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AS FILED WITH THE SECURITIES AND EXCHANGE COMMISSION ON SEPTEMBER 7, 2001
REGISTRATION NO. 333-
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SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
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FORM S-4
REGISTRATION STATEMENT
UNDER
THE SECURITIES ACT OF 1933
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THE PROFIT RECOVERY GROUP INTERNATIONAL, INC.
(Exact name of registrant as specified in its charter)
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GEORGIA 8700 58-2213805
(State or other jurisdiction of (Primary Standard Industrial (I.R.S. Employer
incorporation or organization) Classification Code Number) Identification No.)
2300 WINDY RIDGE PARKWAY
SUITE 100 NORTH
ATLANTA, GEORGIA 30339-8426
(770) 779-3900
(Address, including zip code, telephone number, including
area code, of registrant's principal executive offices)
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CLINTON MCKELLAR, JR., ESQ.
2300 WINDY RIDGE PARKWAY
SUITE 100 NORTH
ATLANTA, GEORGIA 30339-8426
(770) 779-3900
(Name, address, including zip code, and telephone number, including area code,
of agent for service)
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COPIES TO:
B. JOSEPH ALLEY, JR., ESQ. CURTIS SWINSON, ESQ.
ARNALL GOLDEN GREGORY LLP MALOUF LYNCH JACKSON & SWINSON
2800 ONE ATLANTIC CENTER 600 PRESTON COMMONS EAST
1201 WEST PEACHTREE STREET 8115 PRESTON ROAD
ATLANTA, GEORGIA 30309-3450 DALLAS, TEXAS 75225
(404) 873-8500 (214) 273-0600
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APPROXIMATE DATE OF COMMENCEMENT OF PROPOSED SALE TO THE PUBLIC: As soon as
practicable after the effective date of the registration statement and all other
conditions precedent to the acquisition of the assets of Howard Schultz &
Associates International, Inc. ("HSA-Texas") and the acquisition of
substantially all of the outstanding stock of HS&A International Pte Ltd. and
all of the outstanding stock of Howard Schultz & Associates (Asia) Limited,
Howard Schultz & Associates (Australia), Inc. and Howard Schultz & Associates
(Canada), Inc., by the registrant have been satisfied or waived as described in
the agreement and plan of reorganization dated as of August 3, 2001, attached as
Annex A to the joint proxy statement/prospectus and the agreement and plan of
reorganization pursuant to Section 368(a)(1)(B) of the Internal Revenue Code
dated as of August 3, 2001, attached as Annex B to the joint proxy
statement/prospectus, each forming a part of this registration statement.
If the securities being registered on this Form are being offered in
connection with the formation of a holding company and there is compliance with
General Instruction G, check the following box. [ ]
If this Form is filed to register additional securities for an offering
pursuant to Rule 462(b) 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. [ ]
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. [ ]
CALCULATION OF REGISTRATION FEE
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PROPOSED PROPOSED
AMOUNT MAXIMUM MAXIMUM AMOUNT OF
TITLE OF EACH CLASS OF TO BE OFFERING PRICE AGGREGATE REGISTRATION
SECURITIES TO BE REGISTERED(1) REGISTERED(2) PER SHARE(3) OFFERING PRICE(3) FEE(3)
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Common Stock, no par value per share........ 15,538,462 Shares $13.89 $215,829,237.18 $53,957.31
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Options to purchase Common Stock............ 1,678,826 Shares $13.89 $23,318,893.14 $5,829.72
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(1) This registration statement relates to the common stock, no par value per
share, of The Profit Recovery Group International, Inc. ("PRG") to be issued
to HSA-Texas and the shareholders of certain of its affiliated foreign
operating companies and options to purchase shares of PRG common stock to be
issued in connection with the assumption by PRG of all outstanding HSA-Texas
options held by persons who are offered and accept employment with PRG or
engagement as an independent contractor of PRG or who agree to serve on
PRG's board of directors.
(2) Represents the maximum number of shares of common stock and options
exercisable into shares of common stock of the registrant to be delivered to
HSA-Texas, the shareholders of certain of its affiliates and certain
HSA-Texas optionholders pursuant to the transactions described herein.
(3) Calculated pursuant to Rules 457(c) and 457(h), under the Securities Act
based upon the average of the high and low sales prices of the registrant's
common stock on August 30, 2001 as quoted on The Nasdaq National Market.
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THE REGISTRANT HEREBY AMENDS THIS REGISTRATION STATEMENT ON SUCH DATE OR
DATES AS MAY BE NECESSARY TO DELAY ITS EFFECTIVE DATE UNTIL THE REGISTRANT SHALL
FILE A FURTHER AMENDMENT WHICH SPECIFICALLY STATES THAT THIS REGISTRATION
STATEMENT SHALL THEREAFTER BECOME EFFECTIVE IN ACCORDANCE WITH SECTION 8(a) OF
THE SECURITIES ACT OR UNTIL THIS REGISTRATION STATEMENT SHALL BECOME EFFECTIVE
ON SUCH DATE AS THE COMMISSION ACTING PURSUANT TO SAID SECTION 8(a), MAY
DETERMINE.
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PRG LOGO
THE PROFIT RECOVERY GROUP INTERNATIONAL, INC.
2300 WINDY RIDGE PARKWAY
SUITE 100 NORTH
ATLANTA, GEORGIA 30339-8426
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NOTICE OF SPECIAL MEETING OF SHAREHOLDERS
TO BE HELD ON , 2001
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To the Shareholders of
The Profit Recovery Group International, Inc.
NOTICE IS HEREBY GIVEN that a Special Meeting of Shareholders of The Profit
Recovery Group International, Inc. ("PRG") will be held on ,
, 2001 at a.m. local time at the , for the
following purposes:
1. To consider and vote upon the proposed issuance by PRG of an
aggregate of up to 15,538,462 shares of its common stock and options to
purchase an indeterminate number of shares of its common stock, not to
exceed 1,678,826 shares, in connection with the proposed acquisition by PRG
of substantially all of the assets of Howard Schultz & Associates
International, Inc. ("HSA-Texas") and the concurrent acquisition by PRG of
substantially all of the outstanding stock of HS&A International Pte Ltd.
and all of the outstanding stock of Howard Schultz & Associates (Asia)
Limited, Howard Schultz & Associates (Australia), Inc. and Howard Schultz &
Associates (Canada), Inc., each an affiliated foreign operating company of
HSA-Texas; and pursuant to the terms of the proposed acquisitions, the
election of Howard Schultz and Andrew Schultz as Class II directors, Nate
Levine as a Class I director and Arthur Budge, Jr. as a Class III director,
conditioned upon closing of the proposed acquisitions.
2. To transact any other matters as may properly come before this
special meeting, including any motion to adjourn to a later time to permit
further solicitation of proxies, if necessary to establish a quorum or to
obtain additional votes in favor of the proposed acquisitions, or for any
postponements or adjournments thereof.
The foregoing proposed acquisitions are more fully described in the
accompanying joint proxy statement/prospectus. The PRG board of directors
unanimously recommends that PRG shareholders vote in favor of the proposed share
and option issuances described above and the election of the nominated
directors.
The PRG board of directors fixed the close of business on ,
2001 as the record date for the determination of PRG shareholders entitled to
notice of and to vote at the PRG special meeting and at any postponements or
adjournments thereof.
To ensure that your PRG shares are represented at the PRG special meeting,
please complete, date and sign the enclosed PRG proxy card and return it
promptly to PRG in the enclosed postage paid envelope whether or not you plan to
attend the PRG special meeting. If you attend the PRG special meeting, you may
revoke your proxy and vote in person.
By Order of the Board of Directors
/S/ John M. Cook
John M. Cook
Chairman of the Board and Chief
Executive Officer
Atlanta, Georgia
, 2001
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THE INFORMATION IN THIS JOINT PROXY STATEMENT/PROSPECTUS IS NOT COMPLETE AND MAY
CHANGE. THE REGISTRANT MAY NOT ISSUE THE COMMON STOCK TO BE ISSUED IN CONNECTION
WITH THE TRANSACTIONS DESCRIBED IN THIS JOINT PROXY STATEMENT/PROSPECTUS UNTIL
THE REGISTRATION STATEMENT FILED WITH THE SECURITIES AND EXCHANGE COMMISSION IS
EFFECTIVE. THIS JOINT PROXY STATEMENT/PROSPECTUS IS NOT AN OFFER TO SELL THESE
SECURITIES AND IT IS NOT SOLICITING AN OFFER TO BUY THESE SECURITIES IN ANY
STATE WHERE THE OFFER OR SALE IS NOT PERMITTED.
SUBJECT TO COMPLETION, DATED SEPTEMBER 7, 2001
(PRG LOGO) The Profit Recovery Group (HSA-Texas Logo)
International
The Profit Recovery Group International, Inc. ("PRG") proposes to acquire
for up to 15,538,462 shares of its common stock substantially all of the assets
of Howard Schultz & Associates International, Inc. ("HSA-Texas"), substantially
all of the outstanding stock of HS&A International Pte Ltd. ("HSA-Singapore")
and all of the outstanding stock of Howard Schultz & Associates (Asia) Limited
("HSA-Asia"), Howard Schultz & Associates (Australia), Inc. ("HSA-Australia")
and Howard Schultz & Associates (Canada), Inc. ("HSA-Canada"), each an
affiliated foreign operating company of HSA-Texas, pursuant to an agreement and
plan of reorganization in connection with the asset acquisition and an agreement
and plan of reorganization in connection with the stock acquisition. In
addition, PRG expects to issue options to purchase an indeterminate number of
shares of PRG common stock, not to exceed 1,678,826 shares, in connection with
the assumption of certain options to purchase HSA-Texas common stock.
The board of directors of PRG has unanimously approved the asset and stock
agreements, the proposed issuance of shares of PRG common stock and options to
purchase PRG common stock described above, and the nomination of Mr. Howard
Schultz, Mr. Andrew Schultz, Mr. Arthur Budge, Jr. and Mr. Nate Levine to serve
as directors of PRG, conditioned upon the closing of the proposed acquisitions,
and recommends that PRG shareholders vote for approval of the proposed share and
option issuances and in favor of the four director nominees. Likewise, the board
of directors of HSA-Texas has unanimously approved the asset agreement and the
sale of substantially all of HSA-Texas' assets to PRG, and has recommended that
holders of HSA-Texas voting common stock vote for approval of the asset
agreement.
The proposed acquisitions cannot be completed unless the shareholders of
PRG approve the share and option issuances and elect the four nominees for
director, the holders of HSA-Texas voting common stock approve and affirm the
asset agreement and the shareholders of HSA-Singapore, HSA-Asia, HSA-Australia
and HSA-Canada accept the offer contained herein and affirm the stock agreement.
PRG has scheduled a special meeting for PRG shareholders to vote on the proposed
share and option issuances and the election of the director nominees. Each
Shareholder's Vote Is Very Important.
Only shareholders of record of PRG common stock as of , 2001 are
entitled to attend and vote at the PRG special meeting. The date, time and place
of the PRG meeting is as follows:
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If you are a PRG shareholder, whether or not you plan to attend the
meeting, please complete and mail the enclosed PRG proxy card to PRG. If you
sign, date and mail your PRG proxy card without indicating how you want to vote,
your PRG proxy will be counted as a vote in favor of the proposed share and
option issuances and for the election of the director nominees. If you are an
HSA-Texas shareholder or a shareholder of an affiliated foreign operating
company of HSA-Texas, you are not required to return a proxy card to HSA-Texas
because HSA-Texas and its affiliates are not soliciting proxies; however, PRG is
offering shares of its common stock to HSA-Texas and its shareholders and to
shareholders of the affiliated foreign operating companies.
This joint proxy statement/prospectus provides PRG shareholders, HSA-Texas,
HSA-Texas shareholders and shareholders of the affiliated foreign operating
companies with detailed information about the proposed share and option
issuances. We encourage PRG shareholders, HSA-Texas, HSA-Texas shareholders and
shareholders of the affiliated foreign operating companies to read this entire
document carefully. In addition, PRG shareholders, HSA-Texas, HSA-Texas
shareholders and shareholders of the affiliated foreign operating companies may
obtain information about PRG from documents that PRG has filed with the
Securities and Exchange Commission. PRG's common stock trades on The Nasdaq
National Market under the symbol "PRGX."
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John M. Cook, Chairman of the Board and Howard Schultz, Chairman of the Board and
CEO CEO
The Profit Recovery Group International, Howard Schultz & Associates
Inc. International, Inc.
AN INVESTMENT IN PRG COMMON STOCK IS SUBJECT TO RISK. SEE "RISK FACTORS"
BEGINNING ON PAGE 27.
NEITHER THE SEC NOR ANY STATE SECURITIES COMMISSION HAS APPROVED OR DISAPPROVED
THE PRG COMMON STOCK TO BE ISSUED UNDER THIS JOINT PROXY STATEMENT/PROSPECTUS OR
DETERMINED IF THIS JOINT PROXY STATEMENT/PROSPECTUS IS ACCURATE OR ADEQUATE. ANY
REPRESENTATION TO THE CONTRARY IS A CRIMINAL OFFENSE.
This joint proxy statement/prospectus is dated , 2001, and is
being first mailed to PRG shareholders on or about , 2001.
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TABLE OF CONTENTS
PAGE
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WHERE YOU CAN FIND MORE INFORMATION......................... 1
SUMMARY..................................................... 3
QUESTIONS AND ANSWERS ABOUT THE PROPOSED ACQUISITIONS..... 3
ADDITIONAL SUMMARY INFORMATION............................ 12
The Companies.......................................... 12
Reasons for the Proposed Acquisitions.................. 13
Recommendations of the Boards of Directors............. 13
Opinion of Financial Advisor to PRG.................... 13
Shareholder Approvals.................................. 14
The Special Meetings................................... 14
Interests of Directors and Officers of HSA-Texas in the
Proposed Acquisitions................................. 14
Accounting Treatment................................... 15
Regulatory Approvals................................... 15
Dissenters' Rights..................................... 15
Limitation on Considering Other Acquisition
Proposals............................................. 15
Lender Approvals....................................... 15
Conditions to the Asset Agreement...................... 16
Termination of the Asset Agreement..................... 16
Termination Fees....................................... 16
Expenses............................................... 17
Comparative Per Share Market Price..................... 17
Unaudited Comparative Per Share Data................... 17
Historical Market Prices of PRG Common Stock........... 20
PRG Selected Consolidated Financial Information........ 21
HSA-Texas Selected Combined Financial Information...... 25
THE PROFIT RECOVERY GROUP INTERNATIONAL, INC. SUMMARY
SELECTED UNAUDITED PRO FORMA COMBINED FINANCIAL
INFORMATION................................................. 26
RISK FACTORS................................................ 27
Risks Relating to the Proposed Acquisitions............... 27
Risks Relating to PRG's Business Following the Proposed
Acquisitions........................................... 34
FORWARD-LOOKING STATEMENTS MAY PROVE INACCURATE............. 39
THE PRG SPECIAL MEETING..................................... 41
Purpose, Time and Place................................... 41
Record Date; Voting Power................................. 41
Share Ownership of Management............................. 41
Voting of Proxies......................................... 42
Revocability of Proxies................................... 42
Solicitation of Proxies................................... 42
Recommendation of the Board of Directors.................. 42
THE HSA-TEXAS SPECIAL MEETING............................... 44
Purpose, Time and Place................................... 44
Record Date; Voting Power................................. 44
Share Ownership of Management............................. 44
Recommendation of the Board of Directors.................. 44
THE PROPOSED ACQUISITIONS................................... 45
Background of the Proposed Acquisitions................... 45
Reasons for the Proposed Acquisitions..................... 45
Acquisition of Howard Schultz & Associates (International)
Ltd. and Howard Schultz & Partner (Deutschland) GmbH... 48
Acquisition of the Direct to Store Delivery Audit
Operations............................................. 48
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Opinion of PRG's Financial Advisor........................ 49
Potential Conflicts of Interest of Directors and Officers
of HSA-Texas in the Proposed Acquisitions.............. 54
Effective Date............................................ 54
Regulatory Approvals...................................... 54
Lender Approvals.......................................... 55
Assumption of HSA-Texas Indebtedness...................... 55
Material U.S. Federal Income Tax Consequences Relating to
the Proposed Acquisitions.............................. 55
Accounting Treatment...................................... 59
PRG Rights Plan........................................... 59
Dissenters' and Appraisal Rights Related to the Proposed
Acquisitions........................................... 60
Board of Directors and Management Following Proposed
Acquisitions........................................... 62
NASDAQ Listing............................................ 63
Federal Securities Law Consequences....................... 63
MATERIAL TERMS OF THE ASSET AGREEMENT....................... 65
Assets To Be Acquired..................................... 65
Excluded Assets........................................... 65
Assumed Liabilities....................................... 65
Retained Liabilities...................................... 66
Purchase Price............................................ 67
HSA-Texas Stock Options and SARs.......................... 68
Effect of Asset Agreement on HSA-Texas Shareholders....... 69
Shareholder Representative................................ 69
Expected Closing of the Proposed Acquisition.............. 69
Representations and Warranties............................ 70
Covenants and Agreements.................................. 71
Indemnification by HSA-Texas and PRG...................... 72
Conditions to Closing..................................... 73
Limitation on HSA-Texas' and PRG's Ability to Consider
Other Acquisition Proposals............................ 74
Termination of the Asset Agreement........................ 76
Termination Fees.......................................... 77
Expenses.................................................. 78
Amendment; Waiver......................................... 79
MATERIAL TERMS OF THE STOCK AGREEMENT....................... 80
Purchase Price; Closing................................... 80
Effect of Stock Agreement on Shareholders of Affiliated
Foreign Operating Companies............................ 80
Shareholder Representative................................ 80
Representations and Warranties............................ 80
Covenants and Agreements.................................. 81
Indemnification........................................... 82
Conditions to Closing..................................... 83
Termination of the Stock Agreement........................ 84
Amendment; Waiver......................................... 84
OTHER RELATED AGREEMENTS.................................... 86
Shareholder Agreement..................................... 86
Registration Rights Agreement............................. 87
Indemnification Agreement................................. 88
Escrow Agreement.......................................... 89
Employment Agreements..................................... 90
Noncompetition Agreement.................................. 91
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MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS OF HSA-TEXAS.................... 92
Overview.................................................. 92
Results of Operations..................................... 92
Liquidity and Capital Resources........................... 94
BUSINESS OF HSA-TEXAS....................................... 96
The Business.............................................. 96
History................................................... 96
Audit Services............................................ 97
Technology................................................ 99
Seasonality............................................... 99
Sales and Marketing....................................... 99
Proprietary Rights........................................ 99
Competition............................................... 100
Employees and Contractors................................. 100
PRINCIPAL SHAREHOLDERS OF HSA-TEXAS......................... 101
PRINCIPAL SHAREHOLDERS OF HSA-TEXAS' AFFILIATED FOREIGN
OPERATING COMPANIES....................................... 103
THE PROFIT RECOVERY GROUP INTERNATIONAL, INC. AND
SUBSIDIARIES PRO FORMA COMBINED FINANCIAL STATEMENTS
(UNAUDITED)............................................... 104
COMPARATIVE RIGHTS OF PRG SHAREHOLDERS, HSA-TEXAS
SHAREHOLDERS AND SHAREHOLDERS OF THE AFFILIATED FOREIGN
OPERATING COMPANIES....................................... 110
Authorized Capital Stock.................................. 110
Number and Term of Directors.............................. 111
Removal of Directors...................................... 111
Special Meeting of Shareholders........................... 112
Quorum.................................................... 112
Notice for Meetings....................................... 113
Amendments to Articles of Incorporation................... 114
Amendment to Bylaws....................................... 114
Advance Notice Bylaw Provisions for Election of
Directors.............................................. 115
Shareholder Proposals..................................... 116
State Takeover Laws Applicable to the Companies........... 117
Inspection of Books and Records........................... 119
Vote Required for Mergers and Similar Fundamental
Corporate Transactions................................. 120
Vote Required for Sales of All or Substantially All
Corporate Assets....................................... 120
Dividends................................................. 121
Dissenters' Appraisal Rights.............................. 122
PRG Rights Plan........................................... 122
PRG/HSA-TEXAS STOCK OPTION PLAN............................. 124
PRG DIRECTOR AND EXECUTIVE OFFICER INFORMATION.............. 129
Election of Directors..................................... 129
Information About the Board of Directors and Committees of
the Board.............................................. 132
March 2001 Report of the Compensation Committee on
Executive Compensation................................. 133
Executive Compensation.................................... 136
Certain Transactions...................................... 142
Section 16(a) Beneficial Ownership Reporting Compliance... 143
Ownership of Directors, Director Nominees, Principal
Shareholders and Certain Executive Officers............ 144
Executive Officers........................................ 146
Performance Graph......................................... 147
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LEGAL MATTERS............................................... 147
EXPERTS..................................................... 147
SHAREHOLDER PROPOSALS....................................... 148
INDEPENDENT AUDITORS........................................ 148
HSA-TEXAS INDEX TO COMBINED FINANCIAL STATEMENTS............ F-1
ANNEX A -- ASSET AGREEMENT.................................. A-1
ANNEX B -- STOCK AGREEMENT.................................. B-1
ANNEX C -- OPINION OF MERRILL LYNCH, PIERCE, FENNER & SMITH
INCORPORATED.............................................. C-1
ANNEX D -- TEXAS DISSENTERS' RIGHTS STATUTES................ D-1
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WHERE YOU CAN FIND MORE INFORMATION
PRG files annual, quarterly and current reports, proxy statements and other
information with the SEC. You may read and copy this information at the SEC's
public reference room at 450 Fifth Street, N.W., Washington, D.C. 20549. Please
call the SEC at 1-800-SEC-0330 for further information regarding the public
reference room. In addition, the SEC also maintains an internet worldwide web
site that contains reports, proxy statements and other information about issuers
like PRG who file electronically with the SEC. The address of that site is
http://www.sec.gov.
HSA-Texas and its affiliates are not reporting companies and therefore no
reports or financial information about them is publicly available.
PRG has filed a registration statement on Form S-4 to register with the SEC
the PRG common stock and options to be issued pursuant to the proposed
acquisitions. This joint proxy statement/prospectus is a part of that
registration statement. As allowed by SEC rules, this joint proxy
statement/prospectus does not contain all the information you can find in the
registration statement or the exhibits to the registration statement. You may
read and copy the Form S-4 and any amendments to the Form S-4 at the SEC's
public reference room or website referred to above.
The SEC allows PRG to "incorporate by reference" information into this
joint proxy statement/prospectus, which means that PRG can disclose important
information to you by referring you to another document filed separately with
the SEC. The information incorporated by reference is deemed to be part of this
joint proxy statement/prospectus, except for any information superseded by
information contained directly in this joint proxy statement/prospectus. This
joint proxy statement/prospectus incorporates by reference the documents set
forth below that PRG has previously filed with the SEC. These documents contain
important information about PRG and its financial condition.
The following documents that PRG previously filed with the SEC are
incorporated by reference in this document:
- PRG's Annual Report on Form 10-K for the year ended December 31, 2000;
- PRG's Quarterly Reports on Form 10-Q for the quarters ended March 31,
2001 and June 30, 2001; and
- The description of PRG's common stock contained in PRG's registration
statement on Form 8-A (Registration No. 0-28000) as declared effective by
the SEC on March 26, 1996, as amended by the registration statement on
Form 8-A/A on August 9, 2000.
All documents that PRG files pursuant to Section 13(a), 13(c), 14 or 15(d)
of the Securities Exchange Act of 1934 from the date of this joint proxy
statement/prospectus to the date of the special meeting shall also be deemed to
be incorporated in this joint proxy statement/prospectus by reference and to be
a part of it from the date they are filed with the SEC.
PRG has supplied all information contained or incorporated by reference in
this joint proxy statement/ prospectus relating to PRG, and HSA-Texas has
supplied all such information contained in this joint proxy statement/prospectus
relating to HSA-Texas and its affiliates. Neither PRG nor HSA-Texas assumes any
responsibility for the accuracy or completeness of the information provided by
the other party.
Documents incorporated by reference are available from PRG, without charge,
excluding all exhibits unless PRG has specifically incorporated by reference an
exhibit in this joint proxy statement/prospectus or in
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a document incorporated by reference herein. Shareholders may obtain documents
incorporated by reference in this joint proxy statement/prospectus by requesting
them in writing or by telephone from:
The Profit Recovery Group International, Inc.
Leslie H. Kratcoski
Director, Investor Relations
2300 Windy Ridge Parkway
Suite 100 North
Atlanta, Georgia 30339-8426
Telephone: (770) 779-3900
If you would like to request documents from PRG, you must do so no later
than five business days prior to the special meeting, or , 2001, in order
to receive them prior to the special meeting.
YOU SHOULD RELY ONLY ON THE INFORMATION CONTAINED OR INCORPORATED BY
REFERENCE IN THIS JOINT PROXY STATEMENT/PROSPECTUS. NONE OF PRG, HSA-TEXAS OR
ANY OF THEIR AFFILIATES HAVE AUTHORIZED ANYONE TO PROVIDE YOU WITH INFORMATION
THAT IS DIFFERENT FROM WHAT IS CONTAINED IN THIS JOINT PROXY
STATEMENT/PROSPECTUS. THIS JOINT PROXY STATEMENT/PROSPECTUS IS DATED ,
2001. YOU SHOULD NOT ASSUME THAT THE INFORMATION CONTAINED IN THIS JOINT PROXY
STATEMENT/PROSPECTUS IS ACCURATE AS OF ANY DATE OTHER THAN THAT DATE, AND
NEITHER THE MAILING OF THIS JOINT PROXY STATEMENT/PROSPECTUS TO SHAREHOLDERS NOR
THE ISSUANCE OF PRG COMMON STOCK OR OPTIONS IN THE PROPOSED ACQUISITIONS SHALL
CREATE ANY IMPLICATION TO THE CONTRARY.
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SUMMARY
QUESTIONS AND ANSWERS ABOUT THE PROPOSED ACQUISITIONS
Q: WHAT TRANSACTIONS DO PRG AND HSA-TEXAS PROPOSE? (SEE PAGES 65-85)
A: PRG proposes to acquire substantially all of the assets of HSA-Texas in
exchange for PRG's assumption of certain HSA-Texas' liabilities and PRG's
issuance of 14,908,954 shares of PRG common stock, less:
- a number of shares of PRG common stock having a value equal to the "in
the money" value of the options to purchase shares of HSA-Texas common
stock and HSA-Texas stock appreciation rights, or SARs, outstanding at
the closing; and
- a number of shares of PRG common stock equal to the purchase price paid
or to be paid by HSA-Texas in connection with the acquisition of the
business and operations of JASAMA, Inc., an independently owned provider
of a portion of HSA-Texas' direct to store delivery audit operations,
divided by the lesser of $6.50 or the PRG "average price," defined to be
the average of the closing prices of PRG common stock on The Nasdaq
National Market for the five consecutive business day period ending five
business days prior to the closing;
as described in the agreement and plan of reorganization for the asset
acquisition attached as Annex A to this joint proxy statement/prospectus.
In addition to issuing shares of its common stock to acquire the assets of
HSA-Texas, PRG will also issue:
- 1,535 shares of PRG common stock to acquire substantially all of the
outstanding stock of HSA-Singapore;
- 75,234 shares of PRG common stock to acquire all of the outstanding stock
of HSA-Asia;
- 245,662 shares of PRG common stock to acquire all of the outstanding
stock of HSA-Australia; and
- 307,077 shares of PRG common stock to acquire all of the outstanding
stock of HSA-Canada;
each an affiliated foreign operating company of HSA-Texas, as described in
the agreement and plan of reorganization for the stock acquisition attached
as Annex B to this joint proxy statement/prospectus. The closings of the
transactions contemplated by the stock agreement and the asset agreement
are contingent on each other. See "Material Terms of the Asset Agreement"
and "Material Terms of the Stock Agreement" for a detailed discussion of
other closing conditions.
Q: WILL PRG DELIVER ALL OF THE SHARES TO BE ISSUED IN THE ACQUISITIONS AT
CLOSING? (SEE PAGE 89)
A: No, unless certain additional proposed acquisitions have been consummated.
If these acquisitions have not been consummated, the following shares to be
issued to HSA-Texas in the asset acquisition will be held by PRG in escrow
pursuant to an escrow agreement after the closing:
- 200,000 shares will be held in escrow by PRG pending the acquisition by
PRG of the business of Howard Schultz & Partner (Deutschland) GmbH, an
independently owned foreign licensee of HSA-Texas operating in Germany
and Austria;
- 2,300,000 shares will be held in escrow by PRG pending the acquisition by
PRG of the business of Howard Schultz & Associates (International) Ltd.,
an independently owned foreign licensee of HSA-Texas operating in the
United Kingdom; and
- 500,000 shares will be held in escrow by PRG pending the acquisition by
PRG of the remaining direct to store delivery audit operations.
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Q: WHAT WILL HAPPEN TO THE SHARES HELD IN ESCROW IF PRG IS UNABLE TO CLOSE THE
ACQUISITION FOR WHICH SUCH SHARES HAVE BEEN PLACED IN ESCROW AT THE AGREED
UPON PRICE OR TERMS? (SEE PAGES 89-90)
A: Howard Schultz & Partner (Deutschland) GmbH and Howard Schultz & Associates
(International) Ltd.
If, despite commercially reasonable efforts, at any time within 365 days
after the closing of the HSA-Texas asset acquisition, PRG is unable to
close the acquisition of the business of either of Howard Schultz & Partner
(Deutschland) GmbH or Howard Schultz & Associates (International) Ltd. and
if the reason for the failure to close such acquisition is that the
respective seller has demanded a purchase price in excess of or terms more
favorable than those previously agreed to by PRG at the closing of the
asset acquisition, PRG will have the option:
- to close such acquisition by paying the excess purchase price or agreeing
to the more favorable terms, as applicable, in which event the number of
escrow shares equal to the additional cost to PRG divided by the PRG
average price, not to exceed 200,000 shares in respect of the acquisition
of Howard Schultz & Partner (Deutschland) GmbH and not to exceed
2,300,000 shares in respect of the acquisition of Howard Schultz &
Associates (International) Ltd., will be released to PRG and canceled,
with the remaining shares in escrow with respect to such acquisition
after such release and the completion of such acquisition, if any, being
promptly distributed to HSA-Texas; or
- not to close such acquisition, in which event HSA-Texas will forfeit all
escrow shares in respect of such failed acquisition, and such shares will
be released to PRG and canceled.
If, despite commercially reasonable efforts by PRG, either acquisition has
not closed within 365 days after the closing of the asset acquisition, all
shares held in escrow with respect to such acquisition will be released to
PRG and canceled.
Direct to Store Delivery Audit Operations
If, despite commercially reasonable efforts, at any time within 365 days
after the closing of the asset acquisition, PRG has not closed the
acquisition of the remaining company conducting the direct to store
delivery audit operations and if the reason for the failure to close such
acquisition is that the seller has demanded an aggregate purchase price in
excess of or terms more favorable than those previously agreed to by PRG at
the closing of the asset acquisition, PRG will have the option:
- to close such acquisition by paying such excess purchase price or
agreeing to the more favorable terms, as applicable, in which event a
number of escrow shares equal to the additional cost to PRG divided by
the lesser of $6.50 or the PRG average price, not to exceed 500,000
shares, will be released to PRG and canceled, and the remaining shares in
escrow with respect to such acquisition, if any, will be promptly
distributed to HSA-Texas; or
- not to close such acquisition, in which event, HSA-Texas will forfeit all
500,000 shares held by PRG in escrow, and such shares will be released to
PRG and canceled.
If, despite commercially reasonable efforts by PRG, the acquisition is not
completed within 365 days after the closing of the asset acquisition, all
500,000 shares of PRG common stock held in escrow will be released to PRG
and canceled.
Q: WHY IS PRG ACQUIRING THE ASSETS OF HSA-TEXAS AND THE STOCK OF THE FOUR
AFFILIATED FOREIGN OPERATING COMPANIES? (SEE PAGES 46-47)
A: PRG's board of directors anticipates that after the completion of the
proposed acquisitions, PRG should have the potential to realize long-term
improved operating and financial results and should be in a stronger
competitive position in the recovery audit and expense containment
marketplace. PRG's board of directors believes that the proposed
acquisitions of substantially all of the assets of HSA-Texas and the stock
of the four affiliated foreign operating companies of HSA-Texas represent a
unique, strategic fit between companies with similar business strategies
and complementary recovery audit service offerings, and that the proposed
acquisitions are in the best interest of PRG and its shareholders.
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Q: WHY IS HSA-TEXAS SELLING ITS ASSETS? (SEE PAGES 47-48)
A: After considering the recent consolidation of its retail sector customer
base, the increased capital and technology requirements to remain
competitive in the audit recovery industry, the current environment in the
audit recovery industry and a review of strategic alternatives by the board
of directors of HSA-Texas, including other possible business combinations,
the board of directors of HSA-Texas believes that the proposed acquisitions
are advisable because they are fair to, and in the best interests of,
HSA-Texas and its shareholders and affiliates, and that a transaction with
another company may not offer terms with advantages comparable to those of
a business combination with PRG.
In addition, the board of directors considered the advantage of owning PRG
common stock, which is listed on The Nasdaq National Market, and the fact
that shareholders of HSA-Texas will be able to sell a portion of their PRG
common stock upon its distribution and diversify into other investments.
Q: HOW MUCH DEBT DOES PRG EXPECT TO INCUR IN CONNECTION WITH THE PROPOSED
ACQUISITIONS? (SEE PAGE 55)
A: PRG expects to incur or assume $32.0 million to $37.0 million of debt in
connection with the proposed acquisitions, including debt expected to be
incurred in connection with the acquisition of the remaining direct to
store delivery audit operations. In addition, PRG expects to incur an
additional $13.0 million to $14.0 million of debt to acquire the business
of Howard Schultz & Partner (Deutschland) GmbH and Howard Schultz &
Associates (International) Ltd. PRG will also assume certain other
obligations of HSA-Texas, including compensation obligations to HSA-Texas
independent contractors to be incurred prior to the closing of the asset
acquisition, currently estimated at up to $9 million.
Q: WHAT ARE PRG SHAREHOLDERS BEING ASKED TO APPROVE? (SEE PAGES 41-43)
A: Shareholders of PRG are being asked to approve the following proposal at
the special meeting:
To consider and vote upon the proposed issuance by PRG of an aggregate of
up to 15,538,462 shares of its common stock and options to purchase an
indeterminate number of shares of its common stock, not to exceed 1,678,826
shares, in connection with the proposed acquisition by PRG of substantially
all of the assets of HSA-Texas and the concurrent acquisition by PRG of
substantially all of the outstanding stock of HSA-Singapore and all of the
outstanding stock of HSA-Asia, HSA-Australia and HSA-Canada, each an
affiliated foreign operating company of HSA-Texas; and pursuant to the
terms of the proposed acquisitions, the election of Howard Schultz and
Andrew Schultz as Class II directors, Nate Levine as a Class I director and
Arthur Budge, Jr. as a Class III director, conditioned upon the closing of
the proposed acquisitions.
Assuming that holders of a majority of the outstanding shares of PRG common
stock entitled to vote on the record date of the special meeting,
, 2001, are present, either in person or by proxy, at the
special meeting, the affirmative vote of a majority of the shares of PRG
common stock entitled to vote that are actually voted either in person or
by proxy is required to approve the proposal.
Q: WHAT DECISION MUST HSA-TEXAS SHAREHOLDERS MAKE? (SEE PAGE 44)
A: Holders of HSA-Texas voting common stock must decide whether to vote to
approve and affirm the asset agreement and to approve the proposed
acquisition of substantially all of HSA-Texas' assets by PRG. Holders of
HSA-Texas non-voting common stock are not required to approve the asset
agreement or the proposed acquisition.
Q: WHAT DECISION MUST SHAREHOLDERS OF THE AFFILIATED FOREIGN OPERATING
COMPANIES MAKE? (SEE PAGE 80)
A: Shareholders of the affiliated foreign operating companies must decide
whether or not to accept the offer contained herein, affirm the
transactions contemplated by the stock agreement and exchange their shares
for shares of PRG common stock.
Q: WHEN DO PRG AND HSA-TEXAS EXPECT THE PROPOSED ACQUISITIONS TO BE COMPLETED?
(SEE PAGES 54-55)
A: The parties are working toward completing the transactions as quickly as
possible. In addition to approval by the shareholders of PRG and HSA-Texas,
approval by PRG's lenders, and affirmation of the stock
5
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agreement by the shareholders of the affiliated foreign operating
companies, the registration statement must be declared effective by the
SEC, and each of PRG, HSA-Texas and the shareholders of the affiliated
foreign operating companies must satisfy or waive all of the closing
conditions contained in the asset agreement and stock agreement, as
applicable. Under the asset agreement, the transaction will close on a date
no later than 10 business days after the satisfaction or waiver of the
closing conditions or on the date designated by PRG and HSA-Texas. PRG and
HSA-Texas received clearance under the Hart-Scott Rodino Antitrust
Improvements Act, or HSR Act, effective as of August 10, 2001.
Q: WHEN WILL DISTRIBUTIONS OF PRG COMMON STOCK BE MADE TO THE SHAREHOLDERS OF
HSA-TEXAS AND ITS AFFILIATED FOREIGN OPERATING COMPANIES?
A: At this time, HSA-Texas cannot set a timetable for any distributions of PRG
common stock, but the timetable will depend on the timing of the completion
of the proposed acquisitions and of the liquidation of HSA-Texas; however,
HSA-Texas has informed PRG that it intends to distribute all shares of PRG
common stock received by it to HSA-Texas shareholders within one year after
the closing date. HSA-Texas expects to begin the process of winding up the
business affairs of HSA-Texas no later than 45 days after the closing of
the asset acquisition.
If the proposed acquisitions are approved, shareholders of the affiliated
foreign operating companies will receive shares of PRG common stock at the
closing.
Q: WHEN DOES PRG EXPECT TO COMPLETE THE ACQUISITION OF THE BUSINESS OF HOWARD
SCHULTZ & ASSOCIATES (INTERNATIONAL) LTD. AND HOWARD SCHULTZ & PARTNER
(DEUTSCHLAND) GMBH? (SEE PAGE 48)
A: It is expected that the acquisition of the business of Howard Schultz &
Associates (International) Ltd., an independently owned foreign licensee of
HSA-Texas, will be completed on or before December 31, 2001. It is expected
that the acquisition of Howard Schultz & Partner (Deutschland) GmbH, also
an independently owned foreign licensee of HSA-Texas, will be completed in
January 2002. However, if the acquisition of either of these two
independently owned foreign licensees has not occurred within 365 days
after the closing of the asset acquisition, all shares held in escrow with
respect to either of such acquisitions will be released to PRG and
canceled. In addition, a portion of the shares held in escrow will be
released to PRG and canceled in the event PRG is required to pay a purchase
price in excess of, or to agree to terms less favorable to PRG than, those
agreed to by PRG at the closing of the asset acquisition.
Q: WHEN DOES PRG EXPECT TO COMPLETE THE ACQUISITION OF THE REMAINING DIRECT TO
STORE DELIVERY AUDIT OPERATIONS? (SEE PAGE 48)
A: It is expected that the acquisition of the remaining direct to store
delivery audit operations will be completed on or before the closing of the
asset acquisition. However, if the acquisition is not completed within 365
days after the closing of the asset acquisition, all shares held in escrow
with respect to the acquisition will be forfeited to PRG and canceled. In
addition, a portion of the shares held in escrow will be released to PRG
and canceled in the event PRG is required to pay a purchase price in excess
of, or to agree to terms less favorable to PRG than, those terms agreed to
by PRG at the closing of the asset acquisition.
Q: HOW MANY SHARES OF PRG COMMON STOCK ARE EXPECTED TO BE DISTRIBUTED TO
HSA-TEXAS SHAREHOLDERS FOR EACH SHARE OF HSA-TEXAS COMMON STOCK OWNED?
A: As of August 31, 2001, HSA-Texas had 2,307,482 outstanding shares of voting
common stock, 6,435,383 outstanding shares of non-voting common stock,
1,133,423 shares subject to outstanding options and 64,569 outstanding
SARs. Assuming that:
- the above numbers remain constant;
- the acquisition of the remaining direct to store delivery audit
operations is completed prior to the closing of the asset acquisition for
an aggregate cash consideration of approximately $1.2 million;
- the acquisitions of Howard Schultz & Associates (International) Ltd. and
Howard Schultz & Partner (Deutschland) GmbH have not been completed prior
to the closing of the asset acquisition and 2.5
6
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million shares of PRG common stock to be issued to HSA-Texas at the
closing of the asset acquisition will be held in escrow by PRG; and
- HSA-Texas' remaining liabilities, including the expenses of effecting the
liquidation and winding up of HSA-Texas, do not exceed the value of
HSA-Texas' assets not purchased by PRG;
the following table shows the number of shares of PRG common stock each
HSA-Texas shareholder would receive for one share of HSA-Texas common
stock, exclusive of shares issued into escrow, assuming the following
"average prices" of PRG common stock. The "average price" of PRG common
stock is defined in the asset agreement as the average closing price per
share of PRG common stock, as reported in The Wall Street Journal, for the
five consecutive trading days ending on the fifth trading day immediately
preceding the closing date.
APPROXIMATE NUMBER OF PRG
ASSUMED AVERAGE SHARES TO BE RECEIVED FOR
PRICES OF PRG EACH HSA-TEXAS VOTING
COMMON STOCK OR NON-VOTING SHARE
--------------- -------------------------
$ 7.00............................................ 1.370
$ 8.00............................................ 1.348
$ 9.00............................................ 1.331
$10.00............................................ 1.317
$11.00............................................ 1.306
$12.00............................................ 1.297
$13.00............................................ 1.289
$14.00............................................ 1.282
$15.00............................................ 1.277
$16.00............................................ 1.272
If, after the completion of PRG's acquisition of substantially all of
HSA-Texas' assets, HSA-Texas' remaining liabilities exceed the value of
HSA-Texas' remaining assets, and HSA-Texas is required to sell shares of
PRG common stock in order to pay such liabilities, the number of shares of
PRG common stock to be received by HSA-Texas shareholders upon any
distribution will be reduced accordingly. Also, if the acquisition of
either of the direct to store delivery audit businesses is not completed by
the closing of the asset acquisition, 500,000 shares of PRG common stock
will be issued into escrow at closing and may be forfeited to PRG if either
such acquisition is not completed within 365 days after the closing of the
asset acquisition or if both acquisitions are completed at an aggregate
purchase price in excess of or on terms less favorable to PRG than those
agreed to by PRG at the closing of the asset acquisition. If the
acquisitions of Howard Schultz & Associates (International) Ltd. and Howard
Schultz & Partner (Deutschland) GmbH are completed within 365 days after
the closing of the asset acquisition and the 2.5 million shares held in
escrow with respect to these acquisitions are released, assuming no change
in the number of outstanding shares of HSA-Texas common stock, HSA-Texas
shareholders will receive an additional 0.286 shares of PRG common stock
per share of HSA-Texas common stock.
Q: HOW MANY SHARES OF PRG COMMON STOCK ARE EXPECTED TO BE DISTRIBUTED TO
SHAREHOLDERS OF THE AFFILIATED FOREIGN OPERATING COMPANIES FOR EACH SHARE
OF COMMON STOCK OWNED IN SUCH COMPANY?
A: As of August 31, 2001, HSA-Singapore had 5 outstanding shares of common
stock, HSA-Asia had 2 outstanding "A" shares of common stock and 98
outstanding "B" shares of common stock, HSA-Australia had 1,000 outstanding
shares of common stock and HSA-Canada had 1,000 outstanding shares of
common stock. HSA-Texas has informed PRG that, prior to the closing of the
asset acquisition, it intends to cause HSA-Singapore to issue an additional
97 shares of common stock to Howard Schultz for no additional
consideration. Assuming that these numbers remain constant and that the
additional shares of HSA-Singapore common stock are issued as anticipated,
the following table shows the number
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15
of shares of PRG common stock each shareholder of an affiliated foreign
operating company will receive for each share of such company's common
stock:
APPROXIMATE
NUMBER OF PRG SHARES
TO BE RECEIVED FOR EACH
SHARE OWNED IN AN
AFFILIATED
FOREIGN OPERATING
NAME OF COMPANY COMPANY
--------------- ----------------------------
HSA-Singapore....................................... 15.35 shares
HSA-Asia............................................ 752.34 shares
HSA-Canada.......................................... 307.08 shares
HSA-Australia....................................... 245.66 shares
Q: WHAT WILL HAPPEN TO THE HSA-TEXAS STOCK OPTIONS AND SARS OUTSTANDING AT
CLOSING? (SEE PAGES 68-69)
A: At closing, PRG will assume each outstanding HSA-Texas option held by
persons who become employees, directors or independent contractors of PRG
or any of its affiliates. These assumed options will constitute options to
acquire PRG common stock, at terms equivalent to those of the HSA-Texas
stock options, in accordance with the 1999 Howard Schultz & Associates
Stock Option Plan. The exercise price and the number of shares subject to
each of these HSA-Texas stock options will be adjusted to give effect to
the proposed acquisition of HSA-Texas, and all of these options will be
vested and have a term of five years following the closing of the asset
acquisition. HSA-Texas will, prior to or concurrently with the closing of
the asset acquisition, cancel those options that PRG does not assume, and
will offer to cancel all outstanding SARs in exchange for a cash payment
equal to HSA-Texas' reasonable estimate of the value of the per share
amount to be received by each HSA-Texas shareholder upon dissolution of
HSA-Texas, less the exercise or base price thereof, as applicable.
Q: HOW WILL THE NUMBER OF OUTSTANDING HSA-TEXAS OPTIONS AND SARS AT THE
CLOSING AFFECT THE NUMBER OF SHARES THAT HSA-TEXAS RECEIVES IN THE ASSET
ACQUISITION? (SEE PAGES 67-68)
A: The number of shares of PRG common stock that PRG delivers to HSA-Texas in
the asset acquisition will be reduced by a number of shares having a value
equal to the aggregate "in the money" value of all options and SARs
outstanding at closing divided by the PRG "average price."
The "in the money" value of each outstanding option and SAR will be
determined by subtracting the per share exercise price of the option or the
per share grant price of the SAR, as applicable, from the "per share
value." The formula for the "per share value" is as follows:
- 14,908,954; less
- the purchase price paid or estimated purchase price to be paid, as the
case may be, for the direct to store delivery audit operations divided by
the lesser of $6.50 or the PRG "average price;"
- times the PRG "average price;"
- divided by the sum of:
- the number of shares of HSA-Texas common stock outstanding on the
closing date; plus
- the number of shares of HSA-Texas common stock subject to HSA-Texas
options outstanding on the closing date; plus
- the number of HSA-Texas SARs outstanding on the closing date.
The following table generally illustrates how the number of shares that PRG
will issue to HSA-Texas in the asset acquisition will be reduced by the "in
the money" value of outstanding options and SARs based upon a range of
hypothetical PRG "average prices." In addition, the following assumes that
at the closing, there will be 2,307,482 shares of HSA-Texas voting common
stock outstanding, 6,435,383 shares of HSA-Texas non-voting common stock
outstanding, 1,133,423 shares of HSA-Texas common stock underlying
outstanding options and 64,569 outstanding HSA-Texas SARs. The average
price of PRG common stock may be more or less than the ranges set forth
below and the number of shares of
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HSA-Texas common stock outstanding, the number of shares of HSA-Texas
common stock underlying outstanding options and the number of outstanding
HSA-Texas SARs at closing may be more or less than the numbers set forth
above.
ESTIMATED REDUCTION
ASSUMED AVERAGE IN NUMBER OF PRG
PRICE OF PRG SHARES TO BE RECEIVED
COMMON STOCK BY HSA-TEXAS
--------------- -------------------------
$7.00............................................. 250,485
$8.00............................................. 440,982
$9.00............................................. 589,134
$10.00............................................. 707,667
$11.00............................................. 804,649
$12.00............................................. 885,467
$13.00............................................. 953,852
$14.00............................................. 1,012,467
$15.00............................................. 1,063,267
$16.00............................................. 1,107,717
Q: IF I AM AN HSA-TEXAS SHAREHOLDER SHOULD I SEND IN MY HSA-TEXAS STOCK
CERTIFICATES?
A: No. Please do not mail your HSA-Texas stock certificates to HSA-Texas or
PRG. If the proposed acquisitions are approved and closed, HSA-Texas will
provide instructions regarding surrendering your stock certificates at the
time shares of PRG common stock are distributed to HSA-Texas shareholders.
Q: IF I AM A SHAREHOLDER OF AN AFFILIATED FOREIGN OPERATING COMPANY SHOULD I
SURRENDER MY STOCK CERTIFICATES? (SEE PAGE 83)
A: As a condition to closing the stock agreement, shareholders of the
affiliated foreign operating companies will be required to deliver the
original certificates representing their shares in each affiliated foreign
operating company to PRG at or prior to the closing. Shareholders of the
affiliated foreign operating companies will be provided with instructions
for surrendering their stock certificates prior to the closing.
Q: WHAT DO I NEED TO DO IF I AM A PRG SHAREHOLDER? (SEE PAGES 41-43)
A: If you are a PRG shareholder, after carefully reading and considering the
information contained in this joint proxy statement/prospectus, please
respond by completing, signing, and dating your PRG proxy card and
returning it, in the enclosed postage paid envelope, as soon as possible so
that your PRG shares may be represented at PRG's special meeting.
Q: WHAT DO I NEED TO DO IF I AM AN HSA-TEXAS SHAREHOLDER OR A SHAREHOLDER OF
AN AFFILIATED FOREIGN OPERATING COMPANY? (SEE PAGE 44)
A: If you are a shareholder of HSA-Texas or a shareholder of an affiliated
foreign operating company, you are not required to return a proxy card
because your proxy is not being solicited. However, holders of HSA-Texas
voting common stock will be required to approve the asset agreement at a
special meeting of HSA-Texas shareholders and affirm their obligations
thereunder, and shareholders of affiliated foreign operating companies will
be required to accept the offer contained herein and affirm the stock
agreement.
Q: WHAT HAPPENS IF I DO NOT RETURN MY PRG PROXY CARD? (SEE PAGE 41)
A: If you are a PRG shareholder, the failure to return your PRG proxy card
will increase the risk that a quorum, which is a majority of the
outstanding voting shares of PRG common stock, may not be obtained. If a
quorum is not obtained at the special meeting or any continuation of the
special meeting, the approval of the proposed share and option issuances
will not be obtained at the special meeting and the nominated directors
will not be elected. As a result, PRG would be unable to proceed with the
proposed acquisitions.
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Q: WHAT HAPPENS IF I RETURN A SIGNED PRG PROXY CARD BUT DO NOT INDICATE HOW TO
VOTE MY PRG PROXY? (SEE PAGE 42)
A: If you do not include instructions on how to vote your properly signed and
dated PRG proxy card, your PRG shares will be voted for approval of the
proposed share and option issuances and the election of the nominated
directors.
Q: MAY I VOTE IN PERSON AT THE PRG SPECIAL MEETING? (SEE PAGE 41)
A: If you are a PRG shareholder, you may attend PRG's special meeting and vote
your PRG shares in person, rather than signing and returning your PRG proxy
card. Only PRG shareholders of record as of the record date or their
proxies are eligible to vote in person.
Q: IF MY PRG SHARES ARE HELD IN "STREET NAME" BY MY BROKER, WILL MY BROKER
VOTE MY PRG SHARES FOR ME? (SEE PAGE 41)
A: Your broker will not be able to vote your PRG shares without instructions
from you. You should instruct your broker to vote your PRG shares by
following the procedures provided by your broker. The failure to provide
such voting instructions to your broker will increase the risk that a
quorum may not be obtained, without which the approval of the proposed
share and option issuances will not be obtained at the special meeting and
the nominated directors will not be elected.
Q: IF I AM A PRG SHAREHOLDER, CAN I CHANGE MY VOTE AFTER I HAVE DELIVERED MY
PRG PROXY? (SEE PAGES 41-43)
A: Yes. You can change your vote at any time before your proxy is voted at
PRG's special meeting. You can do this in one of three ways. First, you can
revoke your proxy. Second, you can submit a new proxy. If you choose either
of these two methods, you must submit your notice of revocation or your new
proxy to the secretary of PRG so that it is received before your proxy is
voted at PRG's special meeting. If your PRG shares are held in an account
at a brokerage firm or bank, you should contact your brokerage firm or bank
to change your vote. Third, you can attend the PRG special meeting and vote
in person. Only PRG shareholders of record as of the record date or their
proxies are eligible to vote in person. Your attendance alone will not
revoke your proxy. If you have instructed a broker to vote your PRG shares,
you must follow directions received from your broker to change those
instructions.
Q: WHAT ARE THE MATERIAL U.S. FEDERAL INCOME TAX CONSEQUENCES OF THE PROPOSED
ACQUISITIONS TO PRG, HSA-TEXAS, SHAREHOLDERS OF HSA-TEXAS AND SHAREHOLDERS
OF THE AFFILIATED FOREIGN OPERATING COMPANIES? (SEE PAGES 55-59)
A: The proposed acquisition of the assets of HSA-Texas, and subsequent
liquidation of HSA-Texas, are intended to qualify as a tax-free
reorganization under Section 368(a)(1)(C) of the Internal Revenue Code of
1986, or the Code. If such transactions do so qualify, neither HSA-Texas
nor the shareholders of HSA-Texas will recognize taxable gain or loss upon
receipt of shares of PRG common stock in connection with the acquisition of
the assets of HSA-Texas and the liquidation of HSA-Texas. HSA-Texas,
however, will likely recognize gain in the liquidation and distribution of
any appreciated assets that are not acquired by PRG in the acquisition and,
as long as HSA-Texas qualifies as an S corporation at the time of the
liquidation, such gain will be taxable to the shareholders of HSA-Texas.
Furthermore, it appears that the shareholders of HSA-Texas will recognize
gain in the liquidation of HSA-Texas in an amount equal to the lesser of:
- the fair market value of the property other than PRG common stock
distributed to such HSA-Texas shareholder; and
- the gain realized by such HSA-Texas shareholder taking into account all
adjustments to the shareholder's tax basis in the shareholder's HSA-Texas
stock, including any increase allowed for the HSA-Texas gain included in
income.
In addition, any shareholder that is required to contribute an equity
interest in a direct or indirect subsidiary of HSA-Texas to the direct
parent corporation of such subsidiary may recognize taxable gain
10
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or loss as a result of such contribution. PRG will not recognize taxable gain or
loss as a result of the issuance of shares of PRG common stock to acquire the
assets of HSA-Texas.
The proposed acquisitions of the affiliated foreign operating companies are
intended to qualify as tax-free reorganizations under Section 368(a)(1)(B)
of the Code. If the acquisitions do so qualify, the shareholders of the
affiliated foreign operating companies will not recognize taxable gain or
loss upon receipt of shares of PRG common stock in exchange for stock in
the affiliated foreign operating companies. Neither the affiliated foreign
operating companies nor PRG will recognize taxable gain or loss solely as a
result of PRG's acquisition of the stock of the affiliated foreign
operating companies for PRG common stock.
Q: WHAT ARE THE MATERIAL U.S. FEDERAL INCOME TAX CONSEQUENCES OF THE
TRANSACTIONS TO HOLDERS OF HSA-TEXAS OPTIONS AND SARS? (SEE PAGES 55-59)
A: Each HSA-Texas optionholder whose non-qualified stock options to purchase
shares of HSA-Texas common stock are assumed by PRG should not recognize
gain or loss as a result of the assumption. Rather, such optionholder
should generally recognize ordinary compensation income at the time such
PRG option is exercised in an amount equal to the fair market value of PRG
common stock at such time less the exercise price of the option.
Each HSA-Texas optionholder who receives cash in connection with the
cancellation of such optionholder's HSA-Texas options will recognize
ordinary compensation income equal to the amount of the cash payment
received. Similarly, each holder of an HSA-Texas SAR will recognize
ordinary compensation income in an amount equal to the amount of cash
received from HSA-Texas in connection with the cancellation of such
HSA-Texas SAR.
Q: WHERE WILL THE PRG SHARES ISSUED IN THE PROPOSED ACQUISITIONS BE LISTED?
(SEE PAGE 63)
A: Shares of PRG common stock will continue to be listed on The Nasdaq
National Market under the symbol "PRGX."
Q: WILL THE NAME OF PRG CHANGE FOLLOWING THE CLOSING OF THE PROPOSED
ACQUISITIONS?
A: Yes. As soon as practicable following the closing, PRG will change its
corporate name to PRG-Schultz International, Inc.
Q: WHO CAN HELP ANSWER MY QUESTIONS?
A: If you have any questions about either the proposed acquisitions or how to
submit your PRG proxy, or if you need additional copies of this joint proxy
statement/prospectus or the enclosed PRG proxy card or voting instructions,
you should contact the individuals listed below:
If you are a PRG shareholder, you should If you are an HSA-Texas shareholder or a
contact: shareholder of an HSA-Texas affiliate, you
should contact:
The Profit Recovery Group International, Howard Schultz & Associates International,
Inc. Inc.
2300 Windy Ridge Parkway, Suite 100 North 9241 LBJ Freeway, Suite 100
Atlanta, Georgia 30339-8426 Dallas, TX 75243
Attention: Leslie H. Kratcoski Attention: Michael Glazer
Phone Number: (770) 779-3900 Phone Number: (972) 233-7564
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ADDITIONAL SUMMARY INFORMATION
This additional summary information, together with the preceding
"Summary -- Questions and Answers about the Proposed Acquisitions," highlights
selected information from this document and may not contain all of the
information that is important to you. To understand the proposed acquisitions
fully, you should read carefully this entire document and the other available
information referred to in "Where You Can Find More Information" in the front of
this joint proxy statement/prospectus. The asset agreement is attached to this
joint proxy statement/prospectus as Annex A and the stock agreement is attached
to this joint proxy statement/prospectus as Annex B. You are encouraged to read
the asset agreement and the stock agreement, as they are the main legal
documents that govern the proposed acquisitions.
THE COMPANIES
THE PROFIT RECOVERY GROUP INTERNATIONAL, INC.
2300 WINDY RIDGE PARKWAY
SUITE 100 NORTH
ATLANTA, GEORGIA 30339-8426
(770) 779-3900
PRG is a leading provider of recovery audit, expense containment and
knowledge application services to large and mid-size businesses having numerous
payment transactions with many vendors. These businesses include, but are not
limited to, the following:
- retailers such as discount, department, specialty, grocery and drug
stores;
- manufacturers of pharmaceuticals, consumer electronics, chemicals and
aerospace and medical products;
- wholesale distributors of computer components, food products and
pharmaceuticals; and
- healthcare providers such as hospitals and health maintenance
organizations.
PRG currently services approximately 2,500 clients in over 33 different
countries outside the United States. PRG's continuing operations have two
distinct operating segments consisting of Accounts Payable Services and French
Taxation Services. Each segment represents a strategic business unit that offers
different types of recovery and cost containment services.
Recent Developments
While no final determinations have yet been made, PRG is exploring
strategic alternatives with respect to its French Taxation Services operations.
One of the strategic alternatives under serious consideration is the potential
sale of Groupe Alma and related entities, which collectively comprise PRG's
French Taxation Services segment. In exploring this alternative, PRG has engaged
investment banking assistance, prepared an offering document and distributed the
document on a very limited, selective basis within France. Although PRG has not
yet determined whether or not it will sell its French Taxation Services
operations as of the filing of this joint proxy statement/prospectus, PRG
believes that any near-term sale of these operations, if approved by PRG's board
of directors, would result in a net loss on the sale of approximately $45
million to $50 million in the quarter of disposition. This range could be
materially impacted by future variations in the exchange rate of the French
franc relative to the U.S. dollar. See "Risk Factors -- Risks Relating to PRG's
Business Following the Proposed Acquisitions -- The potential sale of PRG's
French Taxation Services operations may result in a substantial and material net
loss."
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HOWARD SCHULTZ & ASSOCIATES INTERNATIONAL, INC.
9241 LBJ FREEWAY, SUITE 100
DALLAS, TEXAS 75243
(972) 233-7564
Howard Schultz & Associates International, Inc., its subsidiaries and
licensees are industry pioneers in providing recovery audit services. HSA-Texas
audits accounts payable records, occupancy costs, vendor statements and direct
to store delivery audit records to recover overpayments that are a result of
missed credits, duplicated payments, overlooked allowances, incorrect invoices
and other discrepancies.
HSA-Texas provides recovery audit services to large and mid-size businesses
having numerous payment transactions with many vendors. These businesses
include, but are not limited to retailers, manufacturers, wholesale
distributors, technology companies and healthcare providers.
HSA-Texas has more than 1,000 audit associates working in most major U.S.
cities and several international markets. HSA-Texas and its affiliated operating
companies and licensees operate 25 regional offices in the United States,
Australia, Belgium, Canada, France, Germany, Hong Kong, Italy, Mexico, the
Philippines, Portugal, Singapore, Thailand, Taiwan, the Netherlands, Spain and
the United Kingdom.
REASONS FOR THE PROPOSED ACQUISITIONS (SEE PAGES 45-48)
PRG and HSA-Texas have agreed to engage in the proposed acquisitions
because of the synergies and market strength that will result from combining
their businesses. The completion of the proposed acquisitions will give the
combined company an enhanced global presence and the opportunity to gain market
share.
In addition, the boards of directors of PRG and HSA-Texas approved the
proposed acquisitions based on a number of factors, including their belief that
the proposed acquisitions may allow them to:
- accelerate innovation and audit effectiveness and thereby better meet
customer needs for next-generation audit recovery services;
- accelerate expansion into existing and new market segments for audit
recovery;
- be more competitive with other leading audit recovery companies,
including the current and former consulting arms of the Big 5 accounting
firms;
- add to their intellectual property portfolio in the field of audit
recovery processes; and
- add qualified auditors and other employees from the HSA-Texas workforce
to PRG and thereby enhance its expertise in audit recovery technology.
RECOMMENDATIONS OF THE BOARDS OF DIRECTORS (SEE PAGES 42 AND 44)
To PRG shareholders: The PRG board of directors has voted unanimously to
nominate the proposed directors, conditioned on the closing of the asset
acquisition, and to approve the terms and provisions of the asset agreement and
the stock agreement and the proposed issuance of shares and options, and
believes that they are fair to PRG's shareholders and in their best interest.
The PRG board of directors recommends that PRG's shareholders vote for the
approval of the proposed share and option issuances and in favor of the
nominated directors.
To HSA-Texas shareholders: The HSA-Texas board of directors believes that
the proposed acquisitions are fair to HSA-Texas shareholders and in their best
interest, and has unanimously voted to approve the asset agreement, and has
unanimously recommended that holders of HSA-Texas voting common stock vote to
approve and affirm the asset agreement.
OPINION OF FINANCIAL ADVISOR TO PRG (SEE PAGES 49-53)
In deciding to approve the proposed acquisitions, PRG's board of directors
considered the oral opinion of its financial advisor, Merrill Lynch, Pierce,
Fenner & Smith Incorporated, which opinion was subsequently
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confirmed in a written opinion, to the effect that, as of the date of such
opinion, and subject to and based on the considerations referred to in such
opinion, the consideration to be paid by PRG in connection with the proposed
acquisitions was fair, from a financial point of view, to PRG. The opinion,
dated as of August 3, 2001, is attached as Annex C to this joint proxy
statement/prospectus. PRG urges its shareholders to read the opinion of Merrill
Lynch in its entirety.
SHAREHOLDER APPROVALS (SEE PAGES 41 AND 44)
As of the record date, PRG directors and executive officers and their
affiliates owned in the aggregate approximately % of its outstanding shares
of common stock, which shares PRG expects to be voted for approval of the
proposed share and option issuances and in favor of the nominated directors. The
affirmative vote of a majority of the outstanding shares of PRG common stock
entitled to vote and present at the special meeting is required to approve the
proposed share and option issuances and the election of the nominated directors.
As of the record date, PRG directors and executive officers and their affiliates
did not own, beneficially or of record, any shares of HSA-Texas common stock.
As of the record date, the directors and executive officers of HSA-Texas
and their affiliates owned in the aggregate approximately 100% of its
outstanding shares of HSA-Texas voting common stock, which shares HSA-Texas
expects to be voted for approval of the asset agreement. The affirmative vote of
two-thirds of the outstanding shares of HSA-Texas voting stock is required to
approve the asset agreement. Howard Schultz, Leslie Schultz, Andrew Schultz and
the Andrew H. Schultz Irrevocable Trust, parties to the stock agreement, are
expected to accept the offer contained herein and affirm the stock agreement,
pursuant to which PRG will acquire substantially all of the outstanding stock of
HSA-Singapore and all of the outstanding stock of HSA-Asia, HSA-Australia and
HSA-Canada. As of the record date, directors and executive officers of HSA-Texas
owned, beneficially or of record, 3,100 shares of PRG common stock.
THE SPECIAL MEETINGS (SEE PAGES 41 AND 44)
The special meeting of the shareholders of PRG will be held on
, 2001, at am, local time, at the .
The special meeting of the holders of HSA-Texas voting common stock will be
held on , 2001, at am, local time, at the
.
INTERESTS OF DIRECTORS AND OFFICERS OF HSA-TEXAS IN THE PROPOSED ACQUISITIONS
(SEE PAGE 54)
HSA-Texas shareholders and shareholders of the affiliated foreign operating
companies should be aware that the officers and directors of HSA-Texas have
interests in the proposed acquisitions that are different from, or in addition
to, the interests of HSA-Texas shareholders and the shareholders of the
affiliated foreign operating companies. For example:
- After completion of the proposed acquisitions, PRG will employ Howard
Schultz as chairman of the board of the combined company and Andrew
Schultz as an officer, and both Howard Schultz and Andrew Schultz will
serve on the board of directors of PRG;
- At closing, PRG will repay certain outstanding indebtedness of HSA-Texas
to Howard Schultz, estimated to be approximately $8.5 million to $9.0
million, including loans made subsequent to June 30, 2001;
- PRG will grant options to purchase 250,000 shares of PRG common stock to
Howard Schultz at an exercise price equal to the closing price of PRG
common stock on The Nasdaq National Market on the date of grant and will
assume options to purchase 167,631 shares of HSA-Texas common stock at an
exercise price of $9.06 per share held by Arthur Budge, Jr. which will
convert into options to acquire 248,295 shares of PRG common stock at an
exercise price of $6.12 per share, assuming an option conversion ratio of
1.4812;
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- Howard Schultz and Andrew Schultz will collectively beneficially own
approximately 3,589,616 shares and 4,488,832 shares, respectively, of
PRG's outstanding common stock immediately following the closing, without
taking into consideration any shares held in escrow; and
- If three million shares are held in escrow by PRG at the closing of the
asset acquisition and are all subsequently released from escrow, Howard
Schultz and Andrew Schultz will receive an additional approximately
784,902 shares and 879,471 shares, respectively, of PRG common stock.
ACCOUNTING TREATMENT
PRG will account for the proposed acquisitions under the purchase method of
accounting.
REGULATORY APPROVALS (SEE PAGES 54-55)
The proposed acquisitions are subject to review by the Department of
Justice and the Federal Trade Commission, or FTC, to determine whether they
comply with applicable antitrust laws. Under the provisions of the HSR Act, the
proposed acquisitions could not be completed until the waiting period
requirement of the HSR Act had been satisfied. On August 3, 2001, PRG and
HSA-Texas filed required documents with the FTC and requested early termination
of the waiting period. The request for early termination was granted effective
as of August 10, 2001.
In addition, the proposed acquisitions are subject to the SEC's declaring
the effectiveness of the registration statement of which this joint proxy
statement/prospectus is a part.
DISSENTERS' RIGHTS (SEE PAGES 60-62)
PRG's shareholders are not required to approve the proposed acquisitions
under Georgia law, but rather are required by Nasdaq rules to approve the
issuance of shares, including shares subject to options, that are proposed to be
issued in connection with the proposed acquisitions. Georgia corporate law,
which governs PRG as a Georgia corporation, does not afford dissenters' or
appraisal rights to holders of shares that are quoted on The Nasdaq National
Market, or Nasdaq, as are PRG's shares, except in certain merger or share
exchange transactions. Therefore, PRG shareholders have no dissenters' or
appraisal rights with respect to the proposed acquisitions.
Texas law, which governs HSA-Texas as a Texas corporation, entitles
HSA-Texas' holders of voting common stock to dissent from the proposed
acquisition of HSA-Texas and instead demand payment in cash from HSA-Texas of
the fair value of their shares. The shareholders of the affiliated foreign
operating companies, which are governed by the laws of Texas, Hong Kong and
Singapore, as applicable, will not have dissenters' or appraisal rights in
connection with the proposed transactions.
LIMITATION ON CONSIDERING OTHER ACQUISITION PROPOSALS (SEE PAGES 74-76)
PRG and HSA-Texas have agreed not to consider an alternative acquisition
proposal or other similar transaction with another party while the proposed
acquisitions are pending; provided, however, that PRG may consider an
alternative acquisition proposal if:
- a third party has made an unsolicited bona fide written proposal to PRG's
board of directors; and
- the PRG board determines in good faith that consideration of such
alternative acquisition proposal is necessary for the board to comply
with its fiduciary duties to PRG's shareholders; and
- the board determines that such alternative acquisition proposal will, if
completed, be superior to the proposed acquisitions.
PRG may also consider an alternative acquisition proposal if a third party
agrees to acquire HSA-Texas, including the four affiliated foreign operating
companies, concurrently as if they were a part of PRG.
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LENDER APPROVALS (SEE PAGE 55)
PRG's credit agreement provides that a defined majority of the banks in the
nine member banking syndicate must consent to the proposed acquisitions. There
can be no assurance that the required majority of the syndicate members will
consent to the proposed acquisitions and agree to any needed modifications to
the credit agreement.
In granting their approval to the proposed acquisitions, the banking
syndicate would also be consenting to a modification of the credit agreement
formulae for permitted acquisitions and may potentially need to modify
prospective financial ratio covenants for one or more post-acquisition periods.
Additionally, other items and restrictions within the current credit agreement
may require modification or waiver to facilitate the proposed acquisitions. PRG
believes that the lenders will require that the outstanding principal under the
credit agreement be reduced in connection with the granting of any consents.
PRG currently anticipates that some portion of the required reductions in
the currently outstanding principal will be achieved either in connection with
future sales of the discontinued operations or the potential sale of the French
Taxation Services operations, if a decision is made to sell them. If the sales
of the discontinued operations or the French Taxation Services operations cannot
be consummated quickly enough or do not generate sufficient sales proceeds to
meet the anticipated principal reductions under the credit agreement prior to
the closing of the asset acquisition agreement, PRG will seek to raise
additional funds through other debt or equity financing or a combination
thereof.
CONDITIONS TO THE ASSET AGREEMENT (SEE PAGES 73-74)
The obligations of each of PRG and HSA-Texas to complete the proposed
acquisitions are subject to the satisfaction of specified conditions in addition
to the approval by a majority of PRG's shareholders and two-thirds of HSA-Texas'
shareholders, including:
- completion of the acquisition of substantially all of the outstanding
stock of HSA-Singapore, HSA-Asia, HSA-Australia and HSA-Canada pursuant
to the stock agreement prior to or concurrently with the closing of the
asset agreement;
- the approval for listing on The Nasdaq National Market of the shares of
PRG common stock to be issued in the proposed acquisitions; and
- PRG's obtaining the consent of its principal lenders to the proposed
acquisitions.
TERMINATION OF THE ASSET AGREEMENT (SEE PAGES 76-78)
Either PRG or HSA-Texas is entitled to terminate the asset agreement under
specified conditions, including:
- if the proposed acquisitions have not been completed by March 31, 2002;
- if PRG has not received lender consent on or before March 31, 2002;
- if a court issues a final and nonappealable order that prohibits the
proposed acquisitions; or
- if PRG shareholders or holders of HSA-Texas voting common stock do not
approve the proposed acquisitions.
In addition, PRG and HSA-Texas can terminate the asset agreement by mutual
written consent, and HSA-Texas can terminate the asset agreement if a
"triggering event" occurs, such as the approval by the board of directors of PRG
of an alternative acquisition proposal which does not include the concurrent
acquisition of HSA-Texas and the four affiliated foreign operating companies.
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TERMINATION FEES (SEE PAGES 77-78)
If the asset agreement is terminated after PRG mails this joint proxy
statement/prospectus to its shareholders because:
- the PRG board of directors approves or recommends to its shareholders any
alternative acquisition proposal which does not include the concurrent
acquisition of HSA-Texas and the four affiliated foreign operating
companies;
- the PRG board withdraws its recommendation or amends it in a manner
adverse to HSA-Texas; or
- a tender or exchange offer is commenced and PRG does not recommend
rejection of such tender or exchange offer;
PRG will be obligated to pay HSA-Texas a fee in the amount of $2.0 million, plus
HSA-Texas' expenses incurred in connection with the proposed acquisitions, by
wire transfer of immediately available funds.
In addition, if the asset agreement is terminated after PRG mails this
joint proxy statement/prospectus to its shareholders because:
- the HSA-Texas special meeting is not held prior to March 31, 2002;
- any shareholder of the affiliated foreign operating companies that is a
party to the stock agreement has failed to affirm such shareholder's
agreement to sell all of such shareholder's affiliated foreign operating
company shares to PRG;
- HSA-Texas or any affiliated foreign operating company elects not to
participate in certain alternative acquisitions proposed by PRG; or
- HSA-Texas or shareholders of the affiliated foreign operating companies
have breached their representations and warranties or failed to perform
their covenants under the asset agreement or the stock agreement, as
applicable,
HSA-Texas will be required to promptly pay PRG an amount equal to all of PRG's
expenses incurred in connection with the proposed acquisitions by wire transfer
of immediately available funds. See "Material Terms of the Asset
Agreement -- Termination Fees" for a detailed discussion of termination fees.
EXPENSES (SEE PAGES 78-79)
Except as set forth above, the asset agreement provides that all expenses
incurred by each respective party shall be borne by that party; provided,
however, that if the proposed acquisitions are completed, PRG will pay any
previously unpaid reasonable and necessary fees and expenses of attorneys and
accountants of HSA-Texas.
COMPARATIVE PER SHARE MARKET PRICE
PRG common stock is listed on The Nasdaq National Market under the symbol
"PRGX". On July 25, 2001, the last full trading day before the public
announcement of the proposed acquisitions, the last sale price per PRG common
share on Nasdaq was $10.51. On September 6, 2001, the most recent practicable
date prior to the filing of this joint proxy statement/prospectus, the last sale
price per PRG common share on Nasdaq was $14.40. HSA-Texas' and its affiliates'
common stock is not publicly traded.
UNAUDITED COMPARATIVE PER SHARE DATA
The following summary presents per share information for PRG, HSA-Texas,
HSA-Singapore, HSA-Asia, HSA-Australia and HSA-Canada on an historical, pro
forma combined and pro forma diluted equivalent basis for the periods and as of
the dates indicated below. The pro forma information gives effect to the
proposed acquisitions using the purchase method of accounting. This information
should be read in conjunction with HSA-Texas' historical financial statements
and related notes and the pro forma combined financial data included elsewhere
or incorporated by reference in this joint proxy statement/prospectus. The
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pro forma information should not be relied upon as being indicative of the
historical results that the companies would have had if the proposed
acquisitions had occurred before such periods or the future results that the
companies will experience after the proposed acquisitions.
The PRG pro forma combined income (loss) per diluted share has been
computed based on the diluted number of outstanding shares of PRG, adjusted for
the PRG common stock to be issued in the proposed acquisitions of HSA-Texas,
HSA-Singapore, HSA-Asia, HSA-Australia, and HSA-Canada. The pro forma equivalent
income (loss) from continuing operations per share of the acquired companies is
based on the pro forma income from continuing operations per fully diluted
common share of PRG multiplied by the estimated number of shares of PRG common
stock to which each holder of one share of each of the acquired companies'
common stock will be entitled upon completion of the proposed acquisitions, as
follows:
HSA-Texas(1)............................................... 1.28 shares
HSA-Singapore(2)........................................... 15.35 shares
HSA-Asia(2)................................................ 752.34 shares
HSA-Australia(2)........................................... 245.66 shares
HSA-Canada(2).............................................. 307.08 shares
---------------
(1) Assumes that at closing HSA-Texas will have 2,307,482 outstanding voting
shares of common stock, 6,435,383 outstanding shares of non-voting common
stock, 1,133,423 shares subject to outstanding options and 64,569
outstanding SARs, the acquisition of the remaining direct store delivery
audit operations will have closed for a purchase price of approximately $1.2
million, the acquisitions of Howard Schultz & Partner (Deutschland) GmbH and
Howard Schultz & Associates (International) Ltd. will not have been
completed prior to the closing and that the PRG "average price" is $14.796.
(2) Assumes that the number of outstanding shares at closing will be 102 shares
of HSA-Singapore common stock, 100 shares of HSA-Asia common stock,
consisting of 2 outstanding "A" shares of common stock and 98 outstanding
"B" shares of common stock, 1,000 shares of HSA-Australia common stock and
1,000 shares of HSA-Canada common stock.
PRG, HSA-Texas and the affiliated foreign operating companies historically
have not paid cash dividends on common shares. PRG intends to retain all of its
earnings for the future operations and growth of its business and does not
intend to pay cash dividends in the foreseeable future. PRG is prohibited from
paying dividends by its credit facility.
The PRG pro forma combined book value per share is based upon the pro forma
combined equity of PRG, divided by the pro forma number of outstanding shares of
PRG common stock as of June 30, 2001. The pro forma equivalent book value per
share of the acquired companies is based on the pro forma book value per share
of PRG multiplied by the estimated number of shares of PRG common stock to which
each holder of one share of each acquired company's common stock will be
entitled upon completion of the proposed acquisitions, as listed above.
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The pro forma combined and pro forma equivalent amounts may vary, based,
with respect to the HSA-Texas amounts, upon the closing price of PRG common
stock on the effective date and the other assumptions set forth above in
footnotes 1 and 2. See "Summary -- Questions and Answers about the Proposed
Acquisitions -- How many shares of PRG common stock are expected to be
distributed to HSA-Texas shareholders for each share of HSA-Texas common stock
owned?" and "-- How many shares of PRG common stock are expected to be
distributed to shareholders of the affiliated foreign operating companies for
each share of common stock owned in such company?" for a detailed explanation of
the calculation of the number of shares to be issued.
YEAR ENDED SIX MONTHS ENDED
DECEMBER 31, 2000 JUNE 30, 2001
----------------- ----------------
Statement of Operations Data:
Income (loss) from continuing operations per weighted
average diluted share:
HISTORICAL
PRG.................................................... $ 0.15 $ 0.03
HSA-Texas.............................................. (0.38) 0.12
HSA-Singapore.......................................... (18,008.40) (8,611.60)
HSA-Asia............................................... 35.49 837.35
HSA-Australia.......................................... (320.96) (82.43)
HSA-Canada............................................. (170.13) 55.06
PRO FORMA COMBINED
PRG.................................................... 0.05 0.02
PRO FORMA EQUIVALENT
HSA-Texas.............................................. 0.06 0.03
HSA-Singapore.......................................... 0.77 0.31
HSA-Asia............................................... 37.62 15.05
HSA-Australia.......................................... 12.28 4.91
HSA-Canada............................................. 15.35 6.14
AS OF JUNE 30,
2001
--------------
Balance Sheet Data:
Net Book Value Per Share:
HISTORICAL
PRG.................................................... $ 4.87
HSA-Texas.............................................. 0.42
HSA-Singapore.......................................... (34,682.40)
HSA-Asia............................................... (16,937.46)
HSA-Australia.......................................... (128.41)
HSA-Canada............................................. (664.36)
PRO FORMA COMBINED
PRG.................................................... 6.73
PRO FORMA EQUIVALENT
HSA-Texas.............................................. 8.61
HSA-Singapore.......................................... 103.31
HSA-Asia............................................... 5,063.25
HSA-Australia.......................................... 1,653.29
HSA-Canada............................................. 2,066.65
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The pro forma data above do not include any shares that may be released
from escrow with respect to the proposed acquisitions of the business of Howard
Schultz & Partner (Deutschland) GmbH and Howard Schultz & Associates
(International) Ltd. See "Other Related Agreements -- Escrow Agreement" for a
description of the escrow provisions. In addition, the data assume that the PRG
shares of common stock received by HSA-Texas will be available for distribution
to the HSA-Texas shareholders, and not subject to claims of creditors of
HSA-Texas. See "Material Terms of the Asset Agreement -- Retained Liabilities"
for a description of liabilities to be retained by HSA-Texas after the proposed
acquisitions.
HISTORICAL MARKET PRICES OF PRG COMMON STOCK
The table below sets forth for the periods presented the high and low sales
prices per share for PRG common stock, as reported on The Nasdaq National
Market, adjusted for the 3-for-2 stock split effected by a 100% stock dividend
paid on August 17, 1999. PRG has not paid cash dividends on its common stock
since its initial public offering on March 26, 1996 and does not intend to pay
cash dividends in the foreseeable future. Moreover, restrictive covenants
included in PRG's bank credit facility specifically prohibit payment of cash
dividends.
COMMON STOCK
PRICES
---------------
HIGH LOW
------ ------
YEAR ENDED DECEMBER 31, 1999:
First Quarter............................................. $26.67 $18.75
Second Quarter............................................ 32.25 22.42
Third Quarter............................................. 45.50 24.83
Fourth Quarter............................................ 47.50 23.00
YEAR ENDED DECEMBER 31, 2000:
First Quarter............................................. $34.33 $14.75
Second Quarter............................................ 20.56 13.00
Third Quarter............................................. 18.81 7.88
Fourth Quarter............................................ 9.91 3.06
YEAR ENDED DECEMBER 31, 2001:
First Quarter............................................. $ 7.67 $ 4.81
Second Quarter............................................ 14.00 4.88
Third Quarter (through September 6)....................... 15.00 14.17
As of August 29, 2001, there were 48,704,300 shares of PRG common stock
outstanding, which were owned by 343 holders of record. As of August 31, 2001,
there were 2,307,482 shares of HSA-Texas voting common stock outstanding, which
shares were owned by four holders of record and 6,435,383 shares of HSA-Texas
non-voting common stock outstanding, which shares were owned by 19 holders of
record.
In addition, as of August 31, 2001, there were 5 shares of HSA-Singapore
common stock outstanding, which were owned by two holders of record, 100 shares
of HSA-Asia common stock outstanding, which were owned by one holder of record,
1,000 shares of HSA-Australia common stock outstanding, which were owned by one
holder of record and 1,000 shares of HSA-Canada common stock outstanding, which
were owned by one holder of record. HSA-Texas and its affiliated foreign
operating companies are not publicly traded companies, and neither HSA-Texas nor
its affiliated foreign operating companies have ever declared dividends on their
common stock.
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PRG SELECTED CONSOLIDATED FINANCIAL INFORMATION
The following table sets forth selected consolidated financial data for PRG
as of and for the five years ended December 31, 2000 and as of June 30, 2001 and
for the six months ended June 30, 2001 and 2000. Such historical consolidated
financial data as of and for the five years ended December 31, 2000 have been
derived from PRG's Consolidated Financial Statements and Notes thereto. The
Consolidated Balance Sheets as of December 31, 2000 and 1999, and the related
Consolidated Statements of Operations, Shareholders' Equity and Cash Flows for
each of the years in the three-year period ended December 31, 2000 and the
independent auditors' report thereon, which in each such year is based partially
upon the report of other auditors and refers to changes in accounting for
revenue recognition in 2000 and 1999, are incorporated by reference in this
joint proxy statement/prospectus. Such historical consolidated financial data as
of June 30, 2001 and for the six months ended June 30, 2001 and 2000 are derived
from PRG's unaudited Consolidated Financial Statements, and include, in the
opinion of management, all adjustments, consisting only of normal recurring
adjustments, necessary to present fairly the data for the periods. In March
2001, PRG initiated a strategic realignment designed to enhance PRG's financial
position and clarify its investment and operating strategy by focusing primarily
on its core Accounts Payable business. Under this strategic realignment
initiative, PRG intends to divest the following non-core businesses: Meridian
VAT Reclaim ("Meridian") within the former Taxation Service segment, the
Logistics Management Services segment, the Communications Services segment and
the Ship and Debit ("Ship & Debit") division within the Accounts Payable
Services segment. Selected Consolidated Financial Data for PRG has been restated
to reflect Meridian, Logistics Management Services, Communications Services, and
Ship & Debit as discontinued operations for all periods presented. Selected
Consolidated Financial data for PRG was retroactively restated, as required
under accounting principles generally accepted in the United States of America,
to include the accounts of Meridian and PRS International, Ltd. which were
acquired in August 1999 and accounted for under the pooling-of-interests method.
Further, PRG made the decision in the second quarter of 1999 to change its
method of revenue recognition retroactively effective to January 1, 1999 to
recognize revenue on all of its then existing operations when it invoices
clients for its fees. PRG had previously recognized revenue from services
provided to its historical client base (consisting primarily of retailers,
wholesale distributors and governmental entities) at the time overpayment claims
were presented to and approved by its clients. In accordance with the applicable
requirements of accounting principles generally accepted in the United States of
America, consolidated financial statements for periods prior to 1999 have not
been restated. Due to accounting changes and acquisitions accounted for as
poolings-of-interests, certain financial statement amounts related to continuing
operations for 1999 will not be directly comparable to corresponding amounts for
1998 and prior years, and certain financial statement amounts related to
discontinued operations for 2000 will not be directly comparable to
corresponding amounts for 1999 and prior years. The data presented below should
be read in conjunction with the Consolidated Financial Statements and Notes
thereto incorporated in this joint proxy statement/prospectus by reference to
PRG's Form 10-K for the year ended December 31, 2000 and other financial
information appearing elsewhere herein or incorporated by reference in this
joint proxy statement/prospectus, including PRG's Management's Discussion and
Analysis of Financial Condition and Results of Operations contained in PRG's
Form 10-K for the year ended December 31, 2000.
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THE PROFIT RECOVERY GROUP INTERNATIONAL, INC.
SIX MONTHS ENDED YEARS ENDED DECEMBER 31,
------------------- ----------------------------------------------------------
JUNE 30, JUNE 30,
2001 2000 2000(12) 1999(2)(10) 1998(1)(3) 1997(1)(4) 1996(1)
-------- -------- -------- ----------- ---------- ---------- -------
(IN THOUSANDS, EXCEPT PER SHARE DATA)
STATEMENTS OF OPERATIONS DATA:
Revenues............................... $142,311 $140,577 $297,089 $280,367 $206,859 $125,171 $85,439
Cost of revenues....................... 74,789 73,922 156,408 145,949 108,004 65,502 45,227
Selling, general and administrative
expenses(5).......................... 61,691 50,430 119,779 90,952 69,917 42,841 28,925
-------- -------- -------- -------- -------- -------- -------
Operating income..................... 5,831 16,225 20,902 43,466 28,938 16,828 11,287
Interest (expense), net................ (3,801) (3,741) (8,253) (4,190) (2,053) (383) (90)
-------- -------- -------- -------- -------- -------- -------
Earnings from continuing operations
before income taxes, discontinued
operations and cumulative effect of
accounting change.................. 2,030 12,484 12,649 39,276 26,885 16,445 11,197
Income taxes(6)........................ 812 5,243 5,313 15,632 9,948 6,153 7,799
-------- -------- -------- -------- -------- -------- -------
Earnings from continuing operations
before discontinued operations and
cumulative effect of accounting
change............................. 1,218 7,241 7,336 23,644 16,937 10,292 3,398
Discontinued operations:
Earnings (loss) from discontinued
operations, net of income
taxes(10).......................... -- (24,389) (46,464) 3,792 (2,303) (928) 445
Gain (loss) on disposal from
discontinued operations including
operating results for phase out
period, net of income taxes........ -- -- -- -- -- -- --
-------- -------- -------- -------- -------- -------- -------
Earnings (loss) from discontinued
operations......................... -- (24,389) (46,464) 3,792 (2,303) (928) 445
-------- -------- -------- -------- -------- -------- -------
Earnings (loss) before cumulative
effect of accounting change........ 1,218 (17,148) (39,128) 27,436 14,634 9,364 3,843
Cumulative effect of accounting
change............................... -- -- -- (29,195) -- -- --
-------- -------- -------- -------- -------- -------- -------
Net earnings (loss)............ $ 1,218 $(17,148) $(39,128) $ (1,759) $ 14,634 $ 9,364 $ 3,843
======== ======== ======== ======== ======== ======== =======
Cash dividends per share(11)........... $ -- $ -- $ -- $ 0.01 $ 0.01 $ 0.01 $ 0.16
======== ======== ======== ======== ======== ======== =======
Basic earnings (loss) per share:
Earnings from continuing operations
before discontinued operations and
cumulative effect of accounting
change............................. $ 0.03 $ 0.14 $ 0.15 $ 0.50 $ 0.43 $ 0.31 $ 0.11
Discontinued operations.............. -- (0.49) (0.95) 0.07 (0.06) (0.03) 0.02
Cumulative effect of accounting
change............................. -- -- -- (0.61) -- -- --
-------- -------- -------- -------- -------- -------- -------
Net earnings (loss)............ $ 0.03 $ (0.35) $ (0.80) $ (0.04) $ 0.37 $ 0.28 $ 0.13
======== ======== ======== ======== ======== ======== =======
Diluted earnings (loss) per share:
Earnings from continuing operations
before discontinued operations and
cumulative effect of accounting
change............................. $ 0.03 $ 0.14 $ 0.15 $ 0.48 $ 0.42 $ 0.30 $ 0.11
Discontinued operations.............. -- (0.48) (0.94) 0.07 (0.06) (0.03) 0.01
Cumulative effect of accounting
change............................. -- -- -- (0.59) -- -- --
-------- -------- -------- -------- -------- -------- -------
Net earnings (loss)............ $ 0.03 $ (0.34) $ (0.79) $ (0.04) $ 0.36 $ 0.27 $ 0.12
======== ======== ======== ======== ======== ======== =======
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THE PROFIT RECOVERY GROUP INTERNATIONAL, INC.
DECEMBER 31,
JUNE 30, ---------------------------------------------------------------
2001 2000(12) 1999(2)(7) 1998(1)(3)(8) 1997(1)(4) 1996(1)(9)
--------- -------- ---------- ------------- ---------- ----------
(IN THOUSANDS)
BALANCE SHEET DATA:
Cash and cash equivalents................. $ 12,812 $23,870 $ 22,315 $ 28,000 $ 19,926 $17,056
Working capital........................... 147,001 129,106 112,166 45,343 17,946 36,388
Total assets.............................. 450,015 464,831 484,719 366,545 117,629 51,936
Long-term debt, excluding current
installments and loans from
shareholders............................ 161,605 154,563 95,294 112,886 24,372 716
Loans from shareholders................... -- -- -- -- -- 52
Total shareholders' equity................ 235,531 239,156 292,500 144,105 45,515 23,570
---------------
(1) Selected consolidated financial data for PRG as of and for the three years
ending December 31, 1998, as previously reported, have been retroactively
restated, as required under accounting principles generally accepted in the
United States of America, to include the accounts of Meridian VAT
Corporation Limited and PRS International, Ltd. which were each acquired in
August 1999 and accounted for under the pooling-of-interests method. See
Notes 2 and 10 of Notes to Consolidated Financial Statements incorporated
in this joint proxy statement/prospectus by reference to PRG's Form 10-K
for the year ended December 31, 2000.
(2) During 1999, PRG completed six acquisitions accounted for as purchases
consisting of Payment Technologies, Inc. (April), Invoice and Tariff
Management Group, LLC (June), AP SA (October), Freight Rate Services, Inc.
(December), Integrated Systems Consultants, Inc. (December) and minority
interests in an Irish subsidiary and a Japanese subsidiary of Meridian VAT
Corporation Limited (December). See Notes 2 and 10 of Notes to Consolidated
Financial Statements incorporated in this joint proxy statement/prospectus
by reference to PRG's Form 10-K for the year ended December 31, 2000.
(3) During 1998, PRG completed eight acquisitions accounted for as purchases
consisting of Precision Data Link (March), The Medallion Group (June),
Novexel S.A. (July), Loder, Drew & Associates, Inc. (August), Cost Recovery
Professionals Pty Ltd (September), Robert Beck & Associates, Inc. and
related businesses (October), IP Strategies SA (November) and Industrial
Traffic Consultants, Inc. (December). See Notes 2 and 10 of Notes to
Consolidated Financial Statements incorporated in this joint proxy
statement/prospectus by reference to PRG's Form 10-K for the year ended
December 31, 2000.
(4) During 1997, PRG completed four acquisitions accounted for as purchases
consisting of Accounts Payable Recovery Services, Inc. (February), The Hale
Group (May), 98.4% of Financiere Alma, S.A. and its subsidiaries (October)
and TradeCheck, LLC (November), and one acquisition accounted for as a
pooling of interests, Shaps Group, Inc. (January). See Notes 2 and 10 of
Notes to Consolidated Financial Statements incorporated in this joint proxy
statement/prospectus by reference to PRG's Form 10-K for the year ended
December 31, 2000.
(5) Includes merger-related charges relating to a business acquired under the
pooling-of-interests accounting method and certain restructuring charges.
See Note 16 of Notes to Consolidated Financial Statements incorporated in
this joint proxy statement/prospectus by reference to PRG's Form 10-K for
the year ended December 31, 2000.
(6) In connection with PRG's March 1996 initial public offering, all domestic
entities became C corporations. As a result of these conversions to C
corporations, PRG incurred a charge to operations of $3.7 million in 1996
for cumulative deferred income taxes. PRG's 1996 provision for income taxes
of $7.8 million consists of the above-mentioned $3.7 million charge for
cumulative deferred income taxes combined with $4.1 million in tax
provisions for the three quarters subsequent to the March 26, 1996 initial
public offering.
(7) Balance Sheet Data as of December 31, 1999 reflect the receipt of net
proceeds from PRG's January 1999 follow-on public offering. See Note 8 of
Notes to Consolidated Financial Statements incorporated
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in this joint proxy statement/prospectus by reference to PRG's Form 10-K
for the year ended December 31, 2000.
(8) Balance Sheet Data as of December 31, 1998 reflect the receipt of net
proceeds from PRG's March 1998 follow-on public offering. See Note 8 of
Notes to Consolidated Financial Statements incorporated in this joint proxy
statement/prospectus by reference to PRG's Form 10-K for the year ended
December 31, 2000.
(9) Balance Sheet Data as of December 31, 1996 reflect the receipt of net
proceeds from PRG's March 1996 initial public offering together with the
partial use of such proceeds to repay substantially all debt obligations
other than certain convertible debentures which were converted to equity
immediately prior to the offering.
(10) In 2000 and 1999, PRG changed its method of accounting for revenue
recognition. See Notes 2(b) and 1(d) of Notes to Consolidated Financial
Statements incorporated in this joint proxy statement/prospectus by
reference to PRG's Form 10-K for the year ended December 31, 2000.
(11) Cash dividends per share represent distributions to shareholders of PRG
prior to PRG's initial public offering and distributions to the
shareholders of PRS International, Ltd.
(12) During 2000, PRG completed two acquisitions accounted for as purchases
consisting of The Right Answer, Inc. (March) and TSL Services, Inc. (June).
See Note 2 of Notes to Consolidated Financial Statements incorporated in
this joint proxy statement/prospectus by reference to PRG's Form 10-K for
the year ended December 31, 2000.
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HSA-TEXAS SELECTED COMBINED FINANCIAL INFORMATION
The following selected historical combined financial data should be read in
conjunction with HSA-Texas' combined financial statements contained in this
joint proxy statement/prospectus. The income statement data for fiscal years
1998 through 2000 and the balance sheet data as of December 31, 2000 and 1999
have been derived from HSA-Texas' audited combined financial statements, and the
selected combined financial data as of December 31, 1998 and June 30, 2001 and
for the six months ended June 30, 2001 and 2000 have been derived from
HSA-Texas' unaudited combined financial statements and include, in the opinion
of management of HSA-Texas, all adjustments, consisting only of normal recurring
adjustments, necessary to present fairly the data for these periods. The
combined financial data included herein may not necessarily be indicative of the
financial position or results of operations of HSA-Texas in the future. Selected
financial data as of, and for the years ended, December 31, 1996 and 1997, have
not been presented, due to HSA-Texas' inability to obtain from its former
licensees a significant portion of the necessary financial information required
to prepare financial statements for those years in conformity with accounting
principles generally accepted in the United States of America. In addition,
HSA-Texas does not believe that such selected financial data would be material
to a shareholder's evaluation of the information regarding HSA-Texas contained
in this joint proxy statement/prospectus because it relates to periods in which
the majority of HSA-Texas' operations were conducted by independently owned
licensees. See "Business of HSA-Texas."
SIX MONTHS ENDED
------------------- YEARS ENDED DECEMBER 31,
JUNE 30, JUNE 30, ------------------------------
2001 2000 2000 1999 1998
-------- -------- -------- -------- --------
(IN THOUSANDS)
STATEMENTS OF OPERATIONS DATA:
Revenues...................................... $67,053 $67,052 $138,708 $133,789 $117,599
Cost of revenues.............................. 42,681 43,574 91,222 94,071 89,849
Selling, general and administrative
expenses.................................... 25,405 22,834 48,324 37,760 26,223
------- ------- -------- -------- --------
Operating income (loss)..................... (1,033) 644 (838) 1,958 1,527
Interest income (expense), net................ (1,510) (1,368) (2,938) (2,243) (1,770)
Settlement of litigation...................... 3,650 -- -- -- --
Other income (expense), net................... (3) 25 47 (33) 264
------- ------- -------- -------- --------
Income (loss) before income taxes........... 1,104 (699) (3,729) (318) 21
Income taxes(1)............................... -- -- -- -- --
------- ------- -------- -------- --------
Net income (loss)........................... $ 1,104 $ (699) $ (3,729) $ (318) $ 21
======= ======= ======== ======== ========
DECEMBER 31,
JUNE 30, ---------------------------
2001 2000 1999 1998
-------- ------- ------- -------
(IN THOUSANDS)
BALANCE SHEET DATA:
Cash and cash equivalents................................. $ 5,429 $ 2,179 $ 3,910 $ 1,980
Working capital (deficit)................................. 1,175 (3,669) 997 9,294
Total assets.............................................. 57,252 59,718 48,756 45,255
Long-term debt, excluding current installments and loans
from stockholders....................................... 20,544 25,024 19,075 22,730
Loans from stockholders................................... 10,915 5,050 4,050 4,292
Total stockholders' equity................................ 852 186 5,701 5,627
---------------
(1) HSA-Texas has been a subchapter S corporation for all periods presented and
therefore has had no income tax expense.
25
33
THE PROFIT RECOVERY GROUP INTERNATIONAL, INC.
SUMMARY SELECTED UNAUDITED PRO FORMA
COMBINED FINANCIAL INFORMATION
The following summary selected unaudited pro forma combined financial
information for PRG has been derived from the historical consolidated financial
statements contained in this joint proxy statement/prospectus which give effect
to the acquisition of the HSA-Texas assets and substantially all of the
outstanding stock of HSA-Singapore and all of the outstanding stock of HSA-Asia,
HSA-Australia and HSA-Canada, under purchase accounting, and should be read in
conjunction with the unaudited pro forma combined financial statements and the
related notes contained herein. For pro forma purposes PRG's unaudited pro forma
combined statements of operations for the six months ended June 30, 2001 and the
year ended December 31, 2000 are presented as if the purchase had occurred at
the beginning of the period presented, and PRG's unaudited pro forma combined
balance sheet as of June 30, 2001 is presented as if the purchase had occurred
as of that date.
The pro forma combined financial statements should be read in conjunction
with PRG's unaudited consolidated financial statements and related notes
included in PRG's Quarterly Report on Form 10-Q for the period ended June 30,
2001 and the audited consolidated financial statements and related notes in
PRG's Annual Report on Form 10-K for the year ended December 31, 2000, all of
which are incorporated by reference herein. The pro forma information is based
on estimates and assumptions and may not necessarily be indicative of what PRG's
results of operations or financial position would have been had the proposed
acquisitions been effected as of and for the periods presented, nor is such
information necessarily indicative of PRG's results of operations or financial
position for any future period or date.
SIX MONTHS
YEAR ENDED ENDED
DECEMBER 31, JUNE 30,
2000 2001
------------ ----------
Revenues.................................................... $ 435,797 $209,364
Cost of revenues............................................ 247,630 117,470
Selling, general and administrative expenses................ 171,855 87,865
--------- --------
Operating income.......................................... 16,312 4,029
Interest (expense), net..................................... (10,947) (5,170)
Settlement of litigation income............................. -- 3,650
--------- --------
Earnings from continuing operations before income taxes... 5,365 2,509
Income taxes................................................ 2,253 1,003
--------- --------
Earnings from continuing operations....................... $ 3,112 $ 1,506
========= ========
Basic earnings per share -- earnings from continuing
operations................................................ $ 0.05 $ 0.03
========= ========
Diluted earnings per share -- earnings from continuing
operations................................................ $ 0.05 $ 0.02
========= ========
Shares used for basic per share calculation................. 60,171 59,366
Shares used for diluted per share calculation............... 61,728 60,267
26
34
RISK FACTORS
You should consider the following factors in conjunction with the other
information included or incorporated by reference in this joint proxy
statement/prospectus.
RISKS RELATING TO THE PROPOSED ACQUISITIONS
Acquisition Risks for PRG Shareholders to Consider
COMPLETION OF THE PROPOSED ACQUISITIONS WILL RESULT IN SUBSTANTIAL DILUTION
TO CURRENT PRG SHAREHOLDERS.
As of August 29, 2001, PRG had outstanding 48,704,300 shares of its common
stock and options to purchase 2,262,311 shares of PRG common stock. If the
proposed acquisitions are completed and PRG issues the maximum aggregate
consideration of approximately 16 million shares of PRG common stock in exchange
for substantially all of the assets of HSA-Texas and substantially all of the
outstanding stock of the four affiliated foreign operating companies,
immediately following the proposed acquisitions, affiliates of HSA-Texas will
own approximately 23% of PRG's outstanding common stock, and the ownership of
current PRG shareholders will be reduced to approximately 77%.
IF THE ASSET AGREEMENT IS TERMINATED UNDER A NUMBER OF CIRCUMSTANCES AFTER
PRG MAILS THIS JOINT PROXY STATEMENT/PROSPECTUS, INCLUDING THE FAILURE OF PRG'S
SHAREHOLDERS TO APPROVE THE PROPOSED SHARE AND OPTION ISSUANCES, PRG WILL INCUR
SIGNIFICANT COSTS.
If the asset agreement is terminated after PRG mails this joint proxy
statement/prospectus to its shareholders because:
- PRG is unable to obtain the approval of its shareholders;
- PRG materially breaches its representations and warranties or fails to
perform its covenants under the asset agreement and any such breach or
failure is not cured by the earlier of 10 days from notice thereof or
March 31, 2002; or
- PRG has not held a special meeting of its shareholders by March 31, 2002;
then PRG will be obligated to reimburse HSA-Texas for all reasonable fees and
expenses, including reasonable attorneys' fees, accountants' fees, financial
advisory fees, broker fees and filing fees, that have been paid by or on behalf
of HSA-Texas in connection with the preparation and negotiation of the proposed
acquisitions and related transactions.
In addition, if the asset agreement is terminated after PRG mails this
joint proxy statement/prospectus to its shareholders, PRG will be obligated to
pay HSA-Texas $2.0 million plus all transaction expenses incurred by HSA-Texas
and its shareholders, including all reasonable out-of-pocket legal and
accounting fees, all broker and financial advisor fees, all HSR fees, and all
SEC fees, if:
- the PRG board of directors or any committee thereof approves or
recommends to its shareholders any alternative acquisition proposal which
does not include the concurrent acquisition of HSA-Texas and the four
affiliated foreign operating companies or their assets by the third party
as if HSA-Texas and the four affiliated foreign operating companies were
a part of PRG at the completion of such alternative acquisition proposal;
or
- the PRG board of directors or any committee thereof shall for any reason
have withdrawn, or shall have amended or modified in a manner adverse to
HSA-Texas, the PRG board's recommendations of the proposed acquisitions;
or
- a tender or exchange offer to acquire 50% or more of the outstanding
shares of PRG common stock shall have been commenced by a third party,
and PRG shall not, within 10 business days after such tender or exchange
offer is first published or given to its shareholders, issued a statement
recommending rejection of such tender or exchange offer.
27
35
In addition, if the proposed acquisitions are not consummated for any
reason, PRG will incur a substantial and immediate charge to earnings, estimated
to be within a range of $8.0 million to $10.0 million, for all cumulative out of
pocket business combination costs related to the proposed acquisitions.
Acquisition Risks for HSA-Texas, HSA-Texas Shareholders and Shareholders of
Each Affiliated Foreign Operating Company to Consider
OFFICERS AND DIRECTORS OF HSA-TEXAS HAVE POTENTIAL CONFLICTS OF INTEREST
THAT MAY INFLUENCE THEM TO SUPPORT OR APPROVE THE PROPOSED ACQUISITIONS.
HSA-Texas shareholders and shareholders of HSA-Texas' affiliated foreign
operating companies should be aware of potential conflicts of interest and
benefits available to HSA-Texas directors and officers when considering
HSA-Texas' board of directors' recommendation to its holders of voting common
stock to approve the proposed acquisitions. For example, following the closing
of the asset acquisition, some of the directors and officers of HSA-Texas will
have employment or other arrangements with PRG that give them interests in the
proposed acquisitions that are different from or in addition to the interests of
other HSA-Texas shareholders. In addition, at the closing, PRG will repay
certain outstanding indebtedness of HSA-Texas to Howard Schultz, estimated to be
approximately $8.5 million to $9.0 million, including loans made subsequent to
June 30, 2001.
For these reasons, the directors and officers of HSA-Texas could be more
likely to vote to approve the terms of the proposed acquisitions than if they
did not have these interests. Holders of HSA-Texas voting common stock and
shareholders of HSA-Texas' affiliated foreign operating companies should
consider whether these interests may have influenced these directors and
officers to support or recommend the proposed acquisitions. See "The Proposed
Acquisitions -- Potential Conflicts of Interest of Directors and Officers of
HSA-Texas in the Proposed Acquisitions."
THE RIGHTS OF SHAREHOLDERS OF HSA-TEXAS AND OF THE HSA-TEXAS AFFILIATED
FOREIGN OPERATING COMPANIES WILL BE CHANGED AS A RESULT OF THE PROPOSED
ACQUISITIONS.
Following the proposed acquisitions, shareholders of HSA-Texas common stock
outstanding on the date of the proposed acquisitions will become holders of PRG
common stock upon distribution of any shares of PRG common stock to HSA-Texas
shareholders. Certain differences exist between the rights of PRG shareholders
under PRG's articles of incorporation and bylaws and the corporate law of
Georgia, its state of incorporation, and the rights of HSA-Texas shareholders
under HSA-Texas' articles of incorporation and bylaws and the corporate law of
Texas, its state of incorporation. Certain rights that HSA-Texas shareholders
currently have under HSA-Texas' articles of incorporation and bylaws and under
Texas law may cease to exist following the proposed acquisitions.
In addition, shareholders of the affiliated foreign operating companies
will become holders of PRG common stock upon acceptance of the offer contained
herein and exchanging their shares for shares of PRG common stock at closing.
Certain differences also exist between the rights of PRG shareholders under
PRG's corporate governance documents and Georgia law, and the rights of
shareholders of HSA-Australia and HSA-Canada under their respective articles of
incorporation and bylaws and the corporate law of Texas, their state of
incorporation, the rights of shareholders of HSA-Singapore under its memorandum
of association and articles of association and bylaws and the corporate law of
Singapore, its country of incorporation, and the rights of shareholders of
HSA-Asia under its memorandum of association and articles of association and the
corporate law of Hong Kong, its country of incorporation. Certain rights that
shareholders of the affiliated foreign operating companies currently have under
their corporate governance documents may cease to exist following the proposed
acquisitions. See "Comparative Rights of PRG Shareholders, HSA-Texas
Shareholders and Shareholders of the Affiliated Foreign Operating Companies."
28
36
THE PROPOSED ACQUISITIONS COULD RESULT IN POTENTIAL ADVERSE U.S. FEDERAL INCOME
TAX CONSEQUENCES TO HSA-TEXAS, HSA-TEXAS' SHAREHOLDERS AND SHAREHOLDERS OF THE
AFFILIATED FOREIGN OPERATING COMPANIES.
Neither HSA-Texas nor PRG has requested, or plans to request, any ruling
from the Internal Revenue Service as to:
- whether the proposed acquisition of HSA-Texas and the subsequent
liquidation of HSA-Texas qualifies as a tax-free reorganization under
Section 368(a)(1)(C) of the Internal Revenue Code, sometimes referred to
as a "C-reorganization;"
- whether the proposed acquisitions of the stock of the affiliated foreign
operating companies qualify as tax-free reorganizations under Section
368(a)(1)(B) of the Internal Revenue Code, sometimes referred to as a
"B-reorganization;" or
- any other tax matter regarding the proposed acquisitions.
There can be no assurance that the proposed acquisitions will not at some
later date be found not to qualify as a C-reorganization or a B-reorganization,
as the case may be, in which case HSA-Texas, its shareholders, and the
shareholders of the affiliated foreign operating companies could incur taxable
gains upon the receipt of PRG common stock. There can be no assurance that the
IRS will allow, on audit, the proposed acquisitions to be treated as tax-free
reorganizations. If the C-reorganization or the B-reorganization is disallowed
by the IRS and the disallowance is upheld by the courts, corresponding
adjustments will be made in the federal income tax returns of HSA-Texas, its
shareholders, and the shareholders of the affiliated foreign operating companies
for their affected taxable years. Expected consequences of a disallowance of
this type include the following:
- HSA-Texas would recognize gain or loss for U.S. federal income tax
purposes as a result of PRG's acquisition of HSA-Texas' assets. As long
as HSA-Texas qualifies as an S corporation, HSA-Texas would owe U.S.
federal income tax only on the portion of the gain that is subject to the
built-in gains tax imposed by Section 1374 of the Code. Each HSA-Texas
shareholder would owe U.S. federal income tax on his or her share of the
gain reduced by any built-in gains tax imposed by Section 1374 of the
Code on HSA-Texas;
- to the extent that there is any increase or decrease in the value of PRG
common stock from the time of receipt by HSA-Texas until the time of the
liquidation and dissolution of HSA-Texas, HSA-Texas shareholders would
recognize additional gain or loss for U.S. federal income tax purposes in
an amount equal to such increase or decrease;
- the shareholders of the affiliated foreign operating companies would
recognize gain or loss for U.S. federal income tax purposes upon receipt
of PRG common stock in exchange for the shareholders' stock in such
companies;
- HSA-Texas shareholders or shareholders of the affiliated foreign
operating companies would also likely have to pay interest on the amount
of the tax deficiencies attributable to the taxable gains;
- the tax basis of the PRG common stock, and any other property received in
connection with the liquidation of HSA-Texas, would equal its fair market
value as of the date of the liquidating distributions;
- the tax basis of the PRG common stock received in the acquisitions of the
affiliated foreign operating companies would equal its fair market value
as of the date of the acquisitions; and
- the holding period of PRG common stock and any other property received by
HSA-Texas shareholders in the liquidation of HSA-Texas would begin the
day after the liquidating distributions.
