amount. A U.S. Holder other than a U.S. Holder whose senior notes have acquisition
premium or amortizable bond premium (as described below under Acquisition Premium and Amortizable
Bond Premium) is required to include any OID in income over the term of the notes (for so long as
the notes continue to be owned by the holder) in accordance with a constant yield-to-maturity
method, regardless of whether the U.S. Holder is a cash or accrual method taxpayer, and regardless
of whether and when the U.S. Holder receives payments of interest on the senior notes. Accordingly,
a U.S. Holder could be treated as receiving interest income without a corresponding receipt of
cash. Any OID that a U.S. holder includes in income will increase the tax basis of the holder in
its senior notes. In compliance with applicable Treasury regulations, we will furnish annually to
the IRS and holders of the senior notes information with respect to the amount of any accrued OID.
Original Issue Discount on Senior Convertible Notes
The senior convertible notes were issued with OID. As indicated above, a debt instrument
generally has OID if its stated redemption price at maturity exceeds its issue price by more than
a de minimis amount. In this case, because we have the ability to pay all stated interest in kind
in additional notes, the stated redemption price at maturity includes all principal and interest
payable over the term of the notes. Accordingly, a U.S. Holder, other than a U.S. Holder whose
senior convertible notes have acquisition premium or amortizable bond premium (as described below
under -Acquisition Premium and Amortizable Bond Premium) will be required to include all OID
(including all stated interest) in income over the term of the notes (for so long as the notes
continue to be owned by the holder) in accordance with a constant yield-to-maturity method,
regardless of whether the holder is a cash or accrual method taxpayer, and regardless of whether
and when the holder receives cash payments of interest on the senior convertible notes.
Accordingly, a U.S. Holder could be treated as receiving interest income without a corresponding
receipt of cash. A U.S. Holders aggregate tax basis in its senior convertible notes will be
increased by any OID that the holder includes in income. Any payment of stated interest will not be
separately taxable to the holder, but will reduce the holders tax basis in the notes. In
compliance with applicable Treasury regulations, we will furnish annually to the IRS and holders of
the senior convertible notes information with respect to the amount of accrued OID.
Issue Price of the Notes
The issue price of the senior convertible notes will depend on whether such class of notes is
publicly traded for purposes of the OID provisions of the Code. If publicly traded, the issue
price of such notes will equal their fair market value (i.e., their trading price) as of the date
the exchange offer occurred. If the notes are not publicly traded, the issue price of the
non-publicly traded notes will equal the portion of the fair market value of the existing notes
(which notes are publicly traded) properly allocable thereto in accordance with applicable
regulations, taking into account any other new securities received (i.e., any stock or publicly
traded notes received). In general, our determination of the issue price of the notes is binding on
all holders, other than a holder that explicitly discloses that its allocation is different from
our allocation in a statement attached to the holders timely filed tax return for the taxable year
in which the exchange offer occurred.
The senior notes and the senior convertible notes, respectively, should be considered publicly
traded for these purposes if, at any time during the 60-day period ending 30 days after the
exchange date, such class of notes appears on an established market. Pursuant to Treasury
regulations, an established market need not be a formal market. It is sufficient that the claims
appear on a system of general circulation (including computer listings disseminated to subscribing
brokers, dealers or traders) that provides a reasonable basis to determine fair market value by
disseminating either recent price quotations or actual prices of recent sales transactions, or
that, under certain circumstances, price quotations for such notes are readily available from
dealers, brokers or traders. It is not clear whether either class of notes would be treated as
publicly traded for this purpose, given that the notes will not be listed for trading on any
national securities exchange or authorized to be quoted in any inter-dealer quotation system of any
national securities association. Nevertheless, a market for the notes could be established.
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Change in Control Provision
In the event of a change in control of PRG (see Description of the Notes Senior Notes
Repurchase at the Option of Holders Upon a Change in Control and Senior Convertible Notes
Repurchase at Option of Holders Upon a Change in Control), a U.S. Holder may require us to
repurchase its notes. According to applicable Treasury regulations, the presence of a put right
will not affect the amount and timing of a U.S. Holders OID inclusions and interest income if, as
of the date the notes were issued, there is only a remote chance that the put right will be
exercised. We believe (and the discussion herein assumes) that the likelihood that a change in
control will occur is remote. Accordingly, we do not intend to treat the possibility that the notes
would have to be repurchased upon a change in control as affecting the yield to maturity (and the
resulting treatment) of the notes under the OID provisions of the Tax Code. Our determination in
this regard is binding on all U.S. Holders, other than a U.S. Holder that explicitly discloses that
it is taking a position different than ours in a statement attached to the U.S. Holders timely
filed tax return for the taxable year in which the exchange date occurs. However, there is no
assurance that the IRS would not take a contrary position.
Liquidated Damages
Because of the delay in complying with certain obligations under the registration rights
agreement (see Description of NotesRegistration Rights), we were required to make, and did make,
payments of liquidated damages. The payment of liquidated damages on the notes generally should be
taxable to a U.S. holder as ordinary income at the time such payment is accrued or received in
accordance with the holders regular method of accounting.
Market Discount
If a U.S. Holder acquires a note other than in connection with its original issue at a price
that is less than its revised issue price, the amount of such difference is treated as market
discount for U.S. federal income tax purposes, unless such difference is less than 1/4 of one
percent of the stated redemption price at maturity multiplied by the number of complete years to
maturity from the date of acquisition. The revised issue price of a note is the sum of its issue
price and all OID includible in the income of holders prior to the U.S. Holders acquisition of the
note. Market discount accrues in addition to OID. However, in contrast to OID, a U.S. Holder is not
required to include market discount in income periodically over the term of the notes before
receipt of the cash or other payment attributable to such income. Instead, upon the sale, exchange,
retirement or other disposition of a note, any gain recognized is required to be treated as
ordinary income to the extent of the accrued market discount that has not previously been included
in income. If a U.S. Holder disposes of a note that has accrued market discount in a
non-recognition transaction in which the U.S. Holder receives property the basis of which is
determined in whole or in part by reference to the basis of the note, the accrued market discount
generally is includible in income at the time of such transaction only to the extent of the gain
recognized. To the extent not included in income at the time of the non-recognition transaction,
the accrued market discount attaches to the property received and is recognized as ordinary income
upon the disposition of such property. In general, the amount of market discount that has accrued
is determined on a ratable basis, by allocating an equal amount of market discount to each day of
every accrual period. A U.S. Holder may, however, elect to determine the amount of accrued market
discount allocable to any accrual period under the constant yield method. Any such election applies
to all debt instruments with market discount acquired by the U.S. Holder on or after the first day
of the first taxable year to which the election applies, and is irrevocable without the consent of
the IRS. If such an election is made, the U.S Holders tax basis in the notes will be increased by
the amount of market discount included in income. Unless a U.S. Holder elects to include market
discount in income as it accrues, such U.S. Holder may not be allowed to deduct on a current basis
a portion of the interest expense on any indebtedness incurred or continued to purchase or carry
notes with market discount.
Acquisition Premium and Amortizable Bond Premium
If a U.S. Holder purchases a note at a price that exceeds its adjusted issue price, the amount
of such excess, referred to as acquisition premium for U.S federal income tax purposes, would
reduce the amount of OID that the U.S. Holder is required to include in income. If a U.S Holder
purchases a note at a price that exceeds the principal amount of the note and, in the case of the
senior convertible notes the principal amount of the note plus all stated interest, the amount of
such excess (except in the case of the senior convertible notes to the extent that the excess is
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attributable to the conversion feature of such notes) is referred to as bond premium for U.S
federal income tax purposes. The U.S. Holder would not be required to include any OID in income,
and may elect to amortize the bond premium against interest payable on the note. Any amortizable
bond premium in excess of interest payable on the note may be deductible over the term of the note.
If a U.S. Holder elects to amortize bond premium, the amount of bond premium allocable to each
accrual period will be based on a constant yield to maturity over the period the note is held. The
amortized bond premium would reduce the U.S. Holders tax basis in the note. Any such election
applies to all fully taxable bonds held by the U.S. Holder at the beginning of the first taxable
year to which the election applies, and all fully taxable bonds acquired thereafter, and is
irrevocable without the consent of the IRS. If the election is not made, a U.S. Holder must include
in income the full amount of any interest as it accrues or is paid, and premium will not be taken
into account until principal payments are received on the note or the note is sold or otherwise
disposed of.
Adjustments to Conversion Price of Senior Convertible Notes
The presence or absence of an adjustment to the conversion price at which the senior
convertible notes are convertible into common stock (such as under the anti-dilution provisions)
may result in constructive distributions to the holders of the notes (or, in certain cases, to
existing stockholders) taxable similar to an ordinary distribution on stock.
Sale, Exchange or Other Disposition of Notes
Except as discussed below with respect to market discount, and unless a non-recognition
provision applies, any gain or loss realized by a U.S. Holder on a sale, exchange or other
disposition of a note generally should be capital gain or loss in an amount equal to the
difference, if any, between the amount realized and the U.S. Holders adjusted tax basis in the
note immediately before the sale, exchange, redemption or other disposition (increased for any OID
accrued through the date of disposition, which OID would be includible as ordinary income). Any
such gain or loss generally should be long-term capital gain or loss if the U.S. Holders holding
period in its note is more than one year at that time.
As discussed above, under Market Discount, if a note is acquired with market discount any
gain recognized by the U.S. Holder upon a subsequent disposition of such note would be treated as
ordinary income to the extent of any accrued market discount not previously included in income.
Different rules may apply to the treatment of accrued market discount in the event of the
disposition qualifies for certain non-recognition treatment or, as discussed below, upon a
subsequent conversion of such notes into stock.
Conversion of Senior Convertible Notes into Stock
A U.S. holders conversion of a senior convertible note into common stock will not be a
taxable event, except that any OID accrued to the date of conversion would be includible as
ordinary income and the receipt of cash in lieu of a fractional share will result in capital gain
or loss (except with respect to any accrued market discount carried over to the fractional share).
A U.S. holder will recognize gain or loss upon the receipt of cash in lieu of a fractional share of
common stock, measured by the difference between the cash received and the U.S. holders tax basis
attributable to the fractional share.
A U.S. holders aggregate tax basis in the common stock received upon a conversion of a senior
convertible note will be the same as the U.S. holders adjusted tax basis in the senior convertible
note at the time of conversion (increased for any accrued OID through the date of conversion),
reduced by any basis allocated to a fractional share. The U.S. holders holding period for the
common stock received will include the U.S. holders holding period for the converted note.
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Consequences of Ownership and Disposition of Preferred Stock or Common Stock
Distributions
Distributions with respect to preferred stock generally will be treated as a taxable dividend
to the extent paid out of the companys current or accumulated earnings and profits as determined
under federal income tax principles (earnings and profits), and will be includible as ordinary
income by the U.S. holder when received.
Distributions paid on common stock received upon the conversion of preferred stock or senior
convertible notes, other than certain pro rata distributions of common shares, generally will be
treated as a taxable dividend to the extent paid out of earnings and profits after taking into
account any distributions on preferred stock, and to the extent so treated will be includible as
ordinary income by the U.S. holder when received.
To the extent the amount of any distributions exceeds the companys available earnings and
profits with respect to such distribution, the excess will be applied against and will reduce the
U.S. holders adjusted tax basis (on a dollar-for-dollar basis) in respect of the stock as to which
the distribution was made (but not below zero). Any remaining excess will be treated as gain or
loss from the sale or exchange of such stock, with the consequences discussed below (see Sale,
Exchange or Other Disposition).
Constructive Dividend Potential
Under section 305 of the Code, a U.S. holder of series A convertible preferred stock may be
treated as receiving constructive distributions over the term of the preferred stock based on the
excess, if any, of the stocks redemption price over the stocks issue price (subject to a de
minimis exception) sometimes referred to as preferred OID unless such stock participates in
corporate growth to any significant extent (disregarding conversion privileges). A right to
participate in corporate growth that lacks substance (i.e., as to which it is reasonable to
anticipate at the time of the distribution that there is little or no likelihood of participating
beyond a fixed preferential return) will not be respected. Although both classes of preferred stock
have the right to participate, over and above their preference amounts, in any dividends or
liquidation proceeds along with the common stock on an as-if converted basis, the price at which
the preferred stock is mandatorily redeemable includes no corresponding participation or growth
feature. Accordingly, although not free from doubt, we currently intend to treat the preferred
stock as subject to the preferred OID rules of section 305. In general, each U.S. holder is bound
by our determination as to whether there is a constructive distribution, unless the U.S. holder
explicitly discloses that it is taking a contrary position in a statement attached to its timely
filed tax return for the taxable year in which it acquires the stock.
Neither the statute nor applicable Treasury regulations defines the term issue price for
this purpose. Logically, however, the issue price of preferred stock should be its fair market
value at issuance. Accordingly, the issue price of any shares of series A convertible preferred
stock received upon consummation of the exchange offer should be the fair market value of such
stock on that date.
There is also some uncertainty as to whether the presence of a cumulative dividend feature
that increases the redemption price of preferred stock in the event a dividend is not declared
should be taken into account in determining the redemption price of preferred stock for purposes
of determining the amount of preferred OID at the time of issuance. Although the IRS has authority
to issue regulations taking a cumulative dividend feature into account, and continues to study the
issue, no such regulations have yet been issued. Accordingly, we do not currently intend to take
the cumulative dividend feature into account for this purpose. There is no assurance, however, that
the IRS will not take a contrary position, or otherwise issue regulations to the contrary.
In the event that any preferred stock is issued with preferred OID, such amount would be
amortized and treated as a constructive distribution with respect to the preferred stock on a
constant yield-to-maturity basis over term of the preferred stock, regardless of whether the U.S.
holder is a cash or accrual method taxpayer. Any constructive distributions would be treated in the
same manner as an ordinary distribution (discussed above). Accordingly, to the extent we have
available earnings and profits, or such distribution exceeds the U.S. holders adjusted tax basis
in its stock, the U.S. holder would recognize taxable income prior to any corresponding cash
payment.
71
Aside from the treatment of any preferred OID, the presence or absence of an adjustment to the
conversion price at which the preferred stock is convertible into common stock (such as under the
anti-dilution provisions) may also result in constructive distributions to the U.S. holders of the
preferred stock (or, in certain cases, to existing common stockholders or existing U.S. holders of
senior convertible notes), which would be taxable similar to an ordinary distribution on stock.
Dividends to Non-Corporate Shareholders
Dividends are generally taxed as ordinary income; however, dividends received by non-corporate
holders in taxable years beginning on or before December 31, 2008, may qualify for taxation at
lower rates applicable to long-term capital gains, provided certain holding period and other
requirements are satisfied. Non-corporate holders should consult their own tax advisors regarding
the applicability of such lower rates under their particular factual situation.
Dividends to Corporate Shareholders
In general, a distribution to a corporate shareholder which is treated as a dividend for
federal income tax purposes will qualify for the 70% dividends received deduction that is available
to corporate shareholders that own less than 20% of the voting power or value of the outstanding
stock of the distributing corporation (other than certain preferred stock not applicable here). A
corporate shareholder holding 20% or more of the distributing corporation may be eligible for an
80% dividends received deduction. No assurance can be given that we will have sufficient earnings
and profits (as determined for federal income tax purposes) to cause distributions to be eligible
for a dividends received deduction. Dividend income that is not subject to regular federal income
tax as a consequence of the dividends received deduction may be subject to the federal alternative
minimum tax.
The dividends received deduction is only available if certain holding periods and taxable
income requirements are satisfied. The length of time that a shareholder has held stock is reduced
for any period during which the shareholders risk of loss with respect to the stock is diminished
by reason of the existence of certain options, contracts to sell, short sales or similar
transactions. In addition, to the extent that a corporation incurs indebtedness that is directly
attributable to an investment in the stock on which the dividend is paid, all or a portion of the
dividends received deduction may be disallowed.
In general, for the first two years of a corporations holding period, the tax basis of its
stock is reduced (but not below zero) by the non-taxed portion of any extraordinary dividend
received with respect to such stock (generally, the portion of an extraordinary dividend for which
a dividends received deduction is allowed). In addition, certain dividend distribution may be
treated as extraordinary dividends without regard to the corporations holding period (such as in
the case of preferred stock where the issue price of such stock exceeded, at issuance, its
liquidation or stated redemption price). In the event that the non-taxed portion of an
extraordinary dividend exceeds the corporate holders tax basis in its stock, such excess is
treated as current gain from the sale or exchange of the stock. Generally, an extraordinary
dividend is a dividend that (i) equals or exceeds 5% of the holders adjusted basis in preferred
stock (treating all dividends having ex-dividend dates within an 85-day period as a single
dividend) or (ii) exceeds 20% of the holders adjusted basis in the stock (treating all dividends
having ex-dividend dates within a 365-day period as a single dividend). For these purposes, any
deemed dividends arising by reason of the application of section 305 of the tax code are taken into
account. Under certain circumstances, if the holder so elects, the fair market value of the stock
as of the day before the ex-dividend date may be substituted for the holders basis in applying
these tests.
Sale, Exchange or Other Disposition
Except to the extent of any market discount that has carried over to the stock (as discussed
below), and unless a non-recognition provision applies, any gain or loss realized by a holder on a
sale, exchange, or other disposition of preferred stock or common stock generally should be capital
gain or loss in an amount equal to the difference, if any, between the amount realized and the
holders adjusted tax basis in the preferred stock immediately before the sale, exchange, or other
disposition. Any such gain or loss generally should be long-term if the holders holding period for
its stock is more than one year at that time.
72
In the case of a redemption of stock for cash or property, the federal income tax treatment of
the redemption to a shareholder depends on the particular facts relating to such holder at the time
of the redemption. If the redemption of such stock (i) is not essentially equivalent to a
dividend with respect to the holder, (ii) is substantially disproportionate with respect to the
holder (as defined generally as a greater than 20% reduction in a shareholders relative voting
stock of a corporation), or (iii) results in a complete termination of all of such holders
equity interest in the corporation, then the receipt of cash or property by such holder will be
respected as a sale or exchange of its stock and taxed accordingly. In applying these tests,
certain constructive ownership rules apply to determine stock ownership. If the redemption does not
qualify for sale or exchange treatment, the holder will instead be treated as having received a
distribution on such stock (in an amount that generally will be equal to the amount of cash and the
fair market value of property received in the redemption) with the general consequences described
above under Distributions. If the holder does not retain any actual stock ownership in the
company following such redemption, the holders may lose its tax basis completely (in that the tax
basis would shift to the stock that was treated as constructively owned by the holder). If such
distribution is taxable as a dividend to a corporate shareholder, it will be subject to the
extraordinary dividend provisions of the tax code (see Distributions to Corporate
Shareholders, above) and, if such a redemption is not pro rata as to all shareholders or if the
redemption is treated as a dividend solely by reason of the constructive ownership rules for
options, the extraordinary dividend provisions will apply irrespective of whether the corporate
holder held the stock for two years or more.
Conversion of Preferred Stock into Common Stock
For federal income tax purposes, a U.S. holder generally will not recognize gain or loss upon
the optional conversion of its preferred stock to common stock, except in respect of (1) any cash
paid to a U.S. holder in lieu of fractional shares and (2) any common stock received attributable
to any dividend arrearages.
A U.S. holder that receives cash in lieu of a fractional share will recognize capital gain or
loss (except with respect to any accrued market discount carried over to the fractional share),
equal to the difference between the amount of cash received and the U.S. holders tax basis in the
stock exchanged allocable to the fractional share. Any common stock received attributable to
dividend arrearages generally should be treated as a distribution on the preferred stock, with the
consequences described above, under Distributions.
A U.S. holders aggregate tax basis in the common stock received upon conversion generally
will be equal to the U.S. holders aggregate tax basis in the preferred stock converted (less the
portion of the U.S. holders basis allocable to any fractional share, as to which the U.S. holder
receives cash). A U.S. holders holding period in the common stock received, other than any such
stock received attributable to any dividend arrearages, will include the holding period of the
preferred stock exchanged. In addition, although not free from doubt, any still unrecognized
accrued market discount that previously carried over to either the series A convertible preferred
stock (from the existing notes) should, in turn, carry over to the common stock received upon
conversion of such preferred stock. The tax basis of any common stock received that is attributable
to any dividend arrearages will be equal to its fair market value on the date of the exchange, and
the holding period of such stock will commence on the day after the conversion.
Information Reporting and Backup Withholding
Payments of interest or dividends (including accruals of OID) and payments of proceeds from
the sale, retirement or other disposition of securities may be subject to backup withholding tax
if a recipient of those payments fails to furnish to the payor certain identifying information. Any
amounts deducted and withheld should generally be allowed as a credit against that recipients
United States federal income tax, provided that appropriate proof is provided under rules
established by the IRS. Furthermore, certain penalties may be imposed by the IRS on a recipient of
payments that is required to supply information but that does not do so in the proper manner.
Backup withholding generally should not apply with respect to payments made to certain exempt
recipients, such as corporations and financial institutions. Information may also be required to be
provided to the IRS concerning payments, unless an exemption applies. U.S. Holders should consult
their tax advisors regarding their qualification for exemption from backup withholding and
information reporting and the procedures for obtaining such an exemption.
73
Non-U.S. Holders
The following discussion is limited to the U.S. federal income tax consequences relevant to a
Non-U.S. Holder (as defined above).
For purposes of withholding tax on dividends discussed below, a Non-U.S. Holder includes a
nonresident fiduciary of an estate or trust. For purposes of the following discussion, liquidated
damages, dividends and gain on the sale, exchange or other disposition of a note or shares will be
considered to be U.S. trade or business income if such income or gain is (i) effectively
connected with the conduct of a U.S. trade or business and (ii) in the case of a Non-U.S. Holder
eligible for the benefits of an applicable U.S. bilateral income tax treaty, attributable to a
permanent establishment (or, in the case of an individual, a fixed base) in the United States.
Interest, Original Issue Discount and Liquidated Damages
In general and subject to the discussion below under Backup Withholding and Information
Reporting, payments of interest and payments attributable to accrued OID on the notes made to a
Non-U.S. Holder should qualify as portfolio interest, and should be exempt from withholding of
U.S. federal income tax, if the Non-U.S. Holder certifies its nonresident status as described
below. The portfolio interest exception will not apply to payments to a Non-U.S. Holder that owns,
actually or constructively, at least 10% of our voting stock, or is a controlled foreign
corporation that is related to us. In general, a foreign corporation is a controlled foreign
corporation if more than 50% of its stock is owned, actually or constructively, by one or more U.S.
persons that each owns, actually or constructively, at least 10% of the corporations voting stock.
If the portfolio interest exception does not apply, payments of interest and payments attributable
to accrued OID on the notes to a Non-U.S. Holder will be subject to withholding tax at a rate of
30%, or such lesser rate as provided under the terms of an applicable income tax treaty between the
United States and the Non-U.S. Holders country of residence.
The portfolio interest exception, entitlement to treaty benefits and several of the special
rules for Non-U.S. Holders described below apply only if the Non-U.S. Holder certifies its
nonresident status. A Non-U.S. Holder can meet this certification requirement by providing a Form
W-8BEN or appropriate substitute form to us or our paying agent. If the holder holds the note
through a financial institution or other agent acting on the holders behalf, the holder will be
required to provide appropriate documentation to the agent. The holders agent will then be
required to provide certification to us or our paying agent, either directly or through other
intermediaries. For payments made to a foreign partnership or other flow-through entity, the
certification requirements generally apply to the partners or other owners, rather than to the
partnership or other entity, and the partnership or other entity must provide the partners or
other owners documentation to us or our paying agent.
Absent further guidance from the IRS as to whether payments of liquidated damages qualify for
an exemption from withholding as portfolio interest, we may treat payments of liquidated damages as
described above under Description of NotesRegistration Rights, made to a Non-U.S. Holder, if
any, as subject to U.S. federal withholding tax. Therefore, we may withhold on such payments at a
rate of 30% unless we receive an IRS Form W-8BEN or an IRS Form W-8ECI from a Non-U.S. Holder
claiming, respectively, that such payments are subject to reduction or elimination of withholding
under an applicable income tax treaty that reduces or eliminates the withholding on other income
or that such payments are effectively connected with the conduct of a U.S. trade or business. A
Non-U.S. Holder considering the purchase of notes should consult its tax advisor regarding whether
it can obtain a refund for the withholding tax imposed on any payments of liquidated damages on the
grounds that such payments represent interest qualifying for an exemption or some other grounds.
Dividends
In general, dividends (including constructive dividends) paid to a Non-U.S. Holder of shares
will be subject to withholding of U.S. federal income tax at a 30% rate unless such rate is reduced
by an applicable income tax treaty. Dividends that are U.S. trade or business income generally are
subject to U.S. federal income tax in the same manner as if the Non-U.S. Holder were a U.S. Holder,
and are not generally subject to the 30% withholding tax or treaty-reduced rate if the Non-U.S.
Holder files a properly executed Form W-8ECI (or appropriate substitute form), as applicable with
the payor. Any U.S. trade or business income received by a Non-U.S. Holder that is a corporation
may also, under certain circumstances, be subject to an additional branch profits tax at a 30%
rate or such lower
74
rate as may be applicable under an income tax treaty. A Non-U.S. Holder of shares who wishes to
claim the benefit of an applicable treaty rate for dividends must provide a properly executed IRS
Form W-8BEN (or appropriate substitute form), as applicable. In addition, a Non-U.S. Holder may
under certain circumstances be required to obtain a U.S. taxpayer identification number and make
certain certifications to us. Special procedures are provided for payments through qualified
intermediaries. A Non-U.S. Holder of shares that is eligible for a reduced rate of U.S. withholding
tax pursuant to an income tax treaty may obtain a refund of amounts withheld at a higher rate by
filing an appropriate claim for a refund with the IRS.