- the holding period of PRG common stock received in the acquisitions of
the stock of the affiliated foreign operating companies would begin on
the day after the date of the acquisitions.
29
37
In addition, audit of the federal income tax returns of HSA-Texas or its
affiliated foreign operating companies may result in an examination and audit of
the individual shareholders' returns that would not otherwise occur.
Any tax liability to HSA-Texas, HSA-Texas' shareholders or shareholders of
the affiliated foreign operating companies could be material. See "Material
Federal Income Tax Consequences Relating to the Proposed Acquisitions."
EXPENSES OF WINDING UP HSA-TEXAS MAY REDUCE THE NUMBER OF PRG SHARES
DISTRIBUTED TO HSA-TEXAS SHAREHOLDERS.
Assuming:
- a PRG average price of $14.796 per share;
- that the acquisitions of the direct to store delivery audit operations
are completed prior to the closing of the asset acquisition for an
aggregate cash consideration of approximately $4.2 million;
- that the acquisitions of Howard Schultz & Partner (Deutschland) GmbH and
Howard Schultz & Associates (International) Ltd. have not been completed
prior to the closing of the asset acquisition;
- that the number of outstanding shares of HSA-Texas common stock, the
number of shares of HSA-Texas common stock subject to outstanding
HSA-Texas options and the number of outstanding HSA-Texas SARs remain
constant; and
- that HSA-Texas' liquidation expenses and retained liabilities do not
exceed the value of HSA-Texas' assets not being sold to PRG,
it is expected that HSA-Texas shareholders will receive upon any distribution a
maximum of approximately 1.278 shares of PRG common stock, exclusive of shares
issued into escrow, for each share of HSA-Texas common stock owned. However,
there can be no assurance that liquidation expenses and retained liabilities of
HSA-Texas will not exceed HSA-Texas' management's estimates or that the PRG
average price will not be greater than $14.796 at closing, in which case, the
number of shares to be received by HSA-Texas shareholders upon any distribution
will be reduced accordingly. See "Material Terms of the Asset
Agreement -- Purchase Price."
IF THE ASSET AGREEMENT IS TERMINATED UNDER A NUMBER OF CIRCUMSTANCES AFTER
PRG MAILS THIS JOINT PROXY STATEMENT/PROSPECTUS, INCLUDING THE FAILURE TO HOLD
THE HSA-TEXAS SPECIAL MEETING, HSA-TEXAS WILL INCUR SIGNIFICANT COSTS.
If the asset agreement is terminated after PRG mails this joint proxy
statement/prospectus to its shareholders because:
- the HSA-Texas special meeting has not been held by March 31, 2002;
- HSA-Texas or its shareholders materially breach their representations and
warranties or fail to perform their covenants under the asset agreement
and any such breach or failure is not cured by the earlier of 10 days
from notice thereof or March 31, 2002;
- any shareholder of the affiliated foreign operating companies who is a
party to the stock agreement fails to affirm such agreement to sell all
of such shareholder's shares to PRG; or
- HSA-Texas elects not to participate in certain alternative acquisition
proposals;
then HSA-Texas will be required to pay PRG promptly an amount equal to all of
PRG's expenses incurred in connection with the proposed acquisitions by wire
transfer of immediately available funds.
SHARES OF PRG COMMON STOCK HELD IN ESCROW MAY NOT BE DISTRIBUTED TO
HSA-TEXAS IF CERTAIN ACQUISITIONS ARE NOT CLOSED OR ARE CLOSED AT PRICES IN
EXCESS OF OR ON TERMS LESS FAVORABLE TO PRG THAN AGREED.
In connection with the proposed acquisitions, 2,300,000 shares of PRG
common stock to be issued to HSA-Texas at the closing will be placed in escrow
pending the acquisition of the business of Howard
30
38
Schultz & Associates (International) Ltd., an independently owned foreign
licensee of HSA-Texas, 200,000 shares of PRG common stock to be issued to
HSA-Texas at the closing will be placed in escrow pending the acquisition of the
business of Howard Schultz & Partner (Deutschland) GmbH, an independently owned
foreign licensee of HSA-Texas, and 500,000 shares of PRG common stock to be
issued to HSA-Texas at the closing will be placed in escrow pending the
acquisition of JASAMA, Inc., which conducts a portion of HSA-Texas' direct to
store delivery audit operations.
As a result, if any such acquisition fails to close or closes at a price in
excess of or on terms less favorable to PRG than agreed at the closing of the
asset acquisition, the number of shares distributed to HSA-Texas will be
reduced. See "Other Related Agreements -- Escrow Agreement."
HSA-TEXAS AND HSA-TEXAS SHAREHOLDERS AND SHAREHOLDERS OF THE AFFILIATED
FOREIGN OPERATING COMPANIES MAY BECOME LIABLE FOR INDEMNIFICATION OBLIGATIONS
UNDER THE ASSET AND STOCK AGREEMENTS.
The asset agreement provides for indemnification of PRG by HSA-Texas and
certain of its shareholders. The stock agreement also provides for
indemnification of PRG from certain shareholders of the affiliated foreign
companies. These indemnification provisions provide for protection of PRG from
misrepresentations in and other breaches of the asset agreement and the stock
agreement and other liabilities arising from the proposed acquisitions.
HSA-Texas and HSA-Texas shareholders and shareholders of the affiliated foreign
operating companies could become liable to PRG for damages arising under the
indemnification provisions. In the event that material claims against HSA-Texas
arise under the indemnification provisions, the expected number of shares to be
received by HSA-Texas shareholders upon the liquidation of HSA-Texas may be
reduced in proportion to the amount of any damages arising under the
indemnification provisions. See "Material Terms of the Asset
Agreement -- Indemnification by HSA-Texas and PRG" and "Material Terms of the
Stock Agreement -- Indemnification."
Acquisition Risks that HSA-Texas, the Shareholders of Each of PRG and
HSA-Texas and the Shareholders of Each of HSA-Texas' Affiliated Foreign
Operating Companies Should Consider
THE PROPOSED ACQUISITIONS MAY RESULT IN LOWER OVERALL REVENUES FROM CLIENTS
WITH RESPECT TO WHICH PRG AND HSA-TEXAS TOGETHER HAVE THE FIRST AND SECOND AUDIT
POSITIONS.
Based on information gathered in March 2001, there were 46 clients with
respect to which PRG and HSA-Texas together had the first and second recovery
audit positions. These clients represented approximately 33% of the total
revenues of PRG in the year ended December 31, 2000 and 55% of the total
revenues of HSA-Texas in the year ended December 31, 2000. As a result of the
proposed acquisitions, a substantial number of these clients may request that
the combined company perform such first or second audit position at reduced
rates, or such clients may award the first or second recovery audit position to
another party, rather than allowing the combined company to keep both positions.
In either case, the combined revenues received from these clients may be
materially lower.
THE VALUE OF SHARES OF PRG COMMON STOCK RECEIVABLE IN THE PROPOSED
ACQUISITIONS IS UNCERTAIN.
Other than adjustments for the "in the money" value of outstanding options
and SARs, and adjustments that may be made if the acquisitions of the direct to
store delivery audit operations or of the businesses of Howard Schultz & Partner
(Deutschland) GmbH and Howard Schultz & Associates (International) Ltd. are not
closed or are closed at prices in excess of or on terms less favorable to PRG
than agreed at the closing of the asset acquisition, the asset agreement does
not provide for any adjustments in the number of shares of PRG common stock
deliverable to HSA-Texas as a result of fluctuations in the price of PRG common
stock. Accordingly, the number of shares that HSA-Texas will receive in the
asset acquisition will not change if the market price of PRG common stock
changes, other than as discussed above. In addition, the stock agreement does
not provide for any adjustments in the number of shares to be issued to the
shareholders of the four affiliated foreign operating companies as a result of
fluctuations in the price of PRG common stock. Thus, the number of shares the
shareholders of the four affiliated foreign operating companies will receive is
fixed and will not change if the market price of PRG common stock changes.
Recently, the stock market has
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experienced extreme price and volume fluctuations. These market fluctuations
have materially affected and may materially affect the market price of PRG
common stock in the future.
Therefore, other than as discussed above, if the market value of PRG common
stock changes significantly, there will be no change, either upward or downward,
in the aggregate number of shares of PRG common stock to be issued to HSA-Texas
or the shareholders of the foreign operating companies. Accordingly, the effect
of any such significant upward change in the stock price of PRG common stock
will result in PRG paying more for the assets of HSA-Texas and the stock of the
affiliated foreign operating companies than is presently contemplated, while a
significant downward change will reduce the value of the consideration to be
received by HSA-Texas and the shareholders of its affiliated foreign operating
companies. Notwithstanding the foregoing, HSA-Texas may terminate the asset
agreement if the per share closing price of PRG common stock on any date
beginning on August 3, 2001 and ending on a date five trading days prior to the
closing of the asset acquisition is less than $4.00. You should obtain recent
market quotations for PRG common stock in order to assess accurately the market
value of the PRG shares that will be issued in exchange for the HSA-Texas assets
and the stock of the affiliated foreign operating companies. PRG cannot predict
or give any assurances as to the market price of PRG common stock before or
after the closing of the proposed acquisitions.
PRG WILL NOT BE ABLE TO COMPLETE THE PROPOSED ACQUISITIONS WITHOUT THE
CONSENT OF ITS PRINCIPAL LENDERS; THERE IS NO ASSURANCE THAT THIS CONSENT CAN BE
OBTAINED ON ACCEPTABLE TERMS, IF AT ALL.
The proposed acquisitions cannot be completed unless PRG obtains the
consent of its principal lenders. There is no assurance that this consent can be
obtained on acceptable terms if at all, and PRG may incur significant expenses
in connection with the proposed acquisitions which must be paid even if such
consent is not obtained. See "The Proposed Acquisitions -- Lender Approvals."
PRG WILL MOST LIKELY HAVE REDUCED BORROWING CAPACITY UNDER ITS CREDIT
FACILITY AFTER THE CLOSING.
In order to obtain lender consent and facilitate completion of the proposed
acquisitions, PRG believes that a significant reduction in PRG's outstanding
borrowings under the credit agreement is first necessary. To the extent that
such a reduction is achieved by the sale of PRG's discontinued operations or
from a sale of its French Taxation Services operations, if a decision is made to
sell them, the amended terms of PRG's credit agreement provide for a graduated
overall permanent capacity reduction from the current $200.0 million down to
$125.0 million. The amount of the reduction has yet to be negotiated. As a
result, PRG may have reduced borrowing capacity under its credit facility
following the closing of the proposed acquisitions. If additional funding is
necessary to support operations, repay indebtedness assumed in the proposed
acquisitions or satisfy capital requirements, there can be no assurance that it
will be available on acceptable terms, if at all.
PRG MAY BE UNABLE TO MAKE THE REDUCTIONS IN ITS OUTSTANDING BORROWINGS
UNDER ITS CREDIT FACILITY THAT IT BELIEVES WILL BE NECESSARY TO OBTAIN LENDER
CONSENT TO THE PROPOSED ACQUISITIONS.
In order to obtain lender consent and facilitate completion of the proposed
acquisitions, PRG believes that a significant reduction in PRG's outstanding
borrowings under the credit agreement will be required by its lenders. The
amount of such reduction has yet to be negotiated. PRG intends to utilize funds
from the sale of its discontinued operations and from a sale of its French
Taxation Services operations, if a decision is made to sell them, to make a
portion of the required reductions in its outstanding borrowings under its
credit facility. If PRG is unable to sell its discontinued operations or the
French Taxation Services operations quickly enough or if it is unable to sell
them at a price sufficient to raise the funds necessary to make required
reductions to the outstanding principal under its credit facility, PRG will seek
to raise the necessary funds through other debt or equity financing or a
combination thereof. Without such lender consent, PRG will be unable to close
the proposed acquisitions.
FAILURE TO HIRE AND RETAIN CRITICAL HSA-TEXAS PERSONNEL COULD DIMINISH THE
BENEFITS OF THE PROPOSED ACQUISITIONS TO PRG.
The successful integration of the HSA-Texas business into PRG's current
business operations will depend in large part on PRG's ability to hire and
retain personnel critical to the business and operations of
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HSA-Texas. PRG may be unable to retain management personnel and auditors that
are critical to the successful operation of the HSA-Texas business, resulting in
loss of key information, expertise or know-how and unanticipated additional
recruiting and training costs and otherwise diminishing anticipated benefits of
the proposed acquisitions for PRG and its shareholders. In addition, if PRG
cannot successfully implement a revised compensation plan that reduces the
compensation level of a large number of HSA-Texas' auditors, the anticipated
benefits of the proposed acquisitions will be diminished. Even if PRG is
successful in implementing the revised compensation plan, some HSA-Texas
auditors may elect not to work for PRG if their compensation is reduced.
IF PRG IS NOT SUCCESSFUL IN INTEGRATING THE BUSINESS OF HSA-TEXAS AND ITS
AFFILIATED FOREIGN OPERATING COMPANIES, PRG'S OPERATIONS MAY BE ADVERSELY
AFFECTED.
It is not certain that PRG and the business of HSA-Texas and its affiliated
foreign operating companies can be successfully integrated in a timely manner or
at all or that any of the anticipated benefits will be realized. The challenges
involved in this integration include the following:
- retaining and integrating management and other key personnel of each
company;
- combining the corporate cultures of PRG and HSA-Texas;
- combining service offerings effectively and quickly;
- transitioning HSA-Texas' auditors to PRG's information management and
compensation systems;
- integrating sales and marketing efforts so that customers can understand
and do business easily with the combined company;
- transitioning all worldwide facilities to common accounting and
information technology systems; and
- coordinating a large number of employees in widely dispersed operations
in the United States and several foreign countries.
Risks from unsuccessful integration of the companies include:
- the impairment of relationships with employees, clients and suppliers;
- the potential disruption of the combined company's ongoing business and
distraction of its management;
- delay in introducing new service offerings by the combined company; and
- unanticipated expenses related to integration of the companies.
The combined company may not succeed in addressing these risks. Further,
neither PRG nor HSA-Texas can assure you that the growth rate of the combined
company will equal the historical growth rates experienced by PRG, HSA-Texas or
any of its affiliates individually. PRG's ability to realize the anticipated
benefits of the proposed acquisitions will depend in part on PRG's ability to
integrate HSA-Texas' operations into PRG's current operations in a timely and
efficient manner.
This integration may be difficult and unpredictable because PRG's
compensation arrangements, service offerings and processes are highly complex
and have been developed independently from those of HSA-Texas. Successful
integration requires coordination of different management personnel and
auditors, as well as sales and marketing efforts and personnel. If PRG cannot
successfully integrate the HSA-Texas assets with its operations, PRG may not
realize the expected benefits of the proposed acquisitions.
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THE PROPOSED ACQUISITIONS MAY FAIL TO ACHIEVE BENEFICIAL SYNERGIES.
PRG and HSA-Texas believe that the proposed acquisitions will result in
beneficial synergies between the parties and their respective recovery audit
businesses. Factors that could cause the combined company to fail to achieve
these anticipated synergies and potential benefits include:
- failure to retain clients of either company;
- PRG's ability to timely integrate the service and sales efforts of the
combined company;
- the risk that the combined company may lose audit contracts from clients
for whom PRG and HSA-Texas currently serve in both the first and second
audit positions;
- failure to achieve operating and cost efficiencies in the combined
company;
- the risk that it may be difficult to retain key management, marketing,
and technical personnel; and
- competitive conditions and cyclicality in the audit recovery market.
Regardless of the outcome of the factors discussed above, there can be no
assurance that the anticipated synergies will be achieved. The failure to
achieve such synergies may affect the combined company's operating results and
efficiencies and its ability to expand into existing and new recovery audit
markets.
TRANSACTION COSTS OF THE PROPOSED ACQUISITIONS COULD ADVERSELY AFFECT
COMBINED FINANCIAL RESULTS.
PRG and HSA-Texas are expected to incur direct transaction costs of up to
approximately $12.0 million in connection with the proposed acquisitions. If the
benefits of the proposed acquisitions do not exceed the costs associated with
the proposed acquisitions, the combined company's financial results, including
earnings per share, could be adversely affected.
RISKS RELATING TO PRG'S BUSINESS FOLLOWING THE PROPOSED ACQUISITIONS
PRG'S ANNOUNCED PLANNED DIVESTITURES MAY NOT ACHIEVE ANTICIPATED BENEFITS.
PRG has previously announced the planned divestiture of its Meridian VAT
Reclaim business, its Communications Services segment, its Logistics Management
Services segment and its Ship & Debit division within the Accounts Payable
Services segment. Although PRG is currently proceeding to complete these
divestitures, there is no guaranty that they can be completed on a timely basis,
if at all, or that the businesses to be divested can be disposed of at the
prices PRG anticipates. If PRG is unable to divest these businesses, if the
timing of the divestitures exceeds that anticipated, or if the proceeds received
in the divestitures are lower than expected, PRG may not achieve the anticipated
benefits. For example, PRG may incur additional losses upon completion of the
divestitures, PRG may not realize the cost savings anticipated as a result of
the divestitures and management's time and attention may be diverted to a
greater degree than expected. In addition, the announced intention to dispose of
these businesses may result in a diminished value of the assets to be divested
through, for example, the loss of customers or key personnel employed by such
businesses and therefore diminish expected operating results in these
businesses. Any of these events or others could have a material adverse impact
on PRG's business, results of operations and liquidity.
THE POTENTIAL SALE OF PRG'S FRENCH TAXATION SERVICES OPERATIONS MAY RESULT
IN A SUBSTANTIAL AND MATERIAL NET LOSS.
While no final determinations have yet been made, PRG is exploring
strategic alternatives with respect to its French Taxation Services operations.
One of the strategic alternatives under serious consideration is the potential
sale of Groupe Alma and related entities, which collectively comprise PRG's
French Taxation Services operations. In exploring this alternative, PRG has
engaged investment banking assistance, prepared an offering document and
distributed the document on a very limited, selective basis within France.
Although PRG has not yet determined whether or not it will sell its French
Taxation Services operations as of the filing of this joint proxy
statement/prospectus, PRG believes that any near-term sale of these operations,
if approved by PRG's board of directors, will result in a net loss on the sale
of from $45 million to $50 million in the
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quarter in which the sale takes place. This range could be materially impacted
by future changes in the exchange rate of the French franc relative to the U.S.
dollar.
AN ADVERSE JUDGMENT IN THE SECURITIES ACTION LITIGATION IN WHICH PRG AND
JOHN M. COOK ARE DEFENDANTS COULD HAVE A MATERIAL ADVERSE EFFECT ON PRG'S
RESULTS OF OPERATIONS AND LIQUIDITY.
PRG and John M. Cook are defendants in three putative class action lawsuits
filed on June 6, 2000 in the United States District Court for the Northern
District of Georgia, Atlanta Division, which have since been consolidated into
one proceeding. A judgment against PRG in this case could have a material
adverse effect on PRG's results of operations, stock price and liquidity, while
a judgment against Mr. Cook could adversely affect his financial condition and
therefore have a negative impact upon his performance as PRG's chief executive
officer. Plaintiffs in this litigation have alleged in general terms that the
defendants violated Sections 10(b) and 20(a) of the Securities Exchange Act of
1934 and Rule 10b-5 promulgated thereunder by allegedly disseminating materially
false and misleading information about a change in PRG's method of recognizing
revenue and in connection with revenue reported for a division. The plaintiffs
further allege that these misstatements and omissions led to an artificially
inflated price for PRG's common stock during the putative class period, which
runs from July 19, 1999 to July 26, 2000. This case seeks an unspecified amount
of compensatory damages, payment of litigation fees and expenses, and equitable
and/or injunctive relief. Although PRG believes the alleged claims in this
lawsuit are without merit and intends to defend the lawsuit vigorously, due to
the inherent uncertainties of the litigation process and the judicial system,
PRG is unable to predict the outcome of this litigation.
IF PRG IS NOT SUCCESSFUL IN INTEGRATING THE BUSINESS AND OPERATIONS OF
HOWARD SCHULTZ & ASSOCIATES (INTERNATIONAL) LTD., AN INDEPENDENTLY OWNED FOREIGN
LICENSEE OF HSA-TEXAS TO BE ACQUIRED, PRG'S FINANCIAL RESULTS MAY BE ADVERSELY
AFFECTED.
Howard Schultz & Associates (International) Ltd., an independently owned
foreign licensee of HSA-Texas, generated revenues of approximately $24.4 million
in calendar 2000. PRG's ability to realize the anticipated benefits of the
proposed acquisitions will depend in part on PRG's ability to integrate the
operations of this foreign licensee into PRG's current United Kingdom operations
in a timely and efficient manner. If PRG cannot successfully acquire the
operations of this independently owned foreign licensee or integrate them with
its operations, PRG may not realize the expected benefits of the proposed
acquisitions and PRG's financial results may be adversely affected.
ADDITIONAL ACQUISITIONS OR FINANCING MAY DECREASE PRG SHAREHOLDERS'
PERCENTAGE OWNERSHIP IN PRG AND REQUIRE PRG TO INCUR ADDITIONAL DEBT.
PRG may issue equity securities in future acquisitions or in connection
with future financings, including any additional financings necessary to obtain
lender consent to the proposed acquisitions. These issuances could be dilutive
to PRG shareholders. PRG also may incur additional debt and amortization expense
related to goodwill and other intangible assets in future acquisitions or in
connection with debt or equity financing or a combination thereof. This
additional debt and amortization expense may reduce significantly PRG's
profitability and materially and adversely affect PRG's business, financial
condition and results of operations.
PRG MAY NOT BE ABLE TO CONTINUE TO IDENTIFY A LARGER VOLUME OF RECOVERIES
EACH YEAR FOR THE CLIENTS SERVED BY PRG'S RETAIL/WHOLESALE OPERATIONS.
For most clients served by PRG's retail/wholesale operations, PRG typically
identifies a larger volume of recoveries each year as compared to recoveries
realized in the immediately preceding year. There is no guaranty, however, that
these larger recoveries will continue. If such recovery increases do not
continue, PRG's revenues and operating results would be materially adversely
affected. Factors that could prevent recoveries from increasing include advances
in technology which significantly reduce the levels of client overpayments or an
unexpected reversal of current trends toward the outsourcing of non-core
competencies such as recovery audit services.
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STRIKES OR OTHER EMPLOYMENT DISRUPTIONS BY OR ON THE PART OF EMPLOYEES OF
FOREIGN GOVERNMENTS WITH WHOM PRG'S FRENCH TAXATION SERVICES OPERATIONS TRANSACT
BUSINESS COULD HAVE A MATERIAL ADVERSE EFFECT ON THE REVENUES GENERATED BY PRG'S
FRENCH TAXATION SERVICES OPERATIONS.
Any strike or other disruption of employment by or on the part of the
employees of the French government with whom PRG's French Taxation Services
operations transact business could significantly delay the recognition of
revenue by the French Taxation Services operations and cause PRG to fail to
achieve its revenue and earnings estimates for one or more quarters or perhaps
for an entire fiscal year. While no final determinations have yet been made, PRG
is exploring strategic alternatives with respect to its French Taxation Services
operations. See "-- The potential sale of PRG's French Taxation Services
operations may result in a substantial and material net loss" above.
CLIENT AND VENDOR BANKRUPTCIES AND VENDOR CHARGEBACKS COULD REDUCE PRG'S
EARNINGS.
PRG's clients generally operate in intensely competitive environments, and
bankruptcy filings are not uncommon. Future bankruptcy filings by one or more of
PRG's larger clients or significant vendor chargebacks by one or more of PRG's
larger clients could have a material adverse effect on PRG's business, financial
condition and results of operations.
PRG DEPENDS ON CERTAIN CLIENTS FOR SIGNIFICANT REVENUES.
With PRG's considerable growth since its March 1996 initial public
offering, dependence on any one client or group of clients for revenue and
profits has been reduced. Nevertheless, PRG's largest revenue generating clients
continue to be retailers, and PRG's revenues and profitability would be
materially adversely affected if one or more of its largest retail clients filed
for bankruptcy or otherwise ceased doing business with PRG.
PRG RELIES ON INTERNATIONAL OPERATIONS FOR SIGNIFICANT REVENUES.
In 2000, approximately 34.7% of PRG's revenues from continuing operations
and 7.8% of the aggregate revenues of HSA-Texas and its affiliates to be
acquired by PRG were generated from international operations. International
operations are subject to risks, including:
- political and economic instability in the international markets served by
PRG;
- difficulties in staffing and managing foreign operations and in
collecting accounts receivable;
- fluctuations in currency exchange rates, particularly weaknesses in the
Euro, the pound and other currencies of countries in which PRG transacts
business, which could result in currency translation losses that
materially reduce PRG's earnings;
- costs associated with adapting PRG's services to PRG's foreign clients'
needs;
- unexpected changes in regulatory requirements and laws;
- difficulties in transferring earnings from PRG foreign subsidiaries to
PRG; and
- burdens of complying with a wide variety of foreign laws and labor
practices, including laws that could subject certain tax recovery audit
practices to regulation as the unauthorized practice of law.
Because PRG expects a significant portion of its revenues to come from
international operations, the occurrence of any of the above events could
materially and adversely affect PRG's business, financial condition and results
of operations.
RECOVERY AUDIT SERVICES ARE NOT WIDELY USED IN INTERNATIONAL MARKETS.
PRG's long-term growth objectives are based in material part on achieving
significant future growth in international markets. Although PRG's recovery
audit services constitute a generally accepted business practice among retailers
in the U.S., Canada, and Mexico, such services have not yet become widely used
in many international markets. Prospective clients, vendors or other involved
parties in foreign markets may not
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accept PRG's services. The failure of these parties to accept and use PRG's
services could have a material adverse effect on PRG's business, financial
condition and results of operations.
PRG REQUIRES SIGNIFICANT MANAGEMENT AND FINANCIAL RESOURCES TO OPERATE AND
EXPAND PRG'S RECOVERY AUDIT SERVICES INTERNATIONALLY.
In PRG's experience, entry into new international markets requires
considerable management time as well as start-up expenses for market
development, hiring and establishing office facilities. In addition, PRG has
encountered, and expects to continue to encounter, significant expense and
delays in expanding PRG's international operations because of language and
cultural differences, staffing, communications and related issues. PRG generally
incurs the costs associated with international expansion before any significant
revenues are generated. As a result, initial operations in a new market
typically operate at low margins or may be unprofitable. Because PRG's
international expansion strategy will require substantial financial resources,
PRG may incur additional indebtedness or issue additional equity securities
which could be dilutive to PRG's shareholders. In addition, financing for
international expansion may not be available to PRG on acceptable terms and
conditions.
PRG'S REVENUE MAY BE ADVERSELY AFFECTED IF PRG DOES NOT CORRECTLY ESTIMATE
ITS UNCOLLECTIBLE ACCOUNTS RECEIVABLE.
PRG estimates uncollectible levels of accounts receivable on an aggregate
basis and reduces earnings quarterly by the amounts of these estimates. Despite
PRG's experience in providing accounts payable recovery audit services, PRG's
estimates of uncollectible accounts receivable may not be adequate. If PRG
overestimates the amount of accounts receivable PRG expects to collect, then the
combined company's future earnings will be reduced, and, as a result, its stock
price could decline.
THE LEVEL OF PRG'S ANNUAL PROFITABILITY IS SIGNIFICANTLY AFFECTED BY ITS
THIRD AND FOURTH QUARTER OPERATING RESULTS.
The purchasing and operational cycles of PRG's clients typically cause PRG
to realize higher revenues and operating income in the last two quarters of its
fiscal year. If PRG does not continue to realize increased revenues in future
third and fourth quarter periods, PRG's profitability for any such quarter and
the entire year could be materially and adversely affected because selling,
general and administrative expenses are largely fixed over the short term.
PRG MAY BE UNABLE TO PROTECT AND MAINTAIN THE COMPETITIVE ADVANTAGE OF ITS
PROPRIETARY TECHNOLOGY AND INTELLECTUAL PROPERTY RIGHTS.
PRG's operations could be materially and adversely affected if PRG is not
adequately able to protect its proprietary software, audit techniques and
methodologies, and other proprietary intellectual property rights. PRG relies on
a combination of trade secret laws, nondisclosure and other contractual
arrangements and technical measures to protect its proprietary rights. Although
PRG presently holds U.S. and foreign registered trademarks and U.S. registered
copyrights on certain of its proprietary technology, PRG may be unable to obtain
similar protection on its other intellectual property. In addition, in the case
of foreign registered trademarks, PRG may not receive the same enforcement
protection on its intellectual property as in the U.S. PRG generally enters into
confidentiality agreements with its employees, consultants, clients and
potential clients and limits access to, and distribution of, its proprietary
information. Nevertheless, PRG may be unable to deter misappropriation of its
proprietary information, detect unauthorized use and take appropriate steps to
enforce its intellectual property rights. PRG's competitors also may
independently develop technologies that are substantially equivalent or superior
to PRG's technology. Although PRG believes that its services and products do not
infringe on the intellectual property rights of others, PRG can not prevent
someone else from asserting a claim against PRG in the future for violating
their technology rights.
PRG'S FAILURE TO RETAIN THE SERVICES OF MR. COOK COULD ADVERSELY IMPACT ITS
CONTINUED SUCCESS.
PRG's continued success depends largely on the efforts and skills of its
executive officers and key employees, particularly John M. Cook. PRG has entered
into employment agreements with Mr. Cook and other members of management. PRG
also maintains key man life insurance policies in the aggregate amount
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of $13.3 million on the life of Mr. Cook. The loss of the services of Mr. Cook
could materially adversely affect the combined company's business, financial
condition and results of operations.
PRG MAY NOT BE ABLE TO CONTINUE TO COMPETE SUCCESSFULLY WITH OTHER
BUSINESSES OFFERING RECOVERY AUDIT SERVICES.
The recovery audit business is highly competitive. PRG's principal
competitors for accounts payable recovery audit services include many local and
regional firms. PRG's competitors for tax recovery audit services in France
include major international accounting firms, tax attorneys and several smaller
tax recovery audit firms. Also, PRG believes that the major international
accounting firms or their former consulting units that have been spun-off or
divested may become formidable competitors in the future. PRG is uncertain
whether it can continue to compete successfully with its competitors. In
addition, PRG's profit margins could decline because of competitive pricing
pressures that may have a material adverse effect on the combined company's
business, financial condition and results of operations.
PRG'S ARTICLES OF INCORPORATION, BYLAWS, AND SHAREHOLDERS' RIGHTS PLAN AND
GEORGIA LAW MAY INHIBIT A TAKEOVER OF PRG.
PRG's articles of incorporation and bylaws and Georgia law contain
provisions that may delay, deter or inhibit a future acquisition of PRG not
approved by PRG's board of directors. This could occur even if PRG shareholders
are offered an attractive value for their shares or if a substantial number or
even a majority of PRG shareholders believe the takeover is in their best
interest. These provisions are intended to encourage any person interested in
acquiring PRG to negotiate with and obtain the approval of PRG's board of
directors in connection with the transaction. Provisions that could delay, deter
or inhibit a future acquisition include the following:
- a staggered board of directors;
- specified requirements for calling special meetings of shareholders; and
- the ability of the board of directors to consider the interests of
various constituencies, including PRG's employees, clients and creditors
and the local community.
PRG's 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 PRG's shareholders. In
addition, PRG has in place a "poison pill" shareholders' rights plan that will
trigger a dilutive issuance of common stock upon substantial purchases of PRG's
common stock by a third party which are not approved by the board of directors.
Also, the shareholders' rights plan requires approval by a majority of the
continuing directors, as defined in the plan, to redeem the rights plan, amend
the rights plan, or exclude a person or group who acquires beneficial ownership
or more than 15 percent of the outstanding PRG common stock from being
considered an acquiring person under the rights plan. These provisions also
could discourage bids for shares of PRG's common stock at a premium and have a
material adverse effect on the market price of PRG's shares.
THE PRICE OF PRG'S STOCK HAS BEEN VOLATILE AND COULD CONTINUE TO FLUCTUATE
SUBSTANTIALLY.
PRG's common stock is traded on The Nasdaq National Market. The market
price of PRG's common stock has been volatile, has fluctuated substantially and
could continue to do so, based on a variety of factors, including the following:
- future announcements concerning PRG or its key clients or competitors;
- technological innovations;
- government regulations;
- litigation; or
- changes in earnings estimates by analysts or the publication of negative
reports by analysts about PRG.
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Furthermore, stock prices for many companies fluctuate widely for reasons
that may be unrelated to their operating results. These fluctuations and general
economic, political and market conditions, such as recessions or international
currency fluctuations and demand for PRG's services, may adversely affect the
market price of the combined company's common stock.
PRG'S FURTHER EXPANSION INTO ELECTRONIC COMMERCE AUDITING STRATEGIES AND
PROCESSES MAY NOT BE PROFITABLE.
PRG anticipates a growing need for recovery auditing services among current
clients migrating to internet-based procurement, and among potential clients
already engaged in electronic commerce transactions. In response to future
demand for PRG's recovery auditing expertise, PRG intends to further expand into
internet technology areas in the near future and may make substantial financial
investments to do so. The profitability of these investments can not be assured
nor can the demand for these services be fully anticipated.
FORWARD-LOOKING STATEMENTS MAY PROVE INACCURATE
PRG and HSA-Texas have made forward-looking statements in this joint proxy
statement/prospectus about PRG and HSA-Texas and the combined company that are
subject to risks and uncertainties. Any statements contained in this joint proxy
statement/prospectus that are not statements of historical or current fact may
be deemed forward-looking statements. Forward-looking statements may be
identified by such words as "could," "may," "might," "will," "would," "shall,"
"should," "pro forma," "potential," "pending," "plans," "anticipates,"
"believes," "estimates," "expects," "intends" or similar expressions, including
the negative of any of the foregoing. Some of the forward-looking statements
contained in this joint proxy statement/prospectus include:
- statements regarding the expected completion dates and purchase prices of
the acquisitions of the business of Howard Schultz & Partner
(Deutschland) GmbH and Howard Schultz & Associates (International) Ltd.,
independently owned licensees of HSA-Texas, and of the two independently
owned service providers of HSA-Texas engaged in providing direct to store
audit delivery services;
- statements regarding the expected assumption of debt and anticipated
transaction expenses in connection with the proposed acquisitions;
- statements regarding expected payments at the closing to Howard Schultz
by PRG;
- statements made regarding the expected number of shares to be distributed
to HSA-Texas shareholders and shareholders of the affiliated foreign
operating companies for each share of common stock owned in such company;
- statements regarding the estimated reduction in the number of PRG shares
to be received by HSA-Texas resulting from the "in the money" value of
all options and SARs outstanding at closing;
- statements regarding the expected impact of a near-term sale of PRG's
French Taxation Services operations;
- statements regarding the expected benefits and synergies of the proposed
acquisitions;
- statements made by HSA-Texas with respect to its liquidity and capital
needs; and
- the information concerning possible or assumed future results of
operations of the combined company set forth under "Summary -- Questions
and Answers About the Proposed Acquisitions," "Additional Summary
Information," "The Proposed Acquisitions -- Background of the Proposed
Acquisitions," "-- Reasons for the Proposed Acquisitions -- PRG's Reasons
for the Proposed Acquisitions and Recommendations of PRG's Board of
Directors," "-- Reasons for the Proposed Acquisitions -- HSA-Texas'
Reasons for Entering into the Asset Agreement and Recommendations of
HSA-Texas' Board of Directors," and "-- Opinion of PRG's Financial
Advisor," "Summary -- The Profit Recovery Group International Inc.
Summary Selected Unaudited Pro Forma Combined Financial Informa-
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tion," and "The Profit Recovery Group International, Inc. and
Subsidiaries Pro Forma Combined Financial Statements (Unaudited)."
In making these forward-looking statements, we believe that our
expectations are based on reasonable assumptions. These statements are not meant
to predict future events or circumstances and might not be realized if actual
results and events differ materially from PRG's and HSA-Texas' expectations.
Several factors, some of which are beyond PRG's and HSA-Texas' control, which
are discussed under the heading "Risk Factors" and elsewhere in this joint proxy
statement/prospectus and in the documents that PRG has incorporated by
reference, could affect the outcome of the matters discussed in these
forward-looking statements and the future results of PRG and the combined
company after completion of the proposed acquisitions. These factors could cause
the results or other outcomes to differ materially from those expressed in PRG's
and HSA-Texas' forward-looking statements.
Given these uncertainties, you are cautioned not to place undue reliance on
our forward-looking statements. PRG and HSA-Texas disclaim any obligation to
announce publicly the results of any revisions to any of the forward-looking
statements contained in this joint proxy statement/prospectus to reflect future
events or developments.
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THE PRG SPECIAL MEETING
PURPOSE, TIME AND PLACE
This joint proxy statement/prospectus is being furnished to shareholders of
PRG in connection with the solicitation of proxies by the PRG board of directors
for use at the PRG special meeting.
The PRG special meeting is to be held on , 2001, at a.m.
local time at . At the PRG special meeting, holders of PRG
common stock will be asked to consider and vote upon a proposal to approve the
proposed issuance of up to 16 million shares of PRG common stock as
consideration in connection with the proposed acquisitions, the issuance of
options to purchase up to 1,678,826 shares of PRG common stock in connection
with the assumption of certain outstanding HSA-Texas options, and the election
of Howard Schultz and Andrew Schultz as Class II directors, Nate Levine as a
Class I director and Arthur Budge, Jr. as a Class III director, contingent upon
the closing of the proposed acquisitions. Other than the proposal to approve the
proposed share and option issuances and elect the nominated directors, PRG is
not aware of any other matters that may come before the special meeting.
However, PRG shareholders may be asked to consider and vote upon matters
incidental to the business to be conducted at the special meeting.
RECORD DATE; VOTING POWER
The PRG board of directors has fixed the close of business on ,
2001 as the record date for determining the holders of PRG common stock entitled
to notice of, and to vote at, the PRG special meeting. Only holders of record of
PRG common stock at the close of business on the record date will be entitled to
notice of, and to vote at, the PRG special meeting.
At the close of business on the record date, shares of PRG common
stock were issued and outstanding and entitled to vote at the PRG special
meeting. Holders of record of PRG common stock are entitled to one vote for each
share of PRG common stock held of record on the record date on any matter which
may properly come before the PRG special meeting. Votes may be cast at the PRG
special meeting in person or by proxy.
The presence at the PRG special meeting, either in person or by proxy, of
the holders of a majority of the outstanding shares of the PRG common stock is
necessary to constitute a quorum in order to transact business at the PRG
special meeting. In the event that a quorum is not present at the PRG special
meeting, it is expected that such meeting will be adjourned or postponed in
order to solicit additional proxies.
Assuming that a quorum is present, approval of the proposed share and
option issuances and election of the nominated directors will require the
affirmative vote of a majority of the shares of PRG common stock eligible to
vote that are actually voted either in person or by proxy.
Abstentions and broker non-votes, i.e., proxies from brokers or nominees
indicating that such persons have not received instructions from the beneficial
owners or other persons entitled to vote shares as to a matter with respect to
which brokers or nominees do not have discretionary power to vote, will be
considered as present for the purposes of establishing a quorum. Brokers who
hold shares of PRG common stock as nominees, in the absence of instructions from
the beneficial owners, will not have discretionary authority to vote such shares
for the approval of the proposed share and option issuances and election of the
nominated directors. Any shares which are not voted due to abstentions or
because a nominee-broker lacks discretionary authority will be disregarded and
will have no effect on the outcome of the vote.
SHARE OWNERSHIP OF MANAGEMENT
As of the close of business on the record date, PRG directors and executive
officers and their affiliates had the right to vote outstanding shares of
PRG common stock, collectively representing approximately % of PRG's
outstanding shares of common stock. PRG's directors and executive officers are
expected to vote for the approval of the proposed share and option issuances and
the election of the nominated directors. As of the record date, directors and
executive officers of PRG did not own any shares of HSA-Texas common stock.
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VOTING OF PROXIES
Shares represented by properly executed proxies received in time for the
special meeting will be voted at the meeting in the manner specified by such
proxies. PRG shareholders should be aware that, if their proxies are properly
executed but do not contain voting instructions, such proxies will be voted for
approval of the proposed share and option issuances and the election of the
nominated directors. It is not expected that any matter other than as described
in this joint proxy statement/prospectus will be brought before the PRG special
meeting. If incidental matters are properly presented before the meeting, the
persons named in your PRG proxy will have authority to vote on such matters
without consulting you. These matters may include a proposal to adjourn or
postpone the meeting in order to solicit additional votes in favor of the
proposed acquisitions.
Votes cast by proxy or in person at the special meeting will be counted by
the person or persons appointed by PRG to act as election inspectors for the
meeting. Prior to the meeting, the inspector(s) will sign an oath to perform
their duties in an impartial manner and to the best of their abilities. The
inspector(s) will ascertain the number of shares outstanding and the voting
power of each of such shares, determine the shares represented at the meeting
and the validity of proxies and ballots, count all votes and ballots and perform
certain other duties as required by law.
REVOCABILITY OF PROXIES
The grant of a proxy on the enclosed PRG proxy card does not preclude a
shareholder from voting in person. A shareholder of PRG may revoke a proxy at
any time prior to its exercise by:
- delivering a written notice of revocation bearing a later date or time
than the proxy, so that it is received prior to such shareholder's proxy
being voted at the PRG special meeting, to The Profit Recovery Group
International, Inc., 2300 Windy Ridge Parkway, Suite 100 North, Atlanta,
Georgia 30339-8426, Attention: Secretary;
- delivering a duly executed proxy bearing a later date or time than the
revoked proxy to the Secretary of PRG, so that it is received prior to
such shareholder's proxy being voted at the PRG special meeting; or
- attending the PRG special meeting and voting in person.
Attendance at the PRG special meeting will not by itself constitute
revocation of a proxy, unless you cast your vote at the special meeting.
PRG does not expect to adjourn its special meeting for a period of time
long enough to require the setting of a new record date for the special meeting.
If an adjournment occurs, it will have no effect on the ability of PRG
shareholders of record as of the record date to exercise their voting rights or
to revoke any previously delivered proxies.
SOLICITATION OF PROXIES
The PRG board of directors is soliciting the accompanying proxy, and PRG
will bear the cost of the solicitation. Arrangements will be made with brokerage
houses and other custodians, nominees and fiduciaries for the forwarding of
solicitation material to the beneficial owners of PRG common stock held of
record by such persons, and PRG will reimburse such companies, custodians,
nominees and fiduciaries for their reasonable out-of-pocket expenses. In
addition to solicitation by mail, the directors, officers and employees of PRG
may solicit proxies from shareholders by telephone, telegram or in person. Such
persons will not receive any additional compensation for their solicitation
activities.
RECOMMENDATION OF THE BOARD OF DIRECTORS
The PRG board of directors has unanimously determined that the terms of the
asset agreement and the stock agreement are fair to and in the best interests of
PRG and the PRG shareholders. Accordingly, the PRG board of directors
unanimously recommends that PRG shareholders vote for the proposal to approve
the proposed share and option issuances and the election of the nominated
directors.
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Your vote is very important, regardless of the number of PRG shares you
own. Please vote as soon as possible to make sure that your PRG shares are
represented at the meeting. To vote your PRG shares, please complete, date, and
sign the enclosed PRG proxy and mail it promptly in the postage-paid envelope
provided, whether or not you plan to attend the meeting. You may revoke your PRG
proxy at any time before it is voted at the special meeting. If you are a holder
of record, you may also cast your vote in person at the special meeting. If your
shares are held in an account at a brokerage firm or bank, you must instruct it
on how to vote your shares. If you do not vote, it may jeopardize PRG's ability
to obtain a quorum, thereby resulting in a disapproval of the proposed share and
option issuances and the failure to elect the four director nominees.
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THE HSA-TEXAS SPECIAL MEETING
PURPOSE, TIME AND PLACE
The HSA-Texas special meeting is to be held on , 2001, at
a.m. local time at . At the HSA-Texas special meeting,
holders of HSA-Texas voting common stock will be asked to consider and vote upon
a proposal to approve the asset agreement. Other than the proposal to approve
the asset agreement, HSA-Texas is not aware of any other matters that may come
before the special meeting. However, holders of HSA-Texas voting common stock
may be asked to consider and vote upon matters incidental to the business to be
conducted at the special meeting.
RECORD DATE; VOTING POWER
The HSA-Texas board of directors has fixed the close of business on
, 2001 as the record date for determining the holders of HSA-Texas
voting common stock entitled to notice of, and to vote at, the HSA-Texas special
meeting. Only holders of record of HSA-Texas voting common stock at the close of
business on the record date will be entitled to notice of, and to vote at, the
HSA-Texas special meeting.
At the close of business on the record date, 2,307,482 shares of HSA-Texas
voting common stock were issued and outstanding and entitled to vote at the
HSA-Texas special meeting. Holders of record of HSA-Texas Texas voting common
stock are entitled to one vote for each share of HSA-Texas voting common stock
held of record on the record date on any matter which may properly come before
the HSA-Texas special meeting. Holders of HSA-Texas non-voting common stock are
not entitled to vote at the HSA-Texas special meeting.
The presence at the HSA-Texas special meeting of the holders of a majority
of the outstanding shares of the HSA-Texas voting common stock is necessary to
constitute a quorum in order to transact business at the HSA-Texas special
meeting. Assuming that a quorum is present, approval of the asset agreement will
require the affirmative vote of two-thirds of the outstanding shares of
HSA-Texas voting common stock entitled to vote. No proxy card is required to be
returned to HSA-Texas because HSA-Texas is not soliciting proxies from HSA-Texas
shareholders.
SHARE OWNERSHIP OF MANAGEMENT
As of the close of business on the record date, HSA-Texas directors and
executive officers and their affiliates had the right to vote 2,307,482
outstanding shares of HSA-Texas voting common stock, collectively representing
100% of HSA-Texas' outstanding shares of HSA-Texas voting common stock.
HSA-Texas' directors and executive officers and their affiliates are expected to
vote for the approval of the asset agreement.
RECOMMENDATION OF THE BOARD OF DIRECTORS
The HSA-Texas board of directors has unanimously determined that the terms
of the asset agreement are fair to and in the best interests of HSA-Texas and
the HSA-Texas shareholders. Accordingly, the HSA-Texas board of directors has
unanimously recommended that holders of HSA-Texas voting common stock vote for
the proposal to approve the asset agreement.
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THE PROPOSED ACQUISITIONS
The following discussion describes the material aspects of the proposed
acquisitions. While PRG and HSA-Texas believe that the description covers the
material terms of the proposed acquisitions, this summary may not contain all of
the information that is important to you. You should carefully read this entire
joint proxy statement/prospectus and the other documents referred to in this
joint proxy statement/prospectus for a more complete understanding of the
proposed acquisitions.
BACKGROUND OF THE PROPOSED ACQUISITIONS
In November 1997, John Cook, the Chairman of PRG, and Howard Schultz, the
Chairman of HSA-Texas, met in Dallas, Texas to discuss the possibility of a
combination of HSA-Texas and PRG. Following this meeting, neither party had any
further contact or discussions relating to a possible business combination until
November 2000.
In early November 2000, Jonathan Golden, a director of and counsel to PRG,
received a call from a business associate of Howard Schultz inquiring as to
whether PRG would be interested in reviving discussions relating to a possible
combination. Mr. Golden advised Mr. Cook of the call and Mr. Cook called Mr.
Schultz. Since both men intended to be in Bangkok, Thailand on November 11 and
12, 2000, they met in Bangkok, signed a mutual confidentiality agreement and
commenced a discussion of a possible business combination.
On December 18, 2000, Howard and Andrew Schultz, Mac Martirossian, Senior
Vice President and Group Managing Director -- International of HSA-Texas, and
Arthur Budge, Jr., a financial adviser to HSA-Texas, met with Mr. Cook, Jack
Toma, vice chairman of PRG and Mr. Golden in Atlanta, Georgia, to continue
discussions relating to a possible business combination. On January 9 and 10,
2001, Mr. Golden, Gene Ellis, the chief financial officer of PRG, and Mr. Toma
met with Arthur Budge, Jr., Mac Martirossian, and attorneys for HSA-Texas in
Dallas, Texas to continue these discussions. PRG and HSA-Texas realized that
since they are competitors, the exchange of information could create competition
problems. In order to avoid the exchange of competitively sensitive information
of the two companies, Bain & Co., an independent consulting firm, was hired to
review and compile information furnished by both companies and to provide each
company with summaries that did not disclose competitively advantageous
information that could be used if the negotiations did not result in a
transaction. These initial meetings were followed by a series of meetings on
January 15-16, 2001 in Dallas; February 28, 2001 in Dallas; March 8-9, 2001 in
Atlanta; March 22-23, 2001 in Atlanta; March 27, 2001 in Dallas; May 21-23, 2001
in Atlanta; June 20-21, 2001 in Dallas; July 1, 2001 in Dallas; and July 25-26,
2001 in Atlanta.
On July 25, 2001, PRG and HSA-Texas and the shareholders of the affiliated
foreign operating companies entered into a letter of intent to which were
attached drafts of proposed definitive agreements outlining the details of the
transaction. The letter of intent was announced by PRG in its earnings
conference call on July 26, 2001, at which time a press release was also issued.
The parties executed a definitive agreement as of August 3, 2001, subject to the
delivery of final schedules by HSA-Texas on or before September 3, 2001. As of
the date of this filing, PRG has not received all required schedules. PRG has
thirty days in which to approve the schedules after they are received. If any
schedules are unsatisfactory to PRG, PRG may terminate the asset and stock
agreements with no liability.
REASONS FOR THE PROPOSED ACQUISITIONS
The following discussion of the reasons for the proposed acquisitions
contains a number of forward-looking statements that reflect the current views
of PRG or HSA-Texas, as indicated, with respect to future events that could
affect their financial performance. Forward-looking statements are subject to
risks and uncertainties. Actual results and outcomes may differ materially from
the results and outcomes discussed in the forward-looking statements. Cautionary
statements that identify important factors that could cause or contribute to
differences in results and outcomes include those discussed in "Risk Factors."
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PRG's Reasons for the Proposed Acquisitions and Recommendations of PRG's Board
of Directors
PRG's board of directors has determined that the terms of the proposed
acquisitions are fair to, and in the best interests of, PRG's shareholders.
PRG's board of directors consulted with PRG's senior management, as well as
PRG's financial advisors and legal counsel, in reaching its decision to approve
the asset agreement and the stock agreement. PRG's primary reasons for entering
into the asset agreement and the stock agreement are the beliefs of its board of
directors and the management of PRG that the proposed acquisitions may allow PRG
to enjoy a number of benefits, including:
- accelerating innovation and audit effectiveness and thereby better
meeting customer needs for recovery audit services;
- accelerating expansion into existing and new recovery audit markets;
- gaining additional clients and revenues;
- being more competitive with other providers of recovery audit services;
- adding to its intellectual property assets in recovery audit processes;
- receiving significant operating synergies from alignment of cost
structures, consolidation of technology expenditures and elimination of
duplicate positions and facilities; and
- adding qualified auditors and other employees of HSA-Texas and its
affiliated foreign operating companies to PRG and thereby enhancing its
recovery audit expertise.
The conclusions reached by the board of directors of PRG with respect to
the above factors supported the determination that the purchase by PRG of
substantially all of the assets of HSA-Texas, the acquisition of substantially
all of the outstanding stock of the affiliated foreign operating companies and
the issuance of shares of PRG common stock and the assumption of HSA-Texas
options pursuant to the asset agreement and the stock agreement, are fair to,
and in the best interests of, PRG. In reaching the determination that the asset
agreement and stock agreement are in the best interests of PRG's shareholders,
the board of directors of PRG considered a number of other factors, including
the factors listed below:
- the judgment, advice and analyses of PRG's management with respect to the
potential strategic, financial and operational benefits of the purchase;
- the terms of the asset agreement and the stock agreement, including price
and structure, which were considered by PRG's board of directors and by
the management of PRG to provide a fair and equitable basis for the
overall transaction; and
- the oral opinion of Merrill Lynch, which opinion was subsequently
confirmed in a written opinion dated as of August 3, 2001, to PRG's board
of directors, to the effect that, as of the date of the opinion and
subject to and based on the considerations referred to in the opinion,
the consideration to be paid by PRG in connection with the proposed
acquisitions was fair, from a financial point of view, to PRG.
The board of directors of PRG also considered a number of potentially
negative factors in its deliberations. The potentially negative factors
considered by the board of directors of PRG included:
- potential loss of revenue from clients where PRG and HSA-Texas together
have both the first and second audit positions;
- the risk that the transaction might not be completed in a timely manner
or at all;
- the likelihood of reduced borrowing capacity following closing;
- the potential negative impact of any vendor or client confusion after
announcement of the proposed acquisitions;
- the potential negative reaction of the financial community after
announcement of the proposed acquisitions;
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- the risk that the potential benefits of the transaction may not be
realized, including the inability of PRG to hire the former auditors of
HSA-Texas;
- the costs associated with the transaction; and
- the other risks and uncertainties discussed above under "Risk Factors."
The foregoing discussion of information and factors considered by PRG's
board of directors is not intended to be exhaustive, but is believed to include
all material factors considered by the board of directors. In view of the wide
variety of factors considered by PRG's board of directors, PRG's board of
directors did not find it practicable to quantify or otherwise assign relative
weights to the specific factors considered. In addition, the board of directors
did not reach any specific conclusions on each factor considered, or any aspect
of any particular factor, but conducted an overall analysis of these factors.
Individual members of PRG's board of directors may have given different weights
to different factors. After taking into account all of the factors set forth
above, however, PRG's board of directors unanimously agreed that the asset
agreement and the stock agreement are fair to, and in the best interests of, PRG
and its shareholders and that PRG should proceed with the proposed acquisitions
and enter into the asset agreement and the stock agreement.
There can be no assurance that the benefits of the potential growth,
synergies or opportunities considered by PRG's board will be achieved through
completion of the proposed acquisitions. See "Risk Factors."
HSA-Texas' Reasons for Entering into the Asset Agreement and Recommendations of
HSA-Texas' Board of Directors
HSA-Texas' board of directors has unanimously determined that the asset
agreement is fair to and in the best interests of HSA-Texas and its
shareholders, and has unanimously approved the asset agreement. Accordingly,
HSA-Texas' board of directors unanimously recommends that the holders of
HSA-Texas' voting common stock vote to approve and affirm the asset agreement.
In reaching its determination, the HSA-Texas board of directors considered
a number of factors, including, without limitation, the following:
- the present and anticipated environment of the audit recovery industry;
- the terms and conditions of the asset agreement;
- the terms and conditions of the stock agreement;
- recent mergers in the retail sector which have resulted in consolidation
of the target customer base;
- capital and technology requirements to remain competitive in the audit
recovery industry; and
- HSA-Texas' shareholders' interest in diversification of their investment
in HSA-Texas common stock.
HSA-Texas' board of directors also considered a number of potentially
negative factors in its deliberations concerning the overall transaction. The
potentially negative factors considered by the HSA-Texas board included:
- the risk that the transaction might not be completed in a timely manner
or at all;
- the fact that HSA-Texas could lose other transaction opportunities during
the period it is precluded under the terms of the asset agreement from
soliciting other transaction proposals;
- the potential negative impact of any vendor or client confusion after
announcement of the proposed transaction;
- the potential negative reaction of the financial community after
announcement of the proposed transaction; and
- the other risks and uncertainties discussed above under "Risk Factors."
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The foregoing discussion of the information and the factors considered by
the HSA-Texas board of directors is not meant to be exhaustive, but includes the
material factors considered by the HSA-Texas board of directors. The board of
directors of HSA-Texas did not quantify or attach any particular weight to the
various factors that they considered in reaching their determination that the
asset agreement, the stock agreement and the proposed acquisitions are fair to
and in the best interests of HSA-Texas and its shareholders. Rather, the
HSA-Texas board of directors viewed its recommendation as being based upon its
business judgment in light of HSA-Texas' financial position, the totality of the
information presented and considered, and the overall effect of the proposed
acquisitions on the shareholders of HSA-Texas and its affiliated foreign
operating companies compared to continuing the business of HSA-Texas or seeking
other potential parties to effect an investment in or other business combination
with HSA-Texas.
There can be no assurance that the benefits of the proposed acquisitions
will be realized by HSA-Texas' shareholders. See "Risk Factors."
ACQUISITION OF HOWARD SCHULTZ & ASSOCIATES (INTERNATIONAL) LTD. AND HOWARD
SCHULTZ & PARTNER (DEUTSCHLAND) GMBH
HSA-Texas is negotiating to acquire for cash and notes all of the stock of
Tamebond Limited, the parent of Howard Schultz & Associates (International)
Ltd., and the licensee that operates the business of HSA-Texas in the United
Kingdom, and all of the stock of J&G Associates Limited, an independent
contractor of Howard Schultz & Associates (International) Ltd. that provides
services with respect to the business of HSA-Texas in the United Kingdom. PRG
and HSA-Texas believe that these acquisitions will close prior to January 1,
2002.
HSA-Texas and the shareholders of Howard Schultz & Partner (Deutschland)
GmbH, the licensee that operates the business of HSA-Texas in Germany and
Austria, are negotiating an option agreement under which HSA-Texas will have the
right, after December 31, 2001, to acquire all of the stock of Howard Schultz &
Partner (Deutschland) GmbH for cash and notes. The shareholders of Howard
Schultz & Partner (Deutschland) GmbH, with respect to sale of the stock, will
not enter into any agreement with HSA-Texas other than the option agreement
described above because of German tax law that would otherwise impose
significant negative tax consequences upon the shareholders. PRG and HSA-Texas
believe that this acquisition will close in January 2002.
The aggregate purchase price for these businesses is currently expected to
be approximately $13-14 million. PRG does not anticipate assuming any debt with
respect to the acquisitions of these businesses.
In the event the acquisition of the business of Howard Schultz & Associates
(International) Ltd. and Howard Schultz & Partner (Deutschland) GmbH have not
occurred at the closing of the asset acquisition, 2.3 million shares of PRG
common stock to be issued to HSA-Texas at the closing of the asset acquisition
will be held in escrow by PRG pending the acquisition of Howard Schultz &
Associates (International) Ltd. and 200,000 shares of PRG common stock to be
issued to HSA-Texas at the closing of the asset acquisition will be held in
escrow by PRG pending the acquisition of Howard Schultz & Partner (Deutschland)
GmbH.
ACQUISITION OF THE DIRECT TO STORE DELIVERY AUDIT OPERATIONS
Effective as of September 1, 2001, HSA-Texas acquired substantially all of
the assets of Phoenix Audit Recoveries, Inc., an independently owned service
provider that conducts a portion of HSA-Texas' direct to store delivery audit
operations, in exchange for the assumption of certain liabilities and a $3
million promissory note bearing interest at 7% per annum and payable in six
approximately equal installments commencing on January 1, 2002 and ending on
April 1, 2003. HSA-Texas is also negotiating an agreement to acquire solely for
cash and promissory notes the business and operations of JASAMA, Inc., also an
independently owned service provider of HSA-Texas which conducts a portion of
HSA-Texas' direct to store delivery audit operations, for approximately $1.2
million.
The acquisition of JASAMA, Inc. is expected to close prior to the closing
of the asset acquisition. In the event it has not closed prior to the closing of
the asset acquisition, then PRG and HSA-Texas will mutually
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agree upon an estimated purchase price for the acquisition and the number of
shares of PRG common stock to be issued to HSA-Texas in the asset acquisition
will be reduced by a number of shares equal to such agreed upon amount divided
by the lesser of $6.50 or the PRG average price. Also, in the event the
acquisition of JASAMA, Inc. has not occurred at the closing of the asset
acquisition, 500,000 shares of PRG common stock to be issued to HSA-Texas at the
closing of the asset acquisition will be held in escrow by PRG pending its
acquisition. See "Other Related Agreements -- Escrow Agreement."
OPINION OF PRG'S FINANCIAL ADVISOR
On July 24, 2001, Merrill Lynch delivered its oral opinion, which opinion
was subsequently confirmed in a written opinion dated as of August 3, 2001, to
the PRG board of directors to the effect that, as of such dates and based upon
the assumptions made, matters considered and limits of review set forth in such
opinion, the proposed consideration to be paid by PRG pursuant to the proposed
acquisitions was fair from a financial point of view to PRG. A copy of Merrill
Lynch's opinion is attached to this document as Annex C.
Merrill Lynch's opinion sets forth the assumptions made, matters considered
and certain limitations on the scope of review undertaken by Merrill Lynch. Each
holder of PRG common stock is urged to read Merrill Lynch's opinion, which is
attached as Annex C, in its entirety. Merrill Lynch's opinion was intended for
the use and benefit of the PRG board of directors, was directed only to the
fairness of the consideration from a financial point of view to PRG, did not
address the merits of the underlying decision by PRG to engage in the proposed
acquisitions and does not constitute a recommendation to any shareholder of PRG
as to how that shareholder should vote on the proposed share and option issuance
or any related matter. The consideration was determined on the basis of
negotiations between PRG and HSA-Texas and was approved by the PRG board of
directors. This summary of Merrill Lynch's opinion is qualified in its entirety
by reference to the full text of the opinion attached as Annex C.
In arriving at its opinion, Merrill Lynch, among other things:
- Reviewed certain publicly available business and financial information
relating to PRG and HSA-Texas that Merrill Lynch deemed to be relevant;
- Reviewed certain information, including financial forecasts, relating to
the business, earnings, cash flow, assets, liabilities and prospects of
PRG and HSA-Texas, as well as the amount and timing of the cost savings
and related expenses and synergies expected to result from the proposed
acquisitions furnished to Merrill Lynch by PRG;
- Conducted discussions with members of senior management and
representatives of PRG concerning the matters described in the previous
two bullets, as well as their respective businesses and prospects before
and after giving effect to the proposed acquisitions and the expected
synergies;
- Reviewed the market prices and valuation multiples for PRG common stock
and compared them with those of certain publicly traded companies that
Merrill Lynch deemed to be relevant;
- Reviewed the results of operations of PRG and HSA-Texas and compared them
with those of certain publicly traded companies that Merrill Lynch deemed
to be relevant;
- Participated in certain discussions and negotiations among
representatives of PRG and their legal advisor;
- Reviewed the potential pro forma impact of the proposed acquisitions;
- Reviewed each of the acquisition agreements, except for the disclosure
schedules thereto, which disclosure schedules had not been completed; and
- Reviewed such other financial studies and analyses and took into account
such other matters as Merrill Lynch deemed necessary, including Merrill
Lynch's assessment of general economic, market and monetary conditions.
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Merrill Lynch's opinion stated that Merrill Lynch was not given the
opportunity to conduct discussions with HSA-Texas concerning any of the matters
described in the previous bullet points.
In preparing its opinion, Merrill Lynch assumed and relied on the accuracy
and completeness of all information supplied or otherwise made available to
Merrill Lynch, discussed with or reviewed by or for Merrill Lynch, or publicly
available, and Merrill Lynch did not assume any responsibility for independently
verifying such information or undertake an independent evaluation or appraisal
of any of the assets or liabilities of PRG or HSA-Texas, and was not furnished
with any such evaluation or appraisal. In addition, Merrill Lynch did not assume
any obligation to conduct any physical inspection of the properties or
facilities of PRG or HSA-Texas. With respect to the financial forecast
information and the expected synergies furnished to or discussed with Merrill
Lynch by PRG, Merrill Lynch assumed that they were reasonably prepared and
reflected the best currently available estimates and judgment of PRG's
management as to the expected future financial performance of PRG and HSA-Texas
and the expected synergies. Merrill Lynch also assumed that the final forms of
the disclosure schedules to the acquisition agreements would not contain any
information materially adverse to Merrill Lynch's analysis.
Merrill Lynch's opinion was necessarily based upon market, economic and
other conditions as they existed and could be evaluated on, and on the
information made available to Merrill Lynch as of, the date of its opinion.
Merrill Lynch assumed that in the course of obtaining the necessary regulatory
or other consents or approvals, contractual or otherwise, for the proposed
acquisitions, no restrictions, including any divestiture requirements or
amendments or modifications, would be imposed that would have a material adverse
effect on the contemplated benefits of the proposed acquisitions.
Merrill Lynch expressed no opinion as to the prices at which shares of PRG
common stock would trade following the announcement or completion of the
proposed acquisitions.
The following is a summary of certain financial and comparative analyses
performed by Merrill Lynch that were presented to PRG's board of directors in
connection with the oral opinion delivered to PRG's board of directors on July
24, 2001. The financial analyses summarized below include information presented
in tabular format. In order to understand fully Merrill Lynch's financial
analyses, the tables must be read together with the text of each summary. The
tables alone do not constitute a complete description of the financial analyses.
Considering the data described below without considering the full narrative
description of the financial analyses, including the methodologies and
assumptions underlying the analyses, could create a misleading or incomplete
view of Merrill Lynch's financial analyses.
HSA-Texas Analysis
Comparable Public Company Analysis. Using publicly available information
and estimates of future financial results published by First Call Corporation
and other various research reports, Merrill Lynch compared certain financial and
operations data and ratios for HSA-Texas with the corresponding data and ratios
of comparable companies.
The companies selected for the comparable company analysis included the
following publicly traded companies:
- Automatic Data Processing, Inc.;
- Convergys Corporation;
- CSG Systems International, Inc.;
- The BISYS Group, Inc.;
- Ceridian Corporation;
- Factset Research Systems Inc.; and
- NCO Group, Inc.
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Merrill Lynch derived an estimated valuation range for HSA-Texas by
comparing market value as a multiple of estimated 2002 earnings. The earnings
estimates were obtained from First Call, a data service that monitors and
publishes a compilation of earnings estimates produced by selected research
analysts on companies of interest to investors, as of July 13, 2001, and
adjusted by Merrill Lynch to exclude goodwill amortization. Merrill Lynch also
compared firm value as a multiple of estimated 2001 earnings before interest,
taxes, depreciation and amortization, which is referred to as "EBITDA."
The results of this analysis were as follows:
HIGH FOR LOW FOR MEAN FOR
COMPARABLE COMPARABLE COMPARABLE
COMPANIES COMPANIES COMPANIES
---------- ---------- ----------
Market value as a multiple of estimated 2002 27.6x 9.0x 20.9x
earnings...........................................
Firm value as a multiple of estimated 2001 EBITDA.... 17.8x 6.0x 13.3x
Comparing market value as a multiple of estimated 2002 earnings and using a
reference range from 12.0x to 16.0x, the estimated equity value of HSA-Texas
ranged from approximately $155.0 million to approximately $205.0 million.
Comparing firm value as a multiple of estimated 2001 EBITDA and reviewing
selected research reports, Merrill Lynch extrapolated 2002 EBITDA multiples.
Comparing firm value as a multiple of estimated 2002 EBITDA and using a
reference range from 6.0x to 8.0x, the estimated equity value of HSA-Texas
ranged from approximately $120.0 million to approximately $175.0 million.
Leveraged Buyout Analysis. Merrill Lynch performed an analysis of the
theoretical maximum consideration that could be paid in an acquisition of
HSA-Texas by a financial buyer, based on HSA-Texas management projections, as
adjusted by Bain & Co., and considering capital structures typically employed by
financial buyers. In its analysis, Merrill Lynch assumed that a financial buyer
would be subject to the following constraints:
- a maximum ratio of total debt to 2001 EBITDA ranging from 4.0x to 4.5x;
- a maximum ratio of senior debt to 2001 EBITDA ranging from 2.5x to 3.0x;
- a minimum 5-year return on equity of approximately 30%;
- a maximum equity investment ranging from 40% to 50% of consideration;
- a maximum senior debt repayment period of 7 years; and
- a 2005 EBITDA exit multiple range of 6.0x to 8.0x.
Assuming a financial buyer refinanced $50.0 million of HSA-Texas
indebtedness and incurred transaction expenses of $4.0 million, the estimated
theoretical maximum consideration that could be paid in an acquisition of
HSA-Texas by a financial buyer ranged from approximately $60.0 million to
approximately $100.0 million.
Discounted Cash Flow Analysis. Merrill Lynch performed a discounted cash
flow, or "DCF", analysis for HSA-Texas using projections provided by HSA-Texas'
management and modified by Bain & Co.
The DCF for HSA-Texas was calculated assuming discount rates ranging from
11.5% to 12.5% and was comprised of the sum of the present values of:
- The projected cash flows for HSA-Texas for the years 2002 through 2006;
and
- The 2006 terminal value based upon a range of multiples from 6.0x to 8.0x
estimated 2006 EBITDA.
Merrill Lynch then subtracted from this sum $50.0 million in respect of
HSA-Texas' net debt.
Performing a DCF analysis for HSA-Texas, the estimated equity value of
HSA-Texas ranged from approximately $150.0 million to approximately $210.0
million.
Merrill Lynch also performed the DCF analysis assuming PRG attains its
projected synergies for the proposed acquisitions, which resulted in estimated
synergies on a present value basis of approximately
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$20.0 million. Including these estimated synergies, the estimated equity value
of HSA-Texas ranged from approximately $170.0 million to approximately $230.0
million.
PRG Analysis
Historical Stock Performance. Merrill Lynch reviewed the trading price of
the shares of PRG's common stock for the one-year period ended July 23, 2001.
This stock performance review indicated that, for the 52-week period ended July
23, 2001, the high and low closing prices per share of PRG common stock were
$14.50 and $3.75, respectively.
Comparable Public Company Analysis. Using publicly available information
and estimates of future financial results published by First Call, Merrill Lynch
compared certain historical stock, financial and operations data and ratios for
PRG with the corresponding data and ratios of the same group of companies listed
above for the HSA-Texas comparable public company analysis.
Merrill Lynch derived estimated per-share valuation ranges for PRG common
stock by comparing market value as a multiple of 2001 earnings per share, market
value as a multiple of 2002 earnings per share, and firm value as a multiple of
2001 EBITDA. The earnings estimates were obtained from First Call, as of July
13, 2001, and adjusted by Merrill Lynch to exclude goodwill amortization.
HIGH FOR LOW FOR MEAN FOR
COMPARABLE COMPARABLE COMPARABLE
COMPANIES COMPANIES COMPANIES PRG
---------- ---------- ---------- -----
Market value as a multiple of estimated 2001 33.7x 10.4x 25.0x 27.1x
earnings.............................................
Market value as a multiple of estimated 2002 27.6x 9.0x 20.9x 19.2x
earnings.............................................
Firm value as a multiple of estimated 2001 EBITDA...... 17.8x 6.0x 13.3x 10.9x
Based on these analyses, Merrill Lynch derived a value per share of PRG
common stock ranging from
- $10.80 to $12.70 by comparing market value as a multiple of 2001 earnings
per share and using a reference range from 23.0x to 27.0x;
- $10.55 to $13.20 by comparing market value as a multiple of 2002 earnings
per share and using a reference range from 16.0x to 20.0x; and
- $10.40 to $12.80 by comparing firm value as a multiple of 2001 EBITDA and
using a reference range from 9.0x to 11.0x.
Discounted Cash Flow Analysis. Merrill Lynch performed a DCF analysis for
PRG using projections provided by PRG's management.
The DCF for PRG was calculated assuming discount rates ranging from 11.5%
to 12.5% and was comprised of the sum of the present values of:
- The projected cash flows for PRG for the years 2002 through 2006; and
- The 2006 terminal value based upon a range of multiples from 7.0x to 9.0x
estimated 2006 EBITDA.
Merrill Lynch then subtracted from this sum $30.0 million in respect of
PRG's net debt.
Performing a DCF analysis for PRG, the estimated equity value per share of
PRG common stock ranged from $12.66 to $16.29, based on 48.7 million PRG common
shares outstanding.
Pro Forma Combination Analysis
Merrill Lynch also analyzed certain pro forma effects resulting from the
proposed acquisitions. Using the projected earnings of HSA-Texas for the years
2002, 2003 and 2004 provided by the management of HSA-Texas (as adjusted by Bain
& Co.), and the projected earnings of PRG for the years 2002, 2003 and 2004
provided by the management of PRG, Merrill Lynch compared the projected earnings
per share of PRG
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on a stand-alone basis, assuming the proposed acquisitions did not occur, to the
per-share earnings of PRG, assuming the proposed acquisitions did occur.
Using the assumptions detailed above, the analysis indicated that the
proposed acquisitions would be accretive to projected earnings per share of PRG
common stock in 2002, 2003 and 2004 if PRG realized pre-tax cost-savings
synergies of $2.8 million, $3.4 million and $4.2 million, respectively,
excluding amortization of goodwill and assuming amortization of approximately
$20.0 million of intangible assets.
The summary of analyses performed by Merrill Lynch set forth above does not
purport to be a complete description of the analyses performed by Merrill Lynch
in arriving at its opinion. The preparation of a fairness opinion is a complex
process and is not necessarily susceptible to partial or summary description.
Accordingly, Merrill Lynch believes that its analyses must be considered as a
whole and that selecting portions of its analyses and the factors considered by
Merrill Lynch, without considering all analyses and factors, could create an
incomplete view of the processes underlying the Merrill Lynch opinions. Merrill
Lynch did not assign relative weights to any of its analyses in preparing its
opinion. The matters considered by Merrill Lynch in its analyses were based on
numerous macroeconomic, operating and financial assumptions with respect to
industry performance, general business and economic conditions and other
matters, many of which are beyond PRG's and Merrill Lynch's control and involve
the application of complex methodologies and educated judgment. Any estimates
contained in the Merrill Lynch analyses are not necessarily indicative of actual
past or future results or values, which may be significantly more or less
favorable than the estimates. Estimated values do not purport to be appraisals
and do not necessarily reflect the prices at which businesses or companies may
be sold in the future. The estimates are inherently subject to uncertainty.
No company utilized as a comparison in the analyses described above is
identical to PRG or HSA-Texas. In addition, various analyses performed by
Merrill Lynch incorporate projections prepared by research analysts using only
publicly available information. These estimates may or may not prove to be
accurate. An analysis of publicly traded comparable companies is not
mathematical; rather it involves complex considerations and judgments concerning
differences in financial and operating characteristics of the comparable
companies and other factors that could affect the public trading value of the
comparable companies to which they are being compared.
The PRG board selected Merrill Lynch to act as its financial advisor
because of Merrill Lynch's reputation as an internationally recognized
investment banking firm with substantial experience in transactions similar to
the proposed acquisitions and because Merrill Lynch is familiar with PRG and its
business. As part of Merrill Lynch's investment banking business, Merrill Lynch
is continually engaged in the valuation of businesses and their securities in
connection with mergers and acquisitions, leveraged buyouts, negotiated
underwritings, secondary distributions of listed and unlisted securities and
private placements.
Pursuant to the terms of a letter agreement between PRG and Merrill Lynch
dated January 4, 2001, PRG agreed to pay Merrill Lynch a fee in the amount of
$2.5 million. This fee is payable in two installments as follows:
- $250,000 of such fee was paid upon Merrill Lynch's providing its opinion
to PRG's board of directors; and
- $2.25 million is payable upon the completion of the proposed
acquisitions.
PRG has agreed to reimburse Merrill Lynch for its reasonable out-of-pocket
expenses incurred in connection with its engagement (including the reasonable
fees and disbursements of legal counsel) and to indemnify Merrill Lynch and
related parties from and against specified liabilities, including liabilities
under the federal securities laws, arising out of its engagement.
Merrill Lynch has, in the past, provided financial advisory and financing
services to PRG and/or its affiliates and may continue to do so and has
received, and may receive, additional fees for the rendering of those services.
In addition, in the ordinary course of Merrill Lynch's business, Merrill Lynch
and its affiliates may actively trade PRG common stock and other securities of
PRG for their own account and for the
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accounts of customers. Accordingly, Merrill Lynch and its affiliates may at any
time hold a long or short position in such securities.
POTENTIAL CONFLICTS OF INTEREST OF DIRECTORS AND OFFICERS OF HSA-TEXAS IN THE
PROPOSED ACQUISITIONS
In considering the recommendation of the HSA-Texas board of directors with
respect to the proposed acquisitions, the holders of HSA-Texas voting common
stock and the shareholders of its affiliated foreign operating companies should
be aware that, as described below, members of HSA-Texas' management and board of
directors have interests in the proposed acquisitions that are different from,
or in addition to, their rights as shareholders or optionholders of HSA-Texas,
which may create conflicts of interest. The HSA-Texas board of directors was
aware of and considered these interests in reaching its conclusion that the
asset agreement and the transactions contemplated thereby are fair to, and in
the best interests of, HSA-Texas and its shareholders.
Stockholdings. As of the record date, the directors and executive officers
of HSA-Texas individually or beneficially owned 2,307,482 or 100% of the
outstanding shares of voting common stock of HSA-Texas and 3,873,301 or 60.19%
of the outstanding shares of non-voting common stock of HSA-Texas. After
completion of the proposed acquisitions, officers and directors of HSA-Texas
will individually or beneficially own approximately 15% of PRG's outstanding
common stock.
Stock Options. On the closing date, PRG will assume options to purchase
167,631 shares of HSA-Texas common stock currently held by Arthur Budge, Jr.,
with an exercise price of $9.06 per share that will convert into options to
purchase 248,295 shares of PRG common stock with an exercise price of $6.12 per
share, assuming an option conversion ratio of 1.4812. PRG will also grant
options to purchase 250,000 shares of PRG common stock to Howard Schultz at an
exercise price equal to the closing sales price per share of PRG common stock on
The Nasdaq National Market on the closing date.
Assumption of a portion of the Howard Schultz loan. On the closing date of
the asset acquisition, PRG will assume approximately $8.5 million to $9.0
million of the amount of principal and interest outstanding payable to Howard
Schultz for amounts loaned to HSA-Texas, including loans made subsequent to June
30, 2001. See "PRG Director and Executive Officer Information -- Certain
Transactions."
Employment with PRG. It is anticipated that certain of the current
officers of HSA-Texas will be employed after the proposed acquisitions by PRG.
In addition, it is anticipated that Howard Schultz will serve as the initial
chairman of the board of the combined company and Andrew Schultz will serve as a
director of the combined company following the proposed acquisitions. Each of
Howard Schultz and Andrew Schultz will have an employment agreement with PRG for
a term of two years.
EFFECTIVE DATE
The proposed acquisitions will become effective, solely for accounting
purposes, but not for tax purposes, on the date which is either the last day of
the month immediately preceding the closing date or the first day of the month
in which the closing occurs, as mutually agreed by PRG and HSA-Texas. For tax
purposes, the proposed acquisitions will become effective on the closing date.
REGULATORY APPROVALS
PRG and HSA-Texas have agreed in the asset agreement to use their best
efforts to take whatever actions are required to obtain necessary regulatory
approvals and consents with respect to the proposed acquisitions. Other than
clearance under the antitrust laws applicable to the proposed acquisitions and
the SEC's declaring the effectiveness of the registration statement of which
this joint proxy statement/prospectus is a part, PRG and HSA-Texas do not
believe that any additional material governmental filings or approvals are
required with respect to the proposed acquisitions.
Under the HSR Act and the related rules, the proposed acquisitions could
not be completed until PRG and HSA-Texas notified and furnished information to
the Federal Trade Commission, or FTC, and the Antitrust Division of the United
States Department of Justice, and specified waiting period requirements had
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been satisfied. In connection with the proposed acquisitions, on or before
August 3, 2001, PRG and HSA-Texas filed the required notification and report
forms with the FTC and the Antitrust Division under the HSR Act. Effective as of
August 10, 2001, the request for early termination of the applicable waiting
period was granted.
At any time before or after the completion of the proposed acquisitions,
either the Antitrust Division or the FTC could take any action under U.S.
antitrust laws as it deems necessary or desirable in the public interest,
including seeking to enjoin the completion of the proposed acquisitions or
seeking the divestiture of substantial assets owned by PRG or HSA-Texas. Private
parties and state attorneys general may also bring actions under U.S. antitrust
laws depending on the circumstances. Although PRG and HSA-Texas believe that the
proposed acquisitions do not raise significant concerns under U.S. antitrust
laws, PRG and HSA-Texas can give no assurance that a challenge to the proposed
acquisitions on antitrust grounds will not be made or, if a challenge is made,
that it would not be successful.
LENDER APPROVALS
PRG has held, and expects to continue to hold, extensive discussions with
the nine members of its banking syndicate concerning the proposed acquisition of
HSA-Texas. The credit agreement provides that a defined majority of the banks in
the syndicate must consent to the proposed acquisitions. To facilitate
completion of the proposed acquisitions, both PRG and its bankers believe that a
significant, but not definitively quantified, reduction in PRG's outstanding
borrowings under the credit agreement is first necessary. PRG intends to achieve
any needed reduction primarily through the sale of the discontinued operations
and/or the potential sale of the French Taxation Services operations. In
granting their consent to acquire HSA-Texas, the banking syndicate will also be
consenting to a relaxation of the credit agreement formulae for permitted
acquisitions and may potentially need to relax prospective financial ratio
covenants for one or more post-acquisition periods. Additionally, other items
and restrictions within the current credit agreement may require modification or
waiver to facilitate the proposed acquisitions. While PRG's discussions to-date
with the members of the banking syndicate have been highly productive, there can
be no assurance that the required majority of the syndicate members will consent
to the proposed acquisitions and agree to any needed modifications to the credit
agreement.
There can be no assurance that the proceeds from any future sales of the
discontinued operations and/or the potential sale of the French Taxation
Services operations will be sufficient to meet the anticipated required
principal reductions under the credit agreement prior to the closing of the
asset acquisition. PRG is currently considering additional sources of debt or
equity financing or a combination thereof. There can be no assurance that such
additional financing, if required, will be available to PRG.
ASSUMPTION OF HSA-TEXAS INDEBTEDNESS
PRG expects to incur or assume $32.0 million to $37.0 million of debt in
connection with the proposed acquisitions, including debt expected to be
incurred in connection with the acquisition of the remaining direct to store
delivery audit operations. In addition, PRG expects to incur an additional $13.0
million to $14.0 million of debt to acquire the businesses of Howard Schultz &
Partner (Deutschland) GmbH and Howard Schultz & Associates (International) Ltd.
PRG will also assume certain other obligations of HSA-Texas, including
compensation obligations to HSA-Texas independent contractors to be incurred
prior to the closing of the asset acquisition, currently estimated at up to $9
million.
MATERIAL U.S. FEDERAL INCOME TAX CONSEQUENCES RELATING TO THE PROPOSED
ACQUISITIONS
The following discussion is included for general information only and is
not tax advice. This discussion summarizes the material U.S. federal income tax
consequences of the proposed acquisitions of substantially all of the assets of
HSA-Texas and substantially all of the outstanding stock of the affiliated
foreign operating companies under the Internal Revenue Code, or the Code,
existing regulations thereunder, including final, temporary or proposed
regulations, and current administrative rulings and court decisions, all of
which are subject to change, retroactively or prospectively, and possibly to
differing interpretations. The discussion set
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forth below may not apply to certain categories of shareholders which are
subject to special treatment under the Code, including, but not limited to,
financial institutions, tax-exempt entities, broker-dealers, insurance
companies, holders who are not United States persons, as defined in Section
7701(a)(30) of the Code, persons who do not hold their stock as a capital asset
within the meaning of Section 1221 of the Code, persons who acquired their stock
as part of an integrated investment, such as a "hedge," "straddle" or other risk
reduction transaction, and holders who acquired their stock pursuant to the
exercise of employee stock options, warrants or otherwise as compensation. In
addition, this discussion does not address state, local or foreign tax
consequences.
Except for the liquidation of HSA-Texas, this discussion does not address
the tax consequences of any transaction effected prior to or to be effected
after the acquisitions (whether or not such transactions were effected in
connection with the acquisitions), including, without limitation, any
distribution made to HSA-Texas shareholders other than pursuant to the
liquidation and dissolution of HSA-Texas, any distribution made to shareholders
of any of the affiliated foreign operating companies, and any transaction in
which HSA-Texas common stock or stock in an affiliated foreign operating company
is acquired or PRG common stock is disposed of.
Neither PRG nor HSA-Texas has requested, or plans to request, any ruling
from the Internal Revenue Service with regard to any of the U.S. federal income
tax consequences of the transactions described in this joint proxy
statement/prospectus, and the statements in this joint proxy
statement/prospectus are not binding on the IRS or any court. Thus, there can be
no assurance that these statements will not be challenged by the IRS or
sustained by a court if challenged by the IRS.
HSA-Texas has requested from special tax counsel an opinion to the effect
that the proposed acquisitions will be treated for U.S. federal income tax
purposes as a reorganization within the meaning of Section 368(a) of the Code.
Such opinion is subject to certain assumptions and based on certain
representations of HSA-Texas, PRG and certain shareholders of HSA-Texas.
HSA-Texas shareholders should be aware that such opinion will not be binding
upon the IRS nor will the IRS be precluded from adopting a contrary position.
Accordingly, shareholders of HSA-Texas and the affiliated foreign operating
companies are urged to consult their tax advisors as to the specific tax
consequences to them of the transactions described in this joint proxy
statement/prospectus, including the applicable federal, state, local and foreign
tax consequences of such transactions in their own particular circumstances.
Acquisition of the Assets of HSA-Texas
The proposed acquisition of substantially all of the assets of HSA-Texas,
and subsequent liquidation of HSA-Texas, are intended to qualify as a
reorganization under Section 368(a)(1)(C) of the Code. However, there are
numerous requirements that must be satisfied in order for the acquisition of the
assets of HSA-Texas and the liquidation of HSA-Texas to qualify as a
reorganization within the meaning of Section 368(a)(1)(C) of the Code. This
discussion is not binding on the IRS and does not preclude the IRS from adopting
a contrary position. The following assumes that the acquisition of substantially
all of the assets of HSA-Texas and the liquidation of HSA-Texas will qualify as
a reorganization under Section 368(a)(1)(C) of the Code. It also assumes that
HSA-Texas qualifies as an S corporation for U.S. federal income tax purposes at
all relevant times until HSA-Texas is liquidated and dissolved.
Tax Implications to HSA-Texas Shareholders
The U.S. federal income tax consequences of the acquisition of
substantially all of the assets of HSA-Texas and the liquidation of HSA-Texas to
the HSA-Texas shareholders should be as follows:
- If an HSA-Texas shareholder receives only PRG common stock in exchange
for such shareholder's HSA-Texas common stock in the liquidation of
HSA-Texas, such shareholder should not recognize gain or loss from the
exchange for U.S. federal income tax purposes.
- To the extent that an HSA-Texas shareholder receives property other than
PRG common stock, or in addition to PRG common stock, in the liquidation
of HSA-Texas, it appears that such shareholder will recognize gain (but
not loss) or dividend income from the exchange in an amount equal to the
lesser of
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the fair market value of such other property and the gain realized by
such HSA-Texas shareholder in the transaction, calculated after taking
into account all adjustments to the shareholder's tax basis in the
shareholder's HSA-Texas stock, including any increase allowed for gain
recognized by HSA-Texas and included in the shareholder's income, as
discussed below. If the shareholder receives cash in lieu of fractional
shares of PRG common stock in the liquidation of HSA-Texas, this should
be treated as if PRG had redeemed the fractional shares from the
shareholder, and the shareholder should generally recognize gain or loss
in an amount equal to the cash received less a portion of the
shareholder's tax basis in such shareholder's HSA-Texas common stock
allocable to such fractional shares. As long as HSA-Texas qualifies as an
S corporation at the time of the liquidation, HSA-Texas shareholders will
likely be required to include in income their respective share of any
gain recognized by HSA-Texas upon the distribution of appreciated assets
to HSA-Texas shareholders, reduced by any built in gains tax imposed by
Section 1374 of the Code on HSA-Texas. See "Tax Implications to
HSA-Texas" below. For purposes of determining the amount of gain or
dividend income recognized as a result of the receipt of property other
than PRG common stock in the liquidation of HSA-Texas, HSA-Texas
shareholders should be allowed to increase their tax basis in their
HSA-Texas stock by the amount of any HSA-Texas gain included in income.
- The tax basis of the PRG common stock received should be the same as the
tax basis of the HSA-Texas common stock deemed exchanged therefor.
However, the tax basis of the PRG common stock should generally be
reduced by the fair market value of any property other than PRG common
stock received, and increased by any gain recognized upon the receipt of
property other than PRG common stock.
- The holding period of PRG common stock received by HSA-Texas shareholders
should include the holding period of HSA-Texas common stock canceled upon
the liquidation and dissolution of HSA-Texas, provided the shareholder's
HSA-Texas common stock was held as a capital asset within the meaning of
Section 1221 of the Code. The holding period of property received by
HSA-Texas shareholders other than PRG common stock would begin the day
after such property is received by an HSA-Texas shareholder.
Tax Implications of Contributions by Holders of Equity Interests in HSA-Texas
Subsidiaries
Any holder of an equity interest in a direct or indirect subsidiary of
HSA-Texas that is required to contribute such equity interest to the direct
parent corporation holding a majority of the outstanding equity interests in
such subsidiary, referred to herein as a Direct Parent Corporation, may be
required to recognize gain or loss for U.S. federal income tax purposes as a
result of such contribution. The specific U.S. federal income tax consequences
of such contribution will depend on the holder's own particular tax
circumstances.
Tax Implications to HSA-Texas
HSA-Texas should not recognize taxable gain or loss with respect to the
transfer of assets to PRG solely in exchange for PRG common stock, or the
distribution of such PRG common stock in liquidation of HSA-Texas. However, if
HSA-Texas distributes property other than PRG common stock to the HSA-Texas
shareholders pursuant to the liquidation and dissolution of HSA-Texas, HSA-Texas
will generally recognize gain for U.S. federal income tax purposes in an amount
equal to the excess of the fair market value of the property distributed over
its adjusted tax basis. As long as HSA-Texas qualifies as an S corporation at
the time of the liquidation, HSA-Texas will pay U.S. federal income tax only on
the portion of the gain, if any, that is subject to the built in gains tax
imposed by Section 1374 of the Code. Moreover, the shareholders of HSA-Texas
will generally pay U.S. federal income tax on their respective share of any gain
recognized by HSA-Texas, but such gain will be reduced by any built in gains tax
imposed by Section 1374 of the Code on HSA-Texas.
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Tax Implications to PRG
PRG should not recognize taxable gain or loss solely as a result of the
acquisition of the acquired HSA-Texas assets in exchange for PRG common stock.
PRG's tax basis in the acquired assets should generally be the same as
HSA-Texas's tax basis in such assets.
Tax Implications if the Acquisition Does Not Qualify as a "Reorganization"
A successful IRS challenge to the "reorganization" status of the
acquisition of the assets of HSA-Texas and subsequent liquidation of HSA-Texas
would result in several significant tax consequences. First, HSA-Texas would
recognize gain or loss for U.S. federal income tax purposes as a result of PRG's
acquisition of HSA-Texas's assets. The amount of the gain or loss recognized by
HSA-Texas would be determined by comparing HSA-Texas's tax basis in the assets
transferred to PRG to the consideration received from PRG therefor including,
without limitation, all of the PRG common stock received and the liabilities
assumed by PRG, and allocated to such assets, referred to herein as the
Acquisition Gain or Loss. As long as HSA-Texas qualifies as an S corporation at
the time of the acquisition, HSA-Texas would owe U.S. federal income tax on any
portion of the Acquisition Gain that is subject to the built in gains tax
imposed by Section 1374 of the Code. Moreover, each HSA-Texas shareholder would
owe U.S. federal income tax on his or her share of the Acquisition Gain reduced
by any built in gains tax imposed by Section 1374 of the Code on HSA-Texas. As
transferees of the assets of HSA-Texas in liquidation of HSA-Texas, HSA-Texas
shareholders may be liable for a pro rata share of HSA-Texas's liability for the
built in gains tax imposed by Section 1374 of the Code.
Second, to the extent that there is an increase or decrease in the value of
PRG common stock from the time of receipt by HSA-Texas until the time of the
liquidation and dissolution of HSA-Texas, HSA-Texas shareholders would recognize
additional gain or loss for U.S. federal income tax purposes in an amount equal
to such increase or decrease, referred to herein as the Liquidation Gain or
Loss.
Third, the HSA-Texas shareholders would likely also have to pay interest on
the amount of the tax deficiencies attributable to the Acquisition Gain and the
Liquidation Gain.
Fourth, the tax basis of the PRG common stock, and any other property
received in connection with the liquidation of HSA-Texas, would equal its fair
market value as of the date of the liquidating distributions.
Fifth, the holding period of PRG common stock and any other property
received by HSA-Texas shareholders in the liquidation of HSA-Texas would begin
the day after the liquidating distributions.
The asset agreement does not provide for any rescission or adjustment if
the transactions do not qualify as a tax-free reorganization, and PRG would not
be adversely impacted if the transactions do not qualify as a tax-free
reorganization. Therefore, the risk that the transactions might not qualify as a
tax-free reorganization is borne entirely by HSA-Texas and its shareholders. See
"Risk Factors -- The proposed acquisitions could result in potential adverse
U.S. federal income tax consequences to HSA-Texas, HSA-Texas' shareholders and
shareholders of the affiliated foreign operating companies."
Transactions Involving HSA-Texas Optionholders and Holders of HSA-Texas SARs
The following summarizes the anticipated U.S. federal income tax
consequences to the HSA-Texas optionholders and holders of HSA-Texas SARs of the
transactions involving such persons.
Each HSA-Texas optionholder whose HSA-Texas stock options held are assumed
by PRG should not recognize gain or loss as a result of the assumption. Rather,
such optionholder should generally recognize ordinary compensation income at the
time the PRG option is exercised in an amount equal to the fair market value of
PRG common stock at such time less the exercise price of the option.
Each HSA-Texas optionholder who receives cash in exchange for the
cancellation of such optionholder's HSA-Texas options will recognize ordinary
compensation income equal to the amount of the cash payment received. Similarly,
each holder of an HSA-Texas SAR will recognize ordinary compensation income in
an amount equal to the amount of cash received from HSA-Texas in connection with
the cancellation of such HSA-Texas SAR.
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Acquisitions of Stock of the Affiliated Foreign Operating Companies
The proposed acquisitions of the stock of the affiliated foreign operating
companies by PRG are intended to qualify as reorganizations under Section
368(a)(1)(B) of the Code. However, there are numerous requirements that must be
satisfied in order for the acquisitions to qualify as reorganizations within the
meaning of Section 368(a)(1)(B) of the Code. Assuming the acquisitions qualify
as reorganizations under Section 368(a)(1)(B) of the Code, a shareholder of any
affiliated foreign operating company will not recognize gain or loss from the
exchange of such shareholder's stock in such affiliated foreign operating
company for PRG common stock. The shareholder's aggregate adjusted tax basis in
shares of PRG common stock received will equal the shareholder's aggregate
adjusted tax basis in the stock in the affiliated foreign operating company that
is surrendered in the transaction. The shareholder's holding period for the PRG
shares received will include the shareholder's holding period for the stock in
the affiliated foreign operating company that is surrendered in the transaction,
provided the shareholder's equity interest in the affiliated foreign operating
company was held as a capital asset.
Neither PRG nor any of the affiliated foreign operating companies will be
required to recognize taxable gain or loss solely as a result of the
acquisitions.
If the acquisition of the stock of an affiliated foreign operating company
by PRG does not qualify as a reorganization within the meaning of Section
368(a)(1)(B) of the Code, the shareholders of the affiliated foreign operating
company would recognize gain or loss for U.S. federal income tax purposes upon
receipt of PRG common stock in exchange for the shareholders' stock in the
affiliated foreign operating company. Each shareholder's gain or loss would be
determined by comparing the shareholder's tax basis in his or her stock in the
affiliated foreign operating company surrendered in the exchange to the value of
PRG common stock received therefor. Assuming the shareholder's stock was held as
a capital asset, the gain or loss will constitute capital gain or loss and will
be long-term capital gain or loss if, as of the date of the exchange, the
shareholder's holding period for the stock is greater than one year. The
shareholders would likely also be required to pay interest on the amount of the
tax deficiency attributable to this taxable gain. The tax basis of the PRG
common stock received would equal its fair market value as of the date of the
acquisition. The holding period of the PRG common stock received would begin the
day after the acquisition.
The stock agreement does not provide for any rescission or adjustment if
the acquisition of the stock of any of the affiliated foreign operating
companies does not qualify as a tax-free reorganization, and PRG would not be
adversely impacted if the acquisitions do not qualify as tax-free
reorganizations. Therefore, the risk that the transactions might not qualify as
tax-free reorganizations is borne entirely by shareholders of the affiliated
U.S. foreign operating companies. See "Risk Factors -- The proposed acquisitions
could result in potential adverse federal income tax consequences to HSA-Texas,
HSA-Texas' shareholders and shareholders of the affiliated foreign operating
companies."
The foregoing discussion is not intended to be a complete analysis or
description of all potential U.S. federal income tax consequences or any other
consequences of the acquisition of substantially all of the assets of HSA-Texas
and substantially all of the stock of the affiliated foreign operating
companies. In addition, this discussion does not discuss tax consequences which
may vary with or are contingent on the shareholder's individual tax
circumstances. Moreover, this discussion does not address any non-income tax or
any foreign, state or local tax consequences of the acquisitions. Accordingly,
stockholders of HSA-Texas and the affiliated foreign operating companies are
strongly urged to consult with their tax advisors to determine the particular
U.S. federal, state, local or foreign income or other tax consequences to them
of the transactions described in this joint proxy statement/prospectus.
ACCOUNTING TREATMENT
The proposed acquisitions will be accounted for under the purchase method
of accounting in accordance with accounting principles generally accepted in the
United States of America.
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PRG RIGHTS PLAN
PRG's board of directors has taken sufficient action to exempt the
transactions contemplated by the asset agreement and stock agreement from the
provisions of the rights plan.
DISSENTERS' AND APPRAISAL RIGHTS RELATED TO THE PROPOSED ACQUISITIONS
Neither PRG shareholders nor the shareholders of HSA-Texas' affiliated
foreign operating companies will have dissenters' or appraisal rights in
connection with the proposed acquisitions.
The Texas Business Corporation Act generally provides that, with respect to
the sale or disposition of all, or substantially all, of the property and assets
of a Texas corporation, if shareholder approval is required for such sale or
disposition and a shareholder holds stock of a class or series entitled to vote
thereon, then any such shareholder has the right to dissent from the sale or
disposition and to receive the fair value in cash of the shares owned by such
shareholder. The fair value shall be the value of the shares as of the day
immediately preceding the shareholders' meeting at which the proposed
acquisitions are submitted to a vote, excluding any appreciation or depreciation
in anticipation of the proposed acquisitions, and may differ from the value of
the consideration that a dissenting HSA-Texas shareholder would otherwise
receive pursuant to the asset agreement following the liquidation of HSA-Texas.
Set forth below is a summary of the procedures relating to the exercise of the
right to dissent as provided in the Texas Act. The summary does not purport to
be complete and is qualified in its entirety by reference to Articles 5.11, 5.12
and 5.13 of the Texas Act. A copy of these Articles is attached to this joint
proxy statement/prospectus as Annex D. FAILURE TO COMPLY WITH ANY OF THE
REQUIRED STEPS MAY RESULT IN TERMINATION OF THE RIGHT TO DISSENT OF A HOLDER OF
HSA-TEXAS VOTING COMMON STOCK.
Each holder of HSA-Texas voting common stock has a right to dissent from
the proposed acquisition by PRG of substantially all of the assets of HSA-Texas
in exchange for shares of PRG common stock. The right to dissent can be
exercised only by complying with the following procedures:
How to Exercise and Perfect Your Right to Dissent
A dissenting holder of HSA-Texas voting common stock must, prior to the
HSA-Texas special meeting, provide HSA-Texas' corporate secretary with a written
objection to the proposed acquisitions that:
- states he or she intends to exercise his or her right to dissent if the
proposed acquisition is approved and completed; and
- provides an address to which a notice about the outcome of the vote on
the proposed acquisition may be sent.
The address for HSA-Texas' corporate secretary is Howard Schultz &
Associates International, Inc., 9241 LBJ Freeway, Suite 100, Dallas, Texas
75243, Attn: Corporate Secretary.
A dissenting shareholder must not vote his or her shares of HSA-Texas stock
in favor of the proposed acquisition if he or she intends to exercise his or her
right to dissent.
If a dissenting shareholder votes at the special meeting in favor of the
proposed acquisition, he or she will not be entitled to receive payment for his
or her shares of HSA-Texas common stock under the dissent provisions. If a
dissenting HSA-Texas shareholder complies with the two items above, and the
proposed acquisition is approved at the special meeting and is completed,
HSA-Texas will deliver a written notice to the dissenting shareholder notifying
him or her that the proposed acquisition has been approved and completed.
HSA-Texas must deliver this notice to dissenting shareholders within ten days
after the proposed acquisition is completed.
If dissenting shareholders wish to receive the fair value of their shares
of HSA-Texas common stock, they must, within ten days from the delivery or
mailing of the notice, send a written demand to HSA-Texas for the payment of the
fair value of their shares of HSA-Texas common stock.
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HSA-Texas Shareholder Demand for Payment
A dissenting shareholder's notice must state how many shares of HSA-Texas
voting common stock he or she holds and the class thereof. The demand must also
state the dissenting shareholder's estimate of the fair value of their shares.
If a dissenting HSA-Texas shareholder fails to send this demand to HSA-Texas
within the required ten day period, such dissenting HSA-Texas shareholder will
be bound by the terms of the asset agreement and will not be entitled to receive
a cash payment representing the fair value of his or her shares of HSA-Texas
voting common stock.
A dissenting shareholder must also, within 20 days of making a demand for
payment, submit the stock certificates representing his or her shares of
HSA-Texas voting common stock to HSA-Texas. HSA-Texas will make a notation on
such HSA-Texas stock certificates indicating that a demand for payment has been
made and may return such HSA-Texas stock certificates to the dissenting
shareholder. If a dissenting shareholder fails to submit his or her stock
certificates to HSA-Texas for notation, HSA-Texas may, at its option, terminate
such shareholder's right to receive a cash payment for his or her shares, unless
a court of competent jurisdiction directs otherwise for good and sufficient
cause shown.
If a dissenting shareholder demands payment for shares in accordance with
the Texas Act, he or she will not subsequently be entitled to vote and will not
have any other rights of a HSA-Texas shareholder except the right to receive
payment for his or her shares of HSA-Texas common stock in accordance with the
Texas Act and the right to maintain an appropriate action to obtain relief on
the ground that the proposed acquisition will be or was fraudulent. The
respective shares of HSA-Texas voting common stock for which payment has been
properly demanded will not subsequently be considered outstanding for the
purposes of any vote of HSA-Texas shareholders.
HSA-Texas' Actions Upon Receipt of a Demand for Payment
Within 20 days of receiving a dissenting shareholder demand for payment,
HSA-Texas must send a written notice stating whether or not it accepts the
amount claimed in the demand.
If HSA-Texas Accepts the Amount Demanded
If HSA-Texas accepts the amount claimed in a dissenting shareholder's
demand, HSA-Texas will deliver written notice to the dissenting shareholder that
it will pay the dissenting shareholder the estimated fair value within 90 days
after the closing of the proposed acquisition. HSA-Texas will make this payment
to the dissenting shareholder provided he or she has surrendered the HSA-Texas
stock certificates representing his or her shares of HSA-Texas voting common
stock, duly endorsed for transfer, to HSA-Texas.
If HSA-Texas Does Not Accept the Amount Demanded
If HSA-Texas does not accept the amount claimed in a dissenting
shareholder's demand, HSA-Texas will deliver written notice to such dissenting
shareholder of HSA-Texas' estimate of the fair value of such shares and an offer
to pay to the dissenting shareholder such amount within 90 days of the proposed
acquisition being completed. The dissenting shareholder may accept this offer
within 60 days of the proposed acquisition being completed by surrender of the
HSA-Texas stock certificates representing his or her shares of HSA-Texas voting
common stock, duly endorsed for transfer, to HSA-Texas.
Payment of the Fair Value of HSA-Texas Shares of Common Stock Upon Agreement
of an Estimate
If, within 60 days after the closing of the proposed acquisitions, the
dissenting shareholder and HSA-Texas reach an agreement on the fair value of
such HSA-Texas shares of voting common stock, HSA-Texas must pay such
shareholder the agreed amount within 90 days after the proposed acquisition is
closed.
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Commencement of Legal Proceedings if a Demand for Payment Remains Unsettled
If, within 60 days after the closing of the proposed acquisitions, the
dissenting shareholder and HSA-Texas have not reached an agreement as to the
fair value of the HSA-Texas shares of voting common stock, either because
HSA-Texas has not accepted such shareholder's estimate or because such
shareholder has not accepted HSA-Texas' offer of an alternative estimate, the
HSA-Texas shareholder or HSA-Texas may commence proceedings in Dallas County,
Texas within 60 days after the expiration of the 60 day period, asking for a
finding and determination of the fair value of the shares of HSA-Texas voting
common stock.
Upon the dissenting shareholder's filing of such a petition, such
shareholder must provide a copy of the service to HSA-Texas. Within ten days of
such service, HSA-Texas must provide a list of all shareholders of HSA-Texas who
have demanded payment for their shares and with whom agreements as to the value
of their shares have not been reached in the office of the clerk of the court in
which such shareholder filed the petition.
The court will determine if such shareholder has complied with the dissent
provisions, and if such shareholder has so complied, he, she or it will become
entitled to a valuation of and payment for such shareholder's shares of
HSA-Texas voting common stock. The court will appoint one or more qualified
persons to act as appraisers to determine the fair value of such shares of
HSA-Texas voting common stock. The appraisers shall determine the fair value of
such shares and shall report this value to the court. In addition to having the
power to examine the books and records of HSA-Texas, the appraisers are required
to afford a reasonable opportunity to the interested parties to submit pertinent
evidence as to the value of the shares of HSA-Texas voting common stock. The
appraisers must determine the fair value of the shares and file their report of
that value in the office of the court clerk. The court will allow the appraisers
a reasonable fee as court costs, and all court costs will be allotted between
such dissenting shareholder and HSA-Texas in the manner that the court
determines to be fair and equitable.
The clerk is required to give a notice of the filing of the appraisers'
report to the parties in interest. The report is subject to exceptions to be
heard before the court both upon the law and the facts. The court will, by
judgment, determine the fair value of such shares and will direct HSA-Texas to
pay that amount, plus interest, which will accrue beginning on the 91st day
after the closing of the proposed acquisition. The judgment is required to be
paid to dissenting shareholders only upon, and simultaneously with, the
surrender to HSA-Texas of duly endorsed certificates for the shares. Upon
payment of the judgment, such dissenting shareholder will cease to have any
interest in the shares of HSA-Texas voting common stock.
Withdrawal of the Demand for Payment
If a dissenting shareholder has demanded payment for his or her shares of
HSA-Texas in accordance with the Texas Act, he or she may withdraw the demand at
any time before payment for such shares or before any petition has been filed
under the Texas Act asking for a finding and determination of the fair value of
such shares, but no demand may be withdrawn after payment has been made or,
unless HSA-Texas consents, after the petition has been filed. However, if:
- the demand is withdrawn as provided above;
- HSA-Texas terminates such shareholder's right to dissent under the Texas
Act for failure to comply with its provisions;
- no petition asking for a finding and determination of fair value of the
shares of HSA-Texas by a court has been filed within 60 days after the
expiration of the 60 day period discussed above; or
- after the hearing of a petition filed under the Texas Act, the court
determines that such shareholder is not entitled to the relief provided
by the Texas Act;
then such dissenting shareholder will be conclusively presumed to have approved
and ratified the proposed acquisitions and will be bound by the terms of the
asset agreement.
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BOARD OF DIRECTORS AND MANAGEMENT FOLLOWING PROPOSED ACQUISITIONS
If the proposed share and option issuances are approved, the nominated
directors are elected and the proposed acquisitions are closed, PRG will
continue to be managed by the same board of directors and officers of PRG as
before the proposed acquisitions except that the size of the board of directors
will be to expanded from 9 to 13 members and Howard Schultz will serve as the
initial chairman of the board of the combined company, and Andrew Schultz,
Arthur Budge, Jr. and Nate Levine will serve as directors of the combined
company.
Information relating to the business experience of each of Howard Schultz,
Andrew Schultz, Arthur Budge, Jr. and Nate Levine is set forth under the heading
"PRG Director and Executive Officer Information." In addition, information
relating to PRG's management, executive compensation, voting securities, certain
relationships and related transactions and other related matters pertaining to
PRG is also set forth under the heading "PRG Director and Executive Officer
Information."
NASDAQ LISTING
PRG will use its reasonable best efforts to cause the shares of PRG common
stock to be issued in the proposed acquisitions, and the shares reserved for
issuance upon exercise of PRG stock options issued in connection with the
assumption of certain outstanding HSA-Texas stock options, to be approved for
listing on The Nasdaq National Market prior to the closing date. This listing is
a condition to closing the proposed acquisitions.
FEDERAL SECURITIES LAW CONSEQUENCES
The shares of PRG common stock to be received by HSA-Texas pursuant to the
asset agreement will be restricted securities and may only be sold:
- pursuant to an effective registration statement;
- in compliance with Rule 144 under the Securities Act; or
- in compliance with another exemption from the registration requirements
of the Securities Act.
Rule 144 requires that sales be made in compliance with the rule's volume
limitations, manner of sale provisions, current information requirements and
notice of sale requirements. The volume limitations of Rule 144 require that the
number of securities sold in any three month period may not exceed the greater
of one percent of the number of shares of outstanding PRG common stock or the
average weekly trading volume for PRG common stock during the preceding four
week period.
All shares of PRG common stock received by HSA-Texas in the asset
acquisition and subsequently distributed to HSA-Texas shareholders will be
freely transferable, except that shares received by individuals and entities who
are deemed to be "affiliates" of HSA-Texas under the Securities Act at the time
that the asset acquisition is submitted to a shareholder vote may only be resold
by them:
- pursuant to an effective registration statement;
- in compliance with Rule 145 under the Securities Act as described above;
or
- in compliance with another exemption from the registration requirements
of the Securities Act.
Rule 145 requires that, for specified periods, sales must be made in compliance
with the volume limitations, manner of sale provisions and current information
requirements of Rule 144 under the Securities Act. Persons who may be deemed to
be affiliates of HSA-Texas generally include individuals or entities that
control, are controlled by, or are under common control with, HSA-Texas and may
include officers and directors of HSA-Texas as well as principal shareholders of
HSA-Texas.
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HSA-Texas shareholders who become affiliates of PRG after the transactions
may only resell shares of PRG common stock:
- pursuant to an effective registration statement;
- in compliance with Rule 144 under the Securities Act; or
- in compliance with another exemption from the registration requirements
of the Securities Act.