Conversion of the Notes into Cash or Cash and Shares or Sale, Exchange, Repurchase or Retirement of
the Notes or Shares
Except as described below and subject to the discussion concerning backup withholding, any
gain realized by a Non-U.S. Holder on the conversion of the notes into cash or cash and shares or
on the sale, exchange, redemption or retirement of a note or shares generally will not be subject
to U.S. federal income tax, unless (i) such gain is U.S. trade or business income, (ii) subject to
certain exceptions, the Non-U.S. Holder is an individual who holds the note or shares as capital
assets and is present in the United States for 183 days or more in the taxable year of the
disposition, (iii) the Non-U.S. Holder is subject to tax pursuant to the provisions of U.S. tax law
applicable to certain U.S. expatriates (including certain former citizens or residents of the
United States), or (iv) we are a United States real property holding corporation within the meaning
of Section 897 of the Code. We do not believe that we are currently a United States real property
holding corporation within the meaning of Section 897 of the Code, or that we will become one in
the future. Even if we were a United States real property holding corporation, gain arising from a
disposition of our shares still would not be subject to tax if our shares were considered regularly
traded under applicable Treasury Regulations on an established securities market, such as the
Nasdaq Global Market, and a Non-U.S. Holder did not own, actually or constructively, more than 5%
of the total fair market value of our common stock at any time during the five year period ending
on the date of disposition.
Backup Withholding and Information Reporting
The Code and the Treasury Regulations require those who make specified payments to report the
payments to the IRS. Among the specified payments are interest (including payments attributable to
accrued OID), dividends and proceeds paid by brokers to their customers. The required information
returns enable the IRS to determine whether the recipient properly included the payments in income.
This reporting regime is reinforced by backup withholding rules. These rules require the payors
to withhold tax from payments subject to information reporting if the recipient fails to cooperate
with the reporting regime by failing to provide his taxpayer identification number to the payor,
furnishing an incorrect identification number, or repeatedly failing to report interest or
dividends on his returns. The backup withholding tax rate is currently 28%. The backup withholding
rules do not apply to payments to corporations, whether domestic or foreign. Payments of interest
(including payments attributable to accrued OID), dividends to individual U.S. Holders of notes or
common stock will generally be subject to information reporting, and will be subject to backup
withholding unless the holder provides us or our paying agent with a correct taxpayer
identification number and complies with applicable certification requirements. Payments that are
subject to withholding (such as liquidated damages as described above) are not subject to backup
withholding.
To avoid backup withholding on payments of interest (including payments attributable to
accrued OID), dividends on common stock, a Non-U.S. Holder will have to certify its nonresident
status. Some of the common means of doing so are described under Non-U.S. HoldersInterest,
Original Issue Discount and Liquidated Damages. We must report annually to the IRS the payments of
interest, payments attributable to accrued OID and the dividends paid to each Non-U.S. Holder and
the tax withheld, if any, with respect to such payments, including any tax withheld under the rules
described above under Non-U.S. HoldersInterest, Original Issue Discount and Liquidated Damages
and Non-U.S. HoldersDividends. Copies of these reports may be made available to tax authorities
in the country where the Non-U.S. Holder resides.
Payments made to U.S. Holders by a broker upon a sale of notes or common stock will generally
be subject to information reporting and backup withholding. If the sale is made through a foreign
office of a foreign broker, the sale will generally not be subject to either information reporting
or backup withholding. This exception may not apply, however, if the foreign broker is owned or
controlled by U.S. persons, or is engaged in a U.S. trade or business.
75
Payments made to Non-U.S. Holders by a broker upon a sale of notes or common stock will not be
subject to information reporting or backup withholding as long as the Non-U.S. Holder certifies its
foreign status.
Any amounts withheld from a payment to a holder of notes or shares under the backup
withholding rules can be credited against the U.S. federal income tax of the holder and may entitle
the holder to a refund, provided that the required information is furnished to the IRS in a timely
manner.
Consequences to the Company
Potential Limitations on Loss Carryforwards and Other Tax Benefits
Under section 382, if a corporation undergoes an ownership change, the amount of its
pre-change losses that may be utilized to offset future taxable income is, in general, subject to
an annual limitation (the section 382 annual limitation). Such limitation also may apply to
certain losses or deductions which are built-in (i.e., economically accrued but unrecognized) as
of the date of the ownership change and that are subsequently recognized. A loss corporation
generally undergoes an ownership change if the percentage of stock of the corporation owned by one
or more 5% shareholders has increased by more than 50 percentage points over a three-year period
(with certain groups of less-than-5% shareholders treated as a single shareholder for this
purpose). As a result of the restructuring transactions that occurred in connection with the
exchange offer, there has been a substantial change in the stock ownership of the company over the
relevant three-year period which likely has triggered the imposition of limitations under section
382.
In general, the section 382 annual limitation equals the product of (i) the value of the stock
of the corporation immediately before the ownership change (with certain adjustments, including for
capital infusions within the preceding two years) and (ii) the applicable long-term tax-exempt
rate in effect for the month in which the ownership change occurs. In the case of a consolidated
group, the section 382 annual limitation generally is based upon the value of the parent
corporation. In certain cases, the section 382 annual limitation may be increased by an amount of
income or gain that is built-in as of the date of the ownership change and subsequently
recognized. The company does not expect to be able to increase its limitation under these
provisions. Any unused limitation may be carried forward, thereby increasing the annual limitation
in the subsequent taxable year. However, if the corporation (or consolidated group) does not
continue its historic business or use a significant portion of its assets in a new business for two
years after the ownership change, the annual limitation resulting from the ownership change is
zero.
Based on our current projections, the resulting section 382 annual limitation would
significantly increase our projected future tax liability if combined with the elimination of
interest deductions with respect to the senior convertible notes (whether due to the conversion of
such notes into stock or, as discussed below, in the event of a determination that such interest
was not deductible). Moreover, our actual operating results may differ from those projected, and
there can be no assurance that the IRS will not challenge the amount of any claimed NOLs or the
companys determination of any section 382 annual limitation.
Potential Disallowance of Interest Deductions on Senior Convertible Notes
Under section 163(l) of the tax code, no deduction is allowed for interest paid or accrued
with respect to indebtedness if a substantial amount of the principal of or interest on such
indebtedness is required to be paid or converted into equity of the issuer, or the indebtedness is
part of an arrangement which is reasonably expected to have such outcome. Where the conversion into
equity is at the option of the holder, such principal or interest is treated as required to be paid
or converted only if there is a substantial certainty that the holder will exercise its option. No
Treasury regulations have yet been issued under this section.
The proper application of this section in the case of the senior convertible notes is subject
to varying interpretations. Pursuant to the terms of the senior convertible notes, a holder of a
senior convertible note may convert the senior convertible notes into shares of our common stock.
We believe that it is not substantially certain that the holders
of the senior convertible notes will convert. Accordingly, we currently intend to take the
position that we are entitled to interest deductions in respect of such notes. Nevertheless,
76
there is no assurance that the IRS would not take a contrary position. If the IRS were successful
in challenging this position, the interest paid or accrued with respect to the senior convertible
notes would not be deductible.
The preceding discussion of certain U.S. federal income tax consequences is for general
information only and is not tax advice. Accordingly, each investor should consult its own tax
advisor as to particular tax consequences to it of purchasing, holding and disposing of the notes
or shares, including the applicability and effect of any state, local or foreign tax laws, and of
any proposed changes in applicable laws.
77
SELLING SECURITYHOLDERS
The senior notes, senior convertible notes and series A convertible preferred stock were
originally issued by us in a transaction exempt from the registration requirements of the
Securities Act to holders of our convertible notes due November 2006. Selling securityholders,
including their transferees, pledgees or donees or their successors, may from time to time offer
and sell pursuant to this prospectus any or all of the senior notes, senior convertible notes,
series A convertible preferred stock, shares of common stock into which the senior convertible
notes and the series A convertible preferred stock are convertible, together with any senior
convertible notes that may be issued in payment of interest on any of the senior convertible notes
we are registering, and any securities that may be deemed issued upon increases in the liquidation
preference of the Series A convertible preferred stock made in payment of dividends thereon
(collectively, the Registered Securities).
The following sets forth information with respect to the selling securityholders, as of March
15, 2007, regarding the principal amounts of notes and PRG-Schultz preferred stock (including
securities that may be deemed issued upon increases in the liquidation preference of the series A
convertible preferred stock made in payment of dividends thereon) and common stock owned by each
selling securityholder and that may be offered pursuant to this prospectus. The information is
based on information provided by or on behalf of the selling securityholders. The selling
securityholders may offer all, some or none of the Registered Securities. Because the selling
securityholders may offer all or some portion of the Registered Securities, we cannot estimate the
amount of the Registered Securities that will be held by the selling securityholders upon
termination of any of these sales. The percentage of senior notes outstanding beneficially owned by
each selling securityholder is based on $51,455,517 aggregate principal amount of notes
outstanding. The percentage of convertible senior notes outstanding beneficially owned by each
selling securityholder is based on $62,510,838 aggregate principal amount of notes outstanding.
The percentage of series A convertible preferred stock outstanding beneficially owned by each
selling securityholder is based on 72,915 shares outstanding. The number of shares of common stock
beneficially owned prior to the offering includes shares of common stock into which the series A
convertible preferred stock is convertible. The percentages of our common stock beneficially owned
by the selling securityholders named in the table below were computed
based on 8,767,345 shares of
common stock outstanding, plus, with respect to each selling securityholder, that number of shares
of common stock into which the series A convertible preferred stock beneficially owned by it may be
converted. Parkcentral Global Hub Limited is offering all of the 3,561 shares of outstanding
common stock covered by this prospectus.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Principal Amount of |
|
Percentage of 11% |
|
|
|
|
|
|
|
|
|
Percentage of 10% |
|
Shares of Series A |
|
Percentage of Series |
|
|
11% Senior Notes |
|
Senior Notes Out- |
|
Principal Amount |
|
Principal Amount |
|
Senior Convertible |
|
Preferred Stock |
|
A Preferred Shares |
|
|
Beneficially Owned |
|
standing after |
|
of 10% Senior |
|
of 10% Senior |
|
Notes Outstanding |
|
Beneficially |
|
Outstanding after |
|
|
and Offered |
|
Completion of |
|
Convertible Notes |
|
Convertible Notes |
|
after Completion |
|
Owned and |
|
Completion of |
Name |
|
Hereby |
|
Offering(1) |
|
Beneficially Owned |
|
Offered Hereby |
|
of Offering (1) |
|
Offered Hereby |
|
Offering (1) |
Blum Strategic Partners II, L.P.(4) |
|
$ |
14,471,619 |
|
|
|
0 |
% |
|
$ |
17,580,874 |
|
|
$ |
25,974,958 |
|
|
|
0 |
% |
|
|
34,901 |
|
|
|
0 |
% |
Blum Strategic Partners II GmbH & Co.