Following the closing of the proposed purchase by PRG of substantially all
of the outstanding stock of HSA-Singapore, and all of the outstanding stock of
HSA-Asia, HSA-Australia and HSA-Canada, all shares of PRG common stock received
in these transactions will be freely transferable except that persons who were
affiliates of these entities at the time that the asset acquisition is submitted
to a shareholder vote may only resell their shares of PRG common stock:
- pursuant to an effective registration statement;
- in compliance with Rule 145 under the Securities Act as described above;
or
- in compliance with another exemption from the registration requirements
of the Securities Act.
The asset agreement also requires HSA-Texas to cause each of its affiliates
to execute and deliver to PRG a written agreement to the effect that such
affiliate will not offer or sell or otherwise dispose of PRG common stock issued
to such affiliate in or pursuant to the proposed acquisitions in violation of
the Securities Act or the rules and regulations adopted by the SEC.
PRG's registration statement on Form S-4, of which this joint proxy
statement/prospectus forms a part, does not cover the resale of the shares of
PRG common stock to be received pursuant to this registration statement.
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MATERIAL TERMS OF THE ASSET AGREEMENT
The following is a discussion of the material terms of the asset agreement.
The full text of the asset agreement is attached as Annex A hereto and is
included as part of this joint proxy statement/prospectus. You are encouraged to
read the entire asset agreement carefully.
ASSETS TO BE ACQUIRED
The asset agreement provides that PRG will purchase substantially all of
the assets of HSA-Texas, including all right, title and interest in and to:
- contracts with clients;
- other contract rights, including the rights to acquire the direct to
store delivery audit operations and the businesses of Howard Schultz &
Partner (Deutschland) GmbH and Howard Schultz & Associates
(International) Ltd.;
- accounts receivable;
- work in progress;
- fixed assets;
- goodwill; and
- other tangible and intangible assets of HSA-Texas used or held for the
conduct of its business as of the effective date.
EXCLUDED ASSETS
PRG will not acquire, and HSA-Texas will not transfer to PRG, the following
assets:
- any assets held under any pension, profit sharing or other employee
benefit plan;
- the amount of cash, up to a maximum of $7,000, required for funding
termination obligations, if any, of HSA-Texas in respect of the HSA-Texas
401(k) plan;
- the two parcels of real property and the improvements thereon used on
August 3, 2001 as the HSA-Texas headquarters in Dallas, Texas and related
mortgage debt;
- the amount of any cash received by HSA-Texas after August 3, 2001
attributable to the exercise by employees of HSA-Texas of any options to
purchase HSA-Texas common stock;
- an amount of cash, and to the extent cash is insufficient, accounts
receivable of HSA-Texas having a face amount which in the reasonable
estimation of Howard Schultz and Andrew Schultz, as agreed to by PRG, is
sufficient to enable them to pay certain flow-through state and federal
income taxes; provided, that in the event that the amount of flow-through
taxes paid is less than the face amount of the retained accounts
receivable, HSA-Texas shall pay PRG the amount of such excess in cash or
by return to PRG of any such uncollected accounts receivable promptly
after payment of the flow-through taxes; and
- HSA-Texas' corporate minute and stock books.
ASSUMED LIABILITIES
PRG will assume on the closing date, as of the effective date, the
following liabilities of HSA-Texas outstanding as of the effective date:
- all liabilities and obligations of HSA-Texas to the extent disclosed on
the December 31, 2000 balance sheet contained in HSA-Texas' audited
financial statements, or incurred in the ordinary course of business
after December 31, 2000 through the effective date to the extent
disclosed on the estimated
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balance sheet delivered by HSA-Texas at closing, or incurred in the
ordinary course of business after the effective date through the closing
of the asset acquisition consistent with past practices;
- the portion of the amount of principal and interest outstanding on the
effective date payable to Howard Schultz for amounts loaned to HSA-Texas:
- for working capital for normal operations,
- HSA-Texas transaction expenses incurred in connection with the
proposed acquisitions,
- amounts required to cancel HSA-Texas options of persons not hired by
PRG,
- amounts required to cancel HSA-Texas SARs, and
- principal and interest payments since December 31, 2000 on certain
notes issued in connection with certain prior acquisitions made by
HSA-Texas;
- all outstanding obligations and liabilities of HSA-Texas arising from and
after the effective date under the assigned contracts and assigned
leases;
- the aggregate principal and accrued interest amount of the "change in
status payments," amounts paid to compensate HSA-Texas auditors with
respect to work in progress for the differential between the current
HSA-Texas audit commission rates and the new commission rates to be made
effective prior to the closing of the asset acquisition, if any, to the
extent accrued on the estimated balance sheet and outstanding on the
effective date;
- commissions payable to associates or commissioned employees whether or
not they accept employment with PRG or its designee upon collection of
accounts receivable with respect to work in progress outstanding on the
effective date which is converted to accounts receivable after the
effective date, net of any deductions attributable to vendor paybacks,
except to the extent any associate has agreed in writing to accept a
"change in status payment" in lieu of such commission amounts; and
- amounts owed under HSA-Texas' severance policies in effect as of August
3, 2001 to any employee of HSA-Texas or its subsidiaries to whom PRG and
HSA-Texas have mutually agreed PRG will not offer employment with PRG or
any of its affiliates.
RETAINED LIABILITIES
The liabilities and obligations which will be retained by HSA-Texas will
consist of all liabilities of HSA-Texas other than the assumed liabilities,
including the following:
- all liabilities of HSA-Texas relating to indebtedness for borrowed money,
except as specifically provided in the asset agreement with respect to
amounts owed as of the effective date which are included on the audited
December 31, 2000 balance sheet or on the estimated balance sheet and
certain amounts owed to Mr. Schultz;
- all liabilities of HSA-Texas and its subsidiaries and shareholders for
federal, state, local or foreign taxes, including taxes incurred in
respect of or measured by:
- the income of HSA-Texas and its subsidiaries earned on or realized prior
to the effective date to the extent such liabilities exceed the amount
accrued for such liabilities on the December 31, 2000 audited financial
statements and/or the estimated balance sheet; and
- any gain or income from the transfer of the acquired assets and other
transactions contemplated by the asset agreement;
- all liabilities secured by or in any manner related to HSA-Texas' Dallas
headquarters property;
- all claims and liabilities, regardless of when arising, resulting from
HSA-Texas' or its shareholders' breach, on or before the closing of the
asset acquisition, of any covenant, condition or other obligation
required of HSA-Texas or its shareholders under any contract or lease;
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- all amounts owed under HSA-Texas' severance policies to any employee or
associate of HSA-Texas and its subsidiaries who is offered employment as
of the closing date and who either:
- rejects the offer of employment;
- did not satisfy on the closing date the employment conditions specified
in the asset agreement;
- voluntarily resigns his or her employment within 30 days after the
commencement of such person's employment with PRG or its designated
subsidiary; or
- does not accept the engagement as an independent contractor;
- any liabilities with respect to employee benefits or under any employee
benefit plan;
- all non-business payables of HSA-Texas and its subsidiaries;
- all obligations and liabilities with respect to HSA-Texas options of
persons not hired by PRG and with respect to HSA-Texas SARs; and
- all obligations and liabilities to any holder of HSA-Texas voting common
stock who exercises dissenters' rights.
PURCHASE PRICE
Under the terms of the asset agreement, PRG will acquire substantially all
of the assets of HSA-Texas in exchange for the assumption of certain HSA-Texas
liabilities and the issuance of an aggregate of 14,908,954 shares of PRG common
stock, less:
- a number of shares of PRG common stock having a value equal to the "in
the money" value of the options to purchase shares of HSA-Texas common
stock and HSA-Texas SARs outstanding at the closing; and
- a number of shares of PRG common stock equal to the purchase price paid
or to be paid by HSA-Texas in connection with the acquisition of the
remaining direct to store delivery audit operations, divided by the
lesser of $6.50 or the PRG "average price."
Up to 3 million of the shares to be issued to HSA-Texas at the closing of
the asset acquisition may be held in escrow by PRG. See "Other Related
Agreements -- Escrow Agreement."
PRG will also grant options to purchase up to 1,678,826 shares of PRG
common stock in connection with the assumption of all outstanding HSA-Texas
options held by persons who are offered and accept employment or an engagement
as an independent contractor with PRG or a position on its board of directors.
The "in the money" value of each outstanding option and SAR will be
determined by subtracting the per share exercise price of the option or the per
share grant price of the SAR from the "per share value." The formula for the
"per share value" as follows:
- 14,908,954;
- less a number of shares equal to the purchase price or estimated purchase
price, as the case may be, to be paid for the remaining direct to store
delivery audit operations divided by the lesser of $6.50 or the PRG
"average price;"
- times the PRG "average price;"
- divided by the sum of:
- the number of shares of HSA-Texas common stock outstanding on the
closing date; plus
- the number of shares of HSA-Texas common stock subject to HSA-Texas
options outstanding on the closing date; plus
- the number of HSA-Texas SARs outstanding on the closing date.
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Neither PRG nor HSA-Texas has the right to terminate the asset agreement or
renegotiate the number of shares to be received by HSA-Texas as a result of
market price fluctuations; provided, however, that HSA-Texas may terminate the
asset agreement if PRG's per share closing price on any day beginning on August
3, 2001 and ending on a date five trading days prior to the closing date is less
than $4.00. You are encouraged to obtain current market quotations of PRG common
stock.
HSA-TEXAS STOCK OPTIONS AND SARS
Options to be Assumed by PRG
At the closing, PRG will assume all outstanding options held by each
HSA-Texas option holder who:
- is offered and accepts employment with PRG and meets the employment
conditions specified in the asset agreement;
- agrees to serve on PRG's board of directors; or
- becomes an independent contractor of PRG.
Each option that PRG assumes will thereafter constitute an option to
purchase shares of PRG common stock, at terms equivalent to those of the
HSA-Texas stock option, in accordance with the 1998 Howard Schultz & Associates
Stock Option Plan. After the closing, PRG will adopt a stock option plan to
provide for the administration by PRG of the assumed options. See "PRG/HSA-Texas
Stock Option Plan."
Prior to the closing of the asset acquisition, HSA-Texas will amend and
restate its option plan and, if necessary, amend the option grant agreements in
order to extend the expiration date of the HSA-Texas options upon a change of
control to five years from one year and to modify or delete the provisions that
relate to HSA-Texas' status as a private company.
Within thirty days after the closing date, PRG intends to file a
registration statement on Form S-8 with the SEC to register the shares of PRG
common stock subject to the assumed options. After the filing of the Form S-8,
shares of PRG common stock received upon exercise of assumed options will be
freely transferrable, unless held by "affiliates" of PRG. See "The Proposed
Acquisitions -- Federal Securities Law Consequences."
The number of shares of PRG common stock underlying assumed options will
equal the number of shares of HSA-Texas common stock subject to such options
immediately prior to the closing multiplied by an option conversion ratio,
rounded upward to the nearest whole share, and the per share exercise price will
equal the exercise price of the HSA-Texas stock option immediately prior to the
closing divided by the option conversion ratio, rounded upward to the nearest
whole cent. The option conversion ratio equals the "per share value" divided by
the PRG "average price" over the five business day period ending five business
days prior to the closing of the asset acquisition. The formula for the "per
share value" is contained at "-- Purchase Price."
Assuming that the acquisitions of the direct to store delivery audit
operations are consummated prior to the closing of the asset acquisition for an
aggregate cash consideration of approximately $4.2 million and that at closing
there will be 2,307,482 shares of HSA-Texas voting common stock outstanding,
6,435,383 shares of HSA-Texas nonvoting common stock outstanding, 1,133,423
shares of HSA-Texas common stock subject to outstanding options and 64,569
outstanding HSA-Texas SARs, the option conversion ratio will be 1.4812.
HSA-Texas option holders currently own HSA-Texas options at one of two exercise
prices per share, $8.16 or $9.06. As an example based on the assumptions above,
an HSA-Texas option to purchase 1,000 shares of HSA-Texas common stock at an
exercise price of $8.16 per share would be converted into an option to purchase
1,481 shares of PRG common stock at an exercise price of $5.51 per share. An
HSA-Texas option to purchase 1,000 shares of HSA-Texas common stock at an
exercise price of $9.06 per share would be converted into an option to purchase
1,481 shares of PRG common stock at an exercise price of $6.12 per share.
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Options Not Assumed by PRG
If an HSA-Texas option holder:
- is not offered employment or an independent contractor relationship with
PRG;
- does not accept employment or an independent contractor relationship
with PRG;
- does not meet PRG's employment conditions; or
- does not serve on PRG's board of directors following the acquisitions;
HSA-Texas will, prior to or concurrently with the closing, cancel the
outstanding option and pay the option holder an amount equal to the per share
amount that each HSA-Texas shareholder would receive upon dissolution of
HSA-Texas, less the exercise price of the option.
Stock Appreciation Rights
HSA-Texas will, concurrently with the closing or as soon thereafter as
practicable, in exchange for the cancellation of each outstanding HSA-Texas SAR,
offer to pay each HSA-Texas SAR holder an amount in cash equal to the per share
amount that an HSA-Texas shareholder would receive upon dissolution of HSA-
Texas, less the grant price of the HSA-Texas SAR.
EFFECT OF ASSET AGREEMENT ON HSA-TEXAS SHAREHOLDERS
The asset agreement is not binding on any shareholders of HSA-Texas until
the shareholder has received a final copy of this joint proxy
statement/prospectus and two-thirds of the outstanding shares of HSA-Texas
voting common stock have approved the asset agreement.
SHAREHOLDER REPRESENTATIVE
Effective upon the closing of the asset acquisition, Howard Schultz has
been appointed as the shareholder representative for each of the shareholders of
HSA-Texas who are parties to the asset agreement. As the shareholder
representative, Mr. Schultz will be authorized to take any and all actions and
make any decisions required or permitted to be taken by him under the asset
agreement. For example, under the asset agreement, the shareholder
representative will have the authority to:
- approve any action or perform any covenant or agreement under the asset
agreement which requires the consent, approval, waiver or performance of
the HSA-Texas shareholders, including any action with regard to
termination;
- settle all claims, matters, disputes or disagreements under the asset
agreement, the escrow agreement and the indemnification agreement; and
- extend the closing date or change the location of the closing.
HSA-Texas shareholders will be bound by all actions taken by the
shareholder representative in connection with the asset agreement, and PRG will
be entitled to rely on any action or decision of the shareholder representative
evidenced by a written document executed by the shareholder representative as
the action or decision of each of HSA-Texas' shareholders. Except for willful
misconduct or gross negligence, the shareholder representative shall not be
liable for any action taken in the performance of his duties and shall be
entitled to indemnification from all liabilities, losses, damages, costs and
expenses of any kind which may be reasonably incurred or suffered by the
shareholder representative as a result of the performance of the shareholders
representative's duties under the asset agreement.
EXPECTED CLOSING OF THE PROPOSED ACQUISITION
Under the asset agreement, the acquisition will close on a date to be
designated by PRG and HSA-Texas, but no later than the tenth business day after
the satisfaction or waiver of the conditions described below, unless another
time or date is agreed to by the parties. The asset agreement further provides
that if the closing
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has not occurred by March 31, 2002, then, subject to certain conditions
described more fully in this joint proxy statement/prospectus, either party may
terminate the agreement, provided such party is not then in breach.
REPRESENTATIONS AND WARRANTIES
The asset agreement contains customary representations and warranties by
HSA-Texas to PRG regarding aspects of HSA-Texas' and its subsidiaries' assets,
business, financial condition and structure, including the following:
- HSA-Texas' and its subsidiaries' corporate organization, corporate power
and good standing;
- the absence of untrue statements of material facts or the omission of
material facts;
- ownership of HSA-Texas capital stock and options and SARs;
- title to the assets being conveyed;
- receivables, inventory, equipment and real property;
- environmental and immigration matters;
- intellectual property matters;
- compliance with all applicable laws, orders, rules and regulations of
governmental entities, and all licenses and permits;
- tax matters and financial matters;
- employment and labor matters, including benefits and ERISA;
- trade payables, accrued expenses and other related matters;
- insurance;
- material contracts, material leases and license agreements;
- key clients, employees and associates;
- litigation and legal proceedings;
- the authorization, execution, delivery, performance and enforceability of
the asset agreement and related matters;
- internet matters and Year 2000 compliance;
- bank accounts;
- the absence of unlawful payments;
- the absence of conflicts between the asset agreement and HSA-Texas'
articles of incorporation, and bylaws and agreements with third parties;
- required consents of third parties or governmental entities;
- the absence of material changes or events since December 31, 2000;
- broker's fees and expenses;
- the absence of discussions between HSA-Texas and other potential
acquirors;
- the accuracy of information supplied by HSA-Texas in connection with this
joint proxy statement/ prospectus;
- board approval of the proposed acquisitions and approval requirements for
shareholders;
- to the effect that the assets constitute all of the material assets and
rights with which HSA-Texas has conducted its business for the twelve
month period prior to the effective date; and
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- disclosure of certain transactions between shareholders, directors,
officers, employees, associates, and affiliates of HSA-Texas and
HSA-Texas or its subsidiaries.
The asset agreement also contains limited representations and warranties
made by PRG to HSA-Texas. See "Other Related Agreements -- Indemnification
Agreement" for a discussion of the survival period of the representations and
warranties set forth above.
COVENANTS AND AGREEMENTS
The asset agreement also contains covenants by the parties, including
covenants relating to:
- conduct of the business by HSA-Texas pending the closing of the
transaction;
- HSA-Texas' maintenance of good relations with all individuals and
entities that have business relationships with HSA-Texas that relate to
the assets being sold to PRG;
- access to information by PRG and HSA-Texas;
- cooperation in connection with governmental and regulatory filings and in
obtaining consents and approvals;
- PRG's presenting an offer letter for two years of employment to each of
Howard Schultz and Andrew Schultz and other employment matters with
respect to HSA-Texas' employees and independent contractors;
- issuance by PRG of new nonqualified options to purchase shares of PRG
common stock to certain key employees who were employees or independent
contractors of HSA-Texas prior to the closing of the asset agreement;
- use of reasonable best efforts by the parties to cause the proposed
acquisition to be recognized as a reorganization within the meaning of
Section 368(a) of the Internal Revenue Code and other tax matters;
- liquidation of HSA-Texas following the closing;
- use of HSA-Texas' best efforts to obtain all consents and approvals
required to complete the proposed acquisitions, including approvals under
the HSR Act;
- HSA-Texas, Howard Schultz, Andrew Schultz, the trusts which are parties
to the asset agreement and certain other shareholders of HSA-Texas
entering into noncompetition, non-solicitation and confidentiality
agreements with PRG;
- press releases and confidential treatment of non-public information;
- both parties holding shareholders' meetings to approve the asset
agreement and the proposed acquisitions;
- payment of acquisition expenses;
- use of HSA-Texas' best efforts to obtain releases of all recorded liens,
subject to certain exceptions;
- arrangements for the transfer to PRG of cash in bank accounts of
HSA-Texas after the closing of the asset acquisition;
- continuation of HSA-Texas' healthcare coverage and vesting of account
balances under HSA-Texas' 401(k) Plan;
- lease of a portion of HSA-Texas' principal Dallas, Texas office to PRG at
market rental rates;
- waiver of compliance with any applicable bulk sales law;
- acquisition of certain independent contractor operations by HSA-Texas;
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- the change in the status of certain independent contractors of HSA-Texas
to employees;
- the entering into by John Cook, John Toma, Howard Schultz, Andrew Schultz
and certain other shareholders of HSA-Texas of a shareholders agreement
with PRG;
- contribution, without consideration, of certain equity interests in
subsidiaries of HSA-Texas;
- use of commercially reasonable efforts by PRG to cause the PRG board to
be enlarged to 13 members and to nominate Howard Schultz, Andrew Schultz,
Nate Levine and Arthur Budge, Jr. for election by the PRG shareholders to
the PRG board of directors;
- transfer prior to the closing of any assets and rights relating to the
business owned by shareholders of HSA-Texas to HSA-Texas;
- HSA-Texas' delivering all required schedules to the asset agreement on or
before September 3, 2001;
- changing PRG's corporate name to PRG-Schultz International, Inc.;
- repayment prior to the closing of the asset acquisition of all amounts
owed by shareholders of HSA-Texas to HSA-Texas;
- public announcements and notification of material changes;
- HSA-Texas' negotiation of an option agreement to acquire the business of
Howard Schultz & Partner (Deutschland) GmbH and agreements to acquire the
business of Howard Schultz & Associates (International) Ltd. and the
direct to store delivery audit operations, with prior review by and
consent of PRG;
- obtaining resignations of all persons from all offices and directorships
in each of HSA-Texas' subsidiaries and licensees; and
- filing applicable tax returns of HSA-Texas and its subsidiaries.
PRG and HSA-Texas also agreed to cooperate in the filing of the
registration statement on Form S-4 of which this joint proxy
statement/prospectus forms a part.
See "Other Related Agreements -- Indemnification Agreement" for a
discussion of the survival period of the covenants set forth above.
INDEMNIFICATION BY HSA-TEXAS AND PRG
The asset agreement provides that HSA-Texas, Howard Schultz, Andrew Schultz
and certain affiliated Schultz family trusts which are parties to the asset
agreement will indemnify PRG and its subsidiaries, affiliates, officers,
directors, employees and agents from any damages, claims, liabilities, lawsuits,
costs or expenses, including reasonable attorneys' fees and expenses incurred in
litigation or otherwise, incurred in connection with the matters set forth below
and others discussed in the asset agreement:
- any misrepresentation or breach of any representation or warranty, or
breach, nonfulfillment of, or failure to perform, any covenant,
obligation or agreement of HSA-Texas or any shareholder of HSA-Texas
contained in or made pursuant to the asset agreement or in any schedule;
- any liability or obligation suffered by PRG, other than HSA-Texas'
liabilities specifically assumed by PRG, relating to the operation of
HSA-Texas' business or the ownership of its assets prior to the effective
date, which is not specifically disclosed in the schedules to the asset
agreement;
- any failure of any of HSA-Texas or a subsidiary thereof to comply with
any specified legal compliance requirements;
- the treatment, by any governmental entity, of HSA-Texas independent
contractors as employees and not as independent contractors;
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- the amount in excess of $100,000 of any vendor payback, less any payback
reserve applicable in respect of any inactive audit, which is in excess
of $350,000;
- any breach occurring prior to the closing by HSA-Texas or any subsidiary
of any representation, warranty, covenant or agreement in any assigned
contract or assigned lease; and
- certain severance liabilities or obligations to any employees of or other
service providers to the business.
Notwithstanding the foregoing, neither HSA-Texas, Howard Schultz, Andrew
Schultz nor the trusts which are parties to the asset agreement shall have any
liability to the PRG for any claims, liabilities, lawsuits, costs, damages or
expenses, including reasonable attorneys' fees and expenses incurred in
litigation or otherwise, arising out of and sustained by PRG with respect to
HSA-Texas' failure to obtain an executed non-competition agreement from any of
Michael Lowery, Gertrude Lowery, Charles Schembri or Mac Martirossian.
The asset agreement also provides that PRG will indemnify HSA-Texas and its
shareholders and HSA-Texas' affiliates, directors, officers, employees and
agents harmless from and against all claims, liabilities, lawsuits, costs,
damages or expenses, including reasonable attorneys fees and expenses incurred
in litigation or otherwise, arising out of and sustained by any of them due to
or relating to:
- any misrepresentation or breach of any representation, warranty, covenant
or agreement of PRG in the asset agreement; and
- any liability or obligation incurred by HSA-Texas or any shareholder
relating to the operation or ownership of the HSA-Texas business by PRG,
or the ownership or use of the acquired assets by PRG, from and after the
effective date.
Concurrently with the closing, PRG, HSA-Texas, Howard Schultz, Andrew
Schultz, the Andrew H. Schultz Irrevocable Trust and certain other affiliated
Schultz family trusts which are parties to the asset agreement will enter into
an indemnification agreement which will set forth the procedures for
indemnification, and the survival period and limitations on indemnification of
the claims described above. For a discussion of the indemnification agreement,
see "Other Related Agreements -- Indemnification Agreement" below.
CONDITIONS TO CLOSING
PRG's and HSA-Texas' respective obligations to close the proposed
acquisitions are subject to the satisfaction or waiver, on or prior to the
closing date, of the following conditions:
- approval by PRG's shareholders of the proposed share and option
issuances;
- HSA-Texas' providing to PRG written affirmation by the HSA-Texas
shareholders that the offer by PRG to acquire the assets of HSA-Texas has
been accepted and that approval of the asset agreement by the holders of
HSA-Texas voting common stock has been obtained;
- no law, injunction or other order preventing the completion of the
proposed acquisitions may be in effect or pending or threatened;
- the registration statement with respect to the shares of PRG common stock
and options to be issued pursuant to the asset agreement must be
effective and no stop order suspending the effectiveness of the
registration statement shall have been issued by the SEC and no
proceeding for that purpose shall have been initiated or threatened by
the SEC;
- the approval for listing on The Nasdaq National Market, subject to
official notice of issuance, of the shares of PRG common stock to be
issued in the proposed acquisitions;
- the absence of certain conflicts;
- all parties' having obtained all required consents;
- prior to or concurrently with the closing, PRG must have consummated the
stock agreement with regard to HSA-Singapore, HSA-Asia, HSA-Australia and
HSA-Canada; and
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- PRG must have obtained the required consents of its principal lenders, a
syndicate led by Bank of America, N.A.
Also, HSA-Texas' obligations to close the proposed acquisitions are subject
to the satisfaction or waiver of each of the following additional conditions:
- PRG must perform in all material respects its obligations under the asset
agreement, including certain deliveries to be made at closing and
delivery of certain executed documents; and
- PRG's representations and warranties contained in the asset agreement
must be accurate in all material respects as of the closing of the asset
agreement and as of the date of the asset agreement, except for any such
representations and warranties that are made as of a specific date,
which, in such case, must be accurate in all material respects as of such
date; and
- PRG's board must have nominated for election by the PRG shareholders at
the PRG special meeting Howard Schultz, Andrew Schultz, Arthur Budge, Jr.
and Nate Levine, and such nominees must have been elected at the PRG
special meeting.
Also, PRG's obligations to close the proposed acquisitions are subject to
the satisfaction or waiver of each of the following additional conditions:
- HSA-Texas must perform in all material respects its obligations under the
asset agreement, including certain deliveries to be made at closing and
delivery of certain executed documents;
- each shareholder of HSA-Texas must have repaid in full at or prior to the
closing all amounts owed by such shareholder to HSA-Texas;
- HSA-Texas' representations and warranties contained in the asset
agreement and in schedules must be accurate in all material respects as
of the closing of the asset agreement and as of the date of the asset
agreement, except for any such representations and warranties that are
made as of a specific date, which, in such case, must be accurate in all
material respects as of such date;
- HSA-Texas shall have executed a binding agreement, in form and substance
reasonably acceptable to PRG, to acquire the business of Howard Schultz &
Associates (International) Ltd., which agreement is assignable to PRG;
- HSA-Texas shall have executed a binding call option agreement, in form
and substance reasonably acceptable to PRG, with the respective
shareholders of Howard Schultz & Partner (Deutschland) GmbH to acquire
the business of Howard Schultz & Partner (Deutschland) GmbH, which call
option agreement is assignable to PRG;
- HSA-Texas shall have executed a binding agreement, in form and substance
reasonably acceptable to PRG, to acquire JASAMA, Inc., which agreement is
assignable to PRG; and
- the opinion of Merrill Lynch shall not have been modified or withdrawn by
Merrill Lynch.
LIMITATION ON HSA-TEXAS' AND PRG'S ABILITY TO CONSIDER OTHER ACQUISITION
PROPOSALS
HSA-Texas and PRG have agreed that they will not directly or indirectly,
and will not authorize or permit any of their representatives to, directly or
indirectly:
- solicit, initiate or encourage the submission of any alternative
acquisition proposal with respect to HSA-Texas or take any action that
may reasonably be expected to lead to such an alternative acquisition
proposal; or
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- participate in any discussions or negotiations or furnish any information
regarding HSA-Texas or PRG or its subsidiaries to any person in
connection with an inquiry or indication of interest that may lead to an
alternative acquisition proposal.
However, these restrictions shall not be deemed to prevent PRG or its board
of directors from complying with its legal rights to make a public statement
about a tender offer under Rule 14e-2(a) of the Securities Exchange Act of 1934
with regard to an alternative acquisition proposal. Furthermore, these
restrictions will not prohibit PRG from furnishing nonpublic information
regarding PRG or its subsidiaries to, or entering into discussions or
negotiations with, any person in response to an unsolicited bona fide proposal
that is submitted by that person, if:
- the board of directors of PRG determines in good faith that such action
is required in order for the board of directors of PRG to comply with its
fiduciary obligations to PRG's shareholders under applicable law;
- the board of directors of PRG determines in good faith that such
unsolicited alternative acquisition proposal would, if completed, be
reasonably likely to constitute a superior proposal, as defined below;
and
- prior to taking such action, PRG receives from that person an executed
confidentiality agreement containing customary limitations.
Notwithstanding the foregoing, PRG may also take any action which may lead
to an alternative acquisition proposal from a person if the person agrees to
include in the alternative acquisition proposal the concurrent acquisition of
all of the stock or substantially all of the assets of HSA-Texas and the four
affiliated foreign operating companies as if HSA-Texas and the four affiliated
foreign operating companies were a part of PRG at the completion of the
alternative acquisition proposal.
For these purposes, a superior proposal means an unsolicited bona fide
written offer by a third party which:
- the board of directors of PRG determines in its good faith business
judgment to be superior to PRG's shareholders from a financial point of
view as compared to the transactions contemplated by the asset agreement;
and
- is reasonably capable of being completed in accordance with its terms
taking into account all factors the board considers relevant, including
all legal, financial, regulatory and other aspects of the offer.
If HSA-Texas receives an alternative acquisition proposal, any inquiry or
indication of interest that may reasonably be expected to lead to an alternative
acquisition proposal or any request for nonpublic information, HSA-Texas agrees
to notify PRG promptly upon becoming aware of it.
In addition, the PRG board of directors has agreed not to:
- withdraw or modify, or propose to withdraw or modify, its recommendation
for the approval of the proposed acquisitions in an adverse manner; or
- approve or recommend to its shareholders an alternative acquisition
proposal, unless:
- the PRG board of directors determines in good faith that it is necessary
to terminate the asset agreement in order for the PRG board of directors
to comply with its fiduciary duties to PRG's shareholders under
applicable law, in which case PRG will terminate the asset agreement and
pay to HSA-Texas a termination fee of $2.0 million; or
- the alternative acquisition proposal includes the concurrent acquisition
of HSA-Texas and the four affiliated foreign operating companies or
substantially all of the assets of HSA-Texas and the four affiliated
foreign operating companies as if HSA-Texas and the four affiliated
foreign operating companies were a part of PRG at the completion of the
PRG alternative acquisition proposal, in which case PRG may terminate
the asset agreement without any obligation to pay HSA-Texas the $2.0
million termination fee.
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The PRG board of directors may not approve or recommend a PRG alternative
acquisition proposal on the basis that it is necessary to comply with its
fiduciary duties to PRG's shareholders, and in connection therewith withdraw or
modify its recommendation, unless:
- such PRG alternative acquisition proposal is a superior proposal, as
defined above; and
- the PRG board of directors shall have specifically determined that such
action is necessary for the PRG board of directors to comply with its
fiduciary duties to PRG's shareholders.
TERMINATION OF THE ASSET AGREEMENT
The asset agreement may be terminated at any time prior to the closing,
whether before or after approval of the proposed acquisitions by the
shareholders of HSA-Texas or PRG:
- by mutual written consent of HSA-Texas and PRG;
- by either PRG or HSA-Texas, if:
- the proposed acquisitions have not been completed on or before March 31,
2002; provided the party exercising the right to terminate is not then
in breach in any material respect of any of its representations,
warranties, covenants or other agreements under the asset agreement; or
- PRG has not received lender consent on or before March 31, 2002; or
- any court or other governmental entity has taken or failed to take any
action that has become final and non-appealable enjoining, restraining
or otherwise prohibiting the proposed acquisitions; or
- by HSA-Texas, if:
- PRG materially breaches its representations or warranties or fails to
perform its covenants or agreements under the asset agreement and any
such breach or failure has not been cured by the earlier of March 31,
2002 or 10 days after receipt of written notice thereof has been
received by PRG, provided that neither HSA-Texas nor any of its
shareholders is then in breach in any material respect of its
representations, warranties, covenants or agreements under the asset
agreement; or
- approval of PRG's shareholders has not been obtained by reason of the
failure to obtain the required PRG vote;
- upon the occurrence of an event that has a material adverse effect on
PRG, taken as a whole with its consolidated subsidiaries, provided that
neither HSA-Texas nor any of its shareholders is then in breach in any
material respect of its representations, warranties, covenants or
agreements under the asset agreement;
- the per share closing price of PRG's common stock on any trading day
during the period beginning on August 3, 2001 and ending on a date five
trading days prior to the closing of the asset acquisition is less than
$4.00;
- the PRG board of directors or any committee thereof approves or
recommends to its shareholders an alternative acquisition proposal which
includes the concurrent acquisition of HSA-Texas and the four affiliated
foreign operating companies by a third party, but HSA-Texas or any of
the affiliated foreign operating companies, in its discretion, does not
elect to participate in such alternative acquisition proposal;
- the PRG board of directors or any committee thereof approves or
recommends to its shareholders any alternative acquisition proposal
which does not include the concurrent acquisition of HSA-Texas and the
four affiliated foreign operating companies by a third party as if
HSA-Texas and the four affiliated foreign operating companies were a
part of PRG at the completion of such alternative acquisition proposal;
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- the PRG board of directors or any committee thereof shall for any reason
have withdrawn, or shall have amended or modified in a manner adverse to
HSA-Texas, the PRG board's recommendation to the PRGX shareholders; or
- a tender or exchange offer to acquire 50% or more of the outstanding
shares of PRG common stock shall have been commenced by a third party,
and PRG shall not within 10 business days after such tender or exchange
offer is first published, have sent or given to its shareholders a
statement disclosing that PRG recommends rejection of such tender or
exchange offer.
- by PRG, if:
- its board makes the determination to enter into a definitive written
agreement with respect to an alternative acquisition proposal;
- HSA-Texas or its shareholders materially breach their representations or
warranties or fail to perform their covenants or agreements under the
asset agreement and such breach or failure has not been cured by the
earlier of March 31, 2002 or 10 days after receipt of written notice
thereof has been received by HSA-Texas and its shareholders, provided
that PRG is not then in breach in any material respect of its
representations, warranties, covenants or agreements under the asset
agreement;
- approval of the HSA-Texas shareholders has not been obtained within
seven days after delivery of this joint proxy statement/prospectus, the
shareholders of HSA-Texas have failed to deliver a written affirmation
of the asset agreement within such time or any shareholder of the
affiliated foreign operating companies fails to affirm such
shareholder's agreement to sell all of such shareholder's shares to PRG
within such time;
- upon the occurrence of an event that has a material adverse effect on
HSA-Texas, provided that PRG is not then in breach in any material
respect of its representations, warranties, covenants or agreements
under the asset agreement; or
- within 30 days after receipt of all schedules that were not attached to
the asset agreement on the date it was signed.
Upon termination in accordance with the above provisions, the asset
agreement will become void and have no effect, without any liability or
obligation on the part of PRG, HSA-Texas or their respective shareholders,
officers or directors, other than the payment of termination fees as described
below, and provisions relating to broker's fees and expenses, confidentiality
and other provisions that survive generally; provided, however, that termination
will not relieve any party from liability or damages arising out of its breach
of the representations, warranties, covenants or agreements set forth in the
asset agreement.
TERMINATION FEES
If the asset agreement is terminated after PRG mails this joint proxy
statement/prospectus to its shareholders:
- by either party, because the HSA-Texas special meeting was not held by
March 31, 2002; or
- by PRGX, because approval of the HSA-Texas shareholders has not been
obtained within seven days after delivery of this joint proxy
statement/prospectus or the shareholders of HSA-Texas have failed to
deliver the written affirmation within such time or any shareholder of
the affiliated foreign operating companies has failed to affirm such
shareholder's agreement to sell all of such shareholder's shares to PRG
within such time;
- by HSA-Texas, because it elects not to participate in an alternative
acquisition proposal; or
- by PRG, because HSA-Texas or its shareholders materially breached their
representations or warranties or failed to perform covenants or
agreements under the asset agreement and such breach or failure was not
cured by the earlier of March 31, 2002 or 10 days after receipt of
written notice thereof
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has been received by HSA-Texas and its shareholders, provided that PRG is
not then in breach in any material respect of its representations,
warranties, covenants or agreements under the asset agreement;
then HSA-Texas will be required to promptly pay PRG an amount equal to all of
PRG's expenses incurred in connection with the proposed acquisitions, by wire
transfer of immediately available funds.
The asset agreement also provides that if the asset agreement is terminated
after PRG mails this joint proxy statement/prospectus to its shareholders:
- by either party, because PRG shareholders fail to approve the proposed
share and option issuances;
- by HSA-Texas, because PRG materially breaches its representations or
warranties or fails to perform its covenants or agreements under the
asset agreement and any such breach or failure has not been cured by the
earlier of March 31, 2002 or 10 days after receipt of written notice
thereof has been received by PRG, provided that neither HSA-Texas nor any
of its shareholders who are parties to the asset agreement is then in
breach in any material respect of its representations, warranties,
covenants or agreements under the asset agreement; or
- by either party, because the PRG special meeting was not held by March
31, 2002;
then PRG will be required to promptly pay HSA-Texas an amount equal to all of
HSA-Texas' expenses incurred in connection with the proposed acquisitions by
wire transfer of immediately available funds.
If the asset agreement is terminated by HSA-Texas after PRG mails this
joint proxy statement/prospectus to its shareholders because:
- the PRG board of directors or any committee thereof approves or
recommends to its shareholders any alternative acquisition proposal which
does not include the concurrent acquisition of HSA-Texas and the four
affiliated foreign operating companies by a third party as if HSA-Texas
and the four affiliated foreign operating companies were a part of PRG at
the completion of such alternative acquisition proposal;
- the PRG board of directors or any committee thereof shall for any reason
have withdrawn, or shall have amended or modified in a manner adverse to
HSA-Texas, the PRG board's recommendation to PRG's shareholders; or
- a tender or exchange offer to acquire 50% or more of the outstanding
shares of PRG common stock shall have been commenced by a third party,
and PRG shall not have, within 10 business days after such tender or
exchange offer is first published, have sent or given to its shareholders
a statement disclosing that PRG recommends rejection of such tender or
exchange offer;
then PRG will be required to pay HSA-Texas a fee of $2.0 million and all of
HSA-Texas' expenses incurred by HSA-Texas and its shareholders in connection
with the asset agreement. The termination fee will be payable within 10 days
after HSA-Texas exercises its right to terminate the asset agreement as
described above.
EXPENSES
The asset agreement provides that, subject to the provisions regarding
termination fees as described above, PRG and HSA-Texas will pay their own
respective fees and expenses incurred in connection with the asset agreement and
the transactions contemplated by the asset agreement. The PRG transaction
expenses include all fees and expenses of agents, representatives, brokers,
counsel and accountants for PRG, financial advisory expenses of Bain & Co., all
filing fees and expenses in respect of filings by PRG under the HSR Act, and all
fees and expenses for the preparation, printing, filing, and mailing of this
joint proxy statement/prospectus and the Form S-4 registration statement filed
in connection with it and the solicitation of shareholder approvals in
connection herewith.
In addition, if the proposed acquisitions are completed, PRG will pay any
previously unpaid reasonable and necessary fees and expenses of attorneys and
accountants of HSA-Texas incurred in connection with the
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proposed acquisitions, including all fees and expenses of KPMG LLP in connection
with the audit of HSA-Texas' financial statements.
If either party shall terminate the asset agreement prior to the date on
which PRG mails this joint proxy statement/prospectus to its shareholders or if
either party shall terminate the asset acquisition after PRG mails this joint
proxy statement/prospectus because a court or governmental entity prohibits the
transactions contemplated by the asset agreement or PRG fails to obtain lender
consent, and such party seeking termination is not then in breach in any
material respect of any of its representations, warranties, covenants and other
agreements under the asset agreement, neither party shall have any liability or
obligation to the other to pay either its expenses or the termination fee
described above.
If PRG terminates the asset agreement:
- because of an event which has a material adverse effect on HSA-Texas; or
- in order to enter into a superior acquisition; or
- within 30 days of receipt of the required schedules;
and PRG is not then in breach in any material respect of any of its
representations, warranties, covenants and other agreements under the asset
agreement, neither party shall have any liability or obligation to the other to
pay either its expenses or the termination fee described above.
If HSA-Texas terminates the asset agreement because:
- an event has a material adverse effect on PRG; or
- PRG's closing price is less than $4.00 during the period beginning on
August 3, 2001 and ending on a date five trading days prior to the
closing of the asset acquisition; or
- PRG's board or any committee recommends an alternative transaction;
and HSA-Texas is not then in breach in any material respect of any of its
representations, warranties, covenants and other agreements under the asset
agreement, neither party shall have any liability or obligation to the other to
pay either its expenses or the termination fee described above.
Any and all expenses incurred by any shareholder of HSA-Texas in connection
with the authorization, negotiation, preparation, execution and performance of
the asset agreement and the contemplated transactions will be paid by such
shareholder of HSA-Texas.
AMENDMENT; WAIVER
The asset agreement may be amended by the parties, by action taken or
authorized by their respective boards of directors, at any time before or after
approval of the proposed acquisitions by the shareholders of PRG and HSA-Texas;
except that after approval has been obtained, no amendment which by law or The
Nasdaq National Market rules would require further approval by PRG's
shareholders will be made without such further approval. In addition, prior to
the closing, the parties may:
- extend the time for the performance of any obligation or other act of any
other party to the asset agreement;
- waive any inaccuracies in the representations and warranties contained in
the asset agreement or in any document delivered pursuant to the asset
agreement; and
- waive compliance with any of the agreements or conditions contained in
the asset agreement, provided that no amendment which by law or Nasdaq
National Market rules requires further approval by PRG shareholders will
be made without such further approval.
All amendments and waivers must be in writing and signed by the parties.
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MATERIAL TERMS OF THE STOCK AGREEMENT
The following is a discussion of the material terms of the stock agreement.
The full text of the stock agreement is attached as Annex B hereto, and is
included as part of, this joint proxy statement/prospectus. You are encouraged
to read the entire stock agreement carefully.
PURCHASE PRICE; CLOSING
Under the terms of the stock agreement, PRG will acquire substantially all
of the outstanding stock of HSA-Singapore and all of the outstanding stock of
HSA-Asia, HSA-Australia and HSA-Canada, each an affiliated foreign operating
company of HSA-Texas, in exchange for a total aggregate consideration of 629,508
shares of PRG common stock, of which an aggregate of:
- 1,535 shares will be issued to acquire HSA-Singapore;
- 75,234 shares will be issued to acquire HSA-Asia;
- 245,662 shares will be issued to acquire HSA-Australia; and
- 307,077 shares will be issued to acquire HSA-Canada.
The closing of the transactions contemplated by the stock agreement is
contingent upon the closing of the transactions contemplated by the asset
agreement. In the event the transactions contemplated by the asset agreement are
not completed, the parties to the stock agreement will not have any obligation
to complete the transactions described in the stock agreement.
EFFECT OF STOCK AGREEMENT ON SHAREHOLDERS OF AFFILIATED FOREIGN OPERATING
COMPANIES
Howard Schultz, Leslie Schultz, Andrew Schultz and the Andrew H. Schultz
Irrevocable Trust, parties to the stock agreement, will have no obligation under
the stock agreement until they have received the final version of this joint
proxy statement/prospectus, accepted the offer contained herein and affirmed the
stock agreement.
SHAREHOLDER REPRESENTATIVE
Pursuant to the stock agreement, Howard Schultz has been appointed as the
shareholder representative for each of the shareholders of the affiliated
foreign operating companies. The terms and provisions relating to the
shareholder representative under the stock agreement are substantially the same
as those under the asset agreement. See "Material Terms of the Asset
Agreement -- Shareholder Representative" above.
REPRESENTATIONS AND WARRANTIES
The stock agreement contains customary representations and warranties by
the shareholders of the affiliated foreign operating companies to PRG regarding
aspects of each of the affiliated foreign operating companies' assets, business,
financial condition, and structure and other facts pertinent to the proposed
acquisitions, including such shareholders' ownership of the stock of the
affiliated foreign operating companies and their authority to enter into the
stock agreement. Matters covered by the representations and warranties made by
the shareholders of each affiliated foreign operating company include the
following:
- corporate organization, corporate power and good standing;
- the absence of untrue statements of material facts or the omission of
material facts;
- that each affiliated foreign operating company has, and will have, at
closing, marketable title to all of its assets free and clear of any
mortgages, liens, pledges and security interests, except for any liens
for taxes not yet due and payable;
- information regarding audits and accounts receivable;
- environmental and immigration matters;
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- intellectual property matters;
- compliance with all applicable laws and all licenses and permits held by
each affiliated foreign operating company;
- tax returns and liabilities;
- financial statements;
- employment matters, including benefits and ERISA;
- trade payables, accrued expenses and outstanding debt;
- insurance;
- material contracts, leases and license agreements, the enforceability
thereof and the lack of any defaults thereunder;
- key clients, employees and associates;
- compliance with employment laws;
- litigation and legal proceedings;
- internet matters and Year 2000 compliance;
- bank accounts;
- the absence of unlawful payments;
- that the consummation of the purchase of the stock of the affiliated
foreign operating companies does not require the consent of any person
and will not violate any material contracts of the foreign operating
companies, or laws or organizational documents applicable to the
shareholders of the affiliated foreign operating companies;
- the absence of material changes or events;
- the absence of any broker's fees or expenses; and
- disclosure of certain arrangements with any shareholder, director,
officer, employee, associate or other affiliate of the affiliated foreign
operating company.
The stock agreement also contains limited representations and warranties
made by PRG to the shareholders of each of the affiliated foreign operating
companies.
See "Other Related Agreements -- Indemnification Agreement" for a
discussion of the survival period of the representations and warranties set
forth above.
COVENANTS AND AGREEMENTS
The stock agreement also contains covenants by the parties, including
covenants relating to:
- conduct of the business of the affiliated foreign operating companies
pending the closing of the transaction;
- each affiliated foreign operating company maintaining good relations with
all individuals and entities that have business relationships with it;
- access to information by PRG and the affiliated foreign operating
companies;
- use of best efforts to obtain all consents and approvals required to
complete the proposed acquisitions;
- press releases and confidential treatment of non-public information;
- acquisition expenses and tax matters;
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- waivers of claims and covenants not to sue;
- repayment by shareholders of shareholder loans from each affiliated
foreign operating company;
- the change in the status of certain independent contractors of the
affiliated foreign operating companies to employees; and
- public announcements and notification of material changes.
See "Other Related Agreements -- Indemnification Agreement" for a
discussion of the survival period of the covenants set forth above.
INDEMNIFICATION
The stock agreement provides that Howard Schultz and Andrew H. Schultz,
jointly and severally, and the Andrew H. Schultz Irrevocable Trust, severally,
will indemnify PRG, and its subsidiaries, affiliates, officers, directors,
employees and agents from any damages, claims, liabilities, lawsuits, costs or
expenses, including reasonable attorney's fees and expenses incurred in
litigation or otherwise, incurred in connection with:
- any misrepresentation or breach of any representation or warranty, or
breach, nonfulfillment of, or failure to perform, any covenant,
obligation or agreement of any shareholder of the affiliated foreign
operating companies contained in the stock agreement;
- any liability or obligation suffered by PRG as a result of the operation
of the business of the affiliated foreign operating companies or the
ownership or use of the assets of the affiliated foreign operating
companies prior to the closing date of the stock agreement which is not
specifically disclosed in the schedules to the stock agreement;
- any failure of any of the affiliated foreign operating companies prior to
the closing of the stock acquisition to obtain any required consent;
- the treatment, by any governmental entity, of independent contractors of
the affiliated foreign operating companies as employees and not as
independent contractors;
- the amount in excess of $100,000 of any vendor payback of any affiliated
foreign operating company in respect of any inactive audit which is in
excess of $350,000;
- all severance liabilities or obligations, if any, to all employees and
all associates of any affiliated foreign operating company who
voluntarily resign employment within 30 days after the closing date;
- any litigation, arbitrations and mediations of the affiliated foreign
operating companies that existed on or at any time prior to the effective
date of the acquisitions; and
- any surplus distributed to the Andrew H. Schultz Irrevocable Trust by
HSA-Canada to pay federal income taxes.
The stock agreement also provides that PRG will indemnify each shareholder
of an affiliated foreign operating company and hold it harmless from and against
all losses arising out of and sustained by any of them due to or relating to:
- any misrepresentation or breach of any representation, warranty, covenant
or agreement of PRG in the stock agreement; and
- any liability or obligation incurred by any shareholder of the affiliated
foreign operating companies relating to the operation or ownership of any
affiliated foreign operating company by PRG, or the ownership or use of
the assets of any affiliated foreign operating company by PRG, from and
after the effective date.
Concurrently with the closing, PRG, HSA-Texas, Howard Schultz, Andrew
Schultz, the Andrew H. Schultz Irrevocable Trust and certain other affiliated
Schultz family trusts will enter into an indemnification
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agreement which will set forth the procedures for indemnification, and the
survival period and limitations on indemnification of the claims described
above. For a discussion of the indemnification agreement, see "Other Related
Agreements -- Indemnification Agreement" below.
CONDITIONS TO CLOSING
PRG's and the affiliated foreign operating companies' shareholders'
respective obligations to close the proposed acquisitions are subject to the
satisfaction or waiver, on or prior to the closing date, of the following
conditions:
- no law, injunction or other order preventing the completion of the
proposed acquisitions may be in effect or pending or threatened;
- the asset agreement must be consummated prior to or concurrently with
closing of the transactions contemplated in the stock agreement; and
- all required consents and approvals must be obtained.
The shareholders of the affiliated foreign operating companies' obligations
to close the proposed acquisitions are subject to the satisfaction, or waiver by
the shareholder representative, on or prior to the closing date, of each of the
following additional conditions:
- PRG must perform its obligations under the stock agreement, including
certain deliveries to be made at closing; and
- PRG's representations and warranties contained in the stock agreement
must be accurate in all material respects as of the closing of the
proposed acquisitions and as of the date of the stock agreement, and
except for any such representations and warranties that are made as of a
specific date, which, in such case, must be accurate in all material
respects as of such date.
PRG's obligations to close the proposed acquisitions are subject to the
satisfaction, or waiver by PRG, on or prior to the closing date, of the
following additional conditions:
- the shareholders of the affiliated foreign operating companies and the
Andrew H. Schultz Irrevocable Trust must have performed in all material
respects their obligations under the stock agreement, including certain
deliveries to be made at closing;
- absence of any pending or threatened investigation by any governmental
entity with regard to any affiliated foreign operating company which in
the reasonable judgment of PRG would have a material adverse effect on
such affiliated foreign operating company;
- since December 31, 2000, no affiliated foreign operating company shall
have been subject to a material adverse effect;
- the shareholders of the affiliated foreign operating companies must
provide PRG with revised schedules dated as of the closing date;
- the shareholders of the affiliated foreign operating companies' and the
Andrew H. Schultz Irrevocable Trust's representations and warranties
contained in the stock agreement must be accurate in all material
respects as of the closing of the proposed acquisitions and as of the
date of the stock agreement, except for any such representations and
warranties that are made as of a specific date, which, in such case, must
be accurate in all material respects as of such date;
- the repayment of all amounts owed by any shareholder to any of the
companies.
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TERMINATION OF THE STOCK AGREEMENT
The stock agreement will automatically terminate on the termination of the
asset agreement. The stock agreement may be terminated at any time prior to the
closing as follows:
- by mutual written consent of the shareholder representative and PRG;
- by either PRG or the shareholder representative if:
- the proposed acquisitions have not been completed on or before March 31,
2002, provided that the party exercising the right to terminate the
stock agreement is not then in breach in any material respect of any of
its representations, warranties, covenants or other agreements under the
stock agreement;
- PRG has not received lender consent on or before March 31, 2002;
- any court or other governmental entity has taken any action enjoining,
restraining or otherwise prohibiting the proposed acquisitions;
- by the shareholder representative, if:
- PRG materially breaches its representations or warranties or fails to
perform its covenants or agreements under the stock agreement and any
such breach or failure has not been cured by the earlier of March 31,
2002 or 10 days after receipt of written notice thereof has been
received by PRG; provided that none of the shareholders of the
affiliated foreign operating companies is then in breach in any material
respect of its representations, warranties, covenants or agreements
under the stock agreement; or
- by PRG, if:
- any of the shareholders of the affiliated foreign operating companies
materially breach their representations or warranties or fail to perform
their covenants or agreements under the stock agreement and such breach
or failure has not been cured by the earlier of March 31, 2002 or 10
days after receipt of written notice thereof has been received by the
shareholder representative, provided that PRG is not then in breach in
any material respect of its representations, warranties, covenants or
agreements under the stock agreement; or
- upon the occurrence of an event or development that has a material
adverse effect on any of the affiliated foreign operating companies,
provided that PRG is not then in breach in any material respect of its
representations, warranties, covenants or agreements under the stock
agreement; or
- within 30 days after receipt of all of the schedules required to be
delivered pursuant to the stock agreement.
Upon termination in accordance with the above provisions, the stock
agreement will become void and have no effect, without any liability or
obligation on the part of PRG or the respective shareholders of the affiliated
foreign operating companies, other than the provisions relating to transaction
expenses and fees, including expenses and fees of agents, representatives,
brokers, counsel and accountants, and other provisions that survive generally;
provided, however, that termination will not relieve any party from liability or
damages arising out of its breach of the representations, warranties, covenants
or agreements set forth in the asset agreement or the stock agreement. See
"Material Terms of the Asset Agreement -- Termination of the Asset Agreement."
AMENDMENT; WAIVER
Prior to the closing, the parties may amend the stock agreement to:
- extend the time for the performance of any obligation or other act of any
other party to the stock agreement;
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- waive any inaccuracies in the representations and warranties contained in
the stock agreement or in any document required to be delivered pursuant
to the stock agreement; and
- waive compliance with any of the agreements or conditions contained in
the stock agreement.
All amendments and waivers must be in writing and signed on behalf of each
of the parties.
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OTHER RELATED AGREEMENTS
The following are descriptions of the material provisions of other
agreements entered into or to be entered into in connection with the proposed
acquisitions.
SHAREHOLDER AGREEMENT
In connection with the proposed acquisitions, PRG, HSA-Texas, Howard
Schultz, Andrew Schultz, the Andrew H. Schultz Irrevocable Trust, of which
Andrew Schultz is the trustee and the beneficiary, certain other affiliated
Schultz family trusts, John M. Cook, the current chairman of the board and chief
executive officer of PRG, and John M. Toma, the current vice chairman of PRG,
will enter into a shareholder agreement.
Pursuant to the shareholder agreement, the parties will agree not to effect
any transfer of PRG common stock that such party now owns of record or acquires
and to take such actions as are necessary to prevent any transfers of PRG common
stock beneficially owned by such party, other than a transfer:
- by HSA-Texas to its shareholders in a pro rata distribution;
- to a party's spouse, lineal or adopted descendants, siblings and lineal
or adopted descendants of siblings, trusts for the benefit of parties
referred to above, charitable trusts and charitable foundations; provided
that the transferee becomes a party to the shareholder agreement, and
agrees to be bound by its terms;
- pursuant to a tender offer or exchange offer approved and recommended by
a simple majority of PRG's board of directors;
- by means of a public sale in a "brokers' transaction," as defined in Rule
144 under the Securities Act of 1933, in the market on a nationally
recognized U.S. exchange or The Nasdaq National Market;
- pursuant to a private block sale not to exceed $20.0 million in the
aggregate in any given six month period;
- pursuant to a firm commitment, underwritten registration statement filed
and declared effective pursuant to the registration rights agreement
entered into by Howard Schultz, Andrew Schultz, the Andrew H. Schultz
Irrevocable Trust, certain other parties and PRG;
- for charitable purposes or pursuant to a gratuitous transfer for the
benefit of such transferor or the transferor's spouse, siblings or lineal
descendents, all in an aggregate amount not to exceed $10.0 million in
any given 12 month period;
- pursuant to the written consent of all parties to the shareholders
agreement.
In addition, the parties to the shareholder agreement will agree, as to
matters submitted to a vote of PRG's shareholders, to vote and take such actions
as necessary to cause any shares of PRG common stock beneficially owned by such
party to be voted consistent with the recommendation of a specified majority of
PRG's board of directors; provided that:
- the specified majority must consist of at least nine members of PRG's 13
member board of directors;
- if the number of members of PRG's board of directors is increased or
decreased from 13, then the number of directors required to recommend a
matter will be accordingly increased or decreased to that percentage of
the total board, rounded up to the nearest whole number, equal to 9
divided by 13; and
- PRG's board of directors shall not have withdrawn such recommendation
prior to the vote.
Further, the parties will agree not to:
- initiate, propose, cause or vote in favor of or consent to a sale of PRG,
unless the sale of PRG has been approved and recommended by a simple
majority of PRG's board of directors;
- participate in or encourage the solicitation of PRG proxies in opposition
to a recommendation of PRG's board of directors with respect to any
matter;
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- form, join or in any way participate in a group for the purpose of
acquiring, holding, voting or effecting the transfer of any PRG common
stock; or
- take any action that might require PRG to make a public announcement
regarding a sale of PRG, unless such sale has been approved and
recommended by a majority of PRG's board of directors.
The shareholder agreement will terminate upon the earlier to occur of:
- the second anniversary of the closing date of the proposed acquisitions;
- a material default by PRG with respect to any material loan agreement,
provided that the lender under such loan agreement has given PRG written
notice of such material default and has exercised its right to notice the
default in accordance with the terms of such loan agreement and such
default remains uncured or unwaived for not less than thirty days
following PRG's receipt of such notice;
- completion by PRG, without the consent of Howard Schultz or his personal
representative or estate, of a merger, consolidation, exchange, sale of
substantially all of the assets of PRG or other business combination
having an aggregate transaction value in excess of $50.0 million;
- completion of a fully underwritten, firm commitment public offering
pursuant to an effective registration statement under the Securities Act
of 1933 covering the offer and sale by PRG of PRG common stock with net
proceeds to PRG in excess of $50.0 million;
- amendment of PRG's articles of incorporation as they exist on the closing
date other than any amendment contemplated in the asset agreement or an
amendment approved by Howard Schultz; or
- any change in the number of members of PRG's board of directors other
than as contemplated in the asset agreement or as approved by Howard
Schultz;
provided, however, that a vote in favor of the following by Howard Schultz in
his capacity as a director of PRG will be deemed to be a consent and approval of
such action:
- completion by PRG of a merger, consolidation, exchange, sale of
substantially all of the assets of PRG or other business combination
having an aggregate transaction value in excess of $50.0 million;
- an amendment to PRG's articles of incorporation; or
- any change in the number of members of PRG's board of directors.
REGISTRATION RIGHTS AGREEMENT
In connection with the proposed acquisitions, PRG and each of the parties
to the asset and stock agreements will enter into a registration rights
agreement. Under the registration rights agreement, PRG will be required upon
written request from a holder of registrable securities to register the shares
of PRG common stock issued in the proposed acquisitions for resale pursuant to a
firm commitment underwritten public offering, subject to certain exceptions;
provided, however, that PRG will not be required to file more than one
registration statement during any six month period or file a registration
statement regarding a request covering less than $5.0 million of such PRG common
stock. The registration rights agreement also provides that all registration
expenses will be paid by PRG except under certain circumstances, including when
the registration request is subsequently withdrawn by a majority of such
shareholders, unless the shareholders agree that the request will count as one
demand registration under the registration rights agreement.
Pursuant to the registration rights agreement, PRG will have the right to
defer the filing of any registration statement or supplement or amendment
thereto for a period of not more that 135 days from the date of the request if
PRG provides notice to such requesting shareholder stating that compliance with
the request would require the disclosure of material nonpublic information and
it would be seriously detrimental to PRG and its shareholders for the
registration statement to be filed or for it to be supplemented or amended at
that time. In addition, the registration rights agreement will also provide for
indemnification by PRG of each holder of registrable securities, indemnification
of PRG by each holder of registrable securities participating in any
registration and indemnification of any underwriters by each of PRG and all
sellers of registrable securities
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with respect to claims arising from such registration. The registration rights
agreement will not be applicable to any shares which are eligible for immediate
resale under Rule 144 or Rule 145 under the Securities Act.
INDEMNIFICATION AGREEMENT
In connection with the proposed acquisitions, PRG, HSA-Texas, Howard
Schultz, Andrew Schultz, the Andrew H. Schultz Irrevocable Trust and certain
other affiliated Schultz family trusts will enter into an indemnification
agreement. The indemnification agreement will set forth the procedures for
indemnification of claims, the survival period of claims and the limitations on
indemnification of claims under each of the asset agreement and stock agreement,
which are discussed above under the headings "Material Terms of the Asset
Agreement -- Indemnification by HSA-Texas and PRG" and "Material Terms of the
Stock Agreement -- Indemnification."
Under the indemnification agreement, all representations and warranties
contained in the asset agreement, the stock agreement and the agreements to be
executed and delivered in connection therewith to complete the contemplated
transactions shall survive the execution and delivery of such agreements for a
period ending on the date, referred to herein as the general expiration date, 60
days after the date of issuance of PRG's independent auditors' report in respect
of the second annual audited financial statements issued after the closing date
which include the acquired assets of HSA-Texas and the business of the
affiliated foreign operating companies in the financial statements and results
of operations of PRG. The representations and warranties shall thereafter cease
to be of any force and effect, except for:
- claims as to which notice has been given prior to the general expiration
date and which are pending on such date,
- claims based on the breach or nonfulfillment of representations,
warranties, covenants and agreements relating to taxes, employee benefit
plans, or any litigation, arbitrations and mediations that existed on or
at any time prior to the closing date, each of which shall survive until
the end of the statute of limitations applicable to the underlying claim
for which indemnification is sought;
- claims based on the breach or nonfulfillment of representations,
warranties, covenants and agreements relating to compliance by HSA-Texas
or its subsidiaries with applicable laws, orders, rules and regulations
of all governmental entities, each of which shall survive until the third
anniversary of the closing date; and
- representations and warranties with respect to ownership of the capital
stock of HSA-Texas, any of its subsidiaries, and of HSA-Asia,
HSA-Singapore, HSA-Australia and HSA-Canada, each of which shall survive
without expiration.
In addition, all covenants and agreements contained in the asset agreement,
stock agreement and the agreements to be executed and delivered in connection
therewith to complete the contemplated transactions shall survive the execution
and delivery of such agreements for a period ending on the general expiration
date, provided that any covenant which expressly specifies a period for
performance shall survive until the end of such specified period. In the event
of a breach of a representation or warranty or failure to perform a covenant or
agreement by a party which constitutes civil fraud, the representation,
warranty, covenant or agreement shall survive the completion of the transactions
contemplated in the asset agreement and stock agreement and continue in full
force and effect thereafter with respect to such fraud until the expiration of
the applicable statute of limitations for civil fraud.
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The indemnification agreement will also provide that neither HSA-Texas,
Howard Schultz, Andrew Schultz nor the affiliated Schultz family trusts which
are parties to the Indemnification Agreement will be obligated to indemnify PRG
for an indemnified claim until the total amount of all such claims equals or
exceeds $3.0 million in the aggregate, at which time, all such claims, including
those up to $3.0 million, may be claimed in full by PRG; provided, however, PRG
shall have the right to be indemnified without regard to such base amount for
claims relating to or arising from certain specified events, including:
- the treatment, by any governmental entity, of HSA-Texas independent
contractors as employees and not as independent contractors;
- certain severance liabilities or obligations to employees of or other
service providers to the HSA-Texas business;
- the amount in excess of $100,000 of any vendor payback, less any payback
reserve applicable in respect of any inactive audit, provided the
aggregate vendor payback to such client is in excess of $350,000;
- any litigation, arbitrations, or mediations that existed on or before the
closing;
- claims in respect of payroll and other tax liabilities; and
- any surplus distributed to the Andrew H. Schultz Irrevocable Trust by
HSA-Australia and/or HSA-Canada to pay federal income taxes.
Notwithstanding the foregoing, in no event will PRG, on the one hand, and
HSA-Texas, Howard Schultz and Andrew Schultz, on the other, be liable for
indemnified claims exceeding 35% of the aggregate amount of the consideration to
be paid by PRG pursuant to the asset agreement and the stock agreement.
ESCROW AGREEMENT
In connection with the proposed acquisitions, PRG, HSA-Texas, Howard
Schultz, Andrew Schultz, and certain affiliated Schultz family trusts will enter
into an escrow agreement, pursuant to which:
- 2,300,000 shares of PRG common stock to be issued to HSA-Texas at the
closing of the asset agreement will be held in escrow by PRG pending the
acquisition of the business of Howard Schultz & Associates
(International) Ltd.;
- 200,000 shares of PRG common stock to be issued to HSA-Texas at the
closing of the asset agreement will be held in escrow by PRG pending the
acquisition of the business of Howard Schultz & Partner (Deutschland)
GmbH; and
- 500,000 shares of PRG common stock to be issued to HSA-Texas at the
closing of the asset agreement will be held in escrow by PRG pending the
acquisition of the remaining direct to store delivery audit operations.
Howard Schultz & Associates (International) Ltd. and Howard Schultz & Partner
(Deutschland)GmbH
If, at any time within 365 days of the closing of the asset acquisition,
despite commercially reasonable efforts, PRG is unable to close the acquisition
of the businesses of either of Howard Schultz & Associates (International) Ltd.
or Howard Schultz & Partner (Deutschland) GmbH because the respective seller has
demanded a purchase price in excess of or terms more favorable than those
previously agreed to by PRG at the closing of the asset acquisition, PRG will
notify the HSA-Texas shareholder representative in writing specifying the basis
for such inability to close and if applicable the amount of consideration in
excess of the agreed upon purchase price required to close either such
acquisition. In such event, PRG will have the option:
- to close such acquisition by paying such excess price or agreeing to the
more favorable terms, as applicable, in which event a number of escrow
shares equal to the additional cost to PRG divided by the PRG average
price, not to exceed 2,300,000 shares in the case of Howard Schultz &
Associates (International) Ltd. and 200,000 shares in the case of Howard
Schultz & Partner (Deutschland) GmbH, will be released to PRG and
canceled, and the remaining shares in escrow in respect of such
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acquisition, if any, will be promptly released to HSA-Texas, or the
former shareholders of HSA-Texas, if HSA-Texas has been liquidated; or
- not to close such acquisition, in which event, HSA-Texas will forfeit all
shares held by PRG in escrow with respect to such acquisition, and such
shares will be released to PRG and canceled.
The shares held in escrow with respect to the acquisitions of Howard
Schultz & Associates (International) Ltd. and Howard Schultz & Partner
(Deutschland) GmbH may be held in escrow for up to 365 days after the closing of
the asset acquisition. In the event that the acquisition of Howard Schultz &
Associates (International) Ltd. is not completed prior to that date, despite
PRG's commercially reasonable efforts, all 2,300,000 shares of PRG common stock
held in escrow by PRG with respect to such acquisition will be promptly released
to HSA-Texas or the former shareholders of HSA-Texas, if HSA-Texas has been
liquidated, by issuance of a stock certificate or certificates for shares of PRG
common stock. In the event that the acquisition of Howard Schultz & Partner
(Deutschland) GmbH is not completed prior to that date, despite PRG's
commercially reasonable efforts, all 200,000 shares held in escrow by PRG with
respect to such acquisition will be promptly released to HSA-Texas or the former
shareholders of HSA-Texas, if HSA-Texas has been liquidated, by issuance of a
stock certificate or certificates for shares of PRG common stock.
Direct to Store Delivery Audit Operations
If, at any time within 365 days after the closing of the asset acquisition,
despite commercially reasonable efforts, PRG is unable to close the acquisition
of the remaining company conducting the direct to store delivery audit
operations because the seller has demanded a purchase price which is in excess
of or terms more favorable than those previously agreed to by PRG at the closing
of the asset acquisition, PRG will notify the HSA-Texas shareholder
representative in writing specifying the basis for such inability to close and
if applicable the amount of consideration in excess of the agreed upon purchase
price required to close the acquisition. In such event, PRG will have the
option:
- to close such acquisition by paying such excess price or agreeing to the
more favorable terms, as applicable, in which event a number of escrow
shares equal to the additional cost to PRG divided by the lesser of $6.50
or the PRG average price, not to exceed 500,000 shares, will be released
to PRG and canceled, and the remaining shares in escrow with respect to
such acquisition, if any, will be promptly released to HSA-Texas, or the
former shareholders of HSA-Texas, if HSA-Texas has been liquidated; or
- not to close such acquisition, in which event, HSA-Texas will forfeit all
500,000 shares held by PRG in escrow, and such shares will be released to
PRG and canceled.
The shares held in escrow with respect to the acquisition of the remaining
business conducting the direct to store delivery audit operations may be held in
escrow for up to 365 days after the closing of the asset acquisition. In the
event that such acquisition is not completed prior to that date, despite PRG's
commercially reasonable efforts, all remaining shares held in escrow by PRG with
respect to the direct to store delivery audit operations will be promptly
released to PRG and canceled.
EMPLOYMENT AGREEMENTS
Effective at the closing, PRG will enter into an employment agreement with
Howard Schultz that expires on the second anniversary of the closing date.
Pursuant to Howard Schultz' employment agreement, Howard Schultz will receive an
annual base salary of $400,000, and will not be eligible for a bonus during the
term of the employment agreement. In addition, Howard Schultz will receive
options to purchase 250,000 shares of PRG common stock at an exercise price per
share equal to the closing price of PRG common stock on the closing date, as
published in The Wall Street Journal on the business day immediately following
the closing date, which options will vest over a five-year period at 20% per
year. Howard Schultz also is eligible to participate in PRG's employee benefit
plans and other benefits pursuant to his employment agreement.
In addition, effective at the closing, PRG will enter into an employment
agreement with Andrew Schultz that currently expires on the second anniversary
of the closing date. Pursuant to Andrew Schultz' employment
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agreement, Andrew Schultz will receive an annual base salary of $240,000, and
will be eligible to receive an incentive bonus, which will include payout
potentials of up to 35% of annual salary for achievement of annual target
performance goals and 70% of base pay for achievement of annual maximum
performance goals, during the term of the employment agreement. Andrew Schultz
also is eligible to participate in PRG's employee benefit plans and other
benefits pursuant to his employment agreement.
NONCOMPETITION AGREEMENT
In connection with the proposed acquisitions, PRG, HSA-Texas, Howard
Schultz, Andrew Schultz, certain affiliated Schultz family trusts and four other
shareholders of HSA-Texas will enter into a noncompetition, nonsolicitation and
confidentiality agreement. Under the agreement, HSA-Texas, Howard Schultz,
Andrew Schultz, certain other affiliated Schultz family trusts and four other
shareholders of HSA-Texas will agree not to, for a period of five (5) years from
and after the effective date, except on behalf of PRG:
- within the geographic area in which HSA-Texas conducts its business on
the closing date, provide or perform services which are in competition
with the HSA-Texas business, either on the shareholder's own behalf or on
behalf of any other person, whether as a shareholder, owner, partner,
proprietor, agent, consultant, independent contractor or lender of a
competing business or otherwise;
- within the geographic area in which HSA-Texas conducts its business on
the closing date, have a financial interest in or be in any way connected
with or affiliated with any competing business;
- use, reproduce, distribute, disclose or otherwise disseminate to anyone
any proprietary information utilized by HSA-Texas or its affiliates in
the HSA-Texas business at any time prior to the closing; provided,
proprietary information utilized by HSA-Texas or any such affiliate prior
to the closing that constitutes a trade secret under applicable law shall
not be used, reproduced, distributed, disclosed or otherwise disseminated
as long as such information retains its status as a trade secret;
- solicit or call upon any of HSA-Texas's accounts, former clients of
HSA-Texas to which services have been provided by HSA-Texas within the
last two years prior to the closing or any prospective client of
HSA-Texas, or any employee or independent contractor of any such client
or prospective client, for purposes of selling or providing any product,
equipment or service which is competitive with any product, equipment or
service sold, leased, offered for sale or lease or under development by
HSA-Texas during the 24-month period immediately preceding the closing;
- hire, solicit, entice, persuade or induce, or attempt to hire, solicit,
entice, persuade or induce any person who was employed by, or performing
services as an independent contractor or as an employee of an independent
contractor for, HSA-Texas or an affiliate and is subsequently hired or
engaged by PRG in connection with PRG's acquisition of the HSA-Texas
business pursuant to the asset agreement, either to terminate such
person's employment with PRG or to cease performing such services for
PRG; or
- authorize any person to engage in or assist any person in any of the
activities described in the preceding paragraph.
Notwithstanding the foregoing, HSA-Texas, Howard Schultz, Andrew Schultz,
certain affiliated Schultz family trusts and the four other shareholders may own
any number of shares of PRG common stock or have a passive investment in less
than one percent (1%) of the outstanding capital stock of any other publicly
traded company that is, or is connected with or affiliated with, a competing
business.
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MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS OF HSA-TEXAS
This discussion should be read in conjunction with the combined financial
statements of HSA-Texas and notes thereto included elsewhere in this joint proxy
statement/prospectus.
OVERVIEW
In 1970, HSA-Texas began to offer accounts payable and other recovery audit
services. HSA-Texas is a leading provider of such services to large and mid-size
businesses having numerous payment transactions with many vendors.
In businesses with large volumes of vendor transactions with fluctuating
prices, some small percentage of erroneous overpayments to vendors is
inevitable. In the aggregate, these transaction errors can represent meaningful
"lost profits" that can be particularly significant for businesses with
relatively low profit margins. HSA-Texas' trained, experienced auditors use
sophisticated proprietary technology and advanced recovery techniques and
methodologies to identify overpayments to vendors and other payees. These
auditors also review clients' current practices and processes related to
procurement and other expenses in order to identify solutions to manage and
reduce expense levels, as well as apply knowledge and expertise of
industry-specific "best practices" to assist clients in improving their business
efficiencies.
RESULTS OF OPERATIONS
The following table sets forth the percentage of revenues represented by
certain items in HSA-Texas' condensed combined statements of operations for the
periods indicated:
SIX MONTHS ENDED
JUNE 30, YEARS ENDED DECEMBER 31,
----------------- -------------------------
2001 2000 2000 1999 1998
------ ------ ----- ----- -----
(UNAUDITED)
Revenues....................................... 100.0% 100.0% 100.0% 100.0% 100.0%
----- ----- ----- ----- -----
Cost of revenues............................... 63.7 65.0 65.8 70.3 76.4
Selling, general and administrative expense.... 37.9 34.1 34.8 28.2 22.3
----- ----- ----- ----- -----
Operating income (loss).............. (1.5) 1.0 (0.6) 1.5 1.3
----- ----- ----- ----- -----
Other income (expense):
Interest income.............................. 0.2 0.4 0.3 0.3 0.2
Interest expense............................. (2.5) (2.4) (2.4) (2.0) (1.7)
Settlement of litigation..................... 5.4 -- -- -- --
Other income (expense), net.................. -- -- -- -- 0.2
----- ----- ----- ----- -----
Net income (loss).................... 1.6% (1.0)% (2.7)% (0.2)% --
===== ===== ===== ===== =====
Six Months Ended June 30, 2001 Compared to Six Months Ended June 30, 2000
Revenues. HSA-Texas' revenues are generated primarily from a contractually
specified percentage of the amount of the net overpayments actually recovered by
HSA-Texas for its clients, either in the form of credits taken by such clients
against invoices submitted by its recurring transaction vendors or cash re-
payment of those amounts. HSA-Texas has one reportable operating segment
consisting of accounts payable auditing services.
Revenues were virtually unchanged at $67.1 million for both the first six
months of 2001 and the first six months of 2000. Domestic revenues decreased by
approximately $2.3 million in 2001, offset by an approximately $2.3 million
increase in international revenues, compared to the first six months of 2000.
The decrease in domestic revenues was partially a result of lost accounts and
lower production on certain clients. The increase in international revenues was
partially a result of obtaining new accounts in late 2000 and higher production
on existing accounts.
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Cost of Revenues. Cost of revenues consists principally of commissions
paid or payable to HSA-Texas' auditors based primarily upon the amount of
overpayment recoveries. Also included in cost of revenues are partial
reimbursement of direct costs incurred by the auditors, including rental of
non-headquarters offices, travel, telephone, utilities, maintenance, supplies
and clerical assistance.
Cost of revenues as a percentage of revenues decreased to 63.7% in the
first six months of 2001, from 65.0% in the first six months of 2000, due to the
change in the mix of domestic and international revenues, as well as actions
taken to reduce domestic cost of revenue.
Selling, General and Administrative Expenses. Selling, general and
administrative expenses include the expenses of sales and marketing activities,
information technology services and HSA-Texas' corporate data centers, human
resources, legal, accounting, administration, depreciation of property and
equipment and amortization of intangibles.
Selling, general and administrative expenses as a percentage of revenues
increased to 37.9% of revenues in the first six months of 2001, from 34.1% of
revenues in the first six months of 2000. A substantial portion of this increase
was due to higher payroll costs associated with building HSA-Texas' management
infrastructure, higher legal and accounting fees and higher bad debt expenses in
the first six months of 2001, compared to the same period in 2000.
Interest Expense. Interest expense in the first six months of 2001 was
$1.6 million, compared with $1.6 million for the first six months of 2000.
Settlement of Litigation. In May 2001, HSA-Texas entered into a settlement
agreement with respect to litigation pending at December 31, 2000, involving a
group of independent contractors formerly associated with HSA-Texas. Pursuant to
the settlement agreement, HSA-Texas was relieved of certain obligations to pay
accrued commissions to those independent contractors which amounted to $3.2
million at December 31, 2000. The total May 2001 settlement was $3.7 million.
Net Income (Loss). HSA-Texas reported net income of $1.1 million or 1.6%
of revenues in the first six months of 2001, compared to a net loss of $(0.7)
million or (1.0)% of revenues for the first six months of 2000, due primarily to
the factors discussed above.
Year Ended December 31, 2000 Compared to Year Ended December 31, 1999
Revenues increased 3.7% to $138.7 million in 2000, up from $133.8 million
in 1999. The increase was primarily attributable to increased revenue from
existing clients as a result of HSA-Texas achieving additional recoveries for
those clients.
Cost of revenues as a percentage of revenues decreased to 65.8% in 2000,
down from 70.3% in 1999. This decrease resulted primarily from the acquisition
of its affiliates, Howard Schultz & Associates of the Northeast, Inc. and Howard
Schultz & Associates of the Mid-Atlantic, Inc. on January 1, 2000. These
acquisitions had a favorable impact on cost of revenues, since they enabled
HSA-Texas to compensate the independent contractor audit associates directly, at
a rate which was lower than that previously paid to the acquired affiliates.
Selling, general and administrative expenses as a percentage of revenues
increased to 34.8% of revenues in 2000, up from 28.2% of revenues in 1999. A
substantial portion of this increase was due to higher payroll costs associated
with building HSA-Texas' management infrastructure, higher costs associated with
information technology expenditures and generally higher travel, meeting and
other general and administrative expenses. Additionally, in 2000, HSA-Texas'
depreciation of property and equipment and amortization of goodwill were higher
than in 1999, due to the acquisition of the affiliated companies discussed above
and the expansion of HSA-Texas' business.
Interest Expense. Interest expense for 2000 was $3.4 million, up from $2.7
million in 1999. The increase was due to an increased level of borrowings
primarily related to promissory notes issued in 2000 for the acquisitions
discussed above, as well as an increase in other notes payable used to finance
the increase in infrastructure during 2000.
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Net Income (Loss). HSA-Texas incurred a net loss of $(3.7) million or
(2.7)% of revenues in 2000, compared to net loss of $(0.3) million or (0.2)% of
revenues in 1999, due primarily to the reasons outlined above.
Year Ended December 31, 1999 Compared to Year Ended December 31, 1998
Revenues. Revenues increased 13.8% to $133.8 million in 1999, up from
$117.6 million in 1998. This year-over-year increase of $16.2 million was
primarily due to the acquisition of the European operations, the addition of new
clients in all other international markets generating incremental revenue, and
increased revenues from selected domestic clients, resulting from higher audit
recoveries.
Cost of Revenues. Cost of revenues as a percentage of revenues decreased
to 70.3% in 1999, down from 76.4% in 1998, due to the acquisition of three
affiliated companies on January 1, 1999. The acquisition of the affiliated
companies had a favorable impact on cost of revenues, since it enabled HSA-Texas
to compensate the independent contractor audit associates directly, at a rate
which was lower than that paid to the affiliated associates.
Selling, General and Administrative Expenses. Selling, general and
administrative expenses as a percentage of revenues increased to 28.2% in 1999,
up from 22.3% in 1998. HSA-Texas increased its management infrastructure
substantially in 1999 to accommodate the acquisitions discussed above and
incurred $1.2 million in compensation expense in 1999 (none in 1998) resulting
from stock options issued to employees and non-employees. Additionally,
HSA-Texas incurred additional depreciation and amortization expenses in 1999
associated with the 1999 acquisitions.
Interest Expense. Interest expense for 1999 was $2.7 million, up from $2.0
million in 1998, due primarily to acquisition-related indebtedness.
Net Income (Loss). Net loss was $(0.3) million in 1999, compared to a net
income of $21,000 in 1998 due primarily to the reasons outlined above.
LIQUIDITY AND CAPITAL RESOURCES
From time to time, HSA-Texas has borrowed money from a bank and a
stockholder to meet on-going operating cash flow needs. HSA-Texas believes that
the combination of cash available from these lenders and cash flow generated
from future operations will be sufficient to meet HSA-Texas' working capital
expenditure requirements through December 31, 2002, including the transaction
costs associated with the proposed acquisitions. HSA-Texas is evaluating various
equity and debt alternatives to address its liquidity needs in 2002.
Net cash provided by operating activities was $4.3 million in the first six
months of 2001, and $5.0 million in the first six months of 2000.
Net cash used in investing activities was $1.6 million in the first six
months of 2001, and $4.0 million in the first six months of 2000. The
expenditures in both the first six months of 2001 and 2000 related primarily to
the purchase of property and equipment to support the increased infrastructure
necessary to function as an operating company.
Net cash provided by financing activities was $0.5 million in the first six
months of 2001 while cash used in financing activities was $3.3 million in the
first six months of 2000. During the six months ended June 30, 2001, HSA-Texas
borrowed approximately $5.5 million from a principal stockholder and made
payments of approximately $3.8 million against debt incurred in various
acquisitions. During the six months ended June 30, 2000, HSA-Texas issued
approximately $2.3 million in notes payable in connection with the acquisition
of a building in 2000, and made payments of approximately $3.8 million against
debt incurred in acquisitions of principal associates in prior years. HSA-Texas
also distributed approximately $1.5 million in cash to its principal
stockholders during the first six months of 2000. Additionally, HSA-Texas
provided loans to stockholders of $0.5 million and $0.2 million, as well as
payments on lease obligations of $0.6 million and $0.1 million, in the first six
months ended June 30, 2001 and 2000, respectively.
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Net cash provided by operating activities was $11.1 million in 2000, $10.3
million in 1999 and $6.2 million in 1998. The increase each year was due
primarily to the acquisitions discussed above.
Net cash used in investing activities was $7.0 million in 2000, $3.7
million in 1999 and $2.7 million in 1998. The expenditures each year primarily
related to the purchase of property and equipment, to support the increased
management infrastructure and the acquisitions discussed above.
Net cash used in financing activities was $5.9 million in 2000, $4.7
million in 1999 and $3.0 million in 1998. These uses of cash resulted from the
following: principal payments on notes payable, net of proceeds from the
issuance of notes payable, were $3.8 million in 2000, $4.7 million in 1999 and
$1.1 million in 1998, and distributions to stockholders were $1.5 million in
2000 and $2.4 million in 1998 (none in 1999). Additionally, 1998 cash used in
financing activities included proceeds from issuance of common stock net of
loans to stockholders of $0.5 million and 2000 cash used in financing activities
included principal payments on capital lease obligations of $0.4 million offset
by a loan provided to a stockholder of $0.2 million.
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BUSINESS OF HSA-TEXAS
THE BUSINESS
Howard Schultz & Associates International, Inc., its subsidiaries and
licensees are industry pioneers in providing recovery audit services. HSA-Texas
audits accounts payable records, occupancy costs, vendor statements and direct
to store delivery audit records to recover overpayments that are a result of
missed credits, duplicated payments, overlooked allowances, incorrect invoices
and other discrepancies.
HSA-Texas provides recovery audit services to large and mid-size businesses
having numerous payment transactions with many vendors. These businesses
include, but are not limited to, retailers, manufacturers, wholesale
distributors, technology companies and healthcare providers. During 2000, two
clients, The Kroger Company and JC Penney accounted for 13% and 10%,
respectively, of HSA-Texas' combined revenues. During 1999 the same two clients
accounted for 12% and 10%, respectively, of HSA-Texas' combined revenues. During
1998, one client, American Stores, accounted for 11% of HSA-Texas' combined
revenues.
HSA-Texas receives a contractual percentage of overpayments and other
savings it identifies and its clients recover or realize.
HSA-Texas has more than 1,000 audit associates working in most major U.S.
cities and several international markets. HSA-Texas operates 25 regional offices
in the United States, Australia, Belgium, Canada, France, Germany, Hong Kong,
Italy, Mexico, the Philippines, Portugal, Singapore, Thailand, Taiwan, the
Netherlands, Spain and the United Kingdom.
HSA-Texas has affiliate companies that conduct operations for HSA-Texas in
Asia, Australia and Canada. These affiliate companies are Howard Schultz &
Associates (Asia) Ltd., a Hong Kong corporation; HS&A International Pte, Ltd., a
Singapore corporation; Howard Schultz & Associates (Australia), a Texas
corporation; and, Howard Schultz & Associates (Canada), a Texas corporation.
These entities primarily provide recovery audit services in Singapore, Hong
Kong, Australia and Canada. In addition to these companies which operate as
affiliates of HSA-Texas, HSA-Texas has licensees operating in the United Kingdom
and Germany.
HISTORY
HSA-Texas commenced business in 1970. Prior to 1996, HSA-Texas' operations
were conducted substantially through its independent contractors. HSA-Texas
secured client contracts, but all services were rendered by the independent
contractors. These independent contractors received approximately 80%-85% of the
revenues generated from clients and incurred all of the direct expenses of
performing the recovery audit services while HSA-Texas was paid a contract fee
equal to approximately 15%-20% of the revenues generated. During this time
period, HSA-Texas was essentially a holding company collecting contract and
license fees.
Beginning in January 1995 and continuing through July 2001, HSA-Texas
entered into a series of transactions to acquire the operations of its
"principal associates." These principal associates were HSA-Texas' licensees and
provided the independent contract auditors that performed audit recovery
services for HSA-Texas in various regions in the United States. Following these
acquisitions, HSA-Texas assigned existing management personnel to run the
acquired operations, utilizing independent contractors, who previously had
provided audit services to the principal associates, to perform the necessary
audit functions. Additionally, HSA-Texas invested heavily in building a
corporate infrastructure and information systems to effectively manage and
support field operations. HSA-Texas also established a centralized training and
development group, regional business development professionals, and centralized
marketing, client relations, corporate-based human resource and finance
functions.
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Set forth below is a summary of the acquisitions related to HSA-Texas' U.S.
operations:
DATE OF ACQUISITION PRINCIPAL ASSOCIATE ACQUIRED
------------------- ----------------------------
March 4, 1996.................. Howard Schultz & Associates of the Pacific Southwest
April 1, 1996.................. Howard Schultz & Associates of the Southeast, Inc.
June 16, 1997.................. Howard Schultz & Associates of the Central States, Inc.
June 30, 1997.................. Howard Schultz & Associates of the Mountain States, Inc.
June 30, 1997.................. Howard Schultz & Associates of the North Central States,
Inc.
January 5, 1998................ Howard Schultz & Associates, Mid Pacific, Inc.
July 1, 1998................... Howard Schultz & Associates of Mid-Southwest, Inc.
January 1, 1999................ HS&A Florida, Inc.
January 1, 1999................ Howard Schultz & Associates of the Mid-West, Inc.
January 1, 1999................ Howard Schultz & Associates of the Pacific Northwest, Inc.
January 1, 2000................ Howard Schultz & Associates of the Northeast, Inc.
January 1, 2000................ Howard Schultz & Associates of the Mid-Atlantic, Inc.
July 3, 2001................... Lowery, Inc.
HSA-Texas also completed acquisitions of licensees in Australia and Canada
in 1998 and in Europe in 1999, as discussed below.
On January 23, 1998, HSA-Canada, an affiliated foreign operating company,
acquired all of the net assets of a former licensee in Canada.
On January 30, 1998, HSA-Australia, an affiliated foreign operating
company, acquired all of the net assets of a former licensee in Australia.
In November 1998, HSA-Texas formed its wholly-owned subsidiary, Howard
Schultz & Associates Europe, N.V., a Belgian corporation ("HS&A Europe"), for
the purpose of acquiring the equity interests of entities that performed
recovery audit services in various European countries, including Belgium,
France, Italy and Spain. HS&A Europe acquired 100% of such interests in January
1999 (except for a 10% interest in Howard Schultz Italia S.r.l., which was
acquired by HS&A Europe in March 2000).
On November 1, 2000, HSA-Texas acquired the stock of Infinite Imaging
Systems, Inc. for a total purchase price of approximately $1.5 million. The
acquired company provides document imaging utilizing high speed scanning
technology to convert paper records into a digital format. The digitized
documents are then indexed and archived.
HSA-Texas is currently negotiating the acquisition of the business and
operations of Howard Schultz & Partner (Deutschland) GmbH, a licensee who
provides recovery audit services in Germany and Austria. HSA-Texas is also
negotiating the acquisition of all of the outstanding equity of Tamebond Ltd.
and J & G Associates Ltd., in order to acquire the business and operations of
Howard Schultz & Associates (International) Ltd. which has a license to provide
recovery audit services in the United Kingdom. Additionally, HSA-Texas is
negotiating agreements to acquire the business and operations of Phoenix Audit
Recoveries, Inc, and JASAMA, Inc. which are independent contractors of HSA-Texas
and operate the direct to store delivery audit operations of HSA-Texas'
business.
AUDIT SERVICES
Accounts Payable Services
Through the use of proprietary technology, audit techniques and
methodologies, HSA-Texas' trained and experienced auditors examine merchandise
procurement records on a post-payment basis to identify overpayments resulting
from duplicate payments, missed discounts, allowances, rebates and other forms
of pricing concessions offered by vendors.
HSA-Texas' accounts payable services are offered to two main client types,
with each type currently having different service delivery characteristics.
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Retail and Wholesale Industries. Services provided to retail and wholesale
clients are currently HSA-Texas' largest worldwide source of revenues. These
services typically recur annually and are largely predictable in terms of
estimating the dollar volume of client overpayments which will be ultimately
recovered. For most retail/wholesale clients, HSA-Texas typically identifies a
larger volume of recoveries each year when compared to recoveries realized in
the immediate preceding year. This growth generally results from factors such as
increasing sophistication of HSA-Texas' auditors and software, and continuing
client migration toward electronic merchandise procurements which HSA-Texas can
more thoroughly audit. HSA-Texas currently serves retail/wholesale clients on
four continents.
Other Industries. HSA-Texas also examines merchandise procurements and
other payments made by business entities such as manufacturers, distributors and
healthcare providers which are collectively termed as "commercial clients."
Services to these types of clients tend to be more 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. Currently, the majority of HSA-Texas' commercial clients
are located in the U.S.
Occupancy Cost Audit Services
The occupancy cost audit services division primarily examines the common
area maintenance cost, improper property tax allocations and incorrect
percentage rent charges and other real estate fees that many real estate tenants
experience. HSA-Texas provides auditors who will identify overpayments by
reviewing common area maintenance charges and related costs, office building
operating cost, property tax allocation cost, rent charges, including percentage
rent and CPI adjustments, insurance and overhead expenses. In their audit, the
auditors examine leases and other types of cost statements provided to lessees.
Statement Audit Services
The statement audit services division has its auditors review vendors'
records for the client. The auditors review statements from suppliers for
credits that are not itemized on invoices as well as other items not taken from
vendor statements. The process begins with requesting copies of vendor
statements to be sent to HSA-Texas' statement audit center. Follow-up telephone
calls are made by a bank of callers specially trained by HSA-Texas to obtain
statements not sent by the vendors or to clarify questions relating to
statements received. Once the audit associates have analyzed the statements,
vendors are contacted to validate the potential claim. This service differs from
the standard accounts payable audit, since its success is dependent on the
effectiveness of the telephone solicitations.
Direct to Store Delivery Audit Services
The direct store delivery audit services division specializes in recovering
overpayments generated through the processing of transactions which bypass the
warehouse system, primarily for grocery retailers. Certain products, such as
soft drinks, potato chips and snacks, are delivered directly to the grocery
store shelves by vendor route salesmen. The paperwork for these deliveries is
processed through a separate system, independent of the client's warehouse
receiving system, where all other products are received and processed. The
invoices in direct store delivery audits usually are of relatively low dollar
amounts. These invoices are audited to recover discounts and credits that were
not taken in the ordering process generating the invoices.
Client Contracts
HSA-Texas' typical client contract provides that HSA-Texas is entitled to a
contractual percentage of overpayments or other savings recovered for or
realized by clients. Clients generally recover claims by either (a) taking
credits against outstanding payables or future purchases from the involved
vendors, or (b) receiving refund checks directly from those vendors. The method
of effecting a recovery is often dictated by industry practice. The client
contract provides that HSA-Texas is entitled to a fee for the rendering of that
service.
In addition to client contracts, many clients establish specific procedural
guidelines that HSA-Texas must satisfy prior to submitting claims for client
approval. These guidelines are unique to each client.
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106
HSA-Texas recognizes revenue when it invoices clients for its fee, which
occurs after the client has processed approved claims.
TECHNOLOGY
HSA-Texas has data technology centers in Salt Lake City, Utah and Chicago,
Illinois in the U.S., as well as in Mexico City, Mexico; Sydney, Australia;
Brussels, Belgium; and Hong Kong. HSA-Texas employs applications of computer
technology to meet clients' needs in an increasingly paperless environment. The
primary software tool of HSA-Texas is SUREF!ND(R) which is HSA-Texas'
proprietary suite of software tools for analysis of HSA-Texas' clients'
electronic records.
At the beginning of a typical accounts payable recovery audit engagement,
HSA-Texas obtains transaction data from its client for the time period under
audit. HSA-Texas receives this data typically by magnetic media, which is then
reformatted into standardized and proprietary layouts at one of HSA-Texas'
technology centers.
HSA-Texas' experienced programmers then prepare statistical reports to
verify the completeness and accuracy of the data. HSA-Texas delivers this
reformatted data to its auditors who, using SUREF!ND(R), sort, filter and search
the data for overpayments. HSA-Texas also produces client-specific standard
reports and statistical data for its auditors. These reports and data often
reveal patterns of activity or unusual relationships suggestive of potential
overpayment situations.
HSA-Texas has developed and continuously updates and refines its
proprietary accounts payable databases to assist it in providing recovery audit
services to its domestic retail/wholesale clients. These databases serve as a
central repository reflecting its auditors' experiences, vendor practices and
knowledge of regional and national pricing information, including seasonal
allowances, discounts and rebates. These proprietary databases, however, do not
include confidential client information. Auditors use these databases to
identify discounts, allowances and other pricing information not previously
detected.
SEASONALITY
HSA-Texas has experienced and expects to continue to experience seasonality
in its business. HSA-Texas typically realizes higher revenues and operating
income in the last two quarters of its fiscal year.
SALES AND MARKETING
HSA-Texas maintains its sales and marketing function at its Dallas, Texas
headquarters as well as at regional offices throughout the U.S. Due to the
highly confidential and proprietary nature of a business' purchasing patterns
and procurement prices combined with the typical desire to maximize the amount
of funds recovered, most prospective clients conduct an extensive investigation
which may include an on-site inspection of HSA-Texas' service facilities.
HSA-Texas has typically found that its service offerings require long sales
cycles and the highest level of direct person-to-person contact.
PROPRIETARY RIGHTS
HSA-Texas continuously evaluates new recovery audit software and enhances
existing proprietary software. HSA-Texas regards its proprietary software as
protected by trade secret and copyright laws of general applicability. In
addition, HSA-Texas attempts to safeguard its software through employee and
third-party nondisclosure agreements and other methods of protection. While
HSA-Texas' competitive position may be affected by its ability to protect its
software and other proprietary information, HSA-Texas believes that the
protection afforded by trade secret and copyright laws is less significant to
HSA-Texas' success than the continued pursuit and implementation of its
operating strategies and other factors such as the knowledge, ability and
experience of its personnel.
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107
HSA-Texas owns or has rights to various copyrights, trademarks and trade
names used in HSA-Texas' business, including but not limited to SUREF!ND(R).
COMPETITION
The recovery audit business is highly competitive and barriers to entry are
relatively low. The competitive factors affecting the market for HSA-Texas'
recovery audit services include:
- establishing and maintaining client relationships;
- quality and quantity of claims identified;
- experience and professionalism of audit staff;
- rates for services;
- technology; and
- geographic scope of operations.
In addition to PRG, HSA-Texas' principal competitors for accounts payable
recovery audit services include many local and regional firms.
In recent years, HSA-Texas has seen increasing competition from the
consulting arms of the five largest international accounting firms.
Historically, the accounting firms have been precluded from providing
significant levels of recovery audit services due to the potential for conflicts
of interest with audit clients. Additionally, the accounting firms have relied
primarily on fee-based arrangements versus the predominant contingency model
associated with recovery audit services. Since January 2000, three of the
accounting firms have spun off, sold or otherwise granted separate independence
to their management consulting units and one other has announced its intention
to eventually effect a similar separation. With the potential for conflicts of
interest substantially reduced, HSA-Texas believes that these independent
consulting units may become formidable competitors in the future.
EMPLOYEES AND CONTRACTORS
As of July 31, 2001, HSA-Texas and its subsidiaries had approximately 404
employees dedicated to its business operations, and approximately 653
independent contractors providing audit services for HSA-Texas located in the
U.S., Australia, France, Spain, Italy, Belgium, the Netherlands and Canada.
HSA-Texas is currently reviewing plans and options to convert independent
contractor auditors to employees of HSA-Texas who will perform the same type of
services. HSA-Texas believes that its relationships with its employees and
independent contractors are good.
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PRINCIPAL SHAREHOLDERS OF HSA-TEXAS
The following table sets forth as of August 31, 2001 information regarding
the beneficial ownership of HSA-Texas voting common stock and HSA-Texas
non-voting common stock by:
- each of HSA-Texas' directors;
- the chief executive officer and all other executive officers of
HSA-Texas;
- all of HSA-Texas' executive officers and directors as a group; and
- each stockholder known by HSA-Texas to be the beneficial owner of more
than five percent of HSA-Texas' voting common stock and non-voting common
stock.
PERCENT OF
VOTING AND
VOTING NON-VOTING TOTAL NON-VOTING
COMMON STOCK(1) COMMON STOCK(1) NUMBER COMMON
-------------------- -------------------- OF SHARES STOCK
NAME NUMBER PERCENT NUMBER PERCENT OWNED(1) COMBINED
---- --------- ------- --------- ------- --------- ----------
Howard Schultz(2).......... 1,257,200 54.48% 1,487,212(3) 23.11% 2,744,412(3) 31.39
Andrew Schultz(2).......... 742,800(4) 32.19 2,332,272(5) 36.24 3,075,072(4)(5) 35.17
Leslie Schultz(6).......... 0 -- 0 -- 0 --
Richard Grant(7)........... 0 -- 0 -- 0 --
Herb Hodgdon(8)............ 0 -- 0 -- 0 --
Harold Berman.............. 0 -- 2,562,082(9) 39.81 2,562,082(9) 29.31
Michael Lowery(2).......... 307,482 13.33 0(10) * 307,482(10) 3.52
Charles Schembri........... 0 -- 36,157(11) * 36,157(11) *
Michael Glazer............. 0 -- 3,311(12) * 3,311(12) *
Stephanie Holloway......... 0 -- 3,311(13) * 3,311(13) *
Mac Martirossian........... 0 -- 5,519(14) * 5,519(14) *
Michael Tuite.............. 0 -- 5,519(15) * 5,519(15) *
All directors and executive
officers as a group (11
persons)................. 2,307,482 100% 3,873,301(16) 60.19% 6,180,783(16) 70.70%
---------------
* Less than 1 percent.
(1) This table is based upon information supplied by officers, directors and
principal shareholders of HSA-Texas. Unless otherwise indicated in the
footnotes to this table and subject to community property laws where
applicable, HSA-Texas believes that each of the shareholders named in this
table has sole voting and investment power with respect to the shares
indicated as beneficially owned. Applicable percentages are based on
2,307,482 shares of HSA-Texas voting common stock outstanding and 6,435,383
shares of HSA-Texas non-voting common stock outstanding on August 31, 2001.
In computing the number of shares beneficially owned by a person and the
percentage ownership of that person, shares of common stock subject to
options held by that person that are exercisable within 60 days are deemed
outstanding. These shares, however, are not deemed outstanding for the
purpose of computing the percentage ownership of any other person.
(2) The business address for each of Howard Schultz, Andrew Schultz and Michael
Lowery is c/o HSA-Texas, 9241 LBJ Freeway, Suite 100, Dallas, Texas 75243.
(3) Includes 12,614 shares of HSA-Texas non-voting common stock held by The
Zachary Herman Schultz Trust, 12,614 shares of HSA-Texas non-voting common
stock held by The Gabriella Schultz Trust and 12,614 shares of HSA-Texas
non-voting common stock held by The Samuel Joel Schultz Trust, for each of
which Howard Schultz is the sole trustee.
(4) Includes 468,400 shares of HSA-Texas voting common stock held by the Andrew
H. Schultz Irrevocable Trust for which Mr. Schultz is the sole trustee.
(5) Includes 1,494,563 shares of HSA-Texas non-voting common stock held by the
Andrew H. Schultz Irrevocable Trust for which Mr. Schultz is the sole
trustee.
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109
(6) Leslie Schultz, a director of HSA-Texas, is the spouse of Howard Schultz.
(7) Excludes 84,745 shares of HSA-Texas non-voting common stock subject to
options which are not currently exercisable. At closing, PRG will assume
each outstanding HSA-Texas option held by persons who become employees or
directors of PRG.
(8) Excludes 49,530 shares of HSA-Texas non-voting common stock subject to
options which are not currently exercisable. At closing, PRG will assume
each outstanding HSA-Texas option held by persons who become employees or
directors of PRG.
(9) Includes 2,562,082 shares held in trusts of which Mr. Berman is the sole
trustee. Mr. Berman disclaims beneficial ownership of such shares. The
business address of Harold Berman is 8333 Douglas, Suite 1200, Dallas,
Texas 75225.
(10) Excludes 28,256 shares of HSA-Texas non-voting common stock subject to
options which are not currently exercisable. At closing, PRG will assume
each outstanding HSA-Texas option held by persons who become employees or
directors of PRG.
(11) Excludes 105,205 shares of HSA-Texas non-voting common stock subject to
options which are not currently exercisable. At closing, PRG will assume
each outstanding HSA-Texas option held by persons who become employees or
directors of PRG.
(12) Excludes 7,795 shares of HSA-Texas non-voting common stock subject to
options which are not currently exercisable. At closing, PRG will assume
each outstanding HSA-Texas option held by persons who become employees or
directors of PRG.
(13) Excludes 6,249 shares of HSA-Texas non-voting common stock subject to
options which are not currently exercisable. At closing, PRG will assume
each outstanding HSA-Texas option held by persons who become employees or
directors of PRG.
(14) Excludes 56,589 shares of HSA-Texas non-voting common stock subject to
options which are not currently exercisable. At closing, PRG will assume
each outstanding HSA-Texas option held by persons who become employees or
directors of PRG.
(15) Excludes 36,135 shares of HSA-Texas non-voting common stock subject to
options which are not currently exercisable. At closing, PRG will assume
each outstanding HSA-Texas option held by persons who become employees or
directors of PRG.
(16) Excludes 542,135 shares of HSA-Texas non-voting common stock subject to
options which are not currently exercisable. At closing, PRG will assume
each outstanding HSA-Texas option held by persons who become employees or
directors of PRG.
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110
PRINCIPAL SHAREHOLDERS OF HSA-TEXAS' AFFILIATED
FOREIGN OPERATING COMPANIES
The following tables set forth as of August 31, 2001 information regarding
the beneficial ownership of each affiliated foreign operating company's common
stock by each shareholder of the affiliated foreign operating companies. No
other director, officer or shareholder owns any shares of such stock.
NUMBER OF PERCENTAGE
SHARES OF SHARES
BENEFICIALLY BENEFICIALLY
OWNED(1) OWNED
------------ ------------
HSA-AUSTRALIA
NAME
Andrew H. Schultz Irrevocable Trust......................... 1,000 100%
All directors and executive officers as a group (4
persons).................................................. 1,000 100%
HSA-CANADA
NAME
Andrew H. Schultz Irrevocable Trust......................... 1,000 100%
All directors and executive officers as a group (4
persons).................................................. 1,000 100%
HSA-SINGAPORE
NAME
Howard Schultz.............................................. 3 60.0%
Acceptor Professional Directors (Pte) Ltd................... 2 40.0%
All directors and executive officers as a group (4
persons).................................................. 0 0
HSA-ASIA
"A" SHARES
NAME
Howard Schultz.............................................. 1 50%
Leslie Schultz.............................................. 1 50%
All directors and executive officers as a group (3
persons).................................................. 2 100%
HSA-ASIA
"B" SHARES
NAME
Howard Schultz.............................................. 98 100%
All directors and executive officers as a group (3
persons).................................................. 98 100%
---------------
(1) Tables are based upon information supplied by officers, directors and
principal shareholders of each affiliated foreign operating company of
HSA-Texas. Unless otherwise indicated, each of the shareholders named in the
tables has sole voting and investment power with respect to the shares
indicated as beneficially owned. The business address for these persons or
entities is 9241 LBJ Freeway, Suite 100, Dallas, Texas 75243.
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111
THE PROFIT RECOVERY GROUP INTERNATIONAL, INC. AND SUBSIDIARIES
PRO FORMA COMBINED FINANCIAL STATEMENTS (UNAUDITED)
On August 3, 2001, PRG signed a definitive agreement with HSA-Texas to
acquire for up to 16 million shares of its common stock substantially all of the
assets of HSA-Texas and substantially all of the outstanding stock of
HSA-Singapore, and all of the outstanding stock of HSA-Asia, HSA-Australia and
HSA-Canada, each an affiliated foreign operating company of HSA-Texas, pursuant
to an agreement and plan of reorganization in connection with the asset
acquisition and an agreement and plan of reorganization in connection with the
stock acquisition.
The following unaudited pro forma combined financial statements present
financial information giving effect to the proposed acquisitions under purchase
accounting. The unaudited pro forma combined balance sheet as of June 30, 2001
is presented as if the proposed acquisitions had been completed as of that date.
The unaudited pro forma combined statements of operations for the six month
period ended June 30, 2001 and the year ended December 31, 2000 are presented as
if the proposed acquisitions had been completed as of January 1, 2000.
The financial information reflects certain assumptions deemed probable by
PRG management regarding the purchase. The total estimated purchase cost of the
proposed acquisitions was allocated on a preliminary basis to assets based upon
management's best estimates of their fair value with the excess cost over the
net assets acquired allocated to goodwill. The adjustments to the unaudited pro
forma combined financial information are subject to change pending a final
analysis of the total purchase cost and the fair value of the assets assumed.
The impact of these changes could be material.
The pro forma combined financial statements should be read in conjunction
with PRG's unaudited Consolidated Financial Statements and Notes thereto
included in PRG's Quarterly Report on Form 10-Q for the period ended June 30,
2001 and the audited and Consolidated Financial Statements and Notes thereto
incorporated by reference herein from PRG's Annual Report on Form 10-K for the
fiscal year ended December 31, 2000. The pro forma adjustments are based upon
preliminary estimates, available information and certain assumptions that
management deems appropriate and are not necessarily indicative of what PRG's
results of operations or financial position would have been had the transaction
been in effect as of and for the periods presented, nor is such information
necessarily indicative of PRG's results of operations or financial position for
any future period or date.
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112
THE PROFIT RECOVERY GROUP INTERNATIONAL, INC.
PRO FORMA COMBINED STATEMENT OF OPERATIONS (UNAUDITED)
FOR THE SIX MONTHS ENDED JUNE 30, 2001
PRO FORMA
PRG HSA ADJUSTMENT PRO FORMA
-------- ------- ---------- ---------
Revenues........................................ $142,311 $67,053 $ -- $209,364
Cost of revenues................................ 74,789 42,681 -- 117,470
Selling, general and administrative expenses.... 61,691 25,405 769(C)(D) 87,865
-------- ------- ------- --------
Operating income (loss)............... 5,831 (1,033) (769) 4,029
Interest income (expense), net.................. (3,801) (1,510) 141(E) (5,170)
Settlement of litigation........................ -- 3,650 -- 3,650
Other income (expense), net..................... -- (3) 3(H) --
-------- ------- ------- --------
Earnings from continuing operations
before income taxes................. 2,030 1,104 (625) 2,509
Income tax expense.............................. 812 -- 191(F) 1,003
-------- ------- ------- --------
Earnings from continuing operations... $ 1,218 $ 1,104 $ (816) $ 1,506
======== ======= ======= ========
Basic earnings per share -- earnings from
continuing operations......................... $ 0.03 $ 0.03
======== ========
Diluted earnings per share -- earnings from
continuing operations......................... $ 0.03 $ 0.02
======== ========
Denominator:
Denominator for basic earnings per share --
weighted-average shares outstanding........ 48,066 11,300(G) 59,366
Effect of dilutive securities:
Employee stock options..................... 282 619(G) 901
-------- ------- --------
Denominator for diluted earnings...... 48,348 11,919(G) 60,267
======== ======= ========
See Accompanying Notes to Unaudited Pro Forma Combined Financial Statements.
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113
THE PROFIT RECOVERY GROUP INTERNATIONAL, INC.