KG(4) |
|
|
14,471,619 |
|
|
|
0 |
% |
|
|
17,580,874 |
|
|
|
25,974,958 |
|
|
|
0 |
% |
|
|
34,901 |
|
|
|
0 |
% |
Blum Capital Partners, L. P. |
|
|
14,471,619 |
|
|
|
0 |
% |
|
|
17,580,874 |
|
|
|
25,974,958 |
|
|
|
0 |
% |
|
|
34,901 |
|
|
|
0 |
% |
Stinson Capital Partners, L.P.(4) |
|
|
14,471,619 |
|
|
|
0 |
% |
|
|
17,580,874 |
|
|
|
25,974,958 |
|
|
|
0 |
% |
|
|
34,901 |
|
|
|
0 |
% |
Stinson Capital Partners (QP), L.P.(4) |
|
|
14,471,619 |
|
|
|
0 |
% |
|
|
17,580,874 |
|
|
|
25,974,958 |
|
|
|
0 |
% |
|
|
34,901 |
|
|
|
0 |
% |
78
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Principal Amount of |
|
Percentage of 11% |
|
|
|
|
|
|
|
|
|
Percentage of 10% |
|
Shares of Series A |
|
Percentage of Series |
|
|
11% Senior Notes |
|
Senior Notes Out- |
|
Principal Amount |
|
Principal Amount |
|
Senior Convertible |
|
Preferred Stock |
|
A Preferred Shares |
|
|
Beneficially Owned |
|
standing after |
|
of 10% Senior |
|
of 10% Senior |
|
Notes Outstanding |
|
Beneficially |
|
Outstanding after |
|
|
and Offered |
|
Completion of |
|
Convertible Notes |
|
Convertible Notes |
|
after Completion |
|
Owned and |
|
Completion of |
Name |
|
Hereby |
|
Offering(1) |
|
Beneficially Owned |
|
Offered Hereby |
|
of Offering (1) |
|
Offered Hereby |
|
Offering (1) |
Stinson Capital Partners II, L.P.(4) |
|
|
14,471,619 |
|
|
|
0 |
% |
|
|
17,580,874 |
|
|
|
25,974,958 |
|
|
|
0 |
% |
|
|
34,901 |
|
|
|
0 |
% |
Stinson
Dominion, L.P.(4) |
|
|
14,471,619 |
|
|
|
0 |
% |
|
|
17,580,874 |
|
|
|
25,974,958 |
|
|
|
0 |
% |
|
|
34,901 |
|
|
|
0 |
% |
Parkcentral Global Hub Limited(5) |
|
|
8,311,576 |
|
|
|
0 |
% |
|
|
4,381,684 |
|
|
|
6,473,743 |
|
|
|
0 |
% |
|
|
0 |
|
|
|
0 |
% |
Petrus Securities, L.P.(5) |
|
|
1,617,119 |
|
|
|
0 |
% |
|
|
854,209 |
|
|
|
1,262,056 |
|
|
|
0 |
% |
|
|
0 |
|
|
|
0 |
% |
Total |
|
$ |
24,400,314 |
|
|
|
0 |
% |
|
$ |
22,816,767 |
|
|
$ |
33,710,757 |
|
|
|
0 |
% |
|
|
34,901 |
|
|
|
0 |
% |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Shares of Common Stock |
|
|
|
|
|
Percentage of Common Stock |
|
|
Beneficially Owned Prior to the |
|
Shares of Common Stock Offered |
|
Outstanding after Completion of |
Name |
|
Offering (2) |
|
Hereby (2)(3) |
|
the Offering (1) |
Blum Strategic Partners II, L.P.(4) |
|
|
5,233,696 |
|
|
|
6,284,798 |
|
|
|
6.1 |
% |
Blum Strategic Partners II GmbH & Co.
KG(4) |
|
|
5,233,696 |
|
|
|
6,284,798 |
|
|
|
6.1 |
% |
Blum Capital Partners, L. P. |
|
|
5,233,696 |
|
|
|
6,284,798 |
|
|
|
6.1 |
% |
Stinson Capital Partners, L.P.(4) |
|
|
5,233,696 |
|
|
|
6,284,798 |
|
|
|
6.1 |
% |
Stinson Capital Partners (QP), L.P.(4) |
|
|
5,233,696 |
|
|
|
6,284,798 |
|
|
|
6.1 |
% |
Stinson Capital Partners II, L.P.(4) |
|
|
5,233,696 |
|
|
|
6,284,798 |
|
|
|
6.1 |
% |
Stinson
Dominion, L.P.(4) |
|
|
5,233,696 |
|
|
|
6,284,798 |
|
|
|
6.1 |
% |
Parkcentral Global Hub Limited(5) |
|
|
746,897 |
|
|
|
999,521 |
|
|
|
|
|
Petrus Securities, L.P.(5) |
|
|
131,417 |
|
|
|
194,162 |
|
|
|
|
|
Total |
|
|
6,112,010 |
|
|
|
7,478,481 |
|
|
|
5.8 |
% |
|
|
|
(1) |
|
With respect to the calculation for each securityholder, assumes all securities offered by
that securityholder have been issued and sold and that no securities issuable upon conversion
that are offered by any other securityholder have been issued. |
|
|
(2) |
|
Shares of Common Stock Beneficially Owned Prior to the Offering and Shares of Common Stock
Offered Hereby include shares of common stock the selling security holders will have the right
to acquire, upon conversion of senior convertible notes acquired on March 17, 2006 as follows:
Blum Strategic Partners II, L.P., 1,138,980 shares, Blum Strategic Partners II GmbH & Co. KG,
23,482 shares, Blum Capital Partners, L. P., 1,330 shares, Stinson Capital Partners, L.P.,
430,379 shares, Stinson Capital Partners (QP), L.P., 506,601 shares, Stinson Capital Partners
II, L.P., 464,985 shares, Stinson Dominion, L.P., 138,995 shares, Parkcentral Global Hub
Limited, 5 shares, and Petrus Securities, L.P., 131,417 shares.
Shares of Common Stock
Beneficially Owned Prior to the Offering includes shares of common stock the selling security
holders have the right to acquire upon conversion of series A convertible preferred stock
acquired on March 17, 2006, as follows: Blum Strategic Partners II, L.P., 677,704, shares,
Blum Strategic Partners II GmbH & Co. KG, 13,972 shares, Blum Capital Partners, L. P., 784
shares, Stinson Capital Partners, L.P., 256,058 shares, Stinson Capital Partners (QP), L.P.,
301,432 shares, Stinson Capital Partners II, L.P., 276,670 shares and Stinson Dominion, L.P.,
82,724 shares. Shares of Common Stock Beneficially Owned Prior to the Offering includes the following
shares of outstanding common stock: Blum Strategic Partners II, L.P., 827,640 shares, Blum
Strategic Partners II GmbH & Co. KG, 17,065 shares, Blum Capital Partners, L. P., 52 shares,
Stinson Capital Partners, L.P., 14,762 shares, Stinson Capital Partners (QP), L.P., 17,375
shares, Stinson Capital Partners II, L.P., 17,870 shares, Stinson Dominion, L.P., 4,767
shares, Blum Strategic Partners, L. P., 11,770 shares, BK Capital
Partners IV, L.P., 8,300 shares, and Parkcentral Global Hub Limited, shares. |
|
(3) |
|
Shares of Common Stock Offered Hereby also includes additional shares of common stock the
selling security holders will have the right to acquire, upon conversion of additional senior
convertible notes that may that may be issued in payment of interest thereon, as follows:
Blum Strategic Partners II, L.P., 543,812 shares, Blum |
|
79
|
|
|
|
|
|
Strategic Partners II GmbH & Co. KG,
11,211 shares, Blum Capital Partners, L. P., 635 shares, Stinson Capital Partners, L.P.,
205,487 shares, Stinson Capital Partners (QP), L.P., 241,879 shares, Stinson Capital Partners
II, L.P., 222,009 shares, Stinson Dominion, L.P., 66,364 shares, Parkcentral Global Hub
Limited, 321,855 shares, and Petrus Securities, L.P., 62,745 shares. Shares of Common
Stock Offered Hereby also includes shares of common stock the selling security holders will
have the right to acquire upon conversion of series A convertible preferred stock acquired on
March 17, 2006 in connection with securities that may be deemed to be
issued upon increase in the liquidation preference of the series A convertible preferred stock
in payment of dividends thereon: Blum Strategic Partners II, L.P., 286,059 shares, Blum
Strategic Partners II GmbH & Co. KG, 5,897 shares, Blum Capital
Partners, L. P., 331 shares and Stinson Capital Partners, L.P., 108,082 shares, Stinson Capital Partners (QP), L.P., 127,235
shares, Stinson Capital Partners II, L.P., 116,783 shares, and Stinson Dominion, L.P., 34,918
shares. |
|
(4) |
|
Blum Capital Partners, L.P. (BLUM L.P.) is a California limited partnership whose principal
business is acting as general partner for investment partnerships and providing investment
advisory services. BLUM L.P. is an investment advisor registered with the Securities and
Exchange Commission. The general partner of Stinson Capital Partners, L.P., Stinson Capital
Partners II, L.P., Stinson Capital Partners (QP), L.P. and Stinson Capital Partners S, L.P. is
BLUM L. P. As general partner, BLUM L.P. has voting and investment discretion with respect to
the securities owned by each of these entities. Therefore the securities may be deemed to be
owned indirectly by the following parties: (a) BLUM L.P., and (b) Richard C. Blum &
Associates, Inc., the sole general partner of BLUM L.P. Richard C. Blum & Associates, Inc.
and BLUM L.P. disclaim beneficial ownership of these securities, except to the extent of any
pecuniary interest therein. The general partner of Blum Strategic Partners II, L.P. and the
managing limited partner of Blum Strategic Partners II GmbH & Co. KG is Blum Strategic GP II,
L.L.C. As general partner and managing limited partner, Blum Strategic GP II, L.L.C. has
voting and investment discretion with respect to the securities owned by each of these
entities. Therefore the securities may be deemed to be owned indirectly by Blum Strategic GP
II, L. L.C. Blum Strategic GP II, L.L.C. disclaims beneficial ownership of these securities,
except to the extent of any pecuniary interest therein. BLUM L.P., Richard C. Blum &
Associates, Inc. and Blum Strategic GP II, L.L.C. share voting and dispositive power over the
securities reported. In addition to the shares of common stock referenced in footnotes (2)
and (3) above, the securities reported include the following: Blum Strategic Partners II,
L.P., $6,094,050 principal amount of senior notes, $10,938,146 principal amount of senior
convertible notes, and 14,697 shares of series A convertible preferred stock, Blum Strategic
Partners II GmbH & Co. KG, $125,640 principal amount of senior notes, $225,505 principal
amount of senior convertible notes, and 303 shares of series A convertible preferred stock,
Blum Capital Partners, L. P., $7,114 principal amount of senior notes, $12,771 principal amount
of senior convertible notes, and 17 shares of series A convertible preferred stock, Stinson
Capital Partners, L.P., $2,302,720 principal amount of senior notes, $4,133,128 principal
amount of senior convertible notes, and 5,553 shares of series A convertible preferred stock,
Stinson Capital Partners (QP), L.P., $2,710,539 principal amount of senior notes, $4,865,119
principal amount of senior convertible notes, and 6,537 shares of series A convertible
preferred stock, Stinson Capital Partners II, L.P., $2,487,874 principal amount of senior
notes, $4,465,460 principal amount of senior convertible notes, and 6,000 shares of series A
convertible preferred stock, and Stinson Dominion, L.P. $743,682 principal amount of
senior notes, $1,334,828 principal amount of senior convertible notes, and 1,794 shares of
series A convertible preferred stock. The principal office for each of Blum Strategic Partners
II, L.P., Blum Strategic Partners II GmbH & Co. KG, Blum Capital Partners, L. P., Stinson
Capital Partners, L.P., Stinson Capital Partners (QP), L.P., Stinson Capital Partners II,
L.P., and Stinson Dominion, L.P. (the Blum Sellers) is 909 Montgomery Street,
Suite 400, San Francisco, California 94133. Blum Strategic Partners, L. P., Stinson Capital
Fund (Cayman), Ltd., and BK Capital Partners IV, L.P., are affiliates of the Blum Sellers. |
|
|
(5) |
|
Parkcentral Capital Management, L.P. (Parkcentral Capital), a registered investment
adviser, acts as an investment adviser to various entities, including Parkcentral Global.
Pursuant to a investment advisory agreement between Parkcentral Capital and Parkcentral
Global, Parkcentral Capital has voting and investment (including dispositive) power with
respect to the Registered Securities owned by Parkcentral Global. Steven Blasnik is the
President of Parkcentral Capital. Hill Air Company I, LLC (Hill Air) is denominated as a
general partner of Petrus and has voting and investment (including dispositive) power with
respect to the Registered Securities owned by Petrus pursuant to the partnership agreement of
Petrus. Steven Blasnik is the President of Hill Air. |
80
To the best of our knowledge, the selling securityholders have no short positions in our
common stock except that Parkcentral Global Hub Limited and Petrus
Securities, L.P. hold a short position in our common stock of 309,666
and 42,500 shares, respectively. The selling securityholders have informed us that they are not broker-dealers or
affiliates of a broker-dealer (a broker-dealer may be a record holder of their securities). None
of the selling securityholders nor any of their affiliates, officers, directors or principal equity
holders has held any position or office or has had any material relationship with PRG-Schultz
within the past three years, except as described below.
Blum Capital Partners, L.P. and its affiliates obtained all securities offered by them hereby
in connection with the companys exchange offer for its convertible notes due 2006. Mr. N. Colin
Lind is a managing partner of Blum Capital Partners, L.P. (together with its affiliates, Blum).
Mr. Lind was a director of the company from May 2002 to October 2005, and was reelected to the
Board of Directors in March 2006 pursuant to an agreement with the Ad hoc bondholders committee
formed to negotiate the companys exchange offer and financial restructuring. Mr. Lind represented
Blum affiliates on the Ad hoc Bondholders Committee. Blum affiliates are lenders under the
companys current senior secured credit facility. Their participation in the loan is approximately
$7 million. Blum affiliates were also lenders under the Companys prior $10 million bridge loan
that was repaid on March 17, 2006. Their participation was approximately $6 million. In connection
with the foregoing, Blum received interest and commitment and origination fees of approximately
$236,000 in 2005 related to the bridge loan and approximately $152,000 in interest related to the
bridge loan in 2006. Blum received interest under our senior secured credit facility of
approximately $755,000 in 2006. In addition, the Ad hoc Bondholders Committee, of which Blum was a
member, was reimbursed for legal and financial advisory fees of approximately $498,354 in 2005 and
$2,043,083 in 2006. The Ad hoc bondholders committee had the contractual right to designate four
of the companys seven directors to be elected immediately following the closing of the exchange
offer.
As of November 14, 2005, the Company amended and restated its Standstill Agreement with Blum
to provide among other things that purchases of the Companys convertible notes due 2006 by Blum
would not violate the Standstill Agreement.
On March 17, 2006, Parkcentral Global Hub Limited and Petrus Securities, L.P. exchanged
$23,945,000 of the Companys convertible notes due November 2006 for $9,578,000 of senior notes,
$11,493,600 of senior convertible notes and 23,945 shares of series A convertible preferred stock,
in connection with the exchange offer. Parkcentral Global Hub Limited and Petrus Securities, L.P.
were also represented on the Ad hoc Bondholders Committee, are lenders under the Companys current
senior credit facility and were lenders under the Companys prior $10 million bridge loan. Their
participation in the senior credit facility is approximately $5 million and their participation in
the bridge loan was approximately $4 million. In connection with the foregoing, they received
interest and commitment and origination fees of approximately $174,000 in 2005 related to the
bridge loan and approximately $101,000 in interest related to the bridge loan in 2006. Parkcentral
and Petrus received interest under the senior secured credit facility of approximately $550,000 in
2006.
Information concerning other selling securityholders, including donees and pledgees of selling
securityholders, will be set forth in prospectus supplements, exchange act reports incorporated by
reference into the registration statement of which this prospectus forms a part or post effective
amendments from time to time, as necessary. Information concerning the securityholders may change
from time to time and any changed information will be set forth in supplements to this prospectus,
exchange act reports incorporated by reference into the registration statement of which this
prospectus forms a part or amendments to the registration statement, if and when necessary. In
addition, the conversion price, and therefore, the number of shares of common stock issuable upon
conversion of the notes, is subject to adjustment under certain circumstances. Accordingly, the
aggregate principal amount of notes and the number of shares of common stock into which the notes
are convertible may increase or decrease.
81
PLAN OF DISTRIBUTION
The selling securityholders and their successors, which term includes their transferees,
pledgees or donees or their successors may sell the notes, preferred stock and the underlying
common stock directly to purchasers or through underwriters, broker-dealers or agents, who may
receive compensation in the form of discounts, concessions or commissions from the selling
securityholders or the purchasers. These discounts, concessions or commissions as to any
particular underwriter, broker-dealer or agent may be in excess of those customary in the types of
transactions involved.
The notes, the preferred stock and the common stock may be sold in one or more transactions
at:
|
|
|
fixed prices, |
|
|
|
|
prevailing market prices at the time of sale, |
|
|
|
|
prices related to the prevailing market prices, |
|
|
|
|
varying prices determined at the time of sale, or |
|
|
|
|
negotiated prices. |
In the case of the common stock, these sales may be effected in transactions:
|
|
|
on any national securities exchange or quotation service on which our
common stock may be listed or quoted at the time of sale, including The Nasdaq National
Market, |
|
|
|
|
in the over-the-counter market, |
|
|
|
|
otherwise than on such exchanges or services or in the over-the-counter market, |
|
|
|
|
through the writing of options, whether the options are listed on an
options exchange or otherwise, or |
|
|
|
|
through the settlement of short sales. |
These transactions may include block transactions or crosses. Crosses are transactions in which
the same broker acts as agent on both sides of the trade.
In connection with the sale of the notes, the preferred stock and the underlying common stock
or otherwise, the selling securityholders may enter into hedging transactions with broker-dealers
or other financial institutions. These broker-dealers or financial institutions may in turn engage
in short sales of the securities in the course of hedging the positions they assume with selling
securityholders. The selling securityholders may also sell the notes, the preferred stock and the
underlying common stock short and deliver these securities to close out such short positions, or
loan or pledge the notes or the underlying common stock to broker-dealers that in turn may sell
these securities.
The aggregate proceeds to the selling securityholders from the sale of the notes, the
preferred stock or the underlying common stock offered by them hereby will be the purchase price of
such securities less discounts and commissions, if any. Each of the selling securityholders
reserves the right to accept and, together with their agents from time to time, to reject, in whole
or in part, any proposed purchase of notes, preferred stock or common stock to be made directly or
through agents. We will not receive any of the proceeds from this offering.
Our outstanding common stock is listed for trading on The Nasdaq Global Market. We do not
intend to list the notes or the preferred stock for trading on any national securities exchange,
including The Nasdaq Global Market, and can give no assurance about the development of any trading
market for the notes or preferred stock.
82
In order to comply with the securities laws of some states, if applicable, the notes, the
preferred stock and the underlying common stock may be sold in these jurisdictions only through
registered or licensed brokers or dealers. In addition, in some states the notes may not be sold
unless they have been registered or qualified for sale or an exemption from registration or
qualification requirements is available and is complied with.
The selling securityholders and any broker-dealers or agents that participate in the sale of
the notes, preferred stock and the underlying common stock may be deemed to be underwriters
within the meaning of Section 2(a)(11) of the Securities Act. Profits on the sale of the notes,
the preferred stock and the underlying common stock by selling securityholders and any discounts,
commissions or concessions received by any broker-dealers or agents might be deemed to be
underwriting discounts and commissions under the Securities Act. Selling securityholders who are
deemed to be underwriters within the meaning of Section 2(a)(11) of the Securities Act will be
subject to the prospectus delivery requirements of the Securities Act. To the extent the selling
securityholders are deemed to be underwriters, they may be subject to statutory liabilities,
including, but not limited to, liabilities under Sections 11, 12 and 17 of the Securities Act.
The selling securityholders and any other person participating in a distribution will be
subject to applicable provisions of the Exchange Act and the rules and regulations thereunder.
Regulation M of the Exchange Act may limit the timing of purchases and sales of the notes,
preferred stock or common stock by the selling securityholders and any other person. In addition,
Regulation M may restrict the ability of any person engaged in the distribution of these securities
to engage in market-making activities with respect to the particular securities being distributed
for a period of up to five business days before the distribution. The selling securityholders have
acknowledged that they understand their obligations to comply with the provisions of the Exchange
Act and the rules thereunder relating to stock manipulation, particularly Regulation M, and have
agreed that they will not engage in any transaction in violation of such provisions.
To our knowledge, there are currently no plans, arrangements or understandings between any
selling securityholder and any underwriter, broker-dealer or agent regarding the sale of the
securities offered hereby by the selling securityholders.
A selling securityholder may decide not to sell any notes, preferred stock or the underlying
common stock described in this prospectus. We cannot assure you that any selling securityholder
will use this prospectus to sell any or all of the notes, preferred stock or the underlying common
stock. Any securities covered by this prospectus which qualify for sale pursuant to Rule 144 or
Rule 144A of the Securities Act may be sold under Rule 144 or Rule 144A rather than pursuant to
this prospectus. In addition, a selling securityholder may transfer, devise or gift the notes,
preferred stock and the underlying common stock by other means not described in this prospectus.
With respect to a particular offering of the notes, preferred stock and the underlying common
stock, to the extent required, an accompanying prospectus supplement or, if appropriate, a
post-effective amendment to the registration statement of which this prospectus is a part will be
prepared and will set forth the following information:
|
|
|
the specific notes, preferred stock, or common stock to be offered and sold, |
|
|
|
|
the names of the selling securityholders, |
|
|
|
|
the respective purchase prices and public offering prices and other material terms of the offering, |
|
|
|
|
the names of any participating agents, broker-dealers or underwriters, and |
|
|
|
|
any applicable commissions, discounts, concessions and other items constituting
compensation from the selling securityholders. |
We entered into the registration rights agreement for the benefit of holders of the Registered
Securities to register their notes, preferred stock and the underlying common stock under
applicable federal securities laws under certain circumstances and at certain times. The
registration rights agreement provides that we and the selling securityholders will indemnify each
other and our respective directors, officers and controlling persons against
83
specific liabilities in connection with the offer and sale of the notes, preferred stock and the
underlying common stock, including liabilities under the Securities Act, or will be entitled to
contribution in connection with those liabilities. We will pay all of our expenses and specified
expenses incurred by the selling securityholders incidental to the registration, offering and sale
of the notes, preferred stock and the underlying common stock to the public, but each selling
securityholder will be responsible for payment of commissions, concessions, fees and discounts of
underwriters, broker-dealers and agents.
We are permitted to suspend the use of this prospectus in the event of certain pending
corporate developments, public filings with the SEC and similar events for a period not to exceed
30 days in any three-month period, but not to exceed an aggregate of 90 days in any 365 day period.
However, if the duration of such suspension exceeds any of the periods above-mentioned, we have
agreed to pay liquidated damages. Please refer to the section entitled Description of the Notes
Registration Rights.
If we have a stock split, stock dividend or similar transaction involving our common stock or
preferred stock and, as a result, the numbers of shares of our common stock issuable upon
conversion of the convertible notes or preferred stock increases, the registration statement that
includes this prospectus will cover the additional shares from that increase. However, if we
complete certain other transactions that cause an increase in the shares issuable upon conversion,
those additional shares may not be covered by this registration statement, and we may be required
to file additional registration statements to cover the additional shares.
CERTAIN TRANSACTIONS
David H. Cook, brother of John M. Cook, our previous Chairman of the Board of Directors,
President and Chief Executive Officer was employed by us during, and received cash compensation
for, 2004 of approximately $197,848. In addition, for 2004 performance, on March 4, 2005, David H.
Cook received a grant of 5,000 nonqualified stock options, granted at $4.95 per share, the fair
market value on the date of the grant. As of December 2005, these options were forfeited.
Maria A. Neff, the sister-in-law of John Toma, our previous Vice Chairman, was employed by us
as Executive Vice President Human Resources during 2004. Ms. Neffs cash compensation for 2004
was $255,000. In addition, for 2004 she received a grant of 25,000 nonqualified stock options,
granted at an exercise price of $4.16 per share, the fair market value on the date of the grant.
These options were forfeited in November, 2005. In February 2005 Ms. Neff received 40,000 shares
of restricted stock. These shares were forfeited in September 2005.
LEGAL MATTERS
Certain matters relating to the notes, preferred stock and the common stock are being passed
upon for us by Troutman Sanders LLP, 600 Peachtree St., NE, Suite 5200, Atlanta, Georgia. The
validity of the issuance of the notes, preferred stock and common stock and the common stock
issuable upon conversion of the preferred stock and notes was passed upon for us by Arnall Golden
Gregory LLP, 171 17th St., Suite 2100, Atlanta, Georgia.
EXPERTS
The consolidated financial statements and schedule of PRG as of December 31, 2006 have been
incorporated by reference into this prospectus and elsewhere in the registration statement in
reliance upon the report of BDO Seidman, LLP, independent registered public accounting firm,
incorporated by reference herein, and upon authority of said firm as experts in accounting and
auditing.
The consolidated financial statements and schedule of PRG as of December 31, 2005, and for
each of the years in the two-year period ended December 31, 2005, have been incorporated by
reference in this prospectus and elsewhere in the registration statement in reliance upon the
report of KPMG LLP, independent registered public accounting firm, incorporated by reference
herein, and upon the authority of said firm as experts in accounting and auditing.
The audit report covering the December 31, 2005 consolidated financial statements contains an
explanatory paragraph that states that we incurred significant losses in each of the years in the
two-year period ended
84
December 31, 2005, had a shareholders deficit of $102.4 million at December 31, 2005, and that the
realization of assets and the satisfaction of liabilities in the normal course of business are
dependent on, among other things, our ability to return to profitability, to complete planned
restructuring activities and to generate positive cash flows from operations, as well as
maintaining credit facilities adequate to conduct our business and that such matters raise
substantial doubt about our ability to continue as a going concern. The consolidated financial
statements do not include any adjustments that might result from the outcome of that uncertainty.
We have agreed to indemnify and hold KPMG harmless against and from any and all legal costs
and expenses incurred by KPMG in successful defense of any legal action or proceeding that arises
as a result of KPMGs consent to the incorporation by reference of its audit report on our past
financial statements into our registration statements, including the registration statement of
which this prospectus forms a part.
WHERE YOU CAN FIND MORE INFORMATION
We have filed with the Securities and Exchange Commission a registration statement on Form S-3
with respect to the securities to be sold by the selling securityholders in this offering. This
prospectus does not contain all the information included in the registration statement. In
addition, we file annual, quarterly and current reports, proxy and information statements and other
information with the Securities and Exchange Commission. You may read and copy any materials we
file at the SECs public reference room at 100 F Street, N.E., Washington, D.C. 20549. Please call
the SEC at 1-800-SEC-0330 for further information regarding the public reference room. Our SEC
filings, as well as reports, proxy and information statements and other information regarding other
issuers that file electronically with the SEC, are also available to the public at the SECs web
site at http://www.sec.gov. Our SEC filings are also available on our web site, at
http://www.prgx.com, or by going directly to
http://phx.corporate-ir.net/phoenix.zhtml?c=85608&p=irol-sec.