PRO FORMA COMBINED STATEMENT OF OPERATIONS (UNAUDITED)
FOR THE YEAR ENDED DECEMBER 31, 2000
PRO FORMA
PRG HSA ADJUSTMENT PRO FORMA
-------- -------- ---------- ---------
Revenues..................................... $297,089 $138,708 $ -- $435,797
Cost of revenues............................. 156,408 91,222 -- 247,630
Selling, general and administrative
expenses................................... 119,779 48,324 3,752(C)(D) 171,855
-------- -------- ------- --------
Operating income (loss)............ 20,902 (838) (3,752) 16,312
Interest income (expense), net............... (8,253) (2,938) 244(E) (10,947)
Other income (expense), net.................. -- 47 (47)(H) --
-------- -------- ------- --------
Earnings (loss) from continuing
operations before income
taxes..................... 12,649 (3,729) (3,555) 5,365
Income tax expense........................... 5,313 -- (3,060)(F) 2,253
-------- -------- ------- --------
Earnings (loss) from continuing
operations................ $ 7,336 $ (3,729) $ (495) $ 3,112
======== ======== ======= ========
Basic earnings per share -- earnings from
continuing operations...................... $ 0.15 $ 0.05
======== ========
Diluted earnings per share -- earnings from
continuing operations...................... $ 0.15 $ 0.05
======== ========
Denominator:
Denominator for basic earnings per share --
weighted-average shares outstanding..... 48,871 11,300(G) 60,171
Effect of dilutive securities:
Shares issuable for Groupe AP earnout... 201 -- 201
Employee stock options.................. 737 619(G) 1,356
-------- ------- --------
Denominator for diluted earnings... 49,809 11,919(G) 61,728
======== ======= ========
See Accompanying Notes to Unaudited Pro Forma Combined Financial Statements.
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114
THE PROFIT RECOVERY GROUP INTERNATIONAL, INC.
PRO FORMA COMBINED BALANCE SHEET (UNAUDITED)
AS OF JUNE 30, 2001
PRO FORMA
PRG HSA ADJUSTMENT PRO FORMA
-------- ------- ---------- ---------
ASSETS
Current assets:
Cash and cash equivalents................................. $ 12,812 $ 5,429 $ (7,363) $ 10,878
Receivables:
Contract receivables.................................... 66,467 11,995 -- 78,462
Employee advances and miscellaneous receivables......... 5,490 2,933 -- 8,423
-------- ------- -------- --------
Total receivables................................... 71,957 14,928 -- 86,885
-------- ------- -------- --------
Prepaid expenses and other current assets................. 3,412 1,624 -- 5,036
Deferred income taxes..................................... 12,565 -- -- 12,565
Net assets of discontinued operations..................... 93,556 -- -- 93,556
-------- ------- -------- --------
Total current assets................................ 194,302 21,981 (7,363) 208,920
-------- ------- -------- --------
Property and equipment:
Computer and other equipment.............................. 44,027 12,945 (5,817)(B) 51,155
Furniture and fixtures.................................... 3,493 1,073 (395)(B) 4,171
Land and buildings........................................ -- 4,715 (4,715)(A) --
Leasehold improvements.................................... 5,633 1,566 (1,064)(B) 6,135
-------- ------- -------- --------
53,153 20,299 (11,991) 61,461
Less accumulated depreciation and amortization............ 29,719 8,329 (8,329) 29,719
-------- ------- -------- --------
Property and equipment, net............................. 23,434 11,970 (3,662) 31,742
-------- ------- -------- --------
Noncompete agreements....................................... 510 -- -- 510
Deferred loan costs......................................... 2,432 -- -- 2,432
Goodwill.................................................... 222,798 22,461 138,388(B) 383,647
Intangible assets........................................... -- -- 32,640(B) 32,640
Deferred income taxes....................................... 5,673 -- -- 5,673
Other assets................................................ 866 840 -- 1,706
-------- ------- -------- --------
Total assets........................................ $450,015 $57,252 $160,003 $667,270
======== ======= ======== ========
LIABILITIES AND SHAREHOLDERS' EQUITY
Current liabilities:
Current installments of long-term debt.................... $ 386 $ 6,985 $ -- $ 7,371
Capital lease obligations -- current...................... -- 546 -- 546
Accounts payable and accrued expenses..................... 17,436 5,935 12,311(B) 35,682
Accrued payroll and related expenses...................... 28,739 7,286 -- 36,025
Deferred tax recovery audit revenue....................... 740 -- -- 740
Other current liabilities................................. -- 54 -- 54
-------- ------- -------- --------
Total current liabilities........................... 47,301 20,806 12,311 80,418
Long-term debt, excluding current installments.............. 161,605 31,459 (13,743)(A) 179,321
Capital lease obligations, excluding current installments... -- 842 -- 842
Deferred compensation....................................... 4,107 -- -- 4,107
Other long-term liabilities................................. 1,471 -- -- 1,471
-------- ------- -------- --------
Total liabilities................................... 214,484 53,107 (1,432) 266,159
-------- ------- -------- --------
Common stock put options.................................... -- 3,293 (3,293) --
Shareholders' equity:
Common stock.............................................. 51 700 (685)(B) 66
Additional paid-in capital................................ 316,652 1,417 164,148(B) 482,217
Accumulated deficit....................................... (38,817) (1,025) 1,025(B) (38,817)
Accumulated other comprehensive loss...................... (19,870) (240) 240(B) (19,870)
Less treasury stock at cost............................... (21,024) -- -- (21,024)
Unearned portion of restricted stock...................... (1,461) -- -- (1,461)
-------- ------- -------- --------
Total shareholders' equity.......................... 235,531 852 164,728 401,111
-------- ------- -------- --------
Total liabilities and shareholders' equity.......... $450,015 $57,252 $160,003 $667,270
======== ======= ======== ========
See Accompanying Notes to Unaudited Pro Forma Combined Financial Statements.
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THE PROFIT RECOVERY GROUP INTERNATIONAL, INC. AND SUBSIDIARIES
NOTES TO UNAUDITED PRO FORMA COMBINED FINANCIAL STATEMENTS
NOTE 1. UNAUDITED PRO FORMA COMBINED BALANCE SHEET
The unaudited pro forma combined balance sheet gives effect to the purchase
as if it had occurred on June 30, 2001 with respect to the balance sheets of PRG
and HSA-Texas.
On August 3, 2001, PRG signed a definitive agreement with HSA-Texas to
acquire for up to 16 million shares of its common stock substantially all of the
assets of HSA-Texas and substantially all of the outstanding stock of
HSA-Singapore and all of the outstanding stock of HSA-Asia, HSA-Australia, and
HSA-Canada, each an affiliated foreign operating company, pursuant to an
agreement and plan of reorganization in connection with the asset acquisition
and an agreement and plan of reorganization in connection with the stock
acquisition. This business combination will be accounted for under the purchase
method of accounting.
The following adjustments were reflected in the unaudited pro forma
combined balance sheet:
(A) To remove the impact of HSA-Texas assets not acquired and
HSA-Texas liabilities not assumed.
(B) To record common stock and options issued to HSA-Texas and the
application of purchase accounting. The total purchase price consists of
approximately 14.3 million shares of PRG common stock with an estimated
fair value of approximately $149.9 million, 1.7 million of fully vested PRG
options with an estimated fair value of approximately $15.7 million, and
estimated direct transaction costs of approximately $12.0 million. The fair
value of PRG's common stock was determined as the average closing price per
share from July 24, 2001 to July 28, 2001. PRG announced the proposed
transaction on July 26, 2001. The fair value of PRG's fully vested options
was determined using the Black Scholes pricing model.
The amounts and components of the estimated purchase price are presented
below:
(IN THOUSANDS)
Common stock................................................ $ 16
Additional paid-in capital.................................. 165,564
Transaction costs........................................... 12,000
--------
Total purchase price.............................. $177,580
========
Under purchase accounting, the total purchase price will be allocated to
the acquired assets based upon their fair values. Allocations are subject
to valuations as of the date of the completion of the purchase. PRG expects
to allocate the total purchase price to goodwill and other identifiable
intangible and tangible assets. In accordance with the Statement of
Financial Accounting Standards ("SFAS") No. 142, "Goodwill and Other
Intangible Assets," goodwill as well as intangible assets with indefinite
useful lives will no longer be amortized but instead these assets must be
tested for impairment at least annually. PRG expects to amortize intangible
assets with definite useful lives over their respective estimated useful
lives to their estimated residual values, and review them for impairment in
accordance with SFAS No. 121, "Accounting for the Impairment of Long-Lived
Assets and for Long-Lived Assets to Be Disposed Of." PRG expects to
amortize tangible assets over their estimated useful lives.
In addition, PRG will assume certain other obligations of HSA-Texas
including compensation obligations owed to HSA-Texas independent
contractors to be incurred prior to closing, currently estimated to be up
to $9.0 million. Also, final pro forma disclosure will include severance
cost incurred for employees of HSA-Texas or of the affiliated foreign
operating companies who are not retained by the combined organization and
provision for lease payments for duplicate HSA-Texas facilities that will
be closed. Currently, neither the severance cost nor the lease costs can be
estimated.
108
116
THE PROFIT RECOVERY GROUP INTERNATIONAL, INC. AND SUBSIDIARIES
NOTES TO UNAUDITED PRO FORMA COMBINED FINANCIAL STATEMENTS
NOTE 2. UNAUDITED PRO FORMA COMBINED STATEMENTS OF OPERATIONS
The unaudited pro forma combined statements of operations give effect to
the purchase as if it had occurred at the beginning of the period presented. The
following adjustments have been reflected in the unaudited pro forma combined
statements of operations.
(C) Adjustment to remove the depreciation expense in order to reflect
only the ongoing impact of assets acquired. Additionally, final pro forma
disclosure will include severance cost incurred for employees of HSA-Texas
or of the affiliated foreign operating companies who are not retained by
the combined organization and a provision for lease payments for duplicate
HSA-Texas facilities that will be closed. Currently, neither the severance
cost nor the lease costs can be estimated.
(D) To record the application of purchase accounting, the amortization
of goodwill and other intangible and tangible assets. The pro forma
adjustments assume that the purchase price of $177.6 million will be
allocated to goodwill and other identifiable intangible and tangible
assets. Goodwill, as well as intangible assets, with indefinite useful
lives will not be amortized but instead these assets must be tested for
impairment at least annually. Intangible assets with definite useful lives
will be amortized over their respective estimated useful lives to their
estimated residual values, and reviewed for impairment in accordance with
SFAS No. 121. Tangible assets will be amortized over their estimated useful
lives. The ultimate lives assigned will be determined at the date of
closing based on the facts and circumstances existing at that date.
(E) To remove the impact of interest expense related to the loans that
will not be assumed by PRG as a result of the transaction.
(F) To adjust income tax expense to the statutory rate in effect
during the periods for which the pro forma income statements are presented.
(G) To reflect the estimated shares to be issued as consideration for
the purchase reduced by the 3.0 million shares held by PRG in escrow
pursuant to an escrow agreement after the closing.
(H) To reflect reclassification of HSA-Texas' other income (expense)
to selling, general and administrative expenses to conform with PRG's
financial presentation.
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COMPARATIVE RIGHTS OF PRG SHAREHOLDERS, HSA-TEXAS SHAREHOLDERS AND
SHAREHOLDERS OF THE AFFILIATED FOREIGN OPERATING COMPANIES
PRG is a Georgia corporation governed by the Georgia Business Corporation
Code. HSA-Texas is a Texas corporation governed by the Texas Business
Corporation Act. The rights of PRG shareholders are governed by PRG's amended
and restated articles of incorporation and bylaws, as amended, and the rights of
HSA-Texas shareholders are governed by HSA-Texas' amended and restated articles
of incorporation and bylaws, as amended. The following includes a summary of
some of the rights of PRG shareholders and HSA-Texas shareholders. This summary
is provided in light of HSA-Texas' intent to distribute to its shareholders
shares of PRG common stock in connection with the liquidation and dissolution of
HSA-Texas.
In addition, shareholders of the affiliated foreign operating companies
will become holders of PRG common stock upon acceptance of the offer contained
herein and exchanging their shares for shares of PRG common stock at closing.
Certain differences also exist between the rights of PRG shareholders under
PRG's corporate governance documents and Georgia law, and the rights of
shareholders of HSA-Australia and HSA-Canada under their respective articles of
incorporation and bylaws and the corporate law of Texas, their state of
incorporation, the rights of shareholders of HSA-Singapore under its memorandum
of association and articles of association and the corporate law of Singapore,
its country of incorporation, and the rights of shareholders of HSA-Asia under
its memorandum of association and articles of association and the corporate law
of Hong Kong, its country of incorporation.
Certain rights that shareholders of HSA-Texas and the affiliated foreign
operating companies currently have under their corporate governing documents and
the laws of their jurisdictions of incorporation may cease to exist following
the proposed acquisitions.
This summary does not purport to be a complete discussion of, and is
qualified in its entirety by reference to, Georgia law, Texas law, the corporate
law of Singapore and Hong Kong as well as to PRG's amended and restated articles
of incorporation, PRG's bylaws, as amended, HSA-Texas' amended and restated
articles of incorporation and HSA-Texas' bylaws, as amended and the corporate
governance documents of each of the affiliated foreign operating companies.
AUTHORIZED CAPITAL STOCK
PRG HSA-TEXAS
- 1,000,000 shares of preferred stock - 2,500,000 voting shares of common stock.
- 200,000,000 shares of common stock - 9,500,000 non-voting shares of common stock.
HSA-AUSTRALIA
- 10,000,000 shares of common stock.
HSA-CANADA
- 10,000,000 shares of common stock.
HSA-ASIA
- 1,000 shares of stock.
HSA-SINGAPORE
- 100,000 shares of stock.
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NUMBER AND TERM OF DIRECTORS
PRG HSA-TEXAS
- Not less than three but no more than 15, - Not less than one but no more than 9, to hold
elected in three classes, to be as nearly office until their successors are elected and
equal in number as possible, with qualified.
staggered 3-year terms, with exact numbers
to be determined from time to time by the HSA-AUSTRALIA
Board (currently nine directors); to be
increased to 13 effective at the closing. - Not less than one but no more than ten, to hold
office until their successors are elected and
qualified.
HSA-CANADA
- Not less than one but no more than ten, to hold
office until their successors are elected and
qualified.
HSA-ASIA
- Not less than two.
HSA-SINGAPORE
- Not less than two.
REMOVAL OF DIRECTORS
PRG HSA-TEXAS, HSA-AUSTRALIA AND HSA-CANADA
- Can be removed with or without cause by - At a meeting of shareholders expressly called
the shareholders at any shareholders' for that purpose, any director or the entire board
meeting for which notice of such purpose of directors may be removed, with or without
has been given, by a majority of the votes cause, by a vote of not less than a majority of
entitled to be cast. shares entitled to vote at an election of
directors.
HSA-ASIA
- Directors may be removed upon resolution by the
board of directors and upon notice to the share-
holders and the director to be removed.
- Directors may also be removed as a matter of law
upon the commission of certain acts or offenses.
HSA-SINGAPORE
- Directors may be removed upon resolution by the
shareholders.
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SPECIAL MEETING OF SHAREHOLDERS
PRG HSA-TEXAS, HSA-AUSTRALIA AND HSA-CANADA
- Can be called only by the chairman of the - Can be called by the president or the board of
board, the president, a majority of the directors, and shall be called by the president
board of directors then in office or the at the request of the holders of not less than
holders of at least 35% of all the votes 10% of all the outstanding shares entitled to
entitled to be cast upon delivery of a vote.
written demand.
HSA-ASIA
- Upon the request of shareholders owning at least
5% of the paid up capital of the corporation
that carries the right to vote, or for
corporations not having a share capital, at
least 5% of the total voting rights of all
shareholders, a corporation must call an
extraordinary meeting.
- If the directors do not within 21 days after the
request proceed to convene the meeting within 28
days, shareholders holding at least 50% of the
corporation's voting rights may convene the
meeting.
HSA-SINGAPORE
- Directors can call an extraordinary general
meeting. In addition:
- Shareholders owning at least 10% of a corpora-
tion's voting shares can request that the board
of directors convene an extraordinary general
meeting.
- If the directors do not within 21 days after the
request proceed to convene the meeting within
two months, shareholders holding at least 50% of
the corporation's total voting rights may
convene the meeting.
- Two or more shareholders holding at least 10% of
the issued share capital may call a meeting of
the corporation.
QUORUM
PRG HSA-TEXAS, HSA-AUSTRALIA AND HSA-CANADA
- Requires a majority of the outstanding - Requires a majority of the outstanding shares
shares entitled to vote. entitled to vote in person or by proxy.
HSA-ASIA
- The presence in person or by proxy of two
shareholders owning at least 51% in nominal
value of issued shares of the company
constitutes a quorum.
HSA-SINGAPORE
- The presence of two shareholders at a meeting in
person or by proxy constitutes a quorum.
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NOTICE FOR MEETINGS
PRG HSA-TEXAS, HSA-AUSTRALIA AND HSA-CANADA
- Notice to shareholders of any meeting - Notice to shareholders of any meeting requires
requires written notice delivered to each written notice to each shareholder entitled to
shareholder entitled to vote at such vote at such meeting delivered not less than ten
meeting not less than ten days nor more days nor more than 60 days before the date of
than 60 days before the date of the the meeting.
meeting.
HSA-ASIA
- Notice of an annual meeting requires at least 21
days written notice prior to the meeting unless
all shareholders entitled to attend and vote at
the meeting agree to shorter notice.
- Notice of an extraordinary meeting requires at
least 14 days written notice prior to the
meeting unless a majority in number of
shareholders having a right to attend and vote
at the meeting representing not less than 95% in
nominal value of all shares agree to shorter
notice.
HSA-SINGAPORE
- Notice to shareholders of a general meeting
requires written notice to shareholders at least
14 days prior to the meeting unless all
shareholders agree to shorter notice.
- Notice to shareholders of any other meeting
requires written notice to shareholders at least
21 days prior to the meeting unless shareholders
holding at least 95% of the voting shares agree
to shorter notice.
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AMENDMENTS TO ARTICLES OF INCORPORATION
PRG HSA-TEXAS, HSA-AUSTRALIA AND HSA-CANADA
- Requires board approval and the - Requires board approval and the affirmative vote
affirmative vote of the holders of a of the holders of two-thirds of the outstanding
majority of the outstanding shares shares entitled to vote.
entitled to vote.
HSA-ASIA
- A corporation cannot amend its memorandum of
association (articles of incorporation) except
in respect of the purpose for which the
corporation is incorporated.
HSA-SINGAPORE
- A corporation can amend its memorandum of
association (articles of incorporation) upon
approval of 75% of shareholders present and
voting at a shareholders general meeting.
- A corporation can amend the memorandum of
association to change the purposes for which the
corporation was incorporated provided that 21
days written notice is provided to shareholders
and debenture holders.
- A court can invalidate an amendment to the
memorandum of association that changes the
corporate purposes if holders of at least 5% of
the corporation's issued share capital or
nominal value of debentures make application to
cancel such amendment.
AMENDMENTS TO BYLAWS
PRG HSA-TEXAS
- A majority of the board of directors has - Bylaws may be altered, amended or repealed at
full power to amend, alter and repeal the any regular meeting of the shareholders or
bylaws, and to adopt new bylaws; directors or at any special meeting of the
shareholders also may amend or repeal shareholders or directors if notice of such
PRG's bylaws or adopt new bylaws, but only proposed action is contained in a notice of such
by the affirmative vote of the holders of special meeting.
not less than 60% of all the issued and
outstanding shares of common stock.
HSA-AUSTRALIA
- The board of directors or the shareholders may
amend, repeal or adopt new bylaws.
HSA-CANADA
- The board of directors or the shareholders may
amend, repeal or adopt new bylaws.
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HSA-ASIA
- A corporation can amend its articles of
association (bylaws) by special resolution and
giving notice to shareholders.
- If holders of at least 5% of the nominal value
of the corporation's issued share capital, or if
the corporation is not limited as to the number
of shares issued, at least 5% of the
corporations shareholders, or holders of at
least 5% of the corporation's debentures apply
to a court to object to the amendment, the court
may either grant or deny the amendment.
HSA-SINGAPORE
- A corporation can amend its articles of
association (bylaws) upon approval of 75% of
shareholders present and voting at the
shareholders' general meeting.
ADVANCE NOTICE BYLAW PROVISIONS FOR ELECTION OF DIRECTORS
PRG HSA-TEXAS, HSA-AUSTRALIA AND HSA-CANADA
- Only persons who are nominated by or at - HSA-Texas' bylaws do not contain advance notice
the direction of: provisions for the election of directors.
- the board of directors, or
- a shareholder of PRG (1) who is a HSA-ASIA
shareholder of record at the time of
giving of the notice entitled to vote at - HSA-Asia's articles of association do not contain
the meeting, and (2) who complies with the advance notice provisions for election of
notice and disclosure procedures contained directors.
in the bylaws;
HSA-SINGAPORE
are eligible for election as directors of
PRG. - HSA-Singapore's articles of association do not
contain advance notice provisions for election of
- To be timely, a shareholder's notice must directors.
be delivered to PRG, in the case of an
annual meeting, not less than 90 days nor
more than 120 days prior to the date of
the anniversary of the previous year's
annual meeting, or in the case of a
special meeting of shareholders called for
the purpose of electing directors, not
later than the close of business on the
later of the 90th day prior to such
special meeting or the 10th day following
the day on which public announcement of
the date of the special meeting was made.
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SHAREHOLDER PROPOSALS
PRG HSA-TEXAS, HSA-AUSTRALIA AND HSA-CANADA
- No business may be transacted at an annual - HSA-Texas' bylaws do not have shareholder
meeting of PRG shareholders, other than proposal provisions.
business that is specified in the notice
of meeting given by or at the direction of HSA-ASIA
the board of directors, or otherwise
properly brought before an annual meeting - HSA-Asia's articles of association do not
by a shareholder of PRG: contain shareholder proposal provisions.
- who is a shareholder of record at the - Under Hong Kong law, no special business may be
time of giving of the notice entitled to transacted at an annual general meeting other
vote at the meeting; and than the business that is specified in the
notice of the meeting with the exception of:
- who complies with the notice and
disclosure requirements contained in the - the declaration of dividends;
bylaws.
- consideration of the corporation's financial
To be timely, a stockholder's notice must statements and reports of the directors;
be received by PRG not less than 90 days
nor more than 120 days prior to the date - the election of directors in place of those
of the anniversary of the previous year's retiring; and
annual meeting.
- the appointment of the corporation's auditor and
- Except for cases in which directors are to the determination of the auditor's compensation.
be elected pursuant to PRG's notice of
special meeting, PRG's shareholders are HSA-SINGAPORE
not entitled to make shareholder proposals
at a special meeting of shareholders. In HSA-Singapore's articles of association do not
the case of a special meeting of contain shareholder proposal provisions.
shareholders called for the purpose of
electing directors, a shareholder's notice
must be received not later than the close
of business on the later of the 90th day
prior to such special meeting or the 10th
day following the day on which public
announcement of the date of the special
meeting was made.
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STATE TAKEOVER LAWS APPLICABLE TO THE COMPANIES
PRG HSA-TEXAS, HSA-AUSTRALIA AND HSA-CANADA
- The Georgia Business Corporation Code - Texas law generally prohibits a public
provides for voting rules and fair price corporation from engaging in a business
requirements in connection with business combination with an affiliated shareholder
combinations with "interested during the three-year period immediately
shareholders." The requirements are not following the affiliated shareholder's
applicable to any corporation unless they acquisition date unless:
are specifically incorporated in the
bylaws of the corporation. PRG has adopted - the board approves either the transaction in
implementing bylaw provisions, and is question or the acquisition of shares by the
subject to the provisions regarding affiliated shareholder prior to the affiliated
business combinations with interested shareholder's share acquisition date; or
shareholders. Under Georgia law, certain
"business combinations," including a - the transaction is approved by the holders of at
merger, consolidation, asset transfer or least two-thirds of the shares entitled to vote
reclassification of equity securities, thereon, excluding the shares held by the
between a Georgia corporation and any shareholder in question and its affiliates, at a
person who beneficially owns, directly or meeting of shareholders not less than six months
indirectly, ten percent or more of the after the affiliated shareholder's share
voting power of the corporation's voting acquisition date.
stock (an "interested shareholder"), are
prohibited for five years from the time HSA-ASIA
that such interested shareholder becomes
an interested shareholder unless: - None for private companies.
- prior to such time the board of directors HSA-SINGAPORE
of the corporation approved either the
business combination or the transaction - None for private companies.
which resulted in the shareholder becoming
an interested shareholder;
- in the transaction which resulted in the
shareholder becoming an interested
shareholder, the interested shareholder
became the beneficial owner of at least
90% of the corporation's outstanding
shares at the time the transaction
commenced, excluding shares owned by
directors and officers of the corporation,
subsidiaries of the corporation, and
certain employee stock plans of the
corporation; or
- subsequent to becoming an interested
shareholder, such shareholder acquired
additional shares resulting in the
interested shareholder being the
beneficial owner of at least 90% of the
outstanding voting stock of the
corporation, excluding shares owned by
directors and officers of the corporation,
subsidiaries of the corporation and
certain employee stock plans of the
corporation.
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Furthermore, Georgia law provides that a
business combination with an interested
shareholder, including any merger, share
exchange or sale or other disposition, must
be either:
- unanimously approved by the continuing
directors provided that the continuing
directors constitute at least three
members of the board of directors at the
time of such approval; or
- recommended by at least two-thirds of the
continuing directors and approved by a
majority of the votes entitled to be cast
by holders of voting shares, other than
voting shares beneficially owned by the
interested shareholder.
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INSPECTION OF BOOKS AND RECORDS
PRG HSA-TEXAS, HSA-AUSTRALIA AND HSA-CANADA
- In general, any shareholder has the right - In general, any shareholder who has been a
to inspect and copy PRG records during shareholder for at least six (6) months, or a holder
regular business hours upon written demand of at least five percent (5%) of the outstanding
at least five days before the date on shares, upon written demand, shall have the right to
which the shareholder wishes to inspect inspect and copy books and records at any reasonable
and copy such records; however, in certain time for any proper purpose.
cases, such shareholder will have the
right to inspect and copy PRG records only HSA-ASIA
upon stating a purpose reasonably relevant
to such person's interest as a - Upon application to the Financial Secretary for good
shareholder. reason, the Secretary may:
- give directions to a corporation to produce books
relating to the corporation at the time and place
specified by the Secretary; or
- authorize any person to require the corporation to
produce books relating to the affairs of the
corporation.
- A corporation must maintain the minutes from general
meetings and director's meetings at its registered
office or at its principal place of business or at
the office of a third party who prepares the minutes
and files a notice with the Registrar of Companies
as to where the minutes are maintained.
- Any shareholder is entitled to receive a copy of the
minutes from the corporation.
- The directors are entitled to determine to what
extent and at what times and places and under what
conditions the financial statements and books other
than minutes are available for inspection.
HSA-SINGAPORE
- In general, any shareholder has the right to inspect
and, in some instances, copy the books and records
of the corporation, including the registers of
shareholders, directors, directors' shareholdings,
substantial shareholders and debenture holders,
minutes of shareholder meetings, audited profit and
loss account and balance sheets and auditor's and
directors' reports on the accounts, except that a
shareholder has no right of access to the accounting
records of the corporation.
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VOTE REQUIRED FOR MERGERS AND SIMILAR FUNDAMENTAL CORPORATE TRANSACTIONS
PRG HSA-TEXAS, HSA-AUSTRALIA AND HSA-CANADA
- Generally requires Board approval and the - Requires the affirmative vote of the holders of
affirmative vote of the holders of a at least two-thirds of the outstanding shares
majority of the outstanding stock entitled entitled to vote.
to vote.
HSA-ASIA
- None for private companies.
HSA-SINGAPORE
- The disposition of all or substantially all of
the corporation's assets in most cases requires
the affirmative vote of a majority of the
shareholders present and voting.
VOTE REQUIRED FOR SALES OF ALL OR SUBSTANTIALLY ALL CORPORATE ASSETS
PRG HSA-TEXAS, HSA-AUSTRALIA AND HSA-CANADA
- Generally requires board approval and the - Under Texas law, the sale, lease, exchange or
affirmative vote of the holders of a other disposition of all, or substantially all,
majority of the outstanding stock entitled the property and assets of a corporation if not
to vote. made in the usual and regular course of business
requires the affirmative vote of the holders of
at least two-thirds of the outstanding shares
entitled to vote thereon.
HSA-ASIA
- None for private companies.
HSA-SINGAPORE
- The disposition of all or substantially all of
the corporation's assets in most cases requires
the affirmative vote of a majority of the
shareholders present and voting.
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DIVIDENDS
PRG HSA-TEXAS, HSA-AUSTRALIA AND HSA-CANADA
- Neither PRG's articles of incorporation - The board of directors may declare and the
nor its bylaws set forth any restriction corporation may pay dividends on its
on the ability of PRG to issue dividends outstanding shares in cash, property or
to its shareholders. The Georgia Business its own shares; provided, however, the
Corporation Code, however, forbids any Texas Business Corporation Act forbids any
distribution which, after being given distribution which would leave the
effect, would leave PRG unable to pay its corporation insolvent or which exceeds the
debts as they become due in the usual surplus of the corporation. The board of
course of business. Additionally, the directors in its absolute discretion may
Georgia Business Corporation Code provides set aside out of any funds of the
that no distribution shall be made if, corporation available for dividends a sum
after giving it effect, the corporation's it thinks proper as a reserve to meet
total assets would be less than the sum of contingencies or interests of the
its total liabilities plus the amount that corporation. Directors may modify or
would be needed to satisfy any abolish any reserve in the manner in which
preferential dissolution rights. it was created.
- PRG's credit facility prohibits the
payment of dividends by PRG.
HSA-ASIA
- The board of directors may declare and pay
dividends provided that no dividends shall
be payable except out of profits available
for such purpose.
- Dividends can be paid in kind including
the assets of the company or shares or
securities of other companies.
HSA-SINGAPORE
- The board of directors may declare and pay
dividends provided that no dividends shall
be payable except out of profits.
- No dividends may be declared after a
corporation has gone into liquidation.
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DISSENTERS' APPRAISAL RIGHTS
PRG HSA-TEXAS
- Under Georgia law, subject to certain - Under Texas law, a shareholder is entitled to
merger and share exchange exceptions, no dissent from and obtain the appraised value of
appraisal rights are available for shares his or her shares in connection with a share
of any class or series of stock, which exchange and any merger or disposition of all or
stock, at the record date fixed to substantially all of the corporation's assets if
determine the shareholders entitled to the Texas Business Corporation Act requires a
receive notice of and to vote at the shareholder vote on the action. Holders of HSA-
meeting of shareholders is listed on The Texas voting common stock are entitled to
Nasdaq National Market, as is PRG's. dissent from the transaction contemplated by the
asset agreement. See "The Proposed
Acquisition -- Dissenters' and Appraisal Rights
Related to the Proposed Acquisition" above.
HSA-AUSTRALIA AND HSA-CANADA
- Under Texas law, a shareholder is entitled to
dissent from and obtain the appraised value of
his or her shares in connection with a share
exchange and any merger or disposition of all or
substantially all of the corporation's assets if
the Texas Business Corporation Act requires a
shareholder vote on the action. Since HSA-
Australia's and HSA-Canada's shareholders are
not required to vote on the asset acquisition or
the stock acquisition, they will not have
dissenters' rights with respect to the proposed
acquisitions.
HSA-ASIA
- None for private companies.
HSA-SINGAPORE
- Under Singapore law, a dissenting shareholder
does not have appraisal rights; if, however, a
dissenting shareholder is required to sell his
shares to an entity pursuant to a scheme or
contract that has been approved by holders of at
least 90% of the shares, such dissenting
shareholder may apply to a court to have the
compulsory acquisition stopped and the court may
either allow the compulsory acquisition to
proceed or decline to allow the compulsory
acquisition to proceed because it is unfair.
PRG RIGHTS PLAN
On July 31, 2000, the board of directors of PRG declared a dividend of one
preferred share purchase right for each outstanding share of PRG 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 per share of PRG at a price of $100, subject to adjustment.
The rights are not exercisable until the earlier to occur of:
- a public announcement that a person or group of affiliated or associated
persons, an "acquiring person," have acquired beneficial ownership of 15%
or more of PRG's outstanding common shares; or
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- 10 business days, or such later date as may be determined by action of
the board of directors prior to such time as any person or group of
affiliated persons becomes an acquiring person, 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 group of 15% or more of PRG's
outstanding common shares.
The rights will have substantial anti-takeover effects, but do not prevent
a takeover of PRG. The rights may cause substantial dilution to a person or
group that acquires 15% or more of the outstanding shares of PRG common stock
unless the rights are first redeemed by PRG 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 of PRG, PRG 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 from PRG, 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 the 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 the outstanding
common shares of PRG, the board of directors of PRG may exchange all, but not
less than all, of the 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 PRG enters into a
transaction in which, directly or indirectly, PRG consolidates or merges or
participates in a share exchange with any other person or PRG shall sell or
otherwise transfer 50% of its assets or 50% of its operating income or cash
flow, and at the time of the entry by PRG into the agreement with respect to
such merger, sale or transfer of assets, such other person controls the board of
directors of PRG, PRG 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 the 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 the then current
exercise price.
Prior to there being an occurrence described above, PRG may at its option
redeem all, but not less than all, of the 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 only a majority of the continuing
PRG directors elected by the shareholders of PRG prior to election to redeem may
redeem the rights.
Until a right is exercised, the holder thereof, as such, will have no
rights as a shareholder of PRG, 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
of PRG. 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 shareholders of PRG to shares of
common stock of the acquiring company as described above.
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PRG's board of directors has taken sufficient action to exempt the
transactions contemplated by the asset agreement and stock agreement from the
provisions of the rights plan.
PRG/HSA-TEXAS STOCK OPTION PLAN
In order to administer the HSA-Texas options assumed by PRG which will
convert into options to purchase shares of PRG common stock, on ,
2001, PRG's board of directors adopted the PRG/HSA-Texas Stock Option Plan. The
material provisions of the PRG/HSA-Texas Stock Option Plan, or the plan, are
summarized below.
ELIGIBILITY FOR PARTICIPATION UNDER THE PLAN
Participation in this plan is limited to participants in the 1998 Howard
Schultz & Associates Stock Option Plan whose HSA-Texas options are assumed by
PRG. PRG estimates that, as of the date of this joint proxy
statement/prospectus, up to employees (including officers), up to
independent contractors and one non-employee director of PRG will be
eligible to participate in the plan. Nothing contained in the plan or in any
agreement entered into pursuant thereto may confer upon any person any right to
continue as a director, officer or employee of PRG or its subsidiaries or as a
consultant or advisor, or limit in any way any right of shareholders or of the
board, as applicable, to remove such person.
SHARES RESERVED UNDER THE PLAN
The plan provides for the issuance of a maximum of 1,678,826 shares of PRG
common stock, subject to adjustment in the event of stock dividends, stock
splits, combination of shares, recapitalizations, or other changes in the
outstanding common stock of PRG. Shares issued under the plan may consist, in
whole or in part, of authorized and unissued shares, treasury shares or shares
purchased on the open market.
PURPOSE OF THE PLAN
The purpose of the plan is to allow PRG to attract and retain key employees
and independent contractors and advisors of HSA-Texas who become employees,
independent contractors or directors of PRG following the acquisitions and to
provide these individuals with a proprietary interest in PRG through the
granting of nonqualified stock options. The plan is not qualified under Section
401(a) of the Code and is not subject to the provisions of the Employee
Retirement Income Security Act of 1974.
DURATION OF THE PLAN
The plan will expire when the last option outstanding under it has either
been exercised or has expired. All options outstanding under the plan will
expire five years from the closing of the proposed acquisitions.
ADMINISTRATION OF THE PLAN
The plan will be administered by PRG's compensation committee. In
administering the plan, the compensation committee, shall have the authority to
interpret the plan and prescribe, amend, and rescind any rules and regulations
necessary or appropriate for the administration of the plan, and make such other
determinations and take such other actions as it deems necessary or advisable in
connection with the foregoing.
The current compensation committee members are Jonathan Golden, Chairman,
Thomas S. Robertson and Jackie M. Ward. Under the plan, acts by a majority of
the compensation committee, or acts reduced to or approved in writing by a
majority of the members of the compensation committee, shall be the valid acts
of the compensation committee.
No members of the board of directors or the compensation committee shall be
liable for any action or determination made in good faith with respect to the
plan or any stock options granted under it. No member of the board or the
compensation committee, shall be liable for any act or omission of any other
member of the
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board or the compensation committee, or for any act or omission on his or her
own part, except those resulting from such member's own gross negligence or
willful misconduct. In addition to such other rights of indemnification as such
member may have as a member of the board or compensation committee, each member
of the board and the compensation committee shall be entitled to indemnification
by PRG with respect to administration of the plan and the granting of rights and
benefits under it.
AMENDMENT OF THE PLAN
The board may at any time and from time to time, without the consent of the
participants, alter, amend, revise, suspend, or discontinue the plan in whole or
in part. In the event of any amendment to the plan, the holder of any stock
option outstanding under the plan shall, upon request of the compensation
committee and as a condition to the exercisability thereof, execute a conforming
amendment in the form prescribed by the compensation committee to the stock
option agreement. No amendments shall adversely affect any rights of
participants or obligations of PRG to participants with respect to any
outstanding stock options without the consent of the affected participant.
PLAN BENEFITS
The only options outstanding under the plan will be options that are
assumed in the asset acquisition. After the completion of the asset acquisition,
there will be no additional grants under the plan. Based on the assumptions
described in "Summary -- Questions and Answers About the Proposed
Acquisitions -- What will happen to the HSA-Texas stock options and SARs
outstanding at closing?", the number and exercise price of options that will be
outstanding to executive officers as a group, non-executive directors and non-
executive employees pursuant to the plan are set forth below.
EXERCISE PRICE
NUMBER OF OR RANGE OF
INDIVIDUAL/GROUP OPTIONS EXERCISE PRICES
---------------- --------- ---------------
Executive Officer Group..................................... 0 $ --
Non-Executive Director Group................................ 248,295 6.12
All Employees excluding Executive Officer Group............. 1,430,531 5.51-6.12
VESTING OF OPTIONS
All options under the plan are currently vested.
ADJUSTMENTS TO EXERCISE PRICE AND NUMBER OF SHARES
If the shares of common stock of PRG shall increase through the declaration
of a stock dividend or through any recapitalization resulting in a stock
split-up, combination or exchange of shares of common stock, then appropriate
adjustments shall be made to the number of shares of common stock and the
exercise price per share under each stock option previously granted and
unexercised.
In the event of any reorganization, merger or consolidation pursuant to
which PRG is not the surviving or resulting corporation, or of any proposed sale
of substantially all of the assets of PRG, there may be substituted for each
share of common stock subject to the unexercised portions of the outstanding
stock option that number of shares of each class of stock or other securities or
that amount of cash, property or assets of the surviving or consolidated company
which were distributed or distributable to the stockholders of PRG in respect of
each share of common stock held by them. The outstanding stock options will then
be exercisable for the substituted stock, securities, cash or property in
accordance with their terms. However, the board, in its sole discretion, may
cancel any portion or all of the stock options as of the effective date of any
reorganization, merger or consolidation, or of any proposed sale of
substantially all of the assets of PRG, or of any dissolution or liquidation of
PRG, and, with respect to any stock options that are cancelled, either:
- give notice to each holder or such holder's personal representative of
its intention to cancel the stock options and permit the purchase during
the 30 day period next preceding such effective date of any or
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all of the shares subject to the outstanding stock options, including
shares as to which the stock options would not otherwise be exercisable;
or
- pay the holder thereof an amount equal to a reasonable estimate of an
amount equal to the difference between the net amount per share payable
in the transaction or as a result of the transaction, less the exercise
price of the stock options.
The board may make an adjustment if PRG shall, at any time while any stock
option under the plan is in force and remains unexpired:
- sell all or substantially all of its property, or
- dissolve, liquidate, or wind up its affairs.
In this case, if the board so determines in its sole discretion, each
participant may thereafter receive upon exercise of an option under the plan in
lieu of each share of common stock of PRG which the participant would have been
entitled to receive, the same kind and amount of any securities or assets as may
be issuable, distributable or payable upon any such sale, dissolution,
liquidation, or winding up with respect to each share of common stock of PRG.
In the event that PRG shall, at any time prior to the expiration of any
stock option, make any partial distribution of its assets in the nature of a
partial liquidation, whether payable in cash or in kind, but excluding the
distribution of a cash dividend payable out of retained earnings or earned
surplus and designated as such, then in such event the exercise prices then in
effect with respect to each option shall be reduced, as of the payment date of
such distribution, in proportion to the percentage reduction in the tangible
book value of the shares of PRG's common stock, determined in accordance with
accounting principles generally accepted in the United States of America,
resulting by reason of such distribution. However, in no event shall any
adjustment of exercise prices in accordance with the terms of the plan result in
any exercise prices being reduced below the par value per share of the common
stock.
DURATION AND TERMINATION OF OPTIONS
The option period will begin on the date of the closing of the asset
acquisition and terminate on the date that is five years from the date of the
closing of the asset acquisition. Each option is exercisable during such
five-year period unless it terminates earlier in accordance with its terms. No
option may be exercised subsequent to its termination.
Upon the termination of service of a participant for any reason, the
specific stock option agreement shall govern the treatment of any unexercised
stock options. In the event of a termination, the compensation committee may, in
its discretion:
- provide for the extension of the exercisability of a stock option for any
period that is not beyond the applicable expiration date thereof;
- accelerate the vesting or exercisability of a stock option;
- eliminate or make less restrictive any restrictions contained in a stock
option;
- waive any restriction or other provision of the plan or a stock option;
or
- otherwise amend or modify the stock option in any manner that is either
not adverse to such participant or is consented to by such participant.
In the event of termination of service of a participant by PRG for cause,
all of the participant's outstanding stock options, whether or not vested, shall
be forfeited and immediately terminate. In the event of a termination of service
of a participant for any reason other than for cause, then the stock option will
terminate and be forfeited at the first of the following to occur:
- 5 p.m. on the date which is twelve months following the participant's
termination of service due to death or disability;
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- 5 p.m. on the date which is ninety days following the participant's
retirement or following the participant's involuntary termination of
service without cause;
- 5 p.m. on the day prior to the date of the participant's voluntary
termination, other than termination of service for death, disability, or
retirement; or
- 5 p.m. on the date prior to the date the participant violates any
covenant not to compete or confidentiality agreement set forth in the
participant's stock option agreement.
The plan specifies the definitions of "cause," "disability," "retirement,"
and "termination" for purposes of determining these provisions.
MEANS OF EXERCISE OF OPTIONS
Options may be exercised by giving written notice to PRG at its principal
office address, accompanied by full payment of the purchase price therefor and
the applicable withholding tax, either:
- in United States dollars in cash or by check; or
- if permitted by the compensation committee, the delivery of shares of
common stock having a fair market value equal, as of the date of the
exercise, to the cash exercise price of the option, provided, that the
shares must have been held for at least six months.
NON-TRANSFERABILITY OF OPTIONS
No option is transferable except by will or by the laws of descent and
distribution, and all options are exercisable, during the lifetime of the
grantee, only by the grantee or the grantee's guardian or legal representative.
TAX TREATMENT
The following discussion addresses certain anticipated federal income tax
consequences to PRG and to recipients of awards made under the plan. It is based
on the Code and interpretations thereof in effect on the date of this joint
proxy statement/prospectus. This summary is not intended to be exhaustive and,
among other things, does not describe state, local or foreign tax consequences.
A company, such as PRG, for which an individual is performing services will
generally be allowed to deduct amounts that are includable in the taxable income
of such individual as compensation income in PRG's taxable year in which the
employee's taxable year of inclusion ends, provided that such amounts qualify as
reasonable compensation for the services rendered. This general rule will apply
to the deductibility of a participant's compensation income resulting from
participation in the plan. The timing and amount of deductions available to PRG
as a result of the plan will, therefore, depend upon the timing and amount of
compensation income recognized by a participant as a result of participation in
the plan. The following discusses the timing and amount of compensation income
which will be recognized by participants and the accompanying deduction which
will be available to PRG.
All of the options under the plan are classified as nonqualified stock
options, or NSOs. A participant to whom a NSO is granted will not normally
recognize income at the time of grant of the option. When a participant
exercises a NSO, the participant will generally recognize compensation income,
and PRG will be entitled to a deduction, in an amount equal to the excess, if
any, of the fair market value of the shares of common stock when acquired over
the option exercise price. The amount of gain or loss recognized by a
participant from a subsequent sale of shares of common stock acquired from the
exercise of a NSO will be equal to the difference between the sales price for
the shares of common stock and the sum of the exercise price of the option plus
the amount of compensation income recognized by the participant upon exercise of
the option.
Different tax rules will apply to a participant who would be subject to
suit under Section 16(b) of the Securities Exchange Act of 1934, or the Exchange
Act, from the sale of the shares of PRG common stock
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received upon the exercise of an NSO. For such a participant, unless the
participant makes an election pursuant to Section 83(b) of the Code, the amount
of compensation income recognized with respect to the shares of PRG common stock
received upon the exercise of an NSO will be determined at the earlier of the
following determination dates:
- the first day on which the participant would not be subject to suit
under Section 16(b) of the Exchange Act with respect to such shares,
or
- the expiration of the six-month period following the exercise of the
NSO.
A Section 83(b) election represents an election by a participant to
recognize the compensation consequences of receipt of the shares of PRG common
stock at the time the shares are acquired notwithstanding that at such time sale
of the shares would subject the participant to potential liability under Section
16(b) of the Exchange Act. A Section 83(b) election must be made within 30 days
of receipt of the shares by filing a written statement with the IRS, PRG and, if
applicable, the affiliate of PRG that is the participant's employer. If a
Section 83(b) election is made, the amount of compensation income recognized
with respect to the shares, the tax basis for the shares and their capital gain
holding period is determined by reference to the fair market value of the shares
when they are received.
If a Section 83(b) election is not timely made with respect to the shares
subject to Section 16(b) of the Exchange Act, the amount of ordinary
compensation income recognized with respect to the shares will be determined at
the earlier of the two determination dates described above. The amount of
compensation income recognized by the participant will be measured by the excess
of the value of the shares at such time over the option exercise price, and the
participant's tax basis in the shares will be determined by reference to the
fair market value of the shares at that time. The participant's capital gain
holding period for the shares will also begin at that time, rather than when the
shares were acquired. Furthermore, if a Section 83(b) election is not made with
respect to the shares subject to Section 16(b) of the Exchange Act, any
dividends paid with respect to the shares will be treated as compensation income
subject to withholding and employment taxes until the earlier of the two
determination dates described above. After such time, the dividends paid will be
treated as any other dividends paid with respect to PRG common stock and thus
taxed as ordinary income which is not compensation.
TAX WITHHOLDING
Whenever PRG proposes, or is required, to distribute shares of common stock
under the plan, PRG may require the recipient to satisfy any Federal, state and
local tax withholding requirements prior to the delivery of any certificate for
such shares or, in the discretion of the committee, PRG may withhold from the
shares to be delivered shares sufficient to satisfy all or a portion of the tax
withholding requirements.
UNFUNDED STATUS OF THE PLAN
The plan is intended to constitute an "unfunded" plan for incentive
compensation. With respect to any payments not yet made to a participant by PRG,
nothing contained in the plan shall give any participant or optionee any rights
that are greater than those of a general creditor of PRG.
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PRG DIRECTOR AND EXECUTIVE OFFICER INFORMATION
ELECTION OF DIRECTORS
PRG currently has nine directors. On , 2001, the PRG board
increased the size of the board to 13, effective upon the closing of the asset
acquisition. The board is divided into three classes of directors, designated as
Class I, Class II and Class III. The three classes serve staggered three-year
terms. Shareholders annually elect directors to serve for the three-year term
applicable to the class for which such directors are nominated or until their
successors are elected and qualified. At the special meeting, shareholders will
be voting to elect four directors: Howard Schultz and Andrew Schultz to serve as
Class II directors, Nate Levine to serve as a Class I director and Arthur Budge,
Jr. to serve as a Class III director.
The director elected to serve as a Class I director at the special meeting
to be held on , 2001 will serve for a term that expires on the earlier
of the 2003 annual meeting of shareholders of PRG or when his successor is
elected and qualified. Each director elected to serve as a Class II director
will serve for a term that expires on the earlier of the 2004 annual meeting of
shareholders or when his successor is elected and qualified. The director
elected to serve as a Class III director will serve for a term that expires on
the earlier of the 2002 annual meeting of shareholders or when his successor is
elected and qualified.
The name, age and term of each director nominee are set forth below:
Director Nominees
NAME OF NOMINEE AGE CLASS OF DIRECTOR TERM EXPIRES
--------------- ---- ----------------- ------------
Howard Schultz.............................................. 73 Class II 2004
Andrew H. Schultz........................................... 35 Class II 2004
Nate Levine................................................. 60 Class I 2003
Arthur N. Budge, Jr......................................... 45 Class III 2002
HOWARD SCHULTZ, 73, is the founder of Howard Schultz & Associates
International, Inc. and has served as its chairman since 1970. Mr. Schultz
received a B.A. in Mathematics and Economics from Cornell University in 1950.
Mr. Schultz is a PRG Class II director nominee at PRG's special meeting. The
terms of PRG Class II directors expire in 2004.
ANDREW H. SCHULTZ, 35, has served as executive vice president and a member
of the board of directors of HSA-Texas since January, 2000. Mr. Schultz has held
several positions at HSA-Texas during the period from 1990 to 1999, including
the position of senior vice president and chief financial officer since March,
1999 and the position of vice president - special projects from 1996 to 1999.
Mr. Schultz is a PRG Class II director nominee at PRG's special meeting. The
terms of PRG Class II directors expire in 2004.
NATE LEVINE, 60, serves as chief executive officer of ETAN Industries,
which he founded in 1977. ETAN owns Cable Management Associates, a multiple
cable system operator serving over 55,000 subscribers, and Credit Protection
Association, a company specializing in bad debt recovery for the cable TV and
video industry. Mr. Levine is also an active private investor, personally
managing his portfolio of stocks, real estate and private investments. Mr.
Levine is a graduate of RCA Institute of Technology. Mr. Levine is a Class I
director nominee at PRG's special meeting. The terms of PRG Class I directors
expire in 2003.
ARTHUR N. BUDGE, JR., 45, has served as president and chief executive
officer of Five States Energy Company, an owner of a portfolio of oil and gas
investments, since 1998. Since 1985, Mr. Budge has also served as president of
Budge Financial, Inc., a company that provides clients with planning,
forecasting and investment analysis services and asset management. In addition,
Mr. Budge serves as a principal in several Blockbuster Video franchise limited
partnerships and serves as a director of several non-public companies in which
Mr. Budge and his clients have investments. Mr. Budge received a B.B.A. in
Finance from Texas Tech University in 1977 and an M.S. in Business
Administration from Texas Tech University in 1979. Mr. Budge is a PRG Class III
director nominee at PRG's special meeting. The terms of PRG Class III directors
expire in 2002.
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Howard Schultz is the father of Andrew Schultz.
Directors Continuing in Office
NAME OF NOMINEE AGE CLASS OF DIRECTOR TERM EXPIRES SERVICE AS DIRECTOR
--------------- --- ----------------- ----------------- -------------------
Stanley B. Cohen(1)(2)................. 57 Class II 2004 Since November 1990
Garth H. Greimann(2)................... 46 Class II 2004 Since April 1995
E. James Lowrey(2)..................... 73 Class II 2004 Since December 1995
Fred W.I. Lachotzki(4)................. 54 Class III 2002 Since January 1996
Thomas S. Robertson(3)(4).............. 58 Class III 2002 Since May 1999
Jackie M. Ward(3)...................... 62 Class III 2002 Since May 1999
John M. Cook(1)........................ 59 Class I 2003 Since November 1990
John M. Toma(1)........................ 55 Class I 2003 Since November 1990
Jonathan Golden(1)(3)(4)............... 64 Class I 2003 Since November 1990
---------------
(1) Member of the Executive Committee.
(2) Member of the Audit Committee.
(3) Member of the Compensation Committee.
(4) Member of the Nominating Committee
STANLEY B. COHEN is the president and sole director/shareholder of SBC
Financial Corporation ("SBC") and until March 31, 1999, was the President and
sole director/shareholder of Advisory Services, Ltd. ("ASL"). These companies
provided certain financial consulting and investment services to PRG and certain
of its executive officers until 2000. In addition, until December 31, 1998, Mr.
Cohen was President of Capital Advisory Corporation, a financial advisory
company. Mr. Cohen served or has served, as applicable, in each of these
positions in excess of five years. Mr. Cohen has served as a director of PRG
since its founding in 1990.
JOHN M. COOK is chairman of the board, chief executive officer and
president of PRG, having served as chairman and CEO and since founding PRG in
November 1990. Mr. Cook served as president of PRG from November 1990 through
January 1998 and resumed this role in October 2000. Mr. Cook also serves as a
director of CryoLife, Inc., a company engaged in cryopreservation of
transplantable human tissue and development of complementary implantable
products and technologies.
JONATHAN GOLDEN has served as a director of PRG since its founding in 1990
and provides consulting services to PRG through Jonathan Golden, P.C., a wholly
owned professional corporation ("JGPC"). Mr. Golden also serves through his
professional corporation as a partner in the Atlanta, Georgia law firm of Arnall
Golden Gregory LLP, which provides legal services to PRG. Mr. Golden has served
in this capacity for in excess of five years. Mr. Golden also serves as a
director of SYSCO Corporation, a distributor of food and related products.
GARTH H. GREIMANN has served since 1989 in two management positions, most
recently as Managing Director, of Berkshire Partners LLC, a private equity
investment firm that manages five investment funds. Mr. Greimann also has served
as a Managing Director of Third Berkshire Associates, a Limited Partnership,
which is the general partner of Berkshire Fund III, a Limited Partnership.
Berkshire Fund III makes private equity and equity-related investments in
established middle market companies. Prior to 1996, Mr. Greimann was an
individual general partner of Berkshire Fund III, a Limited Partnership.
FRED W.I. LACHOTZKI has served since 1989 as a professor at Nyenrode
University in The Netherlands, most recently as a Philip Morris Professor of
Strategic Entrepreneurship. Mr. Lachotzki is Co-Chairman of Meyer Monitor, a
research consulting company in the area of corporate architecture and also
serves as a director of DKV-Nederland, an insurance company specializing in
healthcare, Frg Navigation Systems, which makes controls for automatic guided
vehicles, Merison Holding NV, the owner of a franchised chain of
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electronics retail stores and a supplier of non-food products to supermarket
chains, and Unisono, a marketing and distribution company in the People's
Republic of China.
E. JAMES LOWREY served as Executive Vice President -- Finance and
Administration of SYSCO Corporation from 1978 until his retirement in 1993 and
was a director of SYSCO Corporation from 1981 to 1993. He currently serves as a
director of Riviana Foods, Inc., a processor and distributor of rice and other
food products.
THOMAS S. ROBERTSON is the Dean of the Goizueta Business School at Emory
University, a position he assumed in July 1998. Prior to taking this position at
Emory University, he was a member of the faculty of the London Business School
since 1994, with his most recent position being Deputy Dean.
JOHN M. TOMA was elected Vice Chairman of PRG in January 1997. Prior to
that he was Executive Vice President -- Administration of PRG and had served in
such capacity since 1992. Mr. Toma has served as a Director of PRG since its
founding in November 1990 and as Senior Vice President -- Administration of PRG
from 1990 to 1992.
JACKIE M. WARD is the Managing Director for Intec USA, a telecommunications
systems company, and has held this position since January 2001. Prior to
assuming her current position, Ms. Ward was the President and Chief Executive
Officer of Computer Generation Incorporated, a provider of turn-key
telecommunications systems products and data processing services that she
co-founded in 1968. She serves as a director of BankAmerica Corporation, a
banking and financial services company, Equifax, Inc., a provider of credit and
payment information services, Flowers Foods, Inc., a producer of baked foods,
Matria Healthcare, Inc., a provider of specialized home healthcare services,
PTEK Holdings, Inc., a provider of enhanced communications and data services,
SCI Systems, Inc., a diversified electronics manufacturer, and Trigon
Healthcare, Inc., a managed healthcare company.
No family relationship exists among any of the current directors and
executive officers of PRG.
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INFORMATION ABOUT THE BOARD OF DIRECTORS AND COMMITTEES OF THE BOARD
Meetings of the Board of Directors
During 2000, there were six meetings of the board of directors. Ms. Ward
attended four out of eight meetings of the board of directors and the committees
on which she serves. Each other incumbent director who was a director during
2000 attended more than 75 percent of all meetings of the board of directors and
any committees on which that director served.
Director Compensation
PRG compensates its non-employee directors $20,000 per year for their
service on the board and any committee thereof. Non-employee directors are
reimbursed for all out-of-pocket expenses, if any, incurred in attending board
and committee meetings. The board of directors has approved an automatic annual
grant of options under PRG's Stock Incentive Plan to directors not employed by
PRG to purchase from 2,500 to 7,500 shares of common stock; provided, however,
that no grants will be made in any year unless PRG's fully diluted earnings per
share, before business acquisitions and restructuring expenses, for such year
shall have increased by at least 25 percent over the previous year. A 25 percent
increase in the adjusted earnings per share will result in a grant of options to
purchase 2,500 shares of common stock while each additional one percent increase
in adjusted earnings per share will result in a grant of options to purchase an
additional 200 shares of common stock, up to a maximum annual grant of options
to purchase 7,500 shares of common stock. The per share option exercise price
will be the closing price of PRG's common stock on The Nasdaq National Market on
December 31 of the year of grant, or if no sale of the common stock was made on
that date, on the next preceding date on which there was such a sale. Options
will vest in 20 percent increments over a period of five years. Since PRG did
not attain the minimum 25 percent increase in adjusted earnings per share in
2000 over 1999, no automatic grant of stock options was made to the non-employee
directors for 2000.
To offer additional compensation that is tied to future appreciation in
PRG's common stock to four outside directors, on August 14, 2000, PRG granted
10,000 options that were immediately vested to each of Ms. Ward and Messrs.
Lachotzki, Lowrey and Robertson. The per share exercise price was the closing
price as of the date of grant of $9.265. In addition, on March 26, 2001, Ms.
Ward and Messrs. Cohen, Golden, Greimann, Lachotzki, Lowrey and Robertson each
were granted additional vested options to acquire 10,000 shares of PRG common
stock with a per share exercise price of $6.56, the closing price of PRG's
common stock on the date of such grant.
Jonathan Golden, a director of PRG, provides consulting services to PRG
through JGPC. Mr. Golden is the sole shareholder of JGPC. During 2000, PRG paid
JGPC aggregate consulting fees of approximately $36,000. PRG currently pays JGPC
a consulting fee of $6,000 per month. The consulting agreement may be terminated
by either party for any reason upon not less than 30 days prior notice.
Audit Committee
PRG's audit committee consists of three outside directors: Messrs. Cohen,
Greimann and Lowrey. The audit committee met five times in 2000. The audit
committee reviews the general scope of PRG's annual audit and the nature of
services to be performed for PRG in connection therewith, acting as liaison
between the board of directors and PRG's independent auditors. The audit
committee also formulates and reviews various PRG policies, including those
relating to accounting practices and the internal control structure of PRG. In
addition, the audit committee is responsible for recommending, reviewing and
monitoring the performance of PRG's independent auditors.
Compensation Committee
PRG has a compensation committee consisting of three directors: Messrs.
Golden and Robertson and Ms. Ward. The compensation committee met four times in
2000. The compensation committee is responsible for reviewing and establishing
the annual compensation for all executive officers, including the salary and the
compensation package of each such officer. A portion of the compensation package
may include an incentive
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award. The compensation committee also administers PRG's benefit plans,
including the Stock Incentive Plan, the Executive Incentive Plan, the Management
and Professional Incentive Plan and PRG's Employee Stock Purchase Plan and will
administer the PRG/HSA-Texas Stock Option Plan; provided, however, that the
board of directors has delegated all rights to determine awards of stock-based
compensation to individuals who file reports pursuant to Section 16 of the
Securities Exchange Act of 1934, or the Exchange Act, to a subcommittee of the
compensation committee consisting of Mr. Robertson and Ms. Ward, each of whom is
a "non-employee" director, as such term is defined in Rule 16b-3 promulgated
pursuant to the Exchange Act and is an "outside" director, as such term is
defined in the regulations promulgated pursuant to Section 162(m) of the
Internal Revenue Code.
Nominating Committee
PRG has a standing nominating committee of the board of directors
consisting of three directors: Messrs. Golden, Lachotzki and Robertson. The
nominating committee was established on February 15, 2000 and did not meet in
2000. The nominating committee has the responsibility to consider and recommend
nominees for the board of directors and assess the performance of the board. The
nominating committee will consider nominees recommended by security holders to
the extent that such security holders comply with PRG's advance notice Bylaw
provisions.
Notwithstanding anything to the contrary which is or may be set forth in
any of PRG's filings under the Securities Act of 1933 or the Securities Exchange
Act of 1934 that might incorporate PRG filings, including this joint proxy
statement/prospectus, in whole or in part, the following Report and the
Performance Graph shall not be incorporated by reference into any such filings.
MARCH 2001 REPORT OF THE COMPENSATION COMMITTEE ON EXECUTIVE COMPENSATION
The compensation committee is composed entirely of directors who are not
employed by PRG. The committee considers and establishes compensation policies
and approves benefit plans as well as specifically setting salary, annual
incentive levels, and long-term incentive levels for the chief executive officer
and other members of executive management.
Compensation Philosophy
The compensation committee reviewed and further refined the executive
compensation program in 2000. A high emphasis was placed on performance-based
incentives.
In 2000, the committee established targets for PRG revenue and earnings
before interest, taxes, depreciation and amortization ("EBITDA") as a minimum
for the performance-based incentives and has slightly increased the potential
maximum bonus for the highest category of performance. The compensation
committee believes that having greater levels of each executive's compensation
determined by performance-based incentives, and enhancing the incentives for
exceptional performance, serves to greater align the executive's interests with
those of PRG's shareholders.
The following objectives were used by the compensation committee in
designing PRG's 2000 executive compensation program. The compensation program
must:
- Attract, motivate and retain key executives;
- Align key management and shareholder interests; and
- Provide incentives that reward executive management performance only if
PRG's performance meets or exceeds planned results as part of PRG's pay
for performance philosophy.
Executive Compensation Program
The 2000 executive compensation program consisted of base salary, annual
incentives and long-term remuneration in the form of deferred compensation
arrangements and non-qualified stock options. In addition, two executive
officers received signing bonus payments for commencing employment with PRG in
2000.
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Base Salary. In determining the appropriate base salary levels for 2000,
the compensation committee considered several factors, including current
industry practices, external market surveys of similarly sized companies and
review of peer group compensation. For 2000, base salaries were set by the
compensation committee for members of executive management with the following
factors in mind:
- the fact that rapidly growing responsibilities and complexities are
inherent in key positions;
- the need to retain key executives with industry knowledge within PRG; and
- the need to attract new talent.
All of these factors were considered subjectively with no particular
emphasis or weight given to any one factor.
Annual Incentive Compensation. The 2000 annual incentives for executive
management pursuant to PRG's Management and Professional Incentive Plan included
several performance criteria: PRG pro forma earnings per share, PRG revenues,
PRG operating income, functional expense control, cash collections and specific
business or personal performance objectives. The Management and Professional
Incentive Plan was designed to align pay more directly to financial results,
with increases and decreases in incentive pay from year to year tied to
financial targets achieved and missed, respectively. Components of the executive
officers' annual incentive compensation were established by the compensation
committee. The 2000 annual incentive compensation for Messrs. Cook and Toma was
based solely on PRG pro forma earnings per share attainment. Annual incentive
compensation in 2000 for the other executive officers was based on factors such
as PRG pro forma earnings per share, PRG operating income, functional expense
control and specific business and personal performance objectives. The 2000
annual incentives for each executive officer contained targets for each
incentive component to ensure that no annual incentive compensation would be
earned for substandard performance. Additionally, maximum limits were in effect
for each incentive component pertaining to each executive officer. No incentive
bonuses were awarded to any of the named executive officers for 2000, as defined
under the heading "-- Executive Compensation" below, except for a prorated
minimum bonus payment of $8,333 to Mr. Ellis, which was negotiated as a part of
his current employment agreement.
Deferred Compensation. PRG historically has provided, and continues to
provide, non-qualified deferred compensation arrangements for certain executive
officers. The purpose of these arrangements is to assist in the retention of
these executives by allowing a portion of their total compensation to be
deferred along with a full or partial matching obligation by PRG. In most
instances, the matching obligation vests over a series of years of continuing
employment with PRG. Each executive officer negotiated the deferred compensation
component of his compensation package when he entered into his employment
agreement with PRG. Mr. Cook does not have a deferred compensation element in
his employment agreement. Since deferred compensation is accrued and paid in
accordance with provisions of the related employment agreements, no additional
determinations with respect to this compensation component are made by the
compensation committee.
Other Long-Term Incentive Compensation. PRG's shareholders approved an
additional long-term incentive program through the adoption of PRG's Stock
Incentive Plan. All executive officers have received option grants under the
Stock Incentive Plan. The use of stock options is meant to align the interests
of key executives and shareholders. All options granted to executive officers
under the Stock Incentive Plan through the date of this joint proxy
statement/prospectus have been at fair market value on the date of the grant.
Generally, option grants made before 2001 vest ratably over five years of
continuous employment with PRG. Option grants made beginning in 2001 generally
will vest ratably over four years of continuous employment with PRG. In 2001,
the compensation committee elected to vest all options in the event of a change
in control. The compensation committee grants options to key employees of PRG,
including the executive officers, based upon the following subjective factors:
current position, level of performance, potential for future responsibilities
and the number of vested and unvested options already held. The size of the
grant is intended to create meaningful opportunities for stock ownership for the
executive officers.
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On August 14, 2000, the compensation committee awarded shares of restricted
stock to certain named executive officers, such shares to vest over a five-year
period of continuous employment with PRG.
Compliance with Code Section 162(m). The maximum amount which an employer
may claim as a compensation deduction with respect to certain employees in a
given fiscal year, pursuant to Section 162(m) of the Code is $1.0 million,
unless an exemption for performance-based compensation is met. The compensation
committee believes it is unlikely that any executive officers of PRG will, in
the near future, receive in excess of $1.0 million in aggregate compensation,
other than those individuals with respect to whom the performance-based
compensation exemption has been satisfied or severance payments are made.
Compensation of Chief Executive Officer. On March 20, 1996, Mr. Cook
signed a revised employment agreement with PRG. This agreement currently expires
in the year 2005, but provides for automatic one-year renewals upon expiration
of each year of employment, such that it always has a five-year term, subject to
prior notice of non-renewal by the board of directors. Under Mr. Cook's
employment agreement, the compensation committee fixed the 2000 salary of Mr.
Cook at $500,000.
An annual incentive compensation arrangement pursuant to the Management and
Professional Incentive Plan was established for Mr. Cook pursuant to which he
was eligible to earn an annual cash incentive of up to 200 percent of his annual
salary if PRG achieved certain pro forma earnings per share goals for 2000. The
target goal for 2000 was established at $1.12 per share, which represented a
41.7 percent increase over PRG's 1999 pro forma earnings per share of $0.79 per
share. PRG reported a loss of $(0.80) per share for 2000. Mr. Cook did not earn
a bonus for 2000.
Mr. Cook's incentive option program under the Stock Incentive Plan provided
that option grants would be made if 2000 adjusted earnings per share exceeded
the level achieved in 1999 by 30 percent or more. Since PRG's adjusted earnings
per share did not exceed the level achieved in 1999, no stock options were
granted to Mr. Cook for 2000 under the incentive option program.
Compensation Committee
Jonathan Golden, Chairman
Thomas S. Robertson
Jackie M. Ward
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EXECUTIVE COMPENSATION
The following table sets forth the compensation paid or accrued by PRG to
the chief executive officer and the other four most highly paid executive
officers of PRG in 2000 who were executive officers at December 31, 2000 and two
others who would have been among the four most highly paid executive officers
had they continued as executive officers through the end of 2000, the "named
executive officers". The information presented is for the years ended December
31, 2000, 1999 and 1998.
SUMMARY COMPENSATION TABLE
LONG-TERM
COMPENSATION
ANNUAL COMPENSATION(1) ---------------------------
------------------------------------------ RESTRICTED SECURITIES
SALARY BONUS OTHER ANNUAL STOCK UNDERLYING ALL OTHER
NAME AND POSITION YEAR ($)(2)(3) ($)(3)(4) COMPENSATION($)(5) AWARD($)(6) OPTIONS(#)(7) COMPENSATION($)(8)
----------------- ---- --------- --------- ------------------ ----------- ------------- ------------------
John M. Cook............... 2000 $484,617 $ -- $ -- $ -- -- $ 9,724
Chairman of the Board 1999 405,782 452,300 -- -- 300,000 900
and Chief Executive 1998 350,012 359,800 -- -- 180,000 900
Officer
John M. Toma............... 2000 388,461 -- -- -- -- 66,500
Vice Chairman 1999 333,840 147,672 -- -- 150,000 55,900
1998 305,994 125,827 -- -- 120,000 58,952
Donald E. Ellis, Jr.(9).... 2000 158,077 213,166 -- -- 250,000 105,634
Executive Vice 1999 216,058 129,250 -- -- 30,000 26,446
President --
Finance, Chief Financial 1998 175,000 71,393 -- -- -- 26,446
Officer and Treasurer
Robert G. Kramer........... 2000 247,692 -- -- 48,125 15,000 25,000
Executive Vice President 1999 216,154 90,179 -- -- 30,000 25,000
and Chief Information 1998 225,000 52,043 65,528 -- -- 25,000
Officer
Mark C. Perlberg........... 2000 293,846 -- -- 336,875 100,000 25,000
President, Accounts
Payable Group
Michael A. Lustig(10)...... 2000 343,801 -- -- 481,250 -- 1,597,500
Former President and 1999 291,154 224,356 -- -- 225,000 40,900
Chief Operating Officer 1998 299,538 154,200 -- 981,750 510,000 42,230
Scott L. Colabuono(11)..... 2000 271,766 50,000 -- 336,875 10,000 981,666
Former Executive Vice 1999 138,462 101,155 -- -- 112,500 --
President -- Finance, 1998 -- -- -- -- -- --
Chief Financial Officer
and Treasurer
---------------
(1) The compensation described in this table does not include medical, group
life insurance or other benefits received by the named executive officers
which are available generally to all salaried employees of PRG and certain
perquisites and other personal benefits, securities or property received by
the named executive officers which do not exceed the lesser of $50,000 or
10 percent of any such officer's salary and bonus disclosed in this table.
(2) Includes contributions made by the named executive officers to PRG's 401(k)
Plan during the years presented.
(3) Includes amounts that the named executive officers have elected to defer
under their respective deferred compensation programs.
(4) Includes $59,000 retention bonus, $145,833 sign-on bonus and $8,333
prorated minimum bonus for Mr. Ellis for 2000 and for Mr. Colabuono, a
final $50,000 installment of his 1999 sign-on bonus.
(5) Includes $50,328 for relocation and $14,600 for car allowance for Mr.
Kramer.
(6) Messrs. Kramer, Perlberg, Lustig and Colabuono received awards of 5,000
shares, 35,000 shares, 50,000 shares and 35,000 shares, respectively, of
restricted stock on August 14, 2000. The shares awarded to Mr. Kramer vest
100 percent August 14, 2005. The shares awarded to Messrs. Perlberg, Lustig
and Colabuono vest ratably over five years of continued employment with
PRG. On August 21, 1998, 63,000 restricted shares were awarded to Mr.
Lustig, such shares to vest ratably over seven years of continued
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employment, with vesting to accelerate in certain circumstances. Following
Mr. Lustig's resignation from PRG effective as of October 25, 2000, all
restricted shares awarded in 1998 were forfeited. Restricted shares awarded
to Messrs. Lustig and Colabuono in 2000 were forfeited as of October 25,
2000, the dates of their respective resignations, in accordance with the
terms of the respective awards. The restricted shares awarded to Messrs.
Kramer and Perlberg were the only shares of restricted stock held by any of
the named executive officers on December 31, 2000. At December 31, 2000,
these shares were valued at, $31,875 and $223,125, respectively.
(7) Does not include non-qualified stock options granted under the Stock
Incentive Plan on March 26, 2001 to Messrs. Cook (200,000 options), Toma
(150,000 options) and Perlberg (135,000 options). Each option grant has a
five-year term and vested 50 percent on the date of grant and will vest 25
percent on each of the first two anniversaries of such grant.
(8) Consists of:
- Premiums for supplemental term life insurance paid by PRG on behalf of
Mr. Cook -- $8,224 in 2000; Mr. Ellis -- $1,468 in 2000 and $1,446 in
each of 1999 and 1998; and Mr. Lustig -- $1,330 in 1999.
- Annual contributions by PRG to the deferred compensation programs for the
named executive officers:
DEFERRED COMPENSATION
2000 1999 1998
------- ------- -------
Mr. Cook..................................... $ -- $ -- $ --
Mr. Toma..................................... 65,000 55,000 55,000
Mr. Ellis.................................... -- 25,000 25,000
Mr. Kramer................................... 25,000 25,000 25,000
Mr. Perlberg................................. 25,000 -- --
Mr. Lustig................................... -- 40,000 40,000
Mr. Colabuono................................ -- -- --
- Annual matching contributions to PRG's 401(k) Plan made by PRG on behalf
of Messrs. Cook and Toma in 2000 -- $1,500 each; and to Messrs. Cook,
Toma and Lustig in 1999 -- $900 each, and in 1998 -- $450 each.
- Severance payments to Messrs. Lustig and Colabuono for 2000 of $1,597,500
and $981,666, respectively, and severance payments to Mr. Ellis for 2000
of $104,166. See "-- Employment Agreements" below.
(9) Mr. Ellis was formerly Senior Vice President, Chief Financial Officer and
Treasurer of PRG and relinquished those positions when Mr. Colabuono was
elected Executive Vice President -- Finance, Chief Financial Officer and
Treasurer on July 19, 1999. Mr. Ellis subsequently rejoined PRG as its
Executive Vice President, Chief Financial Officer and Treasurer as of
October 26, 2000.
(10) Mr. Lustig resigned his position as President and Chief Operating Officer
of PRG effective as of October 25, 2000.
(11) Amounts shown for 1999 reflect compensation for Mr. Colabuono from July 19,
1999 when he began employment with PRG. Mr. Colabuono resigned his position
as Executive Vice President -- Finance, Chief Financial Officer and
Treasurer of PRG effective as of October 25, 2000.
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Option Grants Table
The following table sets forth certain information regarding options
granted to the named executive officers during the year ended December 31, 2000.
No separate SARs were granted during 2000.
STOCK OPTION GRANTS IN LAST FISCAL YEAR
POTENTIAL REALIZABLE
NUMBER OF PERCENT OF VALUE AT ASSUMED
SECURITIES TOTAL ANNUAL RATES OF STOCK
UNDERLYING OPTIONS PRICE APPRECIATION FOR
OPTIONS GRANTED TO EXERCISE OR OPTION TERM
GRANTED EMPLOYEES IN BASE PRICE EXPIRATION ----------------------
NAME (#)(1) 2000 ($/SH) DATE 5%($) 10%($)
---- ----------- ------------ ----------- ---------- --------- ---------
John M. Cook................... -- -- $ -- -- $ -- $ --
John M. Toma................... -- -- -- -- -- --
Donald E. Ellis, Jr.(2)........ 250,000 8.60% 4.31 4/25/06 332,500 742,500
Robert G. Kramer............... 10,000 .34% 25.75 1/4/10 162,000 410,500
Robert G. Kramer............... 5,000 .17% 9.63 2/10/06 14,800 33,200
Mark C. Perlberg(3)............ 100,000 3.44% 28.77 2/15/10 -- --
Michael A. Lustig.............. -- -- -- -- -- --
Scott L. Colabuono(4).......... 10,000 .34% 25.75 1/4/10 -- --
---------------
(1) Unless otherwise footnoted, options are non-qualified options granted under
the Stock Incentive Plan. All options have either five-and-one-half or
ten-year terms with 20 percent of the options vesting and becoming
exercisable on each of the first five anniversaries of the date of grant;
provided, however, that all options granted under the Stock Incentive Plan
will vest automatically upon the occurrence of certain events.
(2) These options vest as follows: 100,000 shares became exercisable on the
grant date; the remaining 150,000 shares are exercisable at a rate of 4,167
per month beginning November 26, 2000 and continuing thereafter on the 26th
day of each of the next 34 months, and on October 26, 2003 the remaining
4,155 shares shall become exercisable.
(3) These options vest as follows: 20,000 shares became exercisable on the grant
date; the remaining 80,000 shares vest 20 percent on each grant date
anniversary thereafter. These options were subsequently surrendered to PRG
on August 14, 2000. See "-- Certain Transactions" below.
(4) These options were subsequently surrendered to PRG on August 14, 2000. See
"-- Certain Transactions" below.
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Option Exercises and Year-End Value Table
None of the named executive officers held or exercised SARs during 2000.
The following table sets forth certain information regarding options exercised
during the year ended December 31, 2000, and unexercised options held at
year-end, by each of the named executive officers.
AGGREGATED OPTION EXERCISES IN 2000 AND OPTION VALUES AT DECEMBER 31, 2000
NUMBER OF SECURITIES VALUE OF UNEXERCISED
UNDERLYING UNEXERCISED IN-THE-MONEY OPTIONS AT
SHARES OPTIONS AT FISCAL YEAR-END FISCAL YEAR-END
ACQUIRED VALUE (#) ($)(1)
ON EXERCISE REALIZED --------------------------- ---------------------------
NAME (#) ($) EXERCISABLE UNEXERCISABLE EXERCISABLE UNEXERCISABLE
---- ----------- -------- ----------- ------------- ----------- -------------
John M. Cook................. -- $ -- 346,233 119,057 $ -- $ --
John M. Toma................. -- -- 135,000 52,500 -- --
Donald E. Ellis, Jr. ........ 39,000 565,250 108,333 141,667 223,437 292,188
Robert G. Kramer............. -- -- 37,500 60,000 -- --
Mark C. Perlberg............. -- -- -- -- -- --
Michael A. Lustig............ -- -- 306,150 -- 15,000 --
Scott L. Colabuono........... -- -- -- -- -- --
---------------
(1) Calculated based on a fair market value of $6.375 per share of common stock
at December 31, 2000, less the applicable exercise prices.
Employment Agreements
PRG has entered into an employment agreement, as amended, with John M. Cook
that currently expires December 31, 2005. The employment agreement provides for
automatic one-year renewals upon the expiration of each year of employment, such
that it always has a five-year term, subject to prior notice of non-renewal by
the board of directors. Pursuant to Mr. Cook's employment agreement, for 2000
through 2005, Mr. Cook receives an annual base salary of $500,000, effective
March 1, 2000, and an annual target bonus of up to 200 percent of his base
salary based upon PRG's performance for the respective year. For the year 2001,
the compensation committee determined that Mr. Cook is eligible to receive up to
a maximum of 150,000 options if earnings per share for 2001 are greater than 150
percent of 2000 adjusted earnings per share. Mr. Cook will be entitled to
receive a pro-rata share of options if 2001 earnings per share are between 130
percent and 149 percent of 2000 earnings per share. Any options granted to Mr.
Cook would be granted at fair market value as of the end of 2001 and would vest
over a four-year period at 25 percent per year. If Mr. Cook is terminated other
than for cause or if Mr. Cook resigns for "Good Reason," he is eligible to
receive a severance payment for the remainder of the five-year term, comprised
of base salary and bonus, up to a maximum amount not to be deemed an "excess
parachute payment" under the Code, and all outstanding options immediately
become vested. "Good Reason" means any of the following occurring without Mr.
Cook's consent:
- the assignment of duties or a position or title inconsistent with or
lower than the duties, position or title provided in Mr. Cook's
employment agreement;
- a requirement that Mr. Cook perform a substantial portion of his duties
outside Atlanta, Georgia;
- a reduction of Mr. Cook's compensation unless the board or an appropriate
committee of the Board has authorized a general compensation decrease for
all executive officers of PRG;
- the acquisition by any person, entity or group of 50 percent or more of
the combined voting power of the then outstanding securities of PRG;
- certain events of merger, consolidation, or transfer of assets of PRG,
"change in control", resulting in a minority ownership by PRG
stockholders in the successor company following the change in control;
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- the existing directors of PRG prior to a change in control constituting
less than a majority of the directors of the successor company following
the change in control; or
- any other transaction or event that the board of directors of PRG in its
discretion identifies as a change in control for this purpose.
Mr. Cook also is entitled to receive certain supplemental insurance
coverage and other personal benefits under his employment agreement. Mr. Cook
has agreed not to compete with PRG or to solicit any of PRG's clients or
employees for a period of 18 months following termination of employment.
PRG also has entered into employment agreements with John M. Toma, Donald
E. Ellis, Jr., Robert G. Kramer, and Mark C. Perlberg. The agreements with
Messrs. Toma and Kramer automatically renewed on December 31, 2000 and provide
for automatic one-year renewals upon the expiration of each year of employment,
subject to prior notice of non-renewal by the board of directors. Mr. Ellis'
agreement terminates in October 2003. Prior to their resignations, PRG was also
a party to employment agreements with each of Michael A. Lustig and Scott L.
Colabuono. Messrs. Toma, Ellis, Kramer Perlberg, Lustig and Colabuono have
agreed not to compete with PRG nor to solicit any clients or employees of PRG
for a period of 18 months following termination of their respective employment.
Effective March 1, 2000 Mr. Toma receives a base salary of $400,000 with a
target bonus potential of 50 percent of his base salary, with a maximum
potential bonus of 100 percent of his base salary based upon PRG's annual
performance. In addition, Mr. Toma is eligible to receive, for 2001, up to a
maximum of 100,000 options if earnings per share for 2001 are greater than 150
percent of 2000 adjusted earnings per share. Mr. Toma will also be entitled to
receive a pro-rata share of options if earnings per share for 2001 are between
130 percent and 149 percent of 2000 adjusted earnings per share. Any options
granted to Mr. Toma would be granted at fair market value as of the end of 2001
and would vest over a four-year period at 25 percent per year. In addition, PRG
has agreed to make annual contributions in the amount of $65,000 per year to a
deferred compensation program for Mr. Toma, which amounts will vest 50 percent
immediately and the remainder over a ten-year period. If Mr. Toma is terminated
other than for cause or if Mr. Toma resigns for "Good Reason," as defined in Mr.
Cook's employment arrangement, with the additional qualifying event of Mr.
Cook's removal without cause as chief executive officer of PRG, he is eligible
to receive a severance benefit consisting of (1) two years of base salary,
target bonus and auto allowance, (2) a contribution of two years of the annual
deferred compensation credit to a rabbi trust established for deferred
compensation, and (3) payment of employee COBRA premiums, plus a full state and
federal tax gross-up sufficient to pay any applicable excise taxes on items (1)
through (3). PRG also has agreed to provide Mr. Toma with certain other personal
benefits. Mr. Toma's employment agreement will automatically renew on December
31, 2001 and provides for automatic one-year renewals at the expiration of each
year of employment, subject to prior notice of non-renewal by the board of
directors.
Prior to leaving PRG in June 1999, Mr. Ellis received a base salary of
$250,000 per year plus a retention bonus of $59,000 for remaining with PRG
through May 31, 2000. On May 31, 2000, Mr. Ellis resigned from PRG and received
a severance benefit of $104,166. On October 26, 2000, Mr. Ellis rejoined PRG as
its Executive Vice President -- Finance, Chief Financial Officer and Treasurer,
with a base salary of $300,000 per annum and bonus potential of up to 70 percent
of his base salary, with a minimum bonus of $50,000 per annum. Mr. Ellis
received a sign-on bonus in the amount of $145,833. The compensation committee
also granted Mr. Ellis options to purchase 250,000 shares of common stock of
PRG, with 100,000 shares vesting immediately and the remaining 150,000 shares
vesting ratably over 36 months. Upon termination without cause or a resignation
for Good Reason, as defined in Mr. Cook's employment agreement, with the
additional qualifying events of Mr. Cook no longer serving as chief executive
officer, or the liquidation or dissolution of PRG, any then unvested portion of
the aforementioned 250,000 share option grant will immediately vest and Mr.
Ellis will receive a severance payment equal to 24 months of base salary and car
allowance, plus a bonus of $100,000, and a full state and federal tax gross-up
sufficient to pay any applicable excise taxes on such amounts.
For the year 2001, Mr. Kramer's base salary was increased to $265,000 with
a target bonus set at 35 percent of base salary. Mr. Kramer elected to defer
payment of $25,000 of his base salary pursuant to a
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deferred compensation plan. Pursuant to Mr. Kramer's employment agreement, he is
eligible to receive a target-level bonus based in part upon PRG's performance
for the year. In addition, PRG agreed to make annual matching contributions in
the aggregate amount of $25,000 per year to Mr. Kramer's deferred compensation
program, which amounts vest over a ten-year period. Upon termination, other than
for cause or by voluntary resignation, Mr. Kramer will receive severance
payments equal to six months of base salary.
Effective February 9, 2000, Mr. Perlberg entered into an employment
agreement with PRG. For the year 2000, Mr. Perlberg was paid a base salary of
$325,000, with a target bonus of 35 percent of base salary. Mr. Perlberg elected
to defer $25,000 of his base salary pursuant to a deferred compensation plan. In
addition, PRG agreed to make annual matching contributions in the aggregate
amount of $25,000 per year to Mr. Perlberg's deferred compensation program,
which amounts vest over a ten-year period. Effective October 1, 2001, Mr.
Perlberg's base salary will increase to $375,000. Also, in February 2001,
pursuant to his employment agreement, Mr. Perlberg received a sign-on bonus
equal to 33 percent of his base salary paid in 2000. Upon termination, other
than for cause or by voluntary resignation, Mr. Perlberg will receive severance
payments equal to 24 months of base salary, bonus at target level, and car
allowance, paid monthly.
Upon Mr. Lustig's resignation effective as of October 25, 2000, Mr. Lustig
received a lump sum payment of $937,500 plus the right to receive 18 additional
monthly payments, each such payment equal to the sum of his monthly salary and
the monthly proration of his annual car allowance. Upon certain events of change
in control of PRG, payment of such monthly payments may be accelerated.
Upon Mr. Colabuono's resignation effective as of October 25, 2000, Mr.
Colabuono received a lump sum payment of $301,041 plus the right to receive 18
additional monthly payments, each such payment equal to the sum of his monthly
salary and the monthly proration of each of his annual target bonus and his
annual car allowance. Upon certain events of change in control of PRG, payment
of such monthly payments may be accelerated.
Stock Incentive Plan
On June 15, 1998, PRG, with the approval of its shareholders, amended its
Stock Incentive Plan, which initially provided for the grant of options to
acquire a maximum of 9,375,000 shares of common stock, subject to certain
adjustments. On June 8, 2000, PRG's shareholders approved an amendment to the
Stock Incentive Plan such that the Stock Incentive Plan currently provides for
the grant of options and other awards to acquire a maximum, aggregate of
10,875,000 shares of common stock, subject to certain adjustments. As of August
31, 2001, options for 7,167,637 shares were outstanding, after adjustment for
forfeitures, and options for 1,430,873 shares had been exercised. Options may be
granted under this plan to employees, officers or directors of and consultants
and advisors to, PRG and its subsidiaries. PRG estimates that, as of March 30,
2001, approximately 2,000 employees, including officers, and seven non-employee
directors of PRG were eligible to participate in the Stock Incentive Plan.
Unless sooner terminated by the board, this plan terminates in June 2008.
Employee Stock Purchase Plan
In May 1997, PRG's shareholders approved the adoption of The Profit
Recovery Group International, Inc. Employee Stock Purchase Plan. This plan is
intended to be an "employee stock purchase plan" as defined in Code Section 423.
Under this plan, eligible employees may authorize payroll deductions at the end
of a semi-annual purchase period of from 1 percent to 10 percent of their
compensation, as defined in the stock purchase plan, with a minimum deduction of
$10 per pay period and a maximum aggregate deduction of $10,625 during each
semi-annual purchase period, to purchase common stock at a price of 85% of the
fair market value thereof as of the first trading day, as defined in the stock
purchase plan, of the offering period. The aggregate number of shares of common
stock which may be purchased by all participants under this plan may not exceed
1,125,000, subject to certain adjustments. PRG estimates that, as of December
31, 2000, approximately 1,800 employees of PRG and its subsidiaries are eligible
to participate in this plan. This plan will terminate at the option of PRG's
compensation committee or, if earlier, at the time purchase rights have been
exercised for all shares of common stock reserved for purchase under this plan.
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PRG's 401(k) Plan
PRG assumed, effective immediately prior to completion of its initial
public offering, the 401(k) plan sponsored by a predecessor of PRG. This plan is
a tax-qualified retirement plan designed to meet the requirements of Sections
401(a) and 401(k) of the Code. Under this plan, participants may elect to make
pre-tax savings deferrals of from 1 percent to 15 percent of their compensation
each year, subject to annual limits on such deferrals (e.g., $10,500 in 2000)
imposed by the Code. PRG may also in its discretion, on an annual basis, make a
matching contribution with respect to a participant's elective deferrals and/or
may make additional PRG contributions. The only form of benefit payment under
this 401(k) plan is a single lump-sum payment equal to the balance in the
participant's account. Under this 401(k) plan, the vested portion of a
participant's accrued benefit is payable upon such employee's termination of
employment, attainment of age 59 1/2, with respect to 100 percent vested
accounts only, retirement, total and permanent disability or death.
CERTAIN TRANSACTIONS
The following members of Mr. Cook's immediate family are employed by PRG as
field auditors or audit managers and received compensation in 2000 in the
approximate amounts set forth beside their names: David H. Cook, brother --
$201,250 consisting of $175,000 salary and $26,250 bonus; Harriette L. Cook,
sister-in-law -- $97,000 consisting of $44,000 salary, $3,000 bonus and $50,000
commissions; Pamela M. Cook, sister -- $115,000 salary; and Allen R. Sluiter,
brother-in-law -- $135,000 commissions.
Mr. Toma's sister-in-law, Maria A. Neff, is employed with PRG as Senior
Vice President of Human Resources. For 2000, PRG paid Ms. Neff compensation of
approximately $138,000 salary.
On August 14, 2000, five named executive officers surrendered a total of
1,295,000 nonqualified stock options to allow for broad-based grants of stock
options and awards of restricted stock to employees throughout PRG. The table
below identifies the executive officers who surrendered nonqualified stock
options and the amount of nonqualified stock options surrendered. No
consideration was paid for the surrender and cancellation.
VESTED OPTIONS UNVESTED OPTIONS TOTAL OPTIONS WEIGHTED AVERAGE
SURRENDERED SURRENDERED SURRENDERED EXERCISE PRICE/SHARE
-------------- ---------------- ------------- --------------------
Mr. Cook............................. 72,000 408,000 480,000 $25.96
Mr. Toma............................. 33,000 199,500 232,500 25.99
Mr. Ellis............................ -- -- -- --
Mr. Kramer........................... -- -- -- --
Mr. Perlberg......................... 20,000 80,000 100,000 28.77
Mr. Lustig........................... 33,750 326,250 360,000 25.96
Mr. Colabuono........................ 22,500 100,000 122,500 28.93
See "-- Summary Compensation Table, Footnote (6)" above for a description
of restricted stock awarded to such named executive officers. Messrs. Lustig and
Colabuono subsequently forfeited their shares of restricted stock in exchange
for an unspecified portion of the lump sum payments they received following
their resignations.
HSA-Texas owns the building in which HSA-Texas' Dallas headquarters is
located. Following the closing, PRG will lease a portion of HSA-Texas' current
office space from HSA-Texas for a period of approximately three years at market
rental rates.
On the closing date of the asset acquisition, PRG will assume approximately
$8.5 million to $9.0 million of the amount of principal and interest outstanding
on the effective date payable to Howard Schultz for amounts loaned to HSA-Texas,
including amounts loaned subsequent to June 30, 2001, for:
- working capital for normal operations;
- HSA-Texas transaction expenses incurred in connection with the asset
acquisition;
- amounts required to cancel HSA-Texas options of persons not hired by PRG;
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- amounts required to cancel HSA-Texas SARs; and
- principal and interest payments since December 31, 2000 on certain notes
issued in connection with certain prior acquisitions made by HSA-Texas.
Alma Intervention, S.A. ("Alma"), a wholly-owned subsidiary of PRG, leases
certain vehicles and business equipment and other property used in the business
from Collek S.N.C., a French company owned by Marc Eisenberg. Mr. Eisenberg
served as a Class II director during 2000, but did not stand for election as a
director at the 2001 Annual Meeting of Shareholders. Alma also leases office
space from a relative of Mr. Eisenberg. Aggregate rent paid by Alma in 2000 for
these vehicles, property and office space was $228,000.
PRG has also entered into a consulting agreement with Lieb Finance S.A., a
Luxembourg company of which Mr. Eisenberg is the sole owner and employee, to
assist on strategic and long-term planning matters for PRG and its affiliates in
certain portions of Europe. The term of the consulting agreement will end
October 7, 2002. Under the consulting agreement, Lieb Finance S.A. receives an
annual consulting fee of approximately 325,000 French francs, the approximate
equivalent of $44,861 as of September 3, 2001.
See "-- Information About the Board of Directors and Committees of the
Board -- Director Compensation" above for a discussion of certain additional
transactions.
SECTION 16(A) BENEFICIAL OWNERSHIP REPORTING COMPLIANCE
Section 16(a) of the Exchange Act requires PRG's executive officers and
directors and persons who beneficially own more than 10 percent of PRG's stock
to file initial reports of ownership and reports of changes in ownership with
the SEC. Executive officers, directors and greater than 10 percent beneficial
owners are required by SEC regulations to furnish PRG with copies of all Section
16(a) forms they file.
Based solely on its review of copies of forms received by it pursuant to
Section 16(a) of the Exchange Act, or written representations from certain
reporting persons, PRG believes that with respect to the fiscal year ended
December 31, 2000, all Section 16(a) filing requirements applicable to its
executive officers, directors and greater than 10 percent beneficial owners were
complied with, except that Mr. Kramer filed one late Form 5 reporting one late
transaction, Mr. Lowrey filed one late Form 4 and one late Form 5, reporting one
late transaction each, and Mr. Lachotzki filed one late Form 5 reporting one
late transaction.
Compensation Committee Interlocks and Insider Participation
PRG's compensation committee consists of Messrs. Golden and Robertson and
Ms. Ward. PRG has paid the law firm of Arnall Golden Gregory LLP, of which Mr.
Golden's personal corporation, JGPC, serves as a partner, compensation for legal
services rendered since 1991 and expects to continue utilizing this firm's
services in the future.
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151
OWNERSHIP OF DIRECTORS, DIRECTOR NOMINEES, PRINCIPAL SHAREHOLDERS AND CERTAIN
EXECUTIVE OFFICERS OF PRG
The following table sets forth information regarding the beneficial
ownership of PRG's common stock as of August 31, 2001, and as adjusted to give
effect to the proposed acquisitions, by:
- each person, or group of affiliated persons, known by PRG to be the
beneficial owner of more than 5 percent of the outstanding common stock;
- the named executive officers;
- each director and director nominee of PRG; and
- all of PRG's executive officers and directors, including director
nominees, as a group.
Except as otherwise indicated in the footnotes to this table, PRG believes
that the persons named in this table have sole investment and voting power with
respect to all the shares of common stock indicated.
BENEFICIAL OWNERSHIP
AS OF AUGUST 31, 2001(1) PRO FORMA(1)
------------------------ -----------------------
BENEFICIAL OWNER SHARES PERCENTAGE SHARES PERCENTAGE
---------------- ---------- ----------- ---------- ----------
John M. Cook(2)(3).................................. 4,895,481 9.95% 4,895,481 8.09%
Mellon Financial Corporation(4)..................... 2,984,087 6.13 2,984,087 4.97
Stanley B. Cohen(5)................................. 803,000 1.65 803,000 1.34
James L. Dinkins(6)................................. 15,175 * 15,175 *
Jonathan Golden(7).................................. 1,206,205 2.48 1,206,205 2.01
Garth H. Greimann(7)................................ 27,491 * 27,491 *
Fred W. I. Lachotzki(8)............................. 64,000 * 64,000 *
E. James Lowrey(9).................................. 54,000 * 54,000 *
Thomas S. Robertson(10)............................. 24,700 * 24,700 *
John M. Toma(11).................................... 1,008,355 2.06 1,008,355 1.67]
Jackie M. Ward(10).................................. 31,535 * 31,535 *
Donald E. Ellis, Jr.(12)............................ 158,334 * 158,334 *
Robert G. Kramer(13)................................ 84,983 * 84,983 *
Mark C. Perlberg(14)................................ 105,448 * 105,448 *
Scott L. Colabuono(15).............................. 6,200 * 6,200 *
Michael A. Lustig(16)............................... 17,445 * 17,445 *
Arthur Budge, Jr.(17)............................... -- -- 248,295 *
Nate Levine(17)..................................... -- -- -- --
Andrew Schultz(17).................................. -- -- 4,488,832 7.48
Howard Schultz(17).................................. -- -- 3,839,616 6.37
All executive officers and directors as a group (17
persons)(18)...................................... 8,478,707 16.99 17,055,451 27.64%
---------------
* Represents holdings of less than one percent.
(1) Applicable percentage of ownership at August 29, 2001 is based upon
48,704,300 shares of common stock outstanding. Beneficial ownership is
determined in accordance with the rules of the SEC and includes investment
and voting power with respect to the shares shown as beneficially owned.
Shares of common stock subject to options currently exercisable or which
will become exercisable within sixty (60) days of the date of this proxy
statement are deemed outstanding for computing the percentage ownership of
the person holding such options, but are not deemed outstanding for
computing the percentage ownership of any other persons. The pro forma
shares and percentage reflects the percentage of ownership as of August 31,
2001 assuming the issuance of a total of 11,300,388 shares of common stock
in the proposed acquisitions. This excludes 3,000,000 shares which are
assumed to be issued into escrow pending the closing of certain additional
acquisitions.
(2) The business address for Mr. Cook is 2300 Windy Ridge Parkway, Suite 100
North, Atlanta, Georgia 30339-8426.
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152
(3) Includes 897,618 shares held by the Cook Family Limited Partnership, for
which Mr. Cook serves as the general partner, 86,159 shares and 60,000
shares held by the Cook Family Grantor Retained Annuity Trust and the M.
Lucy Cook Family 2001 Grantor Retained Annuity Trust, respectively, for
which Mr. Cook is trustee and has sole investment and voting power with
respect to such shares, 90,000 shares held by the John M. Cook Family 2001
Grantor Retained Annuity Trust for which M. Lucy Cook, Mr. Cook's spouse,
is trustee and has sole investment and voting power with respect to such
shares, and 695,139 shares held by M. Lucy Cook. Also includes 491,233
shares subject to options which are currently exercisable. Does not include
1,191,809 shares held for the benefit of John M. Cook pursuant to a Grantor
Retained Annuity Trust for which James R. Cook is trustee and has sole
investment and voting power with respect to such shares, 294,013 shares
held by the John M. Cook Charitable Remainder UniTrust for which M.
Christine Cook is trustee and has sole investment and voting power with
respect to such shares, and 1,191,809 shares held for the benefit of M.
Lucy Cook pursuant to a Grantor Retained Annuity Trust for which M.
Christine Cook and M. Thomas Cook are co-trustees and have sole investment
and voting power with respect to such shares.
(4) Information provided is based on a Schedule 13-G dated January 22, 2001
filed by Mellon Financial Corporation ("Mellon"). Mellon's business address
is One Mellon Center, Pittsburgh, Pennsylvania 15258. Shares are
beneficially owned by direct or indirect subsidiaries of Mellon, a parent
holding company of certain banks and registered investment advisers. Mellon
has shared voting and dispositive power with respect to 297,800 and 6,400
shares, respectively. No single investment advisory client of Mellon owns
more than 5 percent of the common stock reported as beneficially owned.
(5) Includes 231,677 shares held by the Stanley B. Cohen Grantor Retained
Annuity Trust for the benefit of Mr. Cohen, for which Shirley L. Cohen, Mr.
Cohen's spouse, is the trustee and has sole investment and voting power,
22,000 shares held by the SBC Family Limited Partnership for which Mr.
Cohen is a general partner and 16,000 shares subject to options which are
currently exercisable.
(6) Includes 15,000 shares of stock currently subject to certain restrictions
and risk of forfeiture.
(7) Includes 16,000 shares subject to options which are currently exercisable.
(8) Includes 41,000 shares subject to options which are currently exercisable.
(9) Includes 29,000 shares subject to options which are currently exercisable.
(10) Includes 21,500 shares subject to options which are currently exercisable.
(11) Includes 48,034 shares held for the benefit of Mr. Toma for which Maria A.
Neff and Dorothy M. Toma, Mr. Toma's spouse, serve as co-trustees and share
investment and voting power with respect to such shares. Includes 275,886
shares held by the Toma Family Limited Partnership, for which Mr. Toma
serves as the general partner and 5,556 shares held by Toma Family
Foundation, Inc. of which Mr. Toma is President. Also, includes 73,190
shares held by Mrs. Toma, 12,021 shares held by the Mary Caitlin Cook
Trust, of which Mr. Toma is the trustee, 10,298 shares held by the Adam
Cook Trust, of which Mr. Toma is the trustee, and 247,500 shares subject to
options which are currently exercisable.
(12) Represents 141,666 shares subject to options which are currently
exercisable and 16,668 shares subject to options which will become
exercisable within sixty (60) days of the date of this proxy statement.
(13) Includes 5,000 shares of stock currently subject to certain restrictions
and risk of forfeiture. Includes 75,000 shares subject to options which are
currently exercisable.
(14) Includes 35,000 shares of stock currently subject to certain restrictions
and risk of forfeiture and 67,500 shares subject to options which are
currently exercisable.
(15) Mr. Colabuono resigned his position as Executive Vice President Finance,
Chief Financial Officer and Treasurer of PRG effective as of October 25,
2000 and is no longer an executive officer of PRG.
(16) Mr. Lustig resigned his position as President and Chief Operating Officer
of PRG effective as of October 25, 2000 and is no longer an executive
officer of PRG.
(17) Messrs. Budge, Levine, Andrew Schultz and Howard Schultz will become
directors upon the completion of the HSA acquisitions. Assuming a
conversion ratio as described at "Summary -- Questions and Answers About
the Proposed Acquisitions -- How Many Shares of PRG Common Stock are
expected to be distributed to HSA-Texas Shareholders for each share of
HSA-Texas Common Stock Owned?" they will become beneficial owners of the
following shares of PRG common stock following the closing of the proposed
acquisitions: Mr. Budge 248,295 shares; Mr. Levine 0 shares; Mr. Andrew
Schultz 4,488,832 shares; and Mr. Howard Schultz 3,839,616 shares. The
numbers shown
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for Howard Schultz and Mr. Budge include 250,000 shares and 248,295 shares,
respectively, subject to options which will be immediately exercisable. The
business address for these reporting persons is 9241 LBJ Freeway, Suite
100, Dallas, Texas 75243. These numbers do not include shares to be issued
in escrow. Assuming all three million shares are released from escrow, Mr.
Andrew Schultz and Mr. Howard Schultz will receive an additional
approximately 879,471 shares and 784,902 shares, respectively.
(18) Includes 55,000 shares of stock currently subject to certain restrictions
and risk of forfeiture. Also includes options to purchase 1,200,567 shares
which are either currently exercisable or will become exercisable within
sixty (60) days of the date of this proxy statement. The pro forma numbers
include an additional 498,295 shares subject to options which will be
exercisable immediately following the closing of the asset acquisition.
EXECUTIVE OFFICERS
Each of the executive officers of PRG was elected by the board of directors
to serve until the board of directors' meeting immediately following the next
annual meeting of the shareholders or until his earlier removal by the board or
his resignation. The following table lists the executive officers of PRG and
their ages and offices with PRG.
NAME AGE OFFICE WITH REGISTRANT
---- --- ----------------------
John M. Cook............................... 59 Chairman of the Board, Chief Executive
Officer and Director
John M. Toma............................... 55 Vice Chairman and Director
James L. Dinkins........................... 38 Executive Vice President -- Worldwide Sales
and Marketing
Donald E. Ellis, Jr........................ 50 Executive Vice President -- Finance, Chief
Financial Officer and Treasurer
Robert G. Kramer........................... 57 Executive Vice President and Chief
Information Officer
Mark C. Perlberg........................... 45 President -- Accounts Payable Group
The employment histories of those executive officers who are not also
directors are set forth below:
JAMES L. DINKINS joined PRG in July 1999 as its Executive Vice
President -- Sales and Marketing and served in that capacity until July 2000
when he was appointed President of PRG's Communications Division. In January
2001 Mr. Dinkins was appointed Executive Vice President -- Worldwide Sales and
Marketing. Prior to joining PRG, Mr. Dinkins was a Managing Director at The
Coca-Cola Company and held various sales, marketing and general management
positions for 11 years.
DONALD E. ELLIS, JR. rejoined PRG in October 2000 as Executive Vice
President -- Finance, Chief Financial Officer and Treasurer. Mr. Ellis had
previously served PRG as Special Assistant to the Chairman from July 19, 1999 to
May 31, 2000 and as its Senior Vice President, Chief Financial Officer and
Treasurer from March 1995 to July 1999. Prior to first joining PRG, Mr. Ellis
served as Vice President -- Finance, Treasurer and Chief Financial Officer of
Information America, Inc., a provider of on-line computer information services.
Mr. Ellis is a certified public accountant.
ROBERT G. KRAMER joined PRG in October 1997 as Executive Vice President and
Chief Information Officer. Prior to joining PRG, Mr. Kramer had worked for Home
Shopping Network, Inc. since 1996 as Executive Vice President and Chief
Information Officer. From 1994 to 1996, Mr. Kramer served as Executive Vice
President and Chief Information Officer with Hanover Direct, Inc., a direct
specialty retailer.
MARK C. PERLBERG joined PRG in February 2000 as President of the Accounts
Payable Group. Prior to joining PRG, Mr. Perlberg had worked for John H. Harland
Company, a check printing company, since February 1996, most recently serving as
Vice President and General Manager of the North Region.
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PERFORMANCE GRAPH
Set forth below is a line graph presentation comparing the cumulative
shareholder return on PRG's common stock (Nasdaq: PRGX), on an indexed basis,
against cumulative total returns of the Nasdaq Stock Market (U.S. Companies)
Index and the Hambrecht & Quist Technology Index. The graph assumes that the
value of the investment in the common stock in each index was $100 on March 26,
1996. The Performance Graph shows total return on investment for the period
beginning March 26, 1996 (the date of PRG's initial public offering) through
December 31, 2000.
THE PROFIT
RECOVERY GROUP NASDAQ STOCK HAMBRECHT & QUIST
INTERNATIONAL, INC. MARKET (U.S.) TECHNOLOGY
------------------- ------------- -----------------
3/26/1996 $100.00 $100.00 $100.00
12/31/1996 $145.45 $118.44 $123.07
12/31/1997 $161.36 $145.06 $144.29
12/31/1998 $340.34 $204.57 $224.43
12/31/1999 $362.22 $380.17 $501.24
12/31/2000 $ 86.93 $228.74 $324.03
Total return assumes reinvestment of any dividends.
LEGAL MATTERS
The legality of the shares of PRG common stock to be issued in the proposed
acquisition will be passed upon for PRG by Arnall Golden Gregory LLP. Jonathan
Golden, the sole stockholder of Jonathan Golden P.C., a partner of Arnall Golden
Gregory LLP, is a director of PRG, and beneficially owns approximately 1.21
million shares of PRG common stock. As of August 31, 2001, attorneys with Arnall
Golden Gregory LLP beneficially owned an aggregate of approximately 1.4 million
shares of PRG's common stock.
EXPERTS
The consolidated financial statements and schedule of PRG and subsidiaries
as of December 31, 2000 and 1999, and for each of the years in the three-year
period ended December 31, 2000, have been incorporated by reference herein and
in this joint proxy statement/prospectus in reliance upon the reports of KPMG
LLP and Ernst & Young Audit, independent auditors, incorporated by reference
herein, and upon the authority of said firms as experts in accounting and
auditing. The report of KPMG LLP covering the December 31, 2000 and 1999
consolidated financial statements refers to changes in accounting for revenue
recognition.
The combined financial statements of HSA-Texas and subsidiaries as of
December 31, 2000 and 1999, and for each of the years in the three-year period
ended December 31, 2000, have been included herein and in
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this joint proxy statement/prospectus in reliance upon the report of KPMG LLP,
independent auditors, appearing elsewhere herein, and upon the authority of said
firm as experts in accounting and auditing.
SHAREHOLDER PROPOSALS
Appropriate proposals of shareholders intended to be presented at PRG's
2002 Annual Meeting of Shareholders pursuant to Rule 14a-8 promulgated under the
Securities Exchange Act, must be received by PRG by December 21, 2001 for
inclusion in its proxy statement and form of proxy relating to that meeting. In
addition, all shareholder proposals submitted outside of the shareholder
proposal rules promulgated pursuant to Rule 14a-8 under the Exchange Act must be
received by PRG by January 20, 2002 in order to be considered timely. If such
shareholder proposals are not timely received, proxy holders will have
discretionary voting authority with regard to any such shareholder proposals
which may come before the 2002 annual meeting. With regard to such shareholder
proposals, if the date of the 2002 annual meeting is subsequently advanced or
delayed by more than 30 days from the date of the 2001 annual meeting, PRG
shall, in a timely manner, inform shareholders of the change and the date by
which proposals must be received.
INDEPENDENT AUDITORS
The accounting firm of KPMG LLP are the independent auditors of PRG.
Approval or selection of the independent auditors of PRG is not submitted for a
vote of PRG's shareholders. The board of directors of PRG has historically
selected the independent auditors of PRG, with the advice of the audit
committee, and the board believes that it would be to the detriment of PRG and
its shareholders for there to be any impediment to the board's exercising its
judgment to remove PRG's independent auditors if, in its opinion, such removal
is in the best interest of PRG and its shareholders.
It is anticipated that a representative from the accounting firm of KPMG
LLP will be present at the PRG special meeting to answer appropriate questions
and make a statement if the representative desires to do so.
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HOWARD SCHULTZ & ASSOCIATES INTERNATIONAL, INC.
INDEX TO COMBINED FINANCIAL STATEMENTS
PAGE
----
AUDITED FINANCIAL STATEMENTS:
Independent Auditors' Report................................ F-2
Combined Balance Sheets as of December 31, 2000 and 1999.... F-3
Combined Statements of Operations for the years ended
December 31, 2000, 1999 and 1998.......................... F-4
Combined Statements of Stockholders' Equity for the years
ended December 31, 2000, 1999 and 1998.................... F-5
Combined Statements of Cash Flows for the years ended
December 31, 2000, 1999 and 1998.......................... F-6
Notes to Combined Financial Statements...................... F-7
UNAUDITED CONDENSED INTERIM FINANCIAL STATEMENTS:
Combined Balance Sheets as of June 30, 2001 and December 31,
2000...................................................... F-21
Combined Statements of Operations for the six-month periods
ended June 30, 2001 and 2000.............................. F-22
Combined Statements of Cash Flows for the six-month periods
ended June 30, 2001 and 2000.............................. F-23
Notes to Combined Financial Statements...................... F-24
F-1
157
INDEPENDENT AUDITORS' REPORT
The Board of Directors of
Howard Schultz & Associates International, Inc.
We have audited the accompanying combined balance sheets of Howard Schultz
& Associates International, Inc. (see note 1) as of December 31, 2000 and 1999,
and the related combined statements of operations, stockholders' equity, and
cash flows for each of the years in the three-year period ended December 31,
2000. These combined financial statements are the responsibility of the
Company's management. Our responsibility is to express an opinion on these
combined financial statements based on our audits.
We conducted our audits in accordance with auditing standards generally
accepted in the United States of America. Those standards require that we plan
and perform the audit to obtain reasonable assurance about whether the financial
statements are free of material misstatement. An audit includes examining, on a
test basis, evidence supporting the amounts and disclosures in the financial
statements. An audit also includes assessing the accounting principles used and
significant estimates made by management, as well as evaluating the overall
financial statement presentation. We believe that our audits provide a
reasonable basis for our opinion.
In our opinion, the combined financial statements referred to above present
fairly, in all material respects, the financial position of Howard Schultz &
Associates International, Inc. as of December 31, 2000 and 1999, and the results
of their operations and their cash flows for each of the years in the three-year
period ended December 31, 2000, in conformity with accounting principles
generally accepted in the United States of America.
/s/ KPMG LLP
Dallas, Texas
July 26, 2001
except as to note 16,
which is as of September 5, 2001
F-2
158
HOWARD SCHULTZ & ASSOCIATES INTERNATIONAL, INC.
COMBINED BALANCE SHEETS
DECEMBER 31,
-----------------
2000 1999
------- -------
(IN THOUSANDS)
ASSETS
Current assets:
Cash and cash equivalents................................. $ 2,179 $ 3,910
Accounts receivable, net.................................. 15,644 12,904
Commission advances, net.................................. 2,058 1,471
Principal associate advance............................... 550 --
Prepaid expenses and other current assets................. 1,512 1,138
------- -------
Total current assets.............................. 21,943 19,423
Property and equipment, net (notes 4 and 7)................. 11,781 6,273
Other assets:
Goodwill, net (notes 3 and 5)............................. 25,226 21,149
Other assets.............................................. 768 1,911
------- -------
Total assets...................................... $59,718 $48,756
======= =======
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
Accounts payable.......................................... $ 3,529 $ 820
Accrued compensation...................................... 1,868 1,012
Accrued commissions and royalties......................... 9,543 7,394
Other accrued expenses.................................... 3,506 1,508
Notes payable, current portion (note 6)................... 6,422 7,286
Capital lease obligations, current portion (note 7)....... 620 144
Other current liabilities................................. 124 262
------- -------
Total current liabilities......................... 25,612 18,426
Notes payable, net of current portion (note 6).............. 30,074 23,125
Capital lease obligations, net of current portion (note
7)........................................................ 1,388 293
------- -------
Total liabilities................................. 57,074 41,844
------- -------
Common stock put options (note 10).......................... 2,458 1,211
Stockholders' equity: (note 10)
Common stock.............................................. 2,102 2,102
Retained earnings (accumulated deficit)................... (2,129) 3,070
Accumulated other comprehensive income.................... 213 529
------- -------
Total stockholders' equity........................ 186 5,701
------- -------
Commitments and contingencies (notes 7 and 15)
Total liabilities and stockholders' equity........ $59,718 $48,756
======= =======
See accompanying notes to combined financial statements.
F-3
159
HOWARD SCHULTZ & ASSOCIATES INTERNATIONAL, INC.
COMBINED STATEMENTS OF OPERATIONS
YEARS ENDED DECEMBER 31,
------------------------------
2000 1999 1998
-------- -------- --------
(IN THOUSANDS)
Revenues, net............................................... $138,708 $133,789 $117,599
Cost of revenues............................................ 91,222 94,071 89,849
Selling, general and administrative expenses................ 48,324 37,760 26,223
-------- -------- --------
Operating income (loss)........................... (838) 1,958 1,527
-------- -------- --------
Interest income............................................. 425 462 198
Interest expense............................................ (3,363) (2,705) (1,968)
Other income (expense), net................................. 47 (33) 264
-------- -------- --------
Interest and other income (expense), net.......... (2,891) (2,276) (1,506)
-------- -------- --------
Net income (loss)................................. $ (3,729) $ (318) $ 21
======== ======== ========
See accompanying notes to combined financial statements.
F-4
160
HOWARD SCHULTZ & ASSOCIATES INTERNATIONAL, INC.
COMBINED STATEMENTS OF STOCKHOLDERS' EQUITY
RETAINED ACCUMULATED
EARNINGS OTHER TOTAL
COMMON (ACCUMULATED COMPREHENSIVE STOCKHOLDERS'
STOCK DEFICIT) INCOME EQUITY
------ ------------ ------------- ----------------
(IN THOUSANDS)
Balance at December 31, 1997.................. $1,421 $ 5,733 $ 1 $ 7,155
Comprehensive income:
Net income............................... -- 21 -- 21
Foreign currency translation
adjustment............................. -- -- 142 142
-------
Total comprehensive income.......... 163
Distributions to stockholders............... -- (2,366) -- (2,366)
Issuance of common stock.................... 681 -- -- 681
------ ------- ----- -------
Balance at December 31, 1998.................. $2,102 $ 3,388 $ 143 $ 5,633
Comprehensive income (loss):
Net loss................................. -- (318) -- (318)
Foreign currency translation
adjustment............................. -- -- 386 386
-------
Total comprehensive income.......... 68
------ ------- ----- -------
Balance at December 31, 1999.................. $2,102 $ 3,070 $ 529 $ 5,701
Comprehensive income (loss):
Net loss................................. -- (3,729) -- (3,729)
Foreign currency translation
adjustment............................. -- -- (316) (316)
-------
Total comprehensive loss............ (4,045)
Distributions to stockholders............... -- (1,470) -- (1,470)
------ ------- ----- -------
Balance at December 31, 2000.................. $2,102 $(2,129) $ 213 $ 186
====== ======= ===== =======
See accompanying notes to combined financial statements.
F-5
161
HOWARD SCHULTZ & ASSOCIATES INTERNATIONAL, INC.
COMBINED STATEMENTS OF CASH FLOWS
YEARS ENDED DECEMBER 31,
---------------------------
2000 1999 1998
------- ------- -------
(IN THOUSANDS)
Cash flows from operating activities:
Net income (loss)......................................... $(3,729) $ (318) $ 21
Adjustments to reconcile net income (loss) to net cash
provided by operating activities:
Depreciation and amortization.......................... 8,074 5,494 3,987
Non-cash interest expense.............................. 637 570 265
Non-cash stock compensation expense.................... 1,247 1,211 --
Changes in assets and liabilities, net of working capital
from acquisitions:
Accounts receivable, net............................... (2,601) 7,550 (3,848)
Associate advances..................................... (550) -- --
Commission advances, net............................... (587) (789) 2,278
Prepaid expenses and other current assets.............. (38) 318 (687)
Other assets........................................... 1,143 (2,133) 38
Accounts payable and other accrued expenses............ 4,646 (127) 1,212
Accrued commissions and royalties...................... 2,149 (2,779) 2,892
Accrued compensation................................... 856 1,012 --
Other accrued liabilities.............................. (138) 262 --
------- ------- -------
Net cash provided by operating activities......... 11,109 10,271 6,158
------- ------- -------
Cash flows from investing activities:
Purchases of property and equipment....................... (5,858) (2,181) (1,387)
Acquisitions of businesses................................ (617) (1,123) (1,275)
Other..................................................... (476) (376) --
------- ------- -------
Net cash used in investing activities............. (6,951) (3,680) (2,662)
------- ------- -------
Cash flows from financing activities:
Proceeds from issuance of common stock.................... -- -- 681
Proceeds from issuance of notes payable, net.............. 3,272 2,336 2,443
Principal payments on notes payable....................... (7,027) (7,065) (3,608)
Principal payments on capital lease obligations........... (404) -- --
Distributions to stockholders............................. (1,470) -- (2,366)
Net loans (provided to) repaid by stockholders............ (260) 68 (148)
------- ------- -------
Net cash used in financing activities............. (5,889) (4,661) (2,998)
------- ------- -------
Net increase (decrease) in cash and cash equivalents........ (1,731) 1,930 498
Cash and cash equivalents at beginning of year.............. 3,910 1,980 1,482
------- ------- -------
Cash and cash equivalents at end of year.................... $ 2,179 $ 3,910 $ 1,980
======= ======= =======
Supplemental disclosures of non-cash investing and financing
activities:
In conjunction with the acquisition of businesses:
Fair value of assets acquired.......................... $10,220 $ 8,612 $ 9,289
Cash paid.............................................. 617 1,123 1,275
Notes payable to seller................................ 9,203 7,489 7,639
Release of funds escrowed in 1999...................... 400 -- --
Other notes payable to third party..................... -- 981 458
Issuance of capital lease obligation for the purchase of
equipment.............................................. $ 1,975 $ 437 $ --
======= ======= =======
Cash paid for:
Interest............................................... $ 2,553 $ 2,208 $ 1,465
======= ======= =======
See accompanying notes to combined financial statements.
F-6
162
HOWARD SCHULTZ & ASSOCIATES INTERNATIONAL, INC.
NOTES TO COMBINED FINANCIAL STATEMENTS
DECEMBER 31, 2000, 1999 AND 1998
1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
(a) Description of Business and Basis of Presentation
The accompanying combined financial statements of Howard Schultz &
Associates International, Inc. include the accounts of Howard Schultz &
Associates International, Inc. ("HS&A"), its majority-owned subsidiaries, Howard
Schultz & Associates Europe N.V., Howard Schultz & Associates de Mexico, S.A. de
C.V., Howard Schultz & Associates International (Thailand) Limited, HS&A
Imaging, Inc. ("HS&A Imaging") and companies which were under majority common
control and ownership by the controlling stockholders/family members of HS&A,
which are Howard Schultz, Andrew H. Schultz and the Andrew H. Schultz
Irrevocable Trust (the "Schultz Trust"). These entities include Howard Schultz &
Associates (Canada) Inc. ("HS&A Canada"), Howard Schultz & Associates
(Australia) Inc. ("HS&A Australia"), HS&A International Pte Ltd. ("HS&A
Singapore"), and Howard Schultz & Associates (Asia) Limited ("HS&A Asia"). All
entities included in the combined financial statements are collectively referred
to herein as the "Company". All significant intercompany balances and
transactions have been eliminated in combination.
The principal business of the Company is providing accounts payable and
other recovery audit services to large and mid-size businesses having numerous
payment transactions with many vendors. These businesses include, but are not
limited to, retailers, manufacturers, wholesale distributors, technology
companies, and healthcare providers. The Company provides its services
throughout the United States and in 16 other countries.
(b) Use of Estimates
Management of the Company has made a number of estimates and assumptions
relating to the reporting of assets and liabilities and the disclosure of
contingent assets and liabilities to prepare these financial statements in
conformity with accounting principles generally accepted in the United States of
America. Actual results could differ from those estimates.
(c) Revenue Recognition
The Company's revenues are based on specific contracts with its clients.
Such contracts generally specify the: (a) time periods covered by the audit, (b)
nature and extent of audit services to be provided by the Company, (c) client's
duties in assisting and cooperating with the Company, and (d) fees payable to
the Company generally expressed as a specified percentage of the amounts
recovered by the client resulting from overpayment claims identified.
In addition to contractual provisions, most clients also establish specific
procedural guidelines which the Company must satisfy prior to submitting claims
for client approval. These guidelines are unique to each client and impose
specific requirements on the Company such as adherence to vendor interaction
protocols, provision of advance written notification to vendors of forthcoming
claims, securing written claim validity concurrence from designated client
personnel and, in limited cases, securing written claim validity concurrence
from the involved vendors. Approved claims are processed by clients and
generally taken as credits against outstanding payables or future purchases from
the vendors involved. It is only after completing these steps that the Company
invoices its clients for its fees.
For all recovery audit operations, the Company recognizes revenue when it
invoices clients for its fee.
F-7
163
HOWARD SCHULTZ & ASSOCIATES INTERNATIONAL, INC.
NOTES TO COMBINED FINANCIAL STATEMENTS -- (CONTINUED)
(d) Cash and Cash Equivalents
The Company considers all highly liquid investments purchased with original
maturities of three months or less to be cash equivalents. Cash and cash
equivalents consist of money market funds, certificates of deposit, overnight
repurchase agreements and other investment securities. The Company had cash
equivalents of $86,000 and $1,956,000 at December 31, 2000 and 1999,
respectively.
(e) Commission Advances
From time to time, the Company makes advances of commissions to its
independent contractor auditors. Such advances are recorded as current assets
and recovered from commissions payable to the contractors as such commissions
are earned in connection with providing audit recovery services.
(f) Property and Equipment
Property and equipment are stated at cost. Depreciation is provided using
the straight-line method over the estimated useful lives of the assets which
range from three to 30 years. Leasehold improvements are amortized using the
straight-line method over the shorter of the lease term or estimated life of the
asset.
(g) Direct Expenses
Direct expenses incurred during the course of accounts payable audits and
other recovery audit services are expensed as incurred and are included in cost
of revenues. Cost of revenues consists principally of commissions paid or
payable to the Company's auditors, who are independent contractors, based
primarily upon the level of overpayment recoveries, and compensation paid to
various types of hourly workers and salaried operational managers. Also included
in cost of revenues are other direct costs incurred by these personnel,
including rental of non-headquarters offices, travel and entertainment,
telephone, utilities, maintenance and supplies and clerical assistance.
(h) Goodwill
Goodwill represents the excess of the purchase price over the estimated
fair value of net assets of acquired businesses. The Company evaluates the
unique relevant aspects of each individual acquisition when establishing an
appropriate goodwill amortization period. Goodwill is being amortized on a
straight-line basis over estimated useful lives ranging from 5 to 7 years. The
Company assesses the recoverability of this intangible asset by determining
whether the amortization of goodwill over its remaining life can be recovered
through undiscounted future operating cash flows of the acquired operation. The
amount of goodwill impairment, if any, is measured based on projected discounted
future operating cash flows using a discount rate reflecting the Company's
average cost of funds. The assessment of the recoverability of goodwill will be
impacted if estimated future operating cash flows are not achieved.
(i) Impairment of Long-Lived Assets
Long-lived assets and certain identifiable intangibles are reviewed for
impairment whenever events or changes in circumstances indicate that the
carrying amount of an asset may not be recoverable. Recoverability of assets to
be held and used is measured by a comparison of the carrying amount of an asset
to future net cash flows expected to be generated by the asset. If such assets
are considered to be impaired, the impairment is measured by the amount by which
the carrying amount of the assets exceeds the fair value of the assets. Assets
to be disposed of are reported at the lower of the carrying amount or fair value
less cost to sell.
F-8
164
HOWARD SCHULTZ & ASSOCIATES INTERNATIONAL, INC.
NOTES TO COMBINED FINANCIAL STATEMENTS -- (CONTINUED)
(j) Income Taxes
HS&A, HS&A Canada and HS&A Imaging have each elected to be treated as an S
Corporation for tax purposes. Accordingly, the tax consequences of all profits
and losses are the responsibility of the stockholders of each of those
corporations. Income taxes for the remaining companies included in the Company,
all of which are foreign-based corporations, are accounted for under the asset
and liability method for financial reporting purposes. Deferred tax assets and
liabilities are recognized for the future tax consequences attributable to
differences between the financial statement carrying amounts of existing assets
and liabilities and their respective tax bases and operating losses and tax
credit carryforwards. (See Note 8)
(k) Foreign Currency Translation
The local currency is the functional currency in the countries in which the
Company conducts business outside of the United States. The assets and
liabilities denominated in foreign currency are translated into U.S. dollars at
the current rate of exchange at the balance sheet date and revenues and expenses
are translated at the average monthly exchange rates. The resulting translation
gains and losses are recorded as accumulated other comprehensive income in
stockholders' equity. Transaction gains and losses included in results of
operations are not material.
(l) Employee Stock Options
The Company accounts for its stock option plan in accordance with the
provisions of Accounting Principles Board ("APB") Opinion No. 25, "Accounting
for Stock Issued to Employees," and related interpretations. Accordingly,
compensation expense would be recorded on the date of grant only if the fair
value of the underlying stock exceeded the exercise price.
2. MERGERS
On January 1, 1999, the Company acquired 100% of the outstanding common
stock of three companies owned (directly or beneficially) by the controlling
stockholders of HS&A through the issuance of 3,716 shares of HS&A common stock:
HS&A Acquisition, Inc., which was owned 100% by Howard Schultz; HS&A Acquisition
No. 2, Inc., which was owned 100% by Andrew H. Schultz; and HS&A Acquisition No.
3, Inc., which was owned 100% by the Schultz Trust.
The combination of the Company and these three entities was accounted for
as a common control merger on an "as if" pooling-of-interests at historical
cost.
3. ACQUISITIONS
From January 1998 through January 2000, the Company entered into a series
of transactions to acquire operations known as "principal associates." The
principal associates provided the independent contract auditors that performed
audit recovery services for the Company in various regions in the United States.
The Company also completed acquisitions of licensees in Australia and Canada in
1998 and in Europe in 1999.
A summary of the acquisitions of principal associates follows:
DATE OF ACQUISITION PRINCIPAL ASSOCIATE ACQUIRED PURCHASE PRICE
------------------- ---------------------------- --------------
January 5, 1998................ Howard Schultz & Associates, $3.4 million note payable,
Mid Pacific, Inc. discounted to $3.1 million
July 1, 1998................... Howard Schultz & Associates of $4.8 million note payable,
Mid-Southwest, Inc. discounted to $4.4 million
January 1, 1999................ HS&A Florida, Inc. $3.0 million note payable,
discounted to $2.7 million
F-9
165
HOWARD SCHULTZ & ASSOCIATES INTERNATIONAL, INC.
NOTES TO COMBINED FINANCIAL STATEMENTS -- (CONTINUED)
DATE OF ACQUISITION PRINCIPAL ASSOCIATE ACQUIRED PURCHASE PRICE
------------------- ---------------------------- --------------
January 1, 1999................ Howard Schultz & Associates of $2.1 million note payable,
the Mid-West, Inc. discounted to $1.9 million
January 1, 1999................ Howard Schultz & Associates of $3.2 million note payable,
the Pacific Northwest, Inc. discounted to $2.9 million
January 1, 2000................ Howard Schultz & Associates of $3.6 million note payable,
the Northeast, Inc. discounted to $3.4 million
and $0.4 million of cash
January 1, 2000................ Howard Schultz & Associates of $5.1 million note payable,
the Mid-Atlantic, Inc. discounted to $4.8 million
On January 23, 1998, HS&A Canada, an affiliate of HS&A, acquired all of the
net assets of a former licensee in Canada for a total purchase price of
$600,000, which was funded by HS&A.
On January 30, 1998, HS&A Australia, an affiliate of HS&A, acquired all of
the net assets of a former licensee in Australia for a total purchase price of
$1.1 million, which was funded through a $458,000 note payable to the Schultz
Trust and cash of $675,000.
In November 1998, the Company formed its wholly-owned subsidiary, Howard
Schultz & Associates Europe, N.V., a Belgian corporation ("HS&A Europe"), for
the purpose of acquiring the equity interests of entities that performed
recovery audit services in various European countries, including Belgium,
France, Italy and Spain. HS&A Europe acquired 100% of such interests in January
1999 (except for a 10% interest in Howard Schultz Italia S.r.l., which was
acquired by HS&A Europe in 2000 for approximately $0.12 million) for a total
purchase price of $1.1 million. The Company funded this acquisition through cash
of approximately $0.14 million and a bank loan of approximately $0.98 million.
On November 1, 2000, the Company acquired the stock of Infinite Imaging
Systems, Inc. for a total purchase price of approximately $1.5 million, payable
in the form of $500,000 in cash and a promissory note in the amount of $1.0
million.
The above acquisitions were accounted for using the purchase method of
accounting and, accordingly, results of operations of the acquired entities have
been included in the accompanying combined financial statements from the dates
of acquisition. The purchase prices were allocated to tangible assets acquired
and intangible assets based on the estimated fair values at the respective dates
of acquisition. Additionally, as the promissory notes for the principal
associate acquisitions were entered into at below-market rates of interest, in
order to record the promissory notes at fair value, the Company recorded a
discount for each promissory note. The discount effectively decreased the total
purchase price of each acquisition. The Company incurred no significant direct
costs of acquisition. A summary of the total purchase price and purchase price
allocation for acquisitions made during 2000, 1999 and 1998 is as follows (in
thousands):
ACQUISITIONS ACQUISITIONS ACQUISITIONS
IN 2000 IN 1999 IN 1998
------------ ------------ ------------
Net tangible assets................................. $ 477 $1,964 $1,427
Goodwill............................................ 9,743 6,648 7,862
------- ------ ------
Total purchase price...................... $10,220 $8,612 $9,289
======= ====== ======
F-10
166
HOWARD SCHULTZ & ASSOCIATES INTERNATIONAL, INC.
NOTES TO COMBINED FINANCIAL STATEMENTS -- (CONTINUED)
Unaudited pro forma operating results as though the acquisitions discussed
above had occurred on January 1, 1999, with adjustments primarily to give effect
to amortization of goodwill and interest expense related to the promissory
notes, are as follows (in thousands):
YEARS ENDED DECEMBER 31,
------------------------
2000 1999
---------- ----------
Revenues.................................................... $140,141 $134,976
Operating income............................................ 800 2,124
Net loss.................................................... $ (2,012) $ (859)
4. PROPERTY AND EQUIPMENT
Property and equipment, which includes assets under capital leases, at
December 31, 2000 and 1999 consists of the following (in thousands):
2000 1999
------- -------
Land........................................................ $ 1,045 $ 265
Buildings................................................... 3,670 1,743
Leasehold Improvements...................................... 1,336 1,230
Equipment................................................... 11,087 6,575
Furniture and Fixtures...................................... 618 642
Software.................................................... 938 175
------- -------
18,694 10,630
Less accumulated depreciation and amortization.............. 6,913 4,357
------- -------
Net property and equipment........................ $11,781 $ 6,273
======= =======
Depreciation expense for the years ended December 31, 2000, 1999, and 1998
was approximately $2,556,000, $1,176,000, and $927,000, respectively.
5. GOODWILL
Goodwill represents the excess of the purchase price over the estimated
fair value of the net assets of acquired businesses.
Goodwill and accumulated amortization consists of the following at December
31, 2000 and 1999 (in thousands):
2000 1999
------- -------
Goodwill.................................................... $39,907 $30,312
Less accumulated amortization............................... 14,681 9,163
------- -------
$25,226 $21,149
======= =======
Amortization expense for the years ended December 31, 2000, 1999 and 1998
was approximately $5,518,000, $4,318,000, and $3,060,000, respectively.
F-11
167
HOWARD SCHULTZ & ASSOCIATES INTERNATIONAL, INC.
NOTES TO COMBINED FINANCIAL STATEMENTS -- (CONTINUED)
6. NOTES PAYABLE
Notes payable at December 31, 2000 and 1999 is summarized as follows (in
thousands):
2000 1999
------- -------
Notes payable -- acquisition related:
$1.4 million promissory note, payable in twenty four (24)
equal installments, commencing on July 1, 1996, bearing
interest at a rate of 6.05% per annum.................. $ 265 $ 546
$6.5 million promissory note, payable in fifteen (15)
equal semi-annual installments, commencing on December
1, 1997, bearing interest at a rate of 6.39% per
annum.................................................. 3,507 4,251
$6.8 million promissory note, payable in sixteen (16)
equal semi-annual installments, commencing on December
31, 1997, bearing interest at a rate of 6.77% per
annum.................................................. 4,749 5,578
$3.4 million promissory note, payable in twelve (12) equal
semi-annual installments, commencing on June 30, 1998,
bearing interest at a rate of 5.93% per annum.......... 1,615 2,384
$4.8 million promissory note, payable in twelve (12) equal
semi-annual installments, commencing on January 1,
1999, bearing interest at a rate of 5.60% per annum.... 2,656 3,375
$3.0 million promissory note, payable in twelve (12) equal
semi-annual installments, commencing on July 1, 1999,
bearing interest at a rate of 4.46% per annum.......... 1,869 2,247
$3.6 million promissory note, payable in twelve (12)
semi-annual installments, commencing on July 1, 2000,
bearing interest at a rate of 5.99% per annum.......... 2,855 --
Notes payable -- acquisition related, due to current
employees:
$2.0 million promissory note, payable in twelve (12)
semi-annual installments each commencing on December
31, 1997, bearing interest at a rate of 6.39% per
annum.................................................. 799 1,108
$2.1 million promissory note, payable in twelve (12)
semi-annual installments, commencing on July 1, 1999,
bearing interest at a rate of 4.46% per annum.......... 1,312 1,618
$3.2 million promissory note, payable in twelve (12) equal
semi-annual installments, commencing on July 1, 1999,
bearing interest at a rate of 4.46% per annum.......... 1,947 2,402
$5.1 million promissory note, payable in twelve (12) equal
semi-annual installments, commencing on July 1, 2000
bearing interest at a rate of 6.12% per annum.......... 4,044 --
$1.0 million promissory note, payable in twenty-four (24)
equal installments commencing on December 1, 2000,
bearing interest at a rate of 10% per annum............ 924 --
F-12
168
HOWARD SCHULTZ & ASSOCIATES INTERNATIONAL, INC.
NOTES TO COMBINED FINANCIAL STATEMENTS -- (CONTINUED)
2000 1999
------- -------
Note payable -- Bank, with monthly installments of $12,030
including interest at 8.25% per annum, beginning October
1999 and maturing October 2014. The note is collateralized
by land, building and personal guarantee of stockholder... 1,187 1,230
Note payable -- Bank, with monthly installments of $19,359
including interest at 8.25% per annum, beginning May 2000
and maturing April 2020. The note is collateralized by
land, building and personal guarantee of stockholder...... 2,240 --
Note payable -- stockholder, interest at 5.59% per annum,
with monthly interest only payments maturing March 2003.
This note is unsecured.................................... 5,050 4,050
Notes payable -- other, primarily international............. 1,477 1,622
------- -------
36,496 30,411
Less: current portion....................................... 6,422 7,286
------- -------
$30,074 $23,125
======= =======
In connection with the acquisition-related notes payable, the Company
recorded a discount from the face of the notes payable to reflect an effective
market interest rate. At December 31, 2000 and 1999, the unamortized discount
was $1,402,000 and $1,492,000, respectively, on face amounts of $27,020,000 and
$25,027,000, respectively. The effective interest rates range from 7.75% and
8.5%, with a weighted average effective interest rate of 8.3% at December 31,
2000 and 1999. The acquisition-related notes are secured generally by the assets
acquired in the relevant transaction.
Maturities of notes payable at December 31, 2000, are as follows (in
thousands):
YEAR ENDING DECEMBER 31, AMOUNT
------------------------ -------
2001...................................................... $ 6,422
2002...................................................... 7,150
2003...................................................... 12,105
2004...................................................... 5,761
2005...................................................... 3,161
Thereafter................................................ 3,299
-------
Total future maturities........................... 37,898
Less unamortized discount......................... 1,402
-------
Total notes payable............................... $36,496
=======
F-13
169
HOWARD SCHULTZ & ASSOCIATES INTERNATIONAL, INC.
NOTES TO COMBINED FINANCIAL STATEMENTS -- (CONTINUED)
7. LEASE OBLIGATIONS
(a) Capital Leases
The Company has entered into several capital leases primarily for computer
and office equipment, expiring on various dates through December 2004. The
leases generally have terms of 36 months to 60 months. Future minimum lease
payments under non-cancelable capital leases having terms in excess of one year
are as follows (in thousands):
YEAR ENDING DECEMBER 31, (SEE NOTE 7(B))
------------------------ ---------------
2001..................................................... $ 834
2002..................................................... 754
2003..................................................... 643
2004..................................................... 232
------
Total future minimum lease payments.............. 2,463
Less amount representing interest.......................... 455
------
Present value of minimum lease payments.................... 2,008
Less current portion....................................... 620
------
Capital lease obligations -- long-term..................... $1,388
======
Included in property and equipment at December 31, 2000 and 1999 are the
following assets under capital leases:
2000 1999
------ ----
Equipment................................................... $2,412 $437
Less: accumulated depreciation.............................. 466 --
------ ----
$1,946 $437
====== ====
(b) Operating Leases
The Company is committed under various noncancelable operating lease
arrangements for facilities and equipment. Rent expense for 2000, 1999, and 1998
was $938,000, $722,000, and $150,000, respectively. The future minimum annual
lease payments under these leases for the next five years are summarized as
follows:
YEAR ENDING DECEMBER 31, (AMOUNT IN 000'S)
------------------------ -----------------
2001.................................................... $1,035
2002.................................................... 964
2003.................................................... 638
2004.................................................... 365
2005.................................................... 323
------
$3,325
======
8. INCOME TAXES
At December 31, 2000, the Company had foreign operating loss carryforwards
available to offset future foreign taxable income of approximately $4,120,000.
The Company's remaining deferred tax assets and liabilities are not significant.
In assessing the realizability of deferred tax assets, the Company considers
whether it is more likely than not that some portion or all of the deferred tax
assets will not be realized. The ultimate realization of deferred tax assets
depends on the generation of future taxable income during the periods in which
those temporary differences become deductible. Based upon these considerations,
the
F-14
170
HOWARD SCHULTZ & ASSOCIATES INTERNATIONAL, INC.
NOTES TO COMBINED FINANCIAL STATEMENTS -- (CONTINUED)
Company's deferred tax assets relating to the operating losses have been fully
offset by a valuation allowance of $1,004,000. Accordingly, no income tax
benefit has been recorded. These operating loss carryforwards begin to expire in
2004 based on local tax laws and regulations.
9. EMPLOYEE BENEFIT PLANS
The Company maintains a 401(k) Plan which allows eligible participating
employees to defer receipt of a portion of their compensation up to 15% and
contribute such amount to one or more investment funds. Employee contributions
are matched by the Company, dollar for dollar, up to 5% per participant. The
Company may also make discretionary contributions to the Plan as determined by
the Company each plan year. Company matching funds and discretionary
contributions vest at the rate of 20% each year beginning after the
participants' second year of service. Company contributions were approximately
$475,000, $291,000 and $73,000 for the years ended December 31, 2000, 1999 and
1998, respectively.
10. STOCKHOLDERS' EQUITY
(a) Common Stock
The authorized, issued and outstanding common stock of the Company at
December 31, 2000 and 1999 is summarized as follows:
NUMBER OF SHARES
------------------------
ISSUED AND COMMON
AUTHORIZED OUTSTANDING STOCK
---------- ----------- ------
HS&A voting........................................... 2,000,000 2,000,000 $ 341
HS&A non voting....................................... 10,000,000 6,381,566 1,080
HS&A Canada........................................... 10,000,000 1,000 1
HS&A Australia........................................ 10,000,000 1,000 674
HS&A Singapore........................................ 100,000 5 --
HS&A Asia............................................. 1,000 100 6
---------- --------- ------
32,101,000 8,383,671 $2,102
========== ========= ======
Effective March 24, 1999, HS&A restated its Articles of Incorporation to
increase the number of authorized shares of its common stock to 12,000,000, of
which 2,000,000 are voting and 10,000,000 are non-voting, and to change the par
value of such stock to no par value. Also, effective as of March 24, 1999, the
HS&A declared a stock dividend to its stockholders of record as of March 23,
1999, of 922.9615 shares per outstanding share of common stock and issued the
appropriate number of shares of its common stock to such stockholders in respect
of such stock dividend. The stock dividend has been accounted for as a stock
split and, accordingly, all share amounts have been retroactively adjusted to
give effect to the stock split. At December 31, 2000, outstanding shares
included 2,000,000 shares of voting common stock and 6,381,566 shares of
non-voting common stock.
Effective January 1, 2001, the Company issued approximately 30,638 shares
of its non-voting common stock to Charles Schembri. In connection with such
issuance, the parties entered into a Stock Transfer Restriction Agreement. The
Agreement provides, among other things, limited "put" and "call" options as to
such shares upon the termination of Mr. Schembri's employment, each at a
purchase price equal to the fair market value of the shares, subject to certain
conditions. Also effective January 1, 2001, the Company issued an immaterial
number of fractional shares of its non-voting common stock to each of Howard
Schultz, Andrew Schultz, the Schultz Trust and Charles Schembri in order to
"round up" previous issuances of fractional shares that had been made to such
shareholders. Accordingly, as of the close of business on January 1, 2001, the
shareholders of the Company's no par value common stock were as follows: Voting
shares: Howard Schultz -- 1,257,200; Andrew Schultz -- 274,400; and, the Schultz
Trust -- 468,400; Non-
F-15
171
HOWARD SCHULTZ & ASSOCIATES INTERNATIONAL, INC.
NOTES TO COMBINED FINANCIAL STATEMENTS -- (CONTINUED)
Voting shares: Howard Schultz -- 4,011,452; Andrew Schultz -- 875,551; the
Schultz Trust -- 1,494,563; and, Charles Schembri -- 30,638.
(b) Stock Option Plan
On March 22, 1999, the board of directors of the Company adopted the 1998
Howard Schultz & Associates Stock Option Plan (the "Plan"), under which
2,500,000 shares of HS&A non-voting common stock are available for issuance with
respect to awards granted to officers, directors, key employees and independent
contractors.
The board of directors has designated a committee to administer the Plan.
From time to time, the Committee will designate key employees and independent
contractors to whom the options will be granted. According to the terms of the
Plan, the options typically vest in annual increments of one-third of the number
of options granted, beginning on the third year after the date of grant and the
options generally expire ten years from the date of grant. Upon a change in
control, all outstanding options fully vest. The Plan also includes a provision
whereby the grantee of an option can cause the Company to purchase any or all of
his/her shares of common stock acquired through the exercise of option(s) at a
price per share equal to the fair market value of the common shares.
Accordingly, under APB Opinion 25, a measurement date does not occur until the
options are exercised and the Company will continue to estimate fair value
periodically as such options vest.
During the years ended December 31, 2000 and 1999, the Company granted
options to employees to purchase 358,099 and 251,530 shares of the common stock
of HS&A, respectively. The options granted during the years ended December 31,
2000 and 1999 were granted at exercise prices of $9.06 and $8.16, respectively.
The estimated fair value of the options granted was $5,470,000 and $2,752,000 at
December 31, 2000 and 1999, respectively.
During the years ended December 31, 2000 and 1999, the Company also issued
options to non-employees to acquire 210,125 and 32,170 shares, respectively of
HS&A common stock at exercise prices of $9.06 and $8.16, respectively. The
estimated fair value of the options granted was $3,454,000 and $369,000 at
December 31, 2000 and 1999, respectively. In connection with the issuance of
these options, the Company recorded the estimated fair value of the options
granted of $298,000 and $94,000 as an operating expense and as common stock put
options in the accompanying combined financial statements during the years ended
December 31, 2000 and 1999, respectively, based on the options vested. The fair
value of each option was estimated using the Black-Scholes option pricing model
with the following assumptions: risk free interest rate ranging from 4.7% to
5.8%, expected option life of 10 years; expected volatility ranging from 53% to
72% and no dividend yield. The vesting period is the same as options issued to
employees as discussed below. Under EITF 96-18 "Accounting for Equity
Instruments That Are Issued to Other Than Employees for Acquiring, or in
Conjunction with Selling, Goods or Services," for those options that vest over a
period of time, a measurement date has not occurred. The Company will continue
to estimate fair value periodically as such options vest.
The fair value of total employee and non-employee vested option issuances
outstanding at December 31, 2000 and 1999 of $2,458,000 and $1,211,000,
respectively, has been classified in the mezzanine between liabilities and
stockholders' equity due to the fact that option holders can put the options
back to the Company subsequent to exercising the options.
F-16
172
HOWARD SCHULTZ & ASSOCIATES INTERNATIONAL, INC.
NOTES TO COMBINED FINANCIAL STATEMENTS -- (CONTINUED)
A summary of the Company's stock option activity for the years ended
December 31, 2000 and 1999 follows:
$9.06 $8.16
OPTIONS OPTIONS TOTAL
------- ------- -------
Outstanding at December 31, 1998.......................... -- -- --
Granted................................................. -- 283,700 283,700
Exercised............................................... -- -- --
Forfeited............................................... -- -- --
------- ------- -------
Outstanding, December 31, 1999............................ -- 283,700 283,700
Granted................................................. 568,224 -- 568,224
Exercised............................................... -- -- --
Forfeited............................................... (40,609) (29,718) (70,327)
------- ------- -------
Outstanding, December 31, 2000............................ 527,615 253,982 781,597
======= ======= =======
Options granted in 1999 begin to vest at the rate of one-third per year
beginning January 1, 2002 and expire on December 31, 2009. Of the 2000 grants,
options to acquire 400,593 shares of HS&A common stock begin to vest at the rate
of one-third per year beginning January 1, 2003 and expire on December 31, 2010,
and options to acquire 167,631 shares of HS&A common stock begin to vest at the
rate of one-third per year beginning October 1, 2003 and expire on September 29,
2010. Accordingly, no options are vested at December 31, 2000 or 1999.
The Company applies APB Opinion 25 and related interpretations in
accounting for stock options issued to employees and non-employee directors. The
Company has recognized compensation expense of $949,000 and $1,117,000 during
the year ended December 31, 2000 and 1999, respectively, based on the intrinsic
value of the options at the date of grant and the estimated fair value of the
underlying common stock at those dates.
Had the Company determined compensation cost based on the fair value at the
grant date for its stock options granted to employees and non-employee directors
under Statement of Financial Accounting Standards ("SFAS") No. 123, "Accounting
for Stock-Based Compensation", the Company's net income (loss) would have been
the pro forma amounts below for the years ended December 31, 2000 and 1999 (in
thousands):
2000 1999
------- -------
Net income (loss):
As reported............................................... $(3,729) $ (318)
Pro forma................................................. $(4,422) $ (580)
The fair value of stock options granted in 2000 and 1999 was estimated on
the date of grant using the Black-Scholes option pricing model. The weighted
average fair values and related assumptions were:
2000 1999
--------- ------
Weighted average fair value................................. $ 17.42 $17.42
Risk free interest rates.................................... 5.8%-6.3% 4.7%
Weighted-average expected life of option years.............. 10 10
Volatility factor of expected market price.................. 0.72 0.53
11. RELATED PARTY TRANSACTIONS
As of December 31, 2000 and 1999, the Company owed $5,050,000 and
$4,050,000, respectively to Howard Schultz (Note 6). The Company paid Mr.
Schultz interest in the amounts of $168,000, $168,000 and $126,000, during the
years ended December 31, 2000, 1999 and 1998, respectively.
F-17
173
HOWARD SCHULTZ & ASSOCIATES INTERNATIONAL, INC.
NOTES TO COMBINED FINANCIAL STATEMENTS -- (CONTINUED)
HS&A Australia borrowed funds from the Schultz Trust in connection with the
acquisition (Note 3). The outstanding borrowings, including cumulative unpaid
interest, at December 31, 2000 and 1999 were $584,000 and $532,000,
respectively.
The Company has access to a condominium owned by the Schultz family, which
is used by the Company's clients, employees and independent contractors from
time to time. The Company paid the Schultz family rental fees of $35,000 during
each of the years ended December 31, 2000, 1999 and 1998, respectively.
As of December 31, 2000 and 1999, stockholders of HS&A owed the Company
$390,000 and $130,000, respectively. Amounts are non-interest bearing and due on
demand and are included in other current assets.
The Company leases software from Howard Schultz under a lease agreement
dated December 1999. The Company made total payments of approximately $115,000
in 2000, including approximately $37,000 in interest and $78,000 in principal.
Monthly installments of approximately $8,900 are payable through December 31,
2004. The Company had recorded a related capital lease obligation of $352,000 at
December 31, 2000.
12. MAJOR CLIENTS
During 2000, two clients accounted for 13% and 10%, respectively, of the
Company's combined revenues. During 1999, the same two clients accounted for 12%
and 10%, respectively, of the Company's combined revenues. During 1998, one
client accounted for 11% of the Company's combined revenues.
13. SEGMENT AND RELATED INFORMATION
The Company has one reportable operating segment consisting of accounts
payable services. Accounts payable services consist of the review of client
accounts payable disbursements to identify and recover overpayments. This
operating segment includes accounts payable services provided to retailers,
wholesale distributors and various other types of business entities. The Company
performs these accounts payable services in the United States, Canada, Mexico,
Australia, and throughout Europe and Asia, including France, Spain and Hong
Kong.
Geographical information for the years ended December 31, 2000, 1999 and
1998 is as follows:
2000 1999 1998
-------- -------- --------
($000'S)
United States.......................................... $127,836 $122,560 $112,530
Europe................................................. 4,359 4,150 --
Mexico................................................. 756 207 125
Australia.............................................. 1,936 2,987 2,345
Canada................................................. 2,464 3,533 2,568
Asia................................................... 1,357 352 31
-------- -------- --------
Revenues, net................................ $138,708 $133,789 $117,599
======== ======== ========
F-18
174
HOWARD SCHULTZ & ASSOCIATES INTERNATIONAL, INC.
NOTES TO COMBINED FINANCIAL STATEMENTS -- (CONTINUED)
Geographical information at December 31, 2000 and 1999 is as follows:
2000 1999
------- ------
($000'S)
United States............................................... $11,855 $7,442
Europe...................................................... 146 383
Mexico...................................................... 91 81
Australia................................................... 140 136
Canada...................................................... 118 120
Asia........................................................ 199 22
------- ------
Total long-lived assets........................... $12,549 $8,184
======= ======
For purposes of the geographical information above, revenues are
attributable to the individual countries based on the location of the customer.
Long-lived assets are attributed to the individual countries based on the
physical location of the assets. Long-lived assets are primarily property and
equipment.
14. FAIR VALUE OF FINANCIAL INSTRUMENTS
The carrying amount for cash and cash equivalents, receivables, advances,
accounts payable and accrued expenses and current portion of long-term
obligations approximate fair value because of the short maturity of these
instruments.
The fair values of each of the Company's long-term debt instruments are
based on the amount of future cash flows associated with each instrument
discounted using the Company's current borrowing rate for similar debt
instruments of comparable maturity. The estimated fair value approximates the
carrying value of the Company's notes payable as the notes have either been
entered into at rates of interest that reflect market rates at December 31, 2000
and 1999 or have been recorded with a discount to reflect an effective market
rate of interest.
Fair value estimates are made at a specific point in time, based on
relevant market information about the financial instrument. These estimates are
subjective in nature and involve uncertainties and matters of significant
judgment and therefore cannot be determined with precision. Changes in
assumptions could significantly affect these estimates.
15. COMMITMENTS AND CONTINGENCIES
The Company has contingent liabilities resulting from litigation, claims
and commitments incidental to the ordinary course of business. Management
believes, based on the advice of counsel, that the ultimate resolution of such
contingencies will not have a materially adverse effect on the financial
position, results of operations or liquidity of the Company.
The Company also has contingent liabilities in connection with two Letters
of Credit relating to a loan agreement and a leasing agreement for Howard
Schultz & Associates Europe, N.V. These letters of credit are partially
collateralized by a certificate of deposit of the Company and personal funds of
a shareholder. The unsecured amounts of these contingent liabilities were
$1,279,000 and $1,070,000 at December 31, 2000, and December 31, 1999,
respectively.
16. SUBSEQUENT EVENTS
In May 2001, the Company entered into a settlement agreement with respect
to litigation pending at December 31, 2000, involving a group of independent
contractors formerly associated with the Company. Pursuant to the agreement, the
Company was relieved of certain obligations to pay accrued commissions to
F-19
175
HOWARD SCHULTZ & ASSOCIATES INTERNATIONAL, INC.
NOTES TO COMBINED FINANCIAL STATEMENTS -- (CONTINUED)
those contractors, which amounted to $3.2 million at December 31, 2000. The
total settlement was $3.7 million.
In July 2001, the Company acquired substantially all of the assets and
certain, specified related liabilities, of an independent contractor of the
Company that performed recovery audit and information technology services for
the Company, in a tax-free reorganization in exchange for 307,482 newly-issued
shares of the Company's no par value, voting common stock, assumption of
$1,000,000 in debt (repaid upon assumption), and forgiveness of $2,048,000 of
advances to the independent contractor outstanding as of the acquisition date.
In connection with such issuance, the parties entered into a Stock Ownership and
Restriction Agreement. The Agreement provides, among other things, limited
"call" options as to such shares upon the termination of the recipient's
employment, each at a purchase price equal to the fair market value of the
shares, subject to certain conditions.
On July 26, 2001, the Company announced that the board of directors had
approved a letter of intent to be acquired by The Profit Recovery Group
International, Inc. ("PRG") in an all-stock transaction, which is expected to
close in the fourth quarter of 2001. The combination is subject to finalization
of a definitive agreement, approval of both companies' shareholders, approval
from PRG's bank syndicate, and customary regulatory approvals.
On September 1, 2001, the Company acquired substantially all of the assets
and certain specified, related liabilities of an independent contractor that
performed recovery audit services for the Company in exchange for a $3.0 million
note payable in six equal quarterly installments beginning January 1, 2002 with
simple interest at the rate of 7.0% per annum.
F-20
176
HOWARD SCHULTZ & ASSOCIATES INTERNATIONAL, INC.
COMBINED BALANCE SHEETS
JUNE 30, DECEMBER 31,
2001 2000
----------- ------------
(UNAUDITED)
(IN THOUSANDS)
ASSETS
Current assets:
Cash and cash equivalents................................. $ 5,429 $ 2,179
Accounts receivable, net.................................. 11,995 15,644
Commission advances, net.................................. 885 2,058
Principal associate advance............................... 2,048 550
Prepaids and other current assets......................... 1,624 1,512
------- -------
Total current assets.............................. 21,981 21,943
Property and equipment, net................................. 11,970 11,781
Other assets:
Goodwill, net............................................. 22,461 25,226
Other assets.............................................. 840 768
------- -------
Total assets...................................... $57,252 $59,718
======= =======
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
Accounts payable.......................................... $ 429 $ 3,529
Accrued compensation...................................... 700 1,868
Accrued commissions and royalties......................... 6,586 9,543
Other accrued expenses.................................... 5,506 3,506
Notes payable, current portion............................ 6,985 6,422
Capital lease obligations, current portion................ 546 620
Other current liabilities................................. 54 124
------- -------
Total current liabilities......................... 20,806 25,612
Notes payable, net of current portion....................... 31,459 30,074
Capital lease obligations, net of current portion........... 842 1,388
------- -------
Total liabilities................................. 53,107 57,074
------- -------
Common stock put options.................................... 3,293 2,458
Stockholders' equity: (Notes 2 and 5)
Common stock.............................................. 2,117 2,102
Accumulated deficit....................................... (1,025) (2,129)
Accumulated other comprehensive income (loss)............. (240) 213
------- -------
Total stockholders' equity........................ 852 186
------- -------
Commitments and contingencies (Note 4)
Total liabilities and stockholders' equity........ $57,252 $59,718
======= =======
See accompanying notes to unaudited combined financial statements.
F-21
177
HOWARD SCHULTZ & ASSOCIATES INTERNATIONAL, INC.
UNAUDITED COMBINED STATEMENTS OF OPERATIONS
SIX MONTHS ENDED
JUNE 30,
-----------------
2001 2000
------- -------
(IN THOUSANDS)
Revenues, net............................................... $67,053 $67,052
Cost of revenues............................................ 42,681 43,574
Selling, general and administrative expenses................ 25,405 22,834
------- -------
Operating income (loss)........................... (1,033) 644
------- -------
Interest income............................................. 136 248
Interest expense............................................ (1,646) (1,616)
Settlement of litigation (note 4)........................... 3,650 --
Other income (expense), net................................. (3) 25
------- -------
Interest and other income (expense), net.......... 2,137 (1,343)
------- -------
Net income (loss)................................. $ 1,104 $ (699)
======= =======
See accompanying notes to unaudited combined financial statements.
F-22
178
HOWARD SCHULTZ & ASSOCIATES INTERNATIONAL, INC.
UNAUDITED COMBINED STATEMENTS OF CASH FLOWS
SIX MONTHS ENDED
JUNE 30,
-----------------
2001 2000
------- -------
(IN THOUSANDS)
Cash flows from operating activities:
Net income (loss)......................................... $ 1,104 $ (699)
Adjustments to reconcile net income (loss) to net cash
provided by operating activities:
Depreciation and amortization.......................... 3,943 3,622
Non-cash settlement of litigation...................... (3,650) --
Non-cash interest expense.............................. 284 318
Non-cash stock compensation expense.................... 835 558
Changes in assets and liabilities, net of working capital
from acquisitions:
Accounts receivable, net............................... 3,802 4,834
Prepaid expenses and other current assets.............. 468 (1,164)
Principal associate advances........................... (1,498) --
Commission advances, net............................... 1,173 (416)
Other assets........................................... (72) 975
Accounts payable and other accrued expenses............ 2,141 (672)
Accrued commissions and royalties...................... (2,957) (2,181)
Accrued compensation................................... (1,168) (78)
Other current liabilities.............................. (70) (108)
------- -------
Net cash provided by operating activities......... 4,335 4,989
------- -------
Cash flows from investing activities:
Purchase of property and equipment........................ (1,605) (3,966)
------- -------
Net cash used in investing activities............. (1,605) (3,966)
------- -------
Cash flows from financing activities:
Proceeds from issuance of common stock.................... 15 --
Proceeds from issuance of notes payable, net.............. 5,548 2,268
Principal payments on notes payable....................... (3,843) (3,814)
Principal payments on capital lease obligations........... (620) (123)
Distributions to stockholders............................. -- (1,470)
Net loans provided to stockholders........................ (580) (184)
------- -------
Net cash provided by (used in) financing
activities....................................... 520 (3,323)
------- -------
Net increase (decrease) in cash and cash equivalents...... 3,250 (2,300)
Cash and cash equivalents at beginning of the period...... 2,179 3,910
------- -------
Cash and cash equivalents at the end of the period........ $ 5,429 $ 1,610
======= =======
Cash paid for:
Interest.................................................. $ 1,518 $ 1,195
======= =======
See accompanying notes to unaudited combined financial statements.
F-23
179
HOWARD SCHULTZ & ASSOCIATES INTERNATIONAL, INC.
NOTES TO COMBINED FINANCIAL STATEMENTS
JUNE 30, 2001 AND 2000
(UNAUDITED)
1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
Description of Business and Basis of Presentation
The accompanying unaudited combined financial statements of Howard Schultz
& Associates International, Inc. include the accounts of Howard Schultz &
Associates International, Inc. ("HS&A"), its majority-owned subsidiaries, Howard
Schultz & Associates Europe N.V., Howard Schultz & Associates de Mexico, S.A. de
C.V., Howard Schultz & Associates International (Thailand) Limited, HS&A
Imaging, Inc. ("HS&A Imaging") and companies which were under majority common
control and ownership by the controlling stockholders/family members of HS&A,
which are Howard Schultz, Andrew H. Schultz and the Andrew H. Schultz
Irrevocable Trust (the "Schultz Trust"). These entities include Howard Schultz &
Associates (Canada) Inc. ("HS&A Canada"), Howard Schultz & Associates
(Australia) Inc. ("HS&A Australia"), Howard Schultz & Associates (Asia) Limited
("HS&A Asia"), and HS&A International Pte Ltd ("HS&A Singapore"). All entities
included in the combined financial statements are collectively referred to
herein as the "Company". All significant intercompany balances and transactions
have been eliminated in combination.
The accompanying unaudited combined financial statements of HS&A for the
six month periods ended June 30, 2001 and 2000 have been prepared in accordance
with accounting principles generally accepted in the United States of America.
Significant accounting policies followed by the Company were disclosed in the
notes to the combined financial statements for the year ended December 31, 2000.
Operating results for interim periods are not necessarily indicative of the
results that may be expected for the full year. The accompanying financial
statements are for interim periods and should be read in conjunction with the
2000 audited combined financial statements of the Company.
2. RELATED PARTY TRANSACTION
As of June 30, 2001 and December 31, 2000, the Company owed $10,363,000 and
$5,050,000, respectively, to Howard Schultz. The Company paid Mr. Schultz
interest in the amount of $159,000 during the six-month period ended June 30,
2001.
3. STOCKHOLDERS' EQUITY
During the six-month period ended June 30, 2001, the Company granted
options to employees and non-employees to purchase 317,593 shares and 37,638
shares, net of cancellations, of the common stock of HS&A, respectively, at an
exercise price of $9.06.
4. SEGMENT AND RELATED INFORMATION
The Company has one reportable operating segment consisting of accounts
payable services. Accounts payable services consist of the review of client
accounts payable disbursements to identify and recover overpayments. This
operating segment includes accounts payable services provided to retailers,
wholesale distributors and various other types of business entities. The Company
performs these accounts payable services in the United States, Canada, Mexico,
Australia, and throughout Europe and Asia, including France, Spain and Hong
Kong.
F-24
180
HOWARD SCHULTZ & ASSOCIATES INTERNATIONAL, INC.
NOTES TO COMBINED FINANCIAL STATEMENTS -- (CONTINUED)
Geographical information for the six-months ended June 30, 2001 and 2000 is
as follows:
JUNE 30, JUNE 30,
2001 2000
-------- --------
(IN THOUSANDS)
United States............................................... $60,464 $62,798
Europe...................................................... 2,677 2,022
Mexico...................................................... 529 163
Australia................................................... 1,041 826
Canada...................................................... 1,522 944
Asia........................................................ 820 299
------- -------
Revenues, net..................................... $67,053 $67,052
======= =======
Geographical information at June 30, 2001 and 2000 is as follows:
JUNE 30, JUNE 30,
2001 2000
-------- --------
(IN THOUSANDS)
United States............................................... $12,121 $11,061
Europe...................................................... 181 114
Mexico...................................................... 110 85
Australia................................................... 92 98
Canada...................................................... 112 127
Asia........................................................ 194 134
------- -------
Total long-lived assets..................................... $12,810 $11,619
For purposes of the geographical information above, revenues are
attributable to the individual countries based on the location of the customer.
Long-lived assets are attributed to the individual countries based on the
physical location of the assets. Long-lived assets are primarily property and
equipment.
5. COMMITMENTS AND CONTINGENCIES
In May 2001, the Company entered into a settlement agreement with respect
to litigation pending at December 31, 2000, involving a group of independent
contractors formerly associated with the Company. Pursuant to the agreement, the
Company was relieved of certain obligations to pay accrued commissions to those
contractors, which amounted to $3.7 million at the date of settlement. The
Company has no further obligations with respect to those contractors at June 30,
2001.
The Company has contingent liabilities resulting from litigation, claims
and commitments incidental to the ordinary course of business. Management
believes, based on the advice of counsel, that the ultimate resolution of such
contingencies will not have a materially adverse effect on the financial
position, results of operations or liquidity of the Company.
The Company also has contingent liabilities in connection with two Letters
of Credit relating to a loan agreement and a leasing agreement for Howard
Schultz & Associates Europe, N.V. These letters of credit are partially
collateralized by a certificate of deposit of the Company and personal funds of
a shareholder. The unsecured amounts of these contingent liabilities of the
Company were $863,000 and $1,279,000 at June 30, 2001, and December 31, 2000,
respectively.
F-25
181
HOWARD SCHULTZ & ASSOCIATES INTERNATIONAL, INC.
NOTES TO COMBINED FINANCIAL STATEMENTS -- (CONTINUED)
6. SUBSEQUENT EVENTS
On July 13, 2001, the Board of Directors of the Company approved the
issuance of options to purchase 17,500 shares of common stock of HS&A at an
exercise price of $9.06 per share, to certain employees, awarded stock grants
totaling 23,179 shares to certain employees, and granted 64,569 stock
appreciation rights, at a grant price of $9.06 per stock appreciation right, to
certain employees in international markets.
On July 26, 2001, the Company announced that the board of directors had
approved a letter of intent to be acquired by The Profit Recovery Group
International, Inc. ("PRG") in an all-stock transaction, which is expected to
close in the fourth quarter of 2001. The combination is subject to finalization
of a definitive agreement, approval of both companies' shareholders, approval
from PRG's bank syndicate, and customary regulatory approvals.
In connection with the announced acquisition by PRG, the board of directors
of the Company terminated the Company's Management Incentive Plan. On August 22,
2001, the board of directors approved the issuance of options to purchase 79,000
shares of the common stock of HS&A, at an exercise price of $9.06, to the
participants in the Management Incentive Plan.
On September 1, 2001, the Company acquired substantially all of the assets
and certain specified, related liabilities of an independent contractor that
performed recovery audit services for the Company in exchange for a $3.0 million
note payable in six equal quarterly installments beginning January 1, 2002 with
simple interest at the rate of 7.0% per annum.
Also, in July 2001, the Company acquired substantially all of the assets
and certain, specified related liabilities, of an independent contractor of the
Company that performed recovery audit and information technology services for
the Company, in a tax-free reorganization in exchange for 307,482 newly-issued
shares of the Company's no par value, voting common stock, assumption and
payment of $1,000,000 in debt (repaid upon assumption) and forgiveness of
$2,048,000 of advances to the independent contractor outstanding as of the
acquisition date.
F-26
182
ANNEX A
ASSET AGREEMENT
AGREEMENT AND PLAN OF REORGANIZATION
THIS AGREEMENT AND PLAN OF REORGANIZATION (the "Agreement") is made as of
the 3rd day of August, 2001, by and among THE PROFIT RECOVERY GROUP
INTERNATIONAL, INC., a Georgia corporation ("PRGX"), HOWARD SCHULTZ & ASSOCIATES
INTERNATIONAL, INC., a Texas corporation ("HSA-Texas"), HOWARD SCHULTZ, a Texas
resident ("H. Schultz"), ANDREW H. SCHULTZ, a Texas resident ("A. Schultz"),
each of the trusts identified on the signature pages hereto (collectively, the
"Trusts" and individually a "Trust") (each of H. Schultz, A. Schultz and the
Trusts being collectively, the "Shareholders" and individually a "Shareholder"),
and H. SCHULTZ, as representative of the Shareholders ("Shareholders'
Representative").
W I T N E S S E T H :
WHEREAS, HSA-Texas is in the business of (a) auditing accounts payable
records, occupancy costs, vendor statements and direct to store delivery records
to recover overpayments that are a result of missed credits, duplicated
payments, overlooked allowances, incorrect invoices and other discrepancies,
through its Global Data Services (GDS) Center, Associate Support Center,
Occupancy Cost Audit Group, Statement Audit Group, Direct to Store Delivery
Group and Commercial Audit Group and (b) operating a document imaging service
bureau and selling and dealing in electronic document imaging and microfilming
services (collectively, the "Business");
WHEREAS, HSA-Texas conducts the Business in the United States and in
non-U.S. countries (a) through those first-tier and second-tier majority owned
subsidiaries of HSA-Texas listed on Schedule 1(a) attached hereto (collectively,
the "Subsidiaries" and individually a "Subsidiary"; and the Subsidiaries,
collectively with HSA-Texas, being the "Companies" and individually, a
"Company") and (b) through licenses granted to those entities listed on Schedule
1(b) attached hereto (collectively, the "Licensees" and individually, a
"Licensee");
WHEREAS, the parties hereto desire to enter into a plan of reorganization
qualifying under Section 368(a)(1)(C) of the Internal Revenue Code of 1986, as
amended (the "Code"), whereby HSA-Texas shall transfer to PRGX, and PRGX shall
acquire, substantially all of the assets of HSA-Texas used or held for use in
the Business in exchange for shares of common stock of PRGX, no par value per
share ("PRGX Common Stock"), pursuant to the terms of this Agreement (the
"Acquisition");
WHEREAS, HSA-Texas and Howard Schultz & Partner (Deutschland) GmbH (the
"German Licensee") are negotiating an option for HSA-Texas to acquire the
business and operations of Howard Schultz & Partner (Deutschland) GmbH which
company has a license to operate the Business in Germany and Austria (the
"German Acquisition");
WHEREAS, HSA-Texas is negotiating agreements to acquire solely for cash and
promissory notes the business and operations of Phoenix Audit Recoveries, Inc.
and JASAMA, INC., which are independent contractors of HSA-Texas and operate the
direct to store delivery operations ("DSD Operations") of the Business
(collectively the "DSD Acquisitions");
WHEREAS, HSA-Texas is negotiating to acquire all of the outstanding equity
of Tamebond Ltd. and J&G Associates Ltd. in order to acquire the business and
operations of Howard Schultz & Associates (International) Ltd. (the "U.K.
Licensee") which has a license to operate the HSA-Texas Business in the United
Kingdom (the "U.K. Acquisition");
WHEREAS, PRGX intends to acquire solely in exchange for registered shares
of PRGX Common Stock, concurrently with the consummation of the Acquisition, all
outstanding equity of the following affiliates of HSA-Texas (a) Howard Schultz &
Associates (Asia) Limited, a Hong Kong corporation and a Licensee
A-1
183
("HSA Asia"), from H. Schultz, (b) HS&A International Pte Ltd., a Singapore
corporation ("HSA Singapore"); (c) Howard Schultz & Associates (Australia),
Inc., a Texas corporation and a Licensee ("HSA Australia"), from the Andrew H.
Schultz Irrevocable Trust (the "AHS Irrevocable Trust") and (d) Howard Schultz &
Associates (Canada), Inc., a Texas corporation and a Licensee ("HSA Canada"),
from the AHS Irrevocable Trust, pursuant to a Stock Purchase Agreement of even
date herewith (collectively, HSA Asia, HSA Singapore, HSA Australia and HSA
Canada being the "Concurrent Companies," such agreement being the "Stock
Agreement," and such acquisitions collectively being the "Concurrent
Acquisitions");
WHEREAS, prior to or at the Closing, each of the Shareholders shall
contribute all of the shares of common stock of each Subsidiary owned by him or
it to the direct parent corporation of such Subsidiary holding a majority of the
capital stock of such Subsidiary or such parent corporation's designee without
consideration as provided in Section 4.20 hereof;
WHEREAS, as of the date hereof, HSA-Texas' authorized capital stock
consists of 12,000,000 shares of common stock, no par value per share, 2,000,000
of which having voting rights ("HSA-Texas Voting Common Stock") and 10,000,000
of which have no voting rights except where Texas law requires ("HSA-Texas
Non-Voting Common Stock" and collectively with the HSA-Texas Voting Common
Stock, the "HSA-Texas Common Stock") and the Shareholders own a majority of the
outstanding shares of HSA-Texas Common Stock;
WHEREAS, the parties hereto desire to set forth certain representations,
warranties and covenants made by each to the other as an inducement to the
consummation of the transactions contemplated herein and certain additional
agreements related thereto;
NOW, THEREFORE, in consideration of the premises, the mutual
representations, warranties and covenants herein contained and other good and
valuable consideration, the receipt and sufficiency of which are hereby
acknowledged, the parties hereby agree as follows:
Appendix A attached hereto contains a list of the location, by Section
reference, of the definition of each capitalized term used herein.
ARTICLE 1
REORGANIZATION
1.1 ASSETS TO BE ACQUIRED. Subject to and upon the terms and conditions
set forth herein, PRGX agrees to acquire from HSA-Texas, and HSA-Texas agrees to
transfer to PRGX, as of the Effective Date, except as provided in Section 1.2
hereof, all right, title and interest in and to the tangible and intangible
assets of HSA-Texas used or held for use in the conduct of the Business as of
the Effective Date, including assets which have been fully depreciated,
amortized and/or expensed, whether or not reflected on the Estimated Balance
Sheet of HSA-Texas, free and clear of all claims, liens, encumbrances, security
interests and similar interests of any kind or nature whatsoever except for the
Permitted Encumbrances (collectively, the "Acquired Assets") including the
following:
(a) all machinery, appliances, equipment, including computer hardware
(and as to each computer, the software licensed for use thereon), tools,
supplies, leasehold improvements, furniture and fixtures, used or held for
use by HSA-Texas in connection with the Business as of the Effective Date,
including those items listed on Schedule 1.1(a) attached hereto
(collectively, the "Fixed Assets");
(b) all written and oral "Contracts" (which, for purposes hereof,
shall include all written or oral contracts with Clients (collectively, the
"Client Contracts"), employment agreements, agreements with Associates,
agreements with independent contractors, agreements with Licensees, the
right to acquire the business and operations of the U.K. Licensee and the
German Licensee, and all other agreements and instruments relating to the
Acquired Assets and the operation of the Business to which HSA-Texas is a
party or to which the Acquired Assets are subject or bound, except for any
Lease) which PRGX specifically agrees to assume, which assumption shall be
evidenced by inclusion of such Contract by
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PRGX on a schedule to the Assignment and Assumption Agreement
(collectively, "Assigned Contracts");
(c) all accounts receivable, notes receivable, employee, independent
contractor and associate advances made by HSA-Texas (collectively,
"Accounts Receivable") and all work in progress including all unbilled
claims of HSA-Texas (collectively, the "Work in Progress");
(d) all benefits accruing to HSA-Texas as lessee or sublessee under,
those "Leases" (which, for purposes hereof, means all written and oral
leases or subleases in respect of the Business and to which HSA-Texas is a
party, including all real property and equipment leases), which PRGX
specifically agrees to assume, which assumption shall be evidenced by
inclusion of such Lease by PRGX on a schedule to the Assignment and
Assumption Agreement (collectively, the "Assigned Leases");
(e) all intellectual property used or owned by HSA-Texas or the
Business, including the trade names "Howard Schultz & Associates," "HS&A",
"SUREF!ND(R)" "DIRECTF!ND(TM)", "NETF!ND(TM)", and any other trade names,
trademarks, service marks, brand names, certification marks, trade dress
and other indications of origin, the goodwill associated with the foregoing
and registrations in any jurisdiction of, and applications in any
jurisdiction to register, the foregoing, including any extension,
modification or renewal of any such registration or application;
inventions, discoveries and ideas, whether patentable or not, in any local,
state, U.S. or non-U.S. jurisdiction; patents, applications for patents
(including, without limitation, divisions, continuations, continuations in
part and renewal applications), and any renewals, extensions or reissues
thereof, in any local, state, U.S. or non-U.S. jurisdiction; nonpublic
information, trade secrets and confidential information and rights in any
jurisdiction to limit the use or disclosure thereof by any person; writings
and other works, whether copyrightable or not, in any local, state, U.S. or
non-U.S. jurisdiction; and registrations or applications for registration
of copyrights in any local, state, U.S. or non-U.S. jurisdiction, and any
renewals or extensions thereof; all computer and electronic data processing
programs and software programs and systems and related documentation,
research projects, computer software under development, software concepts
owned and proprietary intellectual property, processes, formulae and
algorithms, including all intellectual property used in the ownership,
marketing, development, maintenance, support and delivery of the software
and presently owned or licensed by HSA-Texas which are used or proposed to
be used or reserved for use by HSA-Texas in the Business (including
SUREF!ND(R) software, DIRECTF!ND(TM) software, NETF!ND(TM) software, and
any other computer software programs and databases developed by or for
HSA-Texas and the Business or licensed to them) (the "Software"); all
inventions, improvements, developments, modifications and derivative works,
whether or not reduced to practice, which HSA-Texas, Shareholders, or any
employee of HSA-Texas, together or individually, alone or in combination
with each other or any other person, has made which relates to the Business
(collectively, "Developments"); all know-how, trade secrets, formulas,
confidential information, customer lists, technical information, data,
reports, deliverables, source code, object code, process technology, plans,
drawings and blueprints; and any similar intellectual property or
proprietary rights, including those set forth on Schedule 5.19 attached
hereto (collectively, the "Intellectual Property Assets");
(f) all of HSA-Texas' licenses, consents, permits, variances,
certifications and approvals of all Governmental Entities, to the extent
assignable, including those listed on Schedule 1.1(f) attached hereto
(collectively, the "Licenses and Permits");
(g) all claims, security and other deposits, refunds, prepaid
expenses, causes of action, lawsuits, choses in action, rights of recovery
and rights to indemnification, warranty rights, rights under non-
disclosure, non-competition, non-solicitation, and similar agreements, and
rights of set off in respect of the Business and Acquired Assets, including
those items listed on Schedule 1.1(g) attached hereto (collectively, the
"Deposits and Other Rights");
(h) all of HSA-Texas' client and supplier lists, all client files, all
files related to employees, consultants or independent contractors, all
computer data bases and other business records relating to the Acquired
Assets other than HSA-Texas' corporate minute books and stock records;
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(i) all of HSA-Texas' telephone numbers and the directory advertising
for such telephone numbers;
(j) all of HSA-Texas' bank accounts, lock boxes (including the
contents thereof), safety deposit boxes (including the contents thereof),
including those listed on Schedule 1.1(j) attached hereto;
(k) all of HSA-Texas' cash on hand, cash in bank or other financial
institution accounts and cash equivalents;
(l) all of HSA-Texas' equity ownership interests, including shares of
voting and non-voting common and preferred stock, in all of the
Subsidiaries, and interests in any joint ventures; and
(m) all of HSA-Texas' other tangible personal property and intangible
property used or held for use in connection with the Business, including
any and all goodwill and going concern value of the Business and the
Companies.
1.2 EXCLUDED ASSETS. Notwithstanding anything to the contrary contained in
Section 1.1 hereof, PRGX shall not acquire, and HSA-Texas shall not transfer to
PRGX, the following assets (collectively, the "Excluded Assets"):
(a) HSA-Texas' corporate minute and stock books;
(b) any assets held under any pension, profit sharing or other
Employee Benefit Plan;
(c) the amount of cash, up to a maximum of $7,000, required for
funding termination obligations, if any, of HSA-Texas in respect of the
HSA-Texas 401k Plan;
(d) the two parcels of real property and the improvements thereon used
on the date hereof as the HSA-Texas headquarters in Dallas, Texas, located
at the addresses and with the legal descriptions, as set forth on Schedule
1.2 attached hereto (such real property and improvements collectively being
the "Dallas Headquarters");
(e) the amount of any cash received by HSA-Texas after the date hereof
attributable to the exercise by employees of HSA-Texas of any options to
purchase HSA-Texas Common Stock; and
(f) an amount of cash, and to the extent cash is insufficient,
accounts receivable of HSA-Texas (the "Retained Accounts") having a face
amount, which in the reasonable estimation of the Shareholders, as agreed
to by PRGX, is in an amount sufficient to enable the Shareholders to pay
Flow-Through Taxes (but not to pay taxes on any gains or income on the
transactions contemplated herein) resulting from normal operations in the
ordinary course of business for the period beginning on January 1, 2001
through the Closing Date and any Flow-Through Taxes attributable to the
collection of the Retained Accounts; provided in the event that the amount
of Flow-Through Taxes paid is less than the face amount of the retained
accounts receivable, HSA-Texas shall pay PRGX the amount of such excess in
cash or by return to PRGX of any such uncollected accounts receivable
promptly after payment of the Flow-Through Taxes.
1.3 CONVEYANCE OF ASSETS. The conveyance, transfer and delivery of the
Acquired Assets shall be made by HSA-Texas and accepted by PRGX on the Closing
Date, as of the Effective Date, as follows:
(a) HSA-Texas shall execute and deliver to PRGX a bill of sale in the
form of Exhibit 1.3(a) attached hereto and made a part hereof (the "Bill of
Sale");
(b) HSA-Texas and PRGX shall execute and deliver to PRGX an Assignment
and Assumption Agreement in the form of Exhibit 1.3(b) attached hereto and
made a part hereof (the "Assignment and Assumption Agreement") with respect
to the Assumed Liabilities;
(c) HSA-Texas shall execute and deliver to PRGX a trademark assignment
in the form of Exhibit 1.3(c)-1 attached hereto and made a part hereof and
a copyright assignment in the form of Exhibit 1.3(c)-2 attached hereto and
made a part hereof; and
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(d) HSA-Texas shall execute and deliver such additional instruments of
transfer, conveyance and assignment on the Closing Date, as counsel to
HSA-Texas and counsel to PRGX shall mutually deem necessary or appropriate.
1.4 CLOSING. The closing of the transactions contemplated herein (the
"Closing") shall take place at 10:00 a.m. Eastern time on a date to be specified
by the parties, which shall be no later than the tenth business day after the
satisfaction or waiver (subject to applicable law) of the conditions set forth
in Article 8 hereof, unless another time or date is agreed to by the parties
hereto (the "Closing Date"). The Closing will be held at the offices of Arnall
Golden Gregory LLP, Atlanta, Georgia. The Closing shall be effective as of 12:01
a.m., Eastern time, on the date which is either the last day of the month
immediately preceding the Closing Date or the first day of the month in which
the Closing occurs, as mutually agreed to by PRGX and HSA-Texas (the "Effective
Date"). For tax purposes, the Acquisition shall be effective on the Closing
Date. For accounting purposes, the parties intend that effective control of the
Business and the Acquired Assets, including all risks and rewards of ownership,
all cash receipts, profits and losses, and all benefits and burdens of ownership
shall transfer to PRGX on and as of the Effective Date, and, all day-to-day
management and operating control of the Business and the Acquired Assets shall
pass to PRGX from and after the Effective Date and all computations, adjustments
and transfers pursuant hereto for purposes hereof shall be on and as of 12:01
a.m. Eastern time, on the Effective Date. Accordingly, after the Closing, PRGX
will be responsible for and pay when due any and all normal operating expenses
of the Business incurred in the ordinary course of business by HSA-Texas during
the period between the Effective Date through the Closing Date which are Assumed
Liabilities hereunder.
ARTICLE 2
CONSIDERATION; ASSUMPTION OF LIABILITIES
2.1 CONSIDERATION.
(a) Determination of Consideration. Subject to the terms and conditions of
this Agreement and subject to the possible forfeiture of certain shares of PRGX
Common Stock as provided in Section 2.5 hereof, the aggregate consideration (the
"Consideration") payable to HSA-Texas for the Acquired Assets shall be
determined as follows:
(i) 16,000,000 shares of PRGX Common Stock;
(ii) less that number of shares of PRGX Common Stock (the "DSD
Shares") equal to (A) the aggregate purchase price (including liabilities
assumed or taken subject to) paid or to be paid by HSA-Texas pursuant to
definitive signed agreements with respect to the DSD Acquisitions (or if
definitive agreement(s) are not signed with respect to either of the DSD
Acquisitions prior to the mailing of the Joint Proxy Statement/Prospectus
to the PRGX shareholders, an amount mutually agreed upon by PRGX and
HSA-Texas as representing the estimated purchase price for such DSD
Acquisition(s)) (B) divided by the lesser of (1) $6.50 or (2) the average
closing price per share of PRGX Common Stock (as reported in The Wall
Street Journal) for the 5 consecutive trading days ending on the fifth
trading day immediately preceding the Closing Date (the "PRGX Average
Price");
(iii) less the aggregate number of shares of PRGX Common Stock issued
by PRGX in connection with the Concurrent Acquisitions pursuant to the
Stock Agreements (the "Concurrent Acquisition Shares");
(iv) less that number of shares of PRGX Common Stock determined, as
follows:
(A) first, calculate the aggregate "in the money" value of
HSA-Texas Options outstanding on the Closing Date (including both the
HSA-Texas Options of Persons Not Hired and HSA-Texas Options which are
Options to be Assumed) in accordance with Section 2.1(b) below;
(B) second, calculate the aggregate "in the money" value of the
HSA-Texas SARs outstanding on the Closing Date in accordance with
Section 2.1(b) below;
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(C) third, add the result of the calculations in Section
2.1(a)(iv)(A) and Section 2.1(a)(iv)(B) above, and divide the sum by the
PRGX Average Price.
(b) "In the Money" Calculation. The "in the money" value of HSA-Texas
Options and HSA-Texas SARs is determined, as follows:
(i) multiply (16,000,000 less the DSD Shares and less the Concurrent
Acquisition Shares) by the PRGX Average Price;
(ii) divide the product in (i) above by the sum of (A) the number of
shares of HSA-Texas Common Stock outstanding on the Closing Date, (B) the
number of shares of HSA-Texas Common Stock subject to HSA-Texas Options
(both HSA-Texas Options of Persons Not Hired and Options to be Assumed)
outstanding on the Closing Date, and (C) and the number of HSA-Texas SARs
outstanding on the Closing Date;
(iii) the quotient in (ii) above is the "Per Share Value" of the gross
consideration paid by PRGX for HSA-Texas' Acquired Assets (before reducing
such gross consideration by the "in the money" value of the HSA-Texas
Options and HSA-Texas SARs outstanding on the Closing Date);
(iv) the per share "in the money" value of each HSA-Texas Option and
each HSA-Texas SAR equals the Per Share Value less the respective exercise
price of such HSA-Texas Option and the grant price of such HSA-Texas SARs;
(v) the aggregate "in the money value" of the HSA-Texas Options or
HSA-Texas SARs, as the case may be, equals the product of the per share "in
the money value" of each HSA-Texas Option or each HSA-Texas SAR granted at
a particular exercise or grant price, times the total number of HSA-Texas
Options or HSA-Texas SARs outstanding at Closing granted at such exercise
or grant price; and
(vi) the sum of the aggregate "in the money value" of the HSA-Texas
Options and the HSA-Texas SARs divided by the PRGX Average Price determines
the number of shares of PRGX Common Stock to be deducted in Section
2.1(a)(iv) above.
(c) Payment to HSA-Texas at Closing. On the Closing Date, HSA-Texas shall
be entitled to receive a stock certificate or certificates for that number of
shares of PRGX Common Stock equal to the Consideration less the Escrow Shares.
2.2 ASSUMPTION OF LIABILITIES.
(a) PRGX agrees to assume on the Closing Date, as of the Effective Date,
only the following liabilities outstanding as of the Effective Date, to the
extent not included in Retained Liabilities (collectively, the liabilities
described in Sections 2.2(a) and 2.2(b) hereof being the "Assumed Liabilities"):
all liabilities and obligations of HSA-Texas to the extent disclosed either on
the December 31, 2000 balance sheet contained in the Audited Statements or on
the Estimated Balance Sheet, prepared as provided herein and all liabilities and
obligations of HSA-Texas incurred by HSA-Texas in the ordinary course of
Business after the Effective Date consistent with past practices, and the amount
of principal and interest outstanding on the Effective Date in respect of the
Assumed Schultz Loan (without duplication of any other Assumed Liability). For
purposes hereof, "Assumed Schultz Loan" means that portion of HSA-Texas'
obligations to H. Schultz as of the Effective Date solely for amounts loaned to
HSA-Texas for the following:
(i) normal operations of the Business to be acquired pursuant hereto,
including amounts expended by the Business in acquisitions of assets
utilized by the Business (except for amounts equal to cash distributions to
Shareholders after December 31, 2000, other than normal compensation and
expense reimbursement, which cash distribution amounts will not be deemed
part of the Assumed Schultz Loan),
(ii) the aggregate amount paid or to be paid (including liabilities
assumed or taken subject to) pursuant to definitive signed agreements with
respect to the DSD Acquisitions;
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(iii) that portion of the aggregate amount paid by HSA-Texas to the
holders of HSA-Texas SARs to extinguish their rights thereunder prior to or
concurrently with the Closing which represents the "in the money" value of
the HSA-Texas SARs, together with applicable withholding amounts,
(iv) that portion of the aggregate amount paid by HSA-Texas to the
Optionees who are Persons Not Hired to cancel their HSA-Texas Options prior
to or concurrently with the Closing which represents the "in the money
value" of all such HSA-Texas Options of Persons Not Hired, together with
applicable withholding amounts,
(v) all HSA-Texas Transaction Expenses, and
(vi) principal and interest payments since December 31, 2000 on the
acquisition related notes payable described in Note 3 of the Audited
Statements (the "Acquisition Related Notes").
(b) Without limiting the generality of the foregoing, PRGX shall assume on
the Closing Date, as of the Effective Date, the following liabilities of
HSA-Texas:
(i) all outstanding obligations and liabilities of HSA-Texas arising
from and after the Effective Date under the Assigned Contracts and the
Assigned Leases;
(ii) the aggregate principal and accrued interest amount of the Change
in Status Payments, if any, to the extent accrued on the Estimated Balance
Sheet and outstanding on the Effective Date;
(iii) commission amounts payable to Associates or commissioned
employees whether or not they accept employment with PRGX or its designee
upon collection of Work in Progress outstanding on the Effective Date which
is converted to accounts receivable after the Effective Date, net of any
deductions attributable to Vendor Paybacks (except to the extent any
Associate has agreed in writing to accept a Change in Status Payment in
lieu of such commission amounts); and
(iv) amounts owed under HSA-Texas' severance policies in effect as of
the date hereof to any employee of the Companies to whom PRGX and HSA-Texas
have mutually agreed not to offer employment by PRGX or any of its
affiliates to the extent such amounts are specified on Schedule 2.2(b)(iv)
attached hereto (the "Assumed Severance Amount");
(c) Concurrently with the Closing, PRGX shall pay H. Schultz in immediately
available funds the entire amount of principal and accrued interest outstanding
at Closing on the Assumed Schultz Loan in full and final settlement thereof.
2.3 RETAINED LIABILITIES. The liabilities and obligations which shall be
retained by HSA-Texas shall consist of all liabilities of HSA-Texas other than
the Assumed Liabilities, including the following (the "Retained Liabilities"):
(a) except as specifically provided herein with respect to amounts
owed as of the Effective Date which are included on the December 31, 2000
balance sheet included in the Audited Statements, Estimated Balance Sheets,
and the Assumed Schultz Loan, all liabilities of HSA-Texas relating to
indebtedness for borrowed money;
(b) all liabilities of the Companies and Shareholders for federal,
state, local or foreign Taxes, including Taxes incurred in respect of or
measured by (i) the income of the Companies earned on or realized prior to
the Effective Date to the extent such liabilities exceed the amount accrued
for such liabilities on the December 31, 2000 Audited Statements and/or the
Estimated Balance Sheet and (ii) any gain or income from the transfer of
the Acquired Assets and other transactions contemplated herein;
(c) all liabilities secured by or related to the Dallas Headquarters
property described on Schedule 1.2 attached hereto;
(d) all claims and liabilities, whether arising on or before, or
subsequent to Closing, resulting from HSA-Texas' or Shareholders' breach,
on or before Closing, of any covenant, condition or other obligation
required of HSA-Texas or Shareholders under any Contract or Lease;
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(e) all amounts owed under HSA-Texas' severance policies to any
employee or Associate of the Companies (i) to whom PRGUSA offered
employment as of the Closing Date and who either (a) rejected PRGUSA' offer
of employment, (b) did not satisfy on the Closing Date the Employment
Conditions specified herein or (c) voluntarily resigned his employment with
PRGUSA within 30 days after the commencement of such person's employment
with PRGUSA or (ii) to whom PRGUSA offered engagement as an independent
contractor and such person did not accept such engagement (collectively
"Persons Not Hired");
(f) except as specifically provided in Section 2.2(b)(iv) with respect
to certain severance obligations, any liabilities with respect to employee
benefits or under any Employee Benefit Plan;
(g) all non-Business payables of any of the Companies, meaning those
not directly related to the Business to be acquired by PRGX pursuant
hereto;
(h) all obligations and liabilities with respect to HSA-Texas Options
of Persons Not Hired and HSA-Texas SARs; and
(i) all obligations and liabilities to any shareholder of HSA Texas
who exercises dissenters' rights.
2.4 HSA-TEXAS OPTIONS AND HSA-TEXAS SARS.
(a) Assumed Options. Concurrently with the Closing, PRGX will assume all
of the HSA-Texas Options held by each of those Optionees identified on Schedule
5.5(b) hereof, who either is offered and accepts employment with PRGX and meets
the Employment Conditions, is offered and accepts engagement by PRGX as an
independent contractor, or has agreed to serve on the Board of Directors of PRGX
(with all of the HSA-Texas Options of such Optionees being the "Options to be
Assumed"). With respect to each of the Options to be Assumed, PRGX shall
substitute PRGX Common Stock for HSA-Texas Common Stock in respect of the
unexercised portion of such HSA-Texas Option in accordance with the 1999 Howard
Schultz & Associates Stock Option Plan, as amended prior to the Closing Date in
accordance herewith (the "HSA-Texas Option Plan") and based on the Option
Conversion Ratio described herein (after such assumption and conversion, the
"Assumed Options"). Effective upon the Closing, PRGX shall adopt a stock option
plan providing substantially the same terms and conditions as the HSA-Texas
Option Plan, as amended as described herein for the administration by PRGX of
the Assumed Options. The number of shares of PRGX Common Stock subject to each
Assumed Option shall equal the number of shares of HSA-Texas Common Stock to
which the corresponding HSA-Texas Option was subject immediately prior to the
Closing, multiplied by the Option Conversion Ratio (rounded to the nearest whole
share), and the per share exercise price of such Assumed Option shall equal the
exercise price of the corresponding HSA-Texas Option immediately prior to the
Closing, divided by the Option Conversion Ratio, rounded upward to the nearest
whole cent. The Assumed Options shall be fully vested and immediately
exercisable upon the Closing, subject to compliance with applicable federal and
state securities laws, and shall expire on the fifth anniversary of the Closing
Date.
(b) Amendment to HSA-Texas Option Plan; Mechanics for Receiving Assumed
Option. Prior to Closing, HSA-Texas shall adopt an amended and restated
HSA-Texas Option Plan in substantially the same form attached hereto as Exhibit
2.4(b), and, if necessary, amend the HSA-Texas option grant agreements, in order
to extend the expiration date of the HSA-Texas Options upon a "change of
control" as defined therein to five years, modify or delete those provisions
that relate to HSA-Texas' status as a private company whose shares of capital
stock are not publicly traded and such other amendments as mutually agreed by
PRGX and HSA-Texas. Promptly after the Closing, HSA-Texas and PRGX shall jointly
notify all Optionees whose HSA-Texas Options have become Assumed Options of the
number of shares of PRGX Common Stock subject thereto and the exercise price
thereof. HSA-Texas shall cooperate with PRGX in connection with PRGX's
distribution of this information to the Optionees as described herein.
(c) Option Conversion Ratio. For purposes hereof, the "Option Conversion
Ratio" means the Per Share Value, as determined pursuant to Section 2.1(a)
hereof, divided by the PRGX Average Price.
(d) Adjustments. If, between the date of this Agreement and the Closing
Date, the outstanding PRGX Common Stock or HSA-Texas Common Stock shall have
been changed into a different number of shares or
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different class by reason of any reclassification, recapitalization, stock
split, split-up, combination or exchange of shares, or a stock dividend or
dividend payable in any other securities shall be declared with a record date
within such period, or any similar event shall have occurred, the Option
Conversion Ratio, to the extent not adjusted as a result of the adjustment to
the PRGX Average Price, shall be appropriately adjusted to provide to the
Optionees the same economic effect as contemplated by this Agreement prior to
such event.
(e) Form S-8. PRGX shall take all corporate action necessary to reserve
for issuance a sufficient number of shares of PRGX Common Stock for delivery
upon exercise of the Assumed Options. As soon as practicable, but in no event
more than 30 days, after the Closing Date, PRGX shall file a registration
statement on Form S-8 (or any successor or other appropriate form) with respect
to the shares of PRGX Common Stock subject to such Assumed Options, and shall
use its commercially reasonable efforts to maintain the effectiveness of such
registration statement or registration statements (and maintain the current
status of the prospectus or prospectuses referred to therein) for so long as
such Assumed Options remain outstanding.
(f) HSA-Texas SARs. With respect to all stock appreciation rights granted
by HSA-Texas (collectively, the "HSA-Texas SARs"), HSA-Texas shall, prior to or
concurrently with the Closing, acquire for cash in an amount equal to the
aggregate difference between the Per Share Value and the grant price of such
HSA-Texas SARs plus any other amount required to extinguish such HSA-Texas SARs.
HSA-Texas will be responsible for deducting or withholding from such payment and
remitting to the appropriate Tax Authority(ies) such amount or amounts as may be
required to be so deducted or withheld pursuant to applicable federal, state or
local laws.
(g) Persons Not Hired. In respect of the HSA-Texas Options held by any
Person Not Hired, HSA-Texas shall, prior to or concurrently with the Closing,
cancel all such HSA-Texas Options and pay such Optionees an amount in cash equal
to the "spread" in respect of such HSA-Texas Option, as defined in and in
accordance with Article XI of the HSA-Texas Option Plan. HSA-Texas will be
responsible for deducting or withholding from such payment and remitting to the
appropriate Tax Authority(ies) such amount or amounts as may be required to be
so deducted or withheld pursuant to applicable federal, state or local laws.
2.5 ESCROW. At the Closing, pursuant to the terms of the Escrow Agreement
by and among PRGX, HSA-Texas, the Shareholders' Representative and the
Shareholders in the form of Exhibit 2.5 attached hereto (the "Escrow
Agreement"), PRGX shall retain from the aggregate Consideration to be paid to
HSA-Texas (i) 2,300,000 shares of PRGX Common Stock (the "U.K. Escrow Shares")
in escrow pending the consummation of the U.K. Acquisition, (ii) 200,000 shares
of PRGX Common Stock (the "German Escrow Shares"), in escrow pending the
consummation of the German Acquisition, and (iii) in the event that HSA-Texas
has not consummated the DSD Acquisition to PRGX's reasonable satisfaction prior
to the Closing, 500,000 shares of PRGX Common Stock in escrow pending the
consummation of the DSD Acquisition (the "DSD Escrow Shares" and collectively
with the U.K. Escrow Shares and the German Escrow Shares, the "Escrow Shares").
The U.K. Acquisition, the German Acquisition and the DSD Acquisition are
hereinafter referred to as the "Escrow Acquisitions". The Escrow Shares in
respect of each of such acquisition shall be released, as provided in the Escrow
Agreement. In the event any of the Escrow Acquisitions are consummated prior to
the Closing Date in accordance with an agreement approved by PRGX as provided in
Section 4.25 hereof, the Escrow Shares in respect of such Escrow Acquisition
shall not be deposited in escrow in accordance herewith, but instead shall be
paid as Consideration hereunder to HSA-Texas.
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ARTICLE 3
APPROVALS; REGISTRATION STATEMENT
3.1 APPROVALS; S-4 REGISTRATION STATEMENT AND JOINT PROXY
STATEMENT/PROSPECTUS; SHAREHOLDER MEETINGS.
(a) PRGX Approvals.
(i) PRGX Recommendations. PRGX hereby represents that the PRGX Board
of Directors (the "PRGX Board"), at a meeting duly called and held, has (A)
approved this Agreement and the transactions contemplated hereby, including
the Acquisition and the Concurrent Acquisitions, the issuance of shares of
PRGX Common Stock as Consideration in connection with the Acquisition, the
Concurrent Acquisitions and the assumption of the Assumed Options (the
"PRGX Share Issuance"), and (B) resolved to recommend approval and adoption
of this Agreement, the Stock Agreement, the Acquisition, the Concurrent
Acquisitions and the PRGX Share Issuance by the PRGX shareholders at the
PRGX Special Meeting (the recommendations referred to in clause (B) above
are collectively referred to in this Agreement as the "PRGX
Recommendations").
(ii) Opinion of PRGX Financial Advisor. PRGX has received the opinion
of Merrill Lynch (the "Fairness Opinion"), dated on or about the date of
the Letter of Intent by and among PRGX, HSA-Texas, the Shareholders and
certain other shareholders of HSA-Texas dated July 24, 2001 (the "Letter of
Intent"), and updated as of the date hereof, to the effect that, as of such
date, the aggregate consideration to be paid to PRGX pursuant to this
Agreement and the Stock Agreement is fair to PRGX from a financial point of
view, a copy of which opinion will be made available to HSA-Texas promptly
after the date of this Agreement.
(iii) PRGX Special Meeting. PRGX shall, in accordance with all
applicable laws, subject to the condition in Section 8.1(c) having been
met, duly call, give notice of, convene and hold a special meeting of its
shareholders (the "PRGX Special Meeting") as soon as practicable for the
purpose of considering and taking action on the PRGX Recommendations.
(b) HSA-Texas Approvals.
(i) HSA-Texas Recommendations. HSA-Texas and the Shareholders
hereby represent and warrant that the HSA-Texas Board of Directors (the
"HSA-Texas Board"), at a meeting duly called and held, has unanimously
(A) approved this Agreement and the transactions contemplated hereby,
including the Acquisition and the Concurrent Acquisitions, and (B)
resolved to recommend approval and adoption of this Agreement, the
Acquisition and the Concurrent Acquisitions by the HSA-Texas
shareholders (the recommendations referred to in clause (B) above are
collectively referred to in this Agreement as the "HSA-Texas
Recommendations").
(ii) HSA-Texas Special Meeting. HSA-Texas, acting through the
HSA-Texas Board, shall, in accordance with all applicable laws, within 7
days after the receipt of the final Joint Proxy Statement/Prospectus,
described below, convene and hold a special meeting of its shareholders
(with such meeting having been previously duly called and notice having
previously been duly given in accordance with Texas corporate law) for
the purpose of considering and taking action on the HSA-Texas
Recommendations (the "HSA-Texas Special Meeting").
(c) Form S-4 Registration Statement. As promptly as practicable after the
date of this Agreement, PRGX will prepare and file with the Securities and
Exchange Commission (the "SEC") a registration statement on Form S-4 (the
"Registration Statement") in connection with the registration under the
Securities Act of 1933, as amended (the "Securities Act"), of the PRGX Share
Issuance as provided herein, which Registration Statement, when declared
effective by the SEC, shall contain (i) a proxy statement to be mailed by PRGX
to its shareholders in connection with the vote of such shareholders with
respect to the PRGX Recommendations and (ii) a prospectus of PRGX in connection
with such registration under the Securities Act (together, the "Joint Proxy
Statement/Prospectus").
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(d) Cooperation. PRGX shall obtain and furnish the information required to
be included by the SEC in the Joint Proxy Statement/Prospectus. HSA-Texas and
Shareholders agree that they will promptly provide PRGX with information
concerning HSA-Texas and Shareholders required to be included in the Joint Proxy
Statement/Prospectus. PRGX shall use its reasonable best efforts to respond to
any comments of the SEC with respect to the Registration Statement as promptly
as practicable. If at any time prior to the Closing Date there shall occur any
event with respect to PRGX or HSA-Texas or any of their respective subsidiaries,
as the case may be, or with respect to other information supplied by PRGX or
HSA-Texas, as the case may be, for inclusion in the Registration Statement, in
either case which event is required to be described in an amendment of, or a
supplement to, the Joint Proxy Statement/Prospectus or the Registration
Statement, PRGX or HSA-Texas shall notify the other party, and such event shall
be so described, and such amendment or supplement shall be promptly filed with
the SEC and, as required by applicable law, disseminated to the PRGX
shareholders and the HSA-Texas shareholders. PRGX shall notify HSA-Texas
promptly upon (i) the declaration by the SEC of the effectiveness of the
Registration Statement, (ii) the issuance or threatened issuance of any stop
order or other order preventing or suspending the use of any prospectus relating
to the Registration Statement, (iii) any suspension or threatened suspension of
the use of any prospectus relating to the Registration Statement in any state,
(iv) any proceedings commenced or threatened to be commenced by the SEC or any
state securities commission that might result in the issuance of a stop order or
other order or suspension of use or (v) any request by the SEC to supplement or
amend the Joint Proxy Statement/ Prospectus after the effectiveness thereof.
PRGX and, to the extent applicable, HSA-Texas, shall use their reasonable best
efforts to prevent or promptly remove any stop order or other order preventing
or suspending the use of any prospectus relating to the Registration Statement
and to comply with any such request by the SEC or any state securities
commission to amend or supplement the Registration Statement or the Joint Proxy
Statement/Prospectus.
(e) Solicitation of Proxies. PRGX Board shall use its commercially
reasonable efforts to solicit from the PRGX shareholders proxies in favor of the
PRGX Recommendations and shall take all other action necessary or in the opinion
of PRGX advisable to secure the vote of the PRGX shareholders required for the
approval of the PRGX Recommendations and the adoption of this Agreement.
(f) SEC Comments. PRGX and HSA-Texas will notify each other promptly of
the receipt by such party or its representatives of any comments from the SEC or
its staff or any other appropriate government official and of any requests by
the SEC or its staff or any other appropriate government official for amendments
or supplements to the Registration Statement or the Joint Proxy
Statement/Prospectus or for additional information and will supply the other
Party with copies of all correspondence between PRGX, HSA-Texas or any of their
respective representatives, on the one hand, and the SEC or its staff or any
other appropriate government official, on the other hand, with respect thereto.
(g) HSA-Texas Comfort Letters. HSA-Texas shall use its commercially
reasonable efforts to cause to be delivered to PRGX a letter from HSA-Texas'
independent accountants, dated as of the date on which the Registration
Statement becomes effective, which letter will be updated as of the Closing
Date, addressed to PRGX, in form and substance reasonably satisfactory to PRGX
and customary in scope and substance for comfort letters delivered by
independent public accountants in connection with registration statements
similar to the Registration Statement.
(h) PRGX Comfort Letters. PRGX shall use its commercially reasonable
efforts to cause to be delivered to HSA-Texas two letters from PRGX's
independent accountants, as of the date on which the Registration Statement
becomes effective, which letter will be updated as of the Closing Date,
addressed to HSA-Texas, in form and substance reasonably satisfactory to
HSA-Texas and customary in scope and substance for comfort letters delivered by
independent public accountants in connection with registration statements
similar to the Registration Statement.
3.2 LISTING OF SHARES. PRGX shall use its reasonable best efforts to cause
the shares of PRGX Common Stock to be issued in the Acquisition, and the shares
of PRGX Common Stock to be reserved for issuance upon exercise of the Assumed
Options, to be approved for listing on the NASDAQ National Market, subject to
official notice of issuance, concurrently with the Closing Date.
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3.3 AFFILIATES. Prior to Closing, HSA-Texas shall deliver to PRGX a letter
identifying all persons who, in the judgment of HSA-Texas, may be deemed to be
"affiliates" of HSA-Texas under the Securities Act and applicable SEC rules and
regulations as of the Closing Date. Prior to Closing, PRGX shall have received
(i) a written agreement of each such Person in the form attached as Exhibit 3.3
hereto containing standard SEC Rule 145 provisions (a "HSA-Texas Affiliate
Agreement").
3.4 NO NEGOTIATIONS.
(a) HSA-Texas. From and after the date hereof until the earlier of the
termination of this Agreement pursuant to Article 9 hereof or the Closing,
neither HSA-Texas nor any of the Shareholders will take any of the following
actions, nor will HSA-Texas or any of the Shareholders permit any of HSA-Texas
or the Subsidiaries to take any of the following actions, nor will HSA-Texas or
any of the Shareholders authorize any officer, director or employee of or any
investment banker, attorney, accountant or other advisor or representative of,
HSA-Texas or any of its Subsidiaries to take any of the following actions (and
will instruct such persons not to take any of the following actions), directly
or indirectly: (i) solicit, initiate or encourage the submission of a proposal
for any HSA-Texas Alternative Transaction or (ii) participate in any discussions
or negotiations regarding, or furnish to any "Third Party" (which, for all
purposes of this Agreement includes any "person" as such term is defined in
Section 13(d)(3) of the Securities Exchange Act of 1934, as amended (the
"Exchange Act") other than PRGX, HSA-Texas or any affiliate thereof) any
information with respect to, or take any other action knowingly to facilitate,
any HSA-Texas Alternative Transaction or any inquiries or the making of any
proposal that constitutes, or may reasonably be expected to lead to, any
HSA-Texas Alternative Transaction. For all purposes of this Agreement,
"HSA-Texas Alternative Transaction" means: (i) a merger, reorganization, share
exchange, consolidation, business combination, recapitalization, liquidation,
dissolution or similar transaction involving HSA-Texas or any of those of the
Subsidiaries whose assets, individually or in the aggregate, constitute 20% or
more of the consolidated assets of HSA-Texas and its Subsidiaries, (ii) any
purchase or sale of 20% or more of the consolidated assets (including stock of
Subsidiaries) of HSA-Texas and its Subsidiaries outside the ordinary course of
business (iii) the purchase or sale of, or tender or exchange offer for, capital
stock of HSA-Texas or any of the Subsidiaries, (iv) the issuance by HSA-Texas of
capital stock containing terms which are inconsistent with the consummation of
the transactions contemplated by this Agreement, or (v) the declaration or
payment of any dividend or distribution other than those permitted by Section
4.5(a)(iii) hereof. HSA-Texas and the Shareholders agree to notify PRGX in
writing promptly upon becoming aware that it or they have received any
indications in writing or otherwise of interest, requests for information or
offers in respect of an HSA-Texas Alternative Transaction relating to any of the
assets or operations of HSA-Texas or its Subsidiaries, and will communicate to
PRGX the identity of the potential buyer and, if indicated, whether or not the
consideration in respect of the HSA-Texas Alternative Transaction is in an
amount greater than the Consideration provided for herein or in the Stock
Agreement. HSA-Texas and Shareholders represent that neither it nor they are
party to or bound by any agreement with respect to an HSA-Texas Alternative
Transaction.
(b) PRGX. From and after the date hereof until the earlier of the
termination of this Agreement pursuant to Article 9 hereof or the Closing, PRGX
will not, and will not permit any of its subsidiaries to, and will not authorize
any officer, director or employee of or any investment banker, attorney,
accountant or other advisor or representative of, PRGX or any of its
subsidiaries to (and will instruct such persons not to), directly or indirectly,
(i) solicit, initiate or encourage the submission of a proposal for any PRGX
Alternative Transaction or (ii) participate in any discussions or negotiations
regarding, or furnish to any Third Party any information with respect to, or
take any other action knowingly to facilitate, any PRGX Alternative Transaction
or any inquiries or the making of any proposal that constitutes, or may
reasonably be expected to lead to, any PRGX Alternative Transaction; provided,
however, that nothing contained in this Section 3.4(b) shall prohibit the PRGX
Board from furnishing information to, or entering into discussions or
negotiations with, any Third Party that (A) makes an unsolicited bona fide
proposal of a PRGX Alternative Transaction if (1) the PRGX Board determines in
good faith that such action is necessary for the PRGX Board to comply with its
fiduciary duties to PRGX's shareholders under applicable law, (2) the PRGX Board
determines in good faith that such PRGX Alternative Transaction would, if
consummated, constitute or be reasonably likely to constitute a Superior
Proposal and (3) prior to taking such action, receives from such Third Party an
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executed confidentiality agreement in reasonably customary form or (B) agrees to
include in the PRGX Alternative Transaction the concurrent acquisition of
HSA-Texas and the Concurrent Companies or substantially all of HSA-Texas' and
the Concurrent Companies' assets as if HSA-Texas and the Concurrent Companies
were a part of PRGX at the consummation of the PRGX Alternative Transaction.
PRGX will promptly notify HSA-Texas of its receipt of any written indications of
interest or written offers in respect of a PRGX Alternative Transaction.
(c) PRGX Recommendations. The PRGX Board will not (i) withdraw or modify,
or propose to withdraw or to modify, in any case in a manner adverse to
HSA-Texas, the PRGX Recommendations or (ii) approve or recommend to its
shareholders a PRGX Alternative Transaction, unless (A) the PRGX Board
determines in good faith that it is necessary to terminate this Agreement in
order for the PRGX Board to comply with its fiduciary duties to PRGX's
shareholders under applicable law, in which case, PRGX will terminate this
Agreement and pay HSA-Texas the Termination Fee as provided in Section 9.2(e)
hereof or (B) such PRGX Alternative Transaction includes the concurrent
acquisition of HSA-Texas and the Concurrent Companies or substantially all of
HSA-Texas' and the Concurrent Companies' assets as if HSA-Texas and the
Concurrent Companies were a part of PRGX at the consummation of the PRGX
Alternative Transaction, in which case PRGX may terminate this Agreement without
any obligation to pay HSA-Texas any Termination Fee. The PRGX Board may not
approve or recommend a PRGX Alternative Transaction on the basis that it is
necessary to comply with its fiduciary duties to PRGX's shareholders (and in
connection therewith, withdraw or modify its PRGX Recommendation) unless (1)
such PRGX Alternative Transaction is a Superior Proposal and (2) the PRGX Board
shall have specifically determined that such action is necessary for the PRGX
Board to comply with its fiduciary duties to PRGX's shareholders. Nothing
contained in this Section 3.4(c) shall prohibit PRGX from taking and disclosing
to its shareholders a position contemplated by Rule 14e-2(a) promulgated under
the Exchange Act or from making any disclosure to PRGX's shareholders which, in
the good faith reasonable judgment of the PRGX Board, is required under
applicable law; provided, that except as otherwise permitted in this Section
3.4(c), PRGX shall not withdraw or modify, or propose to withdraw or modify, the
PRGX Recommendations or approve or recommend, or propose to approve or
recommend, a PRGX Alternative Transaction. Notwithstanding anything contained in
this Agreement to the contrary, (x) any action by the PRGX Board permitted by,
and taken in accordance with, this Section 3.4(c) shall not constitute a breach
of this Agreement by PRGX and (y) nothing in this Agreement shall (aa) limit the
PRGX's Board's ability to make any disclosure to PRGX's shareholders that the
PRGX Board determines in good faith is required to be made to satisfy its
fiduciary duties under applicable law or (bb) limit PRGX's ability to make any
disclosure required by applicable law, and such actions shall not be considered
a breach of this Agreement.
(d) Definitions.
(i) For all purposes of this Agreement, "PRGX Alternative Transaction"
specifically excludes each of the proposed divestitures described on
Schedule 3.4(d) hereof and means: (A) a merger, reorganization, share
exchange, consolidation, business combination, recapitalization,
liquidation, dissolution or similar transaction involving PRGX or any of
those of its subsidiaries whose assets, individually or in the aggregate,
constitute 20% or more of the consolidated assets of PRGX and its
subsidiaries; (B) any purchase or sale of 20% or more of the consolidated
assets (including stock of subsidiaries) of PRGX and its subsidiaries,
taken as a whole; (C) the purchase or sale of, or tender or exchange offer
for, 20% or more of the shares of capital stock of PRGX; (D) the issuance
by PRGX of capital stock containing terms which are inconsistent with the
consummation of the transactions contemplated by this Agreement; (E) the
declaration or payment of a dividend representing 20% or more of the value
of PRGX and its subsidiaries, taken as a whole; or (F) the repurchase by
PRGX or any of its subsidiaries of an aggregate of more than 20% of the
outstanding shares of capital stock of PRGX, except for repurchases
pursuant to PRGX's previously announced stock buy back plan.
(ii) For all purposes of this Agreement, a "Superior Proposal" means
any bona fide written unsolicited proposal of a PRGX Alternative
Transaction that the PRGX Board determines in its good faith business
judgment (A) would result in a transaction, if consummated, that would be
superior to PRGX's shareholders from a financial point of view as compared
to the transactions contemplated hereby
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and (B) is reasonably capable of being consummated in accordance with its
terms (including that any financing required to consummate the transaction
contemplated by such proposal is reasonably likely to be obtained), in each
case taking into account all factors the PRGX Board considers relevant,
including all legal, financial, regulatory and other aspects of the
proposal and the Third Party.
3.5 REGISTRATION RIGHTS AGREEMENT. Concurrently with the Closing, PRGX and
the Shareholders will enter into a registration rights agreement in respect of
the shares of PRGX Common Stock issued in connection with this Acquisition and
the Concurrent Acquisitions in substantially the same form attached hereto as
Exhibit 3.5 (the "Registration Rights Agreement").
ARTICLE 4
ADDITIONAL COVENANTS AND AGREEMENTS
4.1 DUE DILIGENCE REVIEW.
(a) Due Diligence. HSA-Texas shall deliver to PRGX all Schedules required
to be attached hereto in accordance with Section 4.21 and shall promptly deliver
to PRGX true, correct and complete copies of all documents, together with all
amendments thereto through the date of execution hereof, contemplated by this
Agreement and required by the terms hereof to be listed on the Exhibits or
Schedules attached hereto not previously delivered to PRGX, including any
Material Leases, Material Contracts, insurance policies, the Historical
Statements and Companies' Tax Returns for 1997, 1998 and 1999. Prior to the
Closing Date, PRGX, its counsel and representatives, including KPMG LLP
(collectively, the "PRGX Representatives") shall have conducted such due
diligence investigation of the Business of HSA-Texas as PRGX shall determine.
HSA-Texas shall provide such persons full access during normal business hours to
the offices, properties, books, records, files and other documents and
information regarding HSA-Texas' assets and Business, to HSA-Texas' employees,
independent contractors, Associates, officers, sales agents, project managers,
contract service providers, strategic partners, other representatives and
customers and to all materials, programs, data, reports, systems, practices,
deliverables, and other properties and assets and shall fully cooperate with
PRGX and such persons and provide full opportunity to said parties to make such
investigation and copy such documents as PRGX shall desire; provided, however,
that (i) no information with respect to any specific Clients will be required to
be disclosed pursuant to this Section prior to or in any manner other than as
set forth in the Schedules attached hereto (or to be attached hereto) in
accordance with Section 5.14, Section 5.15 (with respect to information about
Clients) or Section 5.17 hereof, (ii) no information with respect to trade
secrets relating to technology and/or auditing methodology of the Business will
be provided prior to obtaining HSA-Texas' consent, which consent will not be
unreasonably withheld, (iii) with respect to employees of the Business, PRGX
will not communicate with such persons without prior notice to HSA-Texas and
providing HSA-Texas an opportunity to be present at any meeting with such
employees, and (iv) with respect to Associates, PRGX will not communicate with
the Associates prior to obtaining HSA-Texas' consent, which consent will not be
unreasonably withheld. Such persons shall not contact independent contractors or
customers of HSA-Texas without HSA-Texas' prior consent. No investigation of the
Business of HSA-Texas by PRGX, its counsel and representatives, including the
PRGX Representatives, either prior to, on, or after the date hereof shall affect
PRGX's right to rely upon, or HSA-Texas' and Shareholders' responsibility for
the accuracy of the representations and warranties of HSA-Texas and Shareholders
made herein.
(b) Historical Statements. As soon as practicable, HSA-Texas and
Shareholders, at their sole cost and expense, shall prepare and provide to PRGX
an audited combined balance sheet (including the notes thereto) of HSA-Texas,
its consolidated Subsidiaries, and the Concurrent Companies prepared as of
December 31, 2000 and December 31, 1999, and the related audited combined
statements of operations, changes in Shareholders' equity and cash flows for
each of the years in the three year period ending December 30, 2000, including
in each case, the notes thereto, together with an unqualified audit report
thereon (the "Report") of KPMG LLP, HSA-Texas' independent auditor
(collectively, the "Audited Statements") and separate internal unaudited
combined monthly balance sheets and combined income statements as of and for the
months of January 2001 through June 30, 2001 (collectively, such monthly
statements with the Audited
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Statements, the "Historical Statements"). In addition, HSA-Texas and
Shareholders shall provide PRGX with such other financial information, including
copies of books and records and other materials (i) required in connection with
filing the Registration Statement, (ii) sufficient to enable PRGX to prepare
such pro forma financial statements as shall comply with the provisions of
Article 11 of Regulation S-X to be presented in the Registration Statement and
any filing required pursuant to the Exchange Act, and (iii) in form and
substance satisfying the requirements for filing the Historical Statements and
Report with the Securities and Exchange Commission. HSA-Texas and Shareholders
will, and will cause each of its Subsidiaries' and the Concurrent Companies'
officers, directors and employees to, cooperate fully with PRGX and the PRGX
Representatives to provide all such information and documents as PRGX or the
PRGX Representatives may periodically request.