We have agreed that we will furnish to holders of the Registered Securities the information
required to be delivered pursuant to Rule 144A(d)(4) under the Securities Act of 1933 to permit
compliance with Rule 144A in connection with resales of the Registered Securities.
INCORPORATION BY REFERENCE
The rules of the Securities and Exchange Commission allow us to incorporate by reference
information that we file with them, which means that we can disclose important information to you
by referring you to those documents. The information incorporated by reference is an important part
of this prospectus, and information that we file later with the Securities and Exchange Commission
will automatically update and supersede this information. We incorporate by reference the documents
listed below and any future filings we will make with the Securities and Exchange Commission under
Sections 13(a), 13(c), 14 or 15(d) of the Securities Exchange Act of 1934 from the date hereof
until the offering is completed:
|
|
|
Annual Report on Form 10-K for the year ended December 31, 2006; |
|
|
|
|
Quarterly Report on Form 10-Q for the quarter ended March 31, 2007; |
|
|
|
|
Current Reports on Form 8-K filed on January 12, 2007, January 22, 2007,
January 31, 2007, March 16, 2007, March 27, 2007, March 30, 2007 and May 18, 2007. |
We will provide copies of these documents to any person, including a beneficial holder,
to whom this prospectus is delivered, a copy of any or all of the foregoing filings. You may
obtain a copy of these filings, excluding all exhibits unless we have specifically incorporated by
reference an exhibit in this prospectus or in a document incorporated by reference herein, at no
cost, by writing or telephoning:
PRG-Schultz International, Inc.
Victor A. Allums
600 Galleria Parkway
Suite 100
Atlanta, Georgia 30339
(770) 779-3900
email: Vic.Allums@prgx.com
85
PRG-SCHULTZ INTERNATIONAL, INC.
$24,400,314 in Principal Amount of 11.0% Senior Notes Due 2011
$22,816,767 in Principal Amount of 10.0% Senior Convertible Notes Due 2011
34,901 Shares ($4,571,343 Liquidation Preference which may increase
to up to $6,500,912 in
satisfaction of dividends otherwise payable in cash) of 9.0% Senior Series A
Convertible Participating Preferred Stock, and
3,561 Shares of Common Stock, No Par Value Per Share
This
prospectus may also be used to offer up to $10,893,990 in principal amount of additional
10.0% senior convertible notes that may be issued in payment of interest on outstanding 10.0%
senior notes, up to 7,474,900 shares of common stock issuable upon conversion of the 10.0% notes
and 9.0% senior series A preferred stock.
PROSPECTUS
YOU SHOULD RELY ONLY ON THE INFORMATION CONTAINED OR INCORPORATED BY REFERENCE IN THIS
PROSPECTUS. WE HAVE NOT AUTHORIZED ANYONE TO PROVIDE YOU WITH DIFFERENT INFORMATION.
YOU SHOULD NOT ASSUME THAT THE INFORMATION CONTAINED OR INCORPORATED BY REFERENCE IN
THIS PROSPECTUS IS ACCURATE AS OF ANY DATE OTHER THAN THE DATE OF THIS PROSPECTUS. WE ARE
NOT MAKING AN OFFER OF THESE SECURITIES IN ANY STATE WHERE THE OFFER IS NOT PERMITTED.
PART II
INFORMATION NOT REQUIRED IN PROSPECTUS
ITEM 14. Other Expenses of Issuance and Distribution
The following table sets forth the costs and expenses payable by the registrant in
connection with the resale of the senior notes, convertible notes, series A preferred stock and
common stock being registered. All of the amounts shown are estimates except the Securities and
Exchange Commission (the Commission) registration fee.
|
|
|
|
|
|
|
Amount |
|
Commission Registration Fee |
|
$ |
8,821.89 |
|
|
|
|
|
*Legal Fees and Expenses |
|
|
120,000.00 |
|
|
|
|
|
*Accounting Fees and Expenses. |
|
|
40,000.00 |
|
|
|
|
|
*Miscellaneous Expenses |
|
|
10,000.00 |
|
|
|
|
|
|
|
|
|
|
*Total |
|
$ |
178,821.89 |
|
|
|
|
|
ITEM 15. Indemnification of Directors and Officers
Legally Authorized Indemnification. Under the Companys articles, bylaws, and
Georgia law, the Company may indemnify (or obligate itself to indemnify, pursuant to an agreement
or otherwise) a director or officer for any liability or expenses incurred in any of several types
of legal proceedings and lawsuits, whether threatened, pending or completed; whether civil,
criminal, administrative, arbitrative, or investigative; and whether formal or informal.
However, the Company may not indemnify any director or officer who has been adjudged liable or
is subjected to injunctive relief for any of the following:
|
|
|
misappropriation of a business opportunity; |
|
|
|
|
intentional misconduct or a knowing violation of law; |
|
|
|
|
receipt of an improper personal benefit; or |
|
|
|
|
an unlawful distribution to shareholders (meaning a dividend or other
distribution that violates the Companys articles and/or certain capitalization
requirements of Georgia law). |
Advancement or reimbursement of expenses prior to a final disposition requires a written
affirmation that the foregoing criteria were met and an undertaking to repay any advances if it is
ultimately determined that the criteria were not met.
Legally Required Indemnification. Georgia law requires the Company to indemnify any
director who was wholly successful in defense of the proceeding for his or her reasonable expenses
incurred. The Companys bylaws also require indemnification of officers and directors under these
circumstances.
Indemnification Provided by Bylaws. The Companys bylaws require PRG-Schultz to
indemnify its directors and officers against liability incurred in the defense of any proceeding,
to which he or she was made a party by reason of the fact that he or she is or was a director or
officer of PRG-Schultz, if he or she acted in a manner he or she believed in good faith to be in,
or not opposed to, the best interest of PRG-Schultz, and with respect to any criminal proceeding,
had no reasonable cause to believe his or her conduct was unlawful. PRG-Schultz is also required
to provide advances of expenses incurred by a director or officer in defending such proceeding upon
receipt of a written affirmation of such officer or director that he or she has met certain
standards of conduct and an undertaking by or on behalf of such officer or director to repay such
advances if it is ultimately determined that he or she is not entitled to indemnification by
PRG-Schultz.
II-1
Indemnification required under the bylaws does not cover:
|
|
|
proceedings by (or in the right of) the Company for which he or she was adjudged liable; or |
|
|
|
|
proceedings in which he or she was held liable for improper receipt of a personal benefit. |
However, because the indemnification required by the bylaws is nonexclusive, the foregoing
limitation does not prevent the Company from indemnifying an officer or director for any
liabilities other than those specifically prohibited by Georgia law, as discussed above under
Legally Authorized Indemnification.
Indemnification Agreements. PRG-Schultz has entered into indemnification agreements
with each of its directors and certain executive officers (Indemnitees). Pursuant to such
agreements, subject to the restrictions on indemnification imposed by Georgia law discussed above,
under Legally Authorized Indemnification, PRG-Schultz is required to indemnify each Indemnitee
whenever he or she is or was a party or is threatened to be made a party to any proceeding
(including without limitation any such proceeding brought by or in the right of PRG-Schultz),
because he or she is or was a director or officer of PRG-Schultz (or because he or she is or was
serving at the request of PRG-Schultz in any of specified capacities for some other entity), or
because of anything done or not done by the Indemnitee in such capacity, against expenses and
liabilities (including the costs of any investigation, defense, settlement or appeal) actually and
reasonably incurred by the Indemnitee or on his or her behalf in connection with such proceeding,
if he or she acted in good faith and in a manner he or she reasonably believed to be in or not
opposed to the best interests of PRG-Schultz, and, with respect to any criminal action or
proceeding, had no reasonable cause to believe his or her conduct was unlawful. The termination of
any action suit or proceeding by judgment, order, settlement, conviction, or upon a plea of nolo
contendere or its equivalent, shall not, of itself, create a presumption that an Indemnitee did not
act in good faith and in a manner which he or she reasonably believed to be in or not opposed to
the best interests of PRG-Schultz, and, with respect to any criminal action or proceeding, had
reasonable cause to believe that his or her conduct was unlawful. The agreements also provide that
under certain circumstances all reasonable expenses incurred by or on behalf of such Indemnitee
shall be advanced from time to time by PRG-Schultz to the Indemnitee within a specified period
after PRG-Schultzs receipt of a written request for an advance of expenses by such Indemnitee,
whether prior to or after final disposition of a proceeding.
Indemnification for Securities Law Liabilities. Insofar as indemnification for
liabilities arising under the Securities Act of 1933 (the 1933 Act) may be permitted to
directors, officers or persons controlling PRG-Schultz pursuant to the foregoing provisions of the
Georgia Business Corporation Code and PRG-Schultzs articles of incorporation and bylaws,
PRG-Schultz has been informed that indemnification is considered by the Commission to be against
public policy and therefore unenforceable.
D&O Insurance. PRG-Schultz currently maintains an insurance policy which insures the
directors and officers of PRG-Schultz against certain liabilities, including certain liabilities
under the 1933 Act.
Indemnification under Stock Incentive Plan. Pursuant to PRG-Schultzs Stock Incentive
Plan (the Plan), in addition to such other rights of indemnification that they may have as
directors of PRG-Schultz or as members of the Compensation Committee of the Board of Directors of
PRG-Schultz (the Committee), and subject to applicable restrictions under Georgia law as
described above under Legally Authorized Indemnification, the members of the Committee shall be
indemnified by PRG-Schultz against the reasonable expenses, including attorneys fees actually and
necessarily incurred in connection with the defense of any action, suit or proceeding, or in
connection with any appeal thereof, to which they or any of them may be a party by reason of any
action taken or failure to act under or in connection with the Plan or any option granted
thereunder, and against all amounts paid by them in settlement thereof (provided such settlement is
approved by independent legal counsel selected by PRG-Schultz) or paid by them in satisfaction of a
judgment in any such action, suit or proceeding, except in relation to matters as to which it shall
be adjudged in such action, suit or proceeding that such Committee member is liable for negligence
or misconduct in the performance of his or her duties.
Elimination of Monetary Liability of Directors. Under the Companys articles of
incorporation, directors cannot be held personally liable to the Company or its shareholders for
monetary damages, except liability for:
II-2
|
|
|
misappropriation of a business opportunity; |
|
|
|
|
intentional misconduct or a knowing violation of law; |
|
|
|
|
receipt of an improper personal benefit; or |
|
|
|
|
an unlawful distribution to shareholders (meaning a dividend or other
distribution that violates the Companys articles and/or certain capitalization
requirements of Georgia law). |
II-3
ITEM 16. Exhibits.
|
|
|
Exhibit |
|
|
Number |
|
Description |
3.1
|
|
Restated Articles of Incorporation
of the Registrant, as amended and restated through August 11, 2006 (restated solely for the purpose of filing with the
Commission) (incorporated by reference to Exhibit 3.1 to the Registrants Report
on Form 8-K filed on August 17, 2006). |
|
|
|
3.2
|
|
Restated Bylaws of the Registrant (incorporated by reference to Exhibit 3.2 to the
Registrants Form 10-Q for the quarter ended September 30, 2005). |
|
|
|
4.1
|
|
Specimen Common Stock Certificate (incorporated by reference to Exhibit 4.1 to the
Registrants Form 10-K for the year ended December 31, 2001). |
II-4
|
|
|
Exhibit |
|
|
Number |
|
Description |
4.2
|
|
See Restated Articles of Incorporation and Bylaws of the Registrant, filed as
Exhibits 3.1 and 3.2, respectively. |
|
|
|
4.3
|
|
Shareholder Protection Rights Agreement, dated as of August 9, 2000, between the
Registrant and Rights Agent, effective May 1, 2002 (incorporated by reference to
Exhibit 4.3 to the Registrants Form 10-Q for the quarterly period ended June 30,
2002). |
|
|
|
4.3.1
|
|
First Amendment to Shareholder Protection Rights Agreement, dated as of March 12,
2002, between the Registrant and Rights Agent (incorporated by reference to
Exhibit 4.3 to the Registrants Form 10-Q for the quarterly period ended September
30, 2002). |
|
|
|
4.3.2
|
|
Second Amendment to Shareholder Protection Rights Agreement, dated as of August
16, 2002, between the Registrant and Rights Agent (incorporated by reference to
Exhibit 4.3 to the Registrants Form 10-Q for the quarterly period ended September
30, 2002). |
|
|
|
4.3.3
|
|
Third Amendment to Shareholder Protection Rights Agreement, dated as of November
7, 2006, between the Registrant and Rights Agent (incorporated by reference to
Exhibit 4.1 to the Registrants Form 8-K filed on November 14, 2005). |
|
|
|
4.3.4
|
|
Fourth Amendment to Shareholder Protection Rights Agreement, dated as of November
14, 2006, between the Registrant and Rights Agent (incorporated by reference to
Exhibit 4.1 to the Registrants Form 8-K filed on November 30, 2005). |
|
|
|
4.3.5
|
|
Fifth Amendment to Shareholder Protection Rights Agreement, dated as of March 9,
2006, between the Registrant and Rights Agent (incorporated by reference to
Exhibit 4.9 to the Registrants Form 10-K for the year ended December 31, 2005). |
|
|
|
4.4
|
|
Indenture dated November 26, 2001 by and between Registrant and Sun Trust Bank
(incorporated by reference to Exhibit 4.3 to Registrants Registration Statement
No. 333-76018 on Form S-3 filed December 27, 2001). |
|
|
|
4.5
|
|
Indenture dated as of March 17, 2006 governing 10% Senior Convertible Notes due
2011, with Form of Note appended (incorporated by reference to Exhibit 4.1 to the
Registrants Form 8-K filed on March 23, 2006). |
|
|
|
4.6
|
|
Indenture dated as of March 17, 2006 governing 11% Senior Notes due 2011, with
Form of Note appended (incorporated by reference to Exhibit 4.2 to the
Registrants Form 8-K filed on March 23, 2006). |
|
|
|
+5.1
|
|
Opinion of Arnall Golden Gregory LLP on legality of the securities offered. |
|
|
|
+8.1
|
|
Opinion of Arnall Golden Gregory LLP on certain tax matters. |
|
|
|
10.1
|
|
1996 Stock Option Plan, dated as of January 25, 1996, together with Forms of
Non-qualified Stock Option Agreement (incorporated by reference to Exhibit 10.2 to
the Registrants March 26, 1996 Registration Statement
No. 333-1086 on
Form S-1). |
|
|
|
10.2
|
|
Form of Indemnification Agreement between the Registrant and Directors and certain
officers, including named executive officers, of the Registrant (incorporated by
reference to Exhibit 10.4 to the Registrants Form 10-K for the year ended
December 31, 2003). |
|
|
|
10.3
|
|
Discussion of Management and Professional Incentive Plan (incorporated by
reference to Exhibit 10.27 to the Registrants Form 10-K for the year ended
December 31, 2000). |
|
|
|
10.4
|
|
Form of the Registrants Non-Qualified Stock Option Agreement (incorporated by
reference to Exhibit 10.2 to the Registrants Form 10-Q for the quarterly period
ended June 30, 2001). |
|
|
|
10.5
|
|
Noncompetition, Nonsolicitation and Confidentiality Agreement among The Profit
Recovery Group International, Inc., Howard Schultz & Associates International,
Inc., Howard Schultz, Andrew Schultz and certain trusts, dated January 24, 2002
(incorporated by reference to Exhibit 10.34 to the Registrants Form 10-K for the
year ended December 31, 2001). |
|
|
|
10.6
|
|
Office Lease Agreement between Galleria 600, LLC and PRG-Schultz International,
Inc. (incorporated by reference to Exhibit 10.43 to the Registrants Form 10-K for
the year ended December 31, 2001). |
|
|
|
10.6.1
|
|
First Amendment to Office Lease Agreement between Galleria 600, LLC and
PRG-Schultz International, Inc. (incorporated by reference to Exhibit 10.65 to the
Registrants Form 10-K for the year ended December 31, 2002). |
|
|
|
10. 7
|
|
Amended Stock Incentive Plan (incorporated by reference to Exhibit 10.3 to the
Registrants Form 10-Q for the quarterly period ended June 30, 2002). |
|
|
|
10.8
|
|
Amended HSA-Texas Stock Option Plan (incorporated by reference to Exhibit 10.4 to
the Registrants Form 10-Q for the quarterly period ended June 30, 2002). |
|
|
|
10.9
|
|
Investor Rights Agreement, dated as of August 27, 2002, among PRG-Schultz
International, Inc., Berkshire Fund V, LP, Berkshire Investors LLC and Blum
Strategic Partners II, L.P. (incorporated by reference to Exhibit 10.7 to the
Registrants Form 10-Q for the quarterly period ended September 30, 2002). |
II-5
|
|
|
Exhibit |
|
|
Number |
|
Description |
10.9.1
|
|
Amendment to Investor Rights Agreement dated March 28, 2006 (incorporated by
reference to Exhibit 10.8 to the Registrants Form 10-Q for the quarter ended
March 31, 2006). |
|
|
|
10.10
|
|
Registration Rights Agreement, dated as of August 27, 2002, by and between
PRG-Schultz International, Inc., Blum Strategic Partners II, L.P. and other
affiliates of Blum Capital Partners, LP (incorporated by reference to Exhibit 10.8
to the Registrants Form 10-Q for the quarterly period ended September 30, 2002). |
|
|
|
10.11
|
|
Registration Rights Agreement, dated as of August 27, 2002, by and between
PRG-Schultz International, Inc., Berkshire Fund V, LP and Berkshire Investors LLC
(incorporated by reference to Exhibit 10.9 to the Registrants Form 10-Q for the
quarterly period ended September 30, 2002). |
|
|
|
10.12
|
|
PRG Schultz International, Inc. 2004 Executive Incentive Plan as approved by
shareholders on May 18, 2004 (incorporated by reference to Exhibit 10.1 to the
Registrants Form 10-Q for the quarterly period ended June 30, 2004). |
|
|
|
10.13
|
|
Amended and Restated Credit Agreement among PRG-Schultz USA, Inc., PRG-Schultz
International, Inc. (PRGX), Certain Subsidiaries of PRGX from Time to Time Party
Thereto, and Bank of America, N.A., dated as of November 30, 2004 (as modified on
December 7, 2004) (incorporated by reference to Exhibit 10(a) to the Registrants
Report on Form 8-K filed on December 13, 2004). |
|
|
|
10.13.1
|
|
Forbearance Agreement dated December 23, 2005 between Registrant and Bank of
America, N.A. (incorporated by reference to Exhibit 10.64 to the Registrants Form
10-K for the year ended December 31, 2005). |
|
|
|
10.13.2
|
|
Amendment to Forbearance Agreement and Credit Agreement with Bank of America, N.A.
dated December 23, 2005 (incorporated by reference to Exhibit 10.65 to the
Registrants Form 10-K for the year ended December 31, 2005). |
|
|
|
10.14
|
|
Form of Non-employee Director Option Agreement (incorporated by reference to
Exhibit 99.1 to the Registrants Report on Form 8-K filed on February 11, 2005). |
|
|
|
|
10.15
|
|
Summary of compensation
arrangements with non-employee directors of the Registrant
(incorporated by reference to
Exhibit 10.15 to the Registrants
Form 10-K for the year ended December 31, 2006). |
|
|
|
10.16
|
|
Summary of compensation
arrangements with named executive officers of Registrant
(incorporated by reference to
Exhibit 10.16 to the Registrants
Form 10-K for the year ended December 31, 2006). |
|
|
|
|
*10.17
|
|
Medicare & Medicaid Services Contract dated March 7, 2005 (incorporated by
reference to Exhibit 10.8 to the Registrants Form 10-Q for the quarter ended
March 31, 2005). |
|
|
|
*10.18
|
|
Stipulation of Settlement dated as of February 8, 2005 (incorporated by reference
to Exhibit 10.9 to the Registrants Form 10-Q for the quarter ended March 31,
2005). |
|
|
|
10.18.1
|
|
Supplement to Settlement Agreement dated as of February 8, 2005 (incorporated by
reference to Exhibit 10.6 to the Registrants Form 10-Q for the quarter ended
September 30, 2005). |
|
|
|
10.19
|
|
Employment Agreement between Registrant and Mr. James B. McCurry, dated as of July
25, 2005 (incorporated by reference to Exhibit 99.3 to the Registrants Form 8-K
filed on July 25, 2005). |
|
|
|
10.19.1
|
|
Amendment to Employment Agreement with James B. McCurry dated December 8, 2005
(incorporated by reference to Exhibit 10.59 to the Registrants Form 10-K for the
year ended December 31, 2005). |
|
|
|
10.20
|
|
Retainer Agreement between Registrant and Mr. David A. Cole, dated as of July 20,
2005 (incorporated by reference to Exhibit 99.2 to the Registrants Form 8-K filed
on July 25, 2005). |
|
|
|
10.20.1
|
|
Amendment to Retainer Agreement with David A. Cole dated October 19, 2005
(incorporated by reference to Exhibit 10.67 to the Registrants Form 10-K for the
year ended December 31, 2005). |
|
|
|
10.21
|
|
Separation and Release Agreement between Registrant and Mr. John M. Cook, dated as
of August 2, 2005 (incorporated by reference to Exhibit 99.1 to Registrants Form
8-K filed on August 8, 2005). |
|
|
|
10.21.1
|
|
First Amendment to Separation and Release Agreement with John M. Cook dated March
16, 2006 (incorporated by reference to Exhibit 99.1 to the registrants Form 8-K
filed on March 22, 2006). |
|
|
|
10.22
|
|
Separation and Release Agreement between Registrant and Mr. John M. Toma, dated as
of August 2, 2005 (incorporated by reference to Exhibit 99.2 to Registrants Form
8-K filed on August 8, 2005). |
|
|
|
10.22.1
|
|
First Amendment to Separation and Release Agreement with John M. Toma dated March
16, 2006 (incorporated by reference to Exhibit 99.2 to the registrants Form 8-K
filed on March 22, 2006). |
II-6
|
|
|
Exhibit |
|
|
Number |
|
Description |
10.23
|
|
Separation and Release Agreement between Registrant and Mr. Richard J. Bacon,
dated as of October 25, 2005 (incorporated by reference to Exhibit 10.23 to the
Registrants Form 10-K for the year ended December 31, 2006). |
|
|
|
10.24
|
|
Release Agreement and Covenant Not to Sue between Registrant and Mr. James E.
Moylan, Jr., effective as of February 18, 2006 (incorporated by reference to
Exhibit 10.5 to the Registrants Form 10-Q for the quarter ended September 30,
2005). |
|
|
|
10.25
|
|
Employment Agreement between the Registrant and Peter Limeri entered into on
November 11, 2005 (incorporated by reference to Exhibit 99.1 to the Registrants
Form 8-K filed on November 17, 2005). |
|
|
|
10.26
|
|
Amended and Restated Standstill Agreement, dated as of November 14, 2005, between
Registrant and Blum Capital Partners, L.P. and certain of its affiliates, entered
into on November 23, 2005 (incorporated by reference to Exhibit 99.1 to the
Registrants Form 8-K filed on November 30, 2005). |
|
|
|
10.27
|
|
Vesting on December 15, 2005 of certain employee stock options outstanding as of
November 30, 2005 (incorporated by reference to Exhibit 10.60 to the Registrants
Form 10-K for the year ended December 31, 2005). |
|
|
|
10.28
|
|
Credit Agreement dated December 23, 2005 among the Registrant, certain of its U.S.
subsidiaries, Petrus Securities L.P., ParkCentral Global Hub Limited, Blum
Strategic Partners II GmbH & Co. Kg. and Blum Strategic Partners II, L.P.
(incorporated by reference to Exhibit 10.61 to the Registrants Form 10-K for the
year ended December 31, 2005). |
|
|
|
10.29
|
|
Security Agreement dated December 23, 2005 among the Registrant, certain of its
U.S. subsidiaries, Petrus Securities L.P., ParkCentral Global Hub Limited, Blum
Strategic Partners II GmbH & Co. Kg. and Blum Strategic Partners II, L.P.
(incorporated by reference to Exhibit 10.62 to the Registrants Form 10-K for the
year ended December 31, 2005). |
|
|
|
10.30
|
|
Pledge Agreement dated December 23, 2005 among the Registrant, certain of its U.S.
subsidiaries, Petrus Securities L.P., ParkCentral Global Hub Limited, Blum
Strategic Partners II GmbH & Co. Kg. and Blum Strategic Partners II, L.P.