(c) Estimated Financials. On or before seven business days prior to the
Closing Date, HSA-Texas shall prepare in accordance with Section 4.1(d) hereof,
and PRGX and HSA-Texas shall agree upon, a combined estimated balance sheet of
HSA-Texas, its consolidated Subsidiaries, and the Concurrent Companies,
including a detailed listing of the assets and liabilities of the Business as of
the Effective Date and such separate estimated balance sheets, on a stand-alone
basis as of the Effective Date, of those operating units of the Business as
agreed to by PRGX and HSA-Texas (the "Estimated Balance Sheets"), and a combined
written estimated income statement of HSA-Texas, its consolidated Subsidiaries,
and the Concurrent Companies, including a detailed listing of revenues, expenses
and income of the Business for the period from January 1, 2001 through the
Effective Date and such separate estimated income statements, on a stand-alone
basis for such period, of those operating units of the Business as agreed to by
PRGX and HSA-Texas (the "Estimated Income Statements"), and a combined written
estimated statement of cash flows of HSA-Texas, its consolidated Subsidiaries,
and the Concurrent Companies for the period from January 1, 2001 through the
Effective Date and such separate estimated statements of cash flows, on a
stand-alone basis for such period, of those operating units of the Business as
agreed to by PRGX and HSA-Texas (the "Estimated Statement of Cash Flows")
(collectively, the Estimated Balance Sheets, the Estimated Income Statement, the
Estimated Statements of Cash Flows, being the "Estimated Financials"), each of
which statements will contain with respect to any item which is not capable of
determination at Closing, a good faith estimate of such item as of the Effective
Date, and which shall, when delivered, be attached hereto as Schedule 4.1(c).
(d) Preparation of Estimated Financials. The Estimated Financials shall be
prepared in accordance with generally accepted accounting principles for
financial reporting in the United States ("GAAP") applied on a basis consistent
with the Historical Statements including the notes thereto, shall include the
same categories of assets and liabilities of the Companies as of the Effective
Date as were included on the December 31, 2000 balance sheet included in the
Audited Statements and the same items of revenues, expenses and income of the
Companies as of the Effective Date as were included on the income statement for
the year ended December 31, 2000 included in the Audited Statements, and shall
be consistent with HSA-Texas' past accounting practices and procedures.
(e) Confidentiality. Between the date of this Agreement and the Closing
Date, PRGX and HSA-Texas will maintain in confidence, and will cause their
respective directors, officers, employees, agents, representatives and advisors,
to maintain in confidence any written, oral or other information obtained in
confidence from any other party hereto in connection with this Agreement or the
transactions contemplated herein, unless (a) such information is already known
to such party or to others not bound by a duty of confidentiality or such
information becomes publicly available through no fault of such party, (b) or
use of such information is necessary or appropriate in making any filing or
obtaining any consent or approval required for the consummation of the
transactions contemplated herein, or (c) the furnishing of such information is
required by, or is necessary or appropriate in connection with, legal
proceedings or any statute, regulation or rule of any Governmental Entity. The
parties hereto will hold any information obtained pursuant to this Agreement in
confidence in accordance with, and shall otherwise be subject to the
Nondisclosure Agreement dated November 2000 between HSA-Texas and PRGX (the
"Nondisclosure Agreement"), which Nondisclosure Agreement shall continue in full
force and effect.
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4.2 EMPLOYMENT MATTERS.
(a) H. Schultz and A. Schultz Offer Letters. Concurrently with the
Closing, PRGX and H. Schultz shall enter into an offer letter for two-year
employment (the "H. Schultz Offer Letter") in substantially the form of Exhibit
4.2A attached hereto and PRGX and A. Schultz shall enter into an offer letter
for two-year employment (the "A. Schultz Offer Letter") in substantially the
form of Exhibit 4.2B attached hereto.
(b) Other PRGX Employment.
(i) The Business is conducted through employees of the Companies and
through independent contractors directly or indirectly engaged by the
Companies to perform accounts payable auditing and related consulting
services, which independent contractors are referred to by the Companies as
Associates (collectively such independent contractors being, "Associates").
PRGX shall cause its wholly owned subsidiary, The Profit Recovery Group
USA, Inc. ("PRGUSA") to offer employment to such employees and Associates
as indicated on Schedule 4.2 attached hereto, each of whom are persons
whose continued employment is important to the success of the Business
(such persons, as designated or modified from time to time by PRGX prior to
the Closing, together with H. Schultz and A. Schultz, being the "Key
Employees"). PRGX may, but shall have no obligation to offer employment to
any other employees of the Companies or any other Associates.
(ii) With respect to any individual offered employment by PRGUSA, such
employment shall be subject to the following conditions: such person shall
(A) report to work for PRGUSA, (B) shall sign customary documents and forms
including a Form I-9 and PRGUSA's Employee Agreement (providing for
non-competition, non-solicitation and confidentiality covenants during the
term of such person's employment and for 24 months thereafter), in
substantially the form attached hereto as Exhibit 4.2C (the "Employee
Agreement"), if a Key Employee, prior to the Effective Date, if not a Key
Employee, within 60 days after the Effective Date, and (C) meet PRGUSA's
then current employment standards (collectively, the "Employment
Conditions"); provided that nothing contained herein shall preclude PRGX or
PRGUSA from revising the Employment Conditions after the Closing or
effecting the termination of any such persons after the Closing. HSA-Texas
and Shareholders shall cooperate with and assist PRGX in obtaining executed
Employee Agreements from Key Employees and such other employees,
consultants and independent contractors as PRGX designates as needed or
requested by PRGX. Notwithstanding the foregoing, in no event shall PRGX be
required to provide employee benefits the same as or similar to those
provided by HSA-Texas or otherwise.
(c) Payroll. The parties acknowledge that, after the Closing, PRGUSA shall
move those employees and Associates of the Business who are offered and accept
employment by PRGUSA and who meet the Employment Conditions (the "Hired
Employees") to PRGUSA's payroll system as soon as practicable, but no later than
a date 90 days after the Effective Date. Until such time as such Hired Employees
are included on PRGUSA's payroll system, HSA-Texas shall, when and as funded by
PRGUSA, make disbursements on behalf of PRGUSA and as PRGUSA's agent to the
Hired Employees for payroll and employee compensation earned after the Closing
Date in respect of their employment by PRGUSA in accordance with HSA-Texas past
practices pursuant to instructions from PRGUSA. PRGX will cause PRGUSA to fund
HSA-Texas with all amounts necessary to make such payments prior to the time
such payments are due to the Hired Employees, including payroll taxes, and PRGX
shall indemnify and hold HSA-Texas harmless in respect of any and all
liabilities arising from such arrangement, other than HSA-Texas' failure to
properly apply the funds advanced by PRGUSA.
(d) Continuation of Healthcare Coverage. HSA-Texas shall use its best
efforts to obtain and deliver to PRGX prior to the Closing an undertaking from
its current group health and dental insurance providers that such providers will
continue coverage of (a) the Hired Employees, (b) their covered dependents as of
the Closing Date and (c) all other "M & A qualified beneficiaries" as of the
Effective Date, as that term is defined in U.S. Treas. Reg. sec.54.4980B8, Q &
A-4(a), with respect to the transactions contemplated hereby, within the meaning
of such Treas. Reg., at PRGX's sole expense, subject to participants'
contributions, deductibles and copayments, as applicable, until such time as the
Hired Employees are enrolled into such PRGUSA health and welfare benefit plans
as such persons may be eligible to participate in. HSA-Texas shall
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notify PRGUSA of the termination of any group health or dental insurance plans
sponsored by HSA-Texas which occurs after the Effective Date.
(e) HSA-Texas' 401(k) Plan. HSA-Texas agrees that it will cause the
account balance, if any, of each Business Employee under the HSA-Texas 401(k)
Plan (the "401(k) Plan") to be fully vested as of the Closing Date. Such vested
account balances shall include (i) the employer matching contribution on behalf
of Business Employees for the 401(k) Plan's 2000 plan year (the "2000 Employer
Match"), and (ii) the accrued, prorated portion prior to the Closing Date, of
the employer matching contribution on behalf of Business Employees for the
401(k) Plan's 2001 plan year (the "2001 Employer Match"). The 2000 Employer
Match and the 2001 Employer Match will be contributed by HSA-Texas to the 401(k)
Plan on or prior to the Closing Date. At Closing, HSA-Texas shall deliver to
PRGX an amendment to the 401(k) Plan, properly authorized by the Board of
Directors of HSA-Texas, that ceases contributions to the 401(k) Plan effective
from and after the Closing Date. As soon as reasonably practicable following the
Closing, HSA-Texas shall (i) amend the 401(k) Plan to bring the 401(k) Plan into
compliance with current laws, including, without limitation, changes in law
described in Rev. Proc. 2000-27, 2000-26 I.R.B. 1272, (ii) file the 401(k) Plan
with the IRS pursuant to Form 5310 to obtain a determination upon plan
termination, and (iii) take all actions subsequent to such filing as are
necessary to obtain a favorable determination upon plan termination from the
IRS, including, without limitation, making any amendments to the 401(k) Plan
requested by the IRS. HSA-Texas shall bear all costs and expenses associated
with the foregoing. Upon receipt of a favorable determination letter from the
IRS with respect to the 401(k) Plan, HSA-Texas shall cause the 401(k) Plan to
distribute the Participant's vested account balances in the 401(k) Plan in
accordance with applicable law, and PRGUSA shall have no obligation to accept
qualified direct transfer distributions from the 401(k) Plan. Until such
distributions are made, HSA-Texas, PRGX and PRGUSA shall take such actions as
are necessary to maintain any plan loan that any Business Employee may have
outstanding from the 401(k) Plan ("HSA-Texas Plan Loan") in good standing and
with repayment terms comparable to the repayment terms of such HSA-Texas Plan
Loan in effect prior to the Closing Date, including, without limitation,
facilitating repayment of such HSA-Texas Plan Loans by means of payroll
deduction from salary paid by PRGUSA. Once all distributions have been made from
the 401(k) Plan, HSA-Texas shall take appropriate steps to terminate the 401(k)
Plan. The obligations of HSA-Texas under this Section 4.2(e) shall be assumed by
the Shareholders following the liquidation of HSA-Texas.
(f) New PRGX Stock Options. Effective as of the Closing, in consideration
of their employment with PRGX, PRGX shall, pursuant to PRGX's standard stock
option agreement (the "PRGX Stock Option Agreement"), grant to certain Key
Employees (as mutually agreed to by PRGX and HSA-Texas), new non-qualified
options to purchase that number of shares of PRGX Common Stock set forth in
their respective PRGX Stock Option Agreements, at an exercise price equal to the
closing sale price per share of PRGX Common Stock on the Closing Date (as
reported in The Wall Street Journal published on the first business day
immediately following the Closing Date) in amounts commensurate with those
non-qualified options to purchase shares of PRGX Common Stock that PRGX has
recently granted prior to the date hereof to PRGX personnel in similar jobs. In
order to receive options to purchase PRGX Common Stock, such Person must be a
Hired Employee.
4.3 CONSENTS. Promptly after execution of this Agreement, HSA-Texas and
Shareholders will apply for or otherwise seek, and use their best efforts to
obtain, all consents, releases and approvals required with respect to HSA-Texas
and/or Shareholders for consummation of the transactions contemplated hereby,
including without limitation, those consents listed in Schedule 5.4 hereof
(collectively, "Consents"). Any charges imposed by the lessors or other parties
to the Assigned Contracts and Assigned Leases for such estoppels and consents
shall be borne solely by HSA-Texas.
4.4 NON-COMPETITION AGREEMENT. Concurrently with the Closing, in
consideration of the acquisition of Acquired Assets as contemplated herein,
HSA-Texas, the Shareholders, Michael Lowery, Gertrude Lowery, Charles Schembri
and Mac Martirossian shall enter into a non-competition, non-solicitation, and
confidentiality agreement with PRGX in substantially the form attached hereto as
Exhibit 4.4 (the "Non-competition Agreement").
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4.5 CONDUCT OF BUSINESS BY HSA-TEXAS PENDING REORGANIZATION. HSA-Texas and
Shareholders covenant and agree that, unless PRGX shall otherwise consent in
writing or as otherwise specifically contemplated herein, between the date
hereof and the Closing, the Business shall be conducted only in, and HSA-Texas
shall not take any action except in, the ordinary course of business and in a
manner consistent with HSA-Texas' past practices; and HSA-Texas will use its
best efforts to preserve substantially intact the Business of HSA-Texas, to keep
available the services of the present officers, employees, and consultants of
the Companies, and to preserve the present relationships of the Companies with
customers, clients and other persons having business relationships with the
Companies. HSA-Texas and Shareholders covenant and agree that between the date
hereof and Closing, there shall be no material diminution of the Acquired
Assets, nor any material increase in the Assumed Liabilities except for amounts
owed by HSA-Texas to H. Schultz for advances of amounts that would be included
in the definition of the Assumed Schultz Loan. By way of amplification and not
limitation, except as expressly provided for in this Agreement, HSA-Texas and
Shareholders covenant that, between the date hereof and the Closing, the
Companies and Shareholders shall not, directly or indirectly, do any of the
following without the prior written consent of PRGX, which consent will not be
unreasonably withheld or delayed:
(a) except as set forth on Schedule 4.5(a) attached hereto, (i) issue,
sell, gift, pledge, transfer, dispose of, encumber, authorize any shares of
capital stock, or any options, warrants, convertible securities or other
rights of any kind to acquire any shares of capital stock of, or any other
ownership interest in, any Company; (ii) amend the Articles of
Incorporation or By-Laws or other organizational documents of any Company;
(iii) split, combine or reclassify any outstanding share of any Company's
capital stock or other ownership interest, or declare, set aside or pay any
dividend or distribution payable in cash, stock, property or otherwise with
respect to any Company's capital stock or other ownership interest (except
for (A) normal salary and bonuses earned in the ordinary course of business
that have been disclosed to PRGX in writing in advance of payment, and (B)
distributions from HSA-Texas (not in excess of the amount set forth in
Section 1.2(f)) to enable its Shareholders to pay federal and state taxes
on the taxable income (for U.S. federal and state and foreign income tax
purposes) from the Business' operations in the ordinary course of the
business for the period from and after January 1, 2001 up to the Closing
Date, in each case consistent with HSA-Texas' past practices and as
disclosed to PRGX in writing in advance of payment, and (C) the aggregate
amount of cash received by HSA-Texas from and after the date hereof and
prior to the Effective Date attributable to the exercise by its employees
of any HSA-Texas Options) (iv) redeem, purchase or otherwise acquire any
shares of any Company's capital stock or other ownership interest; or (v)
enter into any contract, agreement, commitment or arrangement with respect
to any of the matters set forth in this Section 4.5(a);
(b) except as set forth on Schedule 4.5(b) attached hereto, (i)
acquire (by merger, consolidation, or acquisition of stock or assets) any
interest in any corporation, partnership or other business organization or
division thereof; (ii) except in the ordinary course of business and in a
manner consistent with past practices, sell, pledge, dispose of, or
encumber any assets of any Company; (iii) enter into any material Contract
or agreement, except for Client Contracts entered into in the ordinary
course of business; (iv) authorize or consummate any single capital
expenditure in excess of $50,000 or capital expenditures in the aggregate
in excess of $100,000; or (v) enter into or amend any contract, agreement,
commitment or arrangement with respect to any of the matters set forth in
this Section 4.5(b);
(c) except as set forth on Schedule 4.5(c) attached hereto, take any
action other than in the ordinary course of business and in a manner
consistent with past practice (none of which actions shall be unreasonable
or unusual) with respect to materially increasing the compensation or other
remuneration of any officer, director, Shareholder or employee of any
Company, pay any bonuses to any of its employees (except for bonuses earned
in the ordinary course of business and disclosed to PRGX in writing in
advance of payment), or with respect to the grant of any severance or
termination pay (otherwise than pursuant to policies of HSA-Texas in effect
on the date hereof and fully disclosed to PRGX in writing prior to the date
hereof) or with respect to any increase of benefits payable under its
severance or termination pay policies in effect on the date hereof;
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(d) except as set forth on Schedule 4.5(d) attached hereto, make any
payments except in the ordinary course of business and in amounts and in a
manner consistent with past practice (none of which payments shall be
unreasonable or unusual), under any Employee Benefit Plan or otherwise to
any employee of, or independent contractor or consultant to, any Company,
enter into any Employee Benefit Plan, any employment or consulting
agreement, grant or establish any new awards under any such existing
Employee Benefit Plan or agreement, or adopt or otherwise amend any of the
foregoing;
(e) take any action except in the ordinary course of business and in a
manner consistent with past practice with respect to, or make any change
in, its methods of management, distribution, marketing, accounting or
operating (including practices relating to payment of trade accounts or to
other payments) or relating to establishing or adjusting reserves, writing
down or failing to write down (in accordance with its past practices
consistently applied) or writing up the value of any assets of any Company;
(f) except as set forth on Schedule 4.5(f) attached hereto, take any
action or enter into any agreement or make any change in the billing or
collection of its accounts receivable and unbilled claims (other than in
the ordinary course of business and consistent with past practices),
including without limitation, discounting or writing off any of HSA-Texas'
accounts receivable or work in progress for early payment, or granting any
other deduction or discount thereon or accelerating the collection thereof;
(g) except as specifically permitted herein and except as set forth on
Schedule 4.5(g) attached hereto, take any action to incur, assume, increase
or guarantee prior to Closing any indebtedness for borrowed money from
banks or other financial institutions or cancel, without payment in full,
any notes, loans or other receivables;
(h) loan or advance monies to any Person under any circumstance
whatsoever except travel advances or other reasonable expense advances to
employees or audit associates of any Company made in the ordinary course of
business and consistent with past practice;
(i) change any existing bank accounts or lock box arrangements of any
Company, except for deposits, withdrawals, or changes of signatories in the
ordinary course of business;
(j) except as set forth on Schedule 4.5(j) attached hereto, waive any
material rights of any Company or settle any material claim involving any
Company;
(k) sell, license, or otherwise dispose of any of its Intellectual
Property Assets other than in the ordinary course of business consistent
with past practice;
(l) fail to make any Tax filing or Tax payment required to be made
prior to the Closing Date; or
(m) do any act or omit to do any act which would cause a breach of, or
inability to perform, any contract, commitment or obligation of any Company
or any Shareholder, which breach has a Material Adverse Effect on HSA-Texas
or the ability of HSA-Texas or Shareholders to perform its, his or her
obligations under this Agreement or any HSA-Texas Transaction Document.
4.6 NOTIFICATION.
(a) HSA-Texas and Shareholders shall give prompt notice to PRGX of the
following:
(i) The occurrence or nonoccurrence of any event of which any
Shareholder or HSA-Texas obtains knowledge the occurrence or
nonoccurrence of which would be reasonably likely to cause either (A) a
material breach of any representation or warranty of HSA-Texas or any
Shareholder contained in this Agreement at any time from the date hereof
to the Closing Date, or (B) directly or indirectly, any Material Adverse
Effect. PRGX's knowledge of any facts obtained by PRGX prior to the date
hereof or disclosed herein that may give rise after the date hereof to a
Material Adverse Effect on HSA-Texas shall not affect whether or not a
Material Adverse Effect on HSA-Texas shall have occurred.
(ii) Any material failure by HSA-Texas to comply with or satisfy
any covenant, condition or agreement to be complied with or satisfied by
it hereunder.
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(b) PRGX shall give prompt notice to HSA-Texas and Shareholders of the
following:
(i) The occurrence or nonoccurrence of any event of which PRGX
obtains knowledge the occurrence or nonoccurrence of which would be
reasonably likely to cause either (A) a material breach of any
representation or warranty of PRGX contained in this Agreement at any
time from the date hereof to the Closing Date, or (B) directly or
indirectly, any Material Adverse Effect. Neither HSA-Texas' nor any
Shareholder's knowledge of any facts obtained by HSA-Texas or such
Shareholder prior to the date hereof or disclosed herein that may give
rise after the date hereof to a Material Adverse Effect on PRGX shall
affect whether or not a Material Adverse Effect on PRGX shall have
occurred.
(ii) Any material failure by HSA-Texas to comply with or satisfy
any covenant, condition or agreement to be complied with or satisfied by
it hereunder.
(c) For purposes of this Agreement, "Material Adverse Effect" means
with respect to any Person, any change or effect that is materially adverse
to the financial condition, business, results of operations, assets, or
prospects of such Person and its subsidiaries, taken as a whole. For
purposes of this Agreement, "Person" means an individual, partnership, a
corporation, an association, a joint stock company, a trust, a joint
venture, an unincorporated organization, or a Governmental Entity.
Notwithstanding the foregoing, the delivery of any notice pursuant to this
Section 4.6. shall not limit or otherwise affect the remedies available
hereunder to the Person receiving such notice.
4.7 PUBLIC ANNOUNCEMENTS.
(a) PRGX and HSA-Texas will issue a mutually agreeable joint press release
at such time as PRGX and HSA-Texas shall agree. HSA-Texas and Shareholders shall
obtain the prior written consent of PRGX before issuing any press release or
otherwise making any public statements with respect to the transactions
contemplated herein and shall not issue any such press release or make any such
public statement prior to receiving such consent. After the execution of this
Agreement, PRGX shall use commercially reasonable efforts to provide HSA-Texas
and the Shareholders with a copy of any press release relating to the
transaction prior to its release, provided that nothing contained herein shall
limit PRGX from making any public disclosure relating to the transactions
without such prior delivery to HSA-Texas and Shareholders if, in PRGX's good
faith belief, such public disclosure is necessary to comply with applicable law,
regulations or stock exchange rules.
(b) Except for any public announcement relating to the transactions
contemplated herein as may be required by law or stock exchange rules or as
provided in this Section or in Section 4.1 hereof, each Company, each
Shareholder, and PRGX agrees that until the press release contemplated in
Section 4.7(a) hereof is issued, each of such parties have not, and have
directed its directors, officers, employees, representatives and agents who have
knowledge of the transactions not to, disclose to any Person who is not a
participant in discussions concerning the transactions (other than persons whose
consent is required to be obtained hereunder), any of the terms, conditions or
other facts with respect to the transactions contemplated herein, or any portion
of the PRGX Disclosure which has not been made publicly available by PRGX,
including the fact that negotiations are taking place. In addition, each Company
and Shareholder shall obtain the prior written consent of PRGX (and shall
require their respective directors, officers, members, employees,
representatives and agents who have knowledge of the transactions contemplated
hereby or of any portion of the PRGX Disclosure which has not been made publicly
available by PRGX to obtain the prior written consent of PRGX) before buying,
selling, assigning, exchanging (by merger or otherwise) or otherwise trading in
or engaging in any transactions with respect to PRGX securities, including any
grant of a lien or other security interest with respect to PRGX securities, any
short sale, the sale of any option or contract to purchase, the purchase of any
option or contract to sell, the grant of any option, right or warrant to
purchase or otherwise transfer or dispose of such securities, entering into any
hedge, swap, straddle, collar, prepaid forward contract, single pay contract or
other agreement that transfers, in whole or in part, any of the economic
consequences of ownership of any such securities, whether such transaction is to
be settled by delivery of securities, in cash or otherwise, until such time as
PRGX shall have notified HSA-Texas in writing that such permission is no
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longer required due to the public availability of all material information with
respect to the contemplated transactions and the PRGX Disclosure.
4.8 REGULATORY AUTHORIZATION. As soon as practicable after the date
hereof, PRGX, HSA-Texas and Shareholders shall each file with the United States
Federal Trade Commission ("FTC") and the United States Department of Justice
("DOJ") the notification and report form required for the transactions
contemplated hereby in connection therewith pursuant to the Hart-Scott-Rodino
Antitrust Improvements Act of 1976, as amended ("HSR Act") and each agrees to
file as promptly as practicable any supplemental information requested by the
DOJ or FTC. Any such notification and report form and supplemental information
will be in substantial compliance with the requirements of the HSR Act. All fees
in respect of any filings under the HSR Act made by PRGX and HSA-Texas in
connection with the transactions contemplated herein shall paid by PRGX. All
fees in respect of any filings made by any Shareholder under the HSR Act in
connection with the transactions contemplated herein shall be paid by such
Shareholder. Each of the parties shall assist the other in making all filings
under the HSR Act and shall provide all information and documentation requested
by the DOJ or the FTC.
4.9 TAX MATTERS.
(a) Definitions. As used in this Agreement, the following terms have the
specified meanings:
(i) "Flow-Through Taxes" shall mean U.S. federal income Taxes
attributable to income and gains of HSA-Texas until the Closing date which
are payable by Shareholders pursuant to Section 1366 of the Code for Tax
years, or partial Tax years, for which HSA-Texas is an S corporation. The
term "Flow-Through Taxes" shall also include any state or local income
Taxes attributable to income and gains of HSA-Texas which are payable by
the Shareholders under principles comparable to Section 1366 of the Code.
(ii) "Tax Authority" shall mean any federal, foreign, national, state,
county or municipal or other local government, any subdivision, agency,
commission or authority thereof, or any quasi-governmental body exercising
any taxing authority or any other authority exercising tax regulatory
authority.
(iii) "Tax Return" shall mean any return, amended return, estimated
return, information return, declaration, deposit, claim for refund or
statement (including any related or supporting information) filed or to be
filed with any Tax Authority in connection with the determination,
assessment, collection or administration of any Tax or filed by or
including HSA-Texas or any of the Subsidiaries.
(iv) "Tax" or "Taxes" shall mean all taxes, charges, fees, interest,
fines, penalties, additions to tax or other assessments, whether disputed
or not, including without limitation, income, excise, environmental,
property, sales, gross receipts, gains, transfer, occupation, privilege,
employment (including social security and unemployment), use, value added,
capital stock or surplus, franchise taxes, advance corporate tax and
customs duties imposed by any Tax Authority, payable by HSA-Texas, the
Shareholders, or any of the Subsidiaries, or relating to or chargeable
against HSA-Texas' or any of the Subsidiaries' assets, revenues or income
and payable by HSA-Texas, the Shareholders or such Subsidiary.
(b) Tax Returns.
(i) Preparation and Filing of Tax Returns. The Shareholders shall
prepare or cause to be prepared, and file or cause to be filed, at the
Shareholders' expense, all Tax Returns required to be filed by HSA-Texas
and the Shareholders. Such Tax Returns for HSA-Texas shall be prepared
based on and consistent with tax accounting methods and principles used by
HSA-Texas and Shareholders, as the case may be, in preparing Tax Returns
for prior Tax periods.
(ii) Methods of Allocating Tax Liabilities. For purposes of preparing
the Estimated Financials, any Tax for any Tax period which begins before
the Effective Date and ends after the Effective Date (an "Overlap Tax
Period") shall be allocated as follows: The portion of such Tax which
relates to the portion of such Taxable period ending on the Effective Date
shall (A) in the case of any Taxes other than Taxes based upon or related
to income or receipts, be deemed to be an amount of such Tax for the total
number of days in the Overlap Tax Period multiplied by a fraction the
numerator of which is the number of days
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in the Taxable period ending on the Effective Date and the denominator is
the total number of days in the entire Overlap Tax Period, and (B) in the
case of any Tax based upon or related to income or receipts, be deemed to
be equal to the amount which would be payable if the relevant Taxable
period ended on the Effective Date. Any credits relating to a Taxable
period that begins before and ends after the Effective Date shall be taken
into account as though the relevant Taxable period ended on the Effective
Date. All determinations necessary to give effect to the foregoing
allocations shall be made in a manner consistent with the prior practice of
the Companies.
(c) Cooperation of Parties. Except as otherwise provided in this
Agreement, the parties hereby agree that each of them shall cooperate with the
other in executing or causing to be executed any required document and by making
available to the other all work papers, records and notes of any kind at all
reasonable times for the purpose of allowing the appropriate party to complete
Tax Returns, participate in a proceeding, obtain refunds, make any determination
required under this Agreement or defend or prosecute Tax claims.
(d) Reorganization. HSA-Texas, Shareholders and PRGX hereby acknowledge
and agree that the transactions contemplated hereby with respect to the
acquisition of the Acquired Assets of HSA-Texas shall be treated by the parties
for all tax purposes as (i) the acquisition by PRGX of the Acquired Assets
solely in consideration of the issuance to HSA-Texas of the shares of PRGX
Common Stock, constituting the Consideration and the assumption by PRGX of the
Assumed Liabilities, and (ii) as a tax-free reorganization under Section
368(a)(1)(C) of the Code and any other applicable laws. It is the intent of the
parties that this Agreement shall constitute a "plan of reorganization" for
purposes of Section 368(a) of the Code. The parties hereto shall use their best
efforts to cause the transaction contemplated hereby to be recognized as a
tax-free reorganization under Section 368(a)(1)(C) of the Code and any other
applicable state or federal law. HSA-Texas hereby covenants and agrees that,
following the Closing, it will promptly effect its complete liquidation and
distribute all of its remaining assets (including the shares of PRGX Common
Stock) to its stockholders in accordance with applicable law and its operative
agreements.
4.10 CORPORATE NAME. As soon as practicable following Closing, HSA-Texas
shall change its corporate name to a name which does not contain the words
"Howard Schultz", "Schultz" or the letters "HS&A", and HSA-Texas and
Shareholders shall cooperate with PRGX in any efforts undertaken by PRGX to
secure or protect its rights in any name used by the Companies in the conduct of
the Business prior to Closing. As soon as practicable following Closing, PRGX
will change its corporate name to "PRG/Schultz International, Inc."
4.11 TRANSACTION EXPENSES. Except as otherwise specifically provided in
Section 9.2 hereof, all of the expenses incurred by PRGX in connection with the
authorization, negotiation, preparation, execution and performance of this
Agreement and other agreements referred to herein and the consummation of the
transactions contemplated hereby, including, without limitation, all fees and
expenses of agents, representatives, brokers, counsel and accountants for PRGX,
Bain & Co., all filing fees and expenses in respect of filings by PRGX under the
HSR Act, and all fees and expenses for the preparation, printing, filing, and
mailing of the joint Proxy Statement/Prospectus and Form S-4 and the
solicitation of shareholder approvals ("PRGX Transaction Expenses") shall be
paid by PRGX. Except as otherwise specifically provided in Section 9.2 hereof,
all expenses incurred by HSA-Texas in connection with the authorization,
negotiation, preparation, execution and performance of this Agreement and the
other agreements referred to herein and the consummation of the transactions
contemplated hereby, including without limitation, all fees and expenses of
agents, representatives, brokers, counsel, accountants, and all HSR filing fees
of HSA-Texas ("HSA-Texas Transaction Expenses") shall be paid by HSA-Texas or
Shareholders. If the Acquisition is consummated, PRGX shall pay any previously
unpaid reasonable and necessary fees and expenses of attorneys and accountants
of HSA-Texas (including all fees and expenses of KPMG LLP in connection with the
preparation of the Audited Statements) in connection with or related to the
authorization, preparation, negotiation, execution, and performance of this
Agreement and the transactions contemplated herein. Any and all expenses
incurred by any stockholder of HSA-Texas, including the Shareholders, in
connection with the authorization, negotiation, preparation, execution and
performance of this Agreement and the other agreements referred to herein and
the consummation of the transactions contemplated hereby shall be paid solely by
such stockholder of HSA-Texas.
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4.12 REMOVAL OF LIENS AND ENCUMBRANCES. HSA-Texas and Shareholders hereby
agree to use their best efforts to obtain and file releases and termination
statements for all recorded liens, encumbrances, judgments and similar filings
which in any way relate to or affect the Acquired Assets as such liens,
encumbrances, judgments and similar filings are described on Schedule 5.3
hereto, other than the Permitted Encumbrances (the "Recorded Liens") as and when
provided herein. In respect of any such Recorded Liens that reflect underlying
obligations of a Company that have previously been satisfied, HSA-Texas shall,
or shall cause such Company to, obtain and file releases and termination
statements in respect thereof prior to the Closing Date. In respect of any
Recorded Liens that reflect underlying obligations that will be paid by HSA-
Texas or such Company at Closing, HSA-Texas shall, or shall cause such Company
to, prior to the Closing Date, prepare termination statements and releases in
respect of such Recorded Liens and cause them to be executed by the secured
party in respect thereof and delivered to PRGX at Closing for filing upon
confirmation by such secured party of receipt of funds satisfying such
underlying obligation. HSA-Texas and Shareholders hereby covenant and agree to
indemnify and hold PRGX harmless from and against any and all losses or
liabilities incurred by PRGX resulting from or arising out of HSA-Texas' failure
to remove any Recorded Liens, in accordance with Article 7 hereof.
4.13 BULK SALES LAW. PRGX hereby waives compliance by HSA-Texas with any
applicable U.C.C. or tax bulk sales law, and HSA-Texas and Shareholders agree,
jointly and severally, to indemnify and hold harmless PRGX (and affiliates
thereof) from and against any claims or liabilities not assumed by PRGX pursuant
to this Agreement asserted against PRGX (or any affiliate thereof) by any
creditor of HSA-Texas by reason of such noncompliance or for any other claims or
liabilities against PRGX for failure to comply with any such bulk transfer law.
4.14 BANK ACCOUNTS. Prior to the Effective Date and effective as of the
Effective Date, HSA-Texas and Shareholders shall have caused the following to
occur in respect of each of the Bank Accounts: All payments to HSA-Texas,
including Client payments, are made to the lock box identified in Schedule
1.1(j) ("Lock Box"), which payments are swept to an operating account identified
on Schedule 1.1(j) ("Operating Account"). From the Effective Date to the Closing
Date, HSA-Texas will receive payments and make disbursements in respect of the
Business in the ordinary course consistent with past practices for the sole
benefit of PRGX in accordance with Section 1.4 hereof, provided the Closing
occurs in accordance with the terms hereof. On the business day immediately
preceding the Closing Date, HSA-Texas shall deliver irrevocable written
instructions to each bank at which a bank account is located (the "Banks") to
discontinue, as of the end of the banking business day immediately preceding the
Closing Date, the sweep from the Lock Box into the Operating Account or any
other account, and instead sweep all amounts received in the Lock Box from and
after the end of the banking business day immediately preceding the Closing Date
into PRGX's account at the Bank (the "PRGX Accounts"). In addition to receipts
in the Lock Box, all payments to HSA-Texas or Shareholders in connection with
the Business otherwise received on or after the Effective Date will be for the
sole benefit of PRGX and, provided the Closing occurs, shall be remitted to PRGX
as part of the Acquired Assets. Signature cards required by the Bank to change
or add to persons authorized to access the Lock Box shall have been provided to
PRGX with sufficient time for PRGX to complete and transmit to the Bank prior to
the Closing Date.
4.15 DALLAS LEASE. Prior to the Closing, HSA-Texas and Shareholders shall
negotiate a lease between PRGX and the HSA-Texas for that square footage of the
premises required by the Business after the Closing, at fair market rental rates
and other terms and conditions acceptable to PRGX. All expenses of HSA-Texas in
connection with the negotiation, execution and delivery of such lease, and all
brokers fees of HSA-Texas and PRGX, shall be borne by the Shareholders.
4.16 ACQUISITION OF CERTAIN INDEPENDENT CONTRACTOR OPERATIONS. Prior to or
concurrently with the Closing, HSA-Texas shall have completed (a) the
acquisition solely for HSA-Texas Common Stock of the business operations of
independent contractors providing the Salt Lake City Data Processing Center
services and (b) the DSD Acquisition solely for cash.
4.17 ACQUISITION OF INDEPENDENT CONTRACTOR STATUS. Prior to the Closing,
PRGX and HSA-Texas may agree upon a plan pursuant to which HSA-Texas will
negotiate with certain of its Associates to whom PRGX
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intends to cause to be offered employment with PRGUSA to accept a fixed amount,
determined pursuant to a formula agreed to by PRGX and HSA-Texas, payable on
terms as agreed to by PRGX and HSA-Texas (collectively, such obligations being
the "Change in Status Payments"), in exchange for such Associate's agreement to
change his status from an independent contractor to an employee of PRGUSA paid
at the then standard PRGUSA compensation formula, subject to normal withholding
and deductions. The amount of such Change in Status Payments, if any, accrued as
a liability on the Estimated Balance Sheet shall be an Assumed Liability.
4.18 DIRECTORS. Subject to compliance with the Georgia Business
Corporation Code (the "GBCC"), PRGX's Certificate of Incorporation, the
fiduciary duties of the PRGX Board of Directors and applicable law, as soon as
practicable after the Closing, PRGX shall promptly use its commercially
reasonable efforts to take all actions necessary (a) to cause the PRGX Board to
be enlarged to thirteen (13) members, (b) to cause those four Persons (including
H. Schultz, A. Schultz, and two others) who are recommended by H. Schultz to be
nominated by the PRGX Board for election as directors of PRGX and (c) to cause
such nominees to be submitted to the PRGX shareholders for election at the
Special Meeting. Two of the H. Schultz-nominated positions will be for Class II
Directors, whose term expires in 2004, one H. Schultz-nominated position will be
for a Class I Director, whose term expires in 2003, and one H. Schultz-nominated
position will be for a Class III Director, whose term expires in 2002. PRGX will
use its commercially reasonable efforts to take all actions necessary to cause
the director previously nominated by H. Schultz whose term expires in 2002 to be
renominated for such next election.
4.19 SHAREHOLDER AGREEMENT. Effective upon the Closing, each of the
Shareholders shall enter into a shareholders agreement with John M. Cook and
Jack M. Toma in substantially the form attached hereto as Exhibit 4.19 (the
"Shareholder Agreement").
4.20 CONTRIBUTION OF SHARES. Effective upon the Closing, each of the
Shareholders shall, and shall use its best efforts to cause all other equity
owners of each of the Subsidiaries to contribute without consideration therefor
all of the equity interests owned by such Shareholder or other equity owner in
such Subsidiary to the direct parent corporation holding a majority of the
outstanding equity interest in such Subsidiary or to the designee of such
corporation, unless such ownership is required by the jurisdiction of
organization of such Subsidiary, in which case, each of the Shareholders shall,
and shall use its best efforts to cause all other equity owners of such
Subsidiaries, to enter into a written agreement, in substantially the form
attached hereto as Exhibit 4.20, confirming that such Person is holding such
equity interests solely to satisfy a requirement of local law and that such
Person agrees to transfer such equity interest to any designee of PRGX, without
consideration, upon written request by PRGX, after the Closing.
4.21 SCHEDULES. As soon as practicable but in no event later than 30 days
after the date of this Agreement, HSA-Texas shall deliver all those Schedules
required by the terms hereof that are not attached hereto, which Schedules shall
speak as of the date of this Agreement.
4.22 TRANSFER OF PERSONAL PROPERTY. Effective upon the Closing, each of
the Shareholders shall transfer, by appropriate documents of transfer, any and
all right, title and interest such Shareholder has in and to any assets and
rights relating to the Business which any of the Companies use to conduct the
Business, so that at the Closing all such assets shall be part of the Acquired
Assets, including that certain software that HSA-Texas leases from H. Schultz
under a lease agreement dated December 1999, but not including the condominium
owned by the Schultz family that is used from time to time by the Companies.
4.23 REPAYMENT OF OTHER SHAREHOLDER LOANS. Effective upon the Closing,
HSA-Texas and the Shareholders shall cause all of the stockholders of HSA-Texas
(including those other than the Shareholders) to repay in full all amounts owed
by such stockholders to HSA-Texas.
4.24 RESIGNATIONS. Effective upon the Closing, each of the Shareholders
shall resign and shall cause all other persons to resign, in writing from all
offices and directorships held by such Shareholder or other person in each of
the Subsidiaries and Licensees.
4.25 ESCROW ACQUISITIONS. From and after the date hereof, HSA-Texas shall
diligently negotiate with each of the respective parties to the Escrow
Acquisitions to enter into an agreement with such parties and
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consummate the Escrow Acquisitions pursuant thereto. HSA-Texas agrees to keep
PRGX fully and promptly apprised of the status of all such negotiations.
HSA-Texas will not enter into any agreement with respect to any of the Escrow
Acquisitions without the prior review by and consent of PRGX, which consent will
not be unreasonably withheld.
ARTICLE 5
REPRESENTATIONS AND WARRANTIES OF
HSA-TEXAS AND SHAREHOLDERS
In order to induce PRGX to enter into this Agreement and consummate the
transactions contemplated hereby, HSA-Texas and each Shareholder jointly and
severally represent and warrant to PRGX as follows, each of which warranties and
representations is material to and relied upon by PRGX.
5.1 ORGANIZATION AND AUTHORITY OF COMPANIES. Each Company is a corporation
duly organized, validly existing and in good standing under the laws of the
jurisdiction designated on Schedule 5.1(a) attached hereto. Each Company is duly
qualified as a foreign corporation in all jurisdictions inside and outside of
the United States in which the conduct of its business or the ownership of its
properties requires such qualification (except where the failure to do so would
not have a Material Adverse Effect on such Company) and Schedule 5.1(b) lists
all the jurisdictions inside and outside the United States where each Company is
so qualified. Each Company has all necessary corporate power and authority to
own, lease and operate its properties and conduct its business as it is
currently being conducted. Except as described on Schedule 1(a), no Company
owns, directly or indirectly, any equity interest in any corporation,
partnership, joint venture, or other entity.
5.2 CORPORATE POWER AND AUTHORITY; DUE AUTHORIZATION. HSA-Texas has full
corporate power and authority, and each Shareholder has full power and
authority, to execute and deliver this Agreement and each of the HSA-Texas
Transaction Documents to which HSA-Texas or such Shareholder is or will be a
party and to consummate the transactions contemplated hereby. "HSA-Texas
Transaction Documents" means each of the agreements, documents and instruments
referenced in this Agreement to be executed and delivered by HSA-Texas and/or
any Shareholder. Prior to the Effective Date, the directors and the Shareholders
of HSA-Texas shall have duly approved and authorized the execution and delivery
of this Agreement and each of the HSA-Texas Transaction Documents to which
HSA-Texas is or will be a party and the consummation of the transactions
contemplated hereby and thereby, and no other corporate proceedings shall then
be necessary. In respect of each of the Trusts, the execution, delivery and
performance of this Agreement by such Trust has been duly authorized by all
governing agreements of such Trust. In respect of each trust, the trustee
identified on Schedule 5.2(a) hereof is the sole Trustee of such Trust and has
sole full right, power and authority to enter into this Agreement on behalf of
the Trust and to perform Trust's obligations hereunder. Assuming that this
Agreement and each of the HSA-Texas Transaction Documents which are also PRGX
Transaction Documents constitutes a valid and binding agreement of PRGX, this
Agreement and each of the HSA- Texas Transaction Documents constitutes, or will
constitute when executed and delivered, a valid and binding agreement of
HSA-Texas and/or such Shareholder, as the case may be, in each case enforceable
in accordance with its terms. The duly elected directors and officers of each
Company are set forth on Schedule 5.2(b) attached hereto.
5.3 TITLE TO ASSETS. Except as set forth on Schedule 5.3 attached hereto,
each Company has good, valid and marketable title to all of its assets free and
clear of any mortgages, liens, pledges, security interests, encumbrances, or
similar rights of every kind and nature, except for any liens for taxes not yet
due and payable and those encumbrances in respect of the Acquisition-Related
Notes specifically set forth on Schedule 5.11B attached hereto which will be
removed concurrently with the Closing (collectively, the "Permitted
Encumbrances") and except for liens and encumbrances on the Dallas Headquarters
property, which is an Excluded Asset. Except for the Dallas Headquarters
property, which is an Excluded Asset, no Company owns any real property.
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5.4 NO CONFLICT; REQUIRED CONSENTS. Schedule 5.4 contains a true, correct
and complete list of (a) all Material Contracts and Material Leases that require
consent or approval to the assignment of such Material Contract or Material
Lease in order to operate the Business on a daily basis as presently conducted
and (b) all contracts (other than Material Contracts) and all Leases (other than
Material Leases) that require consent or approval to the assignment of a
Contract or Lease where the absence of such consent is likely to result in a
Material Adverse Effect (collectively, the "Company Consents" and individually a
"Company Consent"). Assuming compliance with the applicable requirements of the
HSR Act and assuming all Company Consents have been obtained or taken prior to
Closing, the execution and delivery by HSA-Texas and Shareholders of this
Agreement and the HSA-Texas Transaction Documents, and the consummation by
HSA-Texas and Shareholders of the transactions contemplated hereby and thereby
do not and will not (i) require the consent, approval or action of, or any
filing with or notice to, any corporation, firm, Person or other entity or any
Governmental Entity (except for the Acquisition Related Notes and related
security agreements, and except for consents and approvals under Contracts and
Leases not required to be listed on Schedule 5.4); (ii) violate the terms of any
instrument, document or agreement to which any Company is a party, or by which
any Company or any Shareholder or the property of any Company is bound, or be in
conflict with, result in a breach of or constitute (upon the giving of notice or
lapse of time or both) a default under any such instrument, document or
agreement, or result in the creation of any lien upon any of the property or
assets of any Company (except for the Acquisition Related Notes and related
security agreements, and except for consents and approvals under Contracts and
Leases not required to be listed on Schedule 5.4), in each case except where
such violation, conflict, breach, default or lien will not have a Material
Adverse Effect; (iii) violate HSA-Texas' Articles of Incorporation or Bylaws or
other organizational or governing agreements; or (iv) violate any order, writ,
injunction, decree, judgment, ruling, law, rule or regulation of any
Governmental Entity applicable to any Company, the Business or the Acquired
Assets. No Company nor any Shareholder is subject to, or is a party to, any
mortgage, lien, lease, agreement, contract, instrument, order, judgment or
decree or any other restriction of any kind or character which would prevent or
hinder the continued operation of the Business after the Effective Date on
substantially the same basis as theretofore operated.
5.5 OWNERSHIP OF CAPITAL STOCK AND OPTIONS.
(a) All outstanding shares of each Company's capital stock are validly
issued, fully paid and non-assessable and are owned of record and beneficially
solely by those persons and entities listed on Schedule 5.5(a) attached hereto
in respect of each Company. Except as set forth on Schedule 5.5(a), no one other
than the Shareholders has any beneficial or record interest in the capital stock
of HSA-Texas and no one other than the shareholders identified on Schedule
5.5(a) in respect of each Subsidiary owns any beneficial or record interest in
the capital stock of such Subsidiary. Each Shareholder warrants and represents
that it is the lawful owner of, and has good and marketable title to, all of
HSA-Texas' outstanding capital stock identified as owned by it on Schedule
5.5(a), free and clear of any mortgage, pledge, claim, lien, charge, encumbrance
or other right in any third party (including any right to purchase, vote or
direct the voting of, any shares thereof). HSA-Texas represents and warrants
that the lawful owner(s) of each Subsidiary are identified on Schedule 5.5.(a)
and that each such owner(s) so identified have good and marketable title to, all
of such Subsidiary's outstanding capital stock identified as owned by it on
Schedule 5.5(a), free and clear of any mortgage, pledge, claim, lien, charge,
encumbrance or other right in any third party (including any right to purchase,
vote or direct the voting of, any shares thereof). Schedule 5.5(a) includes a
true, correct and complete list of those Subsidiaries organized in jurisdictions
which require individual or resident shareholders.
(b) Schedule 5.5(b) attached hereto is a true, correct and complete list of
all options outstanding as of the date hereof, issued by HSA-Texas prior to the
date hereof, to purchase shares of HSA-Texas Common Stock, showing the name and
address of the holder (each an "Optionee"), the number of shares of HSA-Texas
Common Stock subject to such option, the exercise price of such option, the
expiration date of such option and any other relevant information with respect
to such option, which list will be updated so as to be true, correct and
complete as of the Closing Date (collectively, the "HSA-Texas Options"). Prior
to the date hereof, HSA-Texas has provided PRGX with a true, correct and
complete copy of the 1999 Howard Schultz & Associates Stock Option Plan, which
is the only stock option plan pursuant to which any options to acquire
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shares of any of the Companies' common stock have been granted. Also set forth
on Schedule 5.5(b) is a true, correct and complete list of all holders of
HSA-Texas SARs, showing the name and address of each holder, the number of SARs
granted to such holder, the grant price of such SAR, and all other relevant
information with respect to such HSA-Texas SAR, which list will be updated so as
to be true, correct and complete as of the Closing Date. As soon as practicable
after the date hereof, HSA-Texas will provide true correct and complete copies
of all option grant agreements entered into by HSA-Texas, which reflect options
outstanding as of the date hereof to acquire shares of common stock of any of
the Companies and true correct and complete copies of all documents
memorializing the HSA-Texas SARs and any other contract rights obligating any of
the Companies to issue shares of its capital stock or otherwise relating to its
capital stock, in each case as amended and in effect on the date hereof
(collectively, the "Grant Agreements"). All such HSA-Texas Options are fully
vested and are nonqualified stock options, and are not "incentive stock
options", under Section 422 of the Code. The HSA-Texas Common Stock subject to
all HSA-Texas Options is solely HSA-Texas Non-Voting Common Stock. Except as set
forth on Schedule 5.5(b), no Company has issued any convertible securities,
options, warrants, or entered into any contracts, commitments, agreements,
understandings, arrangements or restrictions by which it is bound to issue any
additional shares of its capital stock or other securities or which otherwise
relate to its capital stock or other securities. All HSA-Texas Options have been
granted under a stock option grant agreement in the form attached hereto in
Schedule 5.5(b)(i) and there are no other written or oral agreements relating to
such HSA-Texas Options. All HSA-Texas SARs have been granted pursuant to a
document(s) in the form attached hereto as Schedule 5.5(b)(ii) and there are no
other written or oral agreements relating to such HSA-Texas SARs.
5.6 COMPLIANCE WITH LAWS. Except as set forth on Schedule 5.6, each
Company is in compliance with all applicable laws, orders, rules and regulations
of all Governmental Entities, except where such noncompliance has and will have,
individually or in the aggregate, no Material Adverse Effect on the Business or
Acquired Assets. No Company nor any Shareholder has received written notice of
any noncompliance with the foregoing, nor are they aware of any basis therefor.
5.7 LICENSES AND PERMITS. Except as set forth on Schedule 5.7, each
Company holds and is in compliance with all Licenses and Permits listed on
Schedule 1.1(f) attached hereto, and such list constitutes all of the city,
county, state, federal and foreign licenses, permits, approvals and
authorizations necessary or required for the use or ownership of the Acquired
Assets and the operation of the Business, except where such failure to hold or
noncompliance has or will have, individually or in the aggregate, no Material
Adverse Effect on the Business or Acquired Assets. No Company nor any
Shareholder has received written notice of any violations in respect of any such
Licenses and Permits. No proceeding is pending or, to the Knowledge of HSA-Texas
or any Shareholder, threatened, which seeks revocation or limitation of any such
Licenses and Permits.
5.8 FINANCIAL INFORMATION. Prior to the date hereof, HSA-Texas has
delivered to PRGX true, correct and complete copies of the Historical Statements
for periods through June 30, 2001, except that Historical Statements (other than
the Audited Statements) do not contain customary footnotes. The Historical
Statements have been prepared in accordance with GAAP, fairly present the
combined financial condition of the Companies and the Concurrent Companies at
the respective dates thereof and the combined results of operations of the
Companies and the Concurrent Companies for the periods then ended, in each case
in accordance with past practice and GAAP consistently applied during the
periods presented (except as otherwise disclosed in the notes thereto). The
Estimated Financials will be prepared in accordance with GAAP, will fairly
present the combined financial conditions of the Companies and the Concurrent
Companies for the period ended as of the Effective Date, in accordance with past
practice and GAAP consistently applied during the periods presented. The
Historical Statements are, and the Estimated Financials will be, consistent with
the books and records of the Business. All work papers related to the Historical
Statements and the Estimated Financials and other financial information provided
by the Companies and the Concurrent Companies to PRGX or KPMG LLP in connection
with their due diligence are true, correct and consistent with the books and
records of the Companies and the Concurrent Companies. On the date hereof there
were, and as of the Effective Date there will be, no liabilities or obligations
of the Companies or the Concurrent Companies of any nature, whether liquidated,
unliquidated, accrued, absolute, contingent or otherwise except
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for those (i) that are specifically reflected or reserved against as to amount
in the balance sheets contained in the Audited Statements, or (ii) that are
Assumed Liabilities or are specifically set forth on Schedule 5.8 attached
hereto, none of which, individually or in the aggregate, constitutes a Material
Adverse Effect. Except as disclosed on Schedules 5.8 attached hereto, no Company
is, nor has any Company been during the 12 months immediately preceding the
execution of this Agreement, insolvent within the meaning of 11 U.S.C.
sec. 101(31). Each Company has paid and is paying its debts as they become due.
5.9 SUFFICIENCY OF ASSETS. The Acquired Assets, together with the Excluded
Assets, constitute all of the material assets and rights of any nature with
which HSA-Texas has conducted the Business for the twelve month period prior to
the Effective Date, subject only to additions and deletions in the ordinary
course of business. The Acquired Assets are owned and held solely by the
Companies, and all agreements, obligations, expenses and transactions related to
the Business have been entered into, incurred and conducted solely by the
Companies.
5.10 DEPOSITS AND OTHER RIGHTS. Attached as Schedule 1.1(g) is a true,
correct and complete list of all Deposits and Other Rights of each of the
Companies, listing, where appropriate, the location thereof. Schedule 1.1(g)
shall be updated, as of the Effective Date, to list the amount of all monetary
Deposits and Other Rights.
5.11 TRADE PAYABLES; ACCRUED EXPENSES; OTHER DEBT.
(a) Trade Payables. All trade payables and accrued expenses of the
Companies assumed by PRGX at Closing shall have been incurred in the ordinary
course of business, shall be directly related to the Business to be acquired by
PRGX pursuant hereto, and shall not, as of the Effective Date, be overdue other
than those, if any, not yet paid due to a bona fide dispute (as detailed on
Schedule 5.11A).
(b) Debt for Borrowed Money. Schedule 5.11B is a true, correct and
complete list as of the date hereof, which list will be updated at Closing so as
to be true, correct and complete as of the Effective Date, of all debts,
obligations, guaranties, seller financing and other indebtedness for borrowed
money of each of the Companies outstanding as of the date hereof (including the
Acquisition-Related Notes), stating the origin of the obligation, the obligee of
such obligation, the security therefor (including a specific description of
collateral), the terms of payment and the amount owed as of the date hereof.
5.12 TAX RETURNS AND PAYMENTS.
(a) Payment of Taxes and Other Matters. Except as otherwise disclosed in
Schedule 5.12 attached hereto: (i) all material Tax Returns, including estimated
Tax returns and reports of every kind with respect to Taxes which are due to
have been filed by HSA-Texas and the Subsidiaries on or before the Closing Date
in accordance with any applicable law in all jurisdictions where HSA-Texas or
any Subsidiary is subject to Taxes, have been or will be duly filed on or before
the Closing Date and are, or on or before the Closing Date will be, true,
correct and complete in all material respects; (ii) all Taxes, deposits or other
payments which relate to Taxes required to be paid (whether or not shown on a
Tax Return) by HSA-Texas and any Subsidiary on or prior to the Effective Date
have been, or will be, paid in full or will be accrued or reserved as a Tax
liability on the December 31, 2000 Audited Financials and/or on the Estimated
Financials; (iii) there are not now any extensions of time in effect with
respect to the dates on which any Tax Returns or reports of Taxes were or are
due to be filed; (iv) all deficiencies asserted as a result of any examination
of any Tax Return or report of Taxes of HSA-Texas or any Subsidiary have been,
or on or before the Closing Date, will be, paid in full or finally settled with
no outstanding liability to HSA-Texas or any Subsidiary or will be included in
the amount of the reserve for Tax liability shown on the December 31, 2000
Audited Financials and/or on the Estimated Financials, and no issue has been
raised in any such examination which, by application of the same or similar
principles, reasonably could be expected to result in a proposed deficiency for
any other period not so examined; (v) to HSA-Texas' knowledge, no claims have
been asserted against and no proposals or deficiencies for any Taxes are being
asserted against HSA-Texas or any Subsidiary, or proposed or threatened, and no
audit or investigation of any Tax Return or report of Taxes is currently
underway, pending or threatened; (vi) there are no outstanding waivers or
agreements by HSA-Texas or any Subsidiary for the extension of time for the
assessment of any Taxes or deficiency thereof, nor are there any
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requests for rulings, outstanding subpoenas or requests for information, notices
of proposed reassessment of any property owned or leased by HSA-Texas or any
Subsidiary or any other matter pending between HSA-Texas or any Subsidiary and
any taxing authority; (vii) there are no liens for Taxes upon any property or
assets of HSA-Texas or any Subsidiary except statutory liens for current Taxes
not yet delinquent; (viii) to HSA-Texas' knowledge, no claim has ever been made
by a Tax Authority in a jurisdiction where any Subsidiary does not file Tax
Returns that such Subsidiary is or may be subject to Tax by that jurisdiction;
(ix) no Subsidiary is a party to or bound by any tax allocation or tax sharing
agreement and has no current or potential contractual obligation to indemnify
any other Person with respect to Taxes; (x) no Subsidiary and, with respect to
Flow-Through Taxes attributable to the operations of HSA-Texas, no Shareholder,
is required to include in income any adjustment pursuant to Section 481(a) of
the Code by reason of a voluntary change in accounting method initiated by such
Subsidiary or HSA-Texas, nor to HSA-Texas' knowledge, has the Internal Revenue
Service proposed any adjustment or change in accounting methods for HSA-Texas or
any Subsidiary.
(b) Subchapter S Status. HSA-Texas made a valid election to be treated as
an S Corporation for U.S. federal income tax purposes effective as of January 1,
1983 (the "S Effective Date"), and such election has remained valid and
effective at all times since such date, and HSA-Texas will be an S corporation
up to and including the day before the Closing Date. HSA-Texas has made
available to PRGX a true, correct and complete copy of its S election, and
acknowledgement of receipt thereof by the Internal Revenue Service.
5.13 FIXED ASSETS. The Fixed Assets and the fixed assets leased by each of
the Companies include all of the furniture, fixtures, and equipment owned and
used by each of the Companies in the operation of the Business. Except as
specifically set forth on Schedule 1.1(a) attached hereto, each of the Fixed
Assets is in the possession of the Companies and is in good operating condition
and repair, normal wear and tear excepted. Prior to the Closing, HSA-Texas will
deliver to PRGX a true, correct and complete list of the Fixed Assets of the
Companies that is reconciled with the Fixed Assets line item of the Estimated
Balance Sheet.
5.14 INFORMATION ON AUDITS; ACCOUNTS RECEIVABLE.
(a) Information on Audits. Schedule 5.14(a) will be delivered by HSA-Texas
to PRGX within 3 days after the later to occur of PRGX's receipt of the bank
approval described in Section 8.1(k) hereof or the mailing by PRGX of the Joint
Proxy Statement/Prospectus to its shareholders. Schedule 5.14(a), when so
delivered, will be a true, correct and complete list, as of the last day of the
calendar quarter immediately preceding delivery of such Schedule, of the
following information with respect to each Active Audit of Key Clients; provided
that with respect to such Schedule, Key Clients shall not be identified by name,
but shall be represented by a letter of the alphabet, and at least 3 business
days prior to the Closing, HSA-Texas will update the information contained on
Schedule 5.14(a) so as to be true, correct and complete as of the Effective
Date, and deliver to PRGX a key which identifies the name and address of the Key
Client represented by each letter on such list:
(i) name of Client;
(ii) primary or secondary audit;
(iii) scope of audit (e.g., all divisions, Southeast region
only -- merchandise, expenses, advertising, real estate);
(iv) audit year(s) or other covered time period of audit;
(v) the contract rate for the Company's service fee;
(vi) Client reserve or holdback percentage;
(vii) audit commencement date and projected completion date;
(viii) aggregate claims approved by Client;
(ix) aggregate gross service fees billed to Client by the Company for
such audit;
(x) aggregate amount of cash receipts from such audit;
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(xi) reserve amount held by Client; and
(xii) the aggregate amount of Vendor Paybacks per audit that have been
paid as of June 30, 2001 (and as of the last day of the calendar quarter
immediately preceding the Closing Date).
For purposes hereof, "Active Audits" means, collectively, all those audits of
Clients of the Business in respect of which claims remain to be written,
including those listed on Schedule 5.14(a) attached hereto. "Inactive Audits"
means, collectively, all those audits for Clients of the Business in respect of
which no claims remain to be written, including those in respect of which Client
continues, as of the date hereof, to hold a reserve for credits, chargebacks or
other Vendor Paybacks. A "Vendor Payback" means the credits, chargebacks or
payments made by a Company to a Client as a result of the Client's refund of
payments made to such Client's vendor refunding commissions received by said
Company from such Client.
(b) Accounts Receivable. Prior to the Closing, HSA-Texas shall provide
PRGX with a true, correct and complete list of the Accounts Receivables of the
Companies and the Concurrent Companies reconciled with the Accounts Receivable
line item on the Estimated Balance Sheet, showing by Client and by each Active
Audit for such Client, the terms and time period for collection thereof. Each of
the Accounts Receivable is bona fide and represents a valid obligation arising
from sales actually made or services actually performed by the Companies or the
Concurrent Companies in the ordinary course of Business. Each of the Accounts
Receivable shall be as of the Effective Date current and collectible in full
within ninety (90) days after the day on which it first becomes due and payable
net of the reserve shown on the Estimated Balance Sheet (which reserve will be
adequate and calculated consistent with past practice and will not represent a
greater percentage of the Accounts Receivable reflected on the Estimated Balance
Sheet than the reserve to the accounts receivable on the December 31, 2000
balance sheet contained in the Audited Statements) and will not represent a
material adverse change in the composition of such Accounts Receivable in terms
of aging. There is no contest, claim, dispute, defense or right of setoff
relating to the amount or validity of such Account Receivable, except for
possible vendor payback claims of the Client. As to each such Account
Receivable, to the Knowledge of HSA-Texas and, if such Account Receivable is on
the books of a Subsidiary, to the knowledge of such Subsidiary, neither the
vendor nor the respective Client has objected to the claim for reimbursement
upon which such Account Receivable is based. The Work in Progress included in
the Acquired Assets is bona fide and will, if and when converted to Accounts
Receivable, represent valid obligations arising from sales actually made or
services actually performed by the Companies in the ordinary course of business,
subject only to possible vendor pay-back claims of the Client.
5.15 MATERIAL CONTRACTS; LICENSE AGREEMENTS.
(a) Definition of Material Contract. Schedule 5.15 attached hereto is a
true, correct and complete list of all "Material Contracts" which, for purposes
hereof, means, collectively, all Contracts which:
(i) are with those entities which constitute Key Clients for 2000 or
2001;
(ii) evidence the obligation of any Company for debt to any Person for
borrowed money or evidence the obligation of any Person, including any
franchisee or licensee, to any of the Companies for borrowed money
(including seller/licensee financing arrangements, but not Leases);
(iii) are license agreements (including those related to Software),
either as licensor or licensee, including all agreements with all Licensees
and which involve an aggregate annual expenditure or receipt by any Company
of $25,000 or more;
(iv) are with strategic or business partners of any Company, including
all agreements relating to the Salt Lake City Data Processing Center and
the DSD Operations of the Business;
(v) involve the provision of data processing services or
telecommunications services to any Company and which involve an aggregate
annual expenditure by any Company of $100,000 or more;
(vi) are contracts with vendors of products or services to any Company
(including supply or requirements contracts), indicating any which are not
cancelable by such Company without cost on
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60 days or less notice and which involve an aggregate annual expenditure by
any Company of $100,000 or more;
(vii) are with employees or independent contractors or sales agents of
any Company;
(viii) relate to any merger, asset purchase, stock purchase or similar
purchase and sale agreement to which any of the Company is or was a party
within the last three years, or has continuing obligations in respect of,
including all agreements relating to the prior acquisition of the imaging
business, the Salt Lake City Data Processing Center and the DSD
Acquisition;
(ix) are with any current Client and have an unexpired term of 2 or
more years;
(x) have or may have the effect of (1) prohibiting or impairing any
business practice of the Companies, any acquisition of property (tangible
or intangible) by Companies or the conduct of business by the Companies,
(2) requiring the referral of any business by the Companies, or (3)
requiring or purporting to require the payment of money or the acceleration
of performance of any obligations of any Company by virtue of the Closing;
or
(xi) are Client Contracts which contain any (1) obligations to provide
equipment or services beyond the scope of the Business or (2) any guaranty,
rebate or refund that will or is reasonably likely to exceed $25,000 in any
12 month period.
Schedule 5.15 indicates thereon the category, by section reference, of Material
Contract described in this Section 5.15(a) to which such Material Contract
belongs. Notwithstanding anything to the contrary herein, with respect to the
information about Clients and Key Clients on the Schedules or deliveries
required to be delivered as of the date hereof by this Section 5.15, Client and
Key Clients shall not be identified by name, but shall be represented by a
letter of the alphabet, and immediately prior to the Closing, HSA-Texas will
deliver to PRGX a key which identifies the name and address of the Client or Key
Client represented by each letter on such list:
(b) Certain Representations re Material Contracts. Except as specifically
set forth in Schedule 5.15(b)-1, no Company has entered into any agreement under
which it is restricted from providing services to Clients or potential Clients
or any class of Clients, in any geographic area during any period of time or in
any segment of the market. HSA-Texas and Shareholders have provided or made
available to PRGX true, correct and complete copies of all written Material
Contracts, including any and all amendments and waivers thereto, and have
provided descriptions of the material terms of any oral Material Contracts on
Schedule 5.15(b)-2 hereof. Assuming the Material Contracts constitute the valid
and binding agreements of the Company party thereto, such Material Contracts are
valid, legally binding and enforceable against the other parties thereto subject
to laws of general application in effect affecting creditors' rights and subject
to the exercise of judicial discretion in accordance with general equitable
principles. Except as specifically set forth on Schedule 5.15(b)-3, no Company
nor, to the Knowledge of HSA-Texas or any Shareholder, any other party to any of
the Material Contracts, is in breach of, or in default under, any of the
Material Contracts, and no event has occurred which, with the giving of notice
or lapse of time, or both, would constitute a default by any Company or, to the
Knowledge of HSA-Texas or any Shareholder, any other party to any of the
Material Contracts. Except as specifically set forth on Schedule 5.15(b)-4, the
assignment of any of the Material Contracts to PRGX in accordance with this
Agreement will not constitute a breach or violation of such Material Contract.
(c) Contracts regarding Escrow Acquisitions. Prior to the date hereof,
HSA-Texas has provided to PRGX true, correct and complete copies of all
agreements, together with all amendments, supplements and addenda thereto,
between PRGX and each Licensee. In addition to the representations set forth in
subsection (b) above, HSA-Texas and Shareholders make the following additional
representations in respect of Material Contracts involving a Licensee. With
respect to the German Licensee, HSA-Texas has the absolute and unqualified right
to purchase the license granted to such Licensee pursuant to the terms of a
written agreement, true, correct and complete copies of which have been
previously delivered to PRGX. With respect to the all agreements between
HSA-Texas and the U.K. Licensee, all of HSA-Texas' rights under its agreements
with the U.K. Licensee, including all rights to royalties and all rights to
acquire the U.K. Licensee,
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are assignable by HSA-Texas to PRGX without the consent of the U.K. Licensee, or
if such consent is required, such consent will be obtained by HSA-Texas prior to
the Closing without modification of any of such agreements.
5.16 MATERIAL LEASES. Schedule 5.16 attached hereto is a true, correct and
complete list of all "Material Leases," which means, for purposes hereof, all
Leases which (a) involve an aggregate annual expenditure by any Company of
$25,000 or more, (b) are not cancelable by such Company without cost on sixty
(60) days' or less notice, or (c) have a term which extends for more than one
(1) year from the Effective Date. HSA-Texas has delivered to PRGX true, correct
and complete copies of all of the Material Leases, together with all amendments,
addenda and supplements thereto. Except as specifically set forth on Schedule
5.16, with respect to each Material Lease:
(a) the Company party thereto holds the leasehold interest created
under each Material Lease;
(b) assuming the Material Lease constitutes the valid and binding
agreement of such Company, the Material Lease is legal, valid, binding and
enforceable against the other party thereto and in full force and effect,
subject to laws of general application in effect affecting creditors'
rights and subject to the exercise of judicial discretion in accordance
with general equitable principles;
(c) subject to obtaining any necessary consent in respect of the
transactions contemplated hereunder and assuming the Material Lease
constitutes the valid and binding agreement of the party thereto other than
such Company, the Material Lease will continue to be legal, valid, binding
and enforceable against PRGX and in full force and effect on identical
terms following the Effective Date;
(d) no Company, nor, to HSA-Texas' or any Shareholder's Knowledge, any
other party to the Material Lease is in breach or default, and no event has
occurred which, with the giving of notice or lapse of time, would
constitute a breach or default by such Company or permit termination,
modification or acceleration thereunder by any other party thereto;
(e) no Company nor, to HSA-Texas' or any Shareholder's Knowledge, any
other party to the Material Lease has repudiated in writing any provision
thereof;
(f) there have been and there are no disputes, oral agreements or
forbearances in effect as to the Material Lease;
(g) no Company has assigned, transferred, conveyed, mortgaged, deeded
in trust or encumbered any interest in the leasehold of the Material Lease
and HSA-Texas and Shareholders are not aware of any such assignment,
transfer, conveyance, mortgage, deed in trust or encumbrance of any
interest in the leasehold of the Material Lease;
(h) in respect of each such Material Lease which is a real property
lease, (i) such lease is the only instrument which gives rise to a right of
occupancy by the Company at such location, (ii) Company is the original
lessee (or has validly succeeded to the rights of the original lessee)
under such lease, (iii) Company actively occupies such location, (iv)
Company has paid the rent under the lease on a current basis and there are
no past due amounts; and
(i) in respect of each such Material Lease which is an equipment
lease, (i) such Company is in actual possession of the equipment leased
under each equipment lease, (ii) Company has paid the rent set forth in
each of the equipment leases on a current basis and there are no past due
amounts. Attached as Schedule 5.16 is a true, correct and complete list of
the equipment subject to each equipment lease and the location of such
equipment.
5.17 CLIENTS AND KEY CLIENTS. For purposes hereof, "Clients" means those
clients to whom any Company provides or has provided the services of the
Business and "Key Clients" means those 27 Clients of the Companies and the
Concurrent Companies, which as of December 31, 2000 (or in respect of 2001, as
of the period from January 1, 2001 to June 30, 2001) accounted for the highest
percentages of the revenue of the Clients generating at least 80% of the
revenues of the Companies and the Concurrent Companies on a combined basis
during such period.
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(a) Schedule 5.17(a-1) attached hereto contains the number of Key
Clients for each of 2000 and 2001, and the aggregate revenues of such
Clients for each of such periods. Schedule 5.17(a-2) separately states the
number of Key Client Contracts (and the aggregate revenues of such number
of Key Clients for each of such periods) which contain any of the following
provisions: (i) performance guaranties, refunds or rebates that could
reasonably be expected to exceed $25,000, with respect to any annual audit
period, (ii) have or may have the effect of limiting or impairing any
material business practice or activity of any Company, (iii) have a net
commission rate below 20% of recovered funds, (iv) require any referral of
business by any Company, (v) allow for cancellation by the Client on less
than 90 days notice or (vi) require consent to assignment, the payment of
money or the acceleration of performance of any obligation by a Company
because of the proposed transaction with PRGX. Except for the number of Key
Clients (with the aggregate revenues for such number for each period)
listed on Schedule 5.17(a-3), to the Knowledge of HSA-Texas, there are no
Key Clients who have, within the 12 months immediately preceding the date
hereof, expressed to any Company material dissatisfaction with the
Companies' services. Schedule 5.17(a-4) contains the revenues generated by
all Key Clients during each of 2000 and 2001, the percentage of the total
revenues of the Companies and the Concurrent Companies on a combined basis
for each such period that the revenues of the Key Clients for such period
constitutes, and the average remaining term of the Contracts for all Key
Clients. Schedule 5.17(a-5) contains the number of Key Clients gained from
or lost to any Person other than PRGX in the last 24 months and the number
of primary audits for Key Clients converted to secondary audits in the last
24 months, other than audits in which PRGX performs the primary audit. All
written contracts with Key Clients reflect all material terms of the
contractual relationship of the Key Client with the Company.
(b) Schedule 5.17(b-1) when delivered, as provided below, will be a
true, correct and complete list of all Key Clients, which will be
separately identified for each of 2000 and 2001. Schedule 5.17(b-2) will
specifically identify each Key Client Contract which contains any of the
following provisions: (i) performance guaranties, refunds or rebates that
could reasonably be expected to exceed $25,000, with respect to any annual
audit period, (ii) have or may have the effect of limiting or impairing any
material business practice or activity of any Company, (iii) have a net
commission rate below 20% of recovered funds, (iv) require any referral of
business by any Company, (v) allow for cancellation by the Client on less
than 90 days notice or (vi) require consent to assignment, the payment of
money or the acceleration of performance of any obligation by a Company
because of the proposed transaction with PRGX. Except as will be
specifically described on Schedule 5.17(b-3), to the Knowledge of
HSA-Texas, there are no Key Clients who have, within the 12 months
immediately preceding the date hereof, expressed to any Company material
dissatisfaction with the Companies' services. Schedule 5.17(b-4) will
contain a true, correct and complete list for calendar year 2000 and 2001
of each Key Client for each such period, the revenues generated by each
such Key Client during the respective period, the percentage of the total
revenues of the Companies and the Concurrent Companies on a combined basis
for each such period that the revenues of each Key Client for such period
constitutes, and the term of the Contract for such Key Client, including
the expiration date thereof. In addition, Schedule 5.17(b-5) will include a
list of Key Clients gained from or lost to any Person other than PRGX in
the last 24 months a list of primary audits for Key Clients converted to
secondary audits in the last 24 months, other than audits in which PRGX
performs the primary audit, and the details of any rebate, recovery
advance, or recovery guarantee provisions with Key Clients for 2000 and
2001, and the assumption or reimbursement of Key Client expenses associated
with data acquisition or other audit related activities ("Key Client
Programs"). Schedule 5.17(b-1) through Schedule 5.17(b-5) will be delivered
to PRGX at least five business days prior to the Closing. In addition, upon
delivery of such Schedules, HSA-Texas will update the information contained
on Schedule 5.17(b), so as to be true, correct and complete as of the
Effective Date. At least five days prior to the Closing, HSA-Texas will
provide PRGX true, correct and complete copies of all contracts with all
Key Clients, together with all amendments thereto. All contracts with Key
Clients reflect all material terms of the contractual relationship of the
Key Client with the Company as of the Effective Date.
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5.18 EMPLOYEES; ASSOCIATES.
(a) Employees.
(i) Schedule 5.18(a) includes in respect to each current employee of
each of the Companies, a true, correct and complete list of the name,
location address, function and title of such person, base salary or hourly
rate, any bonus, commission formulae or profit sharing agreements
applicable thereto, all other benefits and all accrued commissions, the
amount of any advances on commissions (describing the repayment terms
thereof) and expenses such Person has received which are outstanding as of
the Effective Date and the name of the entity which pays the compensation
or commission to such employee. Schedule 5.18(a) includes a true, correct
and complete list of all agreements and understandings between each Company
and its employees (including a description on such Schedule of all oral
agreements) concerning their employment relationship with such Company
(including all restrictive covenant agreements and severance benefits),
true, correct and complete copies of which have been provided to PRGX (or
descriptions contained on Schedule 5.18(a) in respect of any oral
agreements).
(ii) Except as otherwise set forth in Schedule 5.18(a), the employment
of each employee is terminable within 30 days' written notice by such
Company or such employee, subject to any rights to salaries and commissions
earned prior to such termination and no such Person has been granted the
right to continued employment or engagement by any Company or to any
material compensation or payment following termination of employment with
such Company.
(iii) Schedule 5.18(a) contains a true, correct and complete copy of
HSA-Texas' standard form employment agreement and non-competition and
restrictive covenant agreement with its employees. Except to the extent
specified on Schedule 5.18(a), there are no deviations from such standard
contract in the agreements with the employees, except for immaterial
modifications which do not confer additional benefits on such employee or
impose additional liability on any Company.
(iv) To HSA-Texas' and Shareholders' Knowledge, no officer or Key
Employee, or any group of employees, intends to terminate their employment
with any Company, nor does any Company have a present intention to
terminate the employment of any officer, Key Employee or group of
employees.
(b) Associates.
(i) Schedule 5.18(b) includes in respect to each Associate who, as of
the date of this Agreement, is engaged by any of the Companies to perform
auditing services a true, correct and complete list of the name, location
address, function and title of such person, the Associate's commission
percentage, any bonus arrangements, all accrued commissions, the amount of
any advances on commissions or other amount owed to any Company (describing
the repayment terms thereof) which are outstanding as of the Effective
Date, any rights to payments upon or after termination of the independent
contractor relationship with any of the Companies, any other benefits, and
the name of the entity which pays the commission to such Associate. Prior
to the Closing, HSA-Texas shall have delivered to PRGX, true, correct and
complete copies of all agreements and understandings between each Company
and its Associates (including a written description on such Schedule of all
oral agreements) together with all amendments, addenda and supplements
thereto concerning their relationship with such Company (including any
restrictive covenant agreements and any severance agreements).
(ii) Except as otherwise set forth in Schedule 5.18(b), the engagement
of each Associate is terminable within 30 days' written notice by such
Company or such Associate, subject to any rights to commissions earned
prior to such termination and no such Person has been granted the right to
continued engagement by any Company or to any material compensation or
payment following termination of engagement with such Company.
(iii) Schedule 5.18(b) attached hereto contains a true, correct and
complete description of the Companies' policy for post-termination trailing
commissions payable to Associates and its policy for the deduction of
commissions associated with Client paybacks and lists any material
deviations from such policy in respect of any Associate, except for
immaterial modifications which do not confer additional
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benefits on such Associate or impose additional liability on any Company.
Each Associate and any other Person who is designated by any Company as an
independent contractor has met, and until the Closing Date will continue to
meet, the requirements under the Code, and the regulations promulgated
thereunder to be an independent contractor.
(iv) To HSA-Texas' and Shareholders' Knowledge, no Associates, or any
group of Associates, intends to terminate their engagement with any
Company, nor does any Company have a present intention to terminate the
engagement of any Associate or group of Associates.
(v) None of Companies' agreements or arrangements with any sales
agents or Associates will obligate PRGX to pay commissions, fees or other
compensation to such sales agents or Associates for revenues earned by PRGX
for services performed for Clients after the Effective Date other than
services of the type the Companies provided to such Clients prior to the
Effective Date.
(c) Employment Laws. Each Company (i) is in compliance with all applicable
laws, rules and regulations respecting employment, employment practices, terms
and conditions of employment and wages and hours in respect of its employees
and, to the extent applicable, its Associates of all Governmental Entities which
have jurisdiction over such Company's employment practices; (ii) has withheld
all amounts required by law or by agreement to be withheld from the wages,
salaries and other payments to its employees; (iii) is not liable for any
arrears of wages or any taxes or any penalty for failure to comply with any of
the foregoing in respect of any employees or Associates; and (iv) is not liable
for any payment to any trust or other fund or to any governmental or
administrative authority with respect to unemployment compensation benefits,
social security or other benefits for employees (other than routine payments to
be made in the normal course of business and consistent with past practice). In
respect of each Company's current and former employees and Associates, except as
set forth on Schedule 5.18(b), (i) there are no charges, investigations,
administrative proceedings or formal complaints of discrimination pending or, to
HSA-Texas' and the Shareholders' Knowledge, threatened before any Governmental
Entity against any Company; (ii) there have been no audits by any Governmental
Entity of any of the Companies' equal employment opportunity practices; (iii) no
current or former employee or Associate of any Company has notified any Company
of any fact or circumstance which, if true, might constitute a violation of any
Employment Law; and (iv) to HSA-Texas' and the Shareholders' Knowledge, no
Company nor any employee of any Company has engaged in any activity which
constitutes a violation of any Employment Law. For purposes hereof, "Employment
Laws" means any constitutional, statutory, regulatory or common law of any
Governmental Entity relating to employment discrimination or harassment,
including, but not limited to, the Age Discrimination in Employment Act, the
Older Workers' Benefit Protection Act, Title VII of the Civil Rights Act of
1964, the Civil Rights Act of 1991 and the Americans with Disabilities Act.
(d) Breaches. To the Knowledge of HSA-Texas and the Shareholders, and,
except as set forth in Schedule 5.18(d), (i) no Person employed or engaged as an
employee, sales agent, business or strategic partner, Associate, independent
contractor or consultant by any Company has, in respect of his or her activities
to date on behalf of such Company, violated any of the terms or conditions of
his or her employment agreement, independent contractor, proprietary inventions
or similar agreement or other engagement with the Company or any other contract
to which Company is a party with any third party, or disclosed or used any trade
secrets or proprietary or confidential information or documentation of any third
party without the authorization of such third party, or interfered in the
employment relationship between any third party and any of its employees and
(ii) no Person employed or engaged as an employee, sales agent, business or
strategic partner, independent contractor or consultant by any Company has
disclosed or used any trade secrets or any other proprietary or confidential
information or documentation of any former employer or other third party, or has
violated any non-compete obligation or confidential relationship that such
Person has or may have had with any third party, in connection with such
person's activities on behalf of the Companies. To HSA-Texas' and the
Shareholders' Knowledge, except as set forth on Schedule 5.18(d) and excluding
any former employees or Associates who are performing services for PRGX or its
affiliates, no former employees whose employment with any Company was terminated
by such Company or by such employee or otherwise expired within the last 2 years
and no Associate whose engagement with any Company was terminated by such
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Company or by such Associate or otherwise expired within the last 2 years is
currently or has within the last 2 years competed with the Business.
5.19 INTELLECTUAL PROPERTY.
(a) Schedule 5.19(a) is a true, correct and complete list of all
Intellectual Property Assets that are material to the conduct of the Business
and/or are used by any of the Companies in the operation of the Business.
Schedule 5.19(a) indicates with respect to the Intellectual Property Assets
whether such Intellectual Property Asset is (i) owned by the Company, (ii)
licensed to or from, the Company, and/or (iii) registered with any Governmental
Entity (or whether an application for registration is pending). Except as would
not, individually or in the aggregate, reasonably be expected to have a Material
Adverse Effect on HSA-Texas: (A) each of the Companies owns, or is validly
licensed to use (in each case, free and clear of all liens, security interests,
charges, encumbrances and other adverse claims), all Intellectual Property
Assets used in or necessary for the conduct of its business as currently
conducted; (B) to the Knowledge of HSA-Texas and Shareholders, the use of any
Intellectual Property Assets by any Company does not infringe on or otherwise
violate the rights of any Person; (C) except as of the date hereof as disclosed
in Schedule 5.19(a) with respect to certain software owned by H. Schultz which
will be contributed by him to HSA-Texas prior to Closing in accordance with
Section 4.21 hereof and with respect to which this representation will apply at
Closing, the use of any licensed Intellectual Property Assets is in accordance
with applicable licenses pursuant to which the Company acquired the right to use
such Intellectual Property Asset; and (D) except as of the date hereof as
disclosed in Schedule 5.19(a) with respect to certain software owned by H.
Schultz which will be contributed by him to HSA-Texas prior to Closing in
accordance with Section 4.21 hereof and with respect to which this
representation will apply at Closing, to the Knowledge of HSA-Texas and
Shareholders, no Person is challenging, infringing on and with respect to which
this Representation will apply at Closing, or otherwise violating any right of
any of the Companies with respect to any Intellectual Property Asset owned by
and/or licensed to any of the Companies. Except as would not reasonably be
expected, individually or in the aggregate, to have a Material Adverse Effect on
HSA-Texas, neither HSA-Texas nor any of the Shareholders has Knowledge of any
pending claim, order or proceeding with respect to any Intellectual Property
Asset used by any Company and to its Knowledge no Intellectual Property Asset
owned and/or licensed by any Company is being used or enforced in a manner that
would reasonably be expected to result in the abandonment, cancellation or
unenforceability of such Intellectual Property Asset.
(b) Schedule 5.19(b) contains a complete and accurate list and summary
description of all of the Software and Developments. Schedule 5.19(b) identifies
any third-party software which has been incorporated into the Software (the
"Incorporated Software"), and identifies any other standard third party software
required to utilize the Software. Except as specified on Schedule 5.19(b), no
Company has taken any measures to register, patent, copyright or otherwise
protect the Software other than reasonable efforts to protect the
confidentiality of the source code for the Software. Except as set forth on
Schedule 5.19(b), the Company identified on Schedule 5.19(b) owns outright the
Software and Developments, and no Company has sold, licensed, leased or
otherwise transferred or granted any interest or rights to any of such Software
and Developments, and:
(i) Such Company possesses or has access to the original and all
copies of all documentation, including all source code for all Software and
Developments owned by it;
(ii) any Intellectual Property Assets that were created by employees
of any Company were made in the regular course of such employees'
employment relationship with such Company using such Company's facilities
and resources and, as such, constitute "works made for hire" within the
meaning of the United States Copyright Act of 1976, as amended (the
"Copyright Act"). In the event and to the extent that work performed by any
employee, Associate, contractor or consultant does not constitute a "work
made for hire" within the meaning of the Copyright Act, except as set forth
on Schedule 5.19(b), no Person has signed a proprietary inventions or
similar agreement with Company transferring and assigning to such Company
all right, title and interest in and to all Intellectual Property Assets
developed by such employee, contractor or consultant. Such agreements
require such individuals to cooperate with such Company in perfecting
ownership in, and enforcing any intellectual property rights relating to,
such
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Intellectual Property Assets. Each Company acquired its rights to the
Incorporated Software pursuant to the license agreements listed on Schedule
5.19(b), complete copies of which have been delivered to PRGX (the
"Intellectual Property Rights Agreements"). As to Incorporated Software,
each Company has the rights granted to it in the related Intellectual
Property Rights Agreements;
(iii) with respect to all Software and Developments and except as
disclosed in the Intellectual Property Rights Agreements or the Client
Contracts: (A) neither the manufacture, marketing, license, sale or use of
any Software or Development violates or will violate any license or
agreement with any third party or infringes or has infringed on the
intellectual property rights of others, (B) Company identified on Schedule
5.19(b) has the exclusive right to use the Software and Developments, (C)
such Company has retained the exclusive right to reproduce, copy, sell,
license and/or distribute the Software and Developments.
(iv) All of the Software which is licensed by any Company under Client
Contracts complies in all material respects with the performance
representations with respect thereto contained in such Company's user and
technical manuals in effect at the time of the Client Contracts, and, when
used in accordance with such user and technical manuals, performs in
accordance with the Client Contracts in all material respects. Except as
set forth on Schedule 5.19(b), any such Software as is currently made
available for licensing to or access by customers is ready for installation
and/or use in substantial conformance with the capability and performance
standards set forth in the user or instruction manual associated with such
Software. Any such marketed Software system is documented and the
documentation supplied to each licensee or user of each such system is
sufficient in all material respects to enable a user reasonably competent
in such matters to operate, access and/or use such system as intended.
Nothing has come to the attention of any Company or any Shareholder to
indicate that the license agreements entered into by any Company for use of
Software by customers do not contain provisions for protection of such
Company's confidential information, trade secrets and proprietary rights
which such Company reasonably believes have been and will be sufficient to
preserve such Company's proprietary rights therein.
(v) Except as set forth on Schedule 5.19(b), no Company has any
royalty, commission or similar obligation relating to the Software.
(vi) Except as specified on Schedule 5.19(b), and to the Knowledge of
HSA-Texas and the Shareholders, none of the past or present employees or
independent contractors of any Company is in possession of Software, nor
has made unauthorized use of Software or the Intellectual Property Assets,
except such as have had and will have no Material Adverse Effect. To the
Knowledge of HSA-Texas and the Shareholders, no party other than the
Companies has access to or possession of source code, except as disclosed
in the Client Contracts. Except as set forth on Schedule 5.19(b), none of
the elements of the Software and the Intellectual Property Assets is in the
public domain.
(c) Subject to receipt of any consents required by the terms thereof, the
consummation of the transactions contemplated hereby will not cause the
termination, or cancellation, or otherwise affect in any manner any licenses or
other rights held by any Company in the Intellectual Property Assets (including
rights to Incorporated Software) and will not alter or in any way impair any of
the Intellectual Property Assets (including rights to Incorporated Software).
(d) Each of the Companies has taken all reasonable precautions to protect
the secrecy, confidentiality, and value of its Trade Secrets. Companies have
good title and an absolute (but not necessarily exclusive) right to use the
Trade Secrets. The Trade Secrets are not part of the public knowledge or
literature, and, to HSA-Texas' and the Shareholders' Knowledge, have not been
used, divulged, or appropriated either for the benefit of any Person or to the
detriment of any Company. Except as set forth on Schedule 5.19(d), no Trade
Secret is subject to any adverse claim or, to the Knowledge of HSA-Texas and the
Shareholders, has been challenged or threatened in any way.
(e) All third party software utilized by any Company is identified in
either Schedule 1.1(a) or Schedule 5.19(e). No Company uses any third party
software which is not properly licensed to it, nor has it violated any such
license. All software on each personal computer owned or leased by any Company
is
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properly licensed to such Company, and such Company has in its possession
written evidence of each such license. Upon the Closing, each such license will
permit PRGX's continued use of such third party software after the Effective
Date, with no additional cost to PRGX.
5.20 INTERNET PRESENCE. Except as set forth on Schedule 5.20 attached
hereto, no Company has any public, private or reserved presence on the world
wide web, multi-party extranet, virtual private network, or similar internet
based, linked system ("Internet Presence"). Each Company's domain name(s), if
any, are currently registered with the currently authorized Internet Domain Name
Registrar, are transferable to PRGX, and are in good standing. Except as set
forth on Schedule 5.20 attached hereto, Companies warrant that their Internet
Presence, is wholly passive and informational in nature and involves no
interactivity between third parties and any Company including purchases, sales,
leases or other commercial transactions conducted in any degree by or through
the Internet Presence.
5.21 YEAR 2000 COMPLIANCE. Except as set forth on Schedule 5.21 attached
hereto, each Company has previously performed unit, integration and acceptance
testing of all software, hardware, and all other devices containing or utilizing
electronic components reasonably necessary to the performance of the Business'
obligations and operations and the Software (all of the foregoing, collectively,
"Computer Systems"), including all Computer Systems owned, leased, sold,
developed, assembled, distributed, supported, maintained, used, or operated by,
to, for, or from any Company, and the results of such testing, as well as the
Companies' experience to date, establish that all Computer Systems, have
functioned normally before, during, and after the change from the year 1999 to
each successive year through the year 2010, and Companies have no basis to
believe there will be any interruption in service in the future attributable to
such change.
5.22 BENEFIT PLANS AND ERISA.
(a) Employee Benefit Plans. Schedule 5.22(a) sets forth a true and
complete list of each "employee benefit plan" (as defined by Section 3(3) of the
Employee Retirement Income Security Act of 1974, as amended ("ERISA")), and any
other bonus, profit sharing, pension, compensation, deferred compensation, stock
option, stock purchase, fringe benefit, severance, post-retirement, scholarship,
disability, sick leave, vacation, individual employment, commission, bonus,
payroll practice, retention, or other plan, agreement, policy, trust fund or
arrangement (each such plan, agreement, policy, trust fund or arrangement is
referred to herein as an "Employee Benefit Plan", and collectively, the
"Employee Benefit Plans") that is currently in effect, was maintained since
December 31, 1994 or which has been approved before the date hereof but is not
yet effective, for the benefit of (i) directors or employees of any Company
working in the Business or any other persons performing services for any Company
in the Business, including without limitation, the Associates (ii) former
directors or employees of any Company working in the Business or any other
persons formerly performing services for any Company in the Business, including,
without limitation, any Person formerly performing services for any Company as
an independent contractor, and/or (iii) beneficiaries of anyone described in (i)
or (ii) (collectively, "Business Employees") or with respect to which any
Company or any "ERISA Affiliate" (hereby defined to include any trade or
business, whether or not incorporated, other than HSA-Texas, which has employees
who are or have been at any date of determination occurring within the preceding
six (6) years, treated pursuant to Section 4001(a)(14) of ERISA and/or Section
414 of the Code as employees of a single employer which includes any Company)
has or has had any obligation on behalf of any Business Employee. Except as
disclosed on Schedule 5.22(a) attached hereto, there are no other benefits to
which any Business Employee is entitled.
(b) Documents Delivered. HSA-Texas has delivered to PRGX, with respect to
each Employee Benefit Plan, true and complete copies of (i) the documents
embodying and relating to each Employee Benefit Plan, including, without
limitation, the current plan documents and documents creating any trust
maintained pursuant thereto, all amendments, investment management agreements,
group annuity contracts, administrative service contracts, insurance contracts,
collective bargaining agreements, the most recent summary plan description with
each summary of material modification, if any, and employee handbooks, (ii)
annual reports including but not limited to Forms 5500, 990 and 1041 for the
last three (3) years for the plan or any related trust, (iii) actuarial
valuation reports and financial statements for the last three (3) years, (iv)
each communication involving the plan or any related trust to or from the
Internal Revenue Service ("IRS"),
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Department of Labor ("DOL"), Pension Benefit Guaranty Corporation ("PBGC") or
any other governmental authority including, without limitation, the most recent
determination letter received from the IRS pertaining to any Employee Benefit
Plan intended to qualify under Sections 401(a) or 501(c)(9) of the Code.
(c) Compliance with ERISA and the Code; Pension Plans. Except as set forth
in Schedule 5.22(c), each Employee Benefit Plan is in compliance with the
provisions of ERISA and the provisions of the Code applicable to it. Except as
set forth in Schedule 5.22(c), no Company has maintained or contributed to any
plan subject to the minimum funding standards of Section 302 of ERISA or Section
412 of the Code during its last six (6) fiscal years, and each plan maintained
by an ERISA Affiliate which is subject to Title IV of ERISA or Section 412 of
the Code is fully accrued and funded in compliance with ERISA and the Code as of
the Effective Date, and if any such plan or plans were terminated as of the
Effective Date, the termination would satisfy the minimum funding requirements
of ERISA and the Code. All Employee Benefit Plans which are "pension plans" as
defined in Section 3(2) of ERISA have received favorable determination letters
from the Internal Revenue Service as to their tax-qualified status and the
tax-exempt status of any related trust under Sections 401(a) and 501 of the
Code, respectively, which determinations are currently in effect, and no event
has occurred and no circumstances exists that will or could give rise to
disqualification or loss of tax-exempt status of any such plan or trust. All
amendments required to bring any such pension plans and related trusts into
conformity with applicable law have been timely adopted or the applicable
deadlines for making such amendments have not expired.
(d) Multiple Employer Arrangements. Except as set forth in Schedule
5.22(d), no Company nor any ERISA Affiliate maintains or contributes to, is
required to maintain or contribute to, or, since December 31, 1975, has
maintained or contributed to, (i) a "multiemployer plan" (as defined by Section
4001(a)(3) of ERISA), (ii) a "multiple employer welfare arrangement" (within the
meaning of Section 3(40) of ERISA), (iii) a "plan maintained by more than one
employer" (within the meaning of Section 413(c) of the Code), or (iv) a
voluntary employee beneficiary association within the meaning of Section
501(c)(9) of the Code.
(e) No Employee Benefit Plan Claims. PRGX and PRGUSA shall not, as a
result of the transactions contemplated by this Agreement (or any employment by
PRGX or PRGUSA of Business Employees): (i) become liable for any contribution,
tax, lien, penalty, cost, interest, claim, loss, action, suit, damage, cost
assessment or other similar type of liability or expense of any Company or any
ERISA Affiliate (including predecessors thereof) with regard to any Employee
Benefit Plan or any Employee Benefit Plan sponsored, maintained or contributed
to by an ERISA Affiliate (including predecessors thereof) (assuming a like
definition of "Employee Benefit Plan" were applicable to ERISA Affiliates as to
those same types of agreements, policies, trusts, funds and arrangements
sponsored, maintained or contributed to by them) (each such plan for an ERISA
Affiliate, an "ERISA Affiliate Employee Benefit Plan"), including, without
limitation, withdrawal liability arising under Title IV, Subtitle E, Part 1 of
ERISA, liabilities to the PBGC, liabilities under Section 412 of the Code or
Section 302(a)(2) of ERISA and liabilities arising from the failure to treat any
Person performing services for any Company or ERISA Affiliate as an employee (or
improper treatment of a Person as an employee), or (ii) be or become a party to
any Employee Benefit Plan or any ERISA Affiliate Employee Benefit Plan.
(f) No Liens. No Company, ERISA Affiliate, and none of the Acquired Assets
is subject to any lien arising under ERISA or the Code, including, but not
limited to, a lien arising pursuant to Title IV of ERISA or Section 412 of the
Code or a lien arising as a result of any tax imposed by Chapter 43 of Subtitle
D of the Code. Neither HSA-Texas nor any ERISA Affiliate has ceased operations
at a facility so as to become subject to the provisions of Section 4062(e) of
ERISA.
(g) COBRA Matters. Each Company, each ERISA Affiliate, each Employee
Benefit Plan and each Employee Benefit Plan "sponsor" or "administrator" (within
the meaning of Section 3(16) of ERISA) has complied in all respects with the
applicable requirements of Part 6 of Subtitle B of Title I of ERISA and Section
4980B of the Code (such statutory provisions and predecessors thereof are
referred to herein collectively as "COBRA"). Schedule 5.22(g) attached hereto
lists the name of each Business Employee who has experienced a "Qualifying
Event" (as defined in COBRA) with respect to an Employee Benefit Plan who is
eligible for "Continuation Coverage" (as defined in COBRA) and whose maximum
period for Continuation
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Coverage has not expired. Included in such list are the current address for each
such individual, the date and type of each Qualifying Event, whether the
individual has already elected Continuation Coverage and, for any individual who
has not yet elected Continuation Coverage, the date on which such individual was
notified of his or her rights to elect Continuation Coverage. Schedule 5.22(g)
attached hereto also lists the name of each Business Employee who is on a leave
of absence (whether or not pursuant to the Family and Medical Leave Act of 1993,
as amended ("FMLA")) and is receiving or is entitled to receive health coverage
under an Employee Benefit Plan, whether pursuant to FMLA, COBRA or otherwise.
(h) Accrued Vacation and Sick Pay. Attached hereto as a part of Schedule
5.22(h) is a true, correct and complete list by employee of the number of days
and amount of accrued unpaid vacation and sick pay for each employee of each
Company. No Company has any liability to Business Employees upon termination of
employment for unused and/or accrued sick pay.
5.23 ENVIRONMENTAL COMPLIANCE. For purposes of this Agreement: (a)
"Environmental Laws" means the Resource Conservation and Recovery Act, 42 U.S.C.
Section 6901 et seq., the Comprehensive Environmental Response, Compensation and
Liability Act, 42 U.S.C. Section 9601 et seq., and all other applicable foreign,
federal, state, county, municipal, administrative or other laws, ordinances,
rules, regulations and requirements or common law doctrines pertaining to
environmental, health, safety or ecological conditions, along with any
regulations promulgated thereunder; and (b) "Hazardous Material" means (i) any
"hazardous substance", "hazardous waste" or "hazardous material" defined as such
in (or for purposes of) any Environmental Law; (ii) any petroleum product; and
(iii) any other substance, regardless of physical form, that is subject to any
law regulating, or imposing obligations, liability, or standards of conduct
concerning the protection of human health, plant life, animal life, natural
resources, or property.
(a) No Company, nor to the Knowledge of HSA-Texas and the
Shareholders, any prior owner, user or occupant of any property currently
or formerly owned (collectively, the "Properties"), has conducted or
authorized the use, generation, transportation, storage, handling,
treatment, or disposal of any Hazardous Material on the Properties, except
as is necessary in the ordinary course of business and in all cases in
material compliance with the Environmental Laws and in each instance in a
manner that has not and will not result in any liability to any Company,
PRGX or the Properties;
(b) There has been by any Company no spill, discharge, release,
emission, or contamination of the Properties by any Hazardous Material;
(c) No Company nor any Shareholder has received any written notice of,
and to the Knowledge of HSA-Texas and the Shareholders, no Governmental
Entity or any employee or agent thereof has determined, or threatens to
determine, that there exists a violation of any Environmental Law at the
Properties or that any Company has incurred any liability with respect to
the Properties or any wastes or material generated at the Properties under
any Environmental Law;
(d) There is no pending litigation or proceeding by or before any
Governmental Entity in which it is alleged that there has been a discharge,
spill, disposal or release of any Hazardous Material on or from the
Properties, nor is any Company or any Shareholder aware of any facts or
circumstances that would reasonably lead it to believe that any Person or
Governmental Entity may allege any of the foregoing;
(e) There are no agreements between any Company and any Governmental
Entity relating in any way to the presence, spill, discharge, release,
threat of release, storage, treatment or disposal of any Hazardous Material
on or from the Properties;
(f) There are no Environmental Laws applicable to the Properties that
would require any Company to obtain the approval of or provide notice to
any Governmental Entity as a condition to the consummation of the
transactions contemplated by this Agreement;
(g) Each Company is, and at all times has been in full compliance
with, and has not been and is not in violation of or liable under any
Environmental Laws;
(h) No Company is required to obtain any permits required by any
Environmental Laws to conduct the Business as it is presently being
conducted;
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(i) No Company nor the Properties have incurred any liability or
obligation under the Environmental Laws or otherwise pertaining to
Hazardous Materials that remains unresolved;
(j) During each Company's leasing and occupancy of the Properties, (A)
none of the Properties has been excavated; and (B) to the Knowledge of
HSA-Texas and the Shareholders no construction debris or other debris was
buried on the Properties; and
(k) HSA-Texas and Shareholders have delivered to PRGX true and
complete copies of all reports or tests with respect to the compliance of
the Properties with the Environmental Laws and/or the presence of any
Hazardous Material on the Properties, if any, that were (A) prepared for
any Company or (B) prepared for other parties and are in the possession of
any Company or any Shareholder.
5.24 LITIGATION; JUDGMENTS.
(a) Except as set forth on Schedule 5.24 attached hereto, there is no
action, proceeding or, to HSA-Texas' or Shareholders' Knowledge, investigation
before any court, tribunal or governmental body pending or, to HSA-Texas' or
Shareholders' Knowledge, threatened: (i) that has been commenced by or against
or involving the Acquired Assets, any of the Companies or the Business, or (ii)
that challenges, or may have the effect of preventing, delaying, making illegal,
or otherwise interfering with any of the transactions contemplated herein or the
Companies' or Shareholders' ability to consummate the transactions contemplated
by this Agreement and the HSA-Texas Transaction Documents or which might
adversely affect the Business or the Acquired Assets.
(b) No event has occurred and no circumstance exists that may give rise to
or serve as a basis for the commencement of any such any action, proceeding or
investigation described in subsection (a) above.
(c) None of the Companies or Shareholders are subject to any judgment,
order or decree entered in any lawsuit or proceeding relating to the Acquired
Assets, the Companies or the operation of the Business, nor has any such action
been settled or resulted in a final judgment since January 1, 1999.
5.25 INSURANCE.
Schedule 5.25 attached hereto contains a true, correct and complete list of
all of the insurance policies maintained by each Company, which schedule
includes the name of the insurance company, the policy number, a description of
the type of insurance covered by such policy, the dollar limit of the policy,
and the annual premiums for such policy, and the name and phone number of the
insurance agent in respect thereto. Companies shall maintain such insurance
policies in full force and effect through the Closing Date. Except as set forth
on Schedule 5.25, (i) no claims are pending under the listed policies, nor do
HSA-Texas or Shareholders know of any basis therefor and (ii) there have been no
settlement of insurance claims since January 1, 1999.
5.26 IMMIGRATION MATTERS.
(a) Companies Employing Persons in the U.S. With respect to each of the
Companies which employees persons in the U.S.:
(i) Current Employees. With respect to all current employees (as
defined in Section 274a.1(g) of Title 8, Code of Federal Regulations) of
the Companies, true and complete copies of all Forms I-9 (Employment
Eligibility Verification Forms) completed pursuant to the Immigration
Reform and Control Act of 1986, as amended, and all regulations promulgated
thereunder ("IRCA") and any and all copies of documentation, records or
other papers retained with Forms I-9 (Employment Eligibility Verification
Forms), will be delivered to PRGX prior to the Closing. Each of the
Companies has complied with IRCA with respect to the completion of Forms
I-9 for all employees and the re-verification of the employment status of
any and all employees whose employment authorization documents indicated a
limited period of employment authorization.
(ii) Former Employees. With respect to all former employees of the
Companies who left the employment within three (3) years prior to Closing,
such Company has complied with IRCA with respect to the maintenance of
Forms I-9 for at least three (3) years or for one (1) year beyond the date
of
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termination, whichever is later. True and complete copies all Forms I-9
maintained for former employees pursuant to IRCA, and any and all copies of
documentation, records or other papers retained with Forms I-9, will be
delivered to PRGX prior to the Closing.
(iii) Visa Status. Schedule 5.26 attached hereto contains a true and
complete list of all employees of each of the Companies working under INS
authorization in E, F, H, J, L, M, O, P or TN Visa Status together with a
listing of each such employee's visa status and visa expiration date. Each
of the Companies maintains current files containing all Labor Condition
Applications (LCA) and related public and non-public access documentation
which it must present upon request by the U.S. Department of Labor or the
general public, including but not limited to all documentation noted in 20
CFR sec. 655.760.
(iv) Authorization to Work in U.S. The Companies have only employed
in respect of the Business individuals authorized to work in the United
States. Within the twenty-four (24) months preceding the execution of this
Agreement, none of the Companies have received any written notice of any
inspection or investigation relating to its alleged noncompliance with or
violation of IRCA, nor has it been warned, fined or otherwise penalized by
reason of any failure to comply with IRCA.
(v) Effect of Reorganization. The consummation of the transactions
contemplated by this Agreement will not, (i) give rise to any liability for
the failure to properly complete and update Forms I-9, (ii) give rise to
any liability for the employment of individuals not authorized to work in
the United States or (iii) cause any current employee to become
unauthorized to work in the United States.
(vi) Delivery of Forms I-9. HSA-Texas shall obtain and provide to
PRGX at least thirty (30) days before the Closing Date Forms I-9 from all
of its Business Employees. HSA-Texas shall prepare all Forms W-2 for filing
with the United States Internal Revenue Service for its current employees
as of the Closing Date.
(b) Companies Employing Persons Outside the U.S. With respect to each of
the Companies which employees persons outside the U.S., such Company is in
compliance with all laws, orders, rules and regulations of all Governmental
Entities relating to the employment of persons who are not citizens of such
jurisdiction.
5.27 BROKER'S FEES. No Company or Shareholder has retained or utilized the
services of any broker, finder or intermediary or paid or agreed to pay any fee
or commission to any other Person for or on account of the transactions
contemplated hereby, or had any communications with any Person with respect
thereto, which would obligate PRGX to pay any such fees or commissions.
5.28 ABSENCE OF MATERIAL CHANGES. Except as set forth in Schedule 5.28
attached hereto, from December 31, 2000 to the date of this Agreement:
(a) there has not been any Material Adverse Effect;
(b) no Company has lost (or received written notice that it is about
to lose) any Key Clients or Key Clients with which any Company has
significant business relations;
(c) to the Knowledge of HSA-Texas, no former senior manager (i.e.,
audit manager or higher) of any Company is currently competing with any
Company or planning to so compete;
(d) the Companies have operated the Business in the ordinary course
and have not sold, assigned, or transferred any assets except in the
ordinary course of business consistent with past practice;
(e) no Company or Shareholder has mortgaged, pledged or subjected to
any lien, pledge, mortgage, security interest, conditional sales contract,
or other encumbrance of any nature whatsoever, any of the Acquired Assets;
(f) there has been no amendment, termination, or waiver of any right
of any Company under any contract, governmental license or permit that may
materially adversely affect the Acquired Assets or the Business;
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(g) No Company has:
(i) paid any judgment resulting from any suit, proceeding,
arbitration, claim or counterclaim in respect of its assets or Business
in excess of $1,000 (provided that all such excluded payments do not
aggregate to more than $5,000);
(ii) made any such payment to any party in settlement of any such
suit, proceeding, arbitration, claim or counterclaim in excess of $1,000
(provided that all such excluded payments do not aggregate to more than
$5,000);
(iii) written down, or failed to write down (in accordance with its
past practices consistently applied) or written up the value of any
inventory or assets of Companies;
(iv) made any material changes in the customary methods of
operation of the Business, including practices and policies relating to
purchasing, marketing, selling, accounting, payment of trade creditors
or in the billing or collection of accounts receivable or work in
progress, including without limitation, discounting or writing off any
of Companies' accounts receivable or work in progress for early payment,
or granting any other deduction or discount thereon or accelerating the
collection thereof except in accordance with past practices consistently
applied;
(v) (except in respect of ordinary trade payables) incurred any
indebtedness or guaranteed any indebtedness, except for borrowings under
existing loans or lines of credit in the ordinary course of business
consistent with past practice;
(vi) taken any action other than in the ordinary course of business
and in a manner consistent with past practices (none of which actions
has been unreasonable or unusual) with respect to increasing the
compensation of any officer, director, consultant or employee of any
Company, paid bonuses to any consultant or employees (except for bonuses
earned in the ordinary course of business), or with respect to the grant
of any severance or termination pay (otherwise than pursuant to policies
of Companies in effect on the date hereof fully disclosed to PRGX in
writing prior to the date hereof) or with respect to any increase of
benefits payable under its severance or termination pay policies in
effect on the date hereof;
(vii) declared, set aside or paid any dividend or distribution
payable in cash, stock, property or otherwise with respect to any
Company's capital stock (except for distributions to Shareholders
consistent with past practices); or
(h) agreed, whether in writing or otherwise, to take any of the
actions specified in this Section 5.28.