(incorporated by reference to Exhibit 10.63 to the Registrants Form 10-K for the
year ended December 31, 2005). |
|
|
|
10.31
|
|
Forbearance Agreement dated December 23, 2005 between Registrant and Bank of
America, N.A. (incorporated by reference to Exhibit 10.64 to the Registrants Form
10-K for the year ended December 31, 2005). |
|
|
|
10.32
|
|
Amendment to Forbearance Agreement and Credit Agreement with Bank of America, N.A.
dated December 23, 2005 (incorporated by reference to Exhibit 10.65 to the
Registrants Form 10-K for the year ended December 31, 2005). |
|
|
|
10.33
|
|
Restructuring Support Agreement dated December 23, 2005 (incorporated by reference
to Exhibit 10.66 to the Registrants Form 10-K for the year ended December 31,
2005). |
|
|
|
10.33.1
|
|
Amended and Restated Restructuring Support Agreement (incorporated by reference to
Exhibit 10.1 to the Registrants Form 10-Q for the quarter ended March 31, 2006). |
|
|
|
10.34
|
|
Employment Agreement with Larry Robinson dated January 1, 2006 (incorporated by
reference to Exhibit 10.68 to the Registrants Form 10-K for the year ended
December 31, 2005). |
|
|
|
10.35
|
|
Employment Agreement with Brad Roos dated June 1, 2001 (incorporated by reference
to Exhibit 10.69 to the Registrants Form 10-K for the year ended December 31,
2005). |
|
|
|
10.36
|
|
Form of Expatriate Assignment Agreement with Brad Roos (incorporated by reference
to Exhibit 10.70 to the Registrants Form 10-K for the year ended December 31,
2005). |
|
|
|
10.37
|
|
Houlihan Lokey Agreement dated October 21, 2005 (incorporated by reference to
Exhibit 10.71 to the Registrants Form 10-K for the year ended December 31, 2005). |
|
|
|
10.37.1
|
|
Amendment Letter with Houlihan Lokey dated February 1, 2006 (incorporated by
reference to Exhibit 10.72 to the Registrants Form 10-K for the year ended
December 31, 2005). |
|
|
|
10.38
|
|
Rothschild Inc. Agreement dated as of September 14, 2005 (incorporated by
reference to Exhibit 10.73 to the Registrants Form 10-K for the year ended
December 31, 2005). |
|
|
|
10.38.1
|
|
Letter Agreement with Rothschild Inc. dated February 1, 2006 (incorporated by
reference to Exhibit 10.74 to the Registrants Form 10-K for the year ended
December 31, 2005). |
|
|
|
10.39
|
|
Registration Rights Agreement dated March 17, 2006 (incorporated by reference to
Exhibit 10.2 to the Registrants Form 10-Q for the quarter ended March 31, 2006). |
|
|
|
10.40
|
|
Financing Agreement dated March 17, 2006 (incorporated by reference to Exhibit
10.3 to the Registrants Form 10-Q for the quarter ended March 31, 2006). |
|
|
|
10.41
|
|
Security Agreement dated March 17, 2006 (incorporated by reference to Exhibit 10.4
to the Registrants Form 10-Q for the quarter ended March 31, 2006). |
II-7
|
|
|
Exhibit |
|
|
Number |
|
Description |
10.42
|
|
2006 Performance Bonus Plan (incorporated by reference to Exhibit 10.5 to the
Registrants Form 10-Q for the quarter ended March 31, 2006). |
|
|
|
10.43
|
|
Amended and Restated 2006 Management Incentive Plan (incorporated by reference to
Exhibit 10.1 to the Registrants Form 10-Q for the quarter ended September 30,
2006). |
|
|
|
10.43.1
|
|
Form of Performance Unit Agreement under 2006 Amended and Restated Management
Incentive Plan (incorporated by reference to Exhibit 10.2 to the Registrants Form
10-Q for the quarter ended September 30, 2006). |
|
|
|
10.44
|
|
Employment Agreement with Norman Lee White, dated June 19, 2006 (incorporated by
reference to Exhibit 10.1 to the Registrants Report on Form 8-K filed on June 20,
2006). |
|
|
|
10.45
|
|
Form of Non-Employee Director Stock Option Agreement (incorporated by reference to
Exhibit 10.1 to the Registrants Report on Form 8-K filed on September 27, 2006). |
|
|
|
10.46
|
|
Option Termination Agreement with James B. McCurry dated September 29, 2006
(incorporated by reference to Exhibit 10.1 to the Registrants Report on Form 8-K
filed on October 5, 2006). |
|
|
|
*10.47
|
|
2007 Performance Bonus Plan
(incorporated by reference to Exhibit 10.1 to the Registrants
Form 10-Q for the quarter ended March 31, 2007). |
|
|
|
12.1
|
|
Statement Regarding Computation of Ratio of Earnings to Fixed Charges. |
|
|
|
21.1
|
|
Subsidiaries of the Registrant (incorporated by reference to Exhibit 21.1 to the
Registrants Form 10-K for the year ended December 31, 2006). |
|
|
|
23.1
|
|
Consent of BDO Seidman, LLP |
|
|
|
23.2
|
|
Consent of KPMG LLP. |
|
|
|
+23.3
|
|
Consent of Arnall Golden Gregory LLP (included as part of Exhibit 5.1 hereto) |
|
|
|
+24.1
|
|
Power of Attorney (included in the signature page of the Registration Statement on
Form S-1 filed on June 2, 2006). |
|
|
|
|
* |
|
Confidential treatment, pursuant to 17 CFR Secs. §§ 200.80 and
240.24b-2, has been requested and/or granted regarding certain portions of the
indicated Exhibit, which portions have been filed separately with the
Commission. |
|
|
+ |
|
Previously filed. |
II-8
ITEM 17. Undertakings
(a) The undersigned Registrant hereby undertakes as follows:
(1) To file, during any period in which offers or sales are being made, a post-effective
amendment to this registration statement:
(i) To include any prospectus required by Section 10(a)(3) of the Securities Act;
(ii) To reflect in the prospectus any facts or events arising after the effective date of the
registration statement (or the most recent post-effective amendment thereof) which, individually or
in the aggregate, represent a fundamental change in the information set forth in the registration
statement. Notwithstanding the foregoing, any increase or decrease in volume of securities offered
(if the total dollar value of securities offered would not exceed that which was registered) and
any deviation from the low or high end of the estimated maximum offering range may be reflected in
the form of prospectus filed with the Commission pursuant to Rule 424(b) if, in the aggregate, the
changes in volume and price represent no more than 20% change in the maximum aggregate offering
price set forth in the Calculation of Registration Fee table in the effective registration
statement.; and
(iii) To include any material information with respect to the plan of distribution not
previously disclosed in the registration statement or any material change to such information in
the registration statement;
Provided
however, that paragraphs (a)(1)(i), (a)(1)(ii) and (a)(1)(iii) of this section do not apply if the information
required to be included in a post-effective amendment by those paragraphs is contained in reports
filed with or furnished to the Commission by the Registrant pursuant to Section 13 or Section 15(d)
of the Securities Exchange Act of 1934 that are incorporated by reference in the registration
statement, or is contained in a form of prospectus filed pursuant to Rule 424(b) that is part of
the registration statement.
(2) That, for the purpose of determining any liability under the Securities Act, each such
post-effective amendment shall be deemed to be a new registration statement relating to the
securities offered therein, and the offering of such securities at that time shall be deemed to be
the initial bona fide offering thereof.
(3) To remove from registration by means of a post-effective amendment any of the securities
being registered which remain unsold at the termination of the offering.
(4) That, for the purpose of determining liability under the Securities Act of 1933 to any
purchaser:
(i) If the Registrant is relying on Rule 430B:
A. Each prospectus filed by the Registrant pursuant to Rule 424(b)(3)shall be deemed to be
part of the registration statement as of the date the filed prospectus was deemed part of and
included in the registration statement; and
B. Each prospectus required to be filed pursuant to Rule 424(b)(2), (b)(5), or (b)(7) as part
of a registration statement in reliance on Rule 430B relating to an offering made pursuant to Rule
415(a)(1)(i), (vii), or (x) for the purpose of providing the information required by section 10(a)
of the Securities Act of 1933 shall be
II-9
deemed to be part of and included in the registration
statement as of the earlier of the date such form of prospectus is first used after effectiveness
or the date of the first contract of sale of securities in the offering described in the
prospectus. As provided in Rule 430B, for liability purposes of the issuer and any person that is
at that date an underwriter, such date shall be deemed to be a new effective date of the
registration statement relating to the securities in the registration statement to which that
prospectus relates, and the offering of such securities at that time shall be deemed to be the
initial bona fide offering thereof. Provided, however, that no statement made in a registration
statement or prospectus that is part of the registration statement or made in a document
incorporated or deemed incorporated by reference into the registration statement or prospectus that
is part of the registration statement will, as to a purchaser with a time of contract of sale prior
to such effective date, supersede or modify any statement that was made in the registration
statement or prospectus that was part of the registration statement or made in any such document
immediately prior to such effective date; or
(ii) If the registrant is subject to Rule 430C, each prospectus filed pursuant to Rule 424(b)
as part of a registration statement relating to an offering, other than registration statements
relying on Rule 430B or other than prospectuses filed in reliance on Rule 430A, shall be deemed to
be part of and included in the registration statement as of the date it is first used after
effectiveness. Provided, however, that no statement made in a registration statement or prospectus
that is part of the registration statement or made in a document incorporated or deemed
incorporated by reference into the registration statement or prospectus that is part of the
registration statement will, as to a purchaser with a time of contract of sale prior to such first
use, supersede or modify any statement that was made in the registration statement or prospectus
that was part of the registration statement or made in any such document immediately prior to such
date of first use.
(b) The undersigned registrant hereby undertakes that, for purposes of determining any
liability under the Securities Act of 1933, each filing of the Registrants annual report pursuant
to Section 13(a) or 15(d) of the Securities Exchange Act of 1934 (and, where applicable, each
filing of an employee benefit plans annual report pursuant to Section 15(d) of the Securities
Exchange Act of 1934) that is incorporated by reference in the registration statement shall be
deemed to be a new registration statement relating to the securities offered therein, and the
offering of such securities at that time shall be deemed to be the initial bona fide offering
thereof.
(c) Insofar as indemnification for liabilities arising under the Securities Act may be
permitted to directors, officers and controlling persons of the Registrant pursuant to the
foregoing provisions, or otherwise, the Registrant has been advised that in the opinion of the SEC
such indemnification is against public policy as expressed in the Securities Act and is, therefore,
unenforceable. In the event that a claim for indemnification against such liabilities (other than
the payment by the Registrant of expenses incurred or paid by a director, officer or controlling
person of the Registrant in the successful defense of any action, suit or proceeding) is asserted
by such director, officer or controlling person in connection with the securities being registered,
the Registrant will, unless in the opinion of its counsel the matter has been settled by
controlling precedent, submit to a court of appropriate jurisdiction the question whether such
indemnification by it is against public policy as expressed in the Securities Act and will be
governed by the final adjudication of such issue.
II-10
SIGNATURES
Pursuant
to the requirements of the Securities Act of 1933, the registrant
certifies that it has reasonable grounds to believe it meets all of
the requirements for filing on Form S-3 and has duly
caused this Registration Statement to be signed on its behalf by the undersigned, thereunto duly
authorized in the City of Atlanta, State of Georgia, on June 1, 2007.
|
|
|
|
|
|
PRG-SCHULTZ INTERNATIONAL, INC.
|
|
|
By: |
/s/ JAMES B. MCCURRY
|
|
|
|
James B. McCurry |
|
|
|
President, Chief Executive Officer and
Chairman of the Board
(Principal Executive Officer) |
|
|
Pursuant to the requirements of the Securities Act of 1933, this Registration Statement has
been signed by the following persons in the capacities and on the dates indicated.
|
|
|
|
|
Signature |
|
Title |
|
Date |
|
|
|
|
|
/s/ JAMES B. MCCURRY
|
|
President, Chief Executive Officer |
|
|
James B. McCurry
|
|
and Chairman of the Board
(Principal Executive Officer)
|
|
June 1, 2007 |
|
|
|
|
|
/s/ PETER LIMERI
|
|
Chief Financial Officer and Treasurer
|
|
June 1, 2007 |
Peter Limeri
|
|
(Principal Financial Officer) |
|
|
|
|
|
|
|
/s/ ROBERT B. LEE
|
|
Senior Vice President Finance and Controller
|
|
June 1, 2007 |
Robert B. Lee
|
|
(Principal Accounting Officer) |
|
|
|
|
|
|
|
*
|
|
Director
|
|
June 1, 2007 |
David A. Cole |
|
|
|
|
|
|
|
|
|
*
|
|
Director
|
|
June 1, 2007 |
Eugene I. Davis |
|
|
|
|
|
|
|
|
|
*
|
|
Director
|
|
June 1, 2007 |
Patrick G. Dills |
|
|
|
|
|
|
|
|
|
*
|
|
Director
|
|
June 1, 2007 |
N. Colin Lind |
|
|
|
|
|
|
|
|
|
*
|
|
Director
|
|
June 1, 2007 |
Philip J. Mazzilli, Jr. |
|
|
|
|
|
|
|
|
|
*
|
|
Director
|
|
June 1, 2007 |
Steven Rosenberg |
|
|
|
|
|
|
|
|
|
*by:
|
|
/s/ Victor A. Allums
Victor A. Allums
|
|
|
|
|
Attorney-in-Fact |
|
|
II-11
EXHIBIT INDEX
|
|
|
Exhibit |
|
|
Number |
|
Description |
12.1
|
|
Statement Regarding Computation of Ratio of Earnings to Fixed Charges. |
|
|
|
23.1
|
|
Consent of BDO Seidman, LLP |
|
|
|
23.2
|
|
Consent of KPMG LLP. |