5.29 CERTAIN ARRANGEMENTS.
(a) Schedule 5.29 is a true, correct and complete list as of the date
hereof and since December 31, 2000 of, any direct or indirect transaction or
series of transactions involving more than $60,000 per year, individually or in
the aggregate (other than in respect of compensation or travel or expense
account reimbursement in the ordinary course of business consistent with past
practice) that any Shareholder, director, officer, employee, Associate or other
affiliate (for purposes of this Agreement, "affiliate" means any individual,
partnership, corporation, trust, joint venture or other entity controlled by,
controlling or under common control with any Company or any Shareholder) or any
relative of any Shareholder, director, officer, employee, Associate, or other
affiliate (collectively, a "Related Party") has or had with any Company and
contains a brief description of each transaction, including without limitation:
(i) any oral or written contract, agreement, understanding, commitment
or other arrangement providing for the furnishing of services, or the sale
or rental of real or personal property from or otherwise requiring payments
to any such Related Party or to any affiliate or relative of such Related
Party;
(ii) any loans or advances to or from any Company (exclusive of travel
advances, expense advances, and normal salary advances in connection with
vacation periods, or compensation, or travel or expense account
reimbursement all in the ordinary course of business) to any such Related
Party or to any affiliate
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or relative of such Related Party, giving for each the principal amount
outstanding, interest rate, maturity date and security therefor;
(iii) any direct or indirect interest in any property, real or
personal, tangible or intangible by any such Related Party or to any
affiliate or relative of such Related Party, including inventions, patents,
copyrights, trademarks, or trade names, used in or pertaining to the
Business, except for the normal rights of a shareholder; and
(iv) all services and overhead support provided by such Related Party
to any Company, describing the nature and value of such services and
support, the amount of all compensation, fees, commissions or other amounts
owed by or to the Related Party and a description of the relationship of,
and oral or written agreements or understandings between, any Company and
such Related Party in respect of such Related Party as a supplier or
customer to any Company.
(b) Except as set forth on Schedule 5.29, all services, overhead support
and other interests provided by Shareholder or any affiliate thereof to any
Company have been provided on a basis no more favorable to such Company than
could be obtained in an arms' length transaction.
(c) No Shareholder is engaged in competition with any Company with respect
to any line of the products or services of such Company in any market presently
served by such Company. No Shareholder uses the services of any employee of the
Business in any other enterprise controlled by such Shareholder.
5.30 BANK ACCOUNTS. Schedule 1.1(j) contains a true, correct and complete
list showing the name and location of each bank or other institution in which
each Company has any deposit account, lock box or safe deposit box
(collectively, the "Bank Accounts"), together with a listing of all account
numbers and names of all persons authorized to draw thereon or have access
thereto.
5.31 INFORMATION SUPPLIED.
(a) None of the information supplied or to be supplied by HSA-Texas for
inclusion or incorporation by reference in (i) the Registration Statement will,
at the time the Registration Statement is filed with the SEC, at any time it is
amended or supplemented or at the time it becomes effective under the Securities
Act, contain any untrue statement of a material fact or omit to state any
material fact required to be stated therein or necessary to make the statements
therein, in light of the circumstances under which they were made, not
misleading and (ii) the Joint Proxy Statement/Prospectus will, on the date it is
first mailed to PRGX shareholders or HSA-Texas shareholders or at the time of
the PRGX Special Meeting or the HSA-Texas Special Meeting, contain any untrue
statement of a material fact or omit to state any material fact required to be
stated therein or necessary in order to make the statements therein, in light of
the circumstances under which they were made, not misleading. The Registration
Statement and the Joint Proxy Statement/Prospectus will comply as to form in all
material respects with the requirements of the Exchange Act and the Securities
Act and the rules and regulations of the SEC thereunder.
(b) Notwithstanding the foregoing provisions of this Section 5.31, no
representation or warranty is made by HSA-Texas with respect to statements made
or incorporated by reference in the Registration Statement or the Joint Proxy
Statement/Prospectus based on information supplied by PRGX for inclusion or
incorporation by reference therein.
5.32 BOARD APPROVAL. The Board of Directors of HSA-Texas, by resolutions
duly adopted by vote of those voting at a meeting duly called and held and not
subsequently rescinded or modified in any way, has duly (a) approved this
Agreement and the Acquisition and (b) recommended that the shareholders of
HSA-Texas adopt this Agreement and directed that such adoption be submitted for
consideration by the HSA-Texas shareholders at the HSA-Texas Special Meeting. To
the Knowledge of HSA-Texas and Shareholders, no state takeover statute is
applicable to this Agreement or the Acquisition or the other transactions
contemplated hereby.
5.33 VOTE REQUIRED. The affirmative vote of the holders of at least
two-thirds of the outstanding shares of HSA-Texas Voting Common Stock (the
"Required HSA-Texas Vote") is the only vote of the holders of any class or
series of HSA-Texas capital stock necessary to approve or adopt this Agreement,
the Acquisition
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and the consummation of the Acquisition and the other transactions contemplated
herein. The holders of HSA-Texas Non-Voting Common Stock are not entitled to
vote to approve or adopt this Agreement, the Acquisition and the consummation of
the Acquisition and the other transactions contemplated herein.
5.34 TERMINATION OF ALTERNATIVE NEGOTIATIONS. HSA-Texas and Shareholders
have and have caused the Subsidiaries to, and have instructed their respective
officers, directors, employees, investment bankers, attorneys, accountants and
other agents to have, ceased and terminated any activities, discussions or
negotiations with any parties conducted heretofore with respect to any possible
HSA-Texas Alternative Transaction and have notified in writing each party with
whom HSA-Texas, or any Shareholders, officer, director, investment advisor,
financial advisor, attorney or other representative retained by any of them, has
had discussions with during the 60 days prior to the date of this Agreement that
the HSA-Texas Board no longer seeks the making of any HSA-Texas Alternative
Transaction.
5.35 NO UNLAWFUL PAYMENTS
(a) Neither HSA-Texas nor, to the Knowledge of HSA-Texas, any director,
officer, agent, employee, or other person associated with or acting on behalf of
HSA-Texas has, directly or indirectly:
(i) used any corporate funds for unlawful contributions, gifts,
entertainment, or other unlawful expenses relating to political activity;
(ii) made any unlawful payment to domestic or foreign government
officials or employees, or to domestic or foreign political parties or
campaigns, from corporate funds;
(iii) violated any provision of the Foreign Corrupt Practices Act of
1977, as amended;
(iv) established or maintained any unlawful or unrecorded fund of
corporate monies or other assets;
(v) made any false or fictitious entry on the books or records of
HSA-Texas;
(vi) made any bribe, rebate, payoff, influence payment, kickback, or
other unlawful payment;
(vii) given any favor or gift which is not deductible for federal
income tax purposes; or
(viii) made any bribe, kickback or other payment of a similar or
comparable nature, whether lawful or not, to any person or entity, private
or public, regardless of form, whether in money, property, or services, to
obtain favorable treatment in securing business or to obtain special
concessions, or to pay for favorable treatment for business secured or for
special concessions already obtained.
5.36 DISCLOSURE. The statements, representations and warranties made by
HSA-Texas and any Shareholder in this Agreement and in the Schedules attached
hereto do not contain any untrue statement of a material fact or omit to state a
material fact necessary to make the statements contained herein or therein, in
light of the circumstances under which they were made, not misleading. No notice
given pursuant to Section 4.6 will contain any untrue statement or omit to state
a material fact necessary to make the statements therein or in this Agreement in
light of the circumstances in which they were made, not misleading. There is no
fact Known to HSA-Texas or any Shareholder that has specific application to any
Company (other than general economic or industry conditions) and that has a
Material Adverse Effect or, as far as HSA-Texas or any Shareholder can
reasonably foresee, materially threatens to have a Material Adverse Effect that
has not been set forth in this Agreement or the Schedules hereto.
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ARTICLE 6
REPRESENTATIONS AND WARRANTIES OF PRGX
In order to induce HSA-Texas and Shareholders to enter into this Agreement
and consummate the transactions contemplated hereby, PRGX represents and
warrants to HSA-Texas and Shareholders as follows, each of which representations
and warranties is material to and relied upon by HSA-Texas and Shareholders:
6.1 ORGANIZATION OF PRGX. PRGX is a corporation duly organized, validly
existing and in good standing under the laws of the State of Georgia and has the
corporate power and authority to own its property and to carry on its business
as now being conducted by it.
6.2 CORPORATE POWER AND AUTHORITY; DUE AUTHORIZATION. PRGX has full
corporate power and authority to execute and deliver this Agreement and each of
the other agreements, documents and instruments referenced in this Agreement to
which PRGX is or will be a party (the "PRGX Transaction Documents") and to
consummate the transactions contemplated hereby and thereby. Prior to the
Effective Date, the Board of Directors of PRGX shall have duly approved and
authorized the execution and delivery of this Agreement and each of the PRGX
Transaction Documents and the consummation of the transactions contemplated
hereby and thereby, and no other corporate proceedings on the part of PRGX are
necessary to approve and authorize the execution and delivery of this Agreement
and such PRGX Transaction Documents and the consummation of the transactions
contemplated hereby and thereby. Assuming that this Agreement and each of the
PRGX Transaction Documents constitutes a valid and binding agreement of
Companies and/or Shareholders, as the case may be, this Agreement and each of
the PRGX Transaction Documents constitutes, or will constitute when executed and
delivered, a valid and binding agreement of PRGX, enforceable against PRGX in
accordance with its terms.
6.3 NO CONFLICT; CONSENTS. The execution and delivery by PRGX of this
Agreement, the PRGX Transaction Documents and the consummation by PRGX of the
transactions contemplated hereby and thereby do not and will not (a) require,
other than compliance with applicable requirements of the HSR Act and the
consent of or notice to PRGX's principal lenders (a bank syndicate led by Bank
of America, N.A.), the consent, approval or action of, or any filing or notice
to, any corporation, firm, Person or other entity or any Governmental Entity;
(b) violate the terms of any instrument, document or agreement to which PRGX is
a party, or by which PRGX or the property of PRGX is bound, or be in conflict
with, result in a breach of or constitute (upon the giving of notice or lapse of
time, or both) a default under any such instrument, document or agreement; (c)
violate PRGX's Articles of Incorporation or Bylaws; or (d) violate any order,
writ, injunction, decree, judgment, ruling, law or regulation of any
Governmental Entity applicable to PRGX, or the business or assets of PRGX.
6.4 BROKER'S FEES AND EXPENSES. Except for any broker used in connection
with the negotiation of the leased space at the Dallas Headquarters, PRGX has
not retained or utilized the services of any broker, finder, or intermediary, or
paid or agreed to pay any fee or commission to any other Person for or on
account of the transactions contemplated hereby, or had any communications with
any Person which would obligate HSA-Texas or Shareholders to pay any such fees
or commissions.
6.5 INFORMATION SUPPLIED.
(a) None of the information supplied or to be supplied by PRGX for
inclusion or incorporation by reference in (i) the Registration Statement will,
at the time the Registration Statement is filed with the SEC, at any time it is
amended or supplemented or at the time it becomes effective under the Securities
Act, contain any untrue statement of a material fact or omit to state any
material fact required to be stated therein or necessary to make the statements
therein, in light of the circumstances under which they were made, not
misleading, and (ii) the Joint Proxy Statement/Prospectus will, on the date it
is first mailed to PRGX shareholders or HSA-Texas shareholders or at the time of
the PRGX Special Meeting, contain any untrue statement of a material fact or
omit to state any material fact required to be stated therein or necessary in
order to make the statements therein, in light of the circumstances under which
they were made, not misleading. The Registration Statement and the Joint Proxy
Statement/Prospectus will comply as to form in
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all material respects with the requirements of the Exchange Act and the
Securities Act and the rules and regulations of the SEC thereunder.
(b) Notwithstanding the foregoing provisions of this Section 6.5, no
representation or warranty is made by PRGX with respect to statements made or
incorporated by reference in the Registration Statement or the Joint Proxy
Statement/Prospectus based on information supplied by HSA-Texas for inclusion or
incorporation by reference therein.
6.6 BOARD APPROVAL. The Board of Directors of PRGX, by resolutions duly
adopted by the affirmative vote of a majority of those voting at a meeting duly
called and held, at which a quorum is present, and not subsequently rescinded or
modified in any way, has duly (a) approved this Agreement, the Stock Agreement,
the Acquisition, the Concurrent Acquisitions, and the PRGX Share Issuance and
(b) recommended that the shareholders of PRGX approve the PRGX Share Issuance
and directed that such matters be submitted for consideration by PRGX
shareholders at the PRGX Special Meeting. To the knowledge of PRGX, no state
takeover statute is applicable to this Agreement or the Acquisition or the other
transactions contemplated hereby.
6.7 VOTE REQUIRED. The affirmative vote of the holders of a majority of
the voting power of the outstanding shares of PRGX Common Stock (the "Required
PRGX Vote"), is the only vote of the holders of any class or series of PRGX
capital stock necessary to approve or adopt this Agreement, the PRGX Share
Issuance, the Acquisition and the consummation of the Acquisition and the other
transactions contemplated herein.
ARTICLE 7
INDEMNIFICATION
7.1 INDEMNIFICATION BY HSA-TEXAS AND SHAREHOLDERS. In addition to any
other indemnification obligation of HSA-Texas or Shareholders under any other
provision hereof, HSA-Texas, H. Schultz, A. Schultz and the Trusts (other than
the AHS Irrevocable Trust), jointly and severally, indemnify and hold, and the
AHS Irrevocable Trust, severally, indemnifies and holds, PRGX, and its
subsidiaries, affiliates, directors, officers, employees and agents
(collectively, the "PRGX Indemnified Parties"), harmless from and against all
claims, liabilities, lawsuits, costs, damages or expenses (including reasonable
attorneys' fees and expenses incurred in litigation or otherwise) arising out of
and sustained by any of the PRGX Indemnified Parties due to or relating to, the
following (collectively, "Section 7.1 Indemnified Claims"):
(a) any misrepresentation or breach of any representation or warranty,
or breach, nonfulfillment of, or failure to perform, any covenant,
obligation or agreement of HSA-Texas or any Shareholder contained in this
Agreement or in any Schedule or Revised Schedule hereto or any HSA-Texas
Transaction Document;
(b) any liability or obligation suffered by the PRGX Indemnified
Parties, other than Assumed Liabilities, whether or not the existence or
assertion of such liability or obligation would constitute a breach of any
representation, warranty, covenant, obligation or agreement contained
herein or in any HSA-Texas Transaction Document (i) relating to the
operation of the Business, or the ownership or use of the Acquired Assets
prior to the Effective Date, which is not specifically disclosed in the
Schedules or Revised Schedule delivered in accordance with Sections 4.1,
4.21, 8.3(f) and any other applicable provision hereof or (ii) effective
upon the closing of each Escrow Acquisition, relating to the operation of
the business and use of the assets prior to the closing date of such escrow
acquisition which is not specifically disclosed in the schedules delivered
in accordance with the acquisition agreement for such Escrow Acquisition;
(c) any failure of any Company to comply with any specified legal
compliance requirements, including Executive Order 11246, contained in any
contracts of any Company with any Governmental Entity;
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(d) the treatment, as employees, for any period prior to the Closing
Date, by any Governmental Entity, including any Tax Authority, of any
Associates, auditors, consultants or other service providers of the
Business whom any Company treated for such period as independent
contractors, and not as employees, for any foreign, national federal, state
or local purposes, including any withholding for any state, federal or
foreign income tax, FICA or FUTA amounts, state, federal or foreign
unemployment insurance contributions, payments in respect of workers'
compensation insurance, the provision of benefits under the Employee
Benefit Plans, or payments under The Fair Labor Standards Act or
regulations promulgated thereunder, and, effective upon the closing of each
Escrow Acquisition, the treatment, as employees, for any period prior to
the closing date of such Escrow Acquisition by any Governmental Entity,
including any Tax Authority, of any service providers of the business of
the seller in the Escrow Acquisition whom such seller treated for such
period as independent contractors, and not as employees, for any foreign,
national federal, state or local purposes, as described above;
(e) any failure to obtain prior to Closing any required consent to the
assignment to PRGX of (i) all agreements between HSA-Texas and the U.K.
Licensee or (ii) any other Acquired Asset (unless PRGX has waived in
writing prior to or at the Closing the requirement that such consent be
obtained or unless such unobtained consent is listed on Schedule 5.4
attached hereto, other than consents to the assignment of agreements with
the U.K. Licensee even if listed on Schedule 5.4); and, effective upon the
closing of each Escrow Acquisition, the failure to obtain, concurrently
with such closing, restrictive covenants from the seller and equity holders
of such seller as to non-competition, non-solicitation of customers and
employees and confidentiality substantially similar to the covenants
HSA-Texas and Shareholders have agreed to pursuant hereto, to the
reasonable satisfaction of PRGX;
(f) failure to comply with any applicable bulk transfer laws;
(g) the amount in excess of $100,000 of any Vendor Payback (less any
payback reserve applicable) in respect of any Inactive Audit provided the
aggregate Vendor Payback to such Client is in excess of $350,000;
(h) all severance liabilities or obligations to any employees of or
other service providers to the business, if any, other than the Assumed
Severance Amount, and any claims asserted by shareholders of HSA-Texas,
Optionees or holders of HSA-Texas SARs in connection with or arising out of
(i) the determination of the number and exercise price of Options to be
Assumed by PRGX, and the allocation among the HSA-Texas shareholders and
the of the amount of Consideration to be issued and the Options to be
Assumed by pursuant to this Agreement and the (ii) the allocation of the
Consideration hereunder and the consideration to be paid to the
shareholders of the Concurrent Companies under the Stock Agreement;
(i) any breach occurring prior to the Closing by any Company in
respect of any representation, warranty, covenant or agreement in any
Assigned Contract or Assigned Lease; and
(j) all Retained Liabilities.
Notwithstanding the foregoing, neither HSA-Texas, H. Schultz, A. Schultz nor the
Trusts shall have any liability to the PRGX Indemnified Parties for any claims,
liabilities, lawsuits, costs, damages or expenses (including reasonable
attorneys' fees and expenses incurred in litigation or otherwise) arising out of
and sustained by any of the PRGX Indemnified Parties due to or relating to
HSA-Texas' failure to obtain executed Non-competition Agreement from any of
Michael Lowery, Gertrude Lowery, Charles Schembri or Mac Martirossian.
7.2 INDEMNIFICATION BY PRGX. In addition to any other indemnification
obligation of PRGX hereunder, PRGX hereby indemnifies and holds HSA-Texas and
Shareholders and Shareholders' and HSA-Texas' affiliates, directors, officers,
employees and agents (collectively, the "HSA-Texas Indemnified Parties")
harmless from and against all claims, liabilities, lawsuits, costs, damages or
expenses (including reasonable attorneys fees and expenses incurred in
litigation or otherwise) arising out of and sustained by any of them due to or
relating to (a) any misrepresentation or breach of any representation, warranty,
covenant or agreement of PRGX in this Agreement or any of the PRGX Transaction
Documents; and (b) any liability or obligation
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incurred by HSA-Texas or any Shareholder relating to the operation or ownership
of the Business by PRGX, or the ownership or use of the Acquired Assets by PRGX,
from and after the Effective Date, other than Section 7.1 Indemnified Claims and
other than Retained Liabilities (collectively, "Section 7.2 Indemnified
Claims").
7.3 PROCEDURES FOR INDEMNIFICATION. Concurrently with the Closing, the
parties hereto shall enter into an Indemnification Agreement in substantially
the same form as attached hereto as Exhibit 7.3 (the "Indemnification
Agreement"), providing the procedures for indemnification, the survival period
and certain limitations on indemnification described herein and in the Stock
Agreement.
ARTICLE 8
CONDITIONS PRECEDENT
8.1 CONDITIONS TO EACH PARTY'S OBLIGATIONS. The respective obligations of
PRGX and HSA-Texas to consummate the Acquisition are subject to the satisfaction
or waiver, by both PRGX and HSA-Texas, on or prior to the Closing Date of the
following conditions:
(a) Shareholder Approval. (i) PRGX shall have obtained the Required
PRGX Vote by the shareholders of PRGX in connection with the approval of
the PRGX Share Issuance, and each of the actions contemplated hereby for
which approval of the shareholders of PRGX is required, and (ii) HSA-Texas
shall have provided to PRGX, within 7 days after delivery to HSA-Texas of
the final Joint Proxy Statement/Prospectus, written affirmation by the
HSA-Texas shareholders, substantially in the form of Exhibit 8.1(a)
attached hereto, of the offer by PRGX to acquire the Acquired Assets
contained in this Agreement, and stating that the Required HSA-Texas Vote
by the shareholders of HSA-Texas in connection with the adoption of this
Agreement and each of the actions contemplated hereby for which approval of
the shareholders of HSA-Texas is required, has been obtained.
(b) No Injunctions or Restraints, Illegality. No laws shall have been
adopted or promulgated, and no temporary restraining order, preliminary or
permanent injunction or other order issued by a court or other Governmental
Entity of competent jurisdiction shall be in effect, having the effect of
making the Acquisition illegal or otherwise prohibiting consummation of the
Acquisition. No action seeking such an order or injunction shall be pending
or threatened. A "Governmental Entity" means any supranational, national,
state, municipal, local or foreign government, any instrumentality,
subdivision, court, administrative agency or commission or other authority
thereof, or any quasi-governmental or private body exercising any
regulatory, taxing, importing or other governmental or quasi-governmental
authority (or any department, agency or political subdivision thereof).
(c) HSR Act. The waiting period (and any extension thereof)
applicable to the Acquisition under the HSR Act shall have been terminated
or shall have expired.
(d) Listing. The shares of PRGX Common Stock to be issued as
Acquisition Consideration or to be reserved for issuance in connection with
the Acquisition shall have been approved for listing on the NASDAQ National
Market, subject to official notice of issuance.
(e) Effectiveness of the Registration Statement. The Registration
Statement shall have been declared effective by the SEC under the
Securities Act and no stop order suspending the effectiveness of the
Registration Statement shall have been issued by the SEC and no proceedings
for that purpose shall have been initiated or threatened by the SEC.
(f) Consents. Each of the consents and approvals that are described
in Section 6.3 shall have been duly obtained and shall be in full force and
effect.
(g) Intentionally omitted.
(h) Intentionally omitted.
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(i) Concurrent Acquisitions. Prior to or concurrently with the
Closing, PRGX shall have consummated the Stock Agreement in respect of the
Concurrent Acquisitions.
(j) Intentionally omitted.
(k) Bank Consent. PRGX shall have obtained the consent of its
principal lenders, a syndicate led by Bank of America, N.A., to the
Acquisition, the UK Acquisition and the Concurrent Acquisitions, including
an agreement by such lenders to loan to PRGX any and all amounts required
to satisfy any of the Acquisition Related Notes, to repay the Assumed
Schultz Loan, to consummate the Concurrent Acquisitions, to pay any
obligations assumed or to be paid by PRGX relating to the DSD Acquisition,
the UK Acquisition, the German Acquisition and any other transactions
contemplated hereby.
8.2 ADDITIONAL CONDITIONS TO OBLIGATIONS OF HSA-TEXAS. The obligations of
HSA-Texas to effect the Acquisition are subject to the satisfaction, or waiver
by HSA-Texas, on or prior to the Closing Date of the following additional
conditions:
(a) Representations and Warranties. Each of the representations and
warranties of PRGX set forth in this Agreement shall be true and correct in
all material respects as of the date of this Agreement and as of the
Closing Date as though made on and as of the Closing Date (except to the
extent that such representations and warranties speak as of another date,
in which case such representations and warranties shall be true and correct
as of such other date); and HSA-Texas shall have received a certificate of
a senior executive officer and a senior financial officer of PRGX to such
effect, together.
(b) Performance of Obligations of PRGX. PRGX shall have performed or
complied with all agreements and covenants required to be performed by it
under this Agreement at or prior to the Closing Date that are qualified as
to materiality or Material Adverse Effect and shall have performed or
complied in all material respects with all other material agreements and
covenants required to be performed by it under this Agreement at or prior
to the Closing Date that are not so qualified, and HSA-Texas shall have
received a certificate of a senior executive officer and a senior financial
officer of PRGX to such effect.
(c) Closing Deliveries. PRGX shall have delivered to HSA-Texas each
of the following, together with any additional items which HSA-Texas may
reasonably request to effect the transactions contemplated herein:
(i) the Consideration, less the Escrow Shares provided for in
Section 2.5;
(ii) the Escrow Agreement, duly executed by PRGX, and the delivery
of the Escrow Shares thereunder to the escrow agent as designated
therein;
(iii) the documents and instruments described in Section 1.3 hereof
duly executed by PRGX;
(iv) H. Schultz Offer Letter, the A. Schultz Offer Letter, the
offer letters for employment between PRGX and each of the other Key
Employees, duly executed by PRGX or PRGUSA;
(v) the Non-competition Agreement referred to in Section 3.4 hereof
duly executed by PRGX;
(vi) consent as described in Section 8.1(k) hereof, of PRGX's
principal lenders, a bank syndicate led by Bank of America, N.A.;
(vii) the Closing Statement, reflecting the payment and receipt of
the Consideration, duly executed by PRGX;
(viii) the Shareholders Agreement duly executed by John Cook and
Jack Toma;
(ix) certified copies of the corporate resolutions of the Board of
Directors of PRGX authorizing and approving the Acquisition and the
transactions contemplated herein, together with an incumbency
certificate with respect to the officers of PRGX executing documents or
instruments on behalf of PRGX;
(x) the Report of the Inspector of Elections of the PRGX Special
Meeting certifying that the Required PRGX Vote was obtained;
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(xi) the Indemnification Agreement duly executed by PRGX;
(xii) the Registration Rights Agreement, duly executed by PRGX;
(xiii) the payment to H. Schultz of all outstanding principal and
accrued interest on the Assumed Schultz Loan; and
(xiv) any other documents or agreements, as reasonably requested by
HSA-Texas or Shareholders, contemplated hereby and/or necessary to
consummate the transactions contemplated hereby.
(d) Election of Certain Nominees as Directors. The PRGX Board shall
have nominated for election by the PRGX shareholders at the PRGX Special
Meeting those persons recommended by H. Schultz in accordance with Section
4.18 hereof and such nominees shall have been elected at the PRGX Special
Meeting.
8.3 ADDITIONAL CONDITIONS TO OBLIGATIONS OF PRGX. The obligations of PRGX
to effect the Acquisition are subject to the satisfaction, or waiver by PRGX, on
or prior to the Closing Date of the following additional conditions:
(a) Representations and Warranties. Each of the representations and
warranties of HSA-Texas and Shareholders set forth in this Agreement and in
the Schedules and Revised Schedules delivered in accordance with this
Agreement shall be true and correct in all material respects as of the date
of this Agreement and as of the Closing Date as though made on and as of
the Closing Date (except to the extent that such representations and
warranties speak as of another date, in which case such representations and
warranties shall be true and correct as of such other date); and PRGX shall
have received a certificate of a senior executive officer and a senior
financial officer of HSA-Texas and of the Shareholders to such effect,
together with a complete set of Schedules and Revised Schedules as of the
Closing Date.
(b) Performance of Obligations of HSA-Texas. HSA-Texas and
Shareholders shall have performed or complied with all agreements and
covenants required to be performed by it under this Agreement, including
those set forth in Articles 3 and 4 hereof, at or prior to the Closing Date
that are qualified as to materiality or Material Adverse Effect and shall
have performed or complied in all material respects with all other material
agreements and covenants required to be performed by it under this
Agreement at or prior to the Closing Date that are not so qualified, and
PRGX shall have received a certificate of a senior executive officer and a
senior financial officer of HSA-Texas and of the Shareholders to such
effect.
(c) Closing Deliveries. As of the Effective Date, HSA-Texas and
Shareholders shall have delivered possession of the Acquired Assets to
PRGX. At the Closing, HSA-Texas and Shareholders shall have delivered to
PRGX each of the following, together with any additional items which PRGX
may reasonably request to effect the transactions contemplated herein:
(i) a certified copy of the corporate resolutions of the directors
of HSA-Texas and Shareholders authorizing the transactions contemplated
herein and the execution, delivery and performance of this Agreement and
the HSA-Texas Transaction Documents by HSA-Texas and any other actions
or authorizations required under Article 3 hereof, together with an
incumbency certificate with respect to officers of HSA-Texas executing
documents or instruments on behalf of HSA-Texas;
(ii) the Bill of Sale, the Assignment and Assumption Agreement and
the other documents described in Section 1.3 hereof;
(iii) the Escrow Agreement duly executed by HSA-Texas and
Shareholders;
(iv) the Non-competition Agreements duly executed by HSA-Texas,
Shareholders, Michael Lowery, Gertrude Lowery, Charles Schembri and Mac
Martirossian;
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(v) written consents from all parties whose consent to the
transactions contemplated herein is required;
(vi) an opinion of counsel to HSA-Texas and Shareholder
substantially in the form of Exhibit 8.3(c)(vi) attached hereto;
(vii) the H. Schultz Offer Letter, the A. Schultz Offer Letter, the
offer letters for employment between PRGX and each of the other Key
Employees and the Employee Agreements, duly executed by each of the Key
Employees;
(viii) a Certificate of Good Standing, or equivalent certificate,
in respect of each Company issued within 5 days prior to the Closing, by
the Secretary of State, or equivalent authority, of its jurisdiction of
organization and by the Secretary of State, or equivalent authority, of
any other jurisdiction in which such Company is qualified to do
business;
(ix) if applicable, termination statements, releasing all liens on
the Acquired Assets;
(x) a Closing Statement, duly executed by HSA-Texas and
Shareholders;
(xi) the Historical Statements provided for in Section 3.1 hereof
and the Estimated Financials;
(xii) the General Release substantially in the form attached hereto
as Exhibit 8.3(xii), duly executed by each Shareholder and by Michael
Lowery, Gertrude Lowery, Charles Schembri and Mac Martirossian;
(xiii) the Shareholders Agreement duly executed by the
Shareholders;
(xiv) the Dallas Lease, duly executed by HSA-Texas;
(xv) the Indemnification Agreement, duly executed by the
Shareholders; and
(xvi) any other documents or agreements, as reasonably requested by
HSA-Texas or Shareholders, contemplated hereby and/or necessary to
consummate the transactions contemplated hereby.
(d) Fairness Opinion. The Fairness Opinion shall not have been
modified or withdrawn by Merrill Lynch.
(e) Repayment of Shareholder Loans. Each shareholder of HSA-Texas,
including the Shareholders, shall have repaid in full at or prior to the
Closing all amounts owed by such shareholder to HSA-Texas.
(f) Revised Schedules. The Companies and the Shareholders shall have
provided PRGX with revised Schedules dated as of the Closing Date
(collectively, the "Revised Schedules"), with all changes duly noted
thereon, accompanied by a certificate of a duly authorized officer of
HSA-Texas and a certificate of the Shareholders certifying that such
Revised Schedules are delivered pursuant to the applicable Sections of this
Agreement; provided however, that in the event the Revised Schedules
contain any disclosure or change which (i) should have been but was not
shown on the Schedules attached hereto at the date hereof, or (ii)
individually or in the aggregate is material to any warranty or
representation contained herein, or (iii) arose outside the ordinary course
of business, the condition contained in this Section shall be deemed
unsatisfied unless PRGX has agreed in writing to such disclosures or
changes.
(g) U.K. Acquisition. HSA-Texas shall have executed a binding
agreement, in form and substance reasonably acceptable to PRGX, to acquire
the business of the UK Licensee, which agreement is assignable to PRGX.
(h) German Acquisition. HSA-Texas shall have executed a binding call
option agreement, in form and substance reasonably acceptable to PRGX, with
the respective shareholders of the German Licensee to acquire the business
of the German Licensee, which call option agreement is assignable to PRGX.
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(i) DSD Acquisitions. HSA-Texas shall have consummated the DSD
Acquisition of Phoenix Audit Recoveries, Inc. pursuant to an agreement, in
form and substance reasonably acceptable to PRGX, and HSA-Texas shall have
executed a binding agreement, in form and substance reasonably acceptable
to PRGX, to acquire JASAMA, Inc., which agreement is assignable to PRGX.
ARTICLE 9
TERMINATION AND AMENDMENT
9.1 TERMINATION. This Agreement may be terminated at any time before the
Closing Date (notwithstanding any approval of the Acquisition and adoption of
this Agreement by the Shareholders or the PRGX shareholders):
(a) by mutual written consent of HSA-Texas and PRGX;
(b) by either PRGX or HSA-Texas, if the Acquisition has not been
consummated on or before March 31, 2002 (the "Termination Date"), provided
that the party seeking to exercise the right to terminate this Agreement
under Section 9.1(b) is not then in breach in any material respect of any
of its representations, warranties, covenants or other agreements under
this Agreement;
(c) by HSA-Texas, if the approval of the shareholders of PRGX
contemplated by this Agreement shall not have been obtained by reason of
the failure to obtain the Required PRGX Vote, as contemplated herein; and
by PRGX, if (i) the approval of the shareholders of HSA-Texas shall not
have been obtained by reason of failure to obtain the Required HSA-Texas
Vote, or (ii) the shareholders of HSA-Texas have failed to deliver the
written affirmation provided for within the time period specified in
Section 8.1(a) hereof, or (iii) if any shareholder of the Stock Companies
fails to affirm such shareholder's agreement to sell all of such
shareholder's shares of the Concurrent Company to PRGX within 7 days after
delivery to such shareholder of the final Joint Proxy Statement/Prospectus
in accordance with Section 11.16 of the Stock Agreement.
(d) by either PRGX or HSA-Texas, if any Governmental Entity of
competent jurisdiction (i) shall have issued an order, decree or ruling or
taken any other action (which the parties shall have used their reasonable
best efforts to resist, resolve or lift, as applicable) permanently
restraining, enjoining or otherwise prohibiting the transactions
contemplated by this Agreement, and such order, decree, ruling or other
action shall have become final and non-appealable, or (ii) shall have
failed to issue an order, decree or ruling or to take any other action, and
such denial of a request to issue such order, decree or ruling or to take
such other action shall have become final and non-appealable (which order,
decree, ruling or other action the parties shall have used their reasonable
best efforts to obtain); or
(e) by HSA-Texas, (i) if PRGX shall have materially breached its
representations or warranties contained in this Agreement or failed to
perform in any material respect any of its covenants or other agreements
contained in this Agreement, which breach would result in the failure to
satisfy the conditions set forth in Section 8.2(a) and (b) and in any such
case such breach is incapable of being cured, or, if capable of being
cured, shall not have been cured on or before the Termination Date within
10 days after written notice thereof shall have been received by PRGX; or
(ii) upon the occurrence of an event that has a Material Adverse Effect on
PRGX, taken as a whole with its consolidated subsidiaries, regardless of
whether the conditions set forth in 8.2(a) and (b) are capable of being
satisfied on or before the Termination Date, in either case provided that
neither HSA-Texas nor any of the Shareholders is then in breach in any
material respect of any of its representations, warranties, covenants or
other agreements under this Agreement; or
(f) by PRGX, (i) if HSA-Texas or the Shareholders shall have
materially breached any of their representations or warranties contained in
this Agreement or failed to perform in any material respect their covenants
or other agreements contained in this Agreement, which breach would result
in the failure to satisfy the conditions set forth in Section 8.3(a) and
(b) and in any such case such breach is incapable of being cured, or if
capable of being cured, shall not have been cured on or before the
Termination Date
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and within 10 days after written notice thereof shall have been received by
HSA-Texas and the Shareholders; or (ii) upon the occurrence of an event or
development that has a Material Adverse Effect on HSA-Texas, regardless of
whether the conditions set forth in Section 8.3(a) and (b) are capable of
being satisfied on or before the Termination Date, in either case, provided
PRGX is not then in breach in any material respect of any of its
representations, warranties, covenants or other agreements under this
Agreement; or
(g) by HSA-Texas, if the per share closing price (as reported in The
Wall Street Journal) of PRGX Common Stock on any trading day during the
period beginning on the date hereof and ending on a date 5 trading days
prior to the Closing Date is less than $4.00, by written notice by
HSA-Texas to PRGX within 3 days after the trading day on which the per
share closing price of PRGX Common Stock was less than $4.00; or
(h) by PRGX, in order to enter into a definitive written agreement
with respect to a PRGX Alternative Transaction; or
(i) by HSA-Texas, if a Triggering Event shall have occurred. For
purposes of this Agreement, a "Triggering Event" shall be deemed to have
occurred if, (A) the PRGX Board or any committee thereof shall have
approved or recommended to its shareholders any PRGX Alternative
Transaction which does not include the concurrent acquisition of HSA-Texas
and the Concurrent Companies or HSA-Texas' and the Concurrent Companies
assets by the Third Party which is party to such PRGX Alternative
Transaction as if HSA-Texas and the Concurrent Companies were a part of
PRGX at the consummation of such PRGX Alternative Transaction, (B) the PRGX
Board or any committee thereof shall for any reason have withdrawn or shall
have amended or modified in a manner adverse to HSA-Texas the PRGX
Recommendations; or (C) a tender or exchange offer to acquire 50% or more
of the outstanding shares of PRGX Common Stock shall have been commenced by
a Third Party, and PRGX shall not have sent to its shareholders pursuant to
Rule 14e-2 promulgated under the Securities Act, within 10 business days
after such tender or exchange offer is first published sent or given, a
statement disclosing that PRGX recommends rejection of such tender or
exchange offer; or
(j) by HSA-Texas, if the PRGX Board or any committee thereof shall
have approved or recommended to its shareholders a PRGX Alternative
Transaction which includes the concurrent acquisition of HSA-Texas and the
Concurrent Companies or HSA-Texas' and the Concurrent Companies' assets by
a third party, but HSA-Texas or any of the Concurrent Companies in its
discretion, does not elect to participate in such PRGX Alternative
Transaction; or
(k) by PRGX, within 30 days after receipt of all of the Schedules as
provided in Section 4.21; or
(l) notwithstanding anything in Section 9.1 to the contrary, by PRGX
or HSA-Texas, if PRGX has not received the bank consent described in
Section 8.1(k) hereof on or before March 31, 2002.
9.2 EFFECT OF TERMINATION.
(a) Termination Prior to Mailing Joint Proxy Statement/Prospectus. If
either party shall terminate this Agreement pursuant to any Section of Section
9.1 prior to the date on which PRGX mails the Joint Proxy Statement/Prospectus
to its shareholders, and the party exercising such right is not then in breach
in any material respect of any of its representations, warranties, covenants and
other agreements under this Agreement, neither party shall have any liability or
obligation to the other (including any obligation to pay the PRGX Transaction
Expenses or the HSA-Texas Transaction Expenses, as the case may be, or the
Termination Fee described below) except for those obligations as provided in
Section 9.2(g) hereof.
(b) HSA-Texas Pays PRGX Transaction Expenses. If after PRGX mails the
Joint Proxy Statement/Prospectus to its shareholders, (i) either party shall
terminate this Agreement pursuant to Section 9.1(b) prior to the HSA-Texas
Special Meeting having occurred or PRGX shall terminate this Agreement pursuant
to Section 9.1(c) (provided that the basis for such termination is the failure
of HSA-Texas' shareholders to approve this Agreement and the transactions
contemplated herein or the failure of any shareholder of the Stock Companies to
affirm his or her agreement to sell shares of the Concurrent Company
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to PRGX within 7 days after delivery to such shareholder of the final Joint
Proxy Statement/Prospectus in accordance with Section 11.16 of the Stock
Agreement), (ii) HSA-Texas shall have terminated this Agreement pursuant to
Section 9.1(j) or (iii) PRGX shall terminate this Agreement pursuant to Section
9.1(f)(i), then in any such event HSA-Texas shall promptly, but not later than
ten days after the date of such termination, pay PRGX an amount equal to all of
the PRGX Transaction Expenses, by wire transfer of immediately available funds
and, notwithstanding anything to the contrary contained herein, PRGX shall not
be required to pay any HSA-Texas Transaction Expenses hereunder.
(c) PRGX Pays HSA-Texas Transaction Expenses. If after PRGX mails the
Joint Proxy Statement/ Prospectus to its shareholders, (i) either party shall
terminate this Agreement pursuant to Section 9.1(b) prior to the PRGX Special
Meeting having occurred or pursuant to Section 9.1(c) (provided that the basis
for such termination is the failure of PRGX's shareholders to approve this
Agreement, the Share Issuance or the other transactions contemplated herein) or
(ii) HSA-Texas shall terminate this Agreement pursuant to Section 9.1(e)(i),
then in any such event PRGX shall promptly, but in no event later than ten days
after the date of such termination, pay HSA-Texas an amount equal to all of the
HSA-Texas Transaction Expenses, including all reasonable out-of-pocket legal and
accounting fees, all broker and financial advisor fees, all HSR fees, and all
SEC fees, payable by wire transfer of immediately available funds.
(d) Certain Terminations. If after PRGX mails the Joint Proxy
Statement/Prospectus to its shareholders, either party shall terminate this
Agreement pursuant to Section 9.1(d) or 9.1(l), or if PRGX shall terminate this
Agreement pursuant to Sections 9.1(f)(ii), 9.1(h), or 9.1(k), or if HSA-Texas
shall terminate this Agreement pursuant to Sections 9.1(e)(ii), 9.1(g) or
9.11(j), and the party exercising such right is not then in breach in any
material respect of any of its representations, warranties, covenants and other
agreements under this Agreement, neither party shall have any liability or
obligation to the other (including any obligation to pay the PRGX Transaction
Expenses or the HSA-Texas Transaction Expenses, as the case may be, or the
Termination Fee described below) except for those obligations as provided in
Section 9.2(g) hereof
(e) Termination Fee. If after PRGX mails the Joint Proxy
Statement/Prospectus to its shareholders, HSA-Texas terminates this Agreement
pursuant to Section 9.1(i), PRGX shall pay to HSA-Texas in cash the sum of
$2,000,000 ("Termination Fee") plus all HSA-Texas Transaction Expenses incurred
by HSA-Texas and the Shareholders in connection with this Agreement, including,
without limitation, all reasonable out-of-pocket legal and accounting fees, all
broker and financial advisor fees, all HSR fees, and all SEC fees.
(f) Timing of Payment of Termination Fee. The Termination Fee shall be due
and payable to HSA-Texas within ten (10) days after HSA-Texas' termination of
this Agreement in accordance with Section 9.1(i) hereof.
(g) Effect of Termination. If this Agreement is terminated by either PRGX
or HSA-Texas as provided in Section 9.1, this Agreement shall forthwith become
void and have no further effect, without any liability or obligation on the part
of PRGX, HSA-Texas, or their respective shareholders, officers or directors,
other than with respect to the provisions of Section 4.1(e), Section 4.7(b),
Section 4.11, Section 5.27, Section 6.4, this Section 9.2, Section 10.6,
Sections 10.8 and Section 10.10, which provisions shall survive such
termination, and except that, notwithstanding anything to the contrary contained
in this Agreement, neither PRGX, HSA-Texas nor the Shareholders shall be
relieved or released from any liabilities or damages arising out of its breach
of this Agreement, including any representations, warranties, covenants or other
agreements contained herein, and none of the limitations contained in
Indemnification Agreement shall be applicable.
ARTICLE 10
MISCELLANEOUS PROVISIONS
10.1 SEVERABILITY. If any provision of this Agreement is prohibited by the
laws of any jurisdiction as those laws apply to this Agreement, that provision
shall be ineffective to the extent of such prohibition and/or shall be modified
to conform with such laws, without invalidating the remaining provisions hereto.
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10.2 AMENDMENT; MODIFICATION; EXTENSION; WAIVER.
(a) This Agreement may be amended by the parties hereto, by action taken or
authorized by their respective Boards of Directors, at any time before or after
approval of the matters presented in connection with the Acquisition by the
shareholders of PRGX and HSA-Texas, but, after any such approval, no amendment
shall be made which by law or in accordance with the rules of the NASDAQ Stock
Market requires further approval by the PRGX shareholders without such further
approval; provided, however, this Agreement may not be amended except by an
instrument in writing signed on behalf of each of the parties hereto.
(b) At any time prior to the Closing, the parties may (a) extend the time
for the performance of any of the obligations or other acts of the other
parties, (b) waive (by the party entitled to waive) any inaccuracies in the
representations and warranties contained in this Agreement or in any document
delivered pursuant to this Agreement or (c) subject to the proviso of Section
10.2(a) that no amendment shall be made which by law or in accordance with the
rules of the NASDAQ Stock Market requires further approval by the PRGX
shareholders without such further approval, waive compliance with any of the
agreements or conditions contained in this Agreement. Any such extension or
waiver shall be valid only if set forth in an instrument in writing signed by
each of the parties hereto. No failure or delay by any party in exercising any
right, power or privilege hereunder shall operate as a waiver thereof nor shall
any single or partial exercise thereof preclude any other or further exercise
thereof or the exercise of any other right, power or privilege. The rights and
remedies herein provided shall be cumulative and not exclusive of any rights or
remedies provided by law.
10.3 ASSIGNMENT, SURVIVAL AND BINDING AGREEMENT. This Agreement, the other
HSA-Texas Transaction Documents and the other PRGX Transaction Documents (a) may
not be assigned by PRGX on or prior to the Closing without the prior written
consent of HSA-Texas and Shareholders (except for an assignment to a wholly
owned subsidiary of PRGX, which may be made without the prior consent of, but
with notice to, HSA-Texas provided that, in such event, the assignor shall
remain obligated hereunder in the same manner as if such assignment had not been
effected); (b) may not be assigned by PRGX after the Closing without the prior
written consent of HSA-Texas and Shareholders' Representative, except for (i) an
assignment to an affiliate of PRGX, which may be made without the prior consent
of, but with notice to, HSA-Texas and Shareholders' Representative; provided
that, in such event, the assignor shall remain obligated hereunder in the same
manner as if such assignment had not been effected and (ii) in the event of a
merger, consolidation, reorganization or similar transaction of PRGX with a
Person where such other Person is the surviving entity of such transaction, this
Agreement may be assigned by PRGX without the prior consent of, but with notice
to, the Shareholders' Representative; and (c) may not be assigned by HSA-Texas
or Shareholders at any time, without the prior written consent of PRGX. The
terms and conditions of this Agreement shall inure to the benefit of and be
binding upon the parties hereto and their respective heirs, personal
representatives, successors and assigns. The parties hereto acknowledge that
PRGX intends to transfer and assign the Acquired Assets and the Assumed
Liabilities to PRGUSA, its wholly-owned subsidiary, as soon as practicable after
the Closing, whereupon all obligations of PRGX referred to herein with respect
to such Acquired Assets and Assumed Liabilities shall thereafter be deemed to be
primary obligations of PRGUSA, for which PRGX shall be secondarily liable.
10.4 COUNTERPARTS. This Agreement may be executed in two or more
counterparts, each of which shall be deemed an original, but all of which
together shall constitute one and the same instrument.
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10.5 NOTICES. All notices, requests, demands, claims or other
communications hereunder will be in writing and shall be deemed duly given if
personally delivered, sent by telefax, sent by a recognized overnight delivery
service which guarantees next-day delivery ("Overnight Delivery") or mailed by
certified mail, return receipt requested, postage prepaid and addressed to the
intended recipient, as set forth below:
If to HSA-Texas or
Shareholders: Howard Schultz & Associates International, Inc.
9924 LBJ Freeway
Dallas, TX 75243
Attention: Howard Schultz
Telefax: (972) 690-7584
with a copy to: Malouf Lynch Jackson & Swinson
600 Preston Commons East, 8115 Preston Road
Dallas, TX 75225
Attention: Curtis Swinson, Esq.
Telefax: (214) 273-0567
with a copy to: Michael Glazer
Howard Schultz & Associates International, Inc.
9924 LBJ Freeway
Dallas, TX 75243
If to PRGX: The Profit Recovery Group International, Inc.
2300 Windy Ridge Parkway
Suite 100 North
Atlanta, GA 30339-8426
Attention: Clinton McKellar, Jr.
Senior Vice President & General Counsel
Telefax: (770) 779-3034
with a copy to: Arnall Golden Gregory LLP
1201 West Peachtree Street, Suite 2800
Atlanta, Georgia 30309-3400
Attention: Jonathan Golden, Esq.
Telefax: (404) 873-8701
or at such other address as any party hereto notifies the other parties hereof
in writing. The parties hereto agree that notices or other communications that
are sent in accordance herewith (i) by personal delivery or telefax, will be
deemed received on the day sent or on the first business day thereafter if not
sent on a business day (with written confirmation of receipt), (ii) by Overnight
Delivery, will be deemed received on the first business day immediately
following the date sent, and (iii) by certified U.S. Mail, return receipt
requested, will be deemed received three (3) business days immediately following
the date sent. For purposes of this Agreement, a "business day" is a day on
which U.S. national banks are open for business and shall not include a Saturday
or Sunday or legal holiday. Notwithstanding anything to the contrary in this
Agreement, no action shall be required of the parties hereto except on a
business day and in the event an action is required on a day which is not a
business day, such action shall be required to be performed on the next
succeeding day which is a business day
10.6 ENTIRE AGREEMENT; NO THIRD PARTY BENEFICIARIES. Except for the
Nondisclosure Agreement, which remains in full force and effect in accordance
with the terms thereof, this Agreement, together with the Exhibits and Schedules
attached hereto, constitutes the entire agreement and supersedes any and all
other prior agreements and undertakings, both written and oral, among the
parties, or any of them, with respect to the subject matter hereof, including
the Letter of Intent, and, except as otherwise expressly provided herein, is
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not intended to confer upon any Person other than PRGX, HSA-Texas and the
Shareholders, any rights or remedies hereunder.
10.7 FURTHER ASSURANCES. The parties to this Agreement agree to execute
and deliver, both before and after the Closing, any additional information or
documents or agreements contemplated hereby and/or necessary or appropriate to
effect and consummate the transactions contemplated hereby. Shareholders and
Companies agree to provide to PRGX, both before and after the Closing, such
information as PRGX may reasonably request in order to consummate the
transactions contemplated hereby and to effect an orderly transition of the
Business following the Effective Date.
10.8 CHOICE OF LAW. This Agreement and all documents executed in
connection therewith shall be governed by, and construed in accordance with, the
laws of the State of Georgia, regardless of the laws that might otherwise govern
under applicable principles of conflict of laws thereof.
10.9 CONSENT TO JURISDICTION. Each of the parties hereto (a) consents to
submit itself to the personal jurisdiction of any federal court located in the
Northern District of Georgia or, if there is not a basis for federal court
jurisdiction, a Superior Court of Cobb County, Georgia in the event any dispute
arises out of this Agreement or any of the transactions contemplated by this
Agreement, (b) agrees that it will not attempt to deny or defeat such personal
jurisdiction by motion or other request for leave from any such court, and (c)
agrees that it will not bring any action relating to this Agreement or any of
the transactions contemplated by this Agreement in any court other than a
federal court sitting in the Northern District of Georgia or a Cobb County
Superior Court.
10.10 DISPUTE RESOLUTION.
(a) Financial Matters. Notwithstanding any provision of this Agreement to
the contrary, all disputes, controversies or claims arising out of or relating
to this Agreement or the transactions contemplated hereby relating to financial
matters shall be resolved by agreement among the parties, or, if not so resolved
within forty-five (45) days following written notice of dispute given by either
party hereto to the other, by arbitration in accordance with Title 9 of the
United States Code (the United States Arbitration Act), the Commercial
Arbitration Rules of the American Arbitration Association, and its Optional
Rules for Emergency Measures of Protection (the "Optional Rules"), all as
amended from time to time (collectively, the "Rules") and the provisions of this
Section; provided, however, that the provisions of this Section shall prevail in
the event of any conflict with such Rules. The parties agree that they shall use
their best efforts to cause the matter to be presented to the arbitral tribunal
as soon as possible in light of the complexity of the dispute. The arbitral
tribunal, except as provided under the Optional Rules, shall consist of three
neutral arbitrators experienced in the industry related to the dispute, one of
whom shall be chosen by the claimant and one chosen by respondent, and the two
so chosen shall choose the third arbitrator who shall act as chairperson. The
parties shall be entitled to engage in discovery in connection with arbitration,
which discovery shall be conducted in accordance with Georgia rules of Civil
Procedure and Evidence. Additionally, there shall be no evidence by affidavit
allowed, and each party shall disclose a list of all documentary evidence to be
used, a list of all witnesses and experts to be called by the party at least
twenty (20) days prior to the arbitration hearing. The decision of a majority of
the arbitration panel with respect to the matters referred to them pursuant
hereto shall be final and binding upon the parties to the dispute, and
confirmation and enforcement thereof may be rendered thereon by any court having
jurisdiction upon application of any Person who is a party to the arbitration
proceeding. The arbitral tribunal shall assess fees, expenses, compensation, and
attorney's fees in the award as provided in the Rules. The arbitral tribunal
shall have no power or authority under this Agreement or otherwise to award or
provide for the award of punitive or consequential damages against any party.
Any arbitration shall be conducted in Atlanta, Georgia.
(b) Other Matters. Notwithstanding any provision of this Agreement to the
contrary, in respect of all disputes, controversies or claims arising out of or
relating to this Agreement or the transactions contemplated relating to any
matters other than financial matters the parties may exercise any and all rights
and remedies available at law or in equity. Without limiting the generality of
the foregoing, in the event of a breach or threatened breach by any party hereto
of any of its covenants or other obligations hereunder, including, without
limitation, the parties' respective obligations to close the transactions
contemplated hereby, each of
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the parties hereby consents and agrees that the non-breaching party shall be
entitled to an injunction or similar equitable relief restraining the breaching
party(s) from committing or continuing any such breach or threatened breach or
granting specific performance of any act required to be performed by the
breaching party(s) under any such provision, without the necessity of showing
any actual damage or that money damages would not afford an adequate remedy and
without the necessity of posting any bond or other security. The right of the
non-breaching party to injunctive relief shall be in addition to any and all
other remedies available to it and shall not be construed to prevent it from
pursuing, either consecutively or concurrently, any and all other legal or
equitable remedies available to them including the recovery of monetary damages.
10.11 SCHEDULES, REVISED SCHEDULES AND EXHIBITS. All Schedules, Revised
Schedules and Exhibits referenced in this Agreement shall be deemed to be a part
of this Agreement. The lists and deliveries referenced in Sections 3.3, 5.8,
5.15 through 5.23 inclusive, and 5.26 or elsewhere herein, which have been
delivered to PRGX prior to the execution of this Agreement, shall be updated
prior to the Closing so as to be true, correct and complete as of the Effective
Date, shall be "brought-down" as of the Closing Date, shall, when delivered, be
accompanied by a certificate of the Shareholders and a duly authorized officer
of HSA-Texas certifying that they are delivered pursuant to the applicable
Section of this Agreement, as referenced in such certificate, and shall, when
delivered, be attached to this Agreement and for all intents and purposes, be
deemed Schedules hereto. All Schedules and Revised Schedules shall be arranged
in paragraphs corresponding to the lettered and numbered paragraphs contained in
applicable Article hereof and shall provide information thereon separately in
respect of each Company, as applicable.
10.12 DEFINITION OF HSA-TEXAS' KNOWLEDGE. As used herein, the terms "Known
by HSA-Texas," "to HSA-Texas' Knowledge," "to the Knowledge of HSA-Texas," "to
the best Knowledge of HSA-Texas" and words of similar import shall mean the
actual knowledge after reasonable investigation of the following individuals on
the date hereof and on the Closing Date: H. Schultz, A. Schultz, Charles
Schembri and Mac Martirossian.
10.13 RELIANCE. Each party hereto acknowledges and represents (i) that
this Agreement is executed without reliance on any agreement, promise,
statement, or representation by or on behalf of any person, except as set forth
specifically herein or in the HSA-Texas Transaction Documents and/or the PRGX
Transaction Documents or referred to herein or therein, (ii) that no person, and
no agent or attorney of any person, has made any promises, representations, or
warranties whatsoever, whether expressed or implied, which are not expressly
contained herein, and (iii) that he or its authorized officer has read this
Agreement and is fully aware of its contents and legal effect.
10.14 MARITAL PROPERTY RIGHTS. The Persons signing in their individual
capacities below, whether as a party or as a "spouse" of a party, acknowledge
and agree that: (i) each is individually joining in and assenting to this
Agreement, (ii) each consents to and approves of the transactions contemplated
by this Agreement, and (iii) each intends individually to be legally bound by
this Agreement and each of the HSA-Texas Transaction Documents to which such
individual or his or her spouse is a party (the "Transaction Agreements"). Each
such individual Person also acknowledges that he or she will directly and
personally benefit from the transactions contemplated by the Transaction
Agreements to which such individual or his or her spouse is a party, that he or
she has had an opportunity to review all such agreements and consult with
independent legal counsel, and that PRGX is entering into this Agreement and the
PRGX Transaction Documents in reliance upon the agreements set forth in this
paragraph.
10.15 SECTION HEADINGS; CONSTRUCTION. The headings of Sections in this
Agreement are provided for convenience only and will not affect its construction
or interpretation. All references to "Section" or "Sections" refer to the
corresponding Section or Sections of this Agreement. All words used in this
Agreement will be construed to be of such gender or number, as the circumstances
require. Unless otherwise expressly provided, the word "including" does not
limit the preceding words or terms.
10.16 OBLIGATIONS OF HSA-TEXAS STOCKHOLDERS. Notwithstanding anything to
the contrary contained herein, no stockholder of HSA-Texas (including the
Shareholders) shall have any obligations under this Agreement (other than those
relating to confidentiality and public disclosure set forth herein) unless and
until
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the Required HSA-Texas Vote has been obtained from the HSA-Texas stockholders
after delivery to them of the Joint Proxy Statement/Prospectus.
ARTICLE 11
SHAREHOLDERS' REPRESENTATIVE
11.1 IRREVOCABLE APPOINTMENT OF SHAREHOLDERS' REPRESENTATIVE. By the
execution and delivery of this Agreement, including counterparts hereof,
effective upon the Closing, each Shareholder hereby irrevocably constitutes and
appoints H. Schultz, and any successor to the foregoing person appointed
pursuant to Section 11.3 hereof, as the true and lawful agent and
attorney-in-fact (referred to in this Agreement as the "Shareholders'
Representative") of such Shareholder with full power of substitution and with
full power and authority to act in the name, place and stead of such Shareholder
with respect to the terms and provisions of this Section 11.1, as the same may
be from time to time amended, and to do or refrain from doing all such further
acts and things, and to execute all such documents, as the Shareholders'
Representative shall deem necessary or appropriate in connection with the
following powers granted under this Section 11.1:
(a) to approve any action or perform any covenant or agreement
hereunder or under any and all HSA-Texas Transaction Documents which
requires the consent, approval, waiver or performance of the Shareholders,
including, without limitation, any action under Article 9 hereof;
(b) to settle all claims, matters, disputes or disagreements under
this Agreement, the Escrow Agreement and the Indemnification Agreement; and
(c) to extend the Closing Date or change the location of the Closing.
11.2 ACTS OF SHAREHOLDERS' REPRESENTATIVE.
(a) The appointment of the Shareholders' Representative in Section 11.1
hereof shall be deemed coupled with an interest and shall be irrevocable, and
PRGX and any other Person may conclusively and absolutely rely, without inquiry,
upon any action of the Shareholders' Representative as the act of each of the
Shareholders in all matters referred to in Section 11.1 hereof. Each Shareholder
hereby ratifies and confirms all that the Shareholders' Representative shall do
or cause to be done by virtue of Shareholders' Representative's appointment as
Shareholders' Representative of such Shareholder. The Shareholders'
Representative shall act for the Shareholders on all of the matters set forth in
Section 11.1 hereof in the manner the Shareholders' Representative believes to
be in the best interest of the Shareholders and consistent with Shareholders'
Representative's obligations under this Agreement, but the Shareholders'
Representative shall not be responsible to any Shareholder for any loss or
damage any Shareholder may suffer by reason of the performance by the
Shareholders' Representative of Shareholders' Representative's duties under this
Agreement, including any loss or damage resulting from any error of judgment,
mistake of fact or law, or any act done or omitted to be done in good faith,
other than loss or damage arising from willful violation of law or gross
negligence in the performance of Shareholders' Representative's duties under
this Agreement.
(b) Each Shareholder hereby expressly acknowledges and agrees that the
Shareholders' Representative is authorized to act on behalf of such Shareholder
notwithstanding any dispute or disagreement among the Shareholders, and that the
PRGX shall be entitled to rely on any and all action taken by the Shareholders'
Representative under this Agreement without liability to, or obligation to
inquire of, any of the Shareholders. PRGX is hereby expressly authorized to rely
on the authority and genuineness of the signature of the Shareholders'
Representative on any instrument, certificate or document. Upon receipt of any
writing which reasonably appears to have been signed by the Shareholders'
Representative, PRGX may act upon the same without any further duty of inquiry
as to the genuineness of the writing.
11.3 REPLACEMENT OF SHAREHOLDERS' REPRESENTATIVE. If the Shareholders'
Representative resigns or ceases to function in Shareholders' Representative's
capacity for any reason whatsoever, then A. Schultz shall become the
Shareholders' Representative and if A. Schultz shall cease to act as the
Shareholders' Representative, then a majority-in-interest of the Shareholders
shall appoint a successor; provided, however, that, if for any reason no
successor has been appointed within thirty (30) days, then any Shareholder or
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PRGX shall have the right to petition a court of competent jurisdiction for
appointment of a successor. A "majority-in-interest" means those Shareholders
entitled to receive a majority of the Consideration under this Agreement.
11.4 INDEMNIFICATION OF SHAREHOLDERS' REPRESENTATIVE. Shareholders do
hereby jointly and severally agree to indemnify and hold the Shareholders'
Representative harmless from and against any and all liability, loss, cost,
damage or expense (including without limitation fees and expenses of legal
counsel) reasonably incurred or suffered as a result of the performance of
Shareholders' Representative's duties under this Agreement except for actions
constituting gross negligence or willful misconduct.
11.5 PROOF OF AUTHORITY. Each Shareholder shall execute and deliver to the
Shareholders' Representative such further documents requested by the
Shareholders' Representative, if any, as may be necessary to the efficient proof
of his authority to act and to exercise the powers granted the Shareholders'
Representative under this Article 11.
11.6 SURVIVABILITY OF POWER. EACH SHAREHOLDER INTENDS FOR THE
AUTHORIZATIONS AND AGREEMENTS IN THIS ARTICLE VIII TO REMAIN IN FORCE AND NOT BE
AFFECTED IF SUCH SHAREHOLDER SUBSEQUENTLY BECOMES MENTALLY OR PHYSICALLY
DISABLED OR INCOMPETENT.
[SIGNATURES BEGIN ON THE NEXT PAGE]
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IN WITNESS WHEREOF, the parties have executed this Agreement as of the day
and year first above written.
PRGX:
THE PROFIT RECOVERY GROUP
INTERNATIONAL, INC.
By: /s/ JOHN M. COOK
------------------------------------
Name: John M. Cook
Its: Chairman of the Board and CEO
HSA-TEXAS:
HOWARD SCHULTZ & ASSOCIATES
INTERNATIONAL, INC.
By: /s/ HOWARD SCHULTZ
------------------------------------
Name: Howard Schultz
Its: Chairman of the Board and CEO
SHAREHOLDERS:
/s/ HOWARD SCHULTZ
--------------------------------------
Howard Schultz
/s/ LESLIE SCHULTZ
--------------------------------------
Leslie Schultz, signing solely for the
purpose of acknowledging the
provisions of Section 10.14 hereof
/s/ ANDREW H. SCHULTZ
--------------------------------------
Andrew H. Schultz
/s/ NICOLE MALKOFF SCHULTZ
--------------------------------------
Nicole Malkoff Schultz, signing solely
for the purpose of acknowledging the
provisions of Section 10.14 hereof
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Andrew H. Schultz Irrevocable Trust
u/a dated May 1, 1997
By: /s/ ANDREW H. SCHULTZ
------------------------------------
Andrew H. Schultz
Sole Trustee
The Zachary Herman Schultz Trust
u/a dated June 3, 1997
By: /s/ HOWARD SCHULTZ
------------------------------------
Howard Schultz
Sole Trustee
The Gabriella Schultz Trust
u/a dated March 31, 1998
By: /s/ HOWARD SCHULTZ
------------------------------------
Howard Schultz
Sole Trustee
The Samuel Joel Schultz Trust
u/a dated July 3, 2001
By: /s/ HOWARD SCHULTZ
------------------------------------
Howard Schultz
Sole Trustee
The HHS Charitable Lead Annuity Trust
u/a dated April 5, 2001
By: /s/ HAROLD BERMAN
------------------------------------
Harold Berman
Sole Trustee
The LVS Charitable Lead Annuity Trust
u/a dated April 5, 2001
By: /s/ HAROLD BERMAN
------------------------------------
Harold Berman
Sole Trustee
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The Daniel Alan Schultz HHS (2001) GST
Trust
u/a dated April 5, 2001
By: /s/ HAROLD BERMAN
------------------------------------
Harold Berman
Sole Trustee
The Jaynie Schultz Romaner HHS (2001)
GST Trust
u/a dated April 5, 2001
By: /s/ HAROLD BERMAN
------------------------------------
Harold Berman
Sole Trustee
The Andrew Harold Schultz HHS (2001)
GST Trust
u/a dated April 5, 2001
By: /s/ HAROLD BERMAN
------------------------------------
Harold Berman
Sole Trustee
The Daniel Alan Schultz LVS (2001) GST
Trust
u/a dated April 5, 2001
By: /s/ HAROLD BERMAN
------------------------------------
Harold Berman
Sole Trustee
The Jaynie Schultz Romaner LVS (2001)
GST Trust
u/a dated April 5, 2001
By: /s/ HAROLD BERMAN
------------------------------------
Harold Berman
Sole Trustee
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The Andrew Harold Schultz LVS (2001)
GST Trust
u/a dated April 5, 2001
By: /s/ HAROLD BERMAN
------------------------------------
Harold Berman
Sole Trustee
SHAREHOLDERS' REPRESENTATIVE:
/s/ HOWARD SCHULTZ
--------------------------------------
Howard Schultz
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LIST OF APPENDICES, SCHEDULES AND EXHIBITS
Appendix A Location of Defined Terms
Schedule 1(a) First and Second-Tier Subsidiaries of HSA-Texas
Schedule 1(b) Licensees
Schedule 1.1(a) Fixed Assets
Schedule 1.1(f) Licenses and Permits
Schedule 1.1(g) Deposits and Other Rights
Schedule 1.1(j) Bank Accounts and Lock Boxes
Schedule 1.2 Legal Descriptions of Parcels Constituting of Dallas,
Headquarters
Schedule 2.2(b)(iv) Assumed Severance Amount
Schedule 3.4(d) PRGX Proposed Divestitures (Prepared by PRGX)
Schedule 4.1(c) Estimated Financials
Schedule 4.2 Key Employees
Schedule 4.5(a)-(d), 4.5(f)-(g), 4.5(j) Exceptions to Conduct of Business Pending Reorganization
Schedule 4.18 Post-Closing Directors of PRGX
Schedule 5.1(a) Jurisdictions in which HSA-Texas is Qualified to do
Business
Schedule 5.1(b) Jurisdictions in which other Companies are Qualified to
do Business
Schedule 5.2(a) Trusts and Trustees
Schedule 5.2(b) Each Company's Directors and Officers
Schedule 5.3 List of Recorded Liens (other than Permitted
Encumbrances)
Schedule 5.4 Consents
Schedule 5.5(a) Capitalization of Each Company
Schedule 5.5(b) HSA-Texas Options and Optionees
Schedule 5.5(b)(i) Form of HSA-Texas Stock Option Grant Agreement
Schedule 5.5(b)(ii) Form of Documents Relating to HSA-Texas SARs
Schedule 5.6 Exceptions to Compliance with Laws
Schedule 5.7 Exceptions to Licenses and Permits
Schedule 5.8 Financial Information
Schedule 5.11A Disputes Relating to Trade Payables and Accrued Expenses
Schedule 5.11B Acquisition Related Notes and Other Debts, Obligations,
Guaranties and Liabilities
Schedule 5.12 Tax Matters
Schedule 5.14(a) Information on Audits
Schedule 5.15 Material Contracts
Schedule 5.15(b)-1 Certain Representations regarding Material Contracts
Schedule 5.15(b)-2 Descriptions of Oral Material Contracts
Schedule 5.15(b)-3 Breaches or Defaults of Material Contracts
Schedule 5.15(b)-4 Assignability of Material Contracts
Schedule 5.16 Material Leases
Schedule 5.17 Clients and Key Clients
Schedule 5.18(a)-(d) Employees, Associates
Schedule 5.19(a)-(e) Intellectual Property Assets
Schedule 5.20 Internet Presence
Schedule 5.21 Year 2000 Compliance
Schedule 5.22(a)-(h) Benefit Plans and List of Accrued Vacation Obligations
Schedule 5.24 Litigation
Schedule 5.25 Insurance
Schedule 5.26 Immigration Matters
Schedule 5.28 Material Changes
Schedule 5.29 Certain Arrangements
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Exhibit 1.3(a) Bill of Sale
Exhibit 1.3(b) Assignment and Assumption Agreement
Exhibit 1.3(c)-1 Trademark Assignment
Exhibit 1.3(c)-2 Copyright Assignment
Exhibit 2.4(b) Amended and Restated HSA-Texas Option Plan
Exhibit 2.5 Escrow Agreement
Exhibit 3.3 HSA-Texas Affiliate Agreement
Exhibit 3.5 Registration Rights Agreement
Exhibit 4.2A H. Schultz Offer Letter
Exhibit 4.2B A. Schultz Offer Letter
Exhibit 4.2C Employee Agreement
Exhibit 4.4 Noncompetition Agreement
Exhibit 4.19 Shareholder Agreement
Exhibit 4.20 Agreement regarding Nominee Stockholder
Exhibit 7.3 Indemnification Agreement
Exhibit 8.1(a) Affirmation by Shareholders
Exhibit 8.3(c)(vi) Content of Opinion of HSA-Texas' and Shareholders'
Counsel
Exhibit 8.3(c)(xii) General Release
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ANNEX B
AGREEMENT AND PLAN OF REORGANIZATION PURSUANT TO
SECTION 368(A)(1)(B) OF THE INTERNAL REVENUE CODE, AS AMENDED
THIS AGREEMENT AND PLAN OF REORGANIZATION (this "Agreement" or this "Stock
Purchase Agreement") is made and entered into as of the 3rd day of August, 2001,
by and among THE PROFIT RECOVERY GROUP INTERNATIONAL, INC., a Georgia
corporation ("PRGX"), HOWARD SCHULTZ, a Texas resident ("H. Schultz"), ANDREW H.
SCHULTZ, a Texas resident ("A. Schultz"), ANDREW H. SCHULTZ IRREVOCABLE TRUST
under agreement dated May 1, 1997 (the "Trust"), LESLIE SCHULTZ, a Texas
resident ("L. Schultz") (each of H. Schultz, A. Schultz, the Trust, and L.
Schultz being hereinafter collectively referred to as the "Shareholders" and
individually as a "Shareholder").
WITNESSETH:
WHEREAS, PRGX, Shareholders, and Howard Schultz & Associates International,
Inc., a Texas corporation ("HSA-Texas") have executed and delivered that certain
Agreement and Plan of Reorganization, dated of even date herewith ("Asset
Purchase Agreement"), pursuant to which HSA-Texas shall sell to PRGX, and PRGX
shall purchase from Schultz, substantially all of the assets of HSA-Texas; and
WHEREAS, the portion of HSA-Texas' Business (as defined in the Asset
Purchase Agreement) not operated through HSA-Texas is conducted through Howard
Schultz & Associates (Asia) Limited, a Hong Kong corporation ("Asia"); HS&A
International Pte Ltd., a Singapore corporation ("Singapore"), Howard Schultz &
Associates (Australia), Inc., a Texas corporation ("Australia"), and Howard
Schultz & Associates (Canada), Inc., a Texas corporation ("Canada") (Asia,
Singapore, Canada and Australia are hereinafter collectively referred to as the
"Companies" and individually as the "Company") pursuant to written licenses; and
WHEREAS, PRGX, H. Schultz and A. Schultz have executed and delivered that
certain Indemnification Agreement, dated of even date herewith ("Indemnification
Agreement"), pursuant to which the parties thereto have agreed, among other
things, on the terms and conditions pursuant to which H. Schultz, A. Schultz and
PRGX and others named therein will indemnify each other for breaches of
representations, warranties and covenants set forth in this Stock Purchase
Agreement and in the Asset Purchase Agreement; and
WHEREAS, subject to the terms and conditions of this Agreement,
Shareholders and PRGX desire to exchange the Shares (defined in Section 1.1) for
an agreed-upon number of shares of PRGX's common stock, no par value per share
("PRGX Common Stock") (the "Transaction"); and
WHEREAS, the parties hereto desire to consummate the exchange for the
Shares (defined in Section 1.1 below) pursuant to a plan of reorganization
intended to qualify under Section 368(a)(1)(B) of the Internal Revenue Code of
1986, as amended, whereby PRGX shall acquire the Shares solely in exchange for
PRGX's Common Stock;
WHEREAS, the closing of the Transaction is contingent among other things
upon the closing of the asset acquisition described in the Asset Purchase
Agreement ("Asset Acquisition").
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NOW, THEREFORE, in consideration of the premises and the mutual covenants
herein contained, and other good and valuable consideration, the receipt and
sufficiency of which are hereby acknowledged, the parties hereto agree as
follows:
ARTICLE I
PURCHASE AND SALE OF SHARES; CLOSING
1.1 AGREEMENT TO EXCHANGE SHARES. Subject to the terms and conditions of
this Agreement, the Shareholders shall sell, transfer and assign to PRGX, and
PRGX shall acquire from Shareholders, on the Closing Date (defined in Section
1.3), all of shares of capital stock issued by the Companies and owned by the
Shareholders (collectively, the "Shares") free and clear of all security
interests, pledges, liens, encumbrances, charges, adverse claims of ownership or
use, restrictions on the Shares' ownership, use, voting, transfer, receipt of
dividends or any other encumbrances of any nature whatsoever ("Share
Encumbrances").
1.2 CONSIDERATION; ALLOCATION. Subject to the terms and conditions of this
Agreement, the aggregate consideration ("Consideration") deliverable to the
Shareholders in exchange for the Shares is Six Hundred Twenty-Nine Thousand Five
Hundred And Eight (629,508) shares of PRGX Common Stock. The issuance of the
PRGX Common Stock delivered as Consideration shall be registered in accordance
with the Securities Act of 1933, as amended. Schedule 1.2 sets forth the number
of shares of PRGX Common Stock each Shareholder is to receive and allocates the
PRGX Common Stock among each of the Companies in which each Shareholder owns
Shares.
1.3 CLOSING. The closing of the Transaction (the "Closing") shall be
consummated concurrently with the closing of the Asset Acquisition (the date on
which the Closing occurs being hereinafter referred to as the "Closing Date.")
If the Asset Acquisition is not consummated for any reason whatsoever, then none
of the parties hereto shall have any right or obligation to consummate the
Transaction described in this Stock Purchase Agreement. The Closing shall be
effective (the "Effective Date") as of the same time and date as the closing of
the Asset Acquisition.
For tax purposes, the Transaction shall be effective on the Closing Date.
For accounting purposes, the parties intend that effective control of each
Company, including all risks and rewards of ownership, all cash receipts,
profits and losses, and all benefits and burdens of ownership shall transfer to
PRGX on and as of the Effective Date, and, all day-to-day management and
operating control of each Company shall pass to PRGX from and after the
Effective Date and all computations, adjustments and transfers pursuant hereto
for purposes hereof shall be on and as of 12:01 am Eastern time on the Effective
Date. Accordingly, concurrently with the Closing (or as soon thereafter as the
amounts are determined), to the extent the Effective Date is deemed to be the
last day of the month preceding the Closing Date, or the first day of the month
in which Closing occurs, PRGX will cause Australia and Canada to distribute to
Shareholders the amount required to pay all income taxes owed by the
Shareholders as a result of the operations of such Companies for the period
between the Effective Date through the Closing Date.
ARTICLE II
REPRESENTATIONS AND WARRANTIES
OF SHAREHOLDERS
In order to induce PRGX to enter into this Agreement and consummate the
transactions contemplated in this Agreement, H. Schultz and A. Schultz hereby,
jointly and severally, represent and warrant to PRGX, and the Trust hereby
severally represents and warrants to PRGX, as follows, each of which is material
to and relied upon by PRGX.
2.1 ORGANIZATION AND AUTHORITY OF COMPANIES; SUBSIDIARIES. Each Company is
a corporation duly organized, validly existing and in good standing under the
laws of the jurisdiction of its organization, all of which are designated on
Schedule 2.1(a). Each Company is duly qualified as a foreign corporation in all
jurisdictions inside and outside of the United States in which the conduct of
its business or the ownership of its
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properties requires such qualification, and Schedule 2.1(b) lists all the
jurisdictions inside and outside the United States where each Company is so
qualified. Each Company has all necessary corporate power and authority to own,
lease and operate its properties and conduct its business as it is currently
being conducted. No Company owns, directly or indirectly, any equity interest in
any corporation, partnership, joint venture, or other Person.
For purposes of this Agreement, "Person" means an individual, partnership,
a corporation, an association, a joint stock company, a trust, a joint venture,
an unincorporated organization, or a Governmental Entity. For purposes of this
Agreement, "Governmental Entity" means any supranational, national, state,
municipal, local or foreign government, any instrumentality, subdivision, court,
administrative agency or commission or other authority thereof, or any
quasi-governmental or private body exercising any regulatory, taxing, importing
or other governmental or quasi-governmental authority (or any department, agency
or political subdivision thereof).
2.2 POWER AND AUTHORITY; DUE AUTHORIZATION; DIRECTORS AND OFFICERS.
(a) Each Shareholder has full power and authority to execute and deliver
this Agreement and each of the Shareholders' Transaction Documents to which each
Shareholder is or will be a party and to consummate the transactions
contemplated hereby and thereby. "Shareholders' Transaction Documents" means
each of the agreements, documents and instruments referenced in this Agreement
to be executed and delivered by any Shareholder. Each Shareholder has duly
executed and delivered this Agreement, and subject to Section 9.16 below, on the
Closing Date subject to the terms and conditions of this Agreement, each
Shareholder shall duly execute and deliver each of the Shareholders' Transaction
Documents, and no other proceedings shall then be necessary for the execution,
delivery or effectiveness of this Agreement and Shareholder's Transaction
Documents.
(b) Shareholders have delivered to PRGX true, correct and complete copies
of all documents, agreements and instruments which govern the Trust. In respect
of the Trust, the execution, delivery and performance of this Agreement and the
Shareholders' Transaction Documents by the Trust has been duly authorized and
approved in accordance with all agreements governing the Trust. A. Schultz is
the sole Trustee of the Trust and has sole full right, power and authority to
enter into this Agreement on behalf of the Trust and to cause the Trust to
perform its obligations hereunder and under the Shareholders' Transaction
Documents.
(c) Assuming that this Agreement and each of the Shareholders' Transaction
Documents which are also PRGX Transaction Documents constitute a valid and
binding agreement of PRGX, this Agreement and each of the Shareholders'
Transaction Documents constitute, or will constitute when executed and
delivered, a valid and binding agreement of each Shareholder, in each case
enforceable in accordance with its terms. A true, correct and complete list of
the incumbent duly elected directors and officers of each Company are set forth
on Schedule 2.2. Schedule 2.2 shall be updated on the Closing Date to be true,
correct and complete as of the Closing Date.
2.3 ASSETS.
(a) Title. Except as set forth on Schedule 2.3(a), each Company has a
good, valid and marketable title to all of its assets free and clear of any
mortgages, liens, pledges, security interests, encumbrances, claims or similar
rights of every kind and nature, except for any liens for Taxes not yet due and
payable. At Closing, each Company will have good, valid and marketable title to
all of its assets free and clear of any mortgages, liens, pledges, security
interests, encumbrances, claims or similar rights of every kind and nature,
except for any liens for Taxes not yet due and payable and liens for liabilities
reflected on the Estimated Balance Sheet (defined in Section 4.1(d)). No Company
currently has title to, or a fee simple ownership interest in, any real
property.
(b) Condition of the Assets. Prior to the Closing, Shareholders shall
cause each Company to deliver to PRGX a true, correct and complete list of the
fixed assets of such Company reconciled with the fixed assets line item of the
Estimated Balance Sheet.
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2.4 NO CONFLICT; REQUIRED CONSENTS. The consummation of the Transaction
does not and will not (i) require the consent, approval or action of, or any
filing with or notice to, any corporation, firm, Person or other entity or any
Governmental Entity; (ii) violate the terms of any Contract (defined in Section
2.12) to which any Company or Shareholder is a party, or by which any Company or
any Shareholder or the property of any Company or Shareholder is bound, or be in
conflict with, result in a breach of or constitute (upon the giving of notice or
lapse of time or both) a default under any such Contract, or result in the
creation of any lien upon any of the property or assets of any Company; (iii)
violate the organizational documents of any Company or the Trust; or (iv)
violate any order, writ, injunction, decree, judgment, ruling, law, rule or
regulation of any Governmental Entity (individually, a "Law" collectively,
"Laws") applicable to any Company or any Shareholder. No Company nor any
Shareholder is subject to, or is a party to, any Contract or Law of any kind or
character which would prevent or hinder the continued operation of the Companies
after the Effective Date on substantially the same basis as theretofore
operated.
2.5 OWNERSHIP OF CAPITAL STOCK AND OPTIONS.
(a) All outstanding shares of each Company's capital stock (including,
without limitation, the Shares) are duly authorized, validly issued, fully paid
and nonassessable. Schedule 2.5(a) is a true, correct and complete list of each
Person who is a beneficial or record owner of any of the outstanding shares of
capital stock of any of the Companies together with the number of shares owned
by each such Person. As of the date of this Agreement, all outstanding shares of
capital stock of each Company (including, without limitation, the Shares) are
free and clear of all Share Encumbrances.
(b) Except as set forth on Schedule 2.5(a), as of the date hereof, there
are outstanding (i) no shares of capital stock or other voting or non-voting
securities of any Company, (ii) no securities of any Company convertible into or
exchangeable for shares of capital stock or voting or non-voting securities of
any Company, (iii) no options (including employee stock options), warrants or
rights of conversion or other rights, agreements, arrangements or commitments
obligating, or which may obligate, any Company to sell or issue any additional
securities, (iv) no obligation of any Company to issue any voting or non-voting
securities or securities convertible into or exchangeable for voting or
non-voting securities of any Company, and (v) no equity equivalents, interests
in the ownership or earnings, or other similar rights of or with respect to any
Company (the items in clauses (i), (ii), (iii), (iv) and (v) being referred to
collectively as the "Company Securities"). There are no outstanding obligations
of any Company to repurchase, redeem or otherwise acquire any outstanding shares
of Capital Stock of any Company or Company Securities.
(c) Acceptor Professional Directors (Pte) Ltd. ("Nominee Shareholder")
holds two shares of common stock of Singapore solely for the purpose of keeping
Singapore in compliance with the applicable laws of the nation of Singapore.
2.6 COMPLIANCE WITH LAWS. Each Company currently is, and always has been,
in compliance with all applicable Laws. No Company nor any Shareholder has
received written notice of any noncompliance by any Company of any applicable
Laws, nor to the Shareholders' knowledge, is there any basis therefor.
2.7 LICENSES AND PERMITS. Schedule 2.7 is a true, correct and complete
list of all licenses, permits, approvals and authorizations which have been
issued or delivered to each Company. Each Company holds, and is in compliance
with, all Licenses and Permits. No Company nor any Shareholder has received
written notice of any violations in respect of any such Licenses and Permits. No
proceeding is pending or, to the Shareholders' knowledge, threatened, which
seeks revocation or limitation of any such Licenses and Permits.
2.8 FINANCIAL INFORMATION.
(a) Schedule 2.8 is a true, correct and complete copy of the Historical
Statements (defined in Section 4.1). The Historical Statements have been
prepared in accordance with generally accepted accounting principles (except
that they may not contain customary footnotes) ("GAAP"), consistently applied
for the periods presented, and fairly present the financial condition of each
Company, at the respective dates thereof and the separate results of operations
of each Company for the periods then ended, except as otherwise disclosed in the
notes thereto, if any. The Interim Financials (defined in Section 4.1) and the
Estimated Financials (defined in Section 4.1) will be prepared in accordance
with GAAP (except that they may not
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contain customary footnotes), consistently applied for the periods presented,
and will fairly present the financial condition of each Company, at the
respective dates thereof and the separate results of operations of each Company
for the periods then ended, except as otherwise disclosed in the notes thereto,
if any
(b) The Historical Statements are, and the Interim Financials and the
Estimated Financials will be, consistent with the books and records of each
Company. All work papers related to the Historical Statements, the Interim
Financials and the Estimated Financials and other financial information provided
by the Companies to PRGX in connection with their due diligence are, and will
be, true, correct and consistent with the books and records of each Company.
(c) On the date hereof, there are no liabilities or obligations of any
Company of any nature, whether liquidated, unliquidated, accrued, absolute,
contingent or otherwise except for those that are specifically reflected or
reserved against as to amount in the December 31, 2000 balance sheets which are
part of the Historical Financials and those arising thereafter in the ordinary
course of each Company's business. On the Effective Date, there will be no
liabilities or obligations of any Company of any nature, whether liquidated,
unliquidated, accrued, absolute, contingent or otherwise, except for those that
are specifically reflected or reserved against as to amount in the Estimated
Financials.
(d) No Company is, nor has any Company been, during the 12 months
immediately preceding the execution of this Agreement, insolvent within the
meaning of 11 U.S.C. sec. 101(31). Each Company has paid, and is paying, its
debts as they become due.
2.9 TRADE PAYABLES; ACCRUED EXPENSES; OTHER DEBT.
(a) Trade Payables. As of the Effective Date, all trade payables and
accrued expenses of the Companies shall have been incurred in the ordinary
course of business, shall be directly related to each Company's business, and
shall not, as of the Effective Date, be overdue other than those, if any, not
yet paid due to a bona fide dispute (as detailed on Schedule 2.9A).
(b) Debt for Borrowed Money. Schedule 2.9B is a true, correct and complete
list as of the date hereof, which list will be updated prior to Closing so as to
be true, correct and complete as of the Effective Date, of all debts,
obligations, guaranties, financings and other indebtedness for borrowed money of
each of the Companies outstanding as of the date hereof (and as of the Effective
Date), stating the origin of the obligation, the obligee of such obligation, the
security therefor (including a specific description of collateral), the terms of
payment and the amount owed as of the date hereof.
2.10 TAX RETURNS AND PAYMENTS.
(a) Payment of Taxes and Other Matters. All Tax Returns (defined in
Section 4.7), including estimated Tax Returns (defined in Section 4.7) and
reports of every kind with respect to Taxes which are due to have been filed by
the Companies on or before the Closing Date in accordance with any applicable
law in all jurisdictions where any Company is subject to Taxes, have been or
will be duly filed on or before the Closing Date and are, or on or before the
Closing Date will be, true, correct and complete. All Taxes (defined in Section
4.7), deposits or other payments which relate to Taxes required to be paid
(whether or not shown on a Tax Return) by any Company on or prior to the
Effective Date have been, or will be, paid in full or will be accrued or
reserved as a Tax liability on the December 31, 2000 Historical Financials
and/or on the Estimated Financials. There are not now any extensions of time in
effect with respect to the dates on which any Tax Returns or reports of Taxes
for any Company were or are due to be filed. All deficiencies asserted as a
result of any examination of any Tax Return or report of Taxes of any Company
have been, or on or before the Closing Date, will be, paid in full or finally
settled with no outstanding liability to the Company or the Shares or were, or
will be, included in the amount of the reserve for Tax liability shown on the
December 31, 2000 Historical Financials and/or on the Estimated Financials, and
no issue has been raised in any such examination which, by application of the
same or similar principles, reasonably could be expected to result in a proposed
deficiency for any other period not so examined. No claims have been asserted
against and no proposals or deficiencies for any Taxes are being asserted
against any Company, or proposed or threatened, and no audit or investigation of
any Tax Return or report of Taxes is currently underway, pending or threatened;
there are no outstanding waivers or agreements by any Shareholder or any Company
for the extension of time for the assessment of any
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Taxes or deficiency thereof, nor are there any requests for rulings, outstanding
subpoenas or requests for information, notices of proposed reassessment of any
property owned or leased by any Company or any other matter pending between any
Company and any taxing authority; there are no liens for Taxes upon any property
or assets of any Company except statutory liens for current Taxes not yet
delinquent; to Shareholders' knowledge, no claim has ever been made by a Tax
Authority (defined in Section 4.7) in a jurisdiction where any Company does not
file Tax Returns that such Company is or may be subject to Tax by that
jurisdiction; no Company is a party to or bound by any tax allocation or tax
sharing agreement and has no current or potential contractual obligation to
indemnify any other Person with respect to Taxes; no Company and, with respect
to Flow-Through Taxes (defined in Section 4.7) attributable to the operations of
Australia and Canada, no Shareholder, is required to include in income any
adjustment pursuant to Section 481(a) of the Code by reason of a voluntary
change in accounting method initiated by such Company, nor Shareholders'
knowledge, has the Internal Revenue Service proposed any adjustment or change in
accounting methods for any Company.
(b) Subchapter S Status. Canada and Australia have made valid elections to
be treated as S Corporations for U.S. federal income tax purposes effective as
of (the "S Effective Date"), and such elections have remained
valid and effective at all times since such date, and Canada and Australia will
be S corporations up to and including the day before the Closing Date. Canada
and Australia have made available to PRGX true, correct and complete copies of
such S elections, and acknowledgement of receipt thereof by the Internal Revenue
Service.
2.11 INFORMATION ON AUDITS; ACCOUNTS RECEIVABLE.
(a) Information on Audits. Schedule 2.11(a) will be delivered by the
Shareholder to PRGX within 3 days after the later to occur of PRGX's receipt of
the bank approval described in Section 3.2(a) below or the mailing by PRGX of
the Joint Proxy Statement/Prospectus to PRGX's Shareholders (as defined in
Section 3.1 of the Asset Purchase Agreement.) Schedule 2.11(a), when so
delivered, will be a true, correct and complete list as of the last day of the
calendar quarter immediately preceding the delivery of such Schedule of the
following information with respect to each Active Audit of Key Clients; provided
that with respect to such Schedule, Key Clients shall not be identified by name,
but shall be represented by a letter of the alphabet, and at least 3 business
days prior to the Closing, Shareholders will update the information contained on
Schedule 2.11(a) so as to be true, correct and complete as of the Effective
Date, and deliver to PRGX a key which identifies the name and address of the Key
Client represented by each letter on such list:
(1) name of Client;
(2) primary or secondary audit;
(3) scope of audit (e.g., all divisions, regional limitations,
only-merchandise, expenses, advertising, real estate);
(4) audit year(s) or other covered time period of audit;
(5) the contract rate for the Company's service fee;
(6) Client reserve or holdback percentage;
(7) audit commencement date and projected completion date;
(8) aggregate claims approved by Client;
(9) aggregate gross service fees billed to Client by the Company for
such audit;
(10) aggregate amount of cash receipts from such audit;
(11) reserve amount held by Client; and
(12) the aggregate amount of Vendor Paybacks per audit that have been
paid as of June 30, 2001 (and as of the last day of the calendar quarter
immediately preceding the Closing Date).
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For purposes hereof, "Active Audits" means, collectively, all those audits of
Clients of the Companies in respect of which claims remain to be written,
including those listed on Schedule 2.11(a) attached hereto. "Inactive Audits"
means, collectively, all those audits for Clients of the Companies in respect of
which no claims remain to be written, including those in respect of which Client
continues, as of the date hereof, to hold a reserve for credits, chargebacks or
other Vendor Paybacks. A "Vendor Payback" means the credits, chargebacks or
payments made by a Company to a Client as a result of the Client's refund of
payments made to such Client's vendor refunding commissions received by said
Company from such Client.
(b) Accounts Receivable. Prior to the Closing, Shareholders shall provide
PRGX with a true, correct and complete list of the accounts receivable
("Accounts Receivable") of the Companies reconciled with the accounts receivable
line item on the Estimated Balance Sheet, showing by Client and by each Active
Audit for such Client, the terms and time period for collection thereof. Each of
the Accounts Receivable is bona fide and represents a valid obligation arising
from sales actually made or services actually performed by each Company in the
ordinary course of its business. Each of the Accounts Receivable shall be as of
the Effective Date current and collectible in full within ninety (90) days after
the day on which it first becomes due and payable net of the reserve shown on
the Estimated Balance Sheet (which reserve will be adequate and calculated
consistent with past practice and will not represent a greater percentage of the
Accounts Receivable reflected on the Estimated Balance Sheet than the reserve to
the accounts receivable on the December 31, 2000 balance sheet contained in the
Historical Statements) and will not represent a material adverse change in the
composition of such Accounts Receivable in terms of aging. There is no contest,
claim, dispute, defense or right of setoff relating to the amount or validity of
such Account Receivable, except for possible vendor payback claims of the
Client. As to each such Account Receivable, to the Shareholders' knowledge,
neither the vendor nor the respective Client has objected to the claim for
reimbursement upon which such Account Receivable is based. The work in progress
outstanding on the Effective Date will be bona fide and will, if and when
converted to accounts receivable, represent valid obligations arising from sales
actually made or services actually performed by the Companies in the ordinary
course of business, subject only to possible vendor pay-back claims of the
Client.
2.12 MATERIAL CONTRACTS; LICENSE AGREEMENTS.
(a) Definition of Material Contract. Schedule 2.12(a) is a true, correct
and complete list of all "Material Contracts" which, for purposes hereof, means
all written or oral contracts (collectively, "Contracts") which:
(i) is with any Person which constitutes a "Key Client" (defined in
Section 2.14) for 2000 or 2001; or
(ii) evidences the obligation of any Company for debt to any Person
for borrowed money or evidences the obligation of any Person to any Company
for borrowed money; or
(iii) is a license agreement (including those related to software) in
which a Company is either as licensor or licensee which involves an
aggregate expenditure or receipt by any Company of $50,000 or more; or
(iv) is with a strategic or business partner of any Company; or
(v) involves the provision of data processing services or
telecommunications services to any Company of $100,000 or more; or
(vi) is a contract with any vendor of products or services to any
Company (including supply or requirements contracts), indicating any which
are not cancelable by such Company without cost on 60 days or less notice
and which involve an aggregate annual expenditure by any Company of
$100,000 or more; or.
(vii) is with any employee or independent contractor of any Company;
or
(viii) related to any merger, asset purchase, stock purchase or
similar purchase and sale agreement to which any of the Company is or was a
party within the last three years; or
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(ix) is with any Client (defined in Section 2.14) and (1) has an
unexpired term of two (2) or more years, or (2) requires any Company to
provide equipment or services beyond the scope of such Company's business
or (3) requires any Company to provide such Client with a guaranty, rebate
or refund other than possible vendor payback claims of the Client that will
or is reasonably likely to exceed $25,000 in any 12 month period; or
(x) has or may have the effect of (1) prohibiting or impairing (i) any
business practice of any Company, (ii) any acquisition of property
(tangible or intangible) by any Company or (iii) the conduct of business by
any Company, including, without limitation, any restrictive covenant or
noncompete agreement (2) requiring the referral of any business by any
Company, or (3) requiring or purporting to require the payment of money or
the acceleration of performance of any obligation of any Company by virtue
of the Closing.
Schedule 2.12(a) indicates thereon the category, by section reference, of
Material Contract described in this Section 2.12(a) to which such Material
Contract belongs. Notwithstanding anything to the contrary herein, with respect
to the information about Clients and Key Clients on the Schedules or deliveries
required to be delivered as of the date hereof by this Section 2.12, Client and
Key Clients shall not be identified by name, but shall be represented by a
letter of the alphabet, and immediately prior to the Closing, Shareholders shall
cause each Company to deliver to PRGX a key which identifies the name and
address of the Client or Key Client represented by each letter on such list.
(b) Certain Representations re: Contracts.
(i) Each Company has provided to PRGX true, correct and complete
copies of all written Material Contracts, including any and all amendments
and waivers thereto and has provided true, correct and complete
descriptions of the material terms of any oral Material Contracts on
Schedule 2.12(b)(1).
(ii) Assuming the Contracts constitute the valid and binding
agreements of the Company party thereto, such Contracts are valid, legally
binding and enforceable against the other parties thereto subject to laws
of general application in effect affecting creditors' rights and subject to
the exercise of judicial discretion in accordance with general equitable
principles. No Company nor, to Shareholders' knowledge, any other party to
any of the Contracts, is in breach of, or in default under, any of the
Contracts, and no event has occurred which, with the giving of notice or
lapse of time, or both, would constitute a default by any Company or, to
Shareholders' knowledge, any other party to any of the Contracts.
2.13 MATERIAL LEASES. Schedule 2.13 is a true, correct and complete list
of all "Material Leases," which means, for purposes hereof, all leases of each
Company which (a) involve an aggregate annual expenditure by such Company of
$50,000 or more, (b) are not cancelable by such Company without cost on sixty
(60) days' or less notice, (c) have a term which extends for more than one (1)
year from the Effective Date, or (d) are for an interest in real estate. Each
Company has provided to PRGX true, correct and complete copies of all of the
Material Leases, together with all amendments, addenda and supplements thereto.
With respect to each Material Lease:
(a) the Company party thereto holds the leasehold interest created
under each Material Lease;
(b) assuming the Material Lease constitutes the valid and binding
agreement of such Company, the Material Lease is legal, valid, binding and
enforceable against the other party thereto and in full force and effect,
subject to laws of general application in effect affecting creditors'
rights and subject to the exercise of judicial discretion in accordance
with general equitable principles;
(c) subject to obtaining any necessary consent in respect of the
transactions contemplated hereunder and assuming the Material Lease
constitutes the valid and binding agreement of the party thereto other than
such Company, the Material Lease will continue to be legal, valid, binding
and enforceable by and against such Company and in full force and effect on
identical terms following the Closing Date;
(d) no Company, nor, to Shareholders' knowledge, any other party to
the Material Lease is in breach or default, and no event has occurred
which, with the giving of notice or lapse of time, would
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constitute a breach or default by such Company or permit termination,
modification or acceleration thereunder by any other party thereto;
(e) no Company nor, to Shareholders' knowledge, any other party to the
Material Lease has repudiated in writing any provision thereof;
(f) there have been and there are no disputes, oral agreements or
forbearances in effect as to the Material Lease;
(g) no Company has assigned, transferred, conveyed, mortgaged, deeded
in trust or encumbered any interest in the leasehold of the Material Lease
and Shareholders are not aware of any such assignment, transfer,
conveyance, mortgage, deed in trust or encumbrance of any interest in the
leasehold of the Material Lease;
(h) in respect of each such Material Lease which is a real property
lease, (i) such lease is the only instrument which gives rise to a right of
occupancy by the Company at such location, (ii) Company is the original
lessee (or has validly succeeded to the rights of the original lessee)
under such lease, (iii) Company actively occupies such location, (iv)
Company has paid the rent under the lease on a current basis and there are
no past due amounts; and
(i) in respect of each such Material Lease which is an equipment
lease, (i) such Company is in actual possession of the equipment leased
under each equipment lease, (ii) Company has paid the rent set forth in
each of the equipment leases on a current basis and there are no past due
amounts. Schedule 2.13(i) is a true, correct and complete list of the
equipment subject to each equipment lease and the location of such
equipment.
2.14 CLIENTS AND KEY CLIENTS. For purposes hereof, "Clients" means those
clients to whom any Company provides or has provided the services of its
business and "Key Clients" means those Clients of the Companies which as of
December 31, 2000 (or in respect of 2001, as of the period from January 1, 2001
to June 30, 2001) accounted for the highest percentages of the revenue of the
Clients generating at least 80% of the revenues of the Companies on a combined
basis during such period.
(a) Schedule 2.14(a-1) attached hereto contains the number of Key Clients
for each of 2000 and 2001, and the aggregate revenues of such Clients for each
of such periods. Schedule 2.14(a-2) separately states the number of Key Client
Contracts (and the aggregate revenues of such number of Key Clients for each of
such periods) which contain any of the following provisions: (i) performance
guaranties, refunds or rebates that could reasonably be expected to exceed
$25,000, with respect to any annual audit period, (ii) have or may have the
effect of limiting or impairing any material business practice or activity of
any Company, (iii) have a net commission rate below 20% of recovered funds, (iv)
require any referral of business by any Company, (v) allow for cancellation by
the Client on less than 90 days notice or (vi) require consent to assignment,
the payment of money or the acceleration of performance of any obligation by a
Company because of the proposed transaction with PRGX. Except for the number of
Key Clients (with the aggregate revenues for such number for each period) listed
on Schedule 2.14(a-3), to the Shareholders' knowledge, there are no Key Clients
who have, within the 12 months immediately preceding the date hereof, expressed
to any Company material dissatisfaction with any Company's services. Schedule
2.14(a-4) contains the revenues generated by all Key Clients during each of 2000
and 2001, the percentage of the total revenues of the Companies on a combined
basis for each such period that the revenues of the Key Clients for such period
constitutes, and the average remaining term of the Contracts for all Key
Clients. Schedule 2.14(a-5) contains the number of Key Clients gained from or
lost to any Person other than PRGX in the last 24 months and the number of
primary audits for Key Clients converted to secondary audits in the last 24
months, other than audits in which PRGX performs the primary audit. All written
contracts with Key Clients reflect all material terms of the contractual
relationship of the Key Client with such Company.
(b) Schedule 2.14(b-1) when delivered, as provided below, will be a true,
correct and complete list of all Key Clients, which will be separately
identified for each of 2000 and 2001. Schedule 2.14(b-2) will specifically
identify each Key Client Contract which contains any of the following
provisions: (i) performance guaranties, refunds or rebates that could reasonably
be expected to exceed $25,000, with respect to any annual audit
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period, (ii) have or may have the effect of limiting or impairing any material
business practice or activity of any Company, (iii) have a net commission rate
below 20% of recovered funds, (iv) require any referral of business by any
Company, (v) allow for cancellation by a Client on less than 90 days notice or
(vi) require consent to assignment, the payment of money or the acceleration of
performance of any obligation by any Company because of the proposed transaction
with PRGX. Except as will be specifically described on Schedule 2.14(b-3), to
the Shareholders' knowledge, there are no Key Clients who have, within the 12
months immediately preceding the date hereof, expressed to any Company material
dissatisfaction with any Company's services. Schedule 2.14(b-4) will contain a
true, correct and complete list for calendar year 2000 and 2001 of each Key
Client for each such period, the revenues generated by each such Key Client
during the respective period, the percentage of the total revenues of the
Companies on a combined basis for each such period that the revenues of each Key
Client for such period constitutes, and the term of the Contract for such Key
Client, including the expiration date thereof. In addition, Schedule 2.14(b-5)
will include a list of Key Clients gained from or lost to any Person other than
PRGX in the last 24 months a list of primary audits for Key Clients converted to
secondary audits in the last 24 months, other than audits in which PRGX performs
the primary audit, and the details of any rebate, recovery advance, or recovery
guarantee provisions with Key Clients for 2000 and 2001, and the assumption or
reimbursement of Key Client expenses associated with data acquisition or other
audit related activities ("Key Client Programs"). Schedule 2.14(b-1) through
Schedule 2.14(b-5) will be delivered to PRGX at least five business days prior
to the Closing. In addition, upon delivery of such Schedules, the Shareholders
shall cause each Company to update the information contained on Schedules
2.14(b-1) through (b-5), so as to be true, correct and complete as of the
Effective Date. At least five days prior to the Closing, the Shareholders will
cause each Company to provide PRGX true, correct and complete copies of all
contracts with all Key Clients, together with all amendments thereto. All
contracts with Key Clients reflect all material terms of the contractual
relationship of the Key Client with each Company as of the Effective Date.
2.15 EMPLOYEES.
(a) Employees. Schedule 2.15(a) is a true, correct and complete list as of
the date of this Agreement of the name, location address, function and title of
each Company's employees, together with each employee's base salary or hourly
rate, any bonus or commission formulae applicable thereto, vacation and sick
leave, the amount of any advances on commissions (describing the repayment terms
thereof) and expenses each employee has received which are outstanding and the
name of the entity which pays the compensation or commission to such employee.
Schedule 2.15(a) includes a true, correct and complete list of all agreements
and understandings between each Company and its employees (including a
description on such Schedule of all oral agreements) concerning their employment
relationship with such Company (including all restrictive covenant agreements
and severance benefits), true, correct and complete copies of which agreements
have been provided to PRGX (or descriptions contained on Schedule 2.15(a) in
respect of any oral agreements).
(i) Except as otherwise set forth in Schedule 2.15(a)(i), the
employment of each employee is terminable without cause within 30 days'
written notice by such Company or such employee, subject to any rights to
salaries and commissions earned prior to such termination and no such
Person has been granted the right to continued employment or engagement by
any Company or to any material compensation or payment following
termination of employment with such Company.
(ii) Schedule 2.15(a)(ii) contains a true, correct and complete copy
of each Company's standard form employment agreement and noncompetition and
restrictive covenant agreement with its employees. Except to the extent
specified on Schedule 2.15(a)(ii), there are no deviations from such
standard contract in the agreements with the employees, except for
immaterial modifications which do not confer additional benefits on such
employee or impose additional liability on any Company.
(iii) To the Shareholders' knowledge, no officer or Key Employee, or
any group of employees, intends to terminate their employment with any
Company, nor does any Company have a present intention to terminate the
employment of any officer, Key Employee or group of employees. As used
herein, "Key Employees" shall mean H. Schultz, A. Schultz and those
individuals listed on Schedule 2.15(a)(iii).
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(iv) Schedule 2.15(a) shall be updated immediately prior to the
Closing so as to be true, correct and complete as of the Effective Date.
(b) Associates.
(i) Schedule 2.15(b) is a true, correct and complete list as of the
date of this Agreement of the name, location address, function and title of
each Company's Associates (defined in Section 2.15(b)(vi) hereof), together
with each Associate's commission percentage, any bonus arrangements, all
accrued commissions, the amount of any advances on commissions or other
amount owed to any Company (describing the repayment terms thereof) which
are outstanding, any rights to payments upon or after termination of the
independent contractor relationship with any of the Companies, any other
benefits, and the name of the entity which pays the commission to such
Associate. Prior to the Closing, each Company shall have delivered to PRGX,
true, correct and complete copies of all agreements and understandings
between each Company and its Associates (including a written description on
such Schedule of all oral agreements) together with all amendments, addenda
and supplements thereto concerning their relationship with such Company
(including any restrictive covenant agreements and any severance
agreements).
(ii) The engagement of each Associate is terminable without cause
within 30 days' written notice by such Company or such Associate, subject
to any rights to commissions earned prior to such termination and no such
Person has been granted the right to continued engagement by any Company or
to any material compensation or payment following termination of engagement
with such Company.
(iii) Schedule 2.15(b) contains a true, correct and complete
description of the Companies' policy for post-termination trailing
commissions payable to Associates and its policy for the deduction of
commissions associated with paybacks owed to clients of the companies and
lists any material deviations from such policy in respect of any Associate,
except for immaterial modifications which do not confer additional benefits
on such Associate or impose additional liability on any Company. Each
Associate has met, and until the Closing Date will continue to meet, the
requirements under the Code, and the regulations promulgated thereunder, to
be an independent contractor.
(iv) To Shareholders' knowledge, no Associate, or any group of
Associates, intends to terminate their engagement with any Company, nor
does any Company have a present intention to terminate the engagement of
any Associate or group of Associates.
(v) None of Companies' agreements or arrangements with any Associates
will obligate PRGX to pay commissions, fees or other compensation to such
sales agents or Associates for revenues earned by PRGX for services
performed for Clients after the Effective Date other than services of the
type the Companies provided to such Clients prior to the Effective Date.
(vi) Schedule 2.15(b) shall be updated prior to the Closing Date to be
true, correct and complete as of the Effective Date. As used herein,
"Associates" shall mean those independent contractors engaged by the
Companies to perform accounts payable auditing and related consulting
services. Other than those individuals listed on Schedule 2.15(a) or
Schedule 2.15(b), none of the Companies employs or engages, directly or
indirectly, any other Persons, in any capacity, including without
limitation, as employees, agents, consultants, partners, or independent
contractors.
(c) Employment Laws. Each Company (i) is in compliance with all applicable
laws, rules and regulations respecting employment, employment practices, terms
and conditions of employment and wages and hours in respect of its employees
and, to the extent applicable, its Associates of any Governmental Entity which
have jurisdiction over such Company's employment practices; (ii) has withheld
all amounts required by Law or by agreement to be withheld from the wages,
salaries and other payments to its employees; (iii) is not liable for any
arrears of wages or any taxes or any penalty for failure to comply with any of
the foregoing in respect of any employees or Associates; and (iv) is not liable
for any payment to any trust or other fund or to any Governmental Entity with
respect to unemployment compensation benefits, social security or other benefits
for employees (other than routine payments to be made in the normal course of
business and consistent with past practice). In respect of each Company's
current and former employees and Associates, (i) there are no charges,
investigations, administrative proceedings or formal complaints of
discrimination
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pending or, to Shareholders' knowledge, threatened by or before any Governmental
Entity against any Company; (ii) there have been no audits by any Governmental
Entity of any of the Companies' equal employment opportunity practices; (iii) no
current or former employee or Associate of any Company has notified any Company
of any fact or circumstance which, if true, might constitute a violation of any
Employment Law; and (iv) to Shareholders' knowledge, no Company nor any employee
of any Company has engaged in any activity which constitutes a violation of any
Employment Law. For purposes hereof, "Employment Laws" means any constitutional,
statutory, regulatory or common law of any Governmental Entity relating to
employment discrimination or harassment, including, but not limited to, the Age
Discrimination in Employment Act, the Older Workers' Benefit Protection Act,
Title VII of the Civil Rights Act of 1964, the Civil Rights Act of 1991 and the
Americans with Disabilities Act.
(d) Breaches. To the Shareholders' knowledge, (i) no Person employed
or engaged as an employee or Associate by any Company has, in respect of
his or her activities to date on behalf of such Company, violated any of
the terms or conditions of his or her employment agreement or other
engagement with the Company or any other contract to which Company is a
party with any third party, or disclosed or used any trade secrets or
proprietary or confidential information or documentation of any third party
without the authorization of such third party, or interfered in the
employment relationship between any third party and any of its employees
and (ii) no Person employed or engaged as an employee or independent
contractor by any Company has disclosed or used any trade secrets or any
other proprietary or confidential information or documentation of any
former employer or other third party, or has violated any non-compete
obligation or confidential relationship that such Person has or may have
had with any third party, in connection with such person's activities on
behalf of the Companies. To the Shareholders' knowledge, excluding any
former employees or Associates who are performing services for PRGX or its
affiliates, no former employees whose employment with any Company was
terminated by such Company or by such employee or otherwise expired within
the last 2 years and no Associate whose engagement with any Company was
terminated by such Company or by such Associate or otherwise expired within
the last 2 years is currently or has within the last 2 years, directly or
indirectly, competed with the HSA-Texas or the Companies.
(e) Unions. None of the Companies are, nor have they ever been, a
party to any collective bargaining agreement or any other contract, written
or oral, with any trade or labor union, employees' association or similar
organization. There are no, and there never have been any, attempts at
union organization of the employees of any of the Companies.
2.18 INTELLECTUAL PROPERTY. None of the Companies owns any intellectual
property. All intellectual property used by the Companies is licensed solely
from HSA-Texas. To the extent that work performed by any employee or Associate
constitutes a "work made for hire" within the meaning of the Copyright Act, each
such Person has signed a proprietary inventions or similar agreement with
HSA-Texas transferring and assigning to HSA-Texas all right, title and interest
in and to intellectual property developed by such employee or Associate.
2.19 INTERNET PRESENCE. No Company has any public, private or reserved
presence on the world wide web, multi-party extranet, virtual private network,
or similar internet based, linked system.
2.20 YEAR 2000 COMPLIANCE. Each Company has previously performed unit,
integration and acceptance testing of all software, hardware, and all other
devices containing or utilizing electronic components reasonably necessary to
the performance of its respective business obligations and operations (all of
the foregoing, collectively, "Computer Systems"), including all Computer Systems
owned, leased, sold, developed, assembled, distributed, supported, maintained,
used, or operated by, to, for, or from any Company, and the results of such
testing, as well as the Companies' experience to date, establish that all
Computer Systems, have functioned normally before, during, and after the change
from the year 1999 to each successive year through the year 2010, and Companies
have no basis to believe there will be any interruption in service in the future
attributable to such change.
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2.21 BENEFIT PLANS AND ERISA.
(a) Other than bonuses, commission formulae, sick leave and vacation
policies which are set forth on Schedule 2.15(a), no Company (directly or
indirectly) maintains or sponsors, nor has it ever (directly or indirectly)
maintained or sponsored, any "employee benefit plan" (as defined by Section
3(3) of the Employee Retirement Income Security Act of 1974, as amended
("ERISA"), but without regard to whether such plan is subject to ERISA), or
any other bonus, profit sharing, pension, compensation, deferred
compensation, stock option, stock purchase, fringe benefit, severance,
post-retirement, scholarship, disability, sick leave, vacation, individual
employment, commission, bonus, payroll practice, retention, or other plan,
agreement, policy, trust fund or arrangement for the benefit of (i) the
Company's directors or employees or any other person performing services
for the Company; (ii) the Company's former directors or former employees or
any other persons formerly performing services for the Company; and/or
(iii) beneficiaries or covered dependents of anyone described in (i) or
(ii) above (each such plan, agreement, policy, trust fund or arrangement is
referred to herein as an "Employee Benefit Plan").
(b) Other than an obligation to provide benefits arising in the
ordinary course pursuant to those Employee Benefit Plans set forth on
Schedule 2.15(a), none of the Companies has any liability for, under, with
respect to or otherwise in connection with any Employee Benefit Plan.
(c) PRGX shall not, as a result of the transactions contemplated by
this Agreement: (i) become liable for any contribution, tax, lien, penalty,
cost, interest, claim, loss, action, suit, damage, cost assessment or other
similar type of liability or expense of the Companies or any ERISA
Affiliate (including predecessors thereof) with regard to any Employee
Benefit Plan or any Employee Benefit Plan sponsored, maintained or
contributed to by an ERISA Affiliate (including predecessors thereof)
(assuming a like definition of "Employee Benefit Plan" were applicable to
ERISA Affiliates as to those same types of agreements, policies, trusts,
funds and arrangements sponsored, maintained or contributed to by them, and
each such plan for an ERISA Affiliate is referred to herein as an "ERISA
Affiliate Employee Benefit Plan"), including, without limitation withdrawal
liability arising under Title IV, Subtitle E, Part 1 of ERISA, liabilities
to the PBGC, liabilities under Section 412 of the Code or Section 302(a)(2)
of ERISA, or liabilities arising under the applicable requirements of Part
6 of Subtitle B of Title I of ERISA and Section 4980B of the Code, or (ii)
be or become a party to any Employee Benefit Plan or any ERISA Affiliate
Employee Benefit Plan. Without limiting any other provision of this Section
2.21, none of PRGX or any of the Companies shall have liability for, under,
with respect to or otherwise in connection with any Employee Benefit Plan,
including, without limitation, an ERISA Affiliate Employee Benefit Plan,
which liability arises under ERISA or the Code by virtue of any of the
Companies being aggregated in a controlled group or affiliated service
group with any ERISA Affiliate for purposes of ERISA or the Code at any
relevant time prior to the Closing Date.
(d) For purposes of this Agreement, the term "ERISA Affiliate" shall
mean, with respect to each Company, any trade or business, whether or not
incorporated, other than such Company, which has employees who are or have
been at any date of determination occurring within the preceding six (6)
years, treated pursuant to Section 4001(a)(14) of ERISA and/or Section 414
of the Code as employees of a single employer which includes such Company,
including, without limitation, HSA-Texas.
2.22 ENVIRONMENTAL COMPLIANCE. None of the Companies conducts its business
or has any material assets located in the United States.
2.23 LITIGATION; JUDGMENTS.
(a) Except as set forth on Schedule 2.23, there is no action, proceeding
or, to Shareholders' knowledge, investigation, by or before any Governmental
Entity pending or, to Shareholders' knowledge, threatened:
(i) that has been commenced by or against or involving any Company or
its business; or
(ii) that challenges, or may have the effect of preventing, delaying,
making illegal, or otherwise interfering with any of the transactions
contemplated in this Agreement or Shareholders' ability to
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consummate the transactions contemplated by this Agreement and the
Shareholders' Transaction Documents or which might give rise to a Material
Adverse Effect on any Company.
(b) No event has occurred and no circumstance exists that may give rise to
or serve as a basis for the commencement of any such any action, proceeding or
investigation described in Section 2.23(a).
(c) None of the Companies or Shareholders are subject to any judgment,
order or decree entered in any lawsuit or proceeding relating to any Company,
its assets or its business, nor has any such action been settled or resulted in
a final judgment since January 1, 2000.
2.24 INSURANCE. Schedule 2.24 contains a true, correct and complete list
of all of the insurance policies maintained by each Company, which schedule
includes the name of the insurance company, the policy number, a description of
the type of insurance covered by such policy, the dollar limit of the policy,
and the annual premiums for such policy, and the name and phone number of the
insurance agent in respect thereto. Each Company shall maintain such insurance
policies in full force and effect through the Closing Date. Except as set forth
on Schedule 2.24, (i) no claims are pending under the listed policies, nor do
Shareholders know of any basis therefor and (ii) there have been no settlement
of insurance claims since January 1, 2000.
2.25 IMMIGRATION MATTERS.
(a) Companies Employing Persons in the U.S. The only Persons who are
currently employees of the Companies in the United States (and the only Persons
who shall be so employed by the Companies in the United States as of the Closing
Date) are H. Schultz, A. Schultz, and L. Schultz, all of whom are citizens of
the United States.
(b) Companies Employing Persons Outside the U.S. With respect to each of
the Companies which employs persons outside the U.S., such Company is in
compliance with all Laws of any Governmental Entity relating to the employment
of persons who are not citizens of such jurisdiction.
2.26 BROKER'S FEES. No Company or Shareholder has retained or utilized the
services of any broker, finder or intermediary or paid or agreed to pay any fee
or commission to any other Person for or on account of the transactions
contemplated hereby, or had any communications with any Person with respect
thereto, which would obligate PRGX to pay any such fees or commissions.
2.27 ABSENCE OF MATERIAL CHANGES. Except as set forth in Schedule 2.27,
from December 31, 2000 to the date of this Agreement with respect to each
Company:
(a) there has not been any Material Adverse Effect;
(b) no Company has lost (or received written notice that it is about
to lose) any Key Clients or Key Clients with which any Company has
significant business relations;
(c) to the Shareholders' knowledge, no former senior manager (i.e., an
audit manager or higher) of any Company is currently competing with any
Company or planning to so compete;
(d) each Company has operated its business in its ordinary course and
has not sold, assigned, or transferred any of its assets except in the
ordinary course of business consistent with past practice;
(e) no Company has mortgaged, pledged or subjected to any lien,
pledge, mortgage, security interest, conditional sales contract, or other
encumbrance of any nature whatsoever, any of its assets;
(f) there has been no amendment, termination, or waiver of any right
of any Company under any contract, governmental license or permit that may
materially adversely affect the business or assets of such Company;
(g) No Company has:
(i) paid any judgment resulting from any suit, proceeding,
arbitration, claim or counterclaim in respect of its assets or business
in excess of $1,000 (provided that all such excluded payments do not
aggregate to more than $5,000);
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(ii) made any such payment to any party in settlement of any such
suit, proceeding, arbitration, claim or counterclaim in excess of $1,000
(provided that all such excluded payments do not aggregate to more than
$5,000);
(iii) written down, or failed to write down (in accordance with its
past practices consistently applied) or written up the value of any
inventory or assets of such Company;
(iv) made any material changes in the customary methods of
operation of its business, including practices and policies relating to
purchasing, marketing, selling, accounting, payment of trade creditors
or in the billing or collection of accounts receivable or work in
progress, including without limitation, discounting or writing off any
of Companies' accounts receivable or work in progress for early payment,
or granting any other deduction or discount thereon or accelerating the
collection thereof except in accordance with past practices consistently
applied;
(v) (except in respect of ordinary trade payables) incurred any
indebtedness or guaranteed any indebtedness, except for borrowings under
existing loans or lines of credit in the ordinary course of business
consistent with past practice;
(vi) taken any action other than in the ordinary course of business
and in a manner consistent with past practices (none of which actions
has been unreasonable or unusual) with respect to increasing the
compensation of any officer, director, consultant or employee of any
Company, paid bonuses to any consultant or employees (except for bonuses
earned in the ordinary course of business), or with respect to the grant
of any severance or termination pay (otherwise than pursuant to policies
of Companies in effect on the date hereof fully disclosed to PRGX in
writing prior to the date hereof) or with respect to any increase of
benefits payable under its severance or termination pay policies in
effect on the date hereof;
(vii) declared, set aside or paid any dividend or distribution
payable in cash, stock, property or otherwise with respect to any
Company's capital stock (except for distributions to Shareholders
consistent with past practices); or
(h) agreed, whether in writing or otherwise, to take any of the
actions specified in this Section 2.27.
2.28 CERTAIN ARRANGEMENTS.
(a) Schedule 2.28 is a true, correct and complete list as of the date
hereof and since December 31, 2000 of, any direct or indirect transaction, or
series of transactions, involving more than $60,000 per year, individually or in
the aggregate, (other than in respect of compensation or travel or expense
account reimbursement in the ordinary course of business consistent with past
practice) that any Shareholder, director, officer, employee, Associate or other
affiliate (for purposes of this Agreement, "affiliate" means any individual,
partnership, corporation, trust, joint venture or other entity controlled by,
controlling or under common control with any Company or any Shareholder) or any
relative of any Shareholder, director, officer, employee, Associate or other
affiliate (collectively, a "Related Party") has or had with any Company and
contains a brief description of each transaction, including without limitation:
(i) any oral or written contract, agreement, understanding, commitment
or other arrangement providing for the furnishing of services, or the sale
or rental of real or personal property from or otherwise requiring payments
to any such Related Party or to any affiliate or relative of such Related
Party;
(ii) any loans or advances to or from any Company (exclusive of travel
advances, expense advances, and normal salary advances in connection with
vacation periods, or compensation, or travel or expense account
reimbursement all in the ordinary course of business) to any such Related
Party or to any affiliate or relative of such Related Party, giving for
each the principal amount outstanding, interest rate, maturity date and
security therefor;
(iii) any direct or indirect interest in any property, real or
personal, tangible or intangible by any such Related Party or to any
affiliate or relative of such Related Party, including inventions, patents,
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copyrights, trademarks, or trade names, used in or pertaining to its
business, except for the normal rights of a shareholder; and
(iv) all services and overhead support provided by such Related Party
to any Company, describing the nature and value of such services and
support, the amount of all compensation, fees, commissions or other amounts
owed by or to the Related Party and a description of the relationship of,
and oral or written agreements or understandings between, any Company and
such Related Party in respect of such Related Party as a supplier or
customer to any Company.
(b) Except as set forth on Schedule 2.28, all services, overhead support
and other interests provided by Shareholder or any affiliate thereof to any
Company have been provided on a basis no more favorable to such Company than
could be obtained in an arms' length transaction.
(c) None of the Shareholders is engaged in competition with any Company
with respect to any line of the products or services of such Company (a
"Competing Business") in any market presently served by such Company. None of
the Shareholders use the services of any employee of any Company in any other
enterprise controlled by such Shareholder.
2.29 BANK ACCOUNTS. Schedule 2.29 contains a true, correct and complete
list showing the name and location of each bank or other institution in which
each Company has any deposit account, lock box or safe deposit box
(collectively, the "Bank Accounts"), together with a listing of all account
numbers and names of all persons authorized to draw thereon or have access
thereto.
2.30 NO UNLAWFUL PAYMENTS.
(a) None of the Companies nor, to Shareholders' knowledge any director,
officer, agent, employee, or other person associated with or acting on behalf of
any Company has, directly or indirectly:
(i) used any corporate funds for unlawful contributions, gifts,
entertainment, or other unlawful expenses relating to political activity;
(ii) made any unlawful payment to domestic or foreign government
officials or employees, or to domestic or foreign political parties or
campaigns, from corporate funds;
(iii) violated any provision of the Foreign Corrupt Practices Act of
1977, as amended;
(iv) established or maintained any unlawful or unrecorded fund of
corporate monies or other assets;
(v) made any false or fictitious entry on the books or records of any
Company;
(vi) made any bribe, rebate, payoff, influence payment, kickback, or
other unlawful payment;
(vii) given any favor or gift which is not deductible for federal
income tax purposes; or
(viii) made any bribe, kickback or other payment of a similar or
comparable nature, whether lawful or not, to any person or entity, private
or public, regardless of form, whether in money, property, or services, to
obtain favorable treatment in securing business or to obtain special
concessions, or to pay for favorable treatment for business secured or for
special concessions already obtained.
2.31 DISCLOSURE. The statements, representations and warranties made by
each Shareholder in this Agreement and in the Schedules do not contain any
untrue statement of a material fact or omit to state a material fact necessary
to make the statements contained herein or therein, in light of the
circumstances under which they were made, not misleading. No notice given
pursuant to Section 4.4 will contain any untrue statement or omit to state a
material fact necessary to make the statements therein or in this Agreement in
light of the circumstances in which they were made, not misleading. To
Shareholders' knowledge, there is no fact that has specific application to any
Company (other than general economic or industry conditions) and that has a
Material Adverse Effect or, as far as any Shareholder can reasonably foresee,
materially threatens to have a Material Adverse Effect that has not been set
forth in this Agreement or the Schedules hereto.
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ARTICLE III
REPRESENTATIONS AND WARRANTIES OF PRGX
As an inducement to the Shareholders to enter into this Agreement, PRGX
represents and warrants to the Shareholders as follows:
3.1 CORPORATE POWER AND AUTHORITY; DUE AUTHORIZATION. PRGX has full
corporate power and authority to execute and deliver this Stock Purchase
Agreement and each of the other agreements, documents and instruments referenced
in this Stock Purchase Agreement to which PRGX is or will be a party
(collectively, the "PRGX Transaction Documents") and to consummate the
Transaction contemplated hereby and thereby. The Board of Directors of PRGX has
duly approved and authorized the execution and delivery of this Agreement and
each of the PRGX Transaction Documents and the consummation of the Transaction
contemplated hereby and thereby, and no other corporate proceedings on the part
of PRGX are necessary to approve and authorize the execution and delivery of
this Agreement and such PRGX Transaction Documents and the consummation of the
Transaction contemplated hereby and thereby. Assuming that this Agreement and
each of the PRGX Transaction Documents constitutes a valid and binding agreement
of Shareholders, this Agreement and each of the PRGX Transaction Documents
constitutes, or will constitute when executed and delivered, a valid and binding
agreement of PRGX, enforceable against PRGX in accordance with its terms.
3.2 NO CONFLICT; CONSENTS. The execution and delivery by PRGX of this
Agreement, the PRGX Transaction Documents and the consummation by PRGX of the
Transaction contemplated hereby and thereby do not and will not (a) require,
other than the consent of PRGX's principal lenders (a bank syndicate led by Bank
of America, N.A.), the consent, approval or action of, or any filing or notice
to, any Person (defined in Section 4.4 hereof) except as disclosed on Schedule
3.2(a); (b) violate the terms of any instrument, document or agreement to which
PRGX is a party, or by which PRGX or the property of PRGX is bound, or be in
conflict with, result in a breach of or constitute (upon the giving of notice or
lapse of time, or both) a default under any such instrument, document or
agreement; (c) violate PRGX's Articles of Incorporation or Bylaws; or (d)
violate any order, writ, injunction, decree, judgment, ruling, law or regulation
of any Governmental Entity applicable to PRGX, or the business or assets of
PRGX.
3.3 BROKER'S FEES AND EXPENSES. PRGX has not retained or utilized the
services of any broker, finder, or intermediary or paid or agreed to pay any fee
or commission to any other Person for or on account of the Transaction
contemplated hereby, or had any communications with any Person which would
obligate Shareholders to pay any such fees or commissions.
ARTICLE IV
ADDITIONAL COVENANTS
4.1 DUE DILIGENCE REVIEW.
(a) Due Diligence. Prior to the Closing Date, PRGX, its counsel and
representatives, including KPMG LLP (collectively, the "PRGX Representatives")
shall have conducted such due diligence investigation of the Companies and the
Shareholders as PRGX shall determine. The Shareholders shall cause the Companies
to provide such persons full access during normal business hours to the offices,
properties, books, records, files and other documents and information regarding
the Companies' business, to the Companies' employees, independent contractors,
associates, officers, sales agents, project managers, contract service
providers, strategic partners, other representatives and customers and to all
materials, programs, data, reports, systems, practices, deliverables, and other
properties and assets and shall fully cooperate with PRGX and such persons and
provide full opportunity to said parties to make such investigation and copy
such documents as PRGX shall desire; provided, however, that (i) no information
with respect to any specific Clients will be required to be disclosed pursuant
to this Section prior to or in any manner other than as set forth in the
Schedules attached hereto (or to be attached hereto) in accordance with Section
2.11, Section 2.12 (with respect to information about Clients), or Section 2.14
hereof, (ii) no information with respect to trade secrets relating to
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technology and/or auditing methodologies of the Companies will be provided prior
to obtaining Shareholders' Representative consent, which consent will not be
unreasonably withheld, (iii) with respect to employees of the Companies, PRGX
will not communicate with such Persons without prior notice to Shareholders'
Representative and providing Shareholders' Representative an opportunity to be
present at any meetings with such employees, and (iv) with respect to
Associates, PRGX will not communicate with the Associates without obtaining the
consent of Shareholders' Representative, which will not be unreasonably
withheld. Such persons shall not contact employees or customers of any of the
Companies Shareholders' Representative's prior consent. No investigation of the
Companies by PRGX, its counsel and representatives, including the PRGX
Representatives, either prior to, on, or after the date hereof shall affect
PRGX's right to rely upon, or Shareholders' responsibility for the accuracy of
the representations and warranties of Shareholders made herein.
(b) Historical Statements. As soon as practicable after the date hereof but
in no event later than thirty days after the date of this Agreement.,
Shareholders, at their sole cost and expense, shall cause the chief financial
officer for each Company to prepare and provide to PRGX the following for each
Company:
(i) a separate, unaudited balance sheet (excluding the notes thereto)
prepared as of December 31, 2000, December 31, 1999, and December 31, 1998;
(ii) a separate, unaudited statements of operations, changes in
shareholders' equity and statements of cash flows for the years then ended,
including in each case, the notes thereto; and
(iii) a separate balance sheet and income statement as of June 30,
2001, for the period from January 1, 2001 through June 30, 2001 (items (i),
(ii) and (iii) are hereinafter collectively referred to as the "Historical
Statements").
(c) Interim Financials. Within twenty (20) days after the end of each
month beginning July 31, 2001, Shareholders, at their sole cost and expense,
shall cause the chief financial officer for each Company to prepare and provide
a separate balance sheet and income statement for each Company as of the end of
the preceding month (the "Interim Financials").
(d) Estimated Financials. On or before seven business days prior to the
Closing Date, Shareholders shall prepare in accordance with Section 4.1(e)
hereof, and PRGX and Shareholders' Representative shall agree upon for each
Company the following: (i) a separate, estimated balance sheet which includes a
detailed listing of the assets and liabilities of each Company prepared as of
the Effective Date (collectively, the "Estimated Balance Sheets"), (ii) a
separate, estimated income statement sheet which includes a detailed listing of
revenues, expenses and income of each Company for the period from January 1,
2001 through the Effective Date (collectively, the "Estimated Income
Statements"), and (iii) a separate, estimated statement of cash flows of each
Company for the period from January 1, 2001 through the Effective Date
(collectively, the "Estimated Statement of Cash Flows") (collectively, the
Estimated Balance Sheets, the Estimated Income Statement, the Estimated
Statements of Cash Flows, being the "Estimated Financials"), each of which
statements will contain with respect to any item which is not capable of
determination at Closing, a good faith estimate of such item as of the Effective
Date, and which shall, when delivered, be attached hereto as Schedule 4.1(d).
(e) Preparation of Estimated Financials. The Estimated Financials shall be
prepared in accordance with generally accepted accounting principles for
financial reporting in the United States ("GAAP") applied on a basis consistent
with the Historical Statements excluding the notes thereto, shall include the
same categories of assets and liabilities of the Companies as of the Effective
Date as were included on the December 31, 2000 balance sheet included in the
Historical Statements and the same items of revenues, expenses and income of the
Companies as of the Effective Date as were included on the income statement for
the year ended December 31, 2000 included in the Historical Statements, and
shall be consistent with each Company's past accounting practices and
procedures.
4.2 CONDUCT OF THE COMPANIES PENDING CLOSING DATE. Shareholders covenant
and agree that, unless PRGX shall otherwise consent in writing or as otherwise
specifically contemplated herein, between the date hereof and the Closing Date,
they shall cause: (i) each Company to be operated only in, and each Company
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shall not take any action except in, the ordinary course of its business and in
a manner consistent with such Company's past practices; and (ii) each Company to
use its best efforts to preserve substantially intact its business, to keep
available the services of its present officers, directors and employees, and to
preserve the present relationships of the each Company with its Clients and
other persons having business relationships with such Company. Shareholders
covenant and agree that between the date hereof and Closing, no Company shall
not materially diminish its assets or materially increase its liabilities
(except in the ordinary course of its business consistent with its past
practices). By way of amplification and not limitation, except as expressly
provided for in this Agreement, Shareholders covenant and agree that, between
the date hereof and the Closing, the Companies and Shareholders shall not,
directly or indirectly, do any of the following without the prior written
consent of PRGX, which consent will not be unreasonably withheld or delayed:
(a)(i) issue, sell, gift, pledge, transfer, dispose of, encumber,
authorize any shares of capital stock, or any options, warrants,
convertible securities or other rights of any kind to acquire any shares of
capital stock of, or any other ownership interest in, any of the Companies
(including the Shares); (ii) amend the Articles of Incorporation or By-Laws
or other organizational documents of any Company; (iii) split, combine or
reclassify any outstanding share of any Company's capital stock or other
ownership interest, or declare, set aside or pay any dividend or
distribution payable in cash, stock, property or otherwise with respect to
any Company's capital stock or other ownership interest (except
distributions from Australia and Canada to enable the Trust to pay its
federal taxes on the taxable income from such Companies' operations in the
ordinary course of the business for the period from and after January 1,
2001 up to the Closing Date, in each case consistent or with the Companies'
past practices and as disclosed to PRGX in writing in advance of payment as
more particularly set forth in Section 4.7(c) below), or (iv) redeem,
purchase or otherwise acquire any shares of any Company's capital stock or
other ownership interest other than for no consideration as provided in
Section 4.7 hereof;
(b)(i) acquire (by merger, consolidation, or acquisition of stock or
assets) any interest in any Person; (ii) except in the ordinary course of
business and in a manner consistent with past practices, sell, pledge,
dispose of, or encumber any assets of any Company; (iii) enter into any
material contract or agreement, except for Client Contracts entered into in
the ordinary course of business; or (iv) authorize or consummate any single
capital expenditure in excess of $100,000 or capital expenditures in the
aggregate in excess of $200,000;
(c) take any action other than in the ordinary course of business and
in a manner consistent with past practice, none of which actions shall be
unreasonable or unusual, to increase the compensation or other remuneration
of any officer, director, Shareholder or materially increase compensation
or remuneration to any shareholder (including Shareholders), employee,
independent contractor or consultant of any Company, pay any bonuses to any
officer, director, shareholder (including Shareholders), employee,
independent contractor or consultant (except for bonuses earned in the
ordinary course of business and disclosed to PRGX in writing in advance of
payment), or to grant any severance or termination pay (other than pursuant
to policies of the Companies in effect on the date hereof and fully
disclosed to PRGX in writing prior to the date hereof) or to grant any
increase of benefits payable under its severance or termination pay
policies in effect on the date hereof;
(d) make any payments except in the ordinary course of business and in
amounts and in a manner consistent with past practice (none of which
payments shall be unreasonable or unusual), under any employee benefit plan
or otherwise to any employee of, or Associate, independent contractor or
consultant to, any Company, enter into any employee benefit plan, any
employment or consulting agreement, grant or establish any new awards under
any such existing employee benefit plan or agreement, or adopt or otherwise
amend any of the foregoing;
(e) take any action except in the ordinary course of business and in a
manner consistent with past practice with respect to, or make any change
in, its methods of management, distribution, marketing, accounting or
operating (including practices relating to payment of trade accounts or to
other payments) or relating to establishing or adjusting reserves, writing
down or failing to write down (in accordance with its past practices
consistently applied) or writing up the value of any assets of any Company;
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(f) take any action or enter into any agreement or make any change in
the billing or collection of its accounts receivable and unbilled claims
(other than in the ordinary course of business and consistent with past
practices), including without limitation, discounting or writing off any of
the Companies' accounts receivable or work in progress, or granting any
other deduction or discount thereon or accelerating the collection thereof;
(g) take any action to incur, assume, increase or guarantee prior to
Closing any indebtedness for borrowed money from banks or other financial
institutions or cancel, without payment in full, any notes, loans or other
receivables;
(h) loan or advance monies to any Person under any circumstance
whatsoever except travel advances or other reasonable expense advances to
employees of any Company made in the ordinary course of business and
consistent with past practice;
(i) change any existing bank accounts or lock box arrangements of any
Company, except for deposits, withdrawals, or changes of signatories in the
ordinary course of business;
(j) waive any material rights of any Company or settle any material
claim involving any Company;
(k) sell, license, or otherwise dispose of any of its intellectual
property assets other than in the ordinary course of business consistent
with past practice;
(l) fail to make any Tax (defined in Section 4.7 hereof) filing or Tax
payment required to be made prior to the Closing Date;
(m) do any act or omit to do any act which would cause a breach of, or
inability to perform, any contract, commitment or obligation of any Company
or any Shareholder which breach has a Material Adverse Effect on any
Company or the ability of any Company or any Shareholder to perform its,
his or her obligations under this Agreement or any Shareholders'
Transaction Document; or
(n) enter into any agreement, contract, commitment or arrangement to
take any of the actions prohibited in this Section 4.2.
4.3 CONSENTS. Promptly after execution of this Stock Purchase Agreement,
Shareholders shall cause the Companies to apply for or otherwise seek, and use
the Companies' best efforts to obtain, all consents, releases and approvals
required from any Person with respect to the Companies and/or Shareholders for
consummation of the Transaction contemplated hereby (collectively, "Consents").
4.4 NOTIFICATION.
(a) Shareholders shall give prompt notice to PRGX of the following:
(i) The occurrence or nonoccurrence of any event of which any
Shareholder obtains knowledge, the occurrence or nonoccurrence of which
would be reasonably likely to cause either (A) a material breach of any
representation or warranty of any Shareholder contained in this Agreement
at any time from the date hereof to the Closing Date, or (B) directly or
indirectly, any Material Adverse Effect on any of the Companies. PRGX's
knowledge of any facts obtained by PRGX prior to the date hereof or
disclosed herein that may give rise after the date hereof to a Material
Adverse Effect on any of the Companies shall not affect whether or not a
Material Adverse Effect on any of the Companies shall have occurred; and/or
(ii) Any failure by any of the Shareholders to comply with or satisfy
any covenant, condition or agreement to be complied with or satisfied by it
hereunder.
(b) For purposes of this Agreement, "Material Adverse Effect" means with
respect to any Person, any change or effect that is materially adverse to the
financial condition, business results of operations, assets, or prospects of
such Person, taken as a whole. Notwithstanding the foregoing, the delivery of
any notice pursuant to this Section 4.4 shall not limit or otherwise affect the
remedies available hereunder of the Person upon receiving such notice. The
knowledge by a party to this Agreement of any facts obtained by such party prior
to the date hereof or disclosed herein that may give rise after the date hereof
to a Material Adverse Effect shall not affect whether or not a Material Adverse
Effect shall have occurred.
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4.5 PUBLIC ANNOUNCEMENTS; CONFIDENTIALITY.
(a) The parties hereto shall not make any public announcements, and the
terms and existence of this Stock Purchase Agreement shall remain confidential,
until such time as a public announcement is made regarding the Asset Purchase
Agreement in accordance with the terms of the Asset Purchase Agreement.
(b) Between the date of this Agreement and the Closing Date, PRGX and
Shareholders will maintain in confidence to maintain in confidence any written,
oral or other information obtained in confidence from any other party hereto in
connection with this Agreement or the transactions contemplated herein, unless
(i) such information is already known to such party or to others not bound by a
duty of confidentiality or such information becomes publicly available through
no fault of such party, (ii) or use of such information is necessary or
appropriate in making any filing or obtaining any consent or approval required
for the consummation of the transactions contemplated herein, or (iii) the
furnishing of such information is required by, or is necessary or appropriate in
connection with, legal proceedings or any statute, regulation or rule of any
Governmental Entity. The parties hereto will hold any information obtained
pursuant to this Agreement in confidence in accordance with, and shall otherwise
be subject to the Confidentiality Agreement between HSA-Texas and PRGX, which
Confidentiality Agreement shall continue in full force and effect. PRGX shall
cause its directors, officers, employees, agents, representatives and advisors,
and Shareholders shall cause the Companies' directors, officers, employees,
agents, representatives and advisors to observe the covenants of this Section
4.5(b).
4.6 TRANSFER OF SHARES HELD BY NOMINEE SHAREHOLDER.
(a) Prior to the Closing and effective as of the Closing Date, the
Shareholders shall cause Nominee Shareholder to convey its equity interest in
Singapore to Singapore in consideration of $100, unless ownership by Nominee
Shareholder is required by the laws of Singapore, in which case, the
Shareholders shall cause Nominee Shareholder prior to the Closing and effective
as of the Closing Date (i) to reduce its equity interest in Singapore to equal
the minimum amount required to be held by Nominee Shareholder to satisfy
Singapore law regarding resident ownership and (ii) enter into a written
agreement, in substantially the form attached hereto as Exhibit 4.6 ("Agreement
Regarding Nominee Shareholder"), confirming that Nominee Shareholder is holding
such equity interest solely to satisfy a requirement of Singapore law and that
Nominee Shareholder agrees to transfer its interest in Singapore to any designee
of PRGX, without consideration, upon written request by PRGX at any time, after
the Closing.
(b) Prior to Closing, Shareholders shall take all necessary action to
prevent Nominee Shareholder from transferring (directly or indirectly) any
interest it has in Singapore to any other Person other than a Shareholder
or Singapore.
4.7 TAX MATTERS.
(a) Definitions. As used in this Agreement, the following terms have the
specified meanings:
(i) "Flow-Through Taxes" shall mean U.S. federal income Taxes
attributable to income and gains of Companies until the Closing Date which
are payable by Shareholders pursuant to Section 1366 of the Code for Tax
years or partial Tax years for which Canada and Australia are S
corporations. The term "Flow-Through Taxes" shall also include any foreign,
state or local income Taxes attributable to income and gains of any of the
Companies which are payable by the Shareholders under principles comparable
to Section 1366 of the Code.
(ii) "Tax Authority" shall mean any federal, foreign, national, state,
county or municipal or other local government, any subdivision, agency,
commission or authority thereof, or any quasi-governmental body exercising
any taxing authority or any other authority exercising tax regulatory
authority.
(iii) "Tax Return" shall mean any return, amended return, estimated
return, information return, declaration, deposit, claim for refund or
statement (including any related or supporting information) filed or to be
filed with any Tax Authority in connection with the determination,
assessment, collection or administration of any Tax or filed by any
Company.
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(iv) "Tax" or "Taxes" shall mean all taxes, charges, fees, interest,
fines, penalties, additions to tax or other assessments, whether disputed
or not, including without limitation, income, excise, environmental,
property, sales, gross receipts, gains, transfer, occupation, privilege,
employment (including social security and unemployment), use, value added,
capital stock or surplus, franchise taxes, advance corporate tax and
customs duties imposed by any Tax Authority, payable by any Company or any
Shareholder, or relating to or chargeable against any Company's assets,
revenues or income and payable by any Company or any Shareholder.
(b) Tax Returns.
(i) Preparation and Filing of Tax Returns for Tax Periods Ending on or
Prior to the Effective Date. Shareholders shall prepare or cause to be
prepared, and file or cause to be filed, at the Shareholders' expense, all
Tax Returns required to be filed by the Companies and the Shareholders for
Tax periods which end on or prior to the Effective Date. Such Tax Returns
shall be prepared based on and consistent with tax accounting methods and
principles used by the Companies and Shareholders, as the case may be, in
preparing Tax Returns for prior Tax periods.
(ii) Preparation and Filing of the Companies' Income Tax Returns for
the Stub Period. Within ninety (90) days after the Closing Date,
Shareholders shall cause to be prepared (at the Shareholders' expense) and
delivered to PRGX for its review and approval, which approval shall not be
unreasonably withheld, conditioned or delayed, income Tax Returns for the
Companies required by any Tax Authority for the period beginning on January
1 and ending on the day prior to the Closing Date ("Stub Period"), which
Tax Return ("Stub Period Tax Returns") shall be prepared based on and
consistent with tax accounting methods and principles used by the Companies
in preparing Tax Returns for prior Tax periods for such Tax Authorities.
PRGX shall cooperate with the Shareholders in connection with Shareholders'
preparation of the Stub Period Tax Returns, and shall make available to
Shareholders such books, records and other information necessary for the
preparation of the Stub Period Tax Returns, as well as provide to
Shareholders the assistance and cooperation of the Companies' former
accounting personnel in connection therewith. Shareholders shall permit
PRGX to comment on the Stub Period Tax Returns prior to the filing thereof,
shall make such revisions thereto as are reasonably requested by PRGX, and
shall provide PRGX with a revised copy of the Stub Period Tax Returns
within 15 days of receipt of comments from PRGX. Thereafter, Shareholders
shall cause such Stub Period Tax Return to be timely filed incorporating
all revisions reasonably requested by PRGX pursuant to the immediately
preceding sentence. Shareholders shall be solely responsible for, and shall
pay, all Flow-Through Taxes attributable to the Stub Period.
(iii) Preparation and Filing of Tax Returns for Tax Periods Ending
After the Effective Date. Except for the Stub Period Tax Return described
in Section 4.7(b)(ii) hereof, PRGX shall prepare or cause to be prepared,
and file or cause to be filed, all Tax Returns required to be filed by the
Companies for Tax periods which end after the Effective Date.
(iv) Methods of Allocating Tax Liabilities. For purposes of this
Agreement, any Tax for any Tax period which begins before the Effective
Date and ends after the Effective Date (an "Overlap Tax Period") shall be
allocated as follows: The portion of such Tax which relates to the portion
of such Taxable period ending on the Effective Date shall (A) in the case
of any Taxes other than Taxes based upon or related to income or receipts,
be deemed to be an amount of such Tax for the total number of days in the
Overlap Tax Period multiplied by a fraction the numerator of which is the
number of days in the Taxable period ending on the Effective Date and the
denominator is the total number of days in the entire Overlap Tax Period,
and (B) in the case of any Tax based upon or related to income or receipts,
be deemed to be equal to the amount which would be payable if the relevant
Taxable period ended on the Effective Date. Any credits relating to a
Taxable period that begins before and ends after the Effective Date shall
be taken into account as though the relevant Taxable period ended on the
Effective Date. All determinations necessary to give effect to the
foregoing allocations shall be made in a manner consistent with the prior
practice of the Companies.
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(v) Cooperation of Parties. Except as otherwise provided in this
Agreement, the parties hereby agree that each of them shall cooperate with
the other in executing or causing to be executed any required document and
by making available to the other all work papers, records and notes of any
kind at all reasonable times for the purpose of allowing the appropriate
party to complete Tax Returns, participate in a proceeding, obtain refunds,
make any determination required under this Agreement or defend or prosecute
Tax claims.
(vi) Reorganization. Shareholders and PRGX hereby acknowledge and
agree that the Transaction shall be treated by the parties for all tax
purposes as (i) the acquisition by PRGX of the Shares solely for shares of
PRGX Common Stock, and (ii) as a tax-free reorganization under Section
368(a)(1)(B) of the Code and any other applicable laws. It is the intent of
the parties that this Agreement shall constitute a "plan of reorganization"
for purposes of Section 368(a) of the Code. The parties hereto shall use
their best efforts to cause the Transaction be recognized as a tax-free
reorganization under Section 368(a)(1)(B) of the Code and any other
applicable state or federal law.
(c) Certain Distributions to the Trust for Income Taxes. Prior to the
Closing Date, A. Schultz, in his capacity as trustee of the Trust, and PRGX
shall agree on a good faith estimate (the "Estimate") of the amount which
shall be distributed to the Trust by Canada and/or Australia (as
applicable) and to enable the Trust to pay its federal income taxes on the
taxable income from such Companies' operations in the ordinary course of
the business for the period from and after January 1, 2001 up to the
Closing Date (the "Sub-S Taxes"). The aggregate amount of such Estimate
shall be distributed by Canada and Australia (as applicable) on the day
immediately prior to the Closing Date. Within forty-five (45) days after
the Closing Date, the Trust and PRGX shall jointly determine whether the
Estimate was greater than or less than the amount actually owed by the
Trust for the Sub-S taxes. If the amount actually owed by the Trust for the
Sub-S Taxes is less than the Estimate, then the Trust shall immediately pay
to the applicable Company an amount equal to such surplus together with
accrued interest at the applicable Federal rate (the "Surplus"). The
payment due under the immediately preceding sentence shall not be subject
to the any limitations (including the Base Amount or the Cap provided for
in the Indemnification Agreement.) If the amount actually owed by the Trust
for Sub-S Taxes is greater than the Estimate, then the Trust shall pay such
shortfall at its sole cost and expense, and neither the Companies nor PRGX
shall have any liability or obligation therefor.
4.8 TRANSACTION EXPENSES. Except as otherwise specifically provided
herein, all of the expenses incurred by PRGX in connection with the
authorization, negotiation, preparation, execution and performance of this
Agreement and the consummation of the Transaction, including, without
limitation, all fees and expenses of agents, representatives, brokers, counsel
and accountants for PRGX shall be paid by PRGX ("PRGX Transaction Expenses").
Except as otherwise specifically provided herein, all expenses incurred by
Shareholders in connection with the authorization, negotiation, preparation,
execution and performance of this Agreement and the consummation of the
Transaction, including without limitation, all fees and expenses of agents,
representatives, brokers, counsel and accountants, shall be paid by Shareholders
("Shareholders' Transaction Expenses").
4.9 ACQUISITION OF INDEPENDENT CONTRACTOR STATUS. Prior to the Closing,
PRGX and Shareholders' Representative may agree upon a plan pursuant to which
each Company will negotiate with certain of its independent contractors to
accept a fixed amount, determined pursuant to a formula agreed to by PRGX and
Shareholders' Representative, payable on terms as agreed to by PRGX and
Shareholders' Representative (collectively, such obligations being the "Change
in Status Payments"), in exchange for such independent contractor's agreement to
change his status effective on the Closing Date from an independent contractor
to an employee PRGX (or one of its subsidiaries) paid at the then standard PRGX
compensation formula, subject to normal withholding and deductions.
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4.10 WAIVER OF CLAIMS.
(a) Waiver of Claims. Shareholders, on behalf of themselves and all of
their respective heirs, successors and assigns, do hereby remise, release,
acquit, satisfy and forever discharge each Company and all of each Company's
past, present and future officers, directors, employees, agents, attorneys,
representatives, participants, successors and assigns from any and all manner of
debts, accountings, bonds, warranties, representations, covenants, promises,
contracts, controversies, agreements, liabilities, obligations, expenses,
damages, judgments, executions, actions, claims, demands and causes of action of
any nature whatsoever, whether known or unknown, and whether at law or in
equity, either now accrued or hereafter maturing, which Shareholders now have or
hereafter can, shall or may have by reason of any matter, cause or thing, from
the beginning of the world to and including the date of this Agreement.
(b) Covenant Not to Sue. Shareholders, for themselves and all of their
respective heirs, successors and assigns, hereby covenant and agree never to
institute or cause to be instituted or continue prosecution of any suit or other
form of action or proceeding of any kind or nature whatsoever against any
Company, or any Company's past, present or future officers, directors,
employees, agents, attorneys, representatives, participants, heirs, successors
or assigns, by reason of or in connection with any of the foregoing matters,
claims or causes of action.
4.11 DELIVERY OF SCHEDULES. As soon as practicable but no later than
thirty (30) days after the date of this Agreement, Shareholders shall deliver to
PRGX all of the Schedules referenced in this Agreement (other than Schedule
3.2(a) which is to be delivered by PRGX).
4.12 REPAYMENT OF SHAREHOLDER LOANS. Effective upon the Closing,
Shareholders shall cause all of the shareholders of each Company (including
those other than the Shareholders) to repay in full all amounts owed by such
shareholders to any of the Companies.
4.13 RESIGNATIONS. Effective upon the Closing, each of the Shareholders
shall resign, and cause all other persons to resign, in writing from all offices
and directorships held by such Shareholder or other person in each of the
Companies.
ARTICLE V
CONDITIONS TO CLOSING
5.1 CONDITIONS TO EACH PARTY'S OBLIGATIONS. The respective obligations of
PRGX and Shareholders to consummate Transaction are subject to the satisfaction
or waiver, by both PRGX and Shareholders, on or prior to the Closing Date of all
of the following conditions:
(a) No Injunctions or Restraints, Illegality. No Laws shall have been
adopted or promulgated, and no temporary restraining order, preliminary or
permanent injunction or other order issued by any Governmental Entity of
competent jurisdiction shall be in effect, having the effect of making the
Transaction illegal or otherwise prohibiting consummation of such
Transaction. No action seeking such an order or injunction shall be pending
or threatened.
(b) Consents. Each of the consents and approvals that are described
on Schedule 3.2 shall have been duly obtained and shall be in full force
and effect on the Closing Date.
(c) Closing of Asset Purchase Agreement. Prior to or concurrently
with the Closing, the Asset Purchase Agreement shall have been consummated.
5.2 ADDITIONAL CONDITIONS TO OBLIGATIONS OF SHAREHOLDERS. The obligation
of Shareholders to consummate the Transaction is subject to the satisfaction, or
waiver by Shareholders' Representative, on or prior to the Closing Date of all
of the following additional conditions:
(a) Representations and Warranties. Each of the representations and
warranties of PRGX set forth in this Agreement shall be true and correct in
all material respects as of the date of this Agreement and as of the
Closing Date as though made on and as of the Closing Date (except to the
extent that such
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representations and warranties speak as of another date, in which case such
representations and warranties shall be true and correct as of such other
date), and Shareholders shall have received a certificate of a senior
executive officer or a senior financial officer of PRGX to such effect.
(b) Performance of Obligations of PRGX. PRGX shall have performed or
complied with all agreements and covenants required to be performed by it under
this Agreement at or prior to the Closing Date, and Shareholders shall have
received a certificate of a senior executive officer or a senior financial
officer of PRGX to such effect.
(c) Closing Deliveries. PRGX shall have delivered to Shareholders each of
the following in form and substance reasonably satisfactory to Shareholder's
Representative:
(i) the Consideration;
(ii) a certificate from the corporate secretary of PRGX certifying the
resolutions of the board of directors of PRGX authorizing and approving the
Transaction, certifying that the shareholders of PRGX have authorized and
approved the Transaction, and certifying the incumbency of the officers of
PRGX executing documents or instruments on behalf of PRGX; and
(iii) the Registration Rights Agreement, substantially in the form
attached hereto as Exhibit 5.2(c)(iii), duly executed by PRGX; and
(iv) any other documents or agreements, as reasonably requested
Shareholders' Representative, contemplated hereby and/or necessary to
consummate the Transaction contemplated hereby.
5.3 ADDITIONAL CONDITIONS TO OBLIGATIONS OF PRGX. The obligation of PRGX
to consummate the Transaction is subject to the satisfaction, or waiver by PRGX,
on or prior to the Closing Date all of the following additional conditions:
(a) Representations and Warranties. Each of the representations and
warranties of Shareholders and the Trust set forth in this Agreement
(including, without limitation, those representations and warranties that
are made as of the Effective Date), shall be true and correct in all
material respects as of the date of this Agreement, as of the Effective
Date (where appropriate) and as of the Closing Date as though made on and
as of the Closing Date (except to the extent that such representations and
warranties speak as of another date, in which case such representations and
warranties shall be true and correct as of such other date); and PRGX shall
have received a certificate of Shareholders' Representative to such effect,
together with a complete set of the Schedules and Revised Schedules as of
the Closing Date.
(b) Performance of Obligations of Shareholders. Shareholders shall
have performed or complied with all agreements and covenants required to be
performed by it under this Agreement at or prior to the Closing Date that
are qualified as to materiality or Material Adverse Effect, and
Shareholders shall have performed or complied in all material respects with
all other material agreements and covenants required to be performed by it
under this Agreement at or prior to the Closing Date that are not so
qualified, and PRGX shall have received a certificate of Shareholders'
Representative to such effect.
(c) Closing Deliveries. At the Closing, Shareholders shall have
delivered to PRGX each of the following in form and substance reasonably
satisfactory to PRGX:
(i) the original certificates representing the Shares, free and
clear of any Share Encumbrances, duly endorsed for transfer to PRGX;
(ii) each Company's original minute book which shall contain
minutes and consents of all Board and shareholders' actions and
meetings, cancelled stock certificates of all previously issued, but no
longer outstanding, stock certificates of such Company, copies of the
organizational documents of each Company and any amendments thereto, and
the stock ledger with all issued or previously issued stock certificates
accounted for.
(iii) a certificate of good standing, or equivalent certificate,
for each Company, dated no more than fifteen (15) days prior to the
Closing Date, issued by the Secretary of State, or equivalent
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authority, for each jurisdiction in which each Company is organized and
from each jurisdiction in which each Company conducts business;
(iv) a certificate duly executed and delivered by Shareholders'
Representative certifying which (if any) shares held by Nominee
Shareholders have been redeemed by any of the Companies (the form of
such certificate being attached hereto as Exhibit 5.3(c)(iv)) and the
Agreement Regarding Nominee Shareholders duly executed and delivered by
each Nominee Shareholder whose shares have not been so redeemed by a
Company;
(v) an affidavit, duly executed and delivered by the chief
executive officers of Asia, Thailand and Singapore certifying that such
Companies are not United States real property holding corporations; and
(vi) any other documents or agreements, as reasonably requested by
PRGX, contemplated hereby and/or necessary to consummate the
Transaction.
(d) No Investigations of the Companies. As of the Closing Date, there
shall be no pending or threatened investigation by any Governmental Entity
of any Company which in the reasonable judgment of PRGX would have a
Material Adverse Effect on such Company.
(e) No Material Adverse Effect. Since December 31, 2000, no Company
shall have been subject to a Material Adverse Effect.
(f) Revised Schedules. Shareholders shall have provided PRGX with
revised Schedules dated as of the Closing Date (collectively, the "Revised
Schedules"), with all changes through such date duly noted thereon,
provided however, that in the event the Revised Schedules contain any
disclosure or change which (i) should have been but was not shown on the
Schedules attached hereto at the date hereof, or (ii) individually or in
the aggregate is material to any warranty or representation contained
herein, or (iii) arose outside the ordinary course of business, the
condition contained in this Section shall be deemed unsatisfied unless PRGX
has agreed in writing to such disclosures or changes.
(g) Repayment of Shareholder Loans. Each shareholder of the Companies
including the Shareholders, shall have repaid in full at or prior to the
Closing all amounts owed by such shareholder to any of the Companies.
ARTICLE VI
INDEMNIFICATION; SURVIVAL
6.1 INDEMNIFICATION BY SHAREHOLDERS AND THE COMPANIES. In addition to any
other indemnification obligation of Shareholders under any other provision
hereof, H. Schultz and A. Schultz, jointly and severally, and the Trust,
severally (together with each of the Companies solely for indemnification claims
asserted by PRGX prior to the Closing) indemnifies and holds PRGX, and its
subsidiaries, affiliates, directors, officers, employees and agents
(collectively, the "PRGX Indemnified Parties"), harmless from and against all
claims, liabilities, lawsuits, costs, damages or expenses (together with
reasonable attorneys' fees and expenses incurred in litigation or otherwise are
hereinafter collectively referred to as "Losses") arising out of and sustained
by any of the PRGX Indemnified Parties due to or relating to, the following
(collectively, "Section 6.1 Indemnified Claims"):
(a) any misrepresentation or breach of any representation or warranty,
or breach, nonfulfillment of, or failure to perform, any covenant,
obligation or agreement of any Shareholder contained in this Agreement or
any of the Shareholders' Transaction Documents; and/or
(b) any liability or obligation suffered by the PRGX Indemnified
Parties (whether or not the existence or assertion of such liability or
obligation would constitute a breach of any representation, warranty,
covenant, obligation or agreement contained in this Agreement or in any
Shareholder Transaction Document) relating to or arising out of the (x)
operation of the business of any Company or
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the ownership or use of the assets of any Company prior to the Closing Date
and was not specifically disclosed herein or the Schedules; and/or
(c) the treatment, as employees, for any period prior to the Closing
Date, by any Governmental Entity, including any Tax Authority, of any
Associates, auditors, consultants or other service providers whom any
Company treated for such period as independent contractors, and not as
employees, and for any liability, foreign, federal, state or local taxes,
including any withholding for any state, federal or foreign income tax,
FICA or FUTA amounts, state, federal or foreign unemployment insurance
contributions, payments in respect of workers' compensation insurance, the
provision of benefits under the Employee Benefit Plans, or payments under
The Fair Labor Standards Act or regulations promulgated thereunder; and/or
(d) any failure by any Company to obtain prior to Closing any required
consent to the Transactions; and/or
(e) the amount in excess of $100,000 of any Vendor Payback (less any
payback reserve applicable) in respect of any Inactive Audit provided the
aggregate Vendor Payback to such Client is in excess of $350,000; and/or
(f) all severance liabilities or obligations, if any, to all employees
and all Associates of any Company who voluntarily resign employment within
9 30 days after the Closing Date; and/or
(g) any litigation, arbitrations and mediations that existed on or at
any time prior to the Effective Date; and/or
(h) any Surplus due pursuant to Section 4.7(c).
6.2 INDEMNIFICATION BY PRGX. In addition to any other indemnification
obligation of PRGX hereunder, PRGX hereby indemnifies and holds each Shareholder
harmless from and against all Losses arising out of and sustained by any of them
due to or relating to (a) any misrepresentation or breach of any representation,
warranty, covenant or agreement of PRGX in this Agreement or any of the PRGX
Transaction Documents; and (b) any liability or obligation incurred by any
Shareholder relating to the operation or ownership of any Company by PRGX, or
the ownership or use of and Company's assets by PRGX, from and after the
Effective Date, other than Section 7.1 Indemnified Claims (collectively,
"Section 6.2 Indemnified Claims").
6.3 PROCEDURE REGARDING INDEMNIFICATION. All claims for indemnification
under this Stock Purchase Agreement (including, without limitation, the
procedures for indemnification, the survival period and certain limitations on
indemnification) shall be governed exclusively by the Indemnification Agreement.
ARTICLE VII
TERMINATION AND AMENDMENT
7.1 ELECTIVE TERMINATION. This Agreement may be terminated at any time
before the Closing Date as follows:
(a) by mutual written consent of Shareholders' Representative and
PRGX;
(b) by either Shareholders' Representative or PRGX if the Transaction
has not been consummated on or before March 31, 2002 ("Termination Date")
provided that the party seeking to exercise the right to terminate this
Agreement under this Section 7.1(b) is not then in breach in any material
respect of any of its representations, warranties, covenants or other
agreements under this Agreement;
(c) by either PRGX or Shareholders' Representative, if any
Governmental Entity of competent jurisdiction (i) shall have issued an
order, decree or ruling or taken any other action (which the parties shall
have used their reasonable best efforts to resist, resolve or lift, as
applicable) permanently restraining, enjoining or otherwise prohibiting the
Transaction, and such order, decree, ruling or other action shall have
become final and non-appealable, or (ii) shall have failed to issue an
order, decree or ruling or to take any other action, and such denial of a
request to issue such order, decree or ruling or to
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take such other action shall have become final and non-appealable (which
order, decree, ruling or other action the parties shall have used their
reasonable best efforts to obtain); or
(d) by Shareholders' Representative, if PRGX shall have materially
breached its representations or warranties contained in this Agreement or
failed to perform in any material respect any of its covenants or other
agreements contained in this Agreement, which breach would result in the
failure to satisfy the conditions set forth in Sections 5.2(a) and (b)
hereof, and in such case, such breach is incapable of being cured, or, if
capable of being cured, shall not have been cured on or before the
Termination Date and within 10 days after written notice thereof shall have
been received by PRGX provided that none of the Shareholders are then in
breach in any material respect of any of its representations, warranties,
covenants or other agreements under this Agreement;
(e) by PRGX, (i) if any of the Shareholders shall have materially
breached its representations or warranties contained in this Agreement or
failed to perform in any material respect any covenants or other agreements
contained in this Agreement, which breach would result in the failure to
satisfy the conditions set forth in Sections 5.3(a) and (b) hereof and in
any such case such breach is incapable of being cured, or if capable of
being cured, shall not have been cured on or before the Termination Date
and within 10 days after written notice thereof shall have been received by
Shareholders' Representative; or (ii) upon the occurrence of an event or
development that has a Material Adverse Effect on any of the Companies,
regardless of whether the conditions set forth in Section 8.3(a) and (b)
are capable of being satisfied on or before the Termination Date, in either
case, provided PRGX is not then in breach in any material respect of any of
its representations, warranties, covenants or other agreements under this
Agreement; or
(f) by PRGX, within 30 days after receipt of all of the Schedules as
provided in Section 4.11; or
(g) notwithstanding anything in Section 7.1 to the contrary, by PRGX
or Shareholders' Representative, if PRGX has not received the bank consent
described in Section 3.2(a) hereof on or before March 31, 2002.
7.2 AUTOMATIC TERMINATION. This Agreement shall automatically terminate
upon the termination of the Asset Purchase Agreement.
7.3 EFFECT OF TERMINATION. If this Agreement is terminated by either PRGX
or Shareholders' Representative as provided in Section 7.1 or Section 7.2
hereof, this Agreement shall forthwith become void and have no further effect,
without any liability or obligation on the part of PRGX (its shareholders,
officers or directors) and Shareholders, other than with respect to the
provisions of Section 9.2 of the Asset Purchase Agreement which will govern all
payments between the parties as a result of such termination.
ARTICLE VIII
SHAREHOLDERS' REPRESENTATIVE
8.1 IRREVOCABLE APPOINTMENT OF SHAREHOLDERS' REPRESENTATIVE. By the
execution and delivery of this Agreement, including counterparts hereof, each
Shareholder hereby irrevocably constitutes and appoints H. Schultz, and any
successor to the foregoing person appointed pursuant to Section 8.3 hereof, as
the true and lawful agent and attorney-in-fact (referred to in this Agreement as
the "Shareholders' Representative") of such Shareholder with full power of
substitution and with full power and authority to act in the name, place and
stead of such Shareholder with respect to the terms and provisions of this
Section 8.1, as the same may be from time to time amended, and to do or refrain
from doing all such further acts and things, and to execute all such documents,
as the Shareholders' Representative shall deem necessary or appropriate in
connection with the following powers granted under this Section 8.1:
(a) to approve any action hereunder which requires the consent,
approval or the waiver of the Shareholders, including, without limitation,
any action under Section 7.1 hereof;
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(b) to settle all claims, matters, disputes or disagreements under
this Agreement and the Indemnification Agreement; and
(c) to extend the Closing Date or change the location of the Closing.
8.2 ACTS OF SHAREHOLDERS' REPRESENTATIVE.
(a) The appointment of the Shareholders' Representative in Section 8.1
hereof shall be deemed coupled with an interest and shall be irrevocable, and
PRGX and any other Person may conclusively and absolutely rely, without inquiry,
upon any action of the Shareholders' Representative as the act of each of the
Shareholders in all matters referred to in Section 8.1 hereof. Each Shareholder
hereby ratifies and confirms all that the Shareholders' Representative shall do
or cause to be done by virtue of Shareholders' Representative's appointment as
Shareholders' Representative of such Shareholder. The Shareholders'
Representative shall act for the Shareholders on all of the matters set forth in
Section 8.1 hereof in the manner the Shareholders' Representative believes to be
in the best interest of the Shareholders and consistent with Shareholders'
Representative's obligations under this Agreement, but the Shareholders'
Representative shall not be responsible to any Shareholder for any loss or
damage any Shareholder may suffer by reason of the performance by the
Shareholders' Representative of Shareholders' Representative's duties under this
Agreement, including any loss or damage resulting from any error of judgment,
mistake of fact or law, or any act done or omitted to be done in good faith,
other than loss or damage arising from willful violation of law or gross
negligence in the performance of Shareholders' Representative's duties under
this Agreement.
(b) Each Shareholder hereby expressly acknowledges and agrees that the
Shareholders' Representative is authorized to act on behalf of such Shareholder
notwithstanding any dispute or disagreement among the Shareholders, and that the
PRGX shall be entitled to rely on any and all action taken by the Shareholders'
Representative under this Agreement without liability to, or obligation to
inquire of, any of the Shareholders. PRGX is hereby expressly authorized to rely
on the authority and genuineness of the signature of the Shareholders'
Representative on any instrument, certificate or document. Upon receipt of any
writing which reasonably appears to have been signed by the Shareholders'
Representative, PRGX may act upon the same without any further duty of inquiry
as to the genuineness of the writing.
8.3 REPLACEMENT OF SHAREHOLDERS' REPRESENTATIVE. If the Shareholders'
Representative resigns or ceases to function in Shareholders' Representative's
capacity for any reason whatsoever, then A. Schultz shall become the Shareholder
Representative and if A. Schultz shall cease to serve, then a
majority-in-interest of the Shareholders shall appoint a successor; provided,
however, that, if for any reason no successor has been appointed within thirty
(30) days, then any Shareholder or PRGX shall have the right to petition a court
of competent jurisdiction for appointment of a successor. A
"majority-in-interest" means those Shareholders entitled to receive a majority
of the Consideration under this Agreement.
8.4 INDEMNIFICATION OF SHAREHOLDERS' REPRESENTATIVE. Shareholders do
hereby jointly and severally agree to indemnify and hold the Shareholders'
Representative harmless from and against any and all liability, loss, cost,
damage or expense (including without limitation fees and expenses of legal
counsel) reasonably incurred or suffered as a result of the performance of
Shareholders' Representative's duties under this Agreement except for actions
constituting gross negligence or willful misconduct.
8.5 PROOF OF AUTHORITY. Each Shareholder shall execute and deliver to the
Shareholders' Representative such further documents requested by the
Shareholders' Representative, if any, as may be necessary to the efficient proof
of his authority to act and to exercise the powers granted the Shareholders'
Representative under this Article VIII.
8.6 SURVIVABILITY OF POWER. EACH SHAREHOLDER INTENDS FOR THE
AUTHORIZATIONS AND AGREEMENTS IN THIS ARTICLE VIII TO REMAIN IN FORCE AND NOT BE
AFFECTED IF SUCH SHAREHOLDER SUBSEQUENTLY BECOMES MENTALLY OR PHYSICALLY
DISABLED OR INCOMPETENT.
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ARTICLE IX
GENERAL PROVISIONS
9.1 SEVERABILITY. If any provision of this Agreement is prohibited by the
laws of any jurisdiction as those laws apply to this Agreement, that provision
shall be ineffective to the extent of such prohibition and/or shall be modified
to conform with such laws, without invalidating the remaining provisions hereto.
9.2 AMENDMENT; MODIFICATION; EXTENSION; WAIVER.
(a) This Agreement may not be amended except by an instrument in writing
signed on behalf of each of the parties hereto. No party to this Agreement is
obligated to execute any amendments to this Agreement.
(b) At any time prior to the Closing, the parties may (a) extend the time
for the performance of any of the obligations or other acts of the other
parties, (b) waive any inaccuracies in the representations and warranties
contained in this Agreement or in any document delivered pursuant to this
Agreement or (c) waive compliance with any of the agreements or conditions
contained in this Agreement. Any such extension or waiver shall be valid only if
set forth in an instrument in writing signed by each of the parties hereto. No
failure or delay by any party in exercising any right, power or privilege
hereunder shall operate as a waiver thereof nor shall any single or partial
exercise thereof preclude any other or further exercise thereof or the exercise
of any other right, power or privilege. The rights and remedies herein provided
shall be cumulative and not exclusive of any rights or remedies provided by law.
9.3 ASSIGNMENT, SURVIVAL AND BINDING AGREEMENT. This Agreement (a) may not
be assigned by PRGX on or prior to the Closing without the prior written
Shareholders' Representative (except for an assignment to a wholly owned
subsidiary of PRGX, which may be made without the prior consent of, but with
notice to, Shareholders' Representative provided that, in such event, the
assignor shall remain obligated hereunder in the same manner as if such
assignment had not been effected); (b) may not be assigned by PRGX after the
Closing without the prior written consent of Shareholders' Representative,
except for (i) an assignment to an affiliate of PRGX, which may be made without
the prior consent of, but with notice to, Shareholders' Representative; provided
that, in such event, the assignor shall remain obligated hereunder in the same
manner as if such assignment had not been effected, and (ii) in the event of a
merger, consolidation, reorganization or similar transaction of PRGX with a
Person where such other Person is the surviving entity of such transaction, this
Agreement may be assigned by PRGX without the prior written consent of, but with
notice to, Shareholders' Representative; and (c) may not be assigned by any of
the Shareholders at any time, without the prior written consent of PRGX (which
consent may be granted or withheld in its sole discretion). The terms and
conditions of this Agreement shall inure to the benefit of and be binding upon
the parties hereto and their respective heirs, personal representatives,
successors and assigns.
9.4 COUNTERPARTS. This Agreement may be executed in two or more
counterparts, each of which shall be deemed an original, but all of which
together shall constitute one and the same instrument.
9.5 NOTICES. All notices, requests, demands, claims or other
communications hereunder will be in writing and shall be deemed duly given if
personally delivered, sent by telefax, sent by a recognized overnight delivery
service which guarantees next-day delivery ("Overnight Delivery") or mailed by
certified mail, return receipt requested, postage prepaid and addressed to the
intended recipient, as set forth below:
If to any of the
Shareholders
or Companies: Howard Schultz & Associates International, Inc.
9241 LBJ Freeway
Dallas, TX 75243
Attention: Mr. Howard Schultz
Telefax: (972) 690-7584
with a copy to: Malouf Lynch Jackson & Swinson
600 Preston Commons East
8115 Preston Road
B-30
279
Dallas, TX 75225
Attention: Curtis Swinson, Esq.
Telefax: (214) 273-0567
with a copy to: Howard Schultz & Associates International, Inc.
9241 LBJ Freeway
Dallas, TX 75243
Attention: Michael Glazer, Esq.
Telefax: (972) 690-7584
If to PRGX: The Profit Recovery Group International, Inc.
2300 Windy Ridge Parkway
Suite 100 North
Atlanta, GA 30339-8426
Attention: Clinton McKellar, Jr.
Senior Vice President & General Counsel
Telefax: (770) 779-3034
with a copy to: Arnall Golden Gregory LLP
1201 West Peachtree Street, Suite 2800
Atlanta, Georgia 30309-3400
Attention: Jonathan Golden, Esq.
Telefax: (404) 873-8701
or at such other address as any party hereto notifies the other parties hereof
in writing. The parties hereto agree that notices or other communications that
are sent in accordance herewith (i) by personal delivery or telefax, will be
deemed received on the day sent or on the first business day thereafter if not
sent on a business day (with written confirmation of receipt), (ii) by Overnight
Delivery, will be deemed received on the first business day immediately
following the date sent, and (iii) by certified U.S. Mail, return receipt
requested, will be deemed received three (3) business days immediately following
the date sent. For purposes of this Agreement, a "business day" is a day on
which U.S. national banks are open for business and shall not include a Saturday
or Sunday or legal holiday. Notwithstanding anything to the contrary in this
Agreement, no action shall be required of the parties hereto except on a
business day and in the event an action is required on a day which is not a
business day, such action shall be required to be performed on the next
succeeding day which is a business day.
9.6 ENTIRE AGREEMENT; NO THIRD PARTY BENEFICIARIES. Except for the
Nondisclosure Agreement, which remains in full force and effect in accordance
with the terms thereof, this Agreement, together with the Exhibits and
Schedules, constitutes the entire agreement and supersedes any and all other
prior agreements and undertakings, both written and oral, among the parties, or
any of them, with respect to the subject matter hereof and, except as otherwise
expressly provided herein, is not intended to confer upon any Person, other than
PRGX and the Shareholders, any rights or remedies hereunder.
9.7 FURTHER ASSURANCES. The parties to this Agreement agree to execute and
deliver, both before and after the Closing, any additional information or
documents or agreements contemplated hereby and/or necessary or appropriate to
effect and consummate the transactions contemplated hereby. Shareholders and
Companies agree to provide to PRGX, both before and after the Closing, such
information as PRGX may reasonably request in order to consummate the
transactions contemplated hereby and to effect an orderly transition of the
business following the Closing Date.
9.8 CHOICE OF LAW. This Agreement and all documents executed in connection
therewith shall be governed by, and construed in accordance with, the laws of
the State of Georgia, regardless of the laws that might otherwise govern under
applicable principles of conflict of laws thereof.
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9.9 CONSENT TO JURISDICTION. Each of the parties hereto (a) consents to
submit itself to the personal jurisdiction of any federal court located in the
Northern District of Georgia or, if there is not a basis for federal court
jurisdiction, a Superior Court of Cobb County, Georgia in the event any dispute
arises out of this Agreement or any of the transactions contemplated by this
Agreement, (b) agrees that it will not attempt to deny or defeat such personal
jurisdiction by motion or other request for leave from any such court, and (c)
agrees that it will not bring any action relating to this Agreement or any of
the transactions contemplated by this Agreement in any court other than a
federal court sitting in the Northern District of Georgia or a Cobb County
Superior Court.
9.10 DISPUTE RESOLUTION.
(a) Financial Matters. Notwithstanding any provision of this Agreement to
the contrary, all disputes, controversies or claims arising out of or relating
to this Agreement or the transactions contemplated hereby relating to financial
matters shall be resolved by agreement among the parties, or, if not so resolved
within forty-five (45) days following written notice of dispute given by either
party hereto to the other, by arbitration in accordance with Title 9 of the
United States Code (the United States Arbitration Act), the Commercial
Arbitration Rules of the American Arbitration Association, and its Optional
Rules for Emergency Measures of Protection (the "Optional Rules"), all as
amended from time to time (collectively, the "Rules") and the provisions of this
Section; provided, however, that the provisions of this Section shall prevail in
the event of any conflict with such Rules. The parties agree that they shall use
their best efforts to cause the matter to be presented to the arbitral tribunal
as soon as possible in light of the complexity of the dispute. The arbitral
tribunal, except as provided under the Optional Rules, shall consist of three
neutral arbitrators experienced in the industry related to the dispute, one of
whom shall be chosen by the claimant and one chosen by respondent, and the two
so chosen shall choose the third arbitrator who shall act as chairperson. The
parties shall be entitled to engage in discovery in connection with arbitration,
which discovery shall be conducted in accordance with Georgia rules of Civil
Procedure and Evidence. Additionally, there shall be no evidence by affidavit
allowed, and each party shall disclose a list of all documentary evidence to be
used, a list of all witnesses and experts to be called by the party at least
twenty (20) days prior to the arbitration hearing. The decision of a majority of
the arbitration panel with respect to the matters referred to them pursuant
hereto shall be final and binding upon the parties to the dispute, and
confirmation and enforcement thereof may be rendered thereon by any court having
jurisdiction upon application of any Person who is a party to the arbitration
proceeding. The arbitral tribunal shall assess fees, expenses, compensation, and
attorney's fees in the award as provided in the Rules. The arbitral tribunal
shall have no power or authority under this Agreement or otherwise to award or
provide for the award of punitive or consequential damages against any party.
Any arbitration shall be conducted in Atlanta, Georgia.
(b) Other Matters. Notwithstanding any provision of this Agreement to the
contrary, in respect of all disputes, controversies or claims arising out of or
relating to this Agreement or the transactions contemplated relating to any
matters other than financial matters the parties may exercise any and all rights
and remedies available at law or in equity. Without limiting the generality of
the foregoing, in the event of a breach or threatened breach by any party hereto
of any of its covenants or other obligations hereunder, including, without
limitation, the parties' respective obligations to close the transactions
contemplated hereby, each of the parties hereby consents and agrees that the
non-breaching party shall be entitled to an injunction or similar equitable
relief restraining the breaching party(s) from committing or continuing any such
breach or threatened breach or granting specific performance of any act required
to be performed by the breaching party(s) under any such provision, without the
necessity of showing any actual damage or that money damages would not afford an
adequate remedy and without the necessity of posting any bond or other security.
The right of the non-breaching party to injunctive relief shall be in addition
to any and all other remedies available to it and shall not be construed to
prevent it from pursuing, either consecutively or concurrently, any and all
other legal or equitable remedies available to them including the recovery of
monetary damages.
9.11 SCHEDULES, REVISED SCHEDULES AND EXHIBITS. All Schedules, Revised
Schedules and Exhibits referenced in this Agreement shall be deemed to be a part
of this Agreement. All Schedules delivered to PRGX in connection with this
Agreement shall be updated prior to the Closing so as to be true, correct and
complete as of the Effective Date, shall be "brought-down" as of the Closing
Date, and shall, when delivered,
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be accompanied by a certificate of a duly authorized officer of the applicable
Company certifying that they are delivered pursuant to the applicable Section of
this Agreement, as referenced in such certificate, and shall, when delivered, be
attached to this Agreement and for all intents and purposes, be deemed Schedules
hereto. All Schedules and Revised Schedules shall be arranged in paragraphs
corresponding to the lettered and numbered paragraphs contained in applicable
Article hereof and shall provide information thereon separately in respect of
each Company, as applicable.
9.12 DEFINITION OF SHAREHOLDERS' KNOWLEDGE. As used herein, the terms "to
the Shareholders' knowledge" "and words of similar import shall mean the actual
knowledge after reasonable investigation of the following individuals on the
date hereof and on the Closing Date: H. Schultz, A. Schultz, Charles Schembri,
Mac Martirossian and Michael Glazer.
9.13 RELIANCE. Each party hereto acknowledges and represents (i) that this
Agreement is executed without reliance on any agreement, promise, statement, or
representation by or on behalf of any person, except as set forth specifically
herein or in the Shareholders' Transaction Documents and/or the PRGX Transaction
Documents or referred to herein or therein, (ii) that no person, and no agent or
attorney of any person, has made any promises, representations, or warranties
whatsoever, whether expressed or implied, which are not expressly contained
herein, and (iii) that he or its authorized officer has read this Agreement and
is fully aware of its contents and legal effect.
9.14 MARITAL PROPERTY RIGHTS. The Persons signing in their individual
capacities below, whether as a party or as a "spouse" of a party, acknowledge
and agree that: (i) each is individually joining in and assenting to this
Agreement, (ii) each consents to and approves of the transactions contemplated
by this Agreement, and (iii) each intends individually to be legally bound by
this Agreement and each of the Shareholders' Transaction Documents to which such
individual or his or her spouse is a party (the "Transaction Agreements"). Each
such individual Person also acknowledges that he or she will directly and
personally benefit from the transactions contemplated by the Transaction
Agreements to which such individual or his or her spouse is a party, that he or
she has had an opportunity to review all such agreements and consult with
independent legal counsel, and that PRGX is entering into this Agreement and the
PRGX Transaction Documents in reliance upon the agreements set forth in this
paragraph.
9.15 SECTION HEADINGS; CONSTRUCTION. The headings of Sections in this
Agreement are provided for convenience only and will not affect its construction
or interpretation. Unless otherwise expressly provided, all references to
"Section" or "Sections" refer to the corresponding Section or Sections of this
Agreement. All words used in this Agreement will be construed to be of such
gender or number as the circumstances require. Unless otherwise expressly
provided, the word "including" does not limit the preceding words or terms.
9.16 REQUIREMENT FOR AFFIRMATION. Notwithstanding anything to the contrary
contained herein, neither this Agreement nor any provision hereof shall be
binding upon any Shareholder unless and until such Shareholder shall have
provided to PRGX a written affirmation of this Agreement, executed and dated
subsequent to the receipt by such Shareholder of the final prospectus utilized
by PRGX in connection with its issuance of the PRGX Common Stock pursuant to
this Agreement.
IN WITNESS WHEREOF, the parties have executed this Agreement as of the day
and year first hereof written.
PRGX:
THE PROFIT RECOVERY GROUP
INTERNATIONAL, INC
By: /s/ JOHN M. COOK
------------------------------------
John M. Cook
Chairman of the Board and
Chief Executive Officer
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SHAREHOLDERS:
/s/ HOWARD SCHULTZ
--------------------------------------
Howard Schultz
/s/ LESLIE SCHULTZ
--------------------------------------
Leslie Schultz, signing solely for the
purpose of
acknowledging the provisions of
Section 9.14 hereof
/s/ ANDREW H. SCHULTZ
--------------------------------------
Andrew H. Schultz
Andrew H. Schultz Irrevocable Trust
u/a dated May 1, 1997
By: /s/ ANDREW H. SCHULTZ
------------------------------------
Andrew H. Schultz
Sole Trustee
/s/ NICOLE MALKOFF SCHULTZ
--------------------------------------
Nicole Malkoff Schultz, signing solely
for the
purpose of acknowledging the
provisions of
Section 9.14 hereof
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LIST OF SCHEDULES
Schedule 1.2 Allocation of Consideration
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ANNEX C
OPINION OF MERRILL LYNCH, PIERCE, FENNER & SMITH INCORPORATED
August 3, 2001
Board of Directors
The Profit Recovery Group International, Inc.
2300 Windy Ridge Parkway
Suite 100
Atlanta, Georgia 30339
Members of the Board of Directors:
The Profit Recovery Group International, Inc. (the "Acquiror"), Howard
Schultz & Associates International, Inc. ("HSAI" and, collectively with its
international affiliates referred to below, the "Company"), Howard Schultz ("H.
Schultz"), Andrew H. Schultz ("A. Schultz") and certain trusts identified on the
signature pages thereto have entered into an Agreement and Plan of
Reorganization, dated as of August 3, 2001 (the "Asset Purchase Agreement"), and
the Acquiror, H. Schultz, A. Schultz, Andrew H. Schultz Irrevocable Trust and
Leslie Schultz have entered into an Agreement and Plan of Reorganization, dated
as of August 3, 2001 (the "Stock Purchase Agreement" and, together with the
Asset Purchase Agreement, the "Agreements"). Pursuant to the Agreements, the
Acquiror will purchase substantially all of the assets of HSAI (the "Asset
Acquisition") and substantially all of the capital stock of certain
international affiliates of HSAI (the "Stock Purchase Acquisition") in exchange
for approximately 15.35 million shares of the common stock, no par value per
share, of the Acquiror (the "Acquiror Shares"), subject to adjustment as
provided in the Asset Purchase Agreement. The Asset Acquisition and the Stock
Purchase Acquisition, taken together, are referred to as the "Transaction," and
the aggregate consideration to be paid by the Acquiror pursuant to the
Transaction is referred to as the "Consideration." The terms of the Transaction
are more fully set forth in the Agreements.
You have asked us whether, in our opinion, the Consideration to be paid by
the Acquiror pursuant to the Transaction is fair from a financial point of view
to the Acquiror.
In arriving at the opinion set forth below, we have, among other things:
(1) Reviewed certain publicly available business and financial
information relating to the Company and the Acquiror that we deemed to be
relevant;
(2) Reviewed certain information, including financial forecasts,
relating to the business, earnings, cash flow, assets, liabilities and
prospects of the Company and the Acquiror, as well as the amount and timing
of the cost savings and related expenses and synergies expected to result
from the Transaction (the "Expected Synergies") furnished to us by the
Acquiror;
(3) Conducted discussions with members of senior management and
representatives of the Acquiror concerning the matters described in clauses
1 and 2 above, as well as their respective businesses and prospects before
and after giving effect to the Transaction and the Expected Synergies;
(4) Reviewed the market prices and valuation multiples for the
Acquiror Shares and compared them with those of certain publicly traded
companies that we deemed to be relevant;
(5) Reviewed the results of operations of the Company and the Acquiror
and compared them with those of certain publicly traded companies that we
deemed to be relevant;
(6) Participated in certain discussions and negotiations among
representatives of the Acquiror and their legal advisor;
(7) Reviewed the potential pro forma impact of the Transaction;
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(8) Reviewed each of the Agreements, except for the disclosure
schedules thereto, which disclosure schedules have not been completed; and
(9) Reviewed such other financial studies and analyses and took into
account such other matters as we deemed necessary, including our assessment
of general economic, market and monetary conditions.
As you are aware, we were not given the opportunity to conduct discussions
with the Company concerning any of the foregoing matters.
In preparing our opinion, we have assumed and relied on the accuracy and
completeness of all information supplied or otherwise made available to us,
discussed with or reviewed by or for us, or publicly available, and we have not
assumed any responsibility for independently verifying such information or
undertaken an independent evaluation or appraisal of any of the assets or
liabilities of the Company or the Acquiror or been furnished with any such
evaluation or appraisal. In addition, we have not assumed any obligation to
conduct any physical inspection of the properties or facilities of the Company
or the Acquiror. With respect to the financial forecast information and the
Expected Synergies furnished to or discussed with us by the Acquiror, we have
assumed that they have been reasonably prepared and reflect the best currently
available estimates and judgment of the Acquiror's management as to the expected
future financial performance of the Company and the Acquiror and the Expected
Synergies. We have also assumed that the final forms of the disclosure schedules
to the Agreements will not contain any information materially adverse to our
analysis.
Our opinion is necessarily based upon market, economic and other conditions
as they exist and can be evaluated on, and on the information made available to
us as of, the date hereof. We have assumed that in the course of obtaining the
necessary regulatory or other consents or approvals (contractual or otherwise)
for the Transaction, no restrictions, including any divestiture requirements or
amendments or modifications, will be imposed that will have a material adverse
effect on the contemplated benefits of the Transaction.
We are acting as financial advisor to the Acquiror in connection with the
Transaction and will receive a fee from the Acquiror for our services, a portion
of which is payable upon delivery of this opinion and the balance of which is
contingent upon the consummation of the Transaction. In addition, the Acquiror
has agreed to indemnify us for certain liabilities arising out of our
engagement. We have, in the past, provided financial advisory and financing
services to the Acquiror and/or its affiliates and may continue to do so and
have received, and may receive, fees for the rendering of such services. In
addition, in the ordinary course of our business, we may actively trade the
Acquiror Shares and other securities of the Acquiror, for our own account and
for the accounts of customers and, accordingly, may at any time hold a long or
short position in such securities.
This opinion is for the use and benefit of the Board of Directors of the
Acquiror in its evaluation of the Transaction and shall not be used for any
other purpose. Our opinion does not address the merits of the underlying
decision by the Acquiror to engage in the Transaction and does not constitute a
recommendation to any shareholder of the Acquiror as to how such shareholder
should vote on the proposed Transaction or any matter related thereto.
We are not expressing any opinion herein as to the prices at which the
Acquiror Shares will trade following the announcement or consummation of the
Transaction.
On the basis of and subject to the foregoing, we are of the opinion that,
as of the date hereof, the Consideration to be paid by the Acquiror pursuant to
the Transaction is fair from a financial point of view to the Acquiror.
Very truly yours,
MERRILL LYNCH, PIERCE, FENNER & SMITH
INCORPORATED
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ANNEX D
TEXAS DISSENTERS' RIGHTS STATUTES
TEXAS BUSINESS CORPORATION ACT
ART. 5.11. RIGHTS OF DISSENTING SHAREHOLDERS IN THE EVENT OF CERTAIN CORPORATE
ACTIONS
A. Any shareholder of a domestic corporation shall have the right to
dissent from any of the following corporate actions:
(1) Any plan of merger to which the corporation is a party if
shareholder approval is required by Article 5.03 or 5.16 of this Act and
the shareholder holds shares of a class or series that was entitled to vote
thereon as a class or otherwise;
(2) Any sale, lease, exchange or other disposition (not including any
pledge, mortgage, deed of trust or trust indenture unless otherwise
provided in the articles of incorporation) of all, or substantially all,
the property and assets, with or without good will, of a corporation if
special authorization of the shareholders is required by this Act and the
shareholders hold shares of a class or series that was entitled to vote
thereon as a class or otherwise;
(3) Any plan of exchange pursuant to Article 5.02 of this Act in which
the shares of the corporation of the class or series held by the
shareholder are to be acquired.
B. Notwithstanding the provisions of Section A of this Article, a
shareholder shall not have the right to dissent from any plan of merger in which
there is a single surviving or new domestic or foreign corporation, or from any
plan of exchange, if:
(1) the shares held by the shareholder are part of a class or series,
shares of which are on the record date fixed to determine the shareholders
entitled to vote on the plan of merger or plan of exchange:
(a) listed on a national securities exchange;
(b) listed on The Nasdaq Stock Market (or successor quotation
system) or designated as a national market security on an interdealer
quotation system by the National Association of Securities Dealers,
Inc., or successor entity; or
(c) held of record by not less than 2,000 holders;
(2) the shareholder is not required by the terms of the plan of merger
or plan of exchange to accept for the shareholder's shares any
consideration that is different than the consideration (other than cash in
lieu of fractional shares that the shareholder would otherwise be entitled
to receive) to be provided to any other holder of shares of the same class
or series of shares held by such shareholder; and
(3) the shareholder is not required by the terms of the plan of merger
or the plan of exchange to accept for the shareholder's shares any
consideration other than:
(a) shares of a domestic or foreign corporation that, immediately
after the effective time of the merger or exchange, will be part of a
class or series, shares of which are:
(i) listed, or authorized for listing upon official notice of
issuance, on a national securities exchange;
(ii) approved for quotation as a national market security on an
interdealer quotation system by the National Association of
Securities Dealers, Inc., or successor entity; or
(iii) held of record by not less than 2,000 holders;
(b) cash in lieu of fractional shares otherwise entitled to be
received; or
(c) any combination of the securities and cash described in
Subdivisions (a) and (b) of this subsection.
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287
ART. 5.12. PROCEDURE FOR DISSENT BY SHAREHOLDERS AS TO SAID CORPORATE ACTION
A. Any shareholder of any domestic corporation who has the right to dissent
from any of the corporate actions referred to in Article 5.11 of this Act may
exercise that right to dissent only by complying with the following procedures:
(1)(a) With respect to proposed corporate action that is submitted to
a vote of shareholders at a meeting, the shareholder shall file with the
corporation, prior to the meeting, a written objection to the action,
setting out that the shareholder's right to dissent will be exercised if
the action is effective and giving the shareholder's address, to which
notice thereof shall be delivered or mailed in that event. If the action is
effected and the shareholder shall not have voted in favor of the action,
the corporation, in the case of action other than a merger, or the
surviving or new corporation (foreign or domestic) or other entity that is
liable to discharge the shareholder's right of dissent, in the case of a
merger, shall, within ten (10) days after the action is effected, deliver
or mail to the shareholder written notice that the action has been
effected, and the shareholder may, within ten (10) days from the delivery
or mailing of the notice, make written demand on the existing, surviving,
or new corporation (foreign or domestic) or other entity, as the case may
be, for payment of the fair value of the shareholder's shares. The fair
value of the shares shall be the value thereof as of the day immediately
preceding the meeting, excluding any appreciation or depreciation in
anticipation of the proposed action. The demand shall state the number and
class of the shares owned by the shareholder and the fair value of the
shares as estimated by the shareholder. Any shareholder failing to make
demand within the ten (10) day period shall be bound by the action.
(b) With respect to proposed corporate action that is approved
pursuant to Section A of Article 9.10 of this Act, the corporation, in the
case of action other than a merger, and the surviving or new corporation
(foreign or domestic) or other entity that is liable to discharge the
shareholder's right of dissent, in the case of a merger, shall, within ten
(10) days after the date the action is effected, mail to each shareholder
of record as of the effective date of the action notice of the fact and
date of the action and that the shareholder may exercise the shareholder's
right to dissent from the action. The notice shall be accompanied by a copy
of this Article and any articles or documents filed by the corporation with
the Secretary of State to effect the action. If the shareholder shall not
have consented to the taking of the action, the shareholder may, within
twenty (20) days after the mailing of the notice, make written demand on
the existing, surviving, or new corporation (foreign or domestic) or other
entity, as the case may be, for payment of the fair value of the
shareholder's shares. The fair value of the shares shall be the value
thereof as of the date the written consent authorizing the action was
delivered to the corporation pursuant to Section A of Article 9.10 of this
Act, excluding any appreciation or depreciation in anticipation of the
action. The demand shall state the number and class of shares owned by the
dissenting shareholder and the fair value of the shares as estimated by the
shareholder. Any shareholder failing to make demand within the twenty (20)
day period shall be bound by the action.
(2) Within twenty (20) days after receipt by the existing, surviving,
or new corporation (foreign or domestic) or other entity, as the case may
be, of a demand for payment made by a dissenting shareholder in accordance
with Subsection (1) of this Section, the corporation (foreign or domestic)
or other entity shall deliver or mail to the shareholder a written notice
that shall either set out that the corporation (foreign or domestic) or
other entity accepts the amount claimed in the demand and agrees to pay
that amount within ninety (90) days after the date on which the action was
effected, and, in the case of shares represented by certificates, upon the
surrender of the certificates duly endorsed, or shall contain an estimate
by the corporation (foreign or domestic) or other entity of the fair value
of the shares, together with an offer to pay the amount of that estimate
within ninety (90) days after the date on which the action was effected,
upon receipt of notice within sixty (60) days after that date from the
shareholder that the shareholder agrees to accept that amount and, in the
case of shares represented by certificates, upon the surrender of the
certificates duly endorsed.
(3) If, within sixty (60) days after the date on which the corporate
action was effected, the value of the shares is agreed upon between the
shareholder and the existing, surviving, or new corporation (foreign or
domestic) or other entity, as the case may be, payment for the shares shall
be made within ninety
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(90) days after the date on which the action was effected and, in the case
of shares represented by certificates, upon surrender of the certificates
duly endorsed. Upon payment of the agreed value, the shareholder shall
cease to have any interest in the shares or in the corporation.
B. If, within the period of sixty (60) days after the date on which the
corporate action was effected, the shareholder and the existing, surviving, or
new corporation (foreign or domestic) or other entity, as the case may be, do
not so agree, then the shareholder or the corporation (foreign or domestic) or
other entity may, within sixty (60) days after the expiration of the sixty (60)
day period, file a petition in any court of competent jurisdiction in the county
in which the principal office of the domestic corporation is located, asking for
a finding and determination of the fair value of the shareholder's shares. Upon
the filing of any such petition by the shareholder, service of a copy thereof
shall be made upon the corporation (foreign or domestic) or other entity, which
shall, within ten (10) days after service, file in the office of the clerk of
the court in which the petition was filed a list containing the names and
addresses of all shareholders of the domestic corporation who have demanded
payment for their shares and with whom agreements as to the value of their
shares have not been reached by the corporation (foreign or domestic) or other
entity. If the petition shall be filed by the corporation (foreign or domestic)
or other entity, the petition shall be accompanied by such a list. The clerk of
the court shall give notice of the time and place fixed for the hearing of the
petition by registered mail to the corporation (foreign or domestic) or other
entity and to the shareholders named on the list at the addresses therein
stated. The forms of the notices by mail shall be approved by the court. All
shareholders thus notified and the corporation (foreign or domestic) or other
entity shall thereafter be bound by the final judgment of the court.
C. After the hearing of the petition, the court shall determine the
shareholders who have complied with the provisions of this Article and have
become entitled to the valuation of and payment for their shares, and shall
appoint one or more qualified appraisers to determine that value. The appraisers
shall have power to examine any of the books and records of the corporation the
shares of which they are charged with the duty of valuing, and they shall make a
determination of the fair value of the shares upon such investigation as to them
may seem proper. The appraisers shall also afford a reasonable opportunity to
the parties interested to submit to them pertinent evidence as to the value of
the shares. The appraisers shall also have such power and authority as may be
conferred on Masters in Chancery by the Rules of Civil Procedure or by the order
of their appointment.
D. The appraisers shall determine the fair value of the shares of the
shareholders adjudged by the court to be entitled to payment for their shares
and shall file their report of that value in the office of the clerk of the
court. Notice of the filing of the report shall be given by the clerk to the
parties in interest. The report shall be subject to exceptions to be heard
before the court both upon the law and the facts. The court shall by its
judgment determine the fair value of the shares of the shareholders entitled to
payment for their shares and shall direct the payment of that value by the
existing, surviving, or new corporation (foreign or domestic) or other entity,
together with interest thereon, beginning 91 days after the date on which the
applicable corporate action from which the shareholder elected to dissent was
effected to the date of such judgment, to the shareholders entitled to payment.
The judgment shall be payable to the holders of uncertificated shares
immediately but to the holders of shares represented by certificates only upon,
and simultaneously with, the surrender to the existing, surviving, or new
corporation (foreign or domestic) or other entity, as the case may be, of duly
endorsed certificates for those shares. Upon payment of the judgment, the
dissenting shareholders shall cease to have any interest in those shares or in
the corporation. The court shall allow the appraisers a reasonable fee as court
costs, and all court costs shall be allotted between the parties in the manner
that the court determines to be fair and equitable.
E. Shares acquired by the existing, surviving, or new corporation (foreign
or domestic) or other entity, as the case may be, pursuant to the payment of the
agreed value of the shares or pursuant to payment of the judgment entered for
the value of the shares, as in this Article provided, shall, in the case of a
merger, be treated as provided in the plan of merger and, in all other cases,
may be held and disposed of by the corporation as in the case of other treasury
shares.
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F. The provisions of this Article shall not apply to a merger if, on the
date of the filing of the articles of merger, the surviving corporation is the
owner of all the outstanding shares of the other corporations, domestic or
foreign, that are parties to the merger.
G. In the absence of fraud in the transaction, the remedy provided by this
Article to a shareholder objecting to any corporate action referred to in
Article 5.11 of this Act is the exclusive remedy for the recovery of the value
of his shares or money damages to the shareholder with respect to the action. If
the existing, surviving, or new corporation (foreign or domestic) or other
entity, as the case may be, complies with the requirements of this Article, any
shareholder who fails to comply with the requirements of this Article shall not
be entitled to bring suit for the recovery of the value of his shares or money
damages to the shareholder with respect to the action.
ART. 5.13. PROVISIONS AFFECTING REMEDIES OF DISSENTING SHAREHOLDERS
A. Any shareholder who has demanded payment for his shares in accordance
with either Article 5.12 or 5.16 of this Act shall not thereafter be entitled to
vote or exercise any other rights of a shareholder except the right to receive
payment for his shares pursuant to the provisions of those articles and the
right to maintain an appropriate action to obtain relief on the ground that the
corporate action would be or was fraudulent, and the respective shares for which
payment has been demanded shall not thereafter be considered outstanding for the
purposes of any subsequent vote of shareholders.
B. Upon receiving a demand for payment from any dissenting shareholder, the
corporation shall make an appropriate notation thereof in its shareholder
records. Within twenty (20) days after demanding payment for his shares in
accordance with either Article 5.12 or 5.16 of this Act, each holder of
certificates representing shares so demanding payment shall submit such
certificates to the corporation for notation thereon that such demand has been
made. The failure of holders of certificated shares to do so shall, at the
option of the corporation, terminate such shareholder's rights under Articles
5.12 and 5.16 of this Act unless a court of competent jurisdiction for good and
sufficient cause shown shall otherwise direct. If uncertificated shares for
which payment has been demanded or shares represented by a certificate on which
notation has been so made shall be transferred, any new certificate issued
therefor shall bear similar notation together with the name of the original
dissenting holder of such shares and a transferee of such shares shall acquire
by such transfer no rights in the corporation other than those which the
original dissenting shareholder had after making demand for payment of the fair
value thereof.
C. Any shareholder who has demanded payment for his shares in accordance
with either Article 5.12 or 5.16 of this Act may withdraw such demand at any
time before payment for his shares or before any petition has been filed
pursuant to Article 5.12 or 5.16 of this Act asking for a finding and
determination of the fair value of such shares, but no such demand may be
withdrawn after such payment has been made or, unless the corporation shall
consent thereto, after any such petition has been filed. If, however, such
demand shall be withdrawn as hereinbefore provided, or if pursuant to Section B
of this Article the corporation shall terminate the shareholder's rights under
Article 5.12 or 5.16 of this Act, as the case may be, or if no petition asking
for a finding and determination of fair value of such shares by a court shall
have been filed within the time provided in Article 5.12 or 5.16 of this Act, as
the case may be, or if after the hearing of a petition filed pursuant to Article
5.12 or 5.16, the court shall determine that such shareholder is not entitled to
the relief provided by those articles, then, in any such case, such shareholder
and all persons claiming under him shall be conclusively presumed to have
approved and ratified the corporate action from which he dissented and shall be
bound thereby, the right of such shareholder to be paid the fair value of his
shares shall cease, and his status as a shareholder shall be restored without
prejudice to any corporate proceedings which may have been taken during the
interim, and such shareholder shall be entitled to receive any dividends or
other distributions made to shareholders in the interim.
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PART II
INFORMATION NOT REQUIRED IN PROSPECTUS
ITEM 20. INDEMNIFICATION OF DIRECTORS AND OFFICERS
Article 8 of PRG's articles of incorporation and Article 7 of PRG's bylaws
require PRG to indemnify its directors and officers to the fullest extent
allowed by the Georgia Business Corporation Code, as amended from time to time.
Under these indemnification provisions, PRG is required to indemnify any of its
directors and officers against any reasonable expenses (including attorneys'
fees) incurred in the defense of any action, suit or proceeding, whether civil,
criminal, administrative or investigative, to which such person was made a
party, or in defense to any claim, issue or matter therein, by reason of the
fact that such person is or was a director or officer of PRG or who, while a
director or officer of PRG, is or was serving at PRG's request as a director,
officer, partner, trustee, employee or agent of another corporation,
partnership, joint venture, trust, employee benefit plan or other enterprise to
the extent that such director or officer has been successful, on the merits or
otherwise, in such defense. PRG also is required to indemnify any of its
directors or officers against any liability incurred in connection with any
threatened, pending or completed action, suit or proceeding, whether civil,
criminal, administrative or investigative (other than an action by or in the
name of PRG, in which event, additional determinations must be made before
indemnification is provided) by reason of the fact that he or she is or was a
director or officer of PRG who, while a director or officer of PRG, is or was
serving at PRG's request as a director, officer, partner, trustee, employee or
agent of another corporation, partnership, joint venture, trust, employee
benefit plan or other enterprise, if such director or officer acted in a manner
he or she believed in good faith to be in, or not opposed to, the best interests
of PRG, and with respect to any criminal proceeding, had no reasonable cause to
believe his or her conduct was unlawful. PRG may also provide advances of
expenses incurred by a director or officer in defending such action, suit or
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 unless it is
ultimately determined that he or she is entitled to indemnification by PRG.
PRG's articles of incorporation contain a provision which eliminates, to
the fullest extent permitted by law, director liability for monetary damages for
breaches of the fiduciary duty of care or any other duty as a director.
Pursuant to Sections 14-2-851 through 14-2-857 of the Georgia Business
Corporation Code, as amended, the directors, officers, employees and agents of
PRG may, and in some cases must, be indemnified by PRG under certain
circumstances against expenses and liabilities incurred by or imposed upon them
as a result of actions, suits or proceedings brought against them as directors,
officers, employees and agents of PRG (including actions, suits or proceedings
brought against them for violations of the federal securities laws).
PRG has entered into indemnification agreements with each of its directors
and certain executive officers ("Indemnitees"). Pursuant to such agreements, PRG
shall 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, because he or she is or
was a director or officer of PRG or is or was serving at the request of PRG as a
director or officer of another corporation, partnership, joint venture, trust or
other enterprise, 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, 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, and, with respect to any
criminal action or proceeding, had reasonable cause to believe that his or her
conduct was unlawful. If in the judgment of the board of directors of PRG an
Indemnitee is reasonably likely to be entitled to indemnification pursuant to
the agreement, all reasonable
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expenses incurred by or on behalf of such Indemnitee shall be advanced from time
to time by PRG to the Indemnitee within thirty (30) days after PRG's receipt of
a written request for an advance of expenses by such Indemnitee, whether prior
to or after final disposition of a proceeding.
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 pursuant to the foregoing provisions of the Georgia Business
Corporation Code and PRG's articles of incorporation and bylaws, PRG has been
informed that indemnification is considered by the Commission to be against
public policy and therefore unenforceable.
PRG currently maintains an insurance policy which insures the directors and
officers of PRG against certain liabilities, including certain liabilities under
the 1933 Act.
Pursuant to the Underwriting Agreement entered into by PRG in connection
with its initial public offering of common stock and the Underwriting Agreements
entered into in connection with its secondary public offerings of common stock
in March 1998 and January 1999, the Underwriters thereunder have agreed to
indemnify the directors and officers of PRG and certain other persons against
certain civil liabilities.
Pursuant to the Stock Incentive Plan (the "Plan"), in addition to such
other rights of indemnification that they may have as directors of PRG or as
members of the Compensation Committee of the Board of Directors of PRG (the
"Committee"), the members of the Committee shall be indemnified by PRG 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 therein, 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) 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.
ITEM 21. EXHIBITS AND FINANCIAL STATEMENT SCHEDULES
(a) Exhibits and Financial Statement Schedules.
EXHIBIT
NUMBER DESCRIPTION
------- -----------
2.1+ -- Agreement and Plan of Reorganization, dated as of August 3,
2001, among The Profit Recovery Group International, Inc.,
Howard Schultz & Associates International, Inc., Howard
Schultz, Andrew H. Schultz and certain trusts (included as
Annex A to the joint proxy statement/ prospectus contained
in this registration statement).
2.2+ -- Agreement and Plan of Reorganization pursuant to Section
368(a)(1)(B) of the Internal Revenue Code dated as of August
3, 2001 among The Profit Recovery Group International, Inc.,
Howard Schultz, Andrew H. Schultz, Andrew H. Schultz
Irrevocable Trust and Leslie Schultz (included as Annex B to
the joint proxy statement/prospectus contained in this
registration statement).
3.1 -- Restated Articles of Incorporation of the Registrant
(incorporated by reference to Exhibit 4.2 to Registrant's
Form 8-A/A filed August 9, 2000).
3.2 -- Restated Bylaws of the Registrant (incorporated by reference
to Exhibit 4.3 to Registrant's Form 8-A/A filed August 9,
2000).
4.1 -- Specimen Stock Certificate (incorporated by reference to
Exhibit 4.1 of the Registrant's Registration Statement on
Form S-1 (Registration No. 333-1086).
4.2 -- Applicable provisions of the Articles of Incorporation and
Bylaws of the Registrant (incorporated by reference to
Exhibits 4.2 and 4.3 of the Registrant's Registration
Statement on Form 8-A/A filed August 9, 2000).
5.1* -- Opinion of Arnall Golden Gregory LLP regarding legality of
the securities to be registered.
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292
EXHIBIT
NUMBER DESCRIPTION
------- -----------
8.1* -- Opinion of Malouf Lynch Jackson & Swinson regarding tax
matters.
10.1 -- Form of Escrow Agreement among The Profit Recovery Group
International, Inc., Howard Schultz & Associates
International, Inc., Howard Schultz, Andrew H. Schultz and
certain trusts
10.2 -- Form of Registration Rights Agreement
10.3 -- Form of Shareholder Agreement among The Profit Recovery
Group International, Inc., Howard Schultz & Associates
International, Inc., Howard Schultz, Andrew Schultz, John M.
Cook, John M. Toma and certain trusts
10.4 -- Form of Indemnification Agreement among The Profit Recovery
Group International, Inc., Howard Schultz & Associates
International, Inc., Howard Schultz, Andrew Schultz and
certain trusts
10.5 -- Form of Noncompetition, Nonsolicitation and Confidentiality
Agreement among The Profit Recovery Group International,
Inc., Howard Schultz & Associates International, Inc.,
Howard Schultz, Andrew Schultz and certain trusts
10.6* -- Form of Noncompetition, Nonsolicitation and Confidentiality
Agreement between The Profit Recovery Group International,
Inc. and four other shareholders of Howard Schultz &
Associates International, Inc.
10.7 -- Form of Employment Offer Letter with Howard Schultz
10.8 -- Form of Employment Offer Letter with Andrew Schultz
10.9* -- Form of Amended and Restated 1998 Howard Schultz &
Associates International Stock Option Plan
23.1 -- Consent of KPMG LLP. (Atlanta)
23.2 -- Consent of KPMG LLP. (Dallas)
23.3 -- Consent of Ernst & Young Audit.
23.4* -- Consent of Arnall Golden Gregory LLP (included in the
opinion filed as Exhibit 5.1 to this Registration
Statement).
24.1 -- Powers of Attorney (included on the signature page of this
Registration Statement).
99.1* -- Consent of Howard Schultz
99.2* -- Consent of Andrew Schultz
99.3* -- Consent of Nate Levine
99.4* -- Consent of Arthur Budge, Jr.
---------------
* To be filed by amendment.
+ In accordance with Item 601(b)(2) of Regulation S-K, the schedules have been
omitted. There is a list of schedules at the end of the Exhibit, briefly
describing them. The Registrant will furnish supplementally a copy of any
omitted schedule to the Commission upon request.
(b) Not applicable.
(c) The opinion of Merrill Lynch, Pierce, Fenner & Smith Incorporated has
been furnished as Annex C to the joint proxy statement/prospectus.
ITEM 22. 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 of 1933;
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(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; 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.
2. That, for the purpose of determining any liability under the
Securities Act of 1933, 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 prior to any public reoffering of the securities registered
hereunder through the use of a prospectus which is a part of this
registration statement, by any person or party who is deemed to be an
underwriter within the meaning of Rule 145(c), the Registrant undertakes
that such reoffering prospectus will contain the information called for by
the applicable registration form with respect to reofferings by persons who
may be deemed underwriters, in addition to the information called for by
the other items of the applicable form.
5. That every prospectus (i) that is filed pursuant to the immediately
preceding paragraph, or (ii) that purports to meet the requirements of
Section 10(a)(3) of the Securities Act of 1933 and is used in connection
with an offering of securities subject to Rule 415, will be filed as part
of an amendment to the registration statement and will not be used until
such amendment is effective, and that, for the purposes of determining any
liability under the Securities Act of 1933, 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.
6. Insofar as indemnification for liabilities arising under the
Securities Act of 1933 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 of 1933 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 of 1933 and will be
governed by the final adjudication of such issue.
7. That, for purposes of determining any liability under the
Securities Act of 1933, each filing of the registrant's annual report
pursuant to Section 13(a) or 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 herein, and the offering of such securities at that time shall be
deemed to be the initial bona fide offering thereof.
(b) The undersigned registrant hereby undertakes to respond to requests for
information that is incorporated by reference into the prospectus pursuant to
Items 4, 10(b), 11, or 13 of this Form, within one business day of receipt of
such request, and to send the incorporated documents by first-class mail or
other equally prompt means. This includes information contained in documents
filed subsequent to the effective date of the registration statement through the
date of responding to the request.
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(c) The undersigned registrant hereby undertakes to supply by means of a
post-effective amendment all information concerning a transaction, and HSA-Texas
being acquired involved therein, that was not the subject of and included in the
registration statement when it became effective.
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295
SIGNATURES
Pursuant to the requirements of the Securities Act, the registrant 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 September 7, 2001.
THE PROFIT RECOVERY GROUP
INTERNATIONAL, INC.
By: /s/ JOHN M. COOK
------------------------------------
John M. Cook
Chairman of the Board and
Chief Executive Officer
KNOW ALL MEN BY THESE PRESENTS, that each person whose signature appears
below constitutes and appoints John M. Cook, Clinton McKellar, Jr. and Donald E.
Ellis, Jr., and each of them, his or her true and lawful attorneys-in-fact and
agents, with full power of substitution and resubstitution, for him and in his
or her name, place, and stead, in any and all capacities, to sign any and all
amendments (including post-effective amendments) to this Registration Statement,
and to file the same, with all exhibits thereto, and other documents in
connection therewith, with the SEC, granting unto said attorneys-in-fact and
agents, and each of them, full power and authority to do and perform each and
every act and thing requisite and necessary to be done in and about the
premises, as he or she might or could do in person, hereby ratifying and
confirming all that said attorneys-in-fact and agents, or any of them, or their
or his or her substitute or substitutes, may lawfully do or cause to be done by
virtue hereof.
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.
NAME TITLE DATE
---- ----- ----
/s/ JOHN M. COOK Chairman of the Board, September 7, 2001
---------------------------------------------------- Chief Executive Officer
John M. Cook and Director (Principal
Executive Officer)
/s/ DONALD E. ELLIS, JR. Executive Vice September 7, 2001
---------------------------------------------------- President -- Finance,
Donald E. Ellis, Jr. Chief Financial Officer
and Treasurer (Principal
Financial Officer)
/s/ ALLISON ADEN Vice President -- Finance September 7, 2001
---------------------------------------------------- (Principal Accounting
Allison Aden Officer)
/s/ JOHN M. TOMA Vice Chairman and Director September 7, 2001
----------------------------------------------------
John M. Toma
/s/ STANLEY B. COHEN Director September 7, 2001
----------------------------------------------------
Stanley B. Cohen
/s/ JONATHAN GOLDEN Director September 7, 2001
----------------------------------------------------
Jonathan Golden
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NAME TITLE DATE
---- ----- ----
/s/ GARTH H. GREIMANN Director September 7, 2001
----------------------------------------------------
Garth H. Greimann
/s/ FRED W. I. LACHOTZKI Director September 7, 2001
----------------------------------------------------
Fred W. I. Lachotzki
/s/ E. JAMES LOWREY Director September 7, 2001
----------------------------------------------------
E. James Lowrey
/s/ THOMAS S. ROBERTSON Director September 7, 2001
----------------------------------------------------
Thomas S. Robertson
/s/ JACKIE M. WARD Director September 7, 2001
----------------------------------------------------
Jackie M. Ward
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EXHIBIT INDEX
EXHIBIT
NUMBER DESCRIPTION
------- -----------
2.1+ -- Agreement and Plan of Reorganization, dated as of August 3,
2001, among The Profit Recovery Group International, Inc.,
Howard Schultz & Associates International, Inc., Howard
Schultz, Andrew Schultz and certain trusts (included as
Annex A to the joint proxy statement/ prospectus contained
in this registration statement).
2.2+ -- Agreement and Plan of Reorganization pursuant to Section
368(a)(1)(B) of the Internal Revenue Code dated as of August
3, 2001 among The Profit Recovery Group International, Inc.,
Howard Schultz, Andrew Schultz, Andrew H. Schultz
Irrevocable Trust and Leslie Schultz (included as Annex B to
the joint proxy statement/prospectus contained in this
registration statement).
3.1 -- Restated Articles of Incorporation of the Registrant
(incorporated by reference to Exhibit 4.2 to Registrant's
Form 8-A/A filed August 9, 2000).
3.2 -- Restated Bylaws of the Registrant (incorporated by reference
to Exhibit 4.3 to Registrant's Form 8-A/A filed August 9,
2000).
4.1 -- Specimen Stock Certificate (incorporated by reference to
Exhibit 4.1 of the Registrant's Registration Statement on
Form S-1 (Registration No. 333-1086).
4.2 -- Applicable provisions of the Articles of Incorporation and
Bylaws of the Registrant (incorporated by reference to
Exhibits 4.2 and 4.3 of the Registrant's Registration
Statement on Form 8-A/A filed August 9, 2000).
5.1* -- Opinion of Arnall Golden Gregory LLP regarding legality of
the securities to be registered.
8.1* -- Opinion of Malouf Lynch Jackson & Swinson regarding tax
matters.
10.1 -- Form of Escrow Agreement among The Profit Recovery Group
International, Inc., Howard Schultz & Associates
International, Inc., Howard Schultz, Andrew H. Schultz and
certain trusts
10.2 -- Form of Registration Rights agreement
10.3 -- Form of Shareholder Agreement among The Profit Recovery
Group International, Inc., Howard Schultz & Associates
International, Inc., Howard Schultz, Andrew Schultz, John M.
Cook, John M. Toma and certain trusts
10.4 -- Form of Indemnification Agreement among The Profit Recovery
Group International, Inc., Howard Schultz & Associates
International, Inc., Howard Schultz, Andrew Schultz and
certain trusts
10.5 -- Form of Noncompetition, Nonsolicitation and Confidentiality
Agreement among The Profit Recovery Group International,
Inc., Howard Schultz & Associates International, Inc.,
Howard Schultz, Andrew Schultz and certain trusts
10.6* -- Form of Noncompetition, Nonsolicitation and Confidentiality
Agreement between The Profit Recovery Group International,
Inc. and four other shareholders of Howard Schultz &
Associates International, Inc.
10.7 -- Form of Employment Offer Letter with Howard Schultz
10.8 -- Form of Employment Offer Letter with Andrew Schultz
10.9* -- Form of Amended and Restated 1998 Howard Schultz &
Associates International Stock Option Plan
298
.1 23 -- Consent of KPMG LLP. (Atlanta)
23.2 -- Consent of KPMG LLP. (Dallas)
23.3 -- Consent of Ernst & Young Audit.
23.4* -- Consent of Arnall Golden Gregory LLP (included in the
opinion filed as Exhibit 5.1 to this Registration
Statement).
24.1 -- Powers of Attorney (included on the signature page of this
Registration Statement).
99.1* -- Consent of Howard Schultz
99.2* -- Consent of Andrew Schultz
99.3* -- Consent of Nate Levine
99.4* -- Consent of Arthur Budge, Jr.
---------------
* To be filed by amendment.
+ In accordance with Item 601(b)(2) of Regulation S-K, the schedules have been
omitted. There is a list of schedules at the end of the Exhibit, briefly
describing them. The Registrant will furnish supplementally a copy of any
omitted schedule to the Commission upon request